ABSTRACT
This chapter seeks to reestablish the fundamental economic appeal of Constrained Market Pricing (CMP), reflect on criticisms and alternatives that have been proffered, and offer refinements for rail regulation moving forward. It begins with the the fundamental economic characteristics of the rail industry. These characteristics necessarily have shaped, and will continue to shape, the consequent policy framework for the industry. The chapter discusses the modern economic policy dictates of CMP. While economies of scale and scope are endemic to freight railroad technology, a railroad may well have far less price-setting discretion than a textbook monopolist. The practical realities of the demand for freight rail services, however, provide private market incentives for rail carriers to negotiate efficient arrangements with substantial demanders of their services, in the absence of regulatory micro management.
