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A Note on Non-Discriminatory Access to Railroad Infrastructure

The setting of user prices for enterprises with large fixed costs and marginal costs below average costs – “natural monopolies” – raises important policy questions regarding both efficiency and equity. It has become well accepted among economists that, in a variety of settings, welfare may be improved if such prices are set using systems that are non-linear or discriminatory – for example, two-part tariffs and Ramsey pricing. If these pricing schemes are ruled out, the principal alternatives are large government subsidies and the inefficiencies of fully allocated cost pricing. Why should the setting of access prices be any different?