European Regional Science Association ___________________________________________________ August, 2003
Figure 2 : Value of freight time savings based on production cost reduction.
This representation is sometimes used without consideration of the underlying shifts
in demand and supply curves, based on the idea that these production cost savings will
anyhow benefit the participants to the market. Some other times it relies on the idea that
the supply curve moves downward from a distance equal to c1-c2. This approach is for
instance explicitly used in BTRE (99), and can be illustrated by figure 3. Obviously one
of the necessary conditions for this representation to be correct is that the estimation of
(q2-q1), the apparent induced traffic, is itself correct.
Two precisions should be made. First, one may eventually be surprised that the
supply curve for faster transportation is shifted downward for faster services. The
reason is that here we consider that the time saving is exogenous to transport operators.
Second, one should prevent against a confusion between the surplus as presented above
and the notion of hauliers surplus. In the figure above, it holds true that all surplus is
related to a shift in hauliers supply function. But this does not mean that all surplus is
haulier surplus. As is traditional in surplus analysis the decrease in price along the
demand curve transfers part of the benefits to the shippers. As a result the surplus is
represented graphically be two areas : the shippers surplus (dark grey area) and the
hauliers surplus (clear grey).