Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

Whereas if "communication" were present between the regions, and we
assume that in isolation the price in Market A was lower than that of
Market B by more than the transport costs, the equilibrium conditions
became
(2.2) D a (P a I ) + Db(Pa + Tc ) S a (P a I ) + S b (P a ' + Tc ).
In the notation we are using:
A and B designate the two product markets;
P a and P b are product prices in the two markets;
D a and D b are the regional demand functions;
S a and S b are the regional supply functions;
P a ' is the after trade price in the exporting market; and
T c is the unit transport cost.
Although he was not concerned with explicitly deriving the demand
for transportation, Cournot's trade conditions formed, and still repre-
sent, the basic equilibrium conditions for all transportation models.
These conditions are formed from the assumptions of a homogeneous
commodity which is demanded and supplied under conditions of perfect
competition in two separate geographic regions. When he speaks of trans-
portation costs he is referring to the costs to the shipper, which he
defines as costs to the transport merchant or industry plus some normal
profit. It thus appears that the transportation industry itself is
purely competitive and somehow instantaneously moves goods from market
to market. This implicit treatment, or neglect, of the transport in-
dustry is a condition which we shall find present in almost all of the
"transportation" models.
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