This study derives the optimal demand for freight transportation within the context of strategic logistics, which is closely related to the cost minimizing behavior of a firm. With several assumptions about a firm's production technology, it is possible to express its unit transportation cost as a function of hedonic prices alone. Moreover, the hedonic price can be written as a function of the freight rate and quality attributes. For the purpose of estimation, the unit cost function is specified in three alternative models in this study; i.e., the Translog (TLM), the Extended Generalized Cobb-Douglas (EGCDM), and the Generalized Leontief (GLM), and corresponding modal share functions are derived. The hedonic price function is assumed to be loglinear in form.; The four equation system of cost, share, and hedonic price functions is jointly estimated by a maximum likelihood method, separately for each of the twelve commodity groups selected from cross sectional data of U.S. intercity freight movements during the year 1983. I employ the three models to choose the most adequate model, i.e., (1) hypothesis testing for the symmetry and linear homogeneity conditions, (2) comparison of the three non-nested cost structures, using non-nested testing procedures, and (3) comparison of the elasticity estimates for the three models. Methods (1) and (2) show that EGCDM is generally favored over TLM and GLM.; The parameter estimates of the cost, share, and hedonic price functions are different in magnitude from commodity group to commodity group. They are used to measure the elasticity of substitution and the elasticities of demand with respect to the price and quality attributes. Both price and quality elasticities of demand vary from commodity group to commodity group and between transportation routes. For each commodity group, we have also identified the distance range over which effective intermodal substitution exists. For relatively high-value (per ton) commodity groups, railway-highway substitution exists in the medium-haul and the fairly long-haul freight markets. However, for relatively low-value (per ton) commodity groups, railway-highway substitution tends to occur in short-distance freight markets.
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