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Competition at work : railroads vs. monopoly in the U.S. shipping industry

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Author Info

  • Thomas J. Holmes
  • James A. Schmitz, Jr.

Abstract

This study primarily establishes two things: (1) that monopoly has been pervasive in the U.S. water transportation industry in both the 19th and 20th centuries and has led to prices above competitive levels and the adoption of inefficient technologies and (2) that the competition of railroads has greatly weakened this monopolistic tendency, leading to lower water transport prices and fewer inefficient technologies. The study establishes these points using standard economic theory and extensive historical U.S. data on the behavior of unions and shipping companies. These gains from competition have been ignored by researchers studying the contribution of railroads to U.S. economic growth. Researchers have assumed that if railroads had not been developed, the long-distance transportation industry would have been competitive. This study shows that it would not have been. The quantitative estimates of previous studies thus are likely to have significantly understated the gains from the development of railroads.

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (2001)
Issue (Month): Spr ()
Pages: 3-29

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Handle: RePEc:fip:fedmqr:y:2001:i:spr:p:3-29:n:v.25no.2

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Related research

Keywords: Transportation ; Monopolies;

References

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  1. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  2. Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November.
  3. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
  4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  5. Holmes, Thomas J, 1990. "Consumer Investment in Product-Specific Capital: The Monopoly Case," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 789-801, August.
  6. Thomas J. Holmes & James A. Schmitz, Jr., 1995. "Resistance to new technology and trade between areas," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-17.
  7. Williamson, Oliver E., 1989. "Transaction cost economics," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 3, pages 135-182 Elsevier.
  8. Francis McLaughlin, 1998. "The Replacement of the Knights of Labor by the International Longshoremen's Association in the Port of Boston," Boston College Working Papers in Economics 401, Boston College Department of Economics.
  9. Paul M. Romer, 1993. "New Goods, Old Theory, and the Welfare Costs of Trade Restrictions," NBER Working Papers 4452, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Thomas J. Holmes & David K. Levine & James A. Schmitz, Jr., 2008. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions," NBER Working Papers 13864, National Bureau of Economic Research, Inc.
  2. Benjamin Bridgman & Shi Qi & James Schmitz, 2006. "Does Regulation Reduce Productivity? Evidence From Regulation of the U.S. Beet-Sugar Manufacturing Industry During the Sugar Acts, 1934-74," 2006 Meeting Papers 438, Society for Economic Dynamics.
  3. Herrendorf, Berthold & Teixeira, Arilton, 2004. "Monopoly rights can reduce income big time," Research Discussion Papers 7/2004, Bank of Finland.
  4. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
  5. Jerzmanowski, Michal, 2007. "Total factor productivity differences: Appropriate technology vs. efficiency," European Economic Review, Elsevier, vol. 51(8), pages 2080-2110, November.
  6. Steven J. Davis & Luis Rivera-Batiz, 2005. "The Climate for Business Development and Employment Growth in Puerto Rico," NBER Working Papers 11679, National Bureau of Economic Research, Inc.
  7. Lai, Mingyong & Peng, Shuijun & BAO, Qun, 2006. "Technology spillovers, absorptive capacity and economic growth," China Economic Review, Elsevier, vol. 17(3), pages 300-320.
  8. Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
  9. Timothy Dunne & Shawn Klimek & James Schmitz, Jr., 2010. "Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry," Working Papers 10-29, Center for Economic Studies, U.S. Census Bureau.
  10. Edward C. Prescott, 2002. "Prosperity and Depression: 2002 Richard T. Ely Lecture," Working Papers 618, Federal Reserve Bank of Minneapolis.
  11. Seck, Abdoulaye, 2012. "International technology diffusion and economic growth: Explaining the spillover benefits to developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 437-451.

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