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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. 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.
  2. 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.
  3. Joseph Farrell and Nancy T. Gallini., 1986. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8618, University of California at Berkeley.
  4. Steven Tadelis & Oliver E.Williamson, 2012. "Transaction Cost Economics
    [The Handbook of Organizational Economics]
    ," Introductory Chapters, Princeton University Press.
  5. 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.
  6. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
  7. 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.
  8. 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.
  9. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
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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," Staff Report 402, Federal Reserve Bank of Minneapolis.
  2. Edward C. Prescott, 2002. "Prosperity and Depression: 2002 Richard T. Ely Lecture," Working Papers 618, Federal Reserve Bank of Minneapolis.
  3. 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.
  4. Berthold Herrendorf & Arilton Teixeira, 2004. "Monopoly rights can reduce income big time," Econometric Society 2004 North American Winter Meetings 373, Econometric Society.
  5. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
  6. 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.
  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. Jerzmanowski, Michal, 2007. "Total factor productivity differences: Appropriate technology vs. efficiency," European Economic Review, Elsevier, vol. 51(8), pages 2080-2110, November.
  9. Benjamin Bridgman & Shi Qi & James A. Schmitz, Jr., 2007. "Does regulation reduce productivity? Evidence from regulation of the U.S. beet-sugar manufacturing industry during the Sugar Acts, 1934-74," Staff Report 389, Federal Reserve Bank of Minneapolis.
  10. Timothy Kehoe & Edward Prescott, 2002. "Data Appendix to Great Depressions of the Twentieth Century," Technical Appendices kehoe02, Review of Economic Dynamics.
  11. 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.
  12. Timothy J. Kehoe & Edward C. Prescott (), 2007. "Great depressions of the twentieth century," Monograph, Federal Reserve Bank of Minneapolis, number 2007gdott.

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