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Did Railroad Deregulation Lead to Monopoly Pricing? An Application of q

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Author Info
McFarland, Henry
Abstract

This paper asks whether, given that railroads now have almost total freedom to set their rates, competition is sufficie nt to keep railroads from making supracompetitive profits. Previous a ttempts to measure railroads' profits rely on accounting measures of the rate of return, but recent work raises serious doubts about the a ccuracy of these measures. Therefore this paper uses Tobin's q, the r atio of a firm's market value to the replacement cost of its assets. The values of q show that railroads are not making supracompetitive p rofits. Thus there is no justification for increased regulation of ra ilroad rates. Copyright 1987 by the University of Chicago.

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File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/00219398/.51-.60
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Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 60 (1987)
Issue (Month): 3 (July)
Pages: 385-400
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Handle: RePEc:ucp:jnlbus:v:60:y:1987:i:3:p:385-400

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  1. Gunnar Alexandersson & Staffan Hultén, 2008. "The Swedish Railway Deregulation Path," Review of Network Economics, Concept Economics, vol. 7(1), pages 18-36, March. [Downloadable!]
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