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Subadditivity Tests for Network Separation with an Application to US Railroads

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  • Ivaldi, Marc
  • McCullough, Gerard

Abstract

We describe a pair of subadditivity tests that can be used to evaluate the technological feasibility of separating a vertically integrated network monopoly into a common infrastructure component and competing operating components. We implement the tests with a Generalized McFadden cost function that is globally concave in input prices and permits the assignment of zero output values without losing its flexibility properties. The tests shed light on the respective roles of regulation and competition policy. We illustrate them with an analysis of US freight railroads for the period 1978-2001 and find both vertical and horizontal economies of scope.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4392.

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Date of creation: May 2004
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Handle: RePEc:cpr:ceprdp:4392

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Keywords: networks; railroads; regulation; subadditivity; vertical integration;

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Cited by:
  1. R. Pittman, 2009. "Railway Mergers and Railway Alliances: Competition Issues and Lessons for Other Network Industries," Competition and Regulation in Network Industries, Intersentia, Intersentia, vol. 10(3), pages 259-279, September.
  2. Christian Growitsch & Heike Wetzel, 2006. "Economies of Scope in European Railways: An Efficiency Analysis," IWH Discussion Papers, Halle Institute for Economic Research 5, Halle Institute for Economic Research.
  3. Takuya Urakami, 2007. "Economies of vertical integration in the Japanese water supply industry," Jahrbuch für Regionalwissenschaft, Springer, vol. 27(2), pages 129-141, August.
  4. Kenneth Stewart, 2009. "Non-jointness and scope economies in the multiproduct symmetric generalized McFadden cost function," Journal of Productivity Analysis, Springer, Springer, vol. 32(3), pages 161-171, December.
  5. Friebel, Guido & Ivaldi, Marc & Pouyet, Jérôme, 2011. "Competition and Industry Structure for International Rail Transportation," IDEI Working Papers 680, Institut d'Économie Industrielle (IDEI), Toulouse, revised 07 Jun 2012.
  6. Fumitoshi Mizutani & Shuji Uranishi, 2013. "Does vertical separation reduce cost? An empirical analysis of the rail industry in European and East Asian OECD Countries," Journal of Regulatory Economics, Springer, Springer, vol. 43(1), pages 31-59, January.
  7. Guido Friebel & Sergei Guriev & Russell Pittman & Elizaveta Shevyakhova & Anna Tomov�, 2006. "Railroad Restructuring in Russia and Central and Eastern Europe: One Solution for All Problems?," Transport Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 27(3), pages 251-271, August.
  8. Russell Pittman, 2007. "Make or buy on the Russian railway? Coase, Williamson, and Tsar Nicholas II," Economic Change and Restructuring, Springer, Springer, vol. 40(3), pages 207-221, September.
  9. Pittman, Russell, 2011. "Risk-averse restructuring of freight railways in China," Utilities Policy, Elsevier, Elsevier, vol. 19(3), pages 152-160.
  10. Friebel, Guido & Ivaldi, Marc & Pouyet, Jérôme, 2011. "Separation versus Integration in International Rail Markets: A Theoretical Investigation," TSE Working Papers 11-248, Toulouse School of Economics (TSE), revised Mar 2013.
  11. Coublucq, Daniel, 2013. "Demand estimation with selection bias: A dynamic game approach with an application to the US railroad industry," DICE Discussion Papers 94, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  12. Preston, John & Robins, Dawn, 2013. "Evaluating the long term impacts of transport policy: The case of passenger rail privatisation," Research in Transportation Economics, Elsevier, vol. 39(1), pages 14-20.
  13. Coublucq, Daniel, 2013. "Econometric analysis of productivity with measurement error: Empirical application to the US Railroad industry," DICE Discussion Papers 95, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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