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Welfare Tradeoffs in U.S. Rail Mergers

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  • Ivaldi, Marc
  • Mccullough, Gerard

Abstract

The renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts. However, assessing the cost of such renegotiation remains an open issue from an empirical viewpoint. To address this question, we fit a structural principal-agent model with renegotiation on a set of urban transport service contracts. The model captures two important features of the industry. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies increase over time. We compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 10-196.

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Date of creation: 08 Sep 2010
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Handle: RePEc:tse:wpaper:23459

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  1. Ivaldi, Marc & Verboven, Frank, 2001. "Quantifying the Effects from Horizontal Mergers in European Competition Policy," CEPR Discussion Papers 2697, C.E.P.R. Discussion Papers.
  2. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  3. Ivaldi, Marc & Mccullough, Gerard, 1999. "Density and Integration Effects on Class I U.S. Freight Railroads," IDEI Working Papers 93, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Burton, Mark L, 1993. "Railroad Deregulation, Carrier Behavior, and Shipper Response: A Disaggregated Analysis," Journal of Regulatory Economics, Springer, vol. 5(4), pages 417-34, December.
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  6. Karikari, John Agyei & Brown, Stephen M & Nadji, Mehrzad, 2002. "The Union Pacific/Southern Pacific Railroads Merger: Effect of Trackage Rights on Rates," Journal of Regulatory Economics, Springer, vol. 22(3), pages 271-85, November.
  7. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
  8. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  9. Lars-Hendrik Röller & Robin C. Sickles, 1997. "Capacity and Product Market Competition: Measuring Market Power in a "Puppy-Dog" Industry," CIG Working Papers FS IV 97-31, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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  11. Pittman, Russell W, 1990. "Railroads and Competition: The Santa Fe/Southern Pacific Merger Proposal," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 25-46, September.
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  13. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
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Cited by:
  1. Friebel, Guido & McCullough, Gerard & Padilla Angulo, Laura, 2008. "Patterns of Restructuring: The U.S. Class 1 Railroads from 1984 to 2004," CEPR Discussion Papers 6836, C.E.P.R. Discussion Papers.
  2. Brito, Duarte & Pereira, Pedro & Ramalho, Joaquim J.S., 2013. "Mergers, coordinated effects and efficiency in the Portuguese non-life insurance industry," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 554-568.
  3. Dennis W. Carlton & Randal C. Picker, 2007. "Antitrust and Regulation," NBER Working Papers 12902, National Bureau of Economic Research, Inc.
    • Dennis W. Carlton & Randal C. Picker, 2013. "Antitrust and Regulation," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 25-61 National Bureau of Economic Research, Inc.
  4. Jerome Foncel & Marc Ivaldi & Jrisy Motis, 2008. "An Econometric Workbench for Comparing the Substantive and Dominance Tests in Horizontal Merger Analysis," Working Papers 0833, University of Crete, Department of Economics.
  5. 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).
  6. Marc Ivaldi, 2005. "Restructuring Railways: In Theory and Practice," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 3(4), pages 3-9, 01.
  7. 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).
  8. Jrisy Motis, 2007. "Mergers and Acquisitions Motives," Working Papers 0730, University of Crete, Department of Economics.
  9. Kristof De Witte & Elbert Dijkgraaf, 2007. "Mean and Bold?," Tinbergen Institute Discussion Papers 07-092/3, Tinbergen Institute.

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