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

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  • Thomas J. Holmes
  • James A. Schmitz

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.

Suggested Citation

  • Thomas J. Holmes & James A. Schmitz, 2001. "Competition at work : railroads vs. monopoly in the U.S. shipping industry," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Spr), pages 3-29.
  • Handle: RePEc:fip:fedmqr:y:2001:i:spr:p:3-29:n:v.25no.2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Herrendorf, Berthold & Teixeira, Arilton, 2003. "Monopoly Rights can Reduce Income Big Time," CEPR Discussion Papers 3854, C.E.P.R. Discussion Papers.
    2. Adom, Philip Kofi, 2015. "Asymmetric impacts of the determinants of energy intensity in Nigeria," Energy Economics, Elsevier, vol. 49(C), pages 570-580.
    3. 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.
    4. 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.
    5. 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.
    6. Jeremy Greenwood & David Weiss, 2018. "Mining Surplus: Modeling James A. Schmitz'S Link Between Competition And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1015-1034, August.
    7. Lee, Choong Bae & Wan, Junbin & Shi, Wenming & Li, Kevin, 2014. "A cross-country study of competitiveness of the shipping industry," Transport Policy, Elsevier, vol. 35(C), pages 366-376.
    8. Thomas J. Holmes & David K. Levine & James A. Schmitz, 2012. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 1-33, August.
    9. Jerzmanowski, Michal, 2007. "Total factor productivity differences: Appropriate technology vs. efficiency," European Economic Review, Elsevier, vol. 51(8), pages 2080-2110, November.
    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.
    12. 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.
    13. Lai, Mingyong & Peng, Shuijun & BAO, Qun, 2006. "Technology spillovers, absorptive capacity and economic growth," China Economic Review, Elsevier, vol. 17(3), pages 300-320.
    14. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
    15. 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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    Keywords

    Monopolies; Transportation;

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