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Industry costs and consolidation: efficiency gains and mergers in the U.S. railroad industry

  • John Bitzan


  • Wesley Wilson


Since partial deregulation in 1980, there has been a massive consolidation of firms in the U.S. railroad industry premised largely on efficiency gains. We estimate a cost function and use it to calculate cost effects for specific mergers and for all mergers at the industry level from 1983–2003. Our central results are that consolidation in the railroad industry accounts for about an 11.4 percent reduction in industry costs (more than $4 Billion in 1992 prices), and that while there are tremendous differences across mergers with respect to the direction, level, timing, and source of cost impacts, most mergers result in cost savings. Copyright Springer Science+Business Media, LLC 2007

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Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 30 (2007)
Issue (Month): 2 (March)
Pages: 81-105

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Handle: RePEc:kap:revind:v:30:y:2007:i:2:p:81-105
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  1. Harris, Robert G & Winston, Clifford M, 1983. "Potential Benefits of Rail Mergers: An Econometric Analysis of Network Effects on Service Quality," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 32-40, February.
  2. Ivaldi, M. & McCullough, G., 1999. "Density and Integration Effects on Class I U.S. Freight Railroads," Papers 99.526, Toulouse - GREMAQ.
  3. Wilson, Wesley W, 1997. "Cost Savings and Productivity in the Railroad Industry," Journal of Regulatory Economics, Springer, vol. 11(1), pages 21-40, January.
  4. 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.
  5. Winston, Clifford, 1985. "Conceptual Development in the Economics of Transportation: An Interpretive Survey," Journal of Economic Literature, American Economic Association, vol. 23(1), pages 57-94, March.
  6. Boyer, Kenneth D, 1981. "Equalizing Discrimination and Cartel Pricing in Transport Rate Regulation," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 270-86, April.
  7. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Wilson, Wesley W, 1994. "Market-Specific Effects of Rail Deregulation," Journal of Industrial Economics, Wiley Blackwell, vol. 42(1), pages 1-22, March.
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