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

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  • John Bitzan
  • Wesley Wilson

Abstract

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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  • John Bitzan & Wesley Wilson, 2007. "Industry costs and consolidation: efficiency gains and mergers in the U.S. railroad industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(2), pages 81-105, March.
    • Handle: RePEc:kap:revind:v:30:y:2007:i:2:p:81-105
    DOI: 10.1007/s11151-007-9128-x
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    Cited by:

    1. Bai, Xue-jie & Zeng, Jin & Chiu, Yung-Ho, 2019. "Pre-evaluating efficiency gains from potential mergers and acquisitions based on the resampling DEA approach: Evidence from China's railway sector," Transport Policy, Elsevier, vol. 76(C), pages 46-56.
    2. Orley Ashenfelter & Daniel Hosken & Matthew Weinberg, 2014. "Did Robert Bork Understate the Competitive Impact of Mergers? Evidence from Consummated Mergers," Journal of Law and Economics, University of Chicago Press, vol. 57(S3), pages 67-100.
    3. R. Pittman, 2009. "Railway Mergers and Railway Alliances: Competition Issues and Lessons for Other Network Industries," Competition and Regulation in Network Industries, Intersentia, vol. 10(3), pages 259-279, September.
    4. Coublucq, Daniel, 2013. "Econometric analysis of productivity with measurement error: Empirical application to the US Railroad industry," DICE Discussion Papers 95, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Raffaele Fiocco & Dongyu Guo, 2015. "Mergers between regulated firms with unknown efficiency gains," Review of Economic Design, Springer;Society for Economic Design, vol. 19(4), pages 299-326, December.
    6. Pauline Affeldt & Tomaso Duso & Klaus Gugler & Joanna Piechucka, 2021. "Assessing EU Merger Control through Compensating Efficiencies," CESifo Working Paper Series 9403, CESifo.
    7. Oliveira Cruz, Carlos & Miranda Sarmento, Joaquim, 2017. "Horizontal bundling of infrastructure managers: The case of Portugal Infrastructure Company (roads and railways)," Transport Policy, Elsevier, vol. 55(C), pages 99-103.
    8. Daigyo Seo & Allen Featherstone & Dennis Weisman & Yuan Gao, 2010. "Market Consolidation and Productivity Growth in U.S. Wireline Telecommunications: Stochastic Frontier Analysis vs. Malmquist Index," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(3), pages 271-294, May.
    9. Huh, Kwang-Sook, 2015. "The performances of acquired firms in the steel industry: Do financial institutions cause bubbles?," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 143-153.
    10. Wesley W. Wilson & Frank A. Wolak, 2018. "Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry," NBER Working Papers 25268, National Bureau of Economic Research, Inc.
    11. Bitzan, John D. & Karanki, Fecri, 2022. "Costs, density economies, and differential pricing in the U.S. railroad industry," Transport Policy, Elsevier, vol. 119(C), pages 67-77.
    12. Richard L. Schmalensee & Wesley W. Wilson, 2016. "Modernizing U.S. Freight Rail Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 133-159, September.

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    Deregulation; Railroads; Mergers;
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