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Welfare Trade-Offs in US Rail Mergers


  • Ivaldi, Marc
  • McCullough, Gerard


Since the publication by Williamson (1968) of his seminal paper on antitrust there has been a growing recognition by regulators of the need to assess trade-offs between merger-related efficiency gains and merger-induced increases in market power. This paper addresses that need by presenting a structural econometric model of recent mergers in the US rail industry. The paper extends the structural methodology by evaluating actual (as opposed to simulated) merger effects and by incorporating parametric estimates of merger efficiencies. Our empirical finding is that consumer surplus in US rail freight markets increased by about 30% between 1986 and 2001 despite dramatic industry consolidation, suggesting that to date the Williamson trade-off has favoured rail customers. We find that behaviour in these markets is consistent with the Kreps-Scheinkman (1983) model of a two-stage game where capacities are chosen first and then prices are set to give the Cournot outcome.

Suggested Citation

  • Ivaldi, Marc & McCullough, Gerard, 2005. "Welfare Trade-Offs in US Rail Mergers," CEPR Discussion Papers 5000, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5000

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    References listed on IDEAS

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    Cited by:

    1. Kristof De Witte & Elbert Dijkgraaf, 2007. "Mean and Bold?," Tinbergen Institute Discussion Papers 07-092/3, Tinbergen Institute.
    2. Ying Fan, 2013. "Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market," American Economic Review, American Economic Association, vol. 103(5), pages 1598-1628, August.
    3. Guido Friebel & Gerard McCullough & Laura Padilla Angulo, 2014. "Patterns of Restructuring The US Class 1 Railroads from 1984 to 2004," Journal of Transport Economics and Policy, University of Bath, vol. 48(1), pages 115-135, January.
    4. 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.
    5. Stephane Ciriani & Marc Lebourges, 2016. "The role of market power in economic growth: an analysis of the differences between EU and US competition policy theory, practice and outcomes," European Journal of Government and Economics, Europa Grande, vol. 5(1), pages 5-28, June.
    6. Dennis W. Carlton & Randal C. Picker, 2014. "Antitrust and Regulation," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 25-61 National Bureau of Economic Research, Inc.
    7. Alexandrov, Alexei & Pittman, Russell & Ukhaneva, Olga, 2017. "Royalty stacking in the U.S. freight railroads: Cournot vs. Coase," MPRA Paper 78249, University Library of Munich, Germany.
    8. Coublucq, Daniel, 2013. "Econometric analysis of productivity with measurement error: Empirical application to the US Railroad industry," DICE Discussion Papers 95, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Coublucq, Daniel, 2013. "Demand estimation with selection bias: A dynamic game approach with an application to the US railroad industry," DICE Discussion Papers 94, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    10. repec:ces:ifodic:v:3:y:2005:i:4:p:14567567 is not listed on IDEAS
    11. Clifford Winston & Vikram Maheshri & Scott M. Dennis, 2011. "Long-Run Effects of Mergers: The Case of U.S. Western Railroads," Journal of Law and Economics, University of Chicago Press, vol. 54(2), pages 275-304.

    More about this item


    differentiated product markets; logit models; merger analysis; railroads;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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