Welfare Trade-Offs in US Rail Mergers
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.
|Date of creation:||Apr 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Ivaldi, Marc & Verboven, Frank, 2005. "Quantifying the effects from horizontal mergers in European competition policy," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 669-691, December.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
- 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.
- W. Erwin Diewert & T.J. Wales, 1989.
"Flexible Functional Forms and Global Curvature Conditions,"
NBER Technical Working Papers
0040, National Bureau of Economic Research, Inc.
- Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
- Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
- 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.
- Breen Denis A., 2004. "The Union Pacific/Southern Pacific Rail Merger: A Retrospective on Merger Benefits," Review of Network Economics, De Gruyter, vol. 3(3), pages 1-40, September.
- Ivaldi, M. & McCullough, G., 1999.
"Density and Integration Effects on Class I U.S. Freight Railroads,"
99.526, Toulouse - GREMAQ.
- Ivaldi, M & McCullough, G J, 2001. "Density and Integration Effects on Class I U.S. Freight Railroads," Journal of Regulatory Economics, Springer, vol. 19(2), pages 161-82, March.
- 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.
- Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
- 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.
- Jean-Jacques Laffont & Jean Tirole, 1994.
"Access Pricing and Competition,"
94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
- Laffont, Jean-Jacques & Tirole, Jean, 1992. "Access Pricing and Competition," IDEI Working Papers 19, Institut d'Économie Industrielle (IDEI), Toulouse.
- J-J. Laffont & J. Tirole, 1994. "Access Pricing and Competition," Working papers 95-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ivaldi, Marc & McCullough, Gerard, 2004.
"Subadditivity Tests for Network Separation with an Application to US Railroads,"
CEPR Discussion Papers
4392, C.E.P.R. Discussion Papers.
- Ivaldi Marc & Mccullough Gerard, 2008. "Subadditivity Tests for Network Separation with an Application to U.S. Railroads," Review of Network Economics, De Gruyter, vol. 7(1), pages 1-13, March.
- Ernst Berndt & Ann Friedlaender & Judy Chiang & Christopher Vellturo, 1993. "Cost effects of mergers and deregulation in the U.S. Rail industry," Journal of Productivity Analysis, Springer, vol. 4(1), pages 127-144, June.
- McElroy, Marjorie B, 1987. "Additive General Error Models for Production, Cost, and Derived Demand or Share Systems," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 737-57, August.
- Wilson, Wesley W, 1997. "Cost Savings and Productivity in the Railroad Industry," Journal of Regulatory Economics, Springer, vol. 11(1), pages 21-40, January.
- 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.
- 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.
- 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.
- Roller, Lars-Hendrik & Sickles, Robin C., 2000.
"Capacity and product market competition: measuring market power in a 'puppy-dog' industry,"
International Journal of Industrial Organization,
Elsevier, vol. 18(6), pages 845-865, August.
- 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).
- Ivaldi, Marc & Verboven, Frank, 2005. "Quantifying the effects from horizontal mergers: Comments on the underlying assumptions," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 699-702, December.
- Gasmi, F. & Vuong, Q.H., 1988. "An Econometric Analysis Of Some Duopolistic Games In Prices And Advertising," Papers m8903, Southern California - Department of Economics.
- Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
- Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5000. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.