Welfare Tradeoffs in U.S. Rail Mergers

Abstract

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 tradeoffs 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 U.S. 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. The paper's empirical finding is that consumer surplus in U.S. rail freight markets increased by about 30 per cent between 1986 and 2001 despite dramatic industry consolidation.

Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market

“…These papers typically study the effect of mergers on prices and welfare effects through price changes only. Examples include Baker and Baresnahan (1985); Hausman, Leonard, and Zona (1994); Werden and Froeb (1994); Nevo (2000); Town (2001); and Ivaldi and McCullough (2010). This paper is part of the second group and adds to this literature by showing that ignoring characteristic adjustment can be a serious omission when investigating the welfare effect of a merger.…”

Long-Run Effects of Mergers: The Case of U.S. Western Railroads

“…Nonetheless, as a condition for the UPSP merger to receive approval from the U.S. Department of Justice, BNSF was given trackage 4 Park et al (2001) simulate the effects of rail mergers for movements of export wheat and conclude that mergers do not necessarily increase railroad market power or make railroad shippers worse off. Ivaldi and McCullough (2005) find that consumer surplus in U.S. rail freight markets increased about 30 percent between 1986 and 2001, despite dramatic industry consolidation. rights in markets where that merger reduced the number of independent carriers from two to one.…”

Integration and Competition between Transport and Logistics Businesses

“…Whether there might be scope for competition in these rail markets, or benefits from retaining vertical integration with dedicated port terminal facilities in Saldanah and Richards Bay goes beyond the scope of the discussions at the Round Table. 3. Horizontal rail mergers Ivaldi and McCullough (2005) examined the welfare effects of mergers and acquisitions in the US rail freight transport market following the 1980 Staggers Act. They found gains in efficiency from integration, mainly horizontal, that gave rise to an increase in consumer surplus of some 25% between 1986 and 2001, the benefits of integration outweighing any impact on competition.…”

“…This experience is not unique to maritime shipping. As noted by Ivaldi and McCullough 2005, "mergers have been a dominant aspect of US railroading for almost the entire 175 year history of the industry".…”