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Industry Costs and Consolidation: Efficiency Gains and Mergers in the Railroad Industry

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  • Wilson, Wesley W.
  • Bitzan, John
Abstract
Partial deregulation of the railroad industry substantially eased regulatory impediments to consolidation. Since partial deregulation, there has been a massive consolidation of firms in the railroad industry, which has been premised on efficiency gams, network rationalization, and service quality. In this paper, we focus on efficiency gains. We develop and estimate a model of costs that allows for the estimation of merger specific cost savings as well as industry cost savings. The results suggest that early mergers gave very small effects, but recent "mega" mergers have given very large effects. Our central result is that consolidation in the railroad industry from 1983-1997 accounts for about a 17 percent reduction in industry costs.

Suggested Citation

  • Wilson, Wesley W. & Bitzan, John, 2003. "Industry Costs and Consolidation: Efficiency Gains and Mergers in the Railroad Industry," MPC Reports 231700, North Dakota State University, Upper Great Plains Transportation Institute.
    • Handle: RePEc:ags:ndtimr:231700
    DOI: 10.22004/ag.econ.231700
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    Cited by:

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    3. 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.
    4. 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.
    5. 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.
    6. Pauline Affeldt & Tomaso Duso & Klaus Gugler & Joanna Piechucka, 2021. "Assessing EU Merger Control through Compensating Efficiencies," CESifo Working Paper Series 9403, CESifo.
    7. 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.
    8. 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.
    9. 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).
    10. 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.
    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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