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Review of Industrial Organization

Erschienen in:

01.08.2013

Understanding ICC Rate Structure Regulation: A Spatial Analysis

verfasst von: Kenneth D. Boyer

Erschienen in: Review of Industrial Organization | Ausgabe 1-2/2013

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Abstract

A spatial equilibrium of a stylized railroad network is offered to illustrate that monopoly pricing requires prices on some links that are so high that traffic “does not move.” ICC price structure regulation, which was based on the idea that traffic should be priced to “move” in a privately owned and operated network, is modeled as maximizing market access subject to an AVC minimum and an aggregate break-even constraint in a network that is over-extended. Flows that result from such regulation are highly inefficient but provide more surplus to shippers and receivers than the unregulated price structure.

Vorheriger Artikel Mitigating Monopoly or Preventing Discrimination: Comparing Antitrust to Regulatory Goals in the Interstate Commerce Act

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In a controversial calculation that downplays the importance of user-costs of transportation, Fogel (1964) argue that the canal and rail costs were not substantially less than canal costs in the 1840s. Nonetheless, the rapid abandonment of canals in areas where railroads were built suggests that the two technologies were not close substitutes.

For an introduction to the techniques of spatial equilibria, see Anderson and Wilson (2007).

In the United States, charters were granted freely, unlike most nations overseas where a more systematic attempt to control excess building was undertaken. See Hilton (1966).

Authors on the left, for example, Kolko (1970) and those like MacAvoy (1965) on the right have interpreted the fact that railroads recognized the commercial advantages provided to them by regulation as evidence of regulatory capture. This paper, by contrast, emphasizes that more literal readings of regulatory decisions are capable of explaining how regulation could have benefitted the railroad industry in ways other than facilitating cartel coordination.

Ann Arbor Railroad Co. v. United States, U.S. 658, 667 (1930).

Transcontinental Case, 74 ICC 48 (1922).

Coal to South Dakota, 47 ICC 750, 754 (1917).

This section only briefly describes some of the most important factors that the ICC took into account in setting the rate structure. For a more complete list see Locklin (1972).

O’Meara v. Baltimore and Ohio RR Co., 183 ICC 3, 15 (1932).

Other examples of ICC actions that led to inefficiencies can be found in Boyer (1981).

Paper and Paper Articles to New Orleans, 88 ICC 345 (1924).

Limestone to Baton Rouge. 270 ICC 584 (1948).

Section 15a of the Interstate Commerce Act, as amended by the Transportation Act of 1920.

It should be recognized that, the ICC did not actually set the rate structure; it adjudicated rate disputes between carriers, acting collectively, and shippers using the criteria described in the body of this paper. The idea that the Commission actions could be summarized into a single maximand would have been rejected by the ICC as well. The criterion used here is intended to show the effects of biasing the rate structure in the direction of expanding the number of viable trade corridors.

See, for example, the discussion in Boyer (1981).

For a good discussion of current European attempts to control market power through the separation of infrastructure and operations, see Nash (2005).

Anderson, S. P., & Wilson, W. W. (2007). Spatial modeling in transportation. In J. F. Plant (Ed.), Handbook of transportation policy and administration (pp. 255–280). Middletown, PA: CRC Press.CrossRef

Association of American Railroads. (2012). AAR Stats 2012-5-10, PDF document (Washington, DC).

Baumol, W., & Bradford, D. F. (1970). Optimal departures from marginal cost pricing. American Economic Review, 60(3), 265–283.

Beale, J. H., & Wyman, B. (1915). Railroad rate regulation (2nd ed.). New York, NY: Baker, Voorhis and Co.

Boyer, K. D. (1981). Equalizing discrimination and Cartel Pricing in transport rate regulation. Journal of Political Economy, 89(2), 270–287.CrossRef

Cleveland, F. A., & Powell, F. W. (1909). Railroad promotion and capitalization in the United States. New York, NY: Longmans.

Fletcher, R. V. (1923). The growth of American administrative law. Berkeley, CA: Thomas Law Book Company.

Fogel, R. (1964). Railroads and American economic growth: Essays in econometric history. Baltimore, MD: Johns Hopkins Press.

Harley, K. (1982). Oligopoly agreement and the timing of American railroad construction. Journal of Economic History, 42(4), 797–823.CrossRef

Hilton, G. W. (1966). The consistency of the interstate commerce act. Journal of Law and Economics, 9(Oct), 87–113.CrossRef

Kolko, G. (1970). Railroads and regulation, 1877–1916. Princeton, NJ: Princeton University Press.

Locklin, D. P. (1972). Economics of transportation (7th ed.). Homewood, IL: Richard D. Irwin.

MacAvoy, P. (1965). The economic effects of regulation: The Trunk-Line Railroad Cartels and the interstate commerce commission before 1900. Cambridge, MA: MIT Press.

Nash, C. (2005). Rail infrastructure charges in Europe. Journal of Transport Economics and Policy, 39(3), 259–278.

Porter, R. (1983). A study of Cartel stability: The joint executive committee, 1880–1886. Bell Journal of Economics, 15(2), 301–314.CrossRef

Samuelson, P. A. (1952). Spatial price equilibrium and linear programming. The American Economic Review, 42(3), 283–303.

Sharfman, I. L. (1931). The interstate commerce commission: A study in administrative law and procedure (Vol. 1). New York: The Commonwealth Fund.

Takayama, T., & Judge, G. G. (1971). Spatial and temporal price and allocation models. Amsterdam: North-Holland Publishing.

US Department of Transportation, Bureau of Transportation Statistics. (2012). National Transportation Statistics, 2012. Washington, DC.

Titel: Understanding ICC Rate Structure Regulation: A Spatial Analysis
verfasst von: Kenneth D. Boyer
Publikationsdatum: 01.08.2013
Verlag: Springer US
Erschienen in: Review of Industrial Organization / Ausgabe 1-2/2013
Print ISSN: 0889-938X
Elektronische ISSN: 1573-7160
DOI: https://doi.org/10.1007/s11151-013-9393-9

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