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.

Keywords: Merger analysis, differentiated product markets, logit models, railroads

JEL Classification: L11, L13, L41, L92