MPC
Research Projects (2001-02)

Identifying Number

MPC-220

Project Title

Costs, Pricing, and Regulatory Alternatives for Mergers

University

North Dakota State University

Project Investigator

John Bitzan
Upper Great Plains Transportation Institute
North Dakota State University
(701)231-8949
john.bitzan@ndsu.edu

External Project Contact

N/A

Project Objective

This study will provide a detailed analysis of previous rail mergers in terms of costs, pricing, and service, and will discuss implications of these findings for the future of regulatory oversight of mergers.

Project Abstract

Recently, there has been a wave of mergers in the U.S. rail industry. These mergers have included those by the Burlington Northern and Sante Fe railroads, the Union Pacific and Southern Pacific railroads, and Conrail with the CSX and Norfolk Southern Railroads.

A recent study sponsored by the Federal Railroad Administration (FRA) found that railroads are natural monopolies when the alternative to a merged railroad is duplicate side-by-side rail networks, but that rail mergers extending the size of rail networks lead to increases in railroad costs. This suggests that further end-to-end mergers are not beneficial unless significant service improvements are obtained.

While the study provides a useful starting point for examining the welfare implications of railroad mergers, it does not provide a detailed analysis of specific rail mergers that have occurred, an assessment of the pricing effects of mergers, or an assessment of the impacts of mergers on service. This study will build upon the findings of the FRA study and others to provide a detailed analysis of previous rail mergers in terms of costs, pricing, and service, and to discuss the implications of these findings for the future of regulatory oversight of mergers.

Task Descriptions

• Task 1 – Perform a detailed review of the institutional and regulatory policy changes of mergers from 1978-2000.
• Task 2 – Develop a theoretical model to describe mergers in the railroad industry in terms of pricing, costs, and service.
• Task 3 – Empirically estimate the effects of railroad mergers on pricing, costs, and service.
• Task 4 – Use the empirical estimates and model to make an assessment of the welfare implications of specific mergers that have occurred.
• Task 5 – Discuss the implications for the future of regulatory oversight of rail mergers, and prepare a final report.
• Task 6 – Develop a survey of shippers to be used in a future study of transportation demand and the captive shipper problem.

Milestones, Dates

• Starting Date: July 2001
• Project Milestones:
  • Task 1: September 2001
  • Task 2: October 2001
  • Task 3: January 2002
  • Task 4: April 2002
  • Task 5: June 2002
  • Task 6: June 2002
• Ending Date: June 2002

Yearly and Total Budget

$38,000

Student Involvement

None

Relationship to Other Research Projects

This project extends the findings of previously funded MPC research relating to railroad costs and mergers.

Technology Transfer Activities

A presentation of the preliminary findings of the report will be presented at the Allied Social Science Meetings in January 2002. We will attempt to publish the final report in an academic journal.

Potential Benefits of the Project

One of the major issues facing the transportation industries is the continuing consolidation of transportation firms. However, the implications of this consolidation are not well understood. The findings of the project will improve the knowledge base available to policy makers in making future decisions regarding regulatory oversight of rail mergers.

TRB Keywords

Railroad transportation, costs, mergers