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Having studied John Bitzan's "Railroad Costs and Competition" study and his associated works in that area (thank you Michael Sol), here's his opinion in a nutshell. It should be noted that this is not an open access study per se, but rather a more specific analysis of railroad costs and societal benefits resulting from other railroads being allowed to use the lines of a home railroad (e.g. no corporate separation of infrastructure from transporter operations): 1. Railroads are "natural monopolies", meaning he thinks they function best when they have monopoly power. 2. Introducing multiple rail users over a single railroad's line will result in higher costs to the industry (more on this later!) 3. Introducing competition to rail shippers will result in societal benefits providing the reduction in prices for those shippers is relatively high (for BNSF shippers the prices would have to fall by 19 to 27% to justify introducing competition, easily achievable since captive rates are often 100% higher than competitive rates - Table 6, page 223). 4. Before you OE opponents cry "victory!", Bitzan also is a proponent of reregulation of rates as the "prefered" way to fix the differential rate and service problems. On point #1, from what I've found most other economists agree to a certain degree, however the "natural monopoly" lies soley in the lay of the infrastructure, and is not germaine to transporter opertations. Thus, if infrastructure is separated from transporter operations, the "need" for regulation would lie soley with the operations of the infrastructure itself, not with the transporters. On point #2, Bitzen references an obscure and highly suspect economic theory that in certain situations of homogenous input factors, monopolists costs are actually lower than competitive costs. For railroads, his only justification for this notion is as follows - "The estimated cost increases from multiple-firm operation are due only to a decreased ability to realise density economies resulting from a single firm's output being split between two hypothetical firms." (footnote #21, page 218). In other words, he thinks that for the same relative amount of tonnage over a line, you would have twice as many trains hauling the same tonnage under a duopoly as under a monopoly. Most economists reject this notion, because it assumes that (A) under competition marginal and actual costs would remain unaffected by competitive pressures, and (B) a split in traffic would result in twice as many trains rather than the more logical assuption of an equal number of trains being split between the two duopolists. For (A), we all know that competition results in downward pressures on input costs as rationalization and innovation are implemented under competitive pressures, while under monopolists there is no incentive to reduce costs since the risk of change outweighs the potential benefits of lower costs. For (B), we know that certain train types will gravitate toward the operating theories employed by the different companies. Some will be better at carload movements than others, some will be better at unit train operations than others, and shippers will prefer one over the other until the other can provide a better price package. Some big shippers who ship multiple consists at a time will run one whole consist with one rail transporter and a second consist with the other, e.g. playing one against the other to exert downward pressure on prices. If Bitzan had wanted to provide support for his notion, he should have provided some real world examples of how multi-carrier usage of a single carrier's line results in costs of up to 40% higher. What about the PRB joint use line? What about the I-5 corridor between Portland and Puget Sound? Is there any evidence at all that the costs of maintaining those lines is higher than the cost of maintaining single user lines for the same relative amount of traffic? The only aspect of a cost "reduction" for single user vs multi-user is the idea of deferred maintenance, e.g. deferred maintenance is easier to get away with under single user control than when you have "visitors" using the line. Take the recent PRB derailments. If these had been BNSF only lines, the costs would be handled internally, whereas under multi-user use, there is now the possibility of BNSF being sued by UP for economic losses sustained by UP. I guess in that vein there is a higher cost of multi-user vs single user, but deferred maintenance is hardly a cost cut of virtue, and if railroad accounting was more transparent to the public (as it theorectically should be under Sarbanes-Oxley) then it would be harder to hide such actions from the shareholders, so from that perspective the "advantage" of single user is muted. Since point #3 is based on the fallacy of point #2, logic would dictate that even smaller price decreases for shippers would result in societal benefits. However, given the fact that captive shipping rates are often 100% higher than corresponding rates in more competitive rail markets, it would be quite easy to achieve a net societal gain with competition even under Bitzen's pro-monopoly assumptions. On point #4, both pro-OE and anti-OE groups oppose a return to rate regulation, as OE proponents cleary prefer market based prices induced by head to head competition to foster a larger gain in pertentage market share, while OE opponents clearly prefer the financial safety of monopolist pricing to aid in achieving cost of capital recovery. It should be noted that neither Bitzan nor any of his contenporaries make any reference to the concept of ROW cost equalization (via tax exemptions, tax incentives, user fee redistribution, etc) as the way of allowing commodity flows to gravitate toward the most optimal modes and intermodal combinations. I feel that some form of ROW cost equalization is necessary to make private sector OE work. Nor does he or his collegues attempt to analyse scenarios of separated infrastruture companies hosting independent rail transporters, and whether he thinks the costs borne by an independent infrastructure owner would be higher than those borne by a vertically integrated monopolist operator. As usual, I am interested in your perspectives on this!
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