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[quote]QUOTE: Originally posted by jeaton [quote]QUOTE: Originally posted by futuremodal [quote]QUOTE: Originally posted by jeaton "Finally, what is so hard to grasp with the truism of "Monopolism is counterintuitive to capacity expansion"? That's Econ 101. " FM-If that is what you were taught in Econ 101, you ought ask for a refund. [/quote] Hmmmm, maybe you should provide some evidence to the contrary. ANY evidence to the contrary. Objective, subjective, cited or uncited, or even from the depths of your own personal feelings, doesn't matter, just give us something. Until then, we have this: 1. First, most economists will tell you that, unlike a competitive market, a monopolist market is predicated on limiting any expansion of supply drivers, the purpose of which is to allow for pricing power and profit maximization. Agree or disagree? 2. Most transportation economists agree that NA railroads are "natural monopolies", in that the owner of the track is also the provider of transporter services, and practical limitations to entry into that market prevent side by side multiple carrier intramodal competition in most areas. Agree or disagree? 3. In the past half century, it has been the modus operandi of railroads to reduce route miles and service offerrings, via abandonments, company consolidations, etc. because NA railroading has been in a state of "overcapacity" (in spite of an ever growing US and world economy!). Agree or disagree? Take the sum of #1, #2, and #3 above, and what do you have? "Monopolism is counterintuitive to capacity expansion". Now, do you still disagree with that statement? If so, then it is your econ teachers that have failed you miserably. [/quote] 1. Disagree. It is more likely that the economists will say that the entity having the monopoly will limit the installation of capacity by another entity. I can not think of any reason why the company holding the monopoly would not expand capacity if such expansion would maximize profits. [/quote] You have to remember that monopolists are risk averse. Why risk financing capacity expansion if you don't have to to survive and prosper? You might end up diluting your net, and that would negatively affect your degree of pricing maximization. Look at the areas where the railroads are spending on capacity expansion, it's mostly in the import intermodal lanes, because that is the only market where railroads truly compete with each other. They are not risking capacity expansion in the captive markets - again, why do so if there is no incentive to do so? [quote]QUOTE: 2. As opposed to an “unnatural monopoly”? Let’s get something straight. “Most places” don’t produce freight. Places that produce the most freight usually find a couple of carriers in town, and save for your conspiracy theory of duopoly, that looks like a competitive environment. Oh yes, in spite of your denials, the real world offers some fairly attractive competitive transportation modes. One of them is trucks and they go just about anywhere.[/quote] Actually, "most places" do produce freight of some kind, that's what grain, timber, aggregates, e.g. natural resources embody, at least throughout the Northern Tier, Pacific Coast, Midwest, etc. (Maybe you can leave out the desert Southwest, which is mostly pass through territory for rail.) And since those natural resources are usually produced in bulk, they are perfect commodities for railroads. And those "most places" for the most part lack a second rail service provider within the vicinity, let alone the requisite triopoly necessary to most closely emulate a competitive market. And please, enough about trucks being an attractive competitive transportation mode - we are not about to start moving even a significant portion of our export commodities and domestic coal supplies by truck. It is simply and logistically improbable and impractical. [quote]QUOTE: 3. I will have to agree with your third item. I guess you are trying to say that this action demonstrates that the railroads are hell bent on getting capacity down to such a shortage that rates can go through the roof or something like that. No other reason? Nothing to do with costs continuing even if the property is idle, or that the cash from salvage is more productive than idle assets?[/quote] See, this is what raises the red flag. If you agree with #3, then why not #1, since #3 is the exhibition of #1? This action does have a connection with the regulatory climate of pre-Staggers, but more so to the natural monopoly of NA railroads, although to what degree is open to question. Railroads did capitulate to the advent of the Interstate Highway System for medium to long haul boxload traffic, even though railroad technology has always been capable of higher sustained speeds than highway vehicles. Railroads' share of intercity freight dropped from 70% to 40%, and their revenue share dropped to around 10%. The question is, how much of this is truly due to regulation and "subsidized" highways, and how much is due to the inherent characterization of the natural monopoly? I will aver one thing - if open access has been instituted in the 1940's, railroads would still be carrying 70% of intercity freight. All trucking would have dominated is what it's natural characteristics suggest it would, namely the boxload shorthaul market. Practically all medium and long haul trucks would have been moving TOFC, which seems to be the trend now. [quote]QUOTE: By the way, the four US Class 1’s have announced plans to take their combined $4.8 billion profit and another $3 billion from other cash flow and put it all into their 2006 capital budget, capacity expansion included. Seems to me that means that either your claim that monopolism is counterintuitive to capacity expansion is wrong or your claim that railroads are natural monopolies is wrong. Otherwise maybe you can explain why they are making the investments.[/quote] As I stated above, most of this is taking place in the import intermodal lanes, where there is still a hint of true competition among carriers and containerlines. It's not taking place in Montana (one of the captive high profit areas). [quote]QUOTE: One final question. Can you explain just how open access, with its resulting reduced rates, revenues, profits and cash flows, is going to generate more capital for capacity expansion? [/quote] It is not necessarily "reduced" rates we are talking about, it's competitive rates which may or may not result in a reduction of the captive rates. Rates should and would be determined by the competitive market. Who knows, maybe we'll find out that even captive rates haven't been sufficient. No matter, as long as it is a true market price and not either a monopolistic price or a government madated price. And most importantly, all rail users will be paying the same relative rates, e.g. no more of this differential market skewing in favor of imported goods. What will happen is that market forces will force the return of railroad capital outlays to those areas where the profits (or profit potential) are highest, opposite of what is happening now. New entrants into formerly captive areas will result in demand for more capacity. The assumption is that users of track will be paying enough of a fee to cover both current maintenance and future capital outlays, just like the electric utility sector, and for the most part the national highway system. Another assumption is that participation by public entities will bolster available funds for capacity expansion, just like those tax credits being pushed now. The difference is that under the current situation, such tax credits would be going to monopolistic entities (which usually doesn't bode well with the public), while under a more open access situation the tax credits become part and parcel of the entire public transportation infrastructure (and the perception of public access or benefit usually flies well with the public). Equalize the multimodal playing field, and let the chips fall where they may.
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