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[quote user="Murphy Siding"][quote user="futuremodal"][quote user="Murphy Siding"][quote user="Datafever"][quote user="futuremodal"] You still don't get it, do you?  Why is it so hard to understand the difference between adding capacity to buttress a monopolistic situation, or adding new competitive capacity to alleviate a monopolistic situation?  If you cannot grasp the vital importance of this difference, then we are all wasting our time with this thread. [/quote] Regarding that bit about alleviating a monopolistic situation - I guess that I am confused again.  I did not realize that the PRB was monopolistic.  I was under the impression that both BNSF and UP served much of the PRB. OTOH, I will admit that I am not completely up to speed on this issue, and most of what I know about it, I have read on this thread. [/quote]      An honest answer to this, is that Dave(futuremodal) and the economists he quotes believe that having only 2 competitors is no different than having none.  I, and the rest of the world, who compete for business every day, have an entirely different opinion.  To say that it only takes 2 to tango, but it takes 3 to have competition, seems to work in economist's theories, but doesn't work in the real world I live in.  Suffice to say, that both sides of this issue are sure that they are correct. [/quote] Not quite the right phrasology.  To be more precise, having two service providers competiting (aka duopoly) is not that far removed from having one service provider (aka monopoly) in terms of pricing, whereas having three service providers (aka triopoly) is not much different from having many service providers (aka perfect competition) in terms of pricing.  The reasoning is that collusion is easier between two firms, but much harder among three firms.  Two's company, three's a crowd.  Whoever feels like the odd man out may react proactively to head off exclusionary discrimination within an informal pact, aka even if the three wanted to collude, human nature provides it's own check and balance on such collusion attempts. I know I've posted this before, but it's worth examining.  A small scale study of rail rates in the 90's showed that there is a 17% difference between monopoly and duopoly pricing (assuming no collusion), but a 32% difference between monopoly and triopoly pricing.  Thus, the spector of collusion can erase that 17% price differential in the duopoly situation, but the check against collusion via triopoly almost guarantees the 32% price differential will stick. <A href="http://www.ams.usda.gov/stb.htm">http://www.ams.usda.gov/stb.htm</A> BTW - that's a real world study there Murph, not a theoretical construct. [/quote]      As I said, there is a difference of opinion on this subject.  Dave's  gone from saying monopolies and duopolies weren't that far off in pricing.  Now, there's a 17% spread. 17% is a lot of difference. [/quote] Look at it this way - the triopoly pricing is twice the drop as compared to the duopoly pricing. The problem with duopolies (and this is not addressed in the USDA study, but is addressed in general economic studies) is that collusion is easier with the tango, but harder with the trio.  I look at that particular USDA study as an analysis of duopoly pricing while under the microscope of the big bad feds.  Once the study concluded and the feds moved on to other issues, is it possible the 17% difference disappeared? Who knows, since there was no longer any follow-up studies to give us the answer!
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