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"Open Access" and regulation of railroad freight rates.
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[quote user="jeaton"][quote user="futuremodal"] <P>You and Jay should get together and contrive a response to this little factiod: <STRONG>Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*?</STRONG> If, as you both contend, trucks are competition for railroads (and since trucks are everywhere), why do these economists seemingly ignore the nationwide saturation of trucks in defining railroads as monopolies?</P> <P>[/quote]</P> <P>Here is a little "factoid" for you.</P> <P>"Natural monopoly: A market that has high natural barriers to entry (usually because of increasing returns to scale) is referred to as a natural monopoly <U>because such a market has a tendency to become a monopoly</U>. Indeed, in the presence of increasing returns to scale, <U>a market that consists of a single large producer is the most economically efficient." </U></P> <P>Answer to your question: Maybe there are conditions where a railroad may meet the defination of a "natural monopoly". I don't see anything that says a natural monopoly always exist when only one railroad serves a shipper.</P> <P>Note the first underlined phrase. A market being called a "natural monopoly" is called that because condition exist that can lead to a monopoly AND NOT because it is a monopoly.</P> <P>The key part of the defination "A market that has high natural barriers to entry" is a natural monopoly. So if it only takes a truck to get into a market, obviously that market does not have a high natural barrier to entry and is not a natural monopoly.</P> <P>Your view that competition in the transportation can only exist on an intramodal basis presumes that for the movement of frieght there are "railroad markets", "truck markets", "pipeline markets", "barge markets", etc. Is there a divine decree that makes this so?</P> <P>People who are in charge of getting a shipper's freight moved from point to another are going to select the mode or method that gets the needed level of service at the lowest cost. For the right price and availability, alien spacecraft can work.</P> <P>Thought the last sentence in the defination was rather interesting.</P> <P>[/quote]</P> <P>You are right, and yet so wrong, and it's because you cannot separate the track from the rolling stock in your mind's definition. Railroads are only restricted in entry because of the physical constraints of laying tracks. That same entry restriction is not contingent upon the rolling stock. Thus, when you separate infrastructure from transporter operations (e.g. the implementation of open access, e.g. busting the integration), the axiom of efficiency due to high natural barriers no longer applies to the transporter segment. In this case, the infrastructure owner retains the natural monopoly, but the transporter no longer is afforded that same monopoly, aka intramodal competition is introduced. </P> <P>That's why busting the integration model embodies the introduction of more economic efficiencies, since the ever present societal need to regulate the monopoly (something that is now hard-wired in our Western version of free market capitalism) is reduced to regulating the infrastructural aspects (aka the utility aspect of railroading), rather than regulating the entire genre from head to toe as was done pre-Staggers.</P>
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