The Economics of Railroading: The Beginning of Cartelization and Regulation

This paper contains an analysis of the need for and effect of regulation in the railroad industry at the inception of the Interstate Commerce Commission. The authors briefly review and integrate a substantial body of literature that has developed over a period of more than half a century. Next they examine the cost conditions under which railroads operated in the latter part of the 19th century and disentangle the separate effects of technological change and economies of large output. Finally, they estimate approximate elasticities of demand in the long and short-haul markets in the trunkline cartel area. These elasticities are used to calculate the relative magnitudes of the gains and losses resulting from the behavior of the railroads in response to the particular form of rate regulation imposed by the ICC.