I seriously doubt the story that government stepped in to stop railroads from colluding on prices. In Railroads and Regulation: 1877-1916, Gabriel Kolko shows that before government regulation, more railroad companies were being founded over time, that freight costs were decreasing, and that government intervention happened because the largest railroads encouraged it. Once the Interstate Commerce Commission was granted authority (through the Elkins Act), one of its first actions was to prohibit railroads from offering rebates and other price discounts. This increased railroad revenue by approximately 10%.
It's a similar story for airlines with the Civil Aeronautics Board. The CAB was given the power to regulate airline fares, routes, and to control whether a new airline was allowed to enter the market. From the CAB's founding in 1938 until airline deregulation in 1978, no new trunk airlines were founded. After deregulation, fares plummeted, new airlines flourished, and many incumbent airlines went out of business (either through bankruptcy or acquisition).
To quote David Friedman: "If you do not believe that the Interstate Commerce Commission and the Civil Aeronautics Board are on the side of the industries they regulate, figure out why they set minimum as well as maximum fares."
They did, the rebating prohibition was mostly to stop a carrier from offering favorable shipping rates to one shipper while charging higher rates to another. The ICC methodology was helpful in stopping the roads from abusing shippers, however the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions.
The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt (and 20 years maintenance deferred) road.
In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, for example, that required three man crews on diesel locomotives).
I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated.
That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
There are legitimate reasons to set minimum prices: It can prevent price dumping, where a company with deep pockets starves out competition and the hikes the prices once competition is gone (or otherwise abuses its now dominant status).
Rebates can also be used to covertly raise prices: Just declare your current price a rebate, then at some point "return" to the regular price which is now higher. Also great for discriminating against certain groups or forcing a certain behavior: Just tailor the rebate to everyone except the group you're targeting.
Minimum fees are often set because a well funded (large) player can operate a route at a loss, drive less well funded players bankrupt and then put the prices way up after they're the only provider left.
In nineteenth century USA, railways proliferated early with easy access to capital. In the absence of market regulation and information disclosure standards, the commercial results were often failures and dysfunction, with unbalanced networks, local monopolies, and death spiral competition on oversupplied lines.
In his ascent to power, uber banker JP Morgan focused on railroads, America's largest business enterprises. He wrested control of the Albany and Susquehanna Railroad from Jay Gould and Jim Fisk in 1869; led the syndicate that broke the government-financing privileges of Jay Cooke; and developed and financed a railroad empire by reorganization and consolidation in all parts of the United States.
Does anyone have any insights into how the railroad industry fared after it was broken up? I'm curious what the impact of the overall industry was as a result of the Sherman Act.
Do we think that had the railroad industry remained monopolized that the US today would have more high speed railways or more advanced rail services?
The author seems to draw a comparison between railroads and Big Tech, and I wonder if we can make the same guesses about what the outcome of the tech industry will be after more antitrust regulation?
Railroads did well into the '30s, and really declined by the '50s and '60s. This kind of decline happened everywhere in the world, except maybe Japan. But the introduction of HSR in Japan was done by government railways and actually bankrupted them, forcing them to split the debts into a "bad bank" and privatize JR Group.
Railways were going to decline because we spent a half trillion dollars building a competing highway system, which had several distinct advantages:
- by and large highway travel in the US is not charged a toll, which makes the per-mile marginal cost much easier to deal with
- highways are not charged property tax and railways are. Many a railroad during the decline ripped out tracks and electrification to reduce the value of their property and to goose up their balance sheet before potential mergers.
- in addition to not paying tolls, the amount of subsidy for highways from the general funds is much higher; compare that to Amtrak, which is so poorly funded a lot of its trains don't run more than once a day.
- minimum parking regulations are pretty much everywhere in the United States, and the requirements are generally much higher than what's needed, so last-mile is not a problem for cars; you have to arrange a journey to and from the train station
The main difference between here and countries that survived a railway decline is the absolute lack of interest from the government in keeping it alive. Amtrak was founded by Nixon with the intention of letting it die.
The railroads generally weren't broken up. Instead, they faced heavy regulation, especially in regards to setting prices and passenger routes. Post-WW2, the passenger traffic collapsed due to airlines and highway traffic, while the regulator generally required railroads to continue running money-losing routes.
The Pennsylvania RR's merger with New York Central in the 70s proved to be a disaster. The result of the Penn Central bankruptcy was the removal of several of regulations, and the transfer of passenger traffic to local commuter rail agencies and Amtrak. Freight companies consolidated like mad afterwards, ending up with what are now 7 major railroads (UP, BNSF, CSX, NS, CP, CN, KCS), and they invested in intermodal and double-stacked container freight, which is why the US has better freight traffic than Europe.
The Rail Industry was never broken up, it instead was regulated by the Interstate Commerce Commission (ICC).
The ICC regulated all manner of their businesses:
Pricing - Maximum Rates, Minimum Rates, and rates per commodity/freight type.
Quality of Service - Adding New Service, Modifying, Reducing, or Abandoning Existing Service.
Safety - hours of service rules, equipment and inspection standards.
Mergers - All Mergers, Divestments, etc needed ICC approval.
The issue is the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions, The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt road.
In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, that required three man crews on diesel locomotives).
I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated.
That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
Rail in the U.S. is the best freight rail system in the world. Europe boasts a great passenger network but fares poorly when it comes to freight.
For America to be great in both sectors, busy corridors should be dedicated to one use or the other (e.g. Northeast corridor, California, etc.). Success in having highly efficient freight systems and highly efficient passenger systems are pretty much orthogonal.
It's a misconception that The Sherman Act was the beginning of the restraint on monopolies. It's more the other way 'round. Common law concerning restraint of trade goes back hundreds of years before, and could really pinch, with no limits on remedies. John Sherman's act LIMITED how much a railroad (etc) could be fined for it's misbehavior, rather than introducing a legal risk. That risk already existed under common law under the rubrik "restraint of trade" [1] and could be extremely potent, in the years before the Sherman Act existed.
The advantage of a statute was that statutes overrule common law, sending the strong and expansive existing common law vs "restraint of trade" into the dustbin of history. To the great benefit of railroads, etc.
It's relevant that his brother (General) William T. Sherman was the President of a (urban) railroad when the Civil War started. The Republican party (of John Sherman) was a strong proponent and friend of industry and infrastructure, not an enemy of it.
I’ve read that the energy industry grew after standard oil was broken up and the standard oil shareholders did better as they owned parts of all the new companies.
Congress gave rail companies immense wealth of half the land in an adjacent ten mile swath as an incentive to build in remote hinterlands. Some companies leveraged this better than others. The modern analogy was to lightly regulate what was attached to the internet, so companies could construct vast virtual properties.
If we are really concerned about 'monopolies', the easiest way to address that is to remove them is to just stop granting through software patents.
Considering that the 'new monopolies' are websites that have very low switching costs, it's hard to see how the consumer is harmed. It's more that the media and politicians don't like the competition for power.
[+] [-] ggreer|5 years ago|reply
It's a similar story for airlines with the Civil Aeronautics Board. The CAB was given the power to regulate airline fares, routes, and to control whether a new airline was allowed to enter the market. From the CAB's founding in 1938 until airline deregulation in 1978, no new trunk airlines were founded. After deregulation, fares plummeted, new airlines flourished, and many incumbent airlines went out of business (either through bankruptcy or acquisition).
To quote David Friedman: "If you do not believe that the Interstate Commerce Commission and the Civil Aeronautics Board are on the side of the industries they regulate, figure out why they set minimum as well as maximum fares."
[+] [-] Aloha|5 years ago|reply
The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt (and 20 years maintenance deferred) road.
In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, for example, that required three man crews on diesel locomotives).
I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated.
That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
[+] [-] xg15|5 years ago|reply
Rebates can also be used to covertly raise prices: Just declare your current price a rebate, then at some point "return" to the regular price which is now higher. Also great for discriminating against certain groups or forcing a certain behavior: Just tailor the rebate to everyone except the group you're targeting.
[+] [-] LatteLazy|5 years ago|reply
It's called predatory pricing.
https://en.wikipedia.org/wiki/Predatory_pricing
I can't tell you whether the CAB or the ICC actually improved things or not and whether regulatory capture is possible/likely for Big Tech.
I'm just saying minimum prices exist for a reason and don't necessarily hurt consumers in the long term.
[+] [-] wombatmobile|5 years ago|reply
In his ascent to power, uber banker JP Morgan focused on railroads, America's largest business enterprises. He wrested control of the Albany and Susquehanna Railroad from Jay Gould and Jim Fisk in 1869; led the syndicate that broke the government-financing privileges of Jay Cooke; and developed and financed a railroad empire by reorganization and consolidation in all parts of the United States.
https://en.wikipedia.org/wiki/J._P._Morgan#Railroads
[+] [-] laddng|5 years ago|reply
Do we think that had the railroad industry remained monopolized that the US today would have more high speed railways or more advanced rail services?
The author seems to draw a comparison between railroads and Big Tech, and I wonder if we can make the same guesses about what the outcome of the tech industry will be after more antitrust regulation?
[+] [-] bobthepanda|5 years ago|reply
Railways were going to decline because we spent a half trillion dollars building a competing highway system, which had several distinct advantages:
- by and large highway travel in the US is not charged a toll, which makes the per-mile marginal cost much easier to deal with
- highways are not charged property tax and railways are. Many a railroad during the decline ripped out tracks and electrification to reduce the value of their property and to goose up their balance sheet before potential mergers.
- in addition to not paying tolls, the amount of subsidy for highways from the general funds is much higher; compare that to Amtrak, which is so poorly funded a lot of its trains don't run more than once a day.
- minimum parking regulations are pretty much everywhere in the United States, and the requirements are generally much higher than what's needed, so last-mile is not a problem for cars; you have to arrange a journey to and from the train station
The main difference between here and countries that survived a railway decline is the absolute lack of interest from the government in keeping it alive. Amtrak was founded by Nixon with the intention of letting it die.
[+] [-] jcranmer|5 years ago|reply
The Pennsylvania RR's merger with New York Central in the 70s proved to be a disaster. The result of the Penn Central bankruptcy was the removal of several of regulations, and the transfer of passenger traffic to local commuter rail agencies and Amtrak. Freight companies consolidated like mad afterwards, ending up with what are now 7 major railroads (UP, BNSF, CSX, NS, CP, CN, KCS), and they invested in intermodal and double-stacked container freight, which is why the US has better freight traffic than Europe.
[+] [-] Aloha|5 years ago|reply
The ICC regulated all manner of their businesses:
Pricing - Maximum Rates, Minimum Rates, and rates per commodity/freight type.
Quality of Service - Adding New Service, Modifying, Reducing, or Abandoning Existing Service.
Safety - hours of service rules, equipment and inspection standards.
Mergers - All Mergers, Divestments, etc needed ICC approval.
The issue is the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions, The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt road.
In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, that required three man crews on diesel locomotives).
I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated.
That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
[+] [-] sacredcows|5 years ago|reply
[+] [-] Nomentatus|5 years ago|reply
[1] https://en.wikipedia.org/wiki/Restraint_of_trade
[+] [-] godzillabrennus|5 years ago|reply
[+] [-] Maledictus|5 years ago|reply
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] peter303|5 years ago|reply
[+] [-] ur-whale|5 years ago|reply
[+] [-] sitkack|5 years ago|reply
[+] [-] dantheman|5 years ago|reply
Considering that the 'new monopolies' are websites that have very low switching costs, it's hard to see how the consumer is harmed. It's more that the media and politicians don't like the competition for power.
[+] [-] Natsu|5 years ago|reply
https://gomox.medium.com/google-safe-browsing-can-kill-your-...
[+] [-] bergstromm466|5 years ago|reply