Pii: S1366-5545(99)00014-9

While there have been many studies of the impact of railroad deregulation on agricultural transportation markets there have been very few that address the impact of railroad mergers on rail grain prices and the distribution of eciency gains. The purpose of this paper is to add to the sparse literature regarding the e€ect of railroad mergers on agricultural transportation markets. Given the ever declining number of Class I railroads, this research is very timely. The speci®c objectives of the research are as follows: (1) Analyze the impact of the Burlington Northern (BN)±Santa Fe (SF) merger on the ability of the BNSF to increase prices on movements of Kansas wheat to Houston, Texas. (2) Analyze the impact of the Union Paci®c (UP)±Southern Paci®c (SP) merger on the ability of the UPSP to increase prices on movements of Kansas wheat to Houston, Texas. (3) Analyze changes in Kansas wheat logistics system costs as a result of the BN±SF and UP±SP mergers. Two models are developed to achieve the objectives of the study. A network model of the wheat logistics system is used to identify the least cost transportation routes from the Kansas study area to the market at Houston, Texas. A pro®t improvement algorithm is developed to measure the amount by which railroads can raise their prices above variable cost. The BNSF and UPSP achieve only minor increases in market power (measured by the ratio of revenue to variable cost) because the merged railroads have only slight advantages in cost relative to other railroads that serve the same areas as the merged railroads. Wheat shippers bene®t from merger-induced reductions in transportation and handling costs. Shippers are likely to capture a signi®cant share of these cost reductions since intrarailroad competition is present after the mergers. Transport cost reductions accompany Transportation Research Part E 35 (1999) 269±290 www.elsevier.com/locate/tre * Corresponding author. Tel.: +785-532-4571; fax: +785-532-6919. E-mail address: [email protected] (Michael W. Babcock) 1 Tel.: +701-231-7498; fax: +701-231-7400 2 Tel.: +402-390-2328; fax: +402-255-3667 1366-5545/99/$ see front matter Ó 1999 Elsevier Science Ltd. All rights reserved. PII: S1366-5545(99)00014-9 mergers due to more direct routing of wheat shipments and the assumption that the merged railroad operates at the costs of the lower cost partner. Ó 1999 Elsevier Science Ltd. All rights reserved.