Effectiveness of Competition to Limit Rail Rate Increases under Deregulation: the Case of Wheat Exports from the Southern Plains

Much of the early 1860s discontent with railRepresentatives). This deregulatory action perroads was centered in agricultural regions, parmits greater reliance on the marketplace for purticularly the new regions of the West, where poses of rate determination. Accordingly, many monopolistic price discrimination was most easproducers and agricultural shippers believe that ily practiced by railroads. Because of unavailable regional or geographic discrimination will occur or inaccessible forms of competing transporbecause of ineffective competition from compettation and numerous small shippers, railroads ing modes. were able to exploit their monopolistic position This study was designed to determine the ef(Meyer et al.). Agrarian political action in the fectiveness of competitive forces in limiting rail 1860s resulted in unsuccessful regulatory efforts rate increases in the South Plains hard winter by states, but laid the base for the cornerstone of wheat-producing region. Since the study area has federal transportation regulation, the Act to Reghistorically exported more than three-fourths of ulate Commerce, which was passed in 1887. The its production, the analysis centers on this Act requires that all rates be "just and reasonmovement. The research focuses on the ability of able" and provides that "every unjust and unintraand intermodal competition to constrain reasonable charge" is unlawful. Various sections rail rate increases. Analysis proceeds under two deal with discrimination, pooling, publication of alternative assumptions regarding the raterates, and the unlawful practice of charging setting behavior of regional railroads. higher rates on short hauls than on long hauls. In In the intramodal analysis, it is assumed that addition, the Act created the Interstate Comthe dominant railroad alters its rates without cormerce Commission (ICC), an agency with powresponding changes from other transportation ers to enforce provisions of the Act. By the firms in the region. In which case, rate competi1930s, the growth of alternative transportation tion is provided by competing railroads, trucks, modes and the corresponding decline in railand the truck-barge combination. This analysis roads' traffic share led to the economic decline of measures the capacity of a single carrier to immany rail carriers. Since then, much of the fedprove its profitability without collaborative aceral railroad legislation has been designed to curtion from competing railroads, that is, the domitail the economic demise of the nation's railroad nant firm finds competing rail carriers unwilling industry. Unfortunately, legislative attempts to to follow its rate increases. Since other modes rehabilitate that industry have not been commay increase haulage as the dominant railroad pletely successful, and the economic condition of adjusts rate levels upward, an element of intermany carriers continues to worsen. modal competition exists in the intramodal analA large and growing body of literature has critysis. icized the ICC for inefficiencies generated by the The intermodal competitive analysis centers regulatory process (Friedlaender; Moore). It is on the ability of competing modes to constrain argued that the outdated regulatory process hinrail rate increases. In this analysis, it is assumed ders railroads' ability to adjust their altered comthat no rate competition exists between railpetitive environment. Experts contend that the roads, in which case, the railroads adjust rates in growth in alternative modes has removed the unison. It is assumed that competing modes do railroads' ability to adjust their altered competinot make rate changes in response to the railtive environment, that is, the growth of competroads' rate increases. ing modes has removed the rails' previous moThe intramodal analysis is carried out in a nopoly position, and protective legislation is no short-run time frame, while the intermodal anallonger required. This persuasion, coupled with ysis is examined in the short run and long run. the current economic climate, has yielded the Historically, about 95 percent of the study reStaggers Rail Act of 1980, designed "to allow gion's wheat exports have been handled by . . . competition and demand . . . to establish Texas ports. Port elevators on the lower Missis. .. rates for transportation" (U.S. House of sippi River are operating at near full capacity