The simple argument is this: rail competes with trucking, and therefore the relevant market is all freight transportation. If so, then mergers of railroads operating in different regions might seem innocuous.
But that argument assumes all railroad customers are in the same market.
In this episode of EconWorks, we explain why railroad freight is better thought of as a market with price discrimination, where different customers face fundamentally different competitive conditions. Contractual bargaining is used by industrial shippers who ship large volumes. Smaller shippers often compare trucking and rail on a price basis.
This distinction changes how economists should think about market definition, the hypothetical monopolist test, and the competitive effects of railroad mergers.
Topics:
Why railroad freight is not a single market Big shippers vs. little shippers
Substitution or negotiation
Definition of market and monopoly
Why trucking will be in the relevant market only where the merger makes little difference
Implications for railroad merger analysis
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