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The Uncertain Welfare Effects of Railroad Competition and Railroad Regulation, 1870-1900

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Document pages: 24 pages

Abstract: This essay, written for a memorial contribution on the works of Paul W. MacAvoy, discusses MacAvoy’s first book, The Economic Effects of Regulation (1965) which addresses eastern railroad cartels in the U.S. between the 1870s and 1900. The essay describes the many achievements of this book in terms of detecting and measuring cheating on cartel prices and its discussion of cartel practices of greater or lesser success. The essay also compares railroad practices for chiefly the transport of grain from Chicago to New York to practices over the same period for the transport of refined oil from Pittsburgh and Cleveland to various locations on the east coast. The principal difference as between grain and oil transport was the existence of competitive markets for grain shipment versus the monopsony of the Standard Oil Company over the shipment of refined oil. The net welfare effects of the grain cartels versus the oil monopsony remain unclear.

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