Abstract
Under current regulatory rules in the railroad industry, railroad rates are not subject to reasonableness proceedings unless the Surface Transportation Board of the Department of Transportation finds that the railroad is “market dominant.” A theoretical model of railroad pricing is used here to examine and interpret the regulatory rules defining market dominance. Railroad rates in a market are either market dominant, constrained market dominant, or not market dominant. The empirical analysis evaluates the effects of competitive pressures on rates. Competition is found to reduce grain rates by up to 40 percent and service differentials across competing modes explain only a portion of observed rate levels.
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