Management's role in U.S. rail passenger decline, 1920–1941

Abstract

Opinions vary as to whether the decline of American railroad passenger service can be attributed primarily to consumer choice or partly to structural impedances to the supply. Results are reported from testing the hypothesis that railroad management supplied service inappropriate in the new motor era: that management catered to a small, high-priced market, whereas it should have catered to a mass, low-priced market. An aggregate demand model with non-linear elasticity characteristics is estimated on railroad traffic between a sample of American cities for 1933. The model is sensitive to speed, fare and headway variables under the control of railroad management and reveals that there was a unique fare for a service of a given speed that maximized gross revenues. The observed fare for most of the 187 cases in the study was near or below the optimal fare, showing that rail managers judged their markets well, at least in the short run.