Description:

Speaker: Michael Giordano

Title: Natural Monopoly and Economies in Rail: Evidence from the U.S., 1888-1940

Abstract: I study the characterization of railways as a natural monopoly using a novel dataset of U.S. company-year accounting records between 1888-1940. Through Instrumental Variable (IV) and Event-Study analysis, I find that rail firms experience economies of density, where a network's costs rise more slowly than traffic, and diseconomies of size, where costs rise more rapidly than increases in network size. By examining shocks to network length, I help explain why past studies have found constant returns to size. Using a new empirical approach to test natural monopoly conditions, I find that the U.S. rail industry was not consistent with the concept of natural monopoly over this period.