Collusive Investments in Technological Compatibility: Lessons from U.S. Railroads in the Late 19th Century / Daniel P. Gross.

By:

Gross, Daniel P

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w26261.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Collusion is widely condemned for its negative effects on consumer welfare and market efficiency. In this paper, I show that collusion may also in some cases facilitate the creation of unexpected new sources of value. I bring this possibility into focus through the lens of a historical episode from the 19th century, when colluding railroads in the U.S. South converted 13,000 miles of railroad track to standard gauge over the course of two days in 1886, integrating the South into the national transportation network. Route-level freight traffic data reveal that the gauge change caused a large shift in market share from steamships to railroads, but did not affect total shipments or prices on these routes. Guided by these results, I develop a model of compatibility choice in a collusive market and argue that collusion may have enabled the gauge change to take place as it did, while also tempering the effects on prices and total shipments.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w26261 (Browse shelf(Opens below))	Not For Loan

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September 2019.

Collusion is widely condemned for its negative effects on consumer welfare and market efficiency. In this paper, I show that collusion may also in some cases facilitate the creation of unexpected new sources of value. I bring this possibility into focus through the lens of a historical episode from the 19th century, when colluding railroads in the U.S. South converted 13,000 miles of railroad track to standard gauge over the course of two days in 1886, integrating the South into the national transportation network. Route-level freight traffic data reveal that the gauge change caused a large shift in market share from steamships to railroads, but did not affect total shipments or prices on these routes. Guided by these results, I develop a model of compatibility choice in a collusive market and argue that collusion may have enabled the gauge change to take place as it did, while also tempering the effects on prices and total shipments.