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Deregulation — engine of monopolies.

The freight railroad industry in the U.S. is highly concentrated with a handful of full of firms dominating the market. With the passage of the Staggers Rail Act of 1980 which deregulated the industry and sparked an era of mergers and acquisitions, the number of Class I railroads dramatically shrank from over 30 to just four. Contrary to the teachings of the free-market capitalism, U.S. Federal regulators and politicians seem to believe in the “four is few and six is many” phrase with respect to one of the main modes of freight transportation in the country.
The railroad industry can be considered as a oligopoly and for many captive shippers it is actually a monopoly since they are serviced by only one railroad.For example, two-thirds of coal shipped by rail is captive to a single railroad. With over 90% of rail traffic shared among the four rail carriers and healthy competition mostly eliminated, railroads enjoy enormous pricing power.

The airline industry is likely to see another major consolidation. American Airlines, a wholly owned subsidiary of AMR Corporation, is looking for a suitable partner to merge with. In this regard, Delta Air Lines Inc. (DAL), US Airways Group Inc. (LCC) and private equity firm TPG are mulling bids to acquire American Airlines.

  1. Phydeau says:

    Gosh, what a surprise… an industry is deregulated and rather than more competition and better prices and services to the customer, we get less competition and less choices for the consumer.

    Knock me over with a feather.

    The founding fathers of capitalism knew that regulation is essential for capitalism to work. Without regulation, we get monopolies and oligarchy.

    • dusanmal says:

      Sorry to burst a bubble but there were no “founding fathers of capitalism”. It even didn’t have a name until Marx.
      As for regulation – it leads to documented death of industry. Only two ways it survives are enormous natural riches (Norway) or oppressive social system (China), with later on a thin ice over long term (ability to grow greatly over short historical times, ending in collapse).
      Though “plebs” does not like monopolies and oligarchy – look at the growth of standard of living for ALL during railroad and steel “barons” in US history. Than look at declines every time Government grabbed the wheel … Apple, MS, … even Google wouldn’t be able to be born right now. Simply wouldn’t – regulatory demands would prevent their emergence. The only proper way to keep oligarchy in check is feedback of free market – as oligarchs grow – they get old and new and better kills them. New and better has INCENTIVE to emerge in such structure as the only way to fight BigOnes. New and better is smothered by overbearing Government.

        • #-9--bobbo, the pragmatic existential evangelical anti-theist AND social critic says:

          Its true that Dismal has a very fine and long point on the top of his head that blinds us to almost everything he has to say but are you referring to any other point?

          Its definitional but without regulations you don’t have a “free market” you have anarchy, fraud, abuse, monopolies, and so forth. Again, some would call all that the free market and others will say that free market included regulations to standardized and prevent fraud ans so forth.

          IOW==the subject is so Broad and Multifactored that to highlight even a small group of factors, much less only one like the RailRoads (for dipshits sake!), leaves out a greater body of relevant factors.

          Yes, the Industrial Revolution created higher living standard: if you measure it by how much stuff you can have. Not everyone’s measurement, but true enough, its most people’s measurement.

          Dismal—think of him as a constant compass===and always take the opposite direction.

          Silly Hooman.

    • Mextli: ABO says:

      By regulation I am sure you mean the firm but just hand of our beloved federal government (hopefully democrats).

  2. #1--bobbo, the pragmatic existential evangelical anti-theist AND social critic says:

    “Deregulation — engine of monopolies.” /// Nice phrase, captures a lot. True when “the cost on entry” into a market is prohibitively high. Biggest competition to trains right now is trucks which get a lot of subsidies and would have to in order to compete given the relative cost structures. Barges still work on some routes too.

    Sad what monopolies do in short order. I wonder what Mitt, the Vulture Capitalist, Romney would say about this? Good debate question as I doubt he has a flip card ready to go.

    Speaking of trains, trucks, and barges==its interesting to think about how all the elements of a system fit together. Just take refrigeration. Without it, whole industries could be reborn/supported providing jobs and lifestyles of “made locally” with whatever health and other benefits apply. Its all about pros and cons to all we do, who’s ox gets gored, who wins and who loses, who tilts the playing field their way.

    Same as it ever was.

  3. UncDon says:

    I had some KSU when it was in the upper 20’s, and then sold it off soon after it nearly doubled. Should’ve stayed in as they are still going up.

  4. sargasso_c says:

    Probably overlooked, are traffic stats on US rails. The trains are bigger, less frequent and are hauling low-profit cargoes like coal and bulk. The profit isn’t there to keep a lot of companies in business, so there are fewer rail companies.

  5. Dr Spearmint Fur says:

    I think someone is confusing the Carter administration’s deregulation of the train industry with common sense. Maybe Sheldon Cooper wants to take a train but most people want to fly or drive in the US. And how many rail companies can operate on a single line that services the remote coal producing regions?

    Governments provide “governance” to an industry and support for infrastructure which has low rates of return and long investment periods (e.g. roads, bridges, telecommunications). Basic sound governance is important because it ensures that citizens are getting bang for the buck and protection along with their representative government. It should also provide good information on the performance of government structures and industry sectors.

    Banks are better example of poor governance. Now the citizens of your country and their government institutions are on the hook to prop up a failed financial services industry. For example, if the FDIC (which should be providing structural support for commercial banking) is put on the hook for propping up investment losses then you know something is fundamentally wrong.

    Unfortunately liberals and conservatives alike cling to the past. Liberals start from a position that business are inherently evil. Conservatives start from a position that governments are evil. You have to be good at both to be successful and that is the current American achilles heel. Neither side wants to be good at both.

    Oh, and if continue to keep a military that is sized to fight WW3 then you’ll probably keep creating wars to keep it busy.

  6. Glenn E. says:

    De-monopolizing and regulating industry, are two different things. While breaking up the AT&T phone monopoly, lead to having modern telephones the size of credit cards. Regulating the nation’s communications, made sure that the government can always listen in on your conversations. Regardless of any security or encryption technology. No wire tap access, no FCC license, no business. And the de-monopoly trick is only cosmetic. Board members still can sit on each others “competitors” boards. And major stockholders can still invest in and control competing industries. So the monopoly is still there, just better hidden behind multiple brand names. Someone once said, “there isn’t much on your grocer’s shelves that RJ Reynolds doesn’t own. It’s not just tobacco sales.” Stop buying one brand, they’ll take over another, and survive. Everyone will have to be starving and living in caves, before the monopoly system suffers. And they’ll probably own your cave.

  7. Great post.Thanks for sharing such a useful information with us.


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