Evaluating Railroad Duopoly Behavior: A Market Level Analysis

Nolan James (), Su Chi and Li Longhai
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Nolan James: Department of Agricultural and Resource Economics, University of Saskatchewan, Saskatoon, Canada
Su Chi: Department of Agricultural and Resource Economics, University of Saskatchewan, Saskatoon, Canada
Li Longhai: Department of Mathematics and Statistics, University of Saskatchewan, Saskatoon, Canada

Review of Network Economics, 2025, vol. 24, issue 2, 87-111

Abstract: Railroads remain a critical transportation mode for the movement of U.S. agricultural freight. Within much of the northwest and mid-central U.S., rail is often the only viable mode to transport bulky agricultural commodities, including wheat. With the potential for exploitation of market power by railroads over such movements, regulations exist that are designed to mitigate the effects of monopoly railroad situations. But what of duopoly railroad markets? Economic theory offers reliable predictions of firm behavior when there are either many firms serving a market, or conversely when there is just a single firm serving the market. But behavioral predictions are not as straightforward when evaluating oligopolistic market structures. Relevant to this research, it is not clear a priori what kind of firm and market behavior might emerge under a duopoly. Clarifying what happens in such cases ultimately becomes an empirical issue. In this paper, we investigate a significant U.S. wheat transportation market currently served by a Class 1 railroad duopoly, but railroad behavior in this market may also be moderated by intermodal competition from water barge. While our findings about railroad behavior over time indicate a tendency towards Cournot duopoly behavior, latent variable analysis offers a more granular understanding of how both intra- and inter-modal competition affect the chosen transportation market. With only a very limited number of Class 1 railroads left serving the entire country, the future of U.S. freight transportation by rail will be comprised of numerous important products and regions served by only one or two railroads. While some of the methods we use in this analysis are novel to the industrial economics literature, we believe this effort will help better inform future regulatory policy design for rail, further strengthening market vigilance for freight shippers who are destined to transport goods in increasingly concentrated railroad markets.

Keywords: duopoly; freight transportation; intermodal competition (search for similar items in EconPapers)
JEL-codes: C38 L92 R41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/rne-2025-0034

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