Did Railroad Deregulation Lead to Monopoly Pricing? An Application of q

Henry McFarland

The Journal of Business, 1987, vol. 60, issue 3, 385-400

Abstract: This paper asks whether, given that railroads now have almost total freedom to set their rates, competition is sufficie nt to keep railroads from making supracompetitive profits. Previous a ttempts to measure railroads' profits rely on accounting measures of the rate of return, but recent work raises serious doubts about the a ccuracy of these measures. Therefore this paper uses Tobin's q, the r atio of a firm's market value to the replacement cost of its assets. The values of q show that railroads are not making supracompetitive p rofits. Thus there is no justification for increased regulation of ra ilroad rates. Copyright 1987 by the University of Chicago.

Date: 1987
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