Subadditivity Tests for Network Separation with an Application to US Railroads

Marc Ivaldi and Gerard McCullough

No 4392, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We describe a pair of subadditivity tests that can be used to evaluate the technological feasibility of separating a vertically integrated network monopoly into a common infrastructure component and competing operating components. We implement the tests with a Generalized McFadden cost function that is globally concave in input prices and permits the assignment of zero output values without losing its flexibility properties. The tests shed light on the respective roles of regulation and competition policy. We illustrate them with an analysis of US freight railroads for the period 1978-2001 and find both vertical and horizontal economies of scope.

Keywords: Vertical integration; Subadditivity; Regulation; Networks; Railroads (search for similar items in EconPapers)
JEL-codes: L14 L22 L51 (search for similar items in EconPapers)
Date: 2004-05
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Citations: View citations in EconPapers (20)

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Journal Article: Subadditivity Tests for Network Separation with an Application to U.S. Railroads (2008)
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