Pricing of Complements in the U.S. Freight Railroads: Cournot Versus Coase

Alexei Alexandrov, Russell Pittman and Olga Ukhaneva
Additional contact information
Olga Ukhaneva: Georgetown University

No 201801, EAG Discussions Papers from Department of Justice, Antitrust Division

Abstract: Monopolists selling complementary products charge a higher price in a static equilibrium than a single multiproduct monopolist would, reducing both the industry profits and consumer surplus. However, firms could instead reach a Pareto improvement by lowering prices to the single monopolist level. We analyze administrative nationally-representative pricing data of railroad coal shipping in the U.S. We compare a coal producer that needs to ship from A to C, with the route passing through B, in two cases: (1) the same railroad owning AB and BC and (2) different railroads owning AB and BC. We do not find that price in case (2) is higher than price in case (1), suggesting that the complementary monopolist pricing ineficiency is absent in this market. For our main analysis, we use a specification consistent with the previous literature; however, our findings are robust to propensity score blocking and machine learning algorithms. Finally, we perform a difference-in-differences analysis to gauge the impact of a merger that made two routes wholly-owned (switched from case 2 to case 1), and these results are also consistent with our main findings. Our results have implications for vertical mergers, tragedy of the anticommons, mergers of firms selling complements, and royalty stacking and patent thickets.

Keywords: vertical merger; double marginalization; mergers of complements; antitrust; tragedy of the anticommons; royalty stacking; patent thickets; intellectual property (search for similar items in EconPapers)
JEL-codes: D23 D43 K21 L40 L92 O34 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2018-04
New Economics Papers: this item is included in nep-com and nep-reg
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Citations: View citations in EconPapers (2)

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Working Paper: Pricing of Complements in the U.S. freight railroads: Cournot versus Coase (2018)
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