Market structure and market outcomes in deregulated rail freight markets

Using cross-section data on a national sample of city-pair markets for rail freight, I examine correlations between prices, quantities, and the number of single-line and interline firms serving markets. I estimate the reduced form of a structural model in which rail rates and quantities depend on the number of firms. I find that rates increase as the number of firms serving the market falls, and quantities shipped rise as the number of firms falls. The result is consistent with market power for rail freight shippers that causes markups to rise when fewer firms serve the market, and is not consistent with other explanations of the relationship between number of firms and rates and quantities. Interline shipment is much more costly than single-line, suggesting that mergers may be desirable even if they exacerbate market power problems.