Oligopoly Agreement and the Timing of American Railroad Construction

Author:

Harley C. Knick

Abstract

The railroads in the American West were constructed in a few concentrated building booms. This timing of construction resulted from the alternate creation and collapse of imperfect property rights to rights of way in partially settled areas. These “property rights” arose from strategic behavior within the railroad oligopoly. When enforcement costs of cooperative action were low, the railroads were able to create rents by avoiding construction ahead of demand. When enforcement became difficult, however, construction was the only way to capture rents on unbuilt lines so a construction boom ensued.

Publisher

Cambridge University Press (CUP)

Subject

Economics, Econometrics and Finance (miscellaneous),Economics and Econometrics,History

Reference32 articles.

1. The same conclusion holds if a “real” interest rate is used.

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4. For a discussion of the details of this collapse see Grodinsky, Transcontinental Railway Strategy, Chaps. 15 and 16.

5. A Chicago price of 97¢ implies a local price of about 67¢ a bushel or a bit less at the 99th meridian. The United States Department of Agnculture Yearbook 1893, pp. 515 and 517, estimate the cost of production of wheat, except rent, at between $7.00 and $7.50 per acre. Yield per acre in average years was between 13 and 17 bushels per acre in the mid-1880s and the general price level was some 20% higher than in 1893. These imply costs, excluding rent, of between 50¢ and 70¢ per bushel. Local price would be below 70¢ at the 99th meridian and around 50¢ at the west end of the state.

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