Kenneth D. Boyer

Minimum Rate Regulation, Modal Split Sensitivities, and the Railroad Problem

Contrary to popular opinion, the diversion of traffic from railroads to motor carriers has not been the result of minimum rate regulation. The idea that there is a large amount of misallocated traffic is based on the widespread but faulty method of analyzing intermodal competition by means of a simple cost comparison. The paper uses modal split analysis to show that the welfare gain accompanying minimum rate regulation will be modest. The welfare effects of transport controls other than minimum rate regulations are likely to be far more serious.

The Costs of Price Regulation: Lessons from Railroad Deregulation

Previous calculations of the costs of railroad rate regulation assumed that deregulation would lower railroad rate levels and allow railroads to capture significant amounts of traffic from other modes of transportation. This article presents empirical results that show that neither of these effects materialized under deregulation. A calculation based on actual price and market share changes places the annual cost of regulation at roughly

Can Market Power Really be Estimated

90 million, well below previous estimates.

Equalizing Discrimination and Cartel Pricing in Transport Rate Regulation

In a previous paper in this Review, Hyde and Perloff ask the question, “Can Market Power be Estimated?” using the “structural model” or two proposed alternatives. They find that none of the three methods produce consistent, meaningful results in the food and beverage industries and that simulations suggest great sensitivity of results to model misspecification. This paper offers an explanation for these disappointing results. The difficulty is that the structural model (and its proposed alternatives) is based on an overly-ambitious estimating form that over-simplifies the diversity and true complexity of oligopoly pricing. By neglecting accounting data on costs and by arbitrarily relying on an assumption that outputs are set by subtracting a constant proportion of the difference between Price and Marginal Revenue, the “structural model” and proposed alternatives try to fit an elegant form to a messy world with predictably disappointing results.

Mergers that Harm Competitors

There are two possible outcomes of transport regulation: (1) maintaining a carrier cartel and (2) imposing equalizing discrimination against advantaged and in favor of disadvantaged shippers. Both functions have required a complex rate structure to enforce the respective forms of price discrimination. Using a sample of freight bills from motor carriers and railroads, this paper demonstrates that the principal result of motor carrier regulation has been to maintain a cartel of truckers, while railroad regulation has thwarted the wishes of the railroad cartel by imposing equalizing discrimination on weak and strong shippers. Motor carrier rates respond in an economically rational manner to costs and shipper bargaining power; rail rates are either unresponsive or perversely responsive to the same factors. Deregulation should have divergent effects in the two industries.

American Trucking, NAFTA, and the Cost of Distance

Standard models of oligopolistic interdependence predict that firms remaining outside of a horizontal merger will benefit from it. Why, then, do nonparticipating firms feel threatened by mergers? This paper shows that under reasonable conditions a non-participating firm is harmed by a merger. The analysis is based on a spatial equilibrium with suppliers and demanders located at fixed points. Mergers harm non-participating firms as a result of the decrease in the level of marginal costs of the merged firm attributable to decreased output in markets where competition is eliminated. This lowered marginal cost makes the merged firm a more formidable competitor in markets in which outsiders participate. This effect is in almost all cases sufficient to make outsiders worse off after a merger. Simulations on a sample of spatial equilibria show that the harm to outsiders is a reliable index of the harm that the merger causes to social welfare.

Are There Scale Economies in Advertising

As trucking replaced railroads as the basic form of freight transportation, the cost structure of the industry, which is essentially linear in distance, became the standard measure of economic distance. This led to a structure of economic geography that was much flatter and less malleable by public policy. The rise of trucking made the nation more compact and more featureless than it had been. In essence, trucking shrank and leveled the economic landscape—which was not to the advantage of those places that had economically benefited from the geography created by the railroad cost structure. The trucking provisions of the North American Free Trade Agreement have the promise of similarly shrinking the distance between Canada, Mexico, and the United States. Their failure to be implemented can be traced to the equivocal attitude that different regions have to further leveling of the economic landscape of North America.

The accuracy of non-spatial techniques for analyzing transportation demand

This paper provides new evidence on scale economies in advertising. Using 1970s data on sales and advertising expenditures of brands in 11 categories of small packaged goods, we find no evidence for the existence of a static relation between the size of the firm and its average advertising costs. Our results contradict those of several recent studies, most notably, Brown (1978), which claim that there are scale advantages to advertising expenditures for particular commodities. Our results differ because, unlike previous authors, we measure true scale advantages rather than output elasticities and because we use a sample composed of multiple-product groups rather than of a single commodity, cigarettes, which is atypical of the universe of advertised products. Advertising scale economies are defined as a static advertising cost advantage held by large firms. All policyoriented definitions must imply this relation. We suggest several measures of advertiser size that might be presumed to be related to advertising scale economies. Using brand-level data drawn from a variety of small packaged-product groups, we find no evidence that such a relation exists. If there is a correlation between advertising costs and brand size, our results indicate that it is more likely to be large brands that are at an advertising cost disadvantage. * Research support was provided by the James Webb Young Fund. We wish to thank Rajeev Batra for assistance in data processing. Helpful comments on previous drafts were provided by an anonymous referee as well as by workshop participants at the University of Western Ontario, Michigan State University, the University of Illinois, and the University of Michigan.

Principles of Transportation Economics

This article questions the economic logic of using transportation demand models based on non-spatial estimating methods. The accuracy of the most common non-spatial technique for estimating the demand for transport is assessed by simulating transportation networks. Two simulations are given: in the first, transportation costs are assumed to act as a tariff between single producing and consuming regions. In the second, producers and consumers are spatially dispersed and connected by a public and private mode of transportation. The relationship between transport prices and equilibrium traffic levels is computed for different structural determinants in each of the 2 problems. The resulting data is then analyzed using the traditional technique and the results compared with the true transportation demand elasticities. Estimates based on the non-spatial method are shown to be deceptively reasonable, but are inversely correlated with true demand elasticities in the first example and uncorrelated with the truth in the second example.