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Railroads and Competition: The Santa Fe/Southern Pacific Merger Proposal
Copyright policy )In September of 1983, the Santa Fe and Southern Pacific railroads announced their long-rumored, long-negotiated plan to merge. This merger would combine two primarily parallel operations along the southern corridor of southwestern United States. The merger was opposed by the Antitrust Division of the Justice Department and was turned down by the Interstate Commerce Commission. This paper uses the framework provided by the U. S. Department of Justice Merger Guidelines and more recent data to analyze the competitive implications of the merger. The author finds that a serious loss of competition would likely have followed from the merger, resulting in large gross deadweight losses and much larger transfers from shippers to the merging railroads. His analysis demonstrates the critical importance of three factors in evaluating the impact of a merger such as this one: a careful location- and commodity-specific analysis of the loci of likely competitive harm, an unbiased estimate of those operating savings promised by the merger which could not be obtained through means less anticompetitive, and a careful judgment as to the importance or lack of importance of transfers in the calculation of welfare losses. Thus, an overall welfare calculus requires not only an accurate estimate of the efficiencies resulting from the merger but also a judgment as to the welfare relevance of wealth transfers.
Microsoft Academic Graph classification: Commission Merger guidelines Harm Merge (version control) Public economics Welfare media_common.quotation_subject media_common Economics International economics
Economics and Econometrics, General Business, Management and Accounting, Accounting
Economics and Econometrics, General Business, Management and Accounting, Accounting
Microsoft Academic Graph classification: Commission Merger guidelines Harm Merge (version control) Public economics Welfare media_common.quotation_subject media_common Economics International economics
In September of 1983, the Santa Fe and Southern Pacific railroads announced their long-rumored, long-negotiated plan to merge. This merger would combine two primarily parallel operations along the southern corridor of southwestern United States. The merger was opposed by the Antitrust Division of the Justice Department and was turned down by the Interstate Commerce Commission. This paper uses the framework provided by the U. S. Department of Justice Merger Guidelines and more recent data to analyze the competitive implications of the merger. The author finds that a serious loss of competition would likely have followed from the merger, resulting in large gross deadweight losses and much larger transfers from shippers to the merging railroads. His analysis demonstrates the critical importance of three factors in evaluating the impact of a merger such as this one: a careful location- and commodity-specific analysis of the loci of likely competitive harm, an unbiased estimate of those operating savings promised by the merger which could not be obtained through means less anticompetitive, and a careful judgment as to the importance or lack of importance of transfers in the calculation of welfare losses. Thus, an overall welfare calculus requires not only an accurate estimate of the efficiencies resulting from the merger but also a judgment as to the welfare relevance of wealth transfers.