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Abstract

Structural Separation to Create Competition? The Case of Freight Railways

The Review of Network Economics

Vol. 4, Issue 3 - September 2005, pp 181 - 196



Author
  Russell Pittman
Antitrust Division, US Department of Justice, and New Economic School, Moscow
E-mail: [email protected]

Abstract
  The freight railways sector has three attributes that have proved problematic for recent experiments with vertical separation: a) a relatively high share of network costs in total delivered service costs, b) an apparent persistence of economies of scale at the "competitive" train operations level, and, perhaps most important, c) strong economies of vertical integration that are focused on the interface point of wheel and rail - that is, exactly where vertical separation takes place. The third factor in particular seems a clear illustration of the rationales discussed by Coase and Williamson for the broad vertical scope of a single firm and the disadvantages of relying on market transactions under certain conditions.

Keywords: Freight Railways, Trains, Vertical Separation, Coase, Williamson

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