This volume analyzes, for the first time, the effects of cartel agreements on rates, tonnage shares, and profits of the major railroads East of the Mississippi River and North of the Ohio River from 1871 to 1899. Attention is centered on the consequences of regulation by the Interstate Commerce Commission for the success of the cartel. After 1875 there was persistent “cheating” on rates set by the cartels until constraints were imposed on individual rate-setting by the Act to Regulate Commerce of 1887. The Act sought to prevent rate discrimination and required that certain services be offered to all shippers, and that rates and services be offered as publicized. Interpretation and enforcement of this legislation by the Interstate Commerce Commission resulted in higher and more stable rates for long-distance transport until the middle 1890's. Henceforth evasion of regulation by individual railroads, and reduction of the powers of the I.C.C. by the courts, led to the breakdown of cartel rates.
It is shown that the loyal members of the cartel gained persistently from regulation, while other groups did not. The findings demonstrate that government regulation went beyond mere codification of existing railroad practices, as many contend, and the study may, in consequence, excite some controversy.
Economic historians will be interested in The Economic Effects of Regulation on several counts. The statistical series developed by the author have enabled him to date the start and duration of the various rate wars with greater precision than has heretofore been possible. Ha has been able to provide evidence as to the initiators of the wars, and to estimate their gains so as to test theories of cartel stability. In addition, the data series Professor MacAvoy has developed in all probability transcend their particular use here, and may prove to be germane to broader issues in United States industrial development.
This volume is certain to find an important place in the economic literature, for it is equally a valuable case study in the stability of oligopoly prices. Economists interested in industrial organization and regulation during the last half of the nineteenth century will find this volume most useful. The Economic Effects of Regulation will also serve as a supplementary study for graduate and undergraduate economics courses in government regulation of business.
