Royalty stacking in the U.S. freight railroads: Cournot vs. Coase

Alexandrov, Alexei and Pittman, Russell and Ukhaneva, Olga (2017): Royalty stacking in the U.S. freight railroads: Cournot vs. Coase.

Abstract

Monopolists selling complementary products charge a higher price in a static equilibrium than a single multiproduct monopolist would, reducing both the industry profits and consumer surplus. However, firms could instead reach a Pareto improvement by lowering prices to the single monopolist level. We analyze administrative nationally-representative pricing data of railroad coal shipping in the U.S. We compare a coal producer that needs to ship from A to C,with the route passing through B, in two cases: (1) the same railroad owning AB and BC and (2) different railroads owning AB and BC. We find no price difference between the two cases, suggesting that the complementary monopolist pricing inefficiency is absent in this market. For our main analysis, we use a specification used by previous literature; however, we confirm our findings using propensity score blocking and machine learning algorithms. Finally, we confirm the results by using a difference-in-differences analysis to gauge the impact of a merger that made two routes wholly-owned (switched from case 2 to case 1). Our results have implications for royalty stacking and patent thickets, vertical mergers, tragedy of anti-commons, and mergers of firms selling complements.

• Item Type: MPRA Paper
• Language: English
• Keywords: Vertical mergers, complementary products mergers, railroads, end-to-end mergers, royalty stacking, patent thickets, Cournot, Coase
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; K - Law and Economics > K2 - Regulation and Business Law > K21 - Antitrust Law; L - Industrial Organization > L4 - Antitrust Issues and Policies > L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L92 - Railroads and Other Surface Transportation; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

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