BEFORE THE INTERSTATE COMMERCE COMMISSION: Rail Market Dominance and Related Considerations

by John P. Formby on April 2, 1980
by John P. Formby, R. Robert Russell, Thomas M. Lenard and Roy A. Nierenberg

The Council on Wage and Price Stability supported a proposed policy change by the Interstate Commerce Commission
that would free a substantial volume of rail traffic from maximum rate regulation. The Council also supported the
principle of the Commission’s proposed no-suspend zone for changes in rail freight rates.  The Commission’s proposed market dominance rules and no suspend zone will permit railroads to respond quickly to changes in market conditions and thereby allocate rail resources to their most productive uses. The new regulations represent an important change in implementing the pro-competitive intent of the Railroad Revitalization and Regulatory Reform Act of 1976. The Council recommended several modifications in the proposal, including:
o The final rules should incorporate a careful monitoring of changes in rail rates to ensure that the new procedures
accomplish the intended purpose while providing adequate protection to captive shippers.
o The proposal should be modified to call for evidence relating to long term substitution possibilities and potential competition as a part of the substantive test of market dominance.
o The no-suspend zone should be restated in real terms.  This should permit the Commission to restrict the use of
inefficient general rate increases.
o To provide greater protection for captive shippers and the public, the Commission is urged to modify the proposal so
that it promotes intramodal competition among railroads. This can be accomplished by prohibiting rate bureau
discussion and consideration of any rail rate in excess of the proposed market dominance threshold.  Intramodal competition can also be increased by eliminating artificial barriers to the construction of new connector rail lines
from captive plants to nearby competing railroads.

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