6 ms·

Big Tech is America’s new railroad problem (2019)

92 points by briandear 6y ago

dantheman 6y ago
If we are really concerned about 'monopolies', the easiest way to address that is to remove them is to just stop granting through software patents. Considering that the 'new monopolies' are websites that have very low switching costs, it's hard to see how the consumer is harmed. It's more that the media and politicians don't like the competition for power.
- Natsu 6y ago
  Re: switching costs, the top story on HN points out right now that things aren't always that simple: https://gomox.medium.com/google-safe-browsing-can-kill-your-startup-7d73c474b98d https://gomox.medium.com/google-safe-browsing-can-kill-your-...
ggreer 6y ago
I seriously doubt the story that government stepped in to stop railroads from colluding on prices. In Railroads and Regulation: 1877-1916, Gabriel Kolko shows that before government regulation, more railroad companies were being founded over time, that freight costs were decreasing, and that government intervention happened because the largest railroads encouraged it. Once the Interstate Commerce Commission was granted authority (through the Elkins Act), one of its first actions was to prohibit railroads from offering rebates and other price discounts. This increased railroad revenue by approximately 10%. It's a similar story for airlines with the Civil Aeronautics Board. The CAB was given the power to regulate airline fares, routes, and to control whether a new airline was allowed to enter the market. From the CAB's founding in 1938 until airline deregulation in 1978, no new trunk airlines were founded. After deregulation, fares plummeted, new airlines flourished, and many incumbent airlines went out of business (either through bankruptcy or acquisition). To quote David Friedman: "If you do not believe that the Interstate Commerce Commission and the Civil Aeronautics Board are on the side of the industries they regulate, figure out why they set minimum as well as maximum fares."
- Aloha 6y ago
  They did, the rebating prohibition was mostly to stop a carrier from offering favorable shipping rates to one shipper while charging higher rates to another. The ICC methodology was helpful in stopping the roads from abusing shippers, however the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions. The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt (and 20 years maintenance deferred) road. In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, for example, that required three man crews on diesel locomotives). I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated. That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
- xg15 6y ago
  There are legitimate reasons to set minimum prices: It can prevent price dumping, where a company with deep pockets starves out competition and the hikes the prices once competition is gone (or otherwise abuses its now dominant status). Rebates can also be used to covertly raise prices: Just declare your current price a rebate, then at some point "return" to the regular price which is now higher. Also great for discriminating against certain groups or forcing a certain behavior: Just tailor the rebate to everyone except the group you're targeting.
deleted 6y ago
[deleted]
laddng 6y ago
Does anyone have any insights into how the railroad industry fared after it was broken up? I'm curious what the impact of the overall industry was as a result of the Sherman Act. Do we think that had the railroad industry remained monopolized that the US today would have more high speed railways or more advanced rail services? The author seems to draw a comparison between railroads and Big Tech, and I wonder if we can make the same guesses about what the outcome of the tech industry will be after more antitrust regulation?
- Aloha 6y ago
  The Rail Industry was never broken up, it instead was regulated by the Interstate Commerce Commission (ICC). The ICC regulated all manner of their businesses: Pricing - Maximum Rates, Minimum Rates, and rates per commodity/freight type. Quality of Service - Adding New Service, Modifying, Reducing, or Abandoning Existing Service. Safety - hours of service rules, equipment and inspection standards. Mergers - All Mergers, Divestments, etc needed ICC approval. The issue is the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions, The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt road. In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, that required three man crews on diesel locomotives). I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated. That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
bergstromm466 6y ago
Many think that Silicon Valley tech corps are super special and mythological, yet they’re just protocols dressed up with a fancy user experience.
Maledictus 6y ago
https://archive.is/791BY https://archive.is/791BY
ur-whale 6y ago
https://archive.is/791BY https://archive.is/791BY
sitkack 6y ago
Lol, this ironic because lots of Google owned backbone fiber is along rail routes purchased by google early on.
peter303 6y ago
Congress gave rail companies immense wealth of half the land in an adjacent ten mile swath as an incentive to build in remote hinterlands. Some companies leveraged this better than others. The modern analogy was to lightly regulate what was attached to the internet, so companies could construct vast virtual properties.

92 points by briandear 6y ago

If we are really concerned about 'monopolies', the easiest way to address that is to remove them is to just stop granting through software patents. Considering that the 'new monopolies' are websites that have very low switching costs, it's hard to see how the consumer is harmed. It's more that the media and politicians don't like the competition for power.

Natsu 6y ago
Re: switching costs, the top story on HN points out right now that things aren't always that simple: https://gomox.medium.com/google-safe-browsing-can-kill-your-startup-7d73c474b98d https://gomox.medium.com/google-safe-browsing-can-kill-your-...

ggreer 6y ago

I seriously doubt the story that government stepped in to stop railroads from colluding on prices. In Railroads and Regulation: 1877-1916, Gabriel Kolko shows that before government regulation, more railroad companies were being founded over time, that freight costs were decreasing, and that government intervention happened because the largest railroads encouraged it. Once the Interstate Commerce Commission was granted authority (through the Elkins Act), one of its first actions was to prohibit railroads from offering rebates and other price discounts. This increased railroad revenue by approximately 10%. It's a similar story for airlines with the Civil Aeronautics Board. The CAB was given the power to regulate airline fares, routes, and to control whether a new airline was allowed to enter the market. From the CAB's founding in 1938 until airline deregulation in 1978, no new trunk airlines were founded. After deregulation, fares plummeted, new airlines flourished, and many incumbent airlines went out of business (either through bankruptcy or acquisition). To quote David Friedman: "If you do not believe that the Interstate Commerce Commission and the Civil Aeronautics Board are on the side of the industries they regulate, figure out why they set minimum as well as maximum fares."

Aloha 6y ago
They did, the rebating prohibition was mostly to stop a carrier from offering favorable shipping rates to one shipper while charging higher rates to another. The ICC methodology was helpful in stopping the roads from abusing shippers, however the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions. The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt (and 20 years maintenance deferred) road. In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, for example, that required three man crews on diesel locomotives). I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated. That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.
xg15 6y ago
There are legitimate reasons to set minimum prices: It can prevent price dumping, where a company with deep pockets starves out competition and the hikes the prices once competition is gone (or otherwise abuses its now dominant status). Rebates can also be used to covertly raise prices: Just declare your current price a rebate, then at some point "return" to the regular price which is now higher. Also great for discriminating against certain groups or forcing a certain behavior: Just tailor the rebate to everyone except the group you're targeting.

deleted 6y ago

[deleted]

laddng 6y ago

Does anyone have any insights into how the railroad industry fared after it was broken up? I'm curious what the impact of the overall industry was as a result of the Sherman Act. Do we think that had the railroad industry remained monopolized that the US today would have more high speed railways or more advanced rail services? The author seems to draw a comparison between railroads and Big Tech, and I wonder if we can make the same guesses about what the outcome of the tech industry will be after more antitrust regulation?

Aloha 6y ago
The Rail Industry was never broken up, it instead was regulated by the Interstate Commerce Commission (ICC). The ICC regulated all manner of their businesses: Pricing - Maximum Rates, Minimum Rates, and rates per commodity/freight type. Quality of Service - Adding New Service, Modifying, Reducing, or Abandoning Existing Service. Safety - hours of service rules, equipment and inspection standards. Mergers - All Mergers, Divestments, etc needed ICC approval. The issue is the ICC regulated the Railroads as if they were the only kind of transportation available, so when the rail industry wanted to lower rates, or reduce service once trucking appeared, they were denied the ability to respond to market conditions, The ICC was also known for its turgid yet protracted decision making process - the Union Pacific, Rock Island Merger case is a great example, the decision making process took so long that the RI basically was bankrupt by the time it was approved, at which point the UP no longer wanted a bankrupt road. In addition to that one of the prime forces that led to the NYC/PRR merger, and later bankruptcy, was that because of the ICC price setting mechanism, and other changes to the trackside industries that they served, they were effectively regulated into bankruptcy (there are other contributing factors too, like usurious property tax rates in their operating areas, and inflexible outdated work rules, that required three man crews on diesel locomotives). I don't mean to say that regulation is bad, but one should be careful how that regulation is crafted, and the regulation must be updated from time to time - the underlying methodology must be regularly renewed to ensure they are not girdling the businesses being regulated. That said, the regulatory model used by the ICC and CAB (Trains/Trucks/Busses and Airplanes Respectively) was beneficial early on, but failed to adapt to changing market conditions. Quite Arguably the Staggers Act (Railroad), the Motor Carrier Act of 1980 (Trucks and Busses) Airline Deregulation Act of 1978 (Airlines), left their regulated industries healthier and more competitive than before, and adjusted for inflation, rates for all of these industries are lower now than they ever had been, and all three are (generally) more profitable, while still providing lots of high paying decent jobs for folks.

bergstromm466 6y ago

Many think that Silicon Valley tech corps are super special and mythological, yet they’re just protocols dressed up with a fancy user experience.

Maledictus 6y ago

https://archive.is/791BY https://archive.is/791BY

ur-whale 6y ago

https://archive.is/791BY https://archive.is/791BY

sitkack 6y ago

Lol, this ironic because lots of Google owned backbone fiber is along rail routes purchased by google early on.

peter303 6y ago

Congress gave rail companies immense wealth of half the land in an adjacent ten mile swath as an incentive to build in remote hinterlands. Some companies leveraged this better than others. The modern analogy was to lightly regulate what was attached to the internet, so companies could construct vast virtual properties.