Collusive Investments in Technological Compatibility: Lessons from U.S. Railroads in the Late 19th Century

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<jats:p> Collusion is widely condemned for its negative effects on consumer welfare and market efficiency. In this paper, I show that collusion may also in some cases facilitate the creation of unexpected new sources of value. I bring this possibility into focus through the lens of a historical episode from the 19th century, when colluding railroads in the U.S. South converted 13,000 miles of railroad track to standard gauge over the course of two days in 1886, integrating the South into the national transportation network. Route-level freight traffic data reveal that the gauge change caused a large shift in market share from steamships to railroads, but did not affect total shipments or prices on these routes. Guided by these results, I develop a model of compatibility choice in a collusive market and argue that collusion may have enabled the gauge change to take place as it did, while also tempering the effects on prices and total shipments. </jats:p><jats:p> This paper was accepted by Joshua Gans, business strategy. </jats:p>

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10.1287/mnsc.2019.3504

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Gross, DP (n.d.). Collusive Investments in Technological Compatibility: Lessons from U.S. Railroads in the Late 19th Century. Management Science. 10.1287/mnsc.2019.3504 Retrieved from https://hdl.handle.net/10161/21289.

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Gross

Daniel Gross

Assistant Professor of Business Administration

Daniel P. Gross is an Assistant Professor of Business Administration at Duke University’s Fuqua School of Business and a Faculty Research Fellow at the National Bureau of Economic Research. He researches the causes and consequences of technological change. Recurring themes in his work include crisis innovation and its impacts on the innovation system; automation and its effects on firms, workers, and labor markets; and incentives and other tools for managing creative workers within organizations. His work frequently uses historical examples of industries undergoing significant technological change as contexts to investigate recurrent or modern economic questions.


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