Here are a few of my sources that i used in the investigation of my project
Association of American Railroads, . "U.S. Freight Railroad Productivity." Sep. 2009: 1-2. Web. 29 Dec 2009. http://www.aar.org/~/media/AAR/BackgroundPapers/Railroad_Productivity_Sept2009.ashx.
Association of American Railroads, . "The Staggers Act: Balanced Regulation that Works." Jun. 2009: 1-3. Web. Dec 29 2009. http://www.aar.org/~/media/AAR/PositionPapers/Balanced%20Regulation%20Overview%20June%202009.ashx.
Canadian National Railway Company, . "Consolidated Statement of Income." Canadian National Railway Company. 30 Sep. 2009. Canadian National Railway Company, Web. 28 Dec 2009. http://www.cn.ca/documents/Investor-Financial-Quarterly-2009/Q3-2009-Financial-Statements-en.pdf.
Canadian Pacific Railway Limited, . "Canadian Pacific Third Quarter Report 2009." Canadian Pacific Railway Limited. 30 Sep. 2009. Canadian Pacific Railway Limited, Web. 28 Dec 2009. http://www8.cpr.ca/cms/NR/rdonlyres/elzeyyojjzhnjyoyeziafptmae4rclyogadgttk6khace47fnfrnlkyshbpug62drx5cqma7ts3hmipagph5qkpoyqf/Q3+09+ReleasewithMDAV3.pdf.
The Railway Association of Canada, . "Canadian Rail Operating Rules." RAC. 26 Feb. 2008. RAC, Web. 26 Dec. 2009. http://www.railcan.ca/documents/rules/1684/2008_03_19_CROR_TCO_093_en.pdf.
Hannaford, Steve. "Big Railroad Deal." Oligopoly Watch. 01 Oct. 2007. Steve Hannaford, Web. 28 Dec. 2009. http://www.oligopolywatch.com/2007/09/06.html.
Feel free to check out some of these links
Friday, January 1, 2010
Graphs Anyone?
(Sorry for the low quality of the graphs, they are hand drawn with love)
Let's start back in 1881, when the CPR was created. This graph shows how because it was a monopoly the demand curve for the CPR was extremely steep (more inelastic) because there was no options for cosumers to choose. However, costs were high in this time, and an unstable government was not subsidizing them as well as they could, in fact they were more likely to be regulating them because they were a monopoly. However, you can see that the price point is fairly high above the ATC which shows that CPR was more interested in profits (The box with orange shading is profits)then in consumer happiness seeing they were not producing at the fair-return point (Where ATC crosses the demand curve). Therefore we can see that CPR was not productively and allocatively efficient.
Let's start back in 1881, when the CPR was created. This graph shows how because it was a monopoly the demand curve for the CPR was extremely steep (more inelastic) because there was no options for cosumers to choose. However, costs were high in this time, and an unstable government was not subsidizing them as well as they could, in fact they were more likely to be regulating them because they were a monopoly. However, you can see that the price point is fairly high above the ATC which shows that CPR was more interested in profits (The box with orange shading is profits)then in consumer happiness seeing they were not producing at the fair-return point (Where ATC crosses the demand curve). Therefore we can see that CPR was not productively and allocatively efficient.
This graph represents the CNR. Notice that because this comany was put in place by the Canadian Government, creating competition for the CPR, we see that the demand curve is not as inelastic or less steep. Also the demand curve as moved left because now there is competition and subsitution is available to consumers. However, because there is only ONE other company as competition, the demand curve is still fairly steep and has not moved left all that much. Also, the price point has gone down, however, it is still a fair ways above the ATC and the fair-return point which shows that even with the CPR as competition CNR is still an allocatively and productively inefficient company. CNR, in this graph, has a larger profit (then the CPR, graph below) and the ATC is slightly closer to the demand curve which means that costs were slightly lower for CNR in this instance (The box with orange shading is profits).
This graph is of the CPR AFTER CNR entered the market. Due to the entrance of CNR, CPR's demand curve moves left AND becomes more elastic. In this graph, I choose to draw CPR having slightly higher costs and therefore they have lower profits. (The box with orange shading is profits). Despite, CNR's presence in the market, CPR is still productively and allocatively inefficient because, the price point is much higher then ATC and it is also higher then the fair-return point. Needless to say, the oligopoly formed by these two companies doesn't really change the inefficiency problems created by the monopoly of CPR, it may decrease the problem slightly, but not by a whole lot. This is good way of showing that oligopolies are almost as inefficient as their monopolitic counterpart.
Thursday, December 31, 2009
Higher Production Costs? Larger Profits?
Who exactly has the higher production costs between these two firms? CNR is a larger railroad, with more cars and therefore more workers. CPR is a smaller railroad with fewer cars and fewer workers but has been around longer. Based on this you’d think that the CNR would have larger costs and therefore have a smaller profits and the opposite would be true for CPR. Not necessarily.
CNR is a government run organization, which m
eans a certain amount of government money may potentially go into the CNR to help reduce their costs. Also, with consumers constantly having to choose between two railways that depending on where their product that needs shipping needs to go, with choose one over the other, production costs a bound to vary with changes in demand (and customer convenience).
By looking at their third quarter reports for 2009, it appears that CNR is doing much better then CPR. However, this does not factor in implicit costs; however it does give a fairly accurate representation to the successes and difference between the two companies.
As for larger profits, it would seem that for this year, CNR is doing a little better then the CPR. However how much of success of the CNR is based on the government is very hard to tell based on these two balance sheets.
Click Here to go to CPR's financial Report. Once there please click the link "investors" and then the link "financial Reports". This is the only way for you to be able to view these reports. Sorry for the inconvenience.
CNR is a government run organization, which m
eans a certain amount of government money may potentially go into the CNR to help reduce their costs. Also, with consumers constantly having to choose between two railways that depending on where their product that needs shipping needs to go, with choose one over the other, production costs a bound to vary with changes in demand (and customer convenience).By looking at their third quarter reports for 2009, it appears that CNR is doing much better then CPR. However, this does not factor in implicit costs; however it does give a fairly accurate representation to the successes and difference between the two companies.
As for larger profits, it would seem that for this year, CNR is doing a little better then the CPR. However how much of success of the CNR is based on the government is very hard to tell based on these two balance sheets.
Click Here to go to CPR's financial Report. Once there please click the link "investors" and then the link "financial Reports". This is the only way for you to be able to view these reports. Sorry for the inconvenience.
Government Intervention?
The government has been heavily involved with the railway industry from its creation. But why?
Government becomes involved with a company that is vital to the nations success, and the railway is a very important part of any nation. Therefore it makes sense that the government would do all it can to ensure it stays afloat.
Yet, I have also stated earlier that governments do not like m
onopolies or oligopolies. Therefore, wouldn’t this make the railway an externality? A negative one? But also a positive externality? So does the government have to regulate and subsidize this industry?
Yup. They do.
Quite simply, governments are so involved because they not only have to keep this industry functioning but also have to make sure it’s running fairly and effectively. The government is trying to please the people that have voted them into power, therefore, it’s logical to understand there rationale for them wanting to keep this industry close to ensure is pleasing the consumers.
Granted of course, that companies do not really appreciate the government controlling their industry. The railway is proof of that, and in Canada, the CPR tries to find freedom from the government (the CNR really can’t seeing they are a government owned company).
Government becomes involved with a company that is vital to the nations success, and the railway is a very important part of any nation. Therefore it makes sense that the government would do all it can to ensure it stays afloat.
Yet, I have also stated earlier that governments do not like m
onopolies or oligopolies. Therefore, wouldn’t this make the railway an externality? A negative one? But also a positive externality? So does the government have to regulate and subsidize this industry?Yup. They do.
Quite simply, governments are so involved because they not only have to keep this industry functioning but also have to make sure it’s running fairly and effectively. The government is trying to please the people that have voted them into power, therefore, it’s logical to understand there rationale for them wanting to keep this industry close to ensure is pleasing the consumers.
Granted of course, that companies do not really appreciate the government controlling their industry. The railway is proof of that, and in Canada, the CPR tries to find freedom from the government (the CNR really can’t seeing they are a government owned company).
Canada and the United States
Canada and United States.
Canada’s railway industry is dominated by two very powerful companies which form a tight-knit, extremely competitive oligopoly.
Oligopolies prove to be ineffective and unproductive. It appears that the United States doesn’t seem to have this problem. But what exactly is so different between their rail industry and ours?
Capitalism.
United States is a capitalistic nation meaning that the government, for the most part, stays out of the way of businesses. Therefore, it is any wonder, based upon this lack of intervening, that the United States Railway Industry is a monopolistic competitive market. However, in the specific example, it seems the United States government, prior to 1980, placed heavy regulations on the rail industry. This was proving to be dangerous on the industry as it was crippling many of the railways. Therefore, in 1981 the U.S. government passed the Staggers Act, which essentially relieved many of the regulations looming over the industry. Some regulations were kept to ensure that shippers were not treated unfairly due to train companies’ competition.
What the government was allow the industry to fend for themselves, resorting to capitalism. In the subsequent years revenues dropp
ed, due to the influx of companies flooding the industry due to the small barriers to entry. Today, the railway in the U.S., according to their website, is one of the most effective and efficient in the world. It makes sense, when this system is SUCH a monopolistic competitive market almost to the point where it’s ALMOST a perfect competition. The railways in the united states, do not cross the country under a single company, every state has many different railways, that connect to other railways in neighbouring states. It’s a prime example of a monopolistic competition.
Question is, why doesn’t Canada follow this model, if it is so effective?
Canada’s railway industry is dominated by two very powerful companies which form a tight-knit, extremely competitive oligopoly.
Oligopolies prove to be ineffective and unproductive. It appears that the United States doesn’t seem to have this problem. But what exactly is so different between their rail industry and ours?Capitalism.
United States is a capitalistic nation meaning that the government, for the most part, stays out of the way of businesses. Therefore, it is any wonder, based upon this lack of intervening, that the United States Railway Industry is a monopolistic competitive market. However, in the specific example, it seems the United States government, prior to 1980, placed heavy regulations on the rail industry. This was proving to be dangerous on the industry as it was crippling many of the railways. Therefore, in 1981 the U.S. government passed the Staggers Act, which essentially relieved many of the regulations looming over the industry. Some regulations were kept to ensure that shippers were not treated unfairly due to train companies’ competition.
What the government was allow the industry to fend for themselves, resorting to capitalism. In the subsequent years revenues dropp
ed, due to the influx of companies flooding the industry due to the small barriers to entry. Today, the railway in the U.S., according to their website, is one of the most effective and efficient in the world. It makes sense, when this system is SUCH a monopolistic competitive market almost to the point where it’s ALMOST a perfect competition. The railways in the united states, do not cross the country under a single company, every state has many different railways, that connect to other railways in neighbouring states. It’s a prime example of a monopolistic competition.Question is, why doesn’t Canada follow this model, if it is so effective?
Some might argue that it is because we simply do not have the people power to run multiple railways across our vast country and furthermore we simply do not have the ability to create any more railways. This may be true, but it's only half the answer. The government plays an a major roll in why we do not opt for the American way of running the railroad. Our tight-knit oligopoly is a money maker, yet with only two companies the government can easily regulate them. The Railway Association of Canada, a government run regulations board over all the railways in Canada, has many strict rules that are enforced upon the CNR and CPR. With only two railways to have to keep tabs on it is easier to ensure they are doing what they should and the government gets plenty of money from the two large, over-priced firms.
The market of Oligopolies
So what are oligopolies anyways? Why are they such a big deal? What makes them so different then any other market type?
By definition, for a market to be an oligopoly there are certain criteria that must be met. For instance: there must be a small
number of firms, interdependency between the firms, a slight differentiation in the product or service, firms must be large and extremely powerful that create large barriers to entry.
Oligopoly differs from the others simply due to the number of firms with in the industry. Monopolies have only ONE large firm controlling the entire industry with large barriers to entry. Meanwhile, monopolistic competition and perfect competition have many smaller firms in the industry with very small barriers to entry. An oligopoly is almost a cross between Monopoly and Monopolistic Competition.
Why the worry about them? Oligopolies are nefarious for collusion. With such small numbers with in the industry, they tend to price their products so that it’s beneficial to all the companies within the market. This creates price fixing, which basically means that consumers end up paying the same thing for similar products no matter where they go and for the most part, consumers end up paying more then a product is worth due to this price fixing, seeing they have no other alternative.
Also, both monopolies and oligopolies defy capitalism, which i
s what North America is known for, although Canada is less so then U.S. However, governments try there hardest to either get rid of this power hungry market types, or at least heavily regulate them so that prices do not get too out of control.
Oligopolies still exist, despite the governments attempts to turn them into monopolistic competition. In fact, many times governments will only succeed at changing monopolies into oligopolies. As in the case of the Canadian Railway.
Oligopolies are an interesting market to look into, and in the case of the Canadian Railway, it’s a captivating topic to investigate.
By definition, for a market to be an oligopoly there are certain criteria that must be met. For instance: there must be a small
number of firms, interdependency between the firms, a slight differentiation in the product or service, firms must be large and extremely powerful that create large barriers to entry.Oligopoly differs from the others simply due to the number of firms with in the industry. Monopolies have only ONE large firm controlling the entire industry with large barriers to entry. Meanwhile, monopolistic competition and perfect competition have many smaller firms in the industry with very small barriers to entry. An oligopoly is almost a cross between Monopoly and Monopolistic Competition.
Why the worry about them? Oligopolies are nefarious for collusion. With such small numbers with in the industry, they tend to price their products so that it’s beneficial to all the companies within the market. This creates price fixing, which basically means that consumers end up paying the same thing for similar products no matter where they go and for the most part, consumers end up paying more then a product is worth due to this price fixing, seeing they have no other alternative.
Also, both monopolies and oligopolies defy capitalism, which i
s what North America is known for, although Canada is less so then U.S. However, governments try there hardest to either get rid of this power hungry market types, or at least heavily regulate them so that prices do not get too out of control.Oligopolies still exist, despite the governments attempts to turn them into monopolistic competition. In fact, many times governments will only succeed at changing monopolies into oligopolies. As in the case of the Canadian Railway.
Oligopolies are an interesting market to look into, and in the case of the Canadian Railway, it’s a captivating topic to investigate.
Meet the Canadian National Railway (CNR) and the Canadian Pacific Railway (CPR)
Since it’s creation in 1881 the Canadian Pacific Railway supplied nation with a railway that unified a large expanse of a country. However, the Canadian Pacific Railway had virtually NO co
mpetition, a monopoly. With no contenders forcing CP Rail to be efficient, CP dominated the market and was not running an efficient enterprise.
However, the Canadian government didn’t want a monopoly running such a vital industry in there country. Remember, all the government could really do to control CP Rail’s power was inflicting them with countless
amounts of regulations. But all regulations really did was create a less productive company, which only proved to hurt the consumers, seeing they had no other option then to choose the heavily regulated, crippled railway.
A solution finally arrived in 1918, the end of world war one, with a more stable government and a steadier economy and government money, Canada could finally afford another railway. Thus the Canadian National Railway was born, much to the CPR’s dismay. Now, there was a competition. Now there was an Oligopoly. Now there was options, granted there was only one other option which really doesn’t change all that much, but it’s the thought that counts…right?
CPR struggled to come to terms with this new competitor, and all through the 1920’s CPR was loosing profits. CNR was booming, everything seemed to be going right. But the 1930’s came and CNR could not remain in the initial lead it had created over its competition. Through out the 1930’s CPR gained back much of the lost competition by being more effective, because they could afford to. Remember, CNR was a government owned business,
CPR was private. The government did not have the same amount of money to put into the CNR as they did the previous decade, and the CPR who had almost 40 years head start on the CNR did not have to wait for government subsidise to save them. Therefore, during the 1930’s CPR regained its initial power over the industry.
This in short is what these two industries do. Fight for power over the industry rather then trying to run the trains effectively and efficiently.
For instance in the 1960’s: CNR had regained the power and both companies were both transporting goods and people. CPR decided to cut their losses and reduce their passenger intake to an all time low. Giving them more room
for transporting goods, and people had to go to CNR to get train travel. Not to mention, in the 1960’s air planes were becoming the key mode of transport and trains were not as popular, but for those who trusted trains more, they had to choose CNR. This meant CNR had less room for transporting goods AND could not move the trains as fast as CPR could, seeing they had to stop at every stop that their passengers wanted to. Once again the CPR had taken back the power.
However, the government did not approve of this and created a regulation that stated the both trains had to take at least a certain minimum number of people. Nothing really changed, CPR increased the number of passengers they took to the bare minimum and CNR was still left to pick up the left over passengers. Finally, the government created another railway. VIA RAIL, a passenger only train, in no way was it in competition with the “big boys” but it relieved them of their passenger dispute. And the playing field was equal again
Even as recently as this year has this "power war" between the companies been in full force. CNR had many of its engineers go on strike in hopes to raise wages. The engineers are part of a union and therefore it was a crippling blow to the company. CPR jumped on this. In fact, CPR even went out of its way to add $500-million to the pensions of its employees, as if to further motivate their workers, creating a more efficiently run enterprise. However, this extra cost may reduce profits for this year, however, it may prove to be very helpful in the long run if it allows CPR to sidestep a strike themselves. CNR ran most of their trains during the strike, however they did have some delayed or even cancelled, which is not good for business.
The power continues to shift between the two companies. Some years CPR does better, others CNR does better. However both felt the crunch of this passed recession. Both trying to cut back to do better then the other, and due to their interdependency on each other, the other would only respond with the same. However at the end of this year’s third quarter, CNR did only marginally better over all but for how long this “lead” will last is anyone’s guess.
Being in such a tight knit oligopoly creates some serious contentions between the two countries. Despite the industry has some serious barriers to entry, other much smaller have attempted to enter the Canadian railway, but they are never able to compete with the two big companies at the national level.
This extremely drastic oligopoly, proves time and time again, that even though their services are slightly differentiated and their extreme interdependency, that they are extremely inefficient. With prices strangely similar, perhaps higher then they should be, its makes you wonder if collusion is going on behind closed doors, especially when they are under the Railway Association of Canada
mpetition, a monopoly. With no contenders forcing CP Rail to be efficient, CP dominated the market and was not running an efficient enterprise.However, the Canadian government didn’t want a monopoly running such a vital industry in there country. Remember, all the government could really do to control CP Rail’s power was inflicting them with countless
amounts of regulations. But all regulations really did was create a less productive company, which only proved to hurt the consumers, seeing they had no other option then to choose the heavily regulated, crippled railway.A solution finally arrived in 1918, the end of world war one, with a more stable government and a steadier economy and government money, Canada could finally afford another railway. Thus the Canadian National Railway was born, much to the CPR’s dismay. Now, there was a competition. Now there was an Oligopoly. Now there was options, granted there was only one other option which really doesn’t change all that much, but it’s the thought that counts…right?
CPR struggled to come to terms with this new competitor, and all through the 1920’s CPR was loosing profits. CNR was booming, everything seemed to be going right. But the 1930’s came and CNR could not remain in the initial lead it had created over its competition. Through out the 1930’s CPR gained back much of the lost competition by being more effective, because they could afford to. Remember, CNR was a government owned business,
CPR was private. The government did not have the same amount of money to put into the CNR as they did the previous decade, and the CPR who had almost 40 years head start on the CNR did not have to wait for government subsidise to save them. Therefore, during the 1930’s CPR regained its initial power over the industry.This in short is what these two industries do. Fight for power over the industry rather then trying to run the trains effectively and efficiently.
For instance in the 1960’s: CNR had regained the power and both companies were both transporting goods and people. CPR decided to cut their losses and reduce their passenger intake to an all time low. Giving them more room
for transporting goods, and people had to go to CNR to get train travel. Not to mention, in the 1960’s air planes were becoming the key mode of transport and trains were not as popular, but for those who trusted trains more, they had to choose CNR. This meant CNR had less room for transporting goods AND could not move the trains as fast as CPR could, seeing they had to stop at every stop that their passengers wanted to. Once again the CPR had taken back the power.However, the government did not approve of this and created a regulation that stated the both trains had to take at least a certain minimum number of people. Nothing really changed, CPR increased the number of passengers they took to the bare minimum and CNR was still left to pick up the left over passengers. Finally, the government created another railway. VIA RAIL, a passenger only train, in no way was it in competition with the “big boys” but it relieved them of their passenger dispute. And the playing field was equal again
Even as recently as this year has this "power war" between the companies been in full force. CNR had many of its engineers go on strike in hopes to raise wages. The engineers are part of a union and therefore it was a crippling blow to the company. CPR jumped on this. In fact, CPR even went out of its way to add $500-million to the pensions of its employees, as if to further motivate their workers, creating a more efficiently run enterprise. However, this extra cost may reduce profits for this year, however, it may prove to be very helpful in the long run if it allows CPR to sidestep a strike themselves. CNR ran most of their trains during the strike, however they did have some delayed or even cancelled, which is not good for business.
The power continues to shift between the two companies. Some years CPR does better, others CNR does better. However both felt the crunch of this passed recession. Both trying to cut back to do better then the other, and due to their interdependency on each other, the other would only respond with the same. However at the end of this year’s third quarter, CNR did only marginally better over all but for how long this “lead” will last is anyone’s guess.
Being in such a tight knit oligopoly creates some serious contentions between the two countries. Despite the industry has some serious barriers to entry, other much smaller have attempted to enter the Canadian railway, but they are never able to compete with the two big companies at the national level.
This extremely drastic oligopoly, proves time and time again, that even though their services are slightly differentiated and their extreme interdependency, that they are extremely inefficient. With prices strangely similar, perhaps higher then they should be, its makes you wonder if collusion is going on behind closed doors, especially when they are under the Railway Association of CanadaThe CP rail map
The government is very actively involved with this industry, subsidizing and regulating, creating governing associations that are in charge and create rules for companies in the industry to follow. With heavy government intervention, small number of other options for consumers and two extremely power hungry large corporations, i
t’s any wonder the Canadian railway system is a flawed, inefficient industry.
t’s any wonder the Canadian railway system is a flawed, inefficient industry.The CN railway map
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