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 dropped, 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 is 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.