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Abstract
The movement of freight on railroads is subject to a number of technological characteristics that
make costing of specific traffic a complex process. Among these restrictions are conditions of joint
production, economies of scale, scope, and density, and a lack of data on specific expenditures
related to individual freight movements.
In this paper, an econometric cost model using publicly available data and methodology
is developed for the examination of average and marginal costs in the industry. The model is
decomposed into individual elasticity estimates for operating parameters to examine economies of
scope. Finally, the size of the firm is varied through multiplying the capital stock measurements and
estimating the cost behavior as firm capital stock is varied between one-quarter and two times the
level of 2005.
Results indicate that the railroad industry has effectively exhausted the possible economies of
scale but can still gain from economies of density and scope. In addition, there appears to be little
economic justification for mergers creating transcontinental railroad systems.