The Journal of Economic History


Oligopoly Agreement and the Timing of American Railroad Construction

C. Knick Harleya1

a1 Department of Economics, University of Western Ontario, London, Canada.


The railroads in the American West were constructed in a few concentrated building booms. This timing of construction resulted from the alternate creation and collapse of imperfect property rights to rights of way in partially settled areas. These “property rights” arose from strategic behavior within the railroad oligopoly. When enforcement costs of cooperative action were low, the railroads were able to create rents by avoiding construction ahead of demand. When enforcement became difficult, however, construction was the only way to capture rents on unbuilt lines so a construction boom ensued.