Terminal Railroad Revisited: Foreclosure of an Essential Facility or Simple Horizontal Monopoly

Authors:
David Reiffen and Andrew Kleit
Working Paper:
172

St. Louis Terminal Railroad (1912) has been cited by a number of authors as a case of vertical foreclosure by competitive rivals. The alleged foreclosure has been used as a basis for the "Essential Facility Doctrine," an antitrust theory that has attracted a large degree of interest since Aspen Ski (1985). This paper examines the factual basis for the claims of foreclosure. We find that a close examination of Terminal Railroad reveals that, consistent with the economic theory of vertical integration, no foreclosure occurred. Instead, Terminal Railroad was simply a case of horizontal monopoly. Our findings suggest that to the extent the Essential Facilities Doctrine is based upon this case, the doctrine should be reexamined.