TY  - JOUR
AU  - Mullin,Joseph C.
AU  - Mullin,Wallace P.
TI  - United States Steel's Acquisition of the Great Northern Ore Properties: Vertical Foreclosure or Efficient Contractual Governance?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5662
PY  - 1996
Y2  - July 1996
UR  - http://www.nber.org/papers/w5662
L1  - http://www.nber.org/papers/w5662.pdf
N1  - Author contact info:
Wallace Mullin
Department of Economics
George Washington University
2115 G Street N.W.
Washington, DC 20052
Tel: 202/994-8087
Fax: 202/994-6147
E-Mail: wpmullin@gwu.edu
AB  - This paper examines United States Steel's acquisition by long-term lease of the iron ore properties of the Great Northern Railway.  This 1906 transaction, which significantly increased U.S.  Steel's already substantial ore holdings, has been characterized by contemporary observers and modern economists as an example of vertical foreclosure.  We present quantitative and qualitative evidence to support an alternative view that the lease generated a net efficiency gain, resulting in lower steel prices, as it promoted relationship-specific investment in the exploitation of the ore properties.  Quantitatively, we examine the stock market reactions of U.S.  Steel, the Great Northern Railway, steel industry rivals, and the railroads, a major steel customer, to the announcement of the lease signing.  Strikingly, the railroads had a significant positive excess return. Qualitatively, we examine the terms of the lease and the performance of the parties to document the role of the lease in encouraging relationship-specific investment.
ER  -