The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

CASE 1
Manifest Destiny? The Union Pacific and
Southern Pacific Railroad Merger (1996)

John E. Kwoka, Jr., and Lawrence J. White


INTRODUCTION

The Union Pacific (UP) and the Southern Pacific (SP) railroads have had long and intertwined histories. The UP and the Central Pacific (a predecessor to the SP) were the two railroads commissioned by President Abraham Lincoln in 1862 to construct a transcontinental rail system. The UP laid rail westward from Kansas while the CP began construction in Sacramento. The driving of the Golden Spike into the rail that joined the two at Promontory, Utah, in 1869 helped realize the country's “manifest destiny” of integrating from coast to coast.

Over the next century the UP and the SP (in various corporate guises) provided rail transportation services throughout the western United States. They expanded and in the early 1900s even sought to combine, though they were rebuffed by the courts.1 In 1995 they tried again, this time successfully. In August of that year the managements of the UP and SP announced their intentions to merge into a single integrated railroad. The proposed

The authors filed comments in this case on behalf of the Dow Chemical Company and the Kansas
City Southern Railway Company, respectively. The authors wish to thank Nicholas DiMichael,
Gregory Bereskin, William Mullins, and John Spychelski for helpful comments on an earlier draft,
which was presented at the Transportation and Public Utilities Group session at the American Eco-
nomic Association meetings, January 4, 1998. Gratitude is also owed to Kamen Masjasov for re-
search assistance.

1In 1901 the UP purchased 38% of the SP's stock and gained effective control of the company, but
in 1913 the UP was ordered by the courts on antitrust grounds to relinquish its ownership interest
and control.

-27-

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