United States Steel's Acquisition of the Great Northern Ore Properties: Vertical Foreclosure or Efficient Contractual Governance?

Abstract

This article examines United States Steel Corporation'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 modem economists as an example of vertical foreclosure. We present qualitative and quantitative evidence to support an alternative view that the lease generated a net efficiency gain as it promoted relationship-specific investment in the exploitation of the ore properties.