Opinion ID: 421082
Heading Depth: 3
Heading Rank: 1

Heading: Guilford's Incentives in Antitrust Theory

Text: 121 The Maine Central is the only railroad providing east-west service to the Maine paper industry. Moreover, Canadian National claims, and the Commission does not dispute, that most of the Maine Central's traffic is captive to rail--trucks are not a significant source of competition. 46 Thus, the Maine Central has market power over rail traffic to and from Maine. As a theoretical matter, then, the Maine Central may be able to increase profits by altering its interchange service. 122 The merger of the Maine Central with the Boston & Maine is, in antitrust terminology, a vertical merger. Ordinarily, a vertically integrated monopolist has no incentive to use its monopoly power over one level of production (rail service in Maine) to increase profits at another level (rail service from Maine to the midwest). As the leading treatise puts it, there is but one maximum monopoly profit to be gained from a monopoly of one level of production, and that profit may be gained directly at the monopolized level (here, rail service in Maine) through appropriate pricing. 3 P. Areeda & D. Turner, Antitrust Law § 725b (1978). There is an exception to this rule, however, for a regulated monopolist, which may be able to obtain from a second level of production the monopoly profits which effective regulation of the franchised monopoly precludes. Id. p 726e (footnote omitted). 47 123 [229 U.S.App.D.C. 41] The Maine Central is, of course, a regulated monopolist. It is barred by the ICC from charging a monopoly price for rail service to Maine, 48 but may be able to use its control over service at Danville and Yarmouth Junctions to shift its potential monopoly profit to the Boston & Maine. Indeed, the ICC itself has recently recognized the risk of such conduct. See Union Pacific--Control--Missouri Pacific, supra note 21, 366 I.C.C. at 529: 124 [In an end-to-end merger], the consolidated system may profit by limiting the downstream competition [from connecting carriers] and routing traffic over its own lines from origin to destination.... This vertical foreclosure effect will occur, if at all, at the gateways served commonly by the consolidating carriers. 125 We do not know whether Guilford will in fact profit by downgrading interchange service, but the risk is substantial. Indeed, Areeda and Turner believe that the probability that a vertically integrated, regulated monopolist will abuse its market power is peculiarly high. Id. p 726e, at 218. They would forbid vertical integration by a regulated monopolist except in cases where regulatory authorities can more or less easily exercise the power to prohibit refusals to sell and to specify the price and other terms of sale. Id. p 726e, at 219 (footnote omitted). In this case, the ICC permitted vertical integration but declined to exercise its power to control the terms of sale between the Maine Central and the Canadian National. The question is whether that decision was reasonable.