Partial Ownership and Foreclosure: An Empirical Analysis.

This paper examines events associated with Union Pacific (UP) Railroad's attempt to obtain a significant minority share of the voting equity in Chicago Northwestern (CNW) Railroad. Rivals of UP petitioned the ICC to block the transaction, positing a theory of foreclosure that connects UP's partial ownership of CNW to reductions in both the rivals' profits and social welfare. This paper explores this theory's implications more generally and generates a testable implication for the UP/CNW transaction. I test for the predicted effect and find evidence contrary to the predictions of the rivals' theory, but consistent with other theories of partial ownership interests. Copyright 1998 by Kluwer Academic Publishers