Competition Come Full Circle? Pending Legislation to Repeal the U.S. Railroad Exemptions

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Chris Sagers, Sep 15, 2009

The single oldest and probably most convoluted story in American antitrust is its relationship with the railroads. Railroads were among the first business entities in the United States to be perceived as social problems in and of themselves, regardless of any aid or preference gotten from government. The “populism” that had been a part of American politics since colonial times shifted from fear of government-supported aristocracy to fear of private economic power in its own right, and the railroads were among the first to embody that free-standing power. Perceived railroad abuses were chief motivations for the first state and federal antitrust statutes, and railroads were defendants in many of the earliest antitrust decisions. Even before there was a federal antitrust law, the Interstate Commerce Commission (“ICC”), the first federal regulator of an economic sector, was set up to constrain their power. And yet the railroads were also among the early beneficiaries of a new kind of economic thinking that arose around the turn of the twentieth century, which led to near consensus that railroads and the other heavy infrastructure industries simply could not function on a competitive basis. And so was born a period of regulation under which government controlled entry, exit, and prices in the American transportation, communications, and energy industries. Because competition was displaced, those industries were also exempted from most antitrust scrutiny. Thus, not that long after their perceived wrongdoing precipitated the first antitrust legislation, the railroads managed to escape it more or less entirely by statutory exemption, and they have retained some degree of exemption ever since. In all of these industries, though, the regime of rate-and-entry regulation has largely been dismantled, as a result of a complex series of deregulatory steps begun during the Carter administration and continuing ever since.