Fiona Scott Morton
I examine the outcomes of cases of entry by merchant shipping lines into established markets around the turn of the century. These established markets are completely dominated by an incumbent cartel composed of several member shipping lines. The cartel makes the decision whether or not to begin a price war against the entrant; some entrants are formally admitted to the cartel without any conflict. I use characteristics of the entrant to predict whether or not the entrant will encounter a price war conditional on entering. I find that weaker entrants are fought, where “weaker” means having fewer financial resources, less experience, smaller size, or poor trade conditions. The empirical results provide most support for the long-purse theory of predation. Due to the small number of observations available, 47, I discuss qualitative evidence (such as predatory intent expressed in correspondence between cartel members) that supports the empirical results. The results are also found to be robust to misclassification of the dependent variable, which is a particular concern when dealing with historical data.