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Entry and Predation: British Shipping Cartels 1879-1929


  • 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 less financial resources, experience, size, or poor trade conditions. The empirical results provide support for the long purse theory of predation. I discuss qualitative evidence such as predatory intent expressed in correspondence between cartel members which 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.

Suggested Citation

  • Fiona Scott Morton, 1996. "Entry and Predation: British Shipping Cartels 1879-1929," NBER Working Papers 5663, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5663
    Note: IO

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    References listed on IDEAS

    1. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    2. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
    3. repec:wsi:wschap:9789812818478_0007 is not listed on IDEAS
    4. Ordover, Janusz A. & Saloner, Garth, 1989. "Predation, monopolization, and antitrust," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 9, pages 537-596 Elsevier.
    5. Yamey, B S, 1972. "Predatory Price Cutting: Notes and Comments," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 129-142, April.
    6. Irwin, Douglas A, 1991. "Mercantilism as Strategic Trade Policy: The Anglo-Dutch Rivalry for the East India Trade," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1296-1314, December.
    7. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    8. Drew Fudenberg & David K. Levine, 2008. "Reputation And Equilibrium Selection In Games With A Patient Player," World Scientific Book Chapters,in: A Long-Run Collaboration On Long-Run Games, chapter 7, pages 123-142 World Scientific Publishing Co. Pte. Ltd..
    9. Cosslett, Stephen R, 1983. "Distribution-Free Maximum Likelihood Estimator of the Binary Choice Model," Econometrica, Econometric Society, vol. 51(3), pages 765-782, May.
    10. Drew Fudenberg & Jean Tirole, 1986. "A "Signal-Jamming" Theory of Predation," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 366-376, Autumn.
    11. McGee, John S, 1980. "Predatory Pricing Revisited," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 289-330, October.
    12. Burns, Malcolm R, 1986. "Predatory Pricing and Acquisition Cost of Competitors," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 266-296, April.
    13. Han, Aaron K., 1987. "Non-parametric analysis of a generalized regression model : The maximum rank correlation estimator," Journal of Econometrics, Elsevier, vol. 35(2-3), pages 303-316, July.
    14. Garth Saloner, 1987. "Predation, Mergers, and Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 165-186, Summer.
    15. Drew Fudenberg & Jean Tirole, 1985. "Predation Without Reputation," Working papers 377, Massachusetts Institute of Technology (MIT), Department of Economics.
    16. Pirrong, Stephen Craig, 1992. "An Application of Core Theory to the Analysis of Ocean Shipping Markets," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 89-131, April.
    17. Slade, Margaret E, 1989. "Price Wars in Price-Setting Supergames," Economica, London School of Economics and Political Science, vol. 56(223), pages 295-310, August.
    18. Hausman, J.A. & Morton, F.M.S., 1994. "Misclassification of Dependent Variable in a Discrete Response Setting," Working papers 94-19, Massachusetts Institute of Technology (MIT), Department of Economics.
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    JEL classification:

    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies


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