Premium
THE DYNAMICS OF A STABLE CARTEL: THE RAILROAD EXPRESS 1851–1913
Author(s) -
Grossman Peter Z.
Publication year - 1996
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1996.tb01374.x
Subject(s) - cartel , collusion , bankruptcy , economics , microeconomics , industrial organization , finance
The railroad express was probably the most successful cartel in U.S. business history. The key to its stability lay in the fact that collusion was largely an effort to create a cost‐reducing distribution network. Because cost was dependent on collusion, the five cartel members could both underprice entrants and punish defectors. It is shown that in a Bertrand‐type price war, colluding firms could effectively drive a defector into bankruptcy. As a result, the express controlled its market and remained a stable organization for more than half a century.