HOW POLICY SHAPES COMPETITION - EARLY RAILROAD FOUNDINGS IN MASSACHUSETTS

To examine the effects of policy on markets and competition we outline hypotheses about the effects of three common policy regimes-public ca pitalization, pro-cartel, and antitrust-on competition and the foundin g of new firms. Analyses of Massachusetts railroad foundings between 1 825 and 1922 show that public capitalization raises the number of foun dings by increasing available resources, pro-cartel policies raise the number of foundings by dampening competition from incumbents, and ant itrust depresses foundings by stimulating competition. Ecological fact ors only show the expected effects once policy is controlled. Industri al organization factors show no net effects, We argue that public poli cy establishes the ground rules of competition and thus creates variet ies of market behavior.