The market that antitrust built: Public policy, private coercion, and railroad acquisitions, 1825 to 1922

How do new business models emerge? Neoinstitutionalists argue that the proc ess often begins when a policy shift undermines the status quo; groups then vie to define the best alternative. The authors explore the role of power in selecting between two alternative business models available To railroads from 1897, when antitrust laws banned the cartel-the prevailing model for managing competition. Predatory railroads prescribed several methods for de stroying rivals. Financiers prescribed amicable mergers instead and fought predation by threatening to withhold capital from predators. An analysis of the 167 rail acquisitions in Massachusetts between 1825 and 1922 confirms that the financiers succeeded. After antitrust laws were enforced railroads left cartels to follow the business model of financiers rather than that o f predators. This can be seen in the conditional variables that predict buy ing and selling. Thus public policy and power can shape key market features . It is ironic that this market, built by antitrust, became the prototype f or the neoliberal ideal of the unregulated economy.