The Dynamics of a Stable Cartel: The Railroad Express 1851-1913

Peter Z Grossman

Economic Inquiry, 1996, vol. 34, issue 2, 220-36

Abstract: 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. Copyright 1996 by Oxford University Press.

Date: 1996
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