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 capitalization, pro-cartel, and antitrust-on competition and the founding of new firms. Analyses of Massachusetts railroad foundings between 1825 and 1922 show that public capitalization raises the number of foundings by increasing available resources, pro-cartel policies raise the number of foundings by dampening competition from incumbents, and antitrust depresses foundings by stimulating competition. Ecological factors only show the expected effects once policy is controlled. Industrial organization factors show no net effects. We argue that public policy establishes the ground rules of competition and thus creates varieties of market behavior.