Social Status, Entry, and Predation: The Case of British Shipping Cartels 1879-1929

By Joel Podolny
1997| Working Paper No. 1450

In this paper, we attempt to incorporate social status and regional affiliation — two variables of central sociological interest — into an economic analysis. We build on Scott Morton’s (1997) examination of entry and predation in the merchant shipping industry at the turn of the century in which she finds support for the long purse theory. During the time period in which the entries were occurring, there was a rich social context that the economic model ignores but that likely influenced the result of an entry incident. We modify the model to take account of social identity and include in the dataset the social status of the entrant owners to see if it has an impact on the predation behavior of the incumbent cartels. We find that high social status entrants are significantly less likely (40%) to be preyed upon by the incumbent cartel than the low social status entrants. The result is consistent with social status being a proxy for family wealth (or deep pockets), a consumption good for other cartel members, and an indication of the future cooperativeness of the entrant, or his ability to uphold the ‘moral community’ of the cartel. Further analysis provides additional support for the last hypothesis. The paper highlights the role of social identity as an important factor underlying instances of market conflict; it also illustrates that a straightforward economic model of predation can be improved upon in the both the theoretical and empirical dimensions with the addition of reasoning and variablables traditionally of concern to other disciplines, which may result in richer description of behavior.