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Chad Syverson (Chicago Booth): Spatial Competition, Strategic Entry Responses, and the North Dakota Railroad War of 1905

Abstract: The North Dakota Railroad War of 1905, which pitted a potential entrant (the Soo Line) against an established monopolist incumbent (the Great Northern Railway), offers a lucid empirical example of strategic behavior, and in particular the potential for entry deterrence through product proliferation. I use detailed geographic data and historical records to examine the profitability of both the incumbent’s and entrant’s potential and chosen strategies. I find that the incumbent could have likely profitably deterred entry. It did not, however, waiting instead to respond only once the entrant began building. This simultaneous entry arguably led to over expansion in the market. I investigate whether the chosen strategies may have ultimately ended up being both unprofitable for the firms involved as well as, potentially, socially wasteful.