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The Merchant of Venice cleverly places justice and mercy on the same plane and allows the audience to compare a life without any measure of compassion - in other words the life of a Jew - as compared to the benevolence of a merciful disposition - such as the audience would like to believe of themselves. The fact that the audience would have judged Shylock, as a Jew, in a less than compassionate way, adds drama and irony to the play as a whole.
In theory, justice without mercy, is harsh and unmitigating. Imagine if Shylock had received his "pound of flesh" because Portia, in her disguise as the judge, cannot "alter a decree established."(IV.i.214) Portia tries to make Shylock understand that this kind of justice is not just at all. When he simply wants to "proceed to judgement" (234), Portia uses the same strict adherence to the law to make it work against Shylock as he must be careful not to spill a "jot of blood." (301)
Just as Shylock's justice is cruel so too are the laws of Venice as Shylock "shal't have justice, more than thou desir'st." (311)Not only will Shylock now lose everything, he will be forced to convert to Christianity - the ultimate betrayal for him; especially as he has already suffered the humiliation of his daughter's transformation. Shylock would rather Jessica marry "any stock of Barrabas....rather than a Christian!" (291)
Antonio is no more inclined to be merciful towards Shylock when he is placed in the stronger position but by making him convert he can inflict much hurt on Shylock, more than insisting on his death, such as Shylock would, at this stage , prefer.
So in practice, justice without mercy can work against those who insist on its merits. The audience will have understood the warning but may have simply seen how the Jews - such as they were hated by the Christians of England at the time and had been banned for centuries before - received what they deserved.
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