Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance

By David I. Rosenbaum | Go to book overview

Integration also denied potential entrants access to an alumina market. The requisite need for complex vertical coordination made entry even more difficult.

Alcoa's pricing policy also discouraged entry. Alcoa purposely set its price for aluminum ingot relatively low. This showed potential competitors that although the price a potential entrant may have faced if it entered the aluminum industry would not be the competitive price, it would be much lower than the monopoly price. This relatively low price would have been agreeable to Alcoa as a post-entry equilibrium price.

In dealing with foreign competition, Alcoa actively lobbied to increase the tariffs on foreign producers. Alcoa was only partially successful in this endeavor. At times the tariff fell to little or nothing, which did increase the amount of foreign aluminum sold in the United States. However, imports never counted for more than 20 percent of all aluminum sales in the United States while Alcoa dominated the market. Thus, even when tariff barriers were low, Alcoa continued to dominate.

Alcoa was consistently profitable over its period of dominance. Yet there were only two aborted attempts at entry. One was by the French with foreign financing. Another was by the Dukes as part of an attempt to utilize a large Canadian power project. Clearly Alcoa's actions were effective in thwarting entry. And while it may have been an efficient producer, it also consistently targeted and frequently earned more than a normal profit.

Entry eventually occurred through government intervention. Kaiser and Reynolds were created as two integrated producers, subsidized and supported by the U.S. government. If they had not received such government support, it is unclear whether any new domestic entry would have occurred. Alcoa's dominance may have continued for at least another twenty years, until international producers supported by their own governments may have eventually penetrated the U.S. market.


NOTES
1.
See Donald H. Wallace, Market Control in the Aluminum Industry (Cambridge, MA: Harvard University Press 1937), p. 226.
2.
Margaret B. W. Graham and Bettye H. Pruitt, R&D for Industry: A Century of Technical Innovation at Alcoa ( Cambridge: Cambridge University Press, 1990), p. 103.
3.
George D. Smith, From Monopoly to Competition: The Transformation of Alcoa, 1888-1986 ( Cambridge: Cambridge University Press, 1988), p. 126.
4.
Wallace, Market Control, pp. 77-78, 115.
5.
44 F. Supp. 97.
4.
148 F2d, 416, 431.
7.
Smith, Monopoly, p. 223.
8.
See Melton J. Peck, Competition in the Aluminum Industry, 1945-1958 ( Cambridge, MA: Harvard University Press, 1961), pp. 12-13. For a detailed description of the Surplus Board's activities, see Harold Stein, Public Administration and Policy Development ( New

-66-

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Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Illustrations vii
  • 1 - Introduction 1
  • Notes 9
  • 2 - Dominance in the Oil Industry: Standard Oil from 1865 to 1911 11
  • Notes 33
  • 3 - Tobacco: Predation and Persistent Market Power 39
  • Notes 51
  • 4 - Alcoa and the U.S. Aluminum Industry 55
  • Notes 66
  • 5 - Dow Chemical and the Magnesium Industry 69
  • Notes 86
  • 6 - Eastman Kodak in the Photographic Film Industry: Picture Imperfect? 89
  • Notes 107
  • 7 - The Rise and Fall of Ford and General Motors in the U.S. Automobile Industry: A Tale Twice Told 109
  • Notes 126
  • 8 - The Rise and Fall of IBM 131
  • Notes 150
  • 9 - Microsoft 153
  • Notes 172
  • 10 - Blue Cross: Health Insurance 175
  • Notes 190
  • 11 - AT&T's Grand Design for Dominance in the Global Information Age 195
  • Notes 224
  • 12 - Conclusion 227
  • Notes 254
  • Bibliography 257
  • Index 267
  • About the Author 273
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