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.
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Book title: Market Dominance:How Firms Gain, Hold, or Lose It and the Impact on Economic Performance. Contributors: David I. Rosenbaum - Editor. Publisher: Praeger. Place of publication: Westport, CT. Publication year: 1998. Page number: 66.
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