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

By David I. Rosenbaum | Go to book overview

3
TOBACCO: PREDATION AND PERSISTENT MARKET POWER

Walter Adams and James W. Brock

More than eighty years ago, in 1911, the three largest cigarette producers controlled 80 percent of the U.S. market.1 A decade and a half later, in 1925, the top four firms accounted for 91 percent of the market.2 Four decades later, in 1949, the four largest firms accounted for 87 percent of the field.3 Seventy years later, in 1980, the four firms continued to control 88 percent of national cigarette sales.4 Today, the four largest firms still collectively dominate the field, accounting for approximately 98 percent of the American market.5

This entrenched market dominance raises a number of questions: How was such market power originally attained? How has it defended and sustained itself? How has it done so despite three major challenges under the nation's antitrust laws, including two convictions? And what public policy lessons are suggested by this persistent market power? It is to these questions that we turn.


MARKET POWER ATTAINED

In 1889, the Durham, North Carolina, firm of Washington Duke & Sons was a relatively small concern in a fiercely competitive field. In the major tobacco product lines of that earlier era, it accounted for less than 8 percent of smoking tobacco, a third of the nation's cigarette output, and produced no plug or snuff tobacco products.6 Twenty years later, the structural milieu had radically changed. The American Tobacco Company forged by one of the Duke sons, James, was a colossus standing astride all aspects of the industry: by 1910, Duke's Tobacco Trust commanded 76 percent of smoking tobacco production, 80 percent of fine-

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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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