Despite enormous benefits that Rockefeller and Carnegie brought to American consumers, the myth of “predatory pricing” dies hard. A useful counter-example, which shows the perils and the foolishness of attempting to dominate an industry through this practice, comes from the experience of the great chemical manufacturer Herbert Dow.
Dow was an exceptionally clever chemist who sought an inexpensive way to extract bromine from brine. (Bromine’s uses included sedation and film developming.) He eventually succeeded, and after a couple of false starts established the Dow Chemical Company. Breaking into the industry was far from easy. Dow was known to work eighteen-hour days and even sleep at his factory.
But here is where “predatory pricing” enters the picture. Dow was eager to provide bromine to Americans as well as to expand into the European market. But in Europe he would have to go toe-to-toe with a German cartel that dominated the European chemical market, and which had threatened to ruin any American firm that attempted to undersell the Germans in Europe. The German cartel vowed to flood the American market with cheap chemicals and drive the hapless upstart out of business. Dow ignored their threat and began selling bromine in England for thirty-six cents a pound, as opposed to the cartel’s forty-nine cents.
In 1904 Dow received a visit from an angry representative of the German cartel, who reminded him to stay out of Europe. Dow refused to be intimidated, despite the man’s threat to drive him out of business. When Dow continued to sell bromine in Europe, the German cartel attempted to make good on its threat by selling large quantities of bromine in the United States at the undeard-of price of fifteen cents per pound. In a fiendishly clever move, Dow instructed his purchasing agent in New York to buy up hundreds of thousands of pounds of the German consortium’s cheap bromine. Dow then turned around and sold it in European markets at twenty-seven cents per pound — a price that the consortium could not match since it had to turn a profit in Europe in order to endure the losses it was running in America.
Dow would have the last laugh. In 1908, exhausted from the losses — at one point even reducint its price to an unthinkabloe 10.5 cents — the German cartel threw in the towel. They worked out a deal with Dow: If he stopped selling bromine in Germany, they would stop selling it in the United States — and the rest of the world would be open to free competition. Dow had met the German challenge, demonstrated the futility of “predatory pricing,” and lowered the price of bromine forever.
(via The Politically Incorrect Guide to American History, pp. 103-105)
Source: shaunbwilson
