A:

Herbert Henry Dow, a Canadian by birth, was a remarkable man. A chemist and an entrepreneur, Dow was one of the first people to realize that brine, an abundant mixture of chemicals that often hampers oil drilling, could be broken down into more useful components. Of these, bromine - an essential ingredient for most medicines as well as a vital element to photography - was the most marketable. Unfortunately for Dow, the world supply of bromine was controlled by Bromkonvention, a German cartel backed by the German government. This powerful monopoly sold bromine at a fixed price of 49 cents per pound, but it would implement a predatory pricing strategy quickly, if challenged.

Inventing a cheaper and more efficient process of splitting brine into usable bromine using electricity and air currents, Dow went into business. Dow Chemical, established in 1896, began to edge its way into the bromine monopoly. The increased efficiency and cheaper costs allowed Dow to sell his bromine in the U.S. for about 10 cents less per pound. When the profits rolled in, Dow expanded into world markets. The Germans responded by flooding the American market with artificially cheap bromine: 15 cents per pound to Dow's 36 cents.

Bromkonvention kept the world price of bromine fixed because many of the producers in the cartel simply would cease production if they were losing money. Quietly, Dow purchased large amounts of the cheap German bromine, repackaged it, and sold it back to the Germans as an export for 27 cents - 22 cents cheaper than the domestic bromine from the same company. The large purchases in the U.S. encouraged the Germans to think they were winning. Unbeknownst to them, the cheap bromine from Dow that flooded the German market was, in fact, their own. Thus, Dow's product had not been marketed for a loss. Instead, Dow made profits from his export and solidified his company's position in world markets. Bromkonvention was forced to admit defeat and raise its prices back to previous levels. As a result, its worldwide market share inevitably decreased in the face of Dow's superior extraction process.

At no time during the pricing war did Dow Chemical appeal to the antitrust acts so vital to maintaining competition. Herbert Henry Dow tore down an international monopoly using only his personal innovation and intelligence.

(For more on monopolies, read Early Monopolies: Conquest and Corruption.)

This question was answered by Andrew Beattie.

RELATED FAQS
  1. When was the Dow Jones Industrial Average first calculated?

    Charles Henry Dow was born on a farm in Connecticut on November 6, 1851. Farming didn't suit Charles Dow, however, so he ... Read Answer >>
  2. Is the Dow Jones a public company?

    Find out how the Dow Jones Industrial Average tracks the health of the U.S. economy. This fluctuating number indicates the ... Read Answer >>
  3. Who or what is Dow Jones?

    Dow Jones is one of the largest business and financial news companies in the world. It owns owns the Dow Jones Industrial ... Read Answer >>
  4. Is the Dow Jones a stock exchange?

    Learn about the Dow Jones Industrial Average and its impact. This historically significant index provides a daily snapshot ... Read Answer >>
Related Articles
  1. Investing

    Dow Chemical Stock Trades Ex-Dividend Wednesday

    Dow Chemical will send its dividend payment on April 28 to shareholders of record as of March 31.
  2. Investing

    Dow Converts Preferred Stock to Common Stock (DOW)

    Dow Chemical CEO Andrew Liveris said Friday's conversion of preferred stock into common stock highlighted the strength of the company's business model.
  3. Investing

    Giants of Finance: Charles Dow

    Find out how this financial visionary helped everyday people enter the world of finance.
  4. Investing

    How Dow Chemical (DOW) Makes its Money

    An in depth look at how Dow has made itself vital to so many industries in its 118 year history.
  5. Investing

    Dow Chemical Stock Upgraded at UBS (DOW, DD)

    It's not yet time to press the sell button on shares of Dow Chemical, according to analysts at UBS.
  6. Investing

    Opinion: Is It Worth Paying Attention to Dow 20K?

    The problem's not the 20,000. It's the Dow.
  7. Investing

    How the Dow-DuPont Merger Affects Dividends (DOW)

    The impending merger between Dow Chemicals and DuPont could mean good things for both companies in future.
  8. Investing

    Dow Chemical Earnings Preview (DOW, DD)

    Beyond the headline numbers, management will be asked about the company's pending $130 billion merger with DuPont.
  9. Insights

    Dow Theory

    Learn about the foundation upon which technical analysis is based.
  10. Insights

    Trump Taps Liveris for Manufacturing Council (DOW)

    President-elect Trump named Dow CEO Andrew Liveris to head the American Manufacturing Council; company planning new research and development center.
RELATED TERMS
  1. Dow 30

    Commonly referred to as just the "Dow," the Dow 30 was created ...
  2. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average ...
  3. Monopoly

    A situation where a single company or group owns all or nearly ...
  4. The Global Dow

    An equal-weighted stock index consisting of the stocks of 15 ...
  5. Dow Jones 65 Composite Average

    A composite index that measures changes within the 65 companies ...
  6. Dow Theory

    A theory which says the market is in an upward trend if one of ...
Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  3. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
  5. Impaired Asset

    A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result ...
  6. Solvency Ratio

    One of many ratios used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size ...
Trading Center