How did Dow Chemical defeat an international monopoly in the 1900s?

By Andrew Beattie AAA
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.

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