I recently heard this humorous story told about Herbert Dow, founder of Dow Chemical, about the competition of bromine sales in Europe. Dow’s triumph has been used as an argument that predatory pricing is an irrational practice that would never work in the real world. I looked it up on Wikipedia, which has a conveniently concise version of the story. Another article on it here.
Here’s the Wikipedia entry:
With his new company and new technology, Dow was able to produce bromine very cheaply, and began selling it in the United States for 36 cents per pound. At the time, the government-supported German bromine cartel, Bromkonvention, had a near-monopoly on the supply of bromine, which they sold for 49 cents per pound. The Germans had made it clear that they would flood the American market with cheap bromine if Dow attempted to sell the element abroad. In 1904 Dow defied the cartel by beginning to export his bromine at its cheaper price to England. A few months later, an angry Bromkonvention representative visited Dow in his office and reminded him to cease exporting his bromine.
Unafraid, Dow continued exporting to England and Japan. The German cartel retaliated by flooding the US market with bromine at a mere 15 cents a pound in an attempt to put him out of business. Dow, unable to compete with the attempt at predatory pricing in the U.S., instructed his agents to quietly buy up hundreds of thousands of pounds of the German bromine locally at the low price. The Dow company then turned the tables on the cartel by repackaging the bromine and exporting it to Europe, including Germany, at 27 cents a pound. The cartel, expecting Dow to go out of business, was unable to comprehend what was driving the enormous demand for bromine in the U.S., and where all the cheap imported bromine flooding their market was coming from. They even suspected their own members of violating their price-fixing agreement and selling in Germany below the cartel’s fixed cost. The befuddled cartel continued to slash prices on their bromine in the U.S., first to 12 cents a pound, and then to 10.5 cents per pound. Dow continued selling the dumped bromine in Germany at 27 cents per pound. When the cartel finally caught on to Dow’s tactic, they realized they could not keep selling below cost, and were forced to increase their prices worldwide.
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