#31 1904 · Dow Chemical (Herbert Dow) · Industrial chemicalsjudo-economics
Dow bought the German cartel's own dumped bromine and quietly resold it back to them in Europe
the problem
A German cartel threatened to flood the US market with cheap bromine and bankrupt Dow if he sold abroad
background
A group of thirty-five German chemical firms, the Bromkonvention, controlled the world bromine trade and fixed its price well above cost everywhere except the United States, where they periodically dumped bromine at a loss to punish any American producer who dared export. When Herbert Dow began selling Michigan bromine to England in 1904, the cartel warned him off and made good on the threat, crashing its US price to about 15 cents a pound — a fraction of what it charged everywhere else — expecting Dow to fold rather than sell at a loss on his home turf.
Fighting the dumping head-on meant matching the cartel's price and bleeding cash indefinitely, a war of attrition a small American producer couldn't win against a continent-spanning cartel subsidizing its US losses from European profits. Dow needed a way to make the dumping cost the cartel money instead of him.
the move
Dow had a New York agent quietly buy up the cartel's own cheap dumped bromine in America, shipped it back across the Atlantic, repackaged it under different labels, and resold it throughout Europe — including inside Germany itself — at 27 cents a pound, undercutting the cartel in its own home market with its own product.
the payoff
The cartel had no idea an outside American was behind the flood of underpriced bromine reaching its home customers; suspecting one of their own members was cheating, they cut prices further, to 10.5 cents, trying to punish the phantom leak — driving their own losses deeper. The price war ran four years before the exhausted Germans sought a truce.
what came after
The 1908 settlement divided the world by territory — Germans out of the US, Dow out of Germany, both free elsewhere — and left Dow Chemical with capital, credibility and a reputation for not backing down that it used to challenge German dominance in dyes and other chemicals for decades after.
filed under
references
- [1]FEE — Herbert Dow and Predatory PricingFoundation for Economic Education, 2018fee.org
- [2]Mackinac Center — Herbert Dow, the Monopoly BreakerMackinac Center for Public Policy, 1997mackinac.org