A foreign cartel dominates a certain market, fixing high prices and threatening competitors. Sound familiar?
The time was the early 1900s. The commodity, bromide. The cartel, thirty-five German firms in Die Deutsche Bromkonvention. Their competitor, Herbert Dow, founder of the Dow Chemical Company of Midland, Michigan.
As Burton Folsom tells the story in Empire Builders: How Michigan Entrepreneurs Helped Make America Great, the Bromkonvention fixed bromide prices at 49¢ a pound. Dow, however, had developed a process to manufacture and sell it for 36¢ a pound. The Germans threatened to drive Dow out of business by flooding the American market should he challenge them overseas. Refusing to be bullied, Dow sold bromide in Europe, easily beating the Germans' price. The Germans retaliated by selling bromide in America for 15¢ a pound.
Dow counterattacked by instructing his agents to secretly buy German bromide in America, and then repackage and sell it in Europe for 27¢ a pound. The Germans were stymied, unable to uncover the reason for the high American demand or the origin of the cheap bromide. And their situation was desperate, for they counted on the artificially high international price to offset the artificially low American price. While Dow prospered, the Germans attacked each other, thinking one in the cartel was betraying them. Dow would not be broken, and the Germans relented. The Bromkonvention and Dow agreed that Germans would sell bromide to Germany, Americans to America, and that world markets would be fair game. Dow, however, had already come to dominate the world market, and the Germans couldn't catch up.
The “Bromide War” illustrates another aspect of the moral superiority of capitalism: It provides the incentives and means for entrepreneurs to combat the bad faith of cartels and to help establish more equitable market prices for commodities. I thank you for the support that has enabled the Acton Institute bring the message of the morality of markets to our religious and business leaders for the past ten years.
Fr. Robert A. Sirico