Topics: General Motors, Henry Ford, Ford Motor Company Pages: 14 (5791 words) Published: September 22, 2014
The Struggle for Dominance in the Automobile Market:
The Early Years of Ford and General Motors

S. Tedlow

Harvard University

This paper contrasts the businessstrategics of Henry Ford and Alfred P.

Sloan, in the automobile
marketof the 1920s. The thesis that HenryFord
epitomized the method of competition most familiar to ncoclassical economics.

That is to say, his key competitive weapon was price. Alfred P. Sloan, Jr. beat Ford because hc understood that the nature of the market had changed and that new tools wcrc nccdcd for success in the modern world of oligopolistic competition.

Henry Ford and the Old Competition
In the world of ncoclassical economics, the business landscape is studdcd with anonymous, small producers and merchants and the consumer has perfect information. Buyers do not know other buyers; buyers do not know sellers;scllcrs do not know other sellers. No scllcr can, without collusion, raise price by restricting output.

It is a world of commodities.
All products arc
undiffcrcntiatcd. Prices arc established through the mechanism of an impersonal market, where the "invisible hand" ensures consumer welfare. Producers in an untrammeled market system have no choice but to accept "the lowest [pricc] which can bc taken" [19, p. 61]. In Adam $mith's world, businesspeople do not lose sleep over the issue of whether

or not to compete on price.

Pricc is

compctition's defining characteristic.
Conditions approximating this description may have existed in the United States prior to the railroad revolution of the 1840s [6, pp. 13-78]. With thc building of the railroad network, however, the context of businessactivity began to change. First in transportation infrastructure, then in the distribution sector through economics of scope, and finally in production in those industries in which scale economics obtained, a small number of firms grew to dominance. These firms had very high fixed costs. Early railroad managers did not fully comprehend the competitive implications of the unprecedented cost structure of

1Itisbasedabook the
on history marketing
ofconsumer inthe
products United during
States the
twentieth century to be published by Basic Books in 1989.

Series,Volume Seventeen,
1988. Copyright (c) 1988 by
the Busine• History Conference. ISSN 0849-6825.



their companies. Prisoners of the past, they tried to compete in the traditional manner with their revolutionary enterprises. Thus they were always cutting prices; and bankruptcy was the common result, not at all what Adam Smith would have predicted. By the 1870s, many railroad men were coming to believe that "the logic of railroad competition was bankruptcy for everyone N[8, p. 237]. With the development of high concentration in some manufacturing industries during and after the 1880s, businesses

began to work out new ways to
compete. These firms-- and I am referring here to the likes of Standard Oil,

DuPont, Singer, International Harvester, Swift, and others [6, pp. 285-376; 21, pp. 134-213]-- experienced greatly reduced operating costswith the increased scale of their works and were thus able to offer quality merchandise at very low prices while enhancing profits. But price as a competitive weapon now had to share the stage with a number of other tools. Competitors in oligopolies, as Alfred D. Chandler, Jr. points out in his forthcoming Scale and Scope, had to make a threefold investment in production, marketing, and an organization of managers to administer their facilities. With these assets and capabilities, these firms competed or negotiated for market share through functional and strategic effectiveness; that is by improving their product, their process of production, their marketing, their purchasing and their labor relations more effectively than did their competitors; or they moved more quickly into new and growing markets, and...

References: Alfred D. Chandler, Jr., Giant Enterprise (New York: Arno, 1980).
, Strategy and Structure (Cambridge: MIT Press, 1962).
, The Visible Hand: The Managerial Revolution in American
Business(Cambridge: Harvard University Press, 1977).
and Stephen Salsbury, Pierre S. du Pont and the Making
of the Modern Corporation (New York: Harper and Row, 1971).
and Richard S. Tedlow, The Coming of Managerial
Capitalism (Homewood, Ill.: Irwin, 1985).
Davis Dyer, Malcolm S. Salter, and Alan M. Webber, Changing Alliances
(Boston: Harvard Business School Press, 1987).
Arthur J. Kuhn, GM Passes Ford, 1918-1938 (University
Pennsylvania State University Press, 1986).
Allan Nevins and Frank E. Hill, Ford: Expansion and Challenge, 1915-1933
(New York: Scribner 's, 1957).
Scheme,• Printers ' Ink, June 17, 1926, pp
Emma Rothschild, Paradise Lost: The Decline of the Auto-Industrial Age
(New York: Random House, 1973).
Lawrence H. Seltzer, A Financial History of the American Automobile Industry
(Boston: Houghton Mifflin, 1928).
Alfred P. Sloan, Jr., Adventures of a White Collar Man (New
Doubleday, Doran, 1941).
Doubleday, 1963).
Adam Smith, An Inquiry into the Nature and Causesof the Wealthof Nations,
edited by Edwin Canaan (New York: Modern Library, 1937).
Keith Sward, The Legend of Henry Ford (New York: Atheneum, 1968).
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