How A Brilliant Chemist Broke a German Monopoly’s Grip

Sean Kernan
Rights purchased via iStock Photos

Greedy players are crushed by cheaper competitors. Shoddy products are usurped by quality alternatives.

In the arms of buyers and sellers, free markets have a way of sorting things out. Capitalism is beautifully efficient and unforgiving. Unfortunately, a free market’s conceptual beauty is rarely matched by its operational reality.

This was particularly true in the late 19th century, as archaic business laws enabled monopolies to stomp about unhindered.

One businessman found himself singlehandedly taking on an all-powerful monopoly. It threatened to destroy his livelihood, and means of unveiling his own brilliance.

The origins of genius

Not every genius gives birth to another genius. But such was the case of Herbert Dow, who was born in 1866.

His father, Joseph Dow, was a master engineer who’d invented myriad types of equipment for the military. He mentored Herbert from his earliest age. Where modern savants learn programming as a child, those of the past were in garages, working to solve mechanical problems alongside already proficient tutors.

In 1866, a 12–year-old Herbert Dow was working on his first invention, an automated incubator for eggs. This agonizing process was where he learned his most critical business skill: resilience. He failed a full 39 times while attempting to create his incubator. It was on his 40th and final try that he saw his payoff. It was his first substantive product.

Years later, he innovated within biochemistry, launching several startups. His first few companies failed but he was only held back for so long.

His first success is met with a german threat

Herbert's ‘magnum opus’ would be Dow Chemical. He’d discovered a way to extract bromine from brine without using the standard industrial process that required burning fuel.

Bromine is used in various industrial products, as well as pesticides, sedatives, and dyes. It’s a fundamental aspect of manufacturing across the United States.

The problem? The infamous german cartel, Die Deutsche Bromkonvention, wielded immense market power and was already a monopoly in most parts of the world. They charged .49 cents a pound. Herbert decided to sell in the United States for .39 cents a pound.

A message arrived at from Bromkonvention, saying, “If you try to sell your bromine outside the United States, we’ll flood the market with your bromine and put you out of business.”

Herbert heeded their threat and his company prospered for the first few years. They generated substantial business from regional manufacturers and academic clientele.

During a market crunch in 1904, he found himself desperately in need of cash. He quietly started selling bromine in Britain, hoping not to attract the ire of the German monopoly.

Bromkonvention sent Hermann Jacobsohn to Dow’s office later that year and reaffirmed the company’s threat. He told Dow they knew he’d exported to Europe. Dow replied with indifference, knowing that exporting was his only option to stay afloat. But he had more to his plan.

The German vengeance is unleashed

Months later, German exports of bromine flooded into the market at the rail-thin price of 15 cents a pound, which was less than Dow’s break-even price.

This is where Dow’s genius came into play. Rather than compete with the german’ prices in the US, he stopped selling altogether.

Instead, he hired several agents to spread out and start buying up the german’ bromine en masse. Then, he shipped it back and started selling right in Germany at .27c a pound.

The Germans didn’t catch on. They saw a rapid uptick in the demand for bromine in the US and didn’t understand it. They actually began to suspect someone in their own ranks was buying the cheap bromine and using it to undercut their market. This led to significant turbulence in their organization.

Seeing that Dow Chemical was still in business, they further lowered their prices to 10.5 cents per pound. Herbert Dow then bought up even more of their bromine and resold it in Europe, undercutting the very people he’d bought it from.

By invoking the Germans’ anger, he’d managed to breathe life into his company. Their revenue and expansion accelerated.

By the time the German’s caught on, it was too late. Their monopoly was broken. They were forced to compete like any other business because one man didn’t back down from their threats.

After Dow broke the bromine monopoly, they moved into magnesium, dye, and other powerful industrial products, opening up world markets to buyers and new businesses.

Why he was destined to succeed

Dow knew that in a fair market, with two equitable products, the best-priced competitor would always win. And by simply turning the tables on the profit-hungry company, he’d invoked their own downfall.

He also knew, because he was an inventor of other products, that they were simply in a contest of price and supply. Bromine would always be bromine. And he’d innovated a cheaper way of delivering the raw product, so why shouldn’t he be allowed to compete?

This also highlights why corruption is terribly devastating to economies: it blocks companies from competing fairly and innovating. The public is left with junk, overpriced products. Customers are the beneficiary’s in a fair and competitive market.

Bromkonvention’s fatal mistake was in focusing so much on preserving a monopoly rather than innovating their efficiencies and production.

It’s as the old adage goes, “Those who fail to continue innovating are doomed to get innovated upon.”

Today, Herbert's company lives on as Dow Inc, a multinational company that generates north of 40 billion in revenue each year.

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