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Lighting the Path to Profit: GE's Control of the Electric Lamp Industry, 1892–1941

Published online by Cambridge University Press:  13 December 2011

Leonard S. Reich
Leonard S. Reich
Affiliation:
Leonard S. Reich is associate professor of administrative science at Colby College.
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Abstract

Founded in 1892, General Electric set out to dominate the American electrical industry. This article is an explanation of how the company accomplished this goal in the highly profitable electric lamp (“light bulb”) market. GE's techniques included technology leadership through in-house development and the purchase of patent rights, discriminatory agreements with suppliers based on market power, and cartel arrangements of various sorts, both foreign and domestic. The article shows how one company was able to use financial and market power, combined with early control of a rapidly developing technology, to gain and then hold a major American market for half a century.

Type
Articles
Information
Business History Review , Volume 66 , Issue 2 , Summer 1992 , pp. 305 - 334
Copyright
Copyright © The President and Fellows of Harvard College 1992

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References

1 These other market areas included, for example, electric motors, steam turbines, and refrigerators. See Sultan, Ralph G. M., Pricing in the Electrical Oligopoly (Boston, Mass., 1974), 1: 6–16Google Scholar; Quinn, T. K., Giant Business: Threat to Democracy (New York, 1953), 84–95Google Scholar.

2 The well-known term “visible hand” is of course from Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977)Google Scholar. Chandler described “the visible hand of management [which] replaced what Adam Smith referred to as the invisible hand of market forces. The market remained the generator of demand for goods and services, but modern business enterprise took over the functions of coordinating flows of goods through existing process of production and distribution, and of allocating funds and personnel for future production and distribution” (p. 1).

3 For an analysis of Coffin's career at Thomson-Houston and GE, see Carlson, W. Bernard, Innovation as a Social Process: Elihu Thomson and the Rise of General Electric, 1870–1900 (New York, 1991)Google Scholar.

4 Passer, Harold, The Electrical Manufacturers, 1875–1900: A Study in Competition, Technical Change, and Economic Growth (Cambridge, Mass., 1953)CrossRefGoogle Scholar, gives numerous examples of buy-outs, suits, etc. On the Edison General Electric–Thomson-Houston collusion, see W. Bernard Carlson, “From Thomson-Houston to General Electric,” MS, 1990, 15.

5 The trust was an arrangement whereby a number of companies in an industry placed their securities in an unincorporated holding company (managed by trustees—hence the name), which ran them as a cartel. During the late nineteenth century, trusts appeared in the petroleum, lead, cotton oil, whiskey, sugar, cattle, and cordage industries, to name a few. See Chandler, The Visible Hand, 319–31.

6 Bright, Arthur, The Electric-Lamp Industry: Technological Change and Economic Development from 1800 to 1947 (New York, 1949), 103–4Google Scholar. The Italian patent, on an improved process to evacuate the bulb, came from engineer Arturo Maliganani. GE's annual sales volume was about six million lamps in the mid-1890s. Bright found that there were fifty-eight companies in the lamp business in 1894, forty-four in 1895, and thirty-five in 1896. Competition forced out most who withdrew at this time (see p. 92).

7 Passer, The Electrical Manufacturers, 331–33.

8 The association was based on Westinghouse patents because GE's contracts with some utility companies precluded licensing its lamp patents to others. Bright, The Electric-Lamp Industry, 103–4; United States Tariff Commission, Incandescent Electric Lamps, Report no. 133, 2d ser. (Washington, D.C., 1939), 32–33Google Scholar. Since GE's production costs were lower than those of the smaller competitors and all parties sold lamps for about the same price, GE made greater profits per lamp on a far higher sales volume.

9 Standard Oil was not so careful and found itself dismembered within the decade.

10 Quinn, Giant Business: Threat to Democracy, 50. Theodore Quinn worked at the National Electric Lamp Company and later rose to be a GE vice-president.

11 Tariff Commission, Incandescent Electric Lamps, 33.

12 W. F. Mattes, “GE's Great Bulb Caper,” The Nation, 30 June 1969, 823–24 (Mattes worked in GE's lamp division for forty years before writing the article); Keating, Paul, Lamps for a Brighter America (New York, 1954), 49–56Google Scholar; Bright, The Electric-Lamp Industry, 147. A thorough examination of GE's relationship with National can be found in the following court case: U.S. v. General Electric et al., 272 US 476, 808–63, argued 13 Oct. 1926.

13 Bright, The Electric-Lamp Industry, 152–53.

14 M. S. Willson to J. Klenke, 5 Oct. 1927, John W. Hammond file, Hall of History Foundation, General Electric Company Building 2, Schenectady, N.Y. [hereafter cited as Hammond File], item L3357. GE paid Edison $23,000 in 1893 and $14,000 in 1894 and in 1895 for his research services, but he worked on a broad range of topics, not only lamps. Millard, Andre, Edison and the Business of Invention (Baltimore, Md., 1990), 130–32Google Scholar.

15 Reich, Leonard, The Making of American Industrial Research: Science and Business at GE and Bell, 1876–1926 (New York, 1985), 62–64Google Scholar.

16 On the establishment of the General Electric Research Laboratory, see ibid., 62–69; see also Wise, George, Willis R. Whitney, General Electric, and the Origins of U.S. Industrial Research (New York, 1985), 66–94Google Scholar.

17 Whitney, Willis, “Research as a Financial Asset,” General Electric Review 14 (1911): 327.Google Scholar To be sure of its position, GE purchased other patent rights as well: in 1904 to a tantalum filament from the Siemens & Halske Company in Germany, to an osmium-tungsten filament from Welsbach, and to another tungsten filament from Austrian chemist Hans Kunzel. See Reich, The Making of American Industrial Research, 73–79. Total expenditures for metal-filament lamp rights were $760,000, compared to in-house research expenditures of $350,000 through October 1910. Albert Davis to Hinsdale Parsons, 24 Oct. 1910, Hammond File, item L3020.

18 The Europeans' filaments were brittle, which made it difficult to adapt them to high-speed lamp-making equipment. However, the Just and Hanaman patent remained basic; that is, one could not make use of the Coolidge patent without also having rights to the Austrians' invention.

19 The companies began to phase out carbon-filament lamps in 1908, when carbon accounted for 84 percent of sales. In 1910, it was down to 63 percent; in 1912 to 25 percent; and in 1914 to 7 percent. The concomitant rise in tungsten-filament sales was from 6 percent (1908) to 18 percent (1910), to 40 percent (1912), and to 71 percent (1914). GEM lamps made up most of the difference. GE's and National's carbon lamps were considerably more expensive than those of some independent manufacturers, which means that GE made good profits through this arrangement. Bright, The Electric-Lamp Industry, 151–52, 190; summary fom plaintiff's brief, General Electric v. Laco-Phillips, April 1916, Hammond File, item L244.

20 See Carpenter, Niles Jr, “The Westinghouse Electric and Manufacturing Company, the General Electric Company, and the Panic of 1907,” Journal of Political Economy 24 (March and April 1916): 230–53, 382–99.CrossRefGoogle Scholar

21 Hughes, Thomas P., Networks of Power: Electrification in Western Society, 1880–1930 (Baltimore, Md., 1983), 179Google Scholar; Stocking, George and Watkins, Myron, Cartels in Action (New York, 1946), 321–22Google Scholar; General Electric Company, Fourteenth Annual Report, 31 Jan. 1906, 17; Bright, The Electric-Lamp Industry, 155. It is of interest to note that AEG began as an Edison subsidiary (Deutsche Edison Gesellschaft) and always maintained close ties with GE as a result. Economist Liefmann, Robert, in Cartels, Concerns, and Trusts (London, 1932), 248Google Scholar, claimed that GE “stood godfather” for the smaller German company.

22 The cartel included the major producers in Austria, Germany, Hungary, Holland, Switzerland, and Italy. It was intended to fix prices and establish quotas but had trouble doing either. See Bright, The Electric-Lamp Industry, 160–61.

23 American industry-wide lamp sales went from $3.4 million in 1899, to $15.1 million in 1909, and to $51.7 million in 1919, as GE market share rose from about 50 percent to over 70 percent. Company records indicate that its lamp sales were $2.0 million in 1900, $5.0 million in 1903, $7.5 million in 1906, $13.3 million in 1909, and $18.5 million in 1911. Bright, The Electric-Lamp Industry, 151, 489; “Value and Quantity of All Lamps Sold by Edison and National Works of General Electric Company,” 3 June 1929, Hammond File, item L3976. The 1903 and subsequent figures include National.

24 Tariff Commission, Incandescent Electric Lamps, 33–34; “Electric Trust Must Dissolve,” The New York Times, 13 Oct. 1911, 8. For a general discussion of the anti-trust proceedings, see Bright, The Electric-Lamp Industry, 156–59.

25 The consent decree explicitly acknowledged that patent licenses could specify prices, terms, and conditions of sale, though not the fixing of prices charged by the wholesaler and retailer.

26 Westinghouse alone was permitted to share the GE lamp trademark “Mazda,” which made the GE and Westinghouse lamps virtually indistinguishable to the consumer. “General Electric Lamp Information,” Hammond File, item L3438; Bright, The Electric-Lamp Industry, 236–37, 239–40; Birr, Kendall, Pioneering in Industrial Research (Washington, D.C., 1957), 147Google Scholar; Kottke, Frank, Electrical Technology and the Public Interest (Washington, D.C., 1944), 57Google Scholar; Vaughan, Floyd, The United States Patent System (Norman, Okla., 1956), 76Google Scholar.

27 See Mattes, “GE's Great Bulb Caper,” 824, for the comments of an insider.

28 “GE Lamp Engineering Report for 1925,” 15, quoted in Wise, Willis R. Whitney, 157.

29 Bright, The Electric-Lamp Industry, 269, 348–50; Wise, Willis R. Whitney, 157, 241; Ripley, Charles M., Facts About General Electric (Schenectady, N.Y., 1929), 39Google Scholar. The Consumer Price Index (1967 = 100) for 1911–14 was approximately 29, for 1924–29 approximately 52. This means that in constant 1911 dollars, the 60-watt lamp price dropped from one dollar (1911) to 11 cents (1929). Lamp efficiencies went up about 17 percent from 1920 to 1925, and another 11 percent by 1930. For consumer prices, see Historical Statistics of the United States, Colonial Times to 1970 (Washington, D.C., 1975), E135–73Google Scholar.

30 General Electric Company, Annual Report for 1940, 14. Profitability figures from “Financial Data Relative to Lamp and Lamp Parts Business,” 8 Aug. 1941, Reed File, Gerard Swope Papers, Hall of History Foundation, General Electric Company Building 2 [hereafter, Swope Papers].

31 Cowen, Ruth S., “How the Refrigerator Got Its Hum,” in The Social Shaping of Technology, ed. MacKenzie, Donald and Wajcman, Judy (Philadelphia, Pa., 1985), 208–11Google Scholar; Quinn, Giant Business: Threat to Democracy, 89–90.

32 George Wise examined the efficiency versus longevity tradeoffs and looked at GE's promotion of lighting during this period in “Long Live the Light Bulb? General Electric and the Development of Incandescent Lamp Technology, 1879–1940,” unpub. MS, c. 1980; see especially 19–25.

33 On the marketing campaign, see Publicity Department of the General Electric Company, General Electric Publicity, 1924 (Schenectady, N.Y., 1924)Google Scholar, which contains many examples of advertisements placed in magazines and journals.

34 On Swope's management of GE, see Loth, David, Swope of GE (New York, 1958)Google Scholar, especially 106–81.

35 Bright, The Electric-Lamp Industry, 243, 348–60, 388n; Tariff Commission, Incandescent Electric Lamps, 40–41; Bowden, Witt, Technological Changes and Employment in the Electric-Lamp Industry, Bureau of Labor Statistics Bulletin no. 593 (Washington, D.C., 1933), 30–32Google Scholar.

36 Confident in its legal position based on earlier rulings and agreements, GE actually challenged the government to bring suit after hearings in the New York legislature brought forth numerous allegations. Electrical World 83 (29 March 1924): 637Google Scholar; Bright, The Electric-Lamp Industry, 253–55; United States v. General Electric Co., 272 U.S. 476 (1926), 480–81.

37 Bright, The Electric-Lamp Industry, 303–4; Schröter, Harm, “A Typical Factor of International Market Strategy: Agreements between the U.S. and German Electrotechnical Industries up to 1939,” in Multinational Enterprise in Historical Perspective, ed. Teichova, Alice et al. (Cambridge, England, 1986), 161Google Scholar. Overcapacity is based on estimates of the British Committee on Industry and Trade report of 1928, referenced in Stocking and Watkins, Cartels in Action, 323.

38 “Osram” is a contraction of the metal-filament types osmium and wolfram (tungsten). Stocking and Watkins, Cartels in Action, 323–24.

39 United States Federal Trade Commission, Supply of Electrical Equipment and Competitive Conditions, 70th Cong., 1st sess., Senate doc. no. 46 (Washington, D.C., 1928), 142Google Scholar.

40 IGE was established in 1919 under Gerard Swope as the center for foreign operations. Its creation signified growing concerns about international trade in the postwar era as GE's businesses expanded. On IGE, see Loth, Swope of GE, 93–105.

41 Stocking and Watkins, Cartels in Action, 331n. The quotation is from the notes taken by the Osram negotiator, quoted in Schröter, “A Typical Factor of International Market Strategy,” 165.

42 Federal Trade Commission, Supply of Electrical Equipment, 143; League of Nations, Review of the Economic Aspects of Several International Agreements (Geneva, 1933), 70Google Scholar, quoted in Tariff Commission, Incandescent Electric Lamps, 57–58.

43 Stocking and Watkins, Cartels in Action, 330; J. M. Woodward to A. W. Bouchard (both of IGE), 7 April 1924, quoted in United States v. General Electric et al., 1364 D.N.J. (1943), Ex. 2112-G.

44 Stocking and Watkins, Cartels in Action, 331, 340.

45 Woodward to A. W. Burchard, 23 Dec. 1924, quoted in United States v. General Electric (1943), Ex. 2117-G.

46 Ibid., 332–35; Bright, The Electric-Lamp Industry, 305–6; Quinn, Giant Business: Threat to Democracy, 74. Woodward became a Phoebus employee.

47 A resolution in the U.S. Senate on 9 Feb. 1925 officially initiated the FTC investigation, but Senate debate had been ongoing for some months at the time.

48 Stocking and Watkins, Cartels in Action, 337–39; Bright, The Electric-Lamp Industry, 310–11.

49 General Electric Company, Annual Report for 1929, 12; Stocking, George and Watkins, Myron, Cartels or Competition? (New York, 1948), 82–83Google Scholar; Stocking and Watkins, Cartels in Action, 339, 341.

50 GE kept its lamp prices considerably below those of the cartel members, for both competitive and political reasons. As an example, the 1938 price of a 60-watt lamp, sold in the United States by GE for 15 cents, retailed for 22 cents in France, 34 cents in Belgium, 39 cents in Britain, 48 cents in Germany, and 70 cents in Holland. Tariff Commission, Incandescent Electric Lamps, 49.

51 Stocking and Watkins, Cartels in Action, 342–43; Bright, The Electric-Lamp Industry, 310–11.

52 Ibid., 256–59; George Morrison to Gerard Swope, 28 April 1926, quoted in United States v. General Electric (1943), Ex. 64-G.

53 Bright, The Electric-Lamp Industry, 271–80, 348–53.

54 Tariff duties on tungsten lamps remained at 20 percent. Tariff Commission, Incandescent Electric Lamps, 61–66; Bright, The Electric-Lamp Industry, 261–65; Stocking and Watkins, Cartels in Action, 346–50. Throughout the 1930s, there were over two hundred electric lamp manufacturers in Japan, and it became the second largest lamp-producing country in the world behind the United States.

55 Total American tungsten-filament lamp sales went from 344 million (1929), to 335 million (1932), to 413 million (1935), to 534 million (1939). Bright, The Electric-Lamp Industry, 265–70.

56 Northrup, Herbert, Boulwarism: The Labor Relations Policies of the General Electric Company (Ann Arbor, Mich., 1964), 13Google Scholar; Mattes, “GE's Great Bulb Caper,” 824.

57 Bright, The Electric-Lamp Industry, 270; Birr, Pioneering in Industrial Research, 147; “Financial Data Relative to Lamp and Lamp Parts Business,” 8 Aug. 1941, Reed File, Swope Papers.

58 Bright, The Electric-Lamp Industry, 287–302; Birr, Pioneering in Industrial Research, 149; Keating, Lamps for a Brighter America, 220–22.

59 This concept comes from the performance envelope of aircraft: flight conditions where they behave predictably. Test pilots sometimes “push the envelope” to see how fast or how high they can go.

60 See, for example, Chandler, The Visible Hand, 426–33; Chandler, Alfred D. Jr, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), 213–21Google Scholar.

61 In turbine-generator sets, GE held approximately 65 percent of an oligopolistic market from 1900 to 1925, and 60 percent from 1948 to 1963. Sultan, , Pricing in the Electrical Oligopoly, 1: 10, 21Google Scholar. Information on GE's interest and intentions in the electric-car market communicated to the author by GE historian George Wise.

62 See, for example, Reich, The Making of American Industrial Research; Passer, The Electrical Manufacturers; Birr, Pioneering in Industrial Research; Bright, The Electric-Lamp Industry; Wise, Willis R. Whitney; and Hammond, John, Men and Volts: The Story of General Electric (Philadelphia, Pa., 1941)Google Scholar.