Traditional Competitive Environments
lThe Protected Market: Examples
nAutos & Steel in 1950s and 1960s
nAirlines Prior to 1979
nElectric Utilities until 1991
nComputers in 1960s and 1970s
nTelephone Services until 1970s
nPharmaceuticals until 1980s
Autos and steel
High entry barriers
Cost of a steel mill -$4 -$8 billion Minimill $250 million
According to the DOT in 1991 a new auto assembly plant =$200 million.
Engine, transmission, parts, components and final assembly =$1 billion
In 1991 advertising by the big 3 was $2 billion
Autos -Protected from imports
Airlines CAB stopped entry between 1938 and 1975
Softdrinks
Computers The era of nobody ever got fired for buying from IBM!
Pharmaceuticals
1984 Statutory patent life is 17 years- applied for early in development. SO Patent term restoration act extends patent for 5 years but no more than 14 total.
Also facilitated competition: Clones now only had to demonstrate bioequivalency ANDA (Abbreviated new drug application)
GENERICS MULTIPLIED
Think of the goal of a lot of these corporations: In business to transform raw materials into final products avoid the high costs of interaction costs between independent companies . This required them to operate at great scale and control costs carefully. The vertical integration protected them from all but incremental change.