the case of the synthetic dye industry, 1857–1914 - Maastricht ...

186 J.P. Murmann and E. Homburg
for winning customers because dyers wanted to be able to mix and combine different
dyes to construct their own fashionable shades. German companies such
as Bayer could only make these series of dyes because they produced a large
number of chemical intermediates. A firm that made many intermediates and
dyes could make an even larger number of dyes because a particular dye often
served as an intermediate for other dyes. Making hundreds of dyes and intermediates
gave rise to the possibility of making thousands of different dyes. As
a result, the number of different dyes increased exponentially with the number
of different intermediates available. The leading synthetic dye firms in Germany
exploited these scope economies and developed elaborate production schedules
for producing different intermediates and dyes in the same production facilities
(see van den Belt et al. 1984, for details). Because smaller firms could not afford
to make the large number of intermediates required to make all possible shades
of a dye family, large firms such as Bayer possessed an important competitive
advantage. To be sure, a market for the high volume dye intermediates such as
aniline developed over time, but such a market did not emerge for most intermediates
before 1914. This had a number of reasons. First, patents protected several
key intermediates. Second, for an independent firm to begin the manufacture
of a particular intermediate, it had to have the perception that the size of the
market would be large enough to allow efficient production. Some firms such as
Merk and Hahn produced intermediates on a very small scale to supply university
laboratories and other experimental establishments. But a demand for large
volumes of many dye intermediates did not exist, which would have enabled
large-scale independent producers to enter the business at a profitable level. The
large German dye firms recognized their advantage in producing intermediates
efficiently and selectively sold some of their intermediates to other firms that
were not perceived as a serious competitive threat. For all these reasons, smaller
firms were forced to concentrate on niche markets, e.g. make only blue dyes for
blue and white textiles; or make black dyes for shoe polish, and so on.
The synthetic dye industry before 1914 was also characterized by a trend
toward multi-plant firms. While most of the firms remained one-plant firms,
some firms came to have more plants as the industry developed. In 1864 firms
with two or more plants were rare. In 1913 there were several (German) firms
that operated more than four plants (in one instance even 9 plants) at home
and abroad. 11 Table 2 presents the distribution of plants across firms. Our unit
of analysis, which we call “firm-year,” is a particular firm in a particular year.
Calculations based on firm-years produce analyses that take the life-times of the
firms into account. We have divided the entire period of our study (1857 to
1914) into two equally long periods to examine in more detail the distribution
11 In 1864, 93 firms have 99 plants; 87 are one-plant firms and 6 are two-plant firms. In 1913, 130
firms have 156 plants; 114 are one-plant firms, 9 are two-plant firms, 5 are three-plant firms, 1 is a
four-plant firm, and 1 is a 5-plant firm. If foreign subsidiaries are counted not as separate firms, the
trend toward multi-plant is even more striking. 1864: 86 firms have 99 plants, on average 1.15; 73
are one-plant firms and 13 are two-plant firms. 1913: 101 firms have 166 plants, on average 1.64:
77 are one-plant firms, 10 are two-plant firms, 7 are three-plant firms, 2 are four-plant firms, 2 are
5-plant firms, 2 are six-plant firms, and 1 is an eight-plant firm.