How did monopoly worked in American and British radio industry

during 1920s and 1930s?

The Anglo-American productivity gap in radio manufacturing

INTRODUCTION
Radio equipment, the dominant consumer product class of the early electronics industry,
experienced meteoric growth in both America and Britain during the 1920s and 1930s.
Like motor vehicles, radio manufacture was an archetypal new industry, involving
complex assembly and high-tech components. For that reason, there was the presence of
monopoly to domestic market at key stages of the radio value chain. However, comparing
American with Britain, the differences in the way patent monopoly worked stimulated the
significantly different innovation and technical progress of radio, which was indicated
apparently in the saturation period of the radio market. Therefore, in the scope of this
research, I would like to examine how monopoly worked in America and Britain and its
impact on the relative productivity in the radio industry during the 1920s and 1930s. The
research will conduct comparison of the two countries based on three points: 1) The patent
monopoly in the beginning of 1920s; 2) The role of socio-legal environment in late 1920s;
3) The productivity gap during 1930s. The main source of the research is empirical
evidence gathered from articles and book cited in reference part.

RESULT
1) The patent monopoly in the beginning of 1920s
As the potential for radio became apparent and the need for large-scale research and
development and investment grew, large corporations entered the field. However, only
some of them had important patent position owing to acquiring key patents for
manufacturing radio. There was considerable competition, and with research teams in
different companies working in parallel, patent interferences were common. Along with
the fact that manufacturing a complex radio system needed many technologies involving
multiple patents derived from different firms, US used cross-licensing strategy to unify
patent holders and promote technology innovation. In contrast, Britain refused cross-
licensing to maximize their monopoly rent and power.

In October 1919, General Electric bought Marconis American subsidiary and U.S. patents
to free American radio from British control and the Radio Corporation of America (RCA)
was born. RCA cross-licensed the US rights for other major patent portfolios and the major
US patent holders became shareholders in RCA. In cross-licensing, firms agreed one on
one to license their patent portfolio to each other to ensure they had freedom to manufacture
without intellectual property violation. In this way, firm can concentrate their innovation
patenting activities according to their comparative advantage. The aim of cross-licensing
was to create unity of patent holders under one roof RCA amounted to over 2,000 patents.
It brought RCA to become the technical leader in radio, but also enabled other cross-
licensees continue their own development of the technology in which they gained
comparative advantage.

In Britain, following the First World War, Marconi Co. consolidated its strong radio patent
position by buying out the entertainment rights of the other significant UK patent holder,
British Thomson Houston, and concluding agreements with the principal international
patent holders giving it exclusive rights to the British market. Marconi Co. hold key valve
patents, but refused to cross-license competitors and blocked others access to key
components. While Marconi Co. desired to maximize the monopoly rents, it supplied
intermediate products for a potentially competitive market of assemblers who always
sought for input with competitive price. Indeed, they could buy Marconis products with
key patents together with products containing unimportant patents of other competitors.
Marconi tried to block this substitution by packaging all patents under a single license,
which included thirteen patents while it was possible to produce a valve radio using only
two of them. Marconi also limited patent license to British manufacturers who agreed not
to export radio equipment except under Marconi export licenses and to use approved
British valves.
 2) The role of socio-legal environment in late 1920s

Both Marconi and RCA tried to defend their monopoly rents and consolidate their leading
position, but in different ways due to differences in social-legal environment. As said,
Marconi refused cross-silence to protect their high royalties and under British law, Marconi
pushed them even more. Conversely, RCA had to reduce their patent fee due to pressure
of smaller companies under Antitrust law. That was the reason why expensive
multipurpose valves were invented in Britain and low priced tubes existed in US.

British liberal-conservative political economy emphasized property rights and avoiding

state interference in private property. Even though Marconis royalties were
unreasonably high compared to receivers price, Marconi did not constitute infringement
of British law. Thus, Marconi refused to reduce royalties. Marconis royalties were kept
high and levied on a at-rate-per-valve-holder basis, rather than a proportion of the
wholesale price. Therefore, licensees would rather change their production mix to
substitute the patented input for other, less efcient inputs than reduce cost on retail prices.
Manufacturers soon appreciated that developing multipurpose valves, with several
functions or stages incorporated in a single valve, could reduce royalties based on the
number of valve holders. Furthermore, multifunctional valves were complex and
distinguished, so the potential threat of new entrants and competitors was low. A number
of rms dominated British valve production, operating as a tight cartelthe British Radio
Valve Manufacturers Association (BVA), the monopolist in valve market. BVA reinforced
their monopoly power by agreements with their partners (radio manufacturers, distributors
,and retailers) with clauses that prohibited the handling of non-BVA valves, which was
perfectly legal under British law. Complexity raised prices substantially compared to the
simpler, interchangeable, American-type valves, though as set-makers saved more money
on royalties than the premium they paid for multiple-stage valves, overall costs were
reduced, but not considerable.

While British business law prioritized private property rights, America was afraid of the
potential abuses of monopoly power and prevented it by Antitrust laws including the
Sherman Antitrust Act of 1890, the Federal Trade Commission Act and the Clayton Act.
As the radio market boomed in the 1920s, competitors encroached on what RCA believed
to be its intellectual property rights and Antitrust law. Thus, RCA was forced to offer
licenses for only 25 large assemblers, initially set at 7.5% of the receivers wholesale value.
RCA adopted package licensing, charging royalties on the total value of sets, even though
its patents did not cover all components or some tube patents were expired. After that,
smaller companies lobbied politicians to intervene and RCA agreed to license all reputable
manufacturers in 1929 and reduce the royalty to 5% of net selling price (2.5% for exported
receivers). By reducing the royalties, American tubes had low gain per stage, so they could
use more tubes to achieve higher performance. Moreover, manufacturers obtained the
economy of scale by producing very great quantities of simple tubes and in a narrow range
of types with lowering costs.

3) The productivity gap during 1930s

In 1930s, in United States, RCAs failure to restrict competition led to the emergence of
new aggressive specialist set-makers. These gained market share through strategies of
drastically lowering costs and prices, to broaden the market, along with innovative
marketing and production systems. That brought to the presence of small sets characterized
by sharply falling prices but improved sound quality and design. A new, smaller, cheaper,
radio format - the `midget - first appeared in California in 1929. In 1932, Emerson
pioneered a further size reduction, via the `compact, modelled on a clock case priced only
$25 compared to normal table top radio of $50 to $75 and console model of $100. By 1936
a radio receiver could be purchased complete at a list price under $10. Their low cost made
them suitable as gifts and for use in bedrooms, kitchens, offices, etc., creating a trend for
multiple sets per household. Although the market for main household sets was already
saturated, midget sets were primarily responsible for the 25% growth in U.S. radio
production over 1935-37.

In Britain, the same situation happened that a group of rapidly growing, sales-orientated,
specialist set-makers emerged. They focused on marketing, design and product quality but
were unable to the price reduction strategies as their counterpart because British valves
remained markedly more complex and expensive than American tubes. In addition, higher
costs and valve-maker monopoly power inhibited Britain from introducing small sets as
US. The advent of the midget troubled the British radio trade. By the mid-1930s, American
midgets penetrated British radio market in signicant numbers. In January 1934, Wireless
Trader noted that these radios could be imported, duty-paid, at 3 8s per set, and, by June
1935, a major London store nationally advertised a three-valve midget at 3 5s. The British
industrys main defense was the trade ban on American-type valves. After 1936, during
saturation of radio market, several British set makers were forced to produce lower-priced
sets. Set makers introduced various lower-priced Peoples Set invented by Germany.
However, obviously, Peoples Set were unable to compete with midget or compact model
of US. Peoples Set did not present an outstanding difference including size, weight,
appearance and price as well. While they were toughly similar to the British older models,
their minimum prices doubled those of typical American midgets. As such, consumers
were disappointed about their unclear superiority. Otherwise, they preferred the trend of
multiple-set household.

That different evolution of radio caused to a more serious consequence, the productivity
gap. The British productivity of radio industry was considerably lower than American one,
which was apparently illustrated in the productivity analysis of L. Rostas. Rostas showed
that American radio equipment output per employee, and per operative, in 1939 were 3.41
and 3.48 times the respective British figures for 1935.

CONCLUSION
Regarding to a dynamic, rapid-growth and manufacturing sector like radio equipment,
differences in intellectual right management and competition regimes in US and Britain
had significant impacts on producing cost and technology innovation path. In order to
consolidate monopoly power, Britain had maximized monopoly rents, limited new entrants
and created cartel arrangement, which encouraged innovation around restrictive patents
and initiating a path-dependent process of technical change in favor of expensive
multifunctional valves. Otherwise, cross-licensing policy and Antitrust law of US created
beneficial environment for producing cheap radio sets with a broad spread in the short
period. Productivity gap thus can be seen as the most convincing evidence for the
consequence of the different policies .
REFFERENCE
1. Scott, P. (2012), The determinants of competitive success in the interwar British
radio industry. The Economic History Review, 65: 13031325
2. Scott, P., & Walker, J. (2016). Bringing Radio into America's Homes: Marketing
New Technology in the Great Depression. Business History Review, 90(2), 251-276
3. Scott, P. (2014). When Innovation Becomes Inefficient: Reexamining Britain's
Radio Industry. Business History Review, 88(03), 497-521.
4. S.G. Sturmey, The Economic Development of Radio (London, 1958)
5. David J. Teece. (2000). Managing Intellectual Capital: Organizational, Strategic,
and Policy Dimensions. Oxford University Press, Inc., New York, NY, USA.