How cartels stimulate innovation and R&D: Swiss cable firms, innovation and the cartel question

Abstract

The purpose of this paper is to demonstrate that a cartel is not necessarily synonymous with a brake on innovation but that, on the contrary, it may become the site of information transfer and technology exchange. The example chosen is the cable industry. Research was based on the archives of two Swiss cable manufacturers and on those of a Swiss and an international cartel (International Cable Development Corporation) from the beginning of the twentieth century until the 1970s. The cartels studied, which were primarily based on territorial and price protection, fostered various forms of information and technology transfers: exchange of information in order to rationalise production, know-how sharing, transfers or sales of patents or licences, standardisation of products to ensure compatibility between products from various companies. Finally, one of the cartels studied became a key player in Research and Development (R&D) by creating test structures and R&D laboratories and controlling market introduction of innovating products. The historiography of the last 30 years had a tendency to consider cartels as an exception, however, as Jeffrey Fear wrote ‘Yet, until the 1980s, the global story of big business must be told in conjunction with cartels rather than without them’ (Fear, October 2006). The purpose of this paper is to once again look at one aspect of the cartels' impact on the innovation.

Keywords:

• cartels
• innovation
• R&D
• competition
• Swiss cable firms
• cartel question

Notes

1. Scherer, 1980, p. 431. He mentionned other authors: W.R. Maclaurin, (1949), Invention and innovation in the radio industry, New York: McMillan; and A.A. Bright, Jr., and W.R. Maclaurin, (1943), Economic factors influencing the development and introduction of the fluorescent lamp, Journal of Political Economy, 51, 429–450.

2. This article is based on an analysis of the archives of the Société Anonyme des Câbleries et Tréfileries de Cossonay (SACT) deposited in the Archives Cantonales Vaudoises at Lausanne (ACV) and on the archives of the Société des Câbles électriques de Cortaillod (SECE) deposited in the Archives of Nexans Suisse SA in Cortaillod (ASECE).

3. Symeonidis is not a partisan of this theory; we are quoting a phrase where he explains its existence.

4. This is entirely based on Symeonidis, and in particular the text that he cites and that we have not reviewed (Symeonidis, 2002, p. 224).

5. 1956 Restrictive Trade Practices Act.

6. The manufacturers of German cables were organised in a cartel slightly earlier on. They were therefore victims of Swiss competition. This is why they encouraged the Swiss cable manufacturers to sign an agreement with them.

7. This was for instance the case at the beginning of the 1960s with Japanese cable firms which were subject to boycotts on the Singapore market by members of the ICDC (Cortat, 2009, pp. 249–250).

8. Decisions were recorded in minutes called ‘Procès-verbaux du cartel suisse des câbles’.

9. With the exception of market shares acquired before the agreements, which were guaranteed. For Switzerland, Germany had a small share. In fact, the German cartel agreed not to export to Switzerland in exchange for the payment of an annual premium (Cortat, 2009, pp. 236 and 243).

10. ASECE, PVCA 18.12.1935 et séances postérieures.

11. ACV, PP 632/483, PVCSC, 1956–1966, Coopération intercâbleries (Cooperation between cable manufacturers), December 1966. A propos de la convention de 1943 (On the subject of the 1943 convention).

12. ACV, PP 632/182, Séance de discussion concernant les manchons de jonction des câbles (Discussion session concerning sockets of cable junctions) 3 × 150 mm 2 18 kV from the Geneva IS. Eugène Foretay, 19 November 1954. Report no. 54934.

13. ACV, PP 632/483, PVCSC, 1956–1966, Coopération intercâbleries (Cooperation between cable manufacturers), December 1966. A propos de la convention de 1943 (On the subject of the 1943 convention).

14. We could not determine the depth of this collaboration. It is non-existent in certain sectors and important in others.

15. According to the facts, each shared innovation was part of negotiations on costs. We were unable to determine how the calculations were made and if there was a specific rule.

16. See below for details.

17. ACV, PP 632/200, Technique de câbles en Europe. Conférence de M. K. S. Wyatt de Philips Dodge devant la Detroit Edison Company, le 29.8.1960. Robert Goldschmidt, 18.11.1960, Report no. 60862.

18. Bulletin SACT (Société anonyme de Câbleries et Tréfileries de Cossonay), Spring 1980.

19. ACV, PP 632/234.

20. Bulletin des Câbleries de Brugg, Cortaillod et Cossonay (BCC), 2, 1973, pp. 13–16 and 1, 1974, p. 2.

21. Bulletin SACT (Société anonyme de Câbleries et Tréfileries de Cossonay), Spring 1974.

22. Bulletin SACT (Société anonyme de Câbleries et Tréfileries de Cossonay), Spring 1976.

23. Le Toron, 28, Summer 1979.

24. For countries where there are no cable companies, the cartel sets up price lists to be followed and quotas based on sales before the cartel agreement came into effect.

25. ACV, PP 632/23, PVCA 17 June 1938. Les Câbles Grammont, which was incorporated in Tréfileries et Laminoirs du Havre SA, were to be found among the other members in the accord.

26. Les Câbles de Lyon have been created by SECE and SECE has sold his shares to French shareholders between 1900 and 1917.

27. Other cable manufacturers joined the agreement afterwards.

28. ACV, PP 632/493, Address by Dr R. Stadler, chairman of the ICDC at the unofficial meeting of the delegates at Aix-les-Bains, 5 June 1957. This technical commission was in fact already created as a technical committee in 1956.

29. For an example of normalization, see: ACV, PP 632/493, ICDC, Report of the Working Committee to the Annual Conference 1962, to be held at the Carlton Hotel, Saint-Moritz, on 3 July 1962, p. 4. Adoption of German VDE standards as a base for the national specifications of other countries.

30. ACV, PP 632/199, Report 60814, Robert Goldschmidt, 1 August 1960 (this is an assessment of the company's patents).

31. We can also cite the case of SACT, which, in the 1930s, acquired a patent and attempted to sell it to European cable manufacturers, cf. ACV, PP 632/23, and PVCA, 27 October 1931.

32. ‘This is another reason why we should work together in order to continually improve our programme through rationalisation, specialising production and bringing some order into the non-producing country markets; these measures should result in reduced expenditure, lower cost prices and a flexible price policy freely adaptable to the changing conditions of modern markets. We can thus win the public authorities to our cause when they realise that our agreements are valuable and necessary’, ACV, PP 632/493, ICDC Address by Dr R. Stadler, president, at the Annual Conference, in Helsinki, July 1961.

33. ACV, PP 632/483, Procès-verbaux des séances du cartel des câbles (Proceedings of the cable cartel sessions), 1956–1966. Document: Rapport sur l'inclusion éventuelle des câbles thermoplastiques dans les contingents et sur la création d'un fonds commun (Report on the eventual inclusion of thermoplastic cables in the quotas and on the creation of a collective fund).

34. ACV, PP 632/24, PVCA, 23 November 1964. Brunner report.