The story of the Phoebus Cartel, an experiment in the fine art of anti-competitive collusion.
Dan Lewis, author of the daily newsletter Now I Know (“Learn Something New Every Day, By Email”) joins us Wednesdays with surprising facts about the world of business.
<p> In 1845, French economist Frederic Bastiat drafted a petition to his government, ostensibly from candle-makers and “generally everything connected with lighting.” The petition, translated <a href="http://bastiat.org/en/petition.html">here</a>, satirically requested that the government ban the sun, since that would increase demand for the candle-makers’ products and make them all much richer. But it was only satire—in 1845, there simply was no conspiracy of those in the lighting business to drive the sun and other competitors out of business.</p><p> That would have to wait until December 23, 1924.</p><p> On that date, a group of light bulb and lamp manufacturers including General Electric, Phillips, Osram and most other major lighting companies of the time got together with a plan—not to block out the sun, but certainly to reduce the amount of light available. The group formed a Swiss corporation called Phoebus—“Phoebus S.A. Compagnie Industrielle pour le Développement de l’Éclairage” —or, colloquially, the Phoebus Cartel.</p><p> The group entered into agreements aimed at increasing members' profits at the expense of consumers. In order to limit competition, the cartel divided the market into territories, with each manufacturer receiving exclusive domain over its home country. Together, this ensured lower costs for the lighting manufacturers—less money spent on marketing, etc.—and of course, higher revenues, given the <em>de facto</em> monopolies created by the cartel in those areas.</p><p> But the Phoebus Cartel did not stop there. Light bulbs straddle the line between being durable goods (intended for re-use) and disposable ones (which are replaced often). A typical incandescent light bulb has a lifespan of about 1,000 hours—a lifespan the cartel wanted to keep in place. To do that, the cartel standardized light bulbs, making the incandescent bulb like the one pictured above common and expected. Further, the cartel members allegedly agreed to limit the amount of money invested in research and development, in order to make sure that better, more efficient lighting did not kill off their golden product.</p><p> The Phoebus Cartel was successful with limited interference for roughly 15 years, with its biggest challenge coming from a small group (another cartel, perhaps) of Northern European light bulb manufacturers that refused to participate. In 1939, at the start of World War II, the cartel collapsed as the war prevented the continuance of these types of cross-border agreements.</p><p> <strong>Bonus fact</strong>: As it turns out, 1,000 hours is probably close to the best lifetime one would expect from a bulb, if used efficiently. But you can, in fact, extend the life of a light bulb much, much longer—if you are willing to forgo a lot of light by expelling the energy as heat instead. The light bulb pictured above is a unique example: It is a carbon-filament bulb called the Centennial Light. It is from a firehouse in Livermore, California, and has been turned off only a few times since it was first installed in 1901. As of 2009, the bulb has not been shut off in more than three decades.</p><p> <em>To subscribe to Dan’s daily email Now I Know, click <a href="http://dlewis.net/nik/">here</a>. You can also follow him on <a href="http://twitter.com/#!/dandotlewis">Twitter</a>.</em></p><p> <em>Photo courtesy of Dan Lewis.</em></p>
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