Abstract: Patents, Antitrust, and the Evolution of the Early British and American Radio Equipment Industries

Peter Scott

Abstract

The British and American radio manufacturing industries developed on the basis of strong national patent monopolies, held by Marconi and RCA. Revenue maximization constituted a special case of a situation analyzed in the vertical integration literature, where a monopolist supplying an intermediate product faces a potentially competitive market of assemblers that can use it in variable proportions with competitively priced inputs. Marconi avoided substitution by bundling its royalties into a general license. Meanwhile RCA initially chose integration, aiming to market all domestic radios (produced for it by General Electric and Westinghouse). Strong anti-trust pressures soon compelled RCA to license its patents, based on a fixed percentage of wholesale receiver prices. Marconi faced no such pressures and maintained its fixed charge per tube system—progressively raising royalty/total cost ratios and stimulating innovation around the patent by tube manufacturers who developed multi-functional tubes. These were less cost-effective than the simpler, more interchangeable, U.S. tubes, but lowered royalty payments and, thus, assemblers' overall costs. British set design was thus biased toward a high-cost path, preventing the introduction of low-cost 'midget' radios, which formed the basis of the continued prosperity of the U.S. industry following market saturation in the early 1930s.