GM vs FORD

The Struggle for Dominance in the Automobile Market:
The Early Years of Ford and General Motors
Richard

S. Tedlow

Harvard University

This paper contrasts the businessstrategics of Henry Ford and Alfred P.

Sloan, in the automobile
Jr.
marketof the 1920s. The thesis that HenryFord
1
is epitomized the method of competition most familiar to ncoclassical economics.

That is to say, his key competitive weapon was price. Alfred P. Sloan, Jr. beat
Ford because hc understood that the nature of the market had changed and that new tools wcrc nccdcd for success in the modern world of oligopolistic competition. Henry Ford and the Old Competition
In the world of ncoclassical economics, the business landscape is studdcd with anonymous, small producers and merchants and the consumer has perfect information. Buyers do not know other buyers; buyers do not know sellers;scllcrs do not know other sellers. No scllcr can, without collusion, raise price by restricting output.
It is a world of commodities.
All products arc undiffcrcntiatcd. Prices arc established through the mechanism of an impersonal market, where the "invisible hand" ensures consumer welfare. Producers in an untrammeled market system have no choice but to accept "the lowest [pricc] which can bc taken" [19, p. 61]. In Adam $mith 's world, businesspeople do not lose sleep over the issue of whether

or not to compete on price.

Pricc is

compctition 's defining characteristic.
Conditions approximating this description may have existed in the United
States prior to the railroad revolution of the 1840s [6, pp. 13-78]. With thc building of the railroad network, however, the context of businessactivity began to change. First in transportation infrastructure, then in the distribution sector through economics of scope, and finally in production in those industries in which scale economics obtained, a small number of firms grew to dominance.
These firms had very high fixed costs.

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