A Historical Example of Bilateral Oligopoly: Baldwin Locomotive Works
Baldwin Locomotive Baldwin, the largest producer of steam locomotives in the nineteenth century, faced problems typical of a dominant company in a bilateral oligopolistic industry. Almost everything that happened at Baldwin was conditioned by a highly cyclical, almost unpredictable competitive environment. A high level of business risk followed from sudden, large fluctuations in demand. This meant that Baldwin often had excess capacity with substantial fixed investment, leading to a strategy based on economies of scope and not economies of scale. Baldwin also depended on a skilled labor force with firm-specific knowledge and experience that was exposed to sudden and massive layoffs followed by the company’s attempts to rehire the same workers. It is hard to imagine a more challenging competitive environment. Baldwin was a large and dominant firm, a