The market leader, GE, led the way in terms of pricing. Competitors followed suit by matching GE’s book prices. However, while GE consistently negotiated discounts from the book price, Allis-Chalmers and Westinghouse were more likely to fluctuate between deep discounting and selling at the book price depending on competitive circumstances. GE provided the highest discounts for very large turbine generators. During a declining market, GE would charge a premium compared to its competitors. The increasing difference between book prices and actual prices of turbine generators in the years after 1957-1958 (as shown in Exhibit 5) likely indicates continuous price competition among the current market players.
This has resulted in a significant price deviation averaging 35% below book. Additionally, data shows that during this time, the market experienced a growing imbalance between existing industry capacity due to overoptimism. G.E. held a considerable competitive edge in the large turbine industry for three main reasons: superior research and development resulting in improved technology, a specific focus on larger and more technologically advanced units, and its status as a market leader in terms of pricing. GE had nearly double the R&D budget of its main competitors while also spending a lower percentage of sales on research and development.
This enabled the company to possess cutting-edge technology in the biggest market sector, which was experiencing rapid growth. This market sector consisted of large, intricate units that had the lowest cost per megawatt. Moreover, these turbines were constructed well ahead of time and were not affected by the price fluctuations seen in the more competitive market for smaller turbines. Furthermore, being the price leader afforded the company the ability to establish stable prices during both prosperous and challenging times in its market and avoid engaging in fierce negotiations.
