GE had been the price leader in the market, with competitors matching its book prices. GE tended to negotiate a more consistent discount from book price, whereas Allis-Chalmers and Westinghouse were more prone to switch back and forth from deep discounting to selling at book price as competitive circumstances changed. GE offered its highest discounts on very large turbine generators. When the market was declining GE tended to charge a premium over its competitors. The widening gap between book prices and actual prices of turbine generators in the years following 1957-1958 (as shown in Exhibit 5) probably indicates an ongoing price competition between the existing competitors.
This has lead to a significant price deviation averaging 35% below book. Data also suggests that the market in this period was characterized by a rising mismatch between existing capacity in the industry, caused by overoptimistic G.E. had a large competitive advantage in the large turbine industry for three primary reasons: better r&d and hence improved technology, a clear focus on larger, more technologically sophisticated units, and its status as a price leader in the market. GE had almost twice the R&D budget of both of its major competitors, while simultaneously spending less on R&D as a percentage of sales.
This allowed it to have the best technology in the most important market segment in terms of growth: large, complex units that had the lowest per-megawatt cost. In addition, these turbines were built far in advance, and were not subject to price volatility of the more competitive small turbine landscape. Finally, its status as the price leader allowed it to set more consistent prices in both upturns and downturns in its market and not be subject to intense negotiation.