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How To Make An Oligopoly

In 1921, researchers at the University of Toronto discovered how to produce insulin, making it possible to save the lives of Type 1 diabetics. After a year of testing, they had successfully treated a ward of children dying from this autoimmune disease that destroys insulin-producing cells in the pancreas. Now, the researchers were seeking production partners.

In Indianapolis, J.K. Lilly of Eli Lilly Company was pondering ways to secure exclusive manufacturing rights for the U.S. and Latin America.

“What are the objects to be attained in this enterprise?” Lilly asked an employee in a letter dated January 3, 1923.1 “At the risk of being considered to a degree selfish,” he wrote, “I give to you an idea which I am profoundly convinced is correct, and that is that our Toronto friends would, in the long run, secure best results by licensing but one maker in each of the principal countries of the world.” Note the use of “principal” here, indicative of his casual paternalism towards Latin America.2

It only took seven neat points of reasoning, outlined in the letter, to launch an empire. One hundred years later, Eli Lilly controls nearly one quarter of the global insulin market, and is one of three companies which, in combination, control 92% of that market.3 But how does one create an oligopoly to stand the test of time?

Read entire article at Contingent