Law, emerging technology and market structure: The development of the telegraph industry, 1838-1868
Nonnenmacher, Tomas Walter
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Permalink
https://hdl.handle.net/2142/19558
Description
Title
Law, emerging technology and market structure: The development of the telegraph industry, 1838-1868
Author(s)
Nonnenmacher, Tomas Walter
Issue Date
1996
Doctoral Committee Chair(s)
Alston, Lee J.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, General
Economics, Commerce-Business
Economics, History
Language
eng
Abstract
The focus of this dissertation is the industrial and institutional organization of the telegraph industry in the United States from 1838 to 1868. It contributes to the understanding of how network technologies develop and are regulated at both the state and federal levels.
I begin by reviewing the history of the telegraph, focusing on Ezra Cornell, one of the most successful entrepreneurs of the 1850s. I recount Cornell's successes and failures in terms of the current literature on entrepreneurship.
I next pose several questions concerning ante-bellum regulation. First, how did states promote and regulate the telegraph industry? Second, what agencies enforced the rules, and how well did they succeed in regulation? Finally, how did the institutional framework influence contractual choices in the industry? I group the regulation of industry into periods of promotion, regulation, and monopoly. The courts had little success in enforcing the statutes, leaving it to private contracting to determine the industry's industrial structure.
I next turn to explaining the integration that occurred in the industry between 1852 and 1868 by examining the quality of the telegraph network over time. The early telegraph network offered low quality service, especially on messages sent over the lines of several firms. Low quality infrastructure coupled with poorly defined property rights over messages made the entire telegraph network unreliable. Three options to improve quality were open to entrepreneurs. First, the network could have used the courts to enforce a high quality standard across all firms. Second, firms and consumers could have contracted for quality. The final solution to poor network quality system was the integration experienced in the telegraph industry between 1852 and 1866.
Ensuring the high quality of the network was not the sole cause of consolidation in the telegraph industry. Entrepreneurs also sought to gain control of scarce resources to create monopoly power. They purchased patents, signed exclusive contracts with railroads and the press, and denied competitors from connecting to their systems. I examine the evolution of exclusionary contracts and the prices paid by telegraph companies to secure monopoly power.
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