Between 1925 and 1935, several private firms capable of constructing warships, or parts thereof, collapsed, merged or were partly or fully ‘sterilised’ against any return to shipbuilding during a period of ‘rationalisation’ to reduce perceived overcapacity relative to demand in British shipbuilding. Thereafter, rearmament had the opposite effect upon industry; lack of capacity in some key areas created almost unprecedented demand, and led eventually to uncontrolled price collusion and profits, particularly on warship contracts. An investigation into profiteering was undertaken in 1943, which embarrassed the remaining builders and their principal contractors. This article establishes that the Admiralty had allowed a form of price-fixing at taxpayers’ expense to proliferate for some time, a largely unknown episode that spanned the years of disarmament and rearmament. Further, it explains how and why collusion occurred when it did, and discusses the catalytic role of shipyard rationalisation. Finally, we conclude by suggesting reasons for such loose Admiralty control of warship costs during rearmament.
How Product Innovation Can Affect Price Collusion
