Vertical Restraints Imposed by Buyers: The Secrétan Copper Cartel, 1887-1889

• Author: Margaret E. Slade
• Position: Professor emerita, Vancouver School of Economics, University of British Columbia, Vancouver, Canada
• Pages: 75-97

VERTICAL RESTRAINTS IMPOSED BY BUYERS:

THE SECR ´

ETAN COPPER CARTEL, 1887–1889

M

ARGARET

E. S

LADE

*

In 1887, Pierre-Eug`ene Secr´etan, the manager of a large French copper

fabricator,

1

convinced many European banks and investors to back a syndi-

cate, the Secr´etan Syndicate. The express purpose of the Syndicate was to

corner the market for copper and to manipulate the world copper price. Within

a short period of time, the Syndicate secured contracts with the major interna-

tional copper producers and controlled 80 percent of the world supply of new

copper. As a result, the price of copper on the London Metal Exchange (LME)

doubled, and profits were made both on the physical commodity and on min-

ing-company shares. When copper flowed into the market, however, the Syn-

dicate was forced to acquire massive inventories in an attempt to maintain the

high price. Eventually, the Syndicate failed, and the price collapsed, causing

the liquidation of some investors and the suicide of one.

Secr´etan’s effort to control the global supply of copper revolved around his

company, the Soci´et´e Industrielle et Commerciale des M´etaux, a large copper

buyer. The Soci´et´e bought copper from producers, using contracts that stipu-

lated a price and a maximum quantity and promised to purchase all of the

seller’s output. The restraints were thus similar to exclusive dealing and price

and quantity setting. The restraints were unusual, however, in that they were

imposed by a buyer on an upstream seller, not by a seller on a downstream

buyer, as is normally the case.

During the 18-month period that the Syndicate controlled the copper mar-

ket, vast profits were made, equally vast losses were incurred, and a massive

redistribution of income ensued. Nevertheless, unlike well-known American

* Professor emerita, Vancouver School of Economics, University of British Columbia, Van-

couver, Canada. I thank the Phelps Centre for the Study of Government and Business for finan-

cial support, and Tom Brown, Margaret Levenstein, and Valerie Suslow for helpful comments.

1

Fabricators produce copper products from copper metal.

75

76 A

NTITRUST

L

AW

J

OURNAL

[Vol. 83

trusts of the turn of the century, such as Standard Oil and American Sugar,

2

little has been written about the Secr´etan Syndicate.

3

In this article, I discuss the formation and collapse of the Syndicate and the

role of vertical restraints in enabling the cartel to survive for as long as it did.

I also quantify the effect of the restraints on supply, demand, and inventory

holdings.

Finally, I take a broader look at commodity market corners—why they are

attempted and why they are rarely successful—and their implications for anti-

trust policy.

I. THE SECR ´

ETAN SYNDICATE AND THE RESTRAINTS

A. T

HE

S

YNDICATE

The late 1880s witnessed an ambitious scheme to manipulate the price of

copper by cornering the world market for new supply. The operation, which is

considered to be the first international cartel, was conceived and executed by

Pierre-Eug`ene Secr´etan (also known as Hyacinthe), a well-known French

metal merchant.

4

The Secr´etan Syndicate, which lasted from October 1887 to

March 1889, controlled 80 percent of new copper supply and caused the LME

price to double. At the end of the period, however, the cartel collapsed, and

the price fell back to pre-Syndicate levels.

Secr´etan, who headed Europe’s largest copper-fabricating company, the So-

ci´et´e, noticed that despite the low level of stocks and the rise in demand,

copper prices had fallen continuously between 1882 and 1886. Moreover, fall-

ing prices were probably indications that copper speculators were selling

short. Secr´etan concluded, however, that prices would rise, and that the rise

could be accelerated and substantial profits could be made if the Soci´et´e were

to acquire the bulk of the world’s supply of new metal. Furthermore, he was

able to convince one of the largest financial organizations in Paris, the

Comptoir d’Escompte, to support his scheme. The Comptoir gave the Soci´et´e

an initial credit of £2,500,000,

5

and other French investors followed suit, in-

cluding the Paris Rothschilds, the Cr´edit Lyonnais, and the Banque de Paris et

des Pays-Bas.

6

Finally, in early 1888, five foreign investors joined.

2

See John S. McGee, Predatory Price Cutting: The Standard Oil (N.J.) Case, 1 J.L. & E

CON

.

137 (1958) (analyzing the Standard Oil trust); Richard Zerbe, The American Sugar Refinery

Company, 1887–1914: The Story of a Monopoly, 12 J.L. & E

CON

. 339 (1969) (analyzing the

American Sugar trust).

3

But see E. Benj. Andrews, Note, The Late Copper Syndicate, 3 Q.J. E

CON

. 508 (1889)

(giving a descriptive account of the Syndicate).

4

C

HARLES

E. H

ARVEY

, T

HE

R

IO

T

INTO

C

OMPANY

68 (1981).

5

Id.

6

Id. at 70.