section_path: AC and the induction motor/Market turmoil
section_name: Market turmoil
paragraph_text: Market turmoil
  
  Tesla's demonstration of his induction motor and Westinghouse's subsequent licensing of the patent, both in 1888, came at the time of extreme competition between electric companies. The three big firms, Westinghouse, Edison, and Thomson-Houston Electric Company, were trying to grow in a capital-intensive business while financially undercutting each other. There was even a " war of currents " propaganda campaign going on, with Edison Electric claiming their direct current system was better and safer than the Westinghouse alternating current system and Thomson-Houston sometimes siding with Edison. Competing in this market meant Westinghouse would not have the cash or engineering resources to develop Tesla's motor and the related polyphase system right away.
  
  Two years after signing the Tesla contract, Westinghouse Electric was in trouble. The near collapse of Barings Bank in London triggered the financial panic of 1890, causing investors to call in their loans to Westinghouse Electric. The sudden cash shortage forced the company to refinance its debts. The new lenders demanded that Westinghouse cut back on what looked like excessive spending on acquisition of other companies, research, and patents, including the per motor royalty in the Tesla contract. At that point, the Tesla induction motor had been unsuccessful and was stuck in development. Westinghouse was paying a $15,000-a-year guaranteed royalty even though operating examples of the motor were rare and polyphase power systems needed to run it was even rarer. In early 1891, George Westinghouse explained his financial difficulties to Tesla in stark terms, saying that, if he did not meet the demands of his lenders, he would no longer be in control of Westinghouse Electric and Tesla would have to "deal with the bankers" to try to collect future royalties. The advantages of having Westinghouse continue to champion the motor probably seemed obvious to Tesla and he agreed to release the company from the royalty payment clause in the contract. Six years later Westinghouse purchased Tesla's patent for a lump sum payment of $216,000 as part of a patent-sharing agreement signed with General Electric (a company created from the 1892 merger of Edison and Thomson-Houston).