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od Session I 
















Printed for the use of the 
Temporary National Economic Committee 





(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SDMNERS, Representative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WALLACE H. WHITE, Ja., Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BERGB, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

♦SUMNER T. PIKE, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS, Chairman 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

♦A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the Genei^^l Counsel 

♦CHARLES L. KADES, Special Assistant to the General Counsel 

Representing the Department of the Treasury 


Representing the Department of Commerce 

• • « 

LEON HENDERSON, Economic Coordinator 
DEWEY ANDERSON, Executive Secretary 
THEODORE J. KREPS, Economic Adviser 





This monograph was written by 

Professor of Economics in Swarthmore College 

The Temporary National Economic Committee is greatly indebted 
to the author for this contribution to the literature of the subject 
under review. 

The stattis of the materials in this volume is precisely the same as 
that of other carefully prepared testimony when given by individual 
witnesses; it is information submitted for Committee deliberation. 
No matter what the official capacity of the witness or author may 6e, 
the publication of his testimony .^ report^ or monograph by the Com- 
mittee in no way signifies nor innplies assent tOj or approval of^ any 
of the facts^ opinions^ or recorrvmendations, nor acceptance thereof 
in whole or in part by the members of the Temporary National 
Economic Committee^ individually or collectively. Sole and un- 
divided responsibility for every stattfment in such testimony^ reports., 
or monographs rests entirel/y upon the respective authors. 

(Signed) Joseph C. O'Mahoney, 
Chairman., Temporary National Economic Committee. 




Letter of transmittal ix 

Author's acknowledgments xi 


The nature and significance of competition and monopoly 1 

The nature of competition 1 

Perfect competition 2 

Pure competition 3 

Imperfect competition - 3 

Monopolistic competition i '_ 4 

Non-price competition 4 

Oligopoly 5 

Cutthroat or destructive competition 5 

Predatory and discriminatory competition 5 

Unfair and fair competition 6 

Potential competition 7 

EflFective or workable competition 8 

The nature of monopoly 9 

Duopoly 10 

Monopsony and duopsony 10 

The use of terms 11 

The classification of markets 12 

The significance of competition 12 

The advantages of competition 12 

The disadvantages of competition 14 

The significance of monopoly 15 

The advantages of monopoly ^ — ._ 15 

The disadvantages of monopoly 16 


Competitive markets 19 

Extractive industries 20 

Agriculture 20 

Lumber 22 

Bituminous coal 24 

Petroleum production 26 

Fisheries 27 

Manufactures 28 

Cotton textiles ^^ 31 

Woolen and worsted goods 33 

Silk and rayon 35 

Knitted goods 36 

Men's, youths', and boys' clothing 39 

Women's, misses', and children's apparel 41 

Boots and shoes 45 

Leather 46 

Tires and tubes 48 

Household appliances 51 

Food products 52 

Other manufactured goods 54 

Wholesale and retail distribution 54 

Service trades 59 

Other aspects of competition 62 




Monopolized markets: Those in which one or two firms control nine-tenths 

or more of the supply 65 

Firms approaching complete monopoly in America before the First 

World War 65 

Firms approaching complete monopoly in America sincBi the First 

World War ." 68 

Aluminum 69 

Shoe machinery ^ 72 

Glass container machinery 73 

Optical glass 78 

Nickel 79 

Molybdenum 81 

Magnesium 82 

Telephone service 83 

International communications 88 

Oil pipe lines 88 

Railroads 90 

Pullman cars 91 

Trans-oceanic aviation 93 

Local utilities . 93 

Beryllium 95 

Pairs of firms approaching complete duopoly in the American market. 98 

Domestic telegraph service 98 

International communications 100 

Bananas 101 

Plate glass 103 

Electric lamps 104 

Electric accounting machines 106 

Air brakes 107 

Oxyacetylene 108 

Sulfur 108 

Monopoly and duopoly in other markets 110 

Local markets 111 

Small town markets 112 


Monopolized markets: Those in which a few firms control the whole supply 

and those in which one or a few firms control a major part of the supply. 113 

Concentration of production 113 

Price leadership 121 

Steel 123 

Cement 126 

Agricultural implements 126 

petroleum and gasoline 127 

Copper and lead 129 

Newsprint paper 129 

Glass containers 131 

Biscuits and crackers. . 131 

Price agreements 132 

Steel 133 

Iron ore 134 

Gasoline 135 

Chemical nitrogen 137 

Potash 138 

Typewriters 140 

Eyeglasses 141 

Cheese . 141 

Life insurance 143 

Delivered price systems 146 

Steel 148 

Cement 153 

Cast iron soil pipe 157 


Monopolized markets — Continued. Page 

Patents 168 

Radios 160 

Ethyl gasoline 160 

Gypsum board 161 

Hardboard 163 

Mineral wool 164 

Competitive practices of dominant firms 165 

Gasoline 167 

Agricultural implements 168 

Automobiles 170 

Motion pictures 172 

Kadio broadcasting. 1/3 

Market sharing . 176 

Investment banking . 176 

Anthracite coal 179 

Meat 182 

Tobacco 185 

Intercorporate relations .-.^ . 189 

Stock ownership 190 

Interlocking directorates , 192 

Interest groupings '. • 193 

Market dominance 194 

Automobiles 194 

Electrical equipment 198 

Chemicals^ - 200 

Rayon 202 

Local markets 206 

Commercial banking 206 

Milk 208 


Monopolized markets: Those in which several firms pursue a common 

policy '- 215 

Cartels 215 

European cartels .. 217 

International cartels 218 

Export associations 219 

Copper cartels 222 

Pools 224 

Trade associations 225 

Association activities 226 

Cost accounting 226 

Statistical activities 228 

Price reporting systems 229 

Standardization 230 

Credit bureaus 231 

Patent pools 231 

Other activities 232 

Cooperation or conspiracy?. 232 

Limitation of competition through trade associations 234 

Control of prices through trade associations 240 

Flour 240 

Bread '. 242 

Household furniture 243 

Cottonseed oil 244 

Asphalt shingle and roofing 246 

Power cable and wire . 247 

Steel window products 247 

Snow fence 247 

Allocation of markets and customers through trade associations 248 

Consumer credit reporting : 248 

Window glass 249 

Building materials 249 

Textile refinishing 249 


Monopolized markets — Continued. Page 

Allocation of production and sales through trade associations 250 

Plant restriction 250 

Production quotas 25 1 

Management engineering companies 252 

Quota and penalty systems 256 

Trade association boycotts 257 

Cartels in the American market 258 

The N. R. A. codes 259 

Trade associations and the N. R. A 260 

Control of terms of sale 260 

Control of prices 261 

Price reporting systems 263 

Allocation of markets 263 

Allocation of production 264 

Penalties 265 

The aftermath of the N. R. A 266 

Legalized restraint of competition 267 

Bituminous coal 267 

Petroleum 267 

Trucking . 268 

Agriculture 269 

The distributive trades 273 

Other trades exempt from Federal an ti- trust laws 275 

Other trades exempt from State anti-trust laws 275 

Inter-state trade barriers 278 

Local markets 280 

Retail trades . 286 

Building construction 287 

Rackets 293 


The occurrence of competition and monopoly 299 

Concentration of business activity 299 

Uniformity of prices 301 

Rigidity of prices 302 

Areas of competition and monopoly 307 

The instability of competition and monopoly 308 

Is monopoly inevitable? 309 

The persistence of competition and monopoly 314 


Hon. Joseph C. O'Mahonet, 

, Cfiairman^ Temporary National Economic Gom/mittee^ 
'WasMngton^ D. C. 

Mt Dear Senator : I have the honor to transmit herewith a study 
by Dr. Clair Wilcox on Competition and Monopoly in American 
Industry. It gives an audit of the status of competition industry by 
industry. Instead of looking on'y at monopolistic practices or focus- 
ing attention exclusively on areas of enterprise characterized by 
concentration of economic power, it pictures the process of industrial 
agglomeration against the perspective of the entTre economy at work. 

The Committee was highly fortunate in securing the services of 
Dr. Wilcox to make this all-important survey. He has served the 
Government, in the past, as director of research for the National 
(Wickersham) Commission on Law Observance and Enforcement, 
special adviser to the Consumers' Advisory Board of the National 
Recovery Administration, and consulting economist to the Social Se- 
curity Board. The facts presented and conclusions here expressed 
represent the culmination of many years of continuous effort imple- 
mented by access to vital information such as only few have enjoyed. 
Words are inadequate to express the measure ot grateful apprecia- 
tion which is owed by the Committee to Dr. Wilcox for this contri- 

Invaluable assistance in the preparation of this study was rendered 
by Dr. William N, Loucks and Mr. Kermit Gordon. Aid and criti- 
cism were also received from numerous persons outside of Govern- 
ment who furnished materials or read sections of the monograph. All 
responsibility for errors of fact or conclusion rest, of course, with the 

Respectfully^ submitted. 

Theodore J. Kreps, Economic Adviser. 

October 8, 1940 



The author is indebted to Swarthmore College for a partial leave 
of absence which enabled him to undertake this work; to the Tem- 
porary National Economic Committee for providing him with re- 
search assistance and materials ; to Kermit Gordon, research associate 
in economics at Swarthmore College, for carrying on a major part 
of the research on which the hionograph is based; to William N. 
Loucks, professor of economics in the Wharton School of Finance 
and Commerce at the University of Pennsylvania, for making the 
analysis and preparing the initial draft for several sections in chap- 
ter IV; to John H. Kaufmann for doing a large part of the re- 
search for chapter II ; and to others, too numerous to mention, for 
supplying information and materials. As is usual, however, he 
takes responsibility for the form and contents of the monograpn 

itself. ^ ,^ 


Swarthmore, Pa., October 16^ Wlfi. 





It is the purpose of the present monograph to outline certain of 
the areas oi American industry which have been characterized by 
competitive or by monopolistic conditions at some time during the 
period since the end of the First World War. For convenience, the 
market situations described are roughly divided into those in which 
competition appears normally to obtain, those in which one or two 
firms are in control of nine-tenths or more of a supply, those in which 
firms are few in number or in which one or more firms, controlling 
less than nine-tenths of a supply, occupy a position of dominance, 
and those in which, though firms may be numerous and none of them 
dominant, some form of common control over price and production 
appears to govern the trade. Tlie classification is an economic rather 
than a legal one, since many of the situations described Avithin the 
three latter categories have the explicit sanction of law. The list 
of industries included cannot be exhaustive. The assignment of 
specific industries to any one of these categories cannot be precise; 
a certain amount of overlapping is not to be avoided. But the mono- 
graph as a whole is believed to present a reasonably adequate sum- 
mary of the evidence available on the principal areas of competition 
and monopoly in American industry during the period under review. 

The summary is prefaced, in this chapter, by a general discussion 
of the nature and significance of competition and monopoly. These 
terms have been variously defined by economists and businessmen. 
It will therefore be necessary, before an effort is made to explore the 
prevalence of competitive and monopolistic conditions in the Ameri- 
can economy, to examine their several meanings and to indicate the 
sense in which each of them is here to be employed. Tlie chapter 
presents these definitions and outlines the respective advantages and 
disadvantages of competitive and monopolistic behavior for the 
economy as a whole. The study makes no attempt to determine 
whether the public interest, in specific fields, would be better served 
by competition or monopoly or to decide what public policy should 
be. The preliminary discussion is designed merely to clear the 
ground for the factual survey which follows. 


Competition has many different meanings. The term always de- 
notes the presence in a specific market of two or more sellers and two 
or more buyers of a definite commodity, each seller acting independ- 
ently of every other seller and each buyer independently of every 
other buyer. But the term usually carries a further connotation. 



There is perfect competition, pure competition, imperfect competi- 
tion, monopolistic competition, non-price competition, olij^opolistic 
competition, cut-throat or destructive competition, predatory and dis- 
criminatory competition, unfair and fair competition, potential com- 
petition, and effective or workable competition. Each of these 
concepts will be examined in turn, 


The requirements of perfect competition are five: First, the com- 
modity dealt in must be supplied in quantity and each unit must be 
so like every other unit that buyers can shift quickly from one seller 
to another in order to obtain the advantage of a lower price. Second, 
the market in which the commodity is bought and sold must be well 
organized, trading must be continuous, and traders must be so well 
informed that every unit sold at the same time will sell at the same 
price. Thirdj sellers must be numerous, each seller must be small, 
and the quantity supplied by any one of them must be so insignificant 
a part of the total supply that no increase or decrease in his output 
can appreciably affect the market price. Buyers likewise must be 
numerous, each buyer must be small, and the quantity bought by any 
one of them must be so insignificant a part of the total demand that 
no increase or decrease in his purchases can appreciably affect the 
price. Under these circumstances, the seller who sets his price above 
the market level will sell nothing and the seller who sets his price 
below this level would get all of the business were it not for the fact 
that he lacks the capacity to handle it. No seller will be able to get 
more than the market price; no seller will need to take less, since 
he can sell at the prevailing figure whatever quantity he is equipped to 
produce. Each seller will therefore take the market price as given 
and adjust his output to it, carrying production up to the point where 
the cost of producing an additional unit will equal the income that 
can be derived from its sale. Similarly, since no buyer will be able 
to obtain a supply at a figure below the market price and no buyer 
will need to pay more than the market price to obtain whatever quan- 
tity he desires, each buyer will take the price as given and adjust his 
purchases to it. Fourth, there must be no restraint upon the inde- 
pendence of any seller or buyer, either by custom, contract, collusion, 
the fear of reprisals by competitors, or the imposition of public con- 
trol. Each one must be free to act in his own inteiest without regard 
for the interests of any of the others. Fifth, the market price, uni- 
form at any instant of time, must be flexible over a period of time, 
constantly rising and falling in response to the changing conditions 
of supply and demand. There must be no friction to impede the 
riovement of capital from industry to industry, from product to 
product, or from firm to firm ; investment must be speedily withdrawn 
from unsuccessful undertakings and transferred to those that promise 
a profit. There must be no barrier to entrance into the market; 
access must be granted to all sellers and all buyers at home and abroad. 
Finally, there must be no obstacle to elimination from the market; 
bankruptcy must be permitted to destroy those who lack the strength 
to survive. 


Perfect competition, thus defined, probably does not exist, never 
has existed, and never can exist. The term denotes the extreme of 
freedom from control over price, just as the term monopoly, in its 
strictest definition, is used to denote the opposite extreme of un- 
limited control over price. Actual competition always departs, to a 
greater or lesser degree, from the ideal of perfection. Perfect com- 
petition is thus a mere concept, a standard by which to measure the 
varying degrees of imperfection that characterize the actual markets 
in which goods are bought and sold. 


Pure competition comes close to the ideal of perfection without 
completely attaining it. Under pure competition, information as to 
present and prospective conditions of supply and demand may be 
imperfect or unequally distributed; custom may restrain complete 
independence of action ; friction may impede the riiovement of capital 
between industries, products, and firms; minor obstacles may limit 
access to and withdrawal from the field. But other of the conditions 
of perfect competition must be preserved; commodities must be 
standardized; sellers and buyers must be numerous and small; no 
one of them may control enough of the supply or the demand ap- 
preciably to affect the price; each of them must take price as given 
and adjust his output or purchases to it. Pure competition is said 
to characterize the organized commodities markets and the securities 
exchanges. But even here individual traders or groups of traders 
acting in concert have been known to control enough of the supply 
or the demand to manipulate the price. Pure competition un- 
doubtedly does exi'st, but its occurrence is comparatively rare. 


Imperfect competition involves a more serious departure from one 
or more of the requirements of perfection. Information may be 
hidden from traders, the composition of commodities and the prices 
at which sales are made kept secret. Restrictive contracts, the con- 
ventions of the trade, or the fear of reprisals by competitors may 
inhibit freedom of action. Serious obstacles may check the mobility 
of capital, hinder entrance to the field, or delay elimination from it. 
The conditions requisite to pure, as well as to perfect, competition 
may likewise be lacking. The product sold by each seller, though 
essentially like that sold by every other, may be so differentiated that 
buyers will be unwilling to shift quickly from one to another. If 
one seller sets his price above the market level he will not lose all 
of his trade to the others; if he sets it below the market level he 
will not attract all of their trade to himself. He may fix his price, 
within limits, therefore, at any figure he chooses. Sellers, moreover, 
may be few in number and any one of them of such size that an 
increase or decrease in his output will appreciably affect the prospec- 
tive price. In this case, the seller, instead of taking price as given 
and carrying production up to the point where the cost of an addi- 
tional unit would equal the income derived from its sale, will con- 
sider the probable effect of variations in production upon the pi ice 


and adjust his output accordingly. His production policy will there- 
fore differ from that which would be followed by a seller under the 
conditions of perfect or pure competition. A comparable situation 
may obtain on the buyers' side of the market. Conditions such as 
these make for imperfection in competition. And since such condi- 
tions are present, to a greater or lesser extent, in many if not in most 
markets, it must be recognized that the occurrence of imperfect com- 
petition is common. 


Monopolistic competition is the form of imperfect competition 
which results from the differentiation of products by sellers. Under 
monopolistic competition, sellers may be numerous and no one of 
them may control a major part of the supply of the common com- 
modity which all of them are offering for sale. But each seller may 
so differentiate his portion of the supply of that commodity from 
the portions sold by others that buyers will hesitate to shift their 
purchases from his product to that of another in response to differ- 
ences in price. Products serving a common purpose may be indi- 
vidualized by variations in their composition, in the sizes of the 
units in which they are sold, in the services which accompany the 
sale, in style, and in such superficial matters as packaging, brand 
names, and sales appeal. Such differentiation may enable one buyer 
to charge more than another, and even to advance his price, without 
losing sales, always, however, within the limits set by the availa- 
bility of products which may be readily substituted for his own. 
Monopolistic competition is thus monopolistic only up to the point 
where substitution takes place and competitive only beyond that 
point. It obtains in many markets; probably in a majority of the 
markets for manufactured consumers' goods in the United States. 


Perfect and pure competition, since they require commodity stand- 
ardization, pertain to competition in price alone. Imperfect and 
monopolistic competition, since they permit product differentiation, 
pertain also to sellers' competition in quality, in service, in style, and 
m advertising and salesmanship. Competition in quality and in serv- 
ice may be quite as effective in giving the buyer more for his money 
as is competition in price. Competition in service, however, may com- 
pel the buyer to pay for something he does not use or want as a con- 
dition of obtaining the commodity he desires. Competition in style 
may give satisfaction to the buyer, but it may also destroy the value 
of the goods he purchases by hastening their obsolescence. Compe- 
tition in advertising and salesmanship are necessary concomitants of 
competition in quality, service, and style, but they may not, in them- 
selves, give the buyer a value which is equal to their cost. Each of 
these forms of competition is a common feature of the markets for 
nianufactured consumers' goods. 



Oligopoly is the form of imperfect competition which obtains 
when sellers are few in number and any one of them is of such size 
that an increase or decrease in his output will appreciably affect 
the market price. The commodity produced by the sellers may be 
standardized or differentiated; the size of each seller's output in 
relation to the total supply is the test. In such a situation, as has 
been said, the seller will consider the probable effect of variations in 
his output upon the price and adjust his production accordingly. 
He will consider, also, the probable reaction of his competitors to 
variations in his price, and may forego the expansion in sales which 
he might obtain by setting his price at a lower level if he believes 
that they will shortly meet or undercut it. Since there are many 
fields in. which sellers are few in number, oligopolistic competition 
is of common occurrence. A comparable situation, oligopsony, may 
obtain on the buyers' side of the market. 


Competition is said to be cutthroat or destructive when the exist- 
ence of idle capacity and the pressure of fixed charges lead sellers 
successively to cut prices to a point where no one of them can recover 
his costs and earn a fair return on his investment. Competition which 
threatens to produce this result is called price warfare. Price war- 
fare could not occur under perfect or pure competitioii, since the out- 
put of each seller would be so small a part of the total supply that it 
would be unnecessary for liim to cut his price in order to increase his 
sales. There can be no question, however, that price wars do occur 
under oligopoly; that, in a metaphorical sense, at least, the throats of 
business enterprises are cut; that these legal entities are injured or 
destroyed ; and that investment values suffer in the process. The rail- 
road rate wars of the sixties and the seventies of the nineteenth cen- 
tury are a case in point. The difficulty with the concept lies in the 
ease with which it lends itself to abuse. It cannot be said with cer- 
tainty that a series of price cuts is destructive unless someone has 
made an impartial analysis of the costs of the price cutters, deter- 
mined what rate of return it is fair for them to receive, and dis- 
covered that the cut prices will not cover the legitimate costs plus 
the fair return. The terms cutthroat and destructive, however, are 
frequently applied, in the absence of any such investigation, to ordi- 
nary competition in price. Thus employed, they can have no more 
weight than any other epithet. 


Competition is said to be predatory when one seller cuts his price 
for the sole purpose of eliminating another, discriminatory when he 
confines the cut to a portion of his sales that competes with those 
made by another. He may cut prices uniformly, deliberately sacrific- 
iTio- present earnings in an effort to obtain future monopoly power 

271817—40 — No. 21- 


and profit. He may discriminate among localities, temporarily cut- 
ting his price in one area while he maintains it in others, raising 
it again when he has eliminated his local rivals. He may discriminate 
among products, temporarily cutting his price on one brand while 
he maintains it on others, dropping the fighting brand when it has 
served its purpose. There can be no question that such tactics have 
been frequently employed. But this concept, too, presents difficulties. 
The test of predation is intent, but the price cutter's purpose is known 
only to himself, is only to be inferred by others. In cases of fla- 
grant discrimination tHe inference may be plain; in cases of general 
price reduction it is less so. The competitor who finds it difficult to 
meet another's price may well believe that his rival intends to elim- 
inate him, but this conviction cannot be taken as sufficient proof of 
such intent. Every act of competition is designed to attract business 
to one competitor rather than another and, to that extent, to elimi- 
nate the latter from the market. The line beyond which such activity 
is to be denounced as predatory is not an easy one to draw. 


The concept of unfairness and fairness in competition has made 
its appearance in the opinion of the business community, in formal 
codes of business ethics, in common law, in the Federal Trade Com- 
mission Act, in the Commission's decisions, in the submittals pre- 
sented to the Commission by trade practice conferences, in the Na- 
tional Industrial Recovery Act, in the codes approved by the National 
Recovery Administration, and in the unfair trade and lair trade laws 
recently enacted by the legislatures of a majority of the American 
States. The concept is thus ethical and legal rather 'than economic. 
Its precise content is indeterminate, since opinions, codes, laws, and 
decisions differ one from another and each of them may be modi- 
fied with the passage of time. It would be possible in economics so 
to define unfair competition as to include within the concept all of 
those methods and only those methods which give one competitor an 
advantage or place another at a disadvantage which has nothing to 
do with their comparative efficiency in the production and distribu- 
tion of goods. But relevance to efficiency cannot be taken as the 
accepted test of fairness, since measures involving competition in 
efficiency have sometimes been condemned and measures unrelated to 
efficiency approved. In fact, no such objective principle has been 
employed to distinguish between those methods which are said to be 
unfair and those which are said to be fair. 

The fairness of many competitive practices has been, and remains, 
in dispute. As to certain other practices, however, agreement is gen- 
eral. It is considered to be unfair to take customers away from a 
competitor by misrepresenting the quality or the price of one's goods ; 
to interfere with the sales of a competitor by defaming him, dis- 
paraging his products, harassing his salesmen, obstructing his deliv- 
eries, damaging his goods, intimidating his customers, bribing their 
purchasing agents, or inducing them to break their contracts with 
him, by organizing boycotts against him, or by entering, into re- 
strictive contracts with distributors which are designed to exclude 
him from the market ; or otherwise to handicap a competitor by spy- 


ing on him, stealing his trade secrets, involving him in false litiga- 
tion, or inducing his employees to go out on strikej by persuading 
the producers of materials to discriminate against him, or by enter- 
ing into exclusive contracts with them in order to deprive him of a 
source of supply. These and similar practices have been denounced 
by the legislatures and the courts and forsworn by business itself. 
In general, they fall within the category of acts designed to give a 
competitor an advantage unrelated to his productive efficiency. 

In recent years the concept of unfairness has been applied to a 
radically different sort of behavior. The codes of fair competition 
approved by the N. R, A. condemned such acts as cutting a price 
without first informing one's competitors and waiting for several 
days in order to give them an opportunity to follow suit, selling at 
a price below some average of the costs of all the firms in one's 
trade, cutting a price indirectly by giving larger trade-in values, 
discounts, premiums, or guaranties than those given by one's competi- 
tors, expanding one's productive capacity, operating one's machines 
beyond a fixed number of hours, or producing a larger quantity of 
goods than that allowed by a quota fixed in conference with one's 
competitors. The unfair trade laws condemn the practice of selling 
goods at a price below their cost plus a fixed m.ark-up. The fair 
trade laws condemn the practice of selling goods at a price below that 
specified by their producer in a contract with a single distributor. 
In specific cases the recent employment of the concept has completely 
reversed its previous application. The basing-point price practice 
in the steel industry, condemned by the Federal Trade Commission, 
was required by the code of fair competition approved by the N. R, A. 
Resale price maintenance, repeatedly condemned by the Commission, 
is approved by the fair-trade laws of 44 States. The tendency ap- 
pears to be toward denouncing as unfair any effort to compete on the 
basis of price. The effect is to rob the concept of unfairness of 
whatever significance it may once have had. 

The terms cutthroat, destructive, predatory, and unfair have been 
applied almost exclusively to situations in which business units com- 
l^ete as sellers. They might be applied with equal logic to situations 
in which such units compete as buyers. Producers who were few in 
number might conceivably bid the prices of raw materials up to 
a point where no one of them could cover his costs and earn a fair 
return. One producer might temporarily bid up such prices for 
the purpose of eliminating another. Any producer, in purchasing 
materials, might resort to practices which others w^ould regard as 
unfair. Application of these concepts to competition in buying, how- 
ever, would involve the same difficulties as does their application to 
competition in selling. The general failure to attempt such an appli- 
cation may be attributed to the fact that practices objectionable to 
competitors have made their appearance less frequently on the buy- 
ers' than on the sellers' side of the market. 


Potential competition, either as a supplement to actual competi- 
tion or as a substitute for it, may restrain producers from over- 
charging those to whom they sell or underpaying those from whom 


they buy. The essential condition of potential competition is the 

E reservation of freedom to enter or to leave the market. There mnst 
e no insuperable barrier, natural or artificial, to the importation 
or exportation of goods, to the expansion or removal of existing 
enterprises, or to the establishment of new ones. The exclusive own- 
ership of scarce resources, the heavy investment required for entry 
into many fields, the fixed character of much existing equipment, 
high costs of transportation, restrictive tariffs, exclusive franchises, 
and patent rights constantly operate to destroy the threat of com- 
petition. Science, invention, and the development of technology con- 
stantly operate to keep this threat alive. Potential competition, 
insofar as the threat survives, may compensate in part for the im- 
perfection characteristic of actual competition in the great majority 
of competitive markets. 


Competition among sellers, even though imperfect, may be regarded 
as effective or workable if it offers buyers real alternatives sufficient 
to enable them, by shifting their purchases from one seller to an- 
other, substantially to influence quality, service, and price. Com- 
petition, to be effective, need not involve the standardization of 
commodities; it does, however, require the ready substitution of one 
product for another ; it may manifest itself in differences in quality 
and service as well as in price. Effective competition depends, also, 
upon the general availability of essential information; buyers cannot 
influence the behavior ot sellers unless alternatives are known. It 
requires the presence in the market for several sellers, each of them 
possessing the capacity to survive and grow, and the preservation 
of conditions which keep alive the threat of potential competition 
from others. It cannot be expected to obtain in fields where sellers 
are so few in number, capital requirements so large, and the pres- 
sure of fixed charges so strong, that price warfare, or the threat of 
it, will lead almost inevitably to collusive understandings among 
the members of the trade. Effective competition requires substantial 
independence of action; each seller must be free to adopt his own 
policj' governing production and price; each must be able and will- 
ing constantly to reconsider his policy and to modify it in the light 
of changing conditions of demand and supply. The test of effec- 
tiveness and workability in competition among sellers is thus to be 
found in the availability to buyers of genuine alternatives in policy 
among their sources of supply. 

Effective or workable competition among buyers cannot obtain 
in the case of specialized products, produced on specialized equip- 
ment, to meet the particular specifications of a single buyer; it can 
appear only in connection with the exchange of goods which are in 
general demand. It depends upon the availability to sellers of in- 
formation concerning the offers made by buyers. It requires the 
presence in the market of several buyers, each of them strong enough 
to survive and grow, and the preservation of conditions which per- 
mit new buyers to enter the market and enable sellers to make sale^ 
elsewhere. It requires substantial independence of action on the 


part of every buyer to the end that sellers may be afforded genuine 
alternatives in policy among their sources of demand. 

The concept of effective or workable competition, though less def- 
inite, is more generally useful than that of perfect competition. It 
fulfills, in part, at least, many of the conditions requisite to perfec- 
tion. It includes all of the area of pure competition and much of 
that of imperfect, monopolistic and nonprice competition. It re- 
quires the preservation of the threat of potential competition. It 
jnay even exist under the conditions of oligopoly and oligopsony. 
It may be difficult to distinguish from cutthroat or destructive com- 
petition, but it is inconsistent, in general, with those forms of 
competition that may properly be defined as cutthroat, destructive, or 
predatory, and with many of the competitive practices that have 
usually been condemned as unfair. In brief, competition ^nay be 
said to be effective or workable whenever it operates over time to 
afford buyers substantial protection against exploitation at the hands 
of sellers and to afford sellers similar protection against exploitation 
by buyers. For this is the social function which competition is sup- 
posed to perform. 


Monopoly, like eompetition, has many different meanings. The 
term always denotes the existence of a considerable measure of unified 
control over the supply of a definite commodity in a specific market. 
But monopoly may be regarded as nonexistent, rare, common, or 
universal, according to one's more precise definition oi the term. 

First, in the strictest possible meaning of the word, monopoly 
may be limited to those cases in which monopoly power is absolute. 
Monopoly j>ower is the monopolist's ability to augment his profit 
either by fixing the price at which he will sell and thus, indii-ectly, 
the quantity that will be sold, or by fixing the quantity that he will 
sell and thus, indirectly, the price at which it will be sold. Monopoly 
power may be said to be absolute only when the monopolist can fix 
price and quantity without considering the possible effect of his 
action upon consumers, potential competitors or the state. He can 
do this only when consumers can neither dispense with his product, 
purchase a substitute, nor import such goods from another market, 
when potential competitors can neither make nor import them, and 
when it is certain that the state will not intervene. These condi- 
tions are never fully satisfied. Few products are really indispensa- 
ble. Few are without close substitutes. Indeed, every one must 
compete with every other one to obtain the consumer's dollar. 
Science and invention, moreover, are constantly increasing the pos- 
sibility of competition and substitution. Market barriers are seldom 
insurmountable. The threat of public intervention is ever present. 
Monopoly power, therefore, is always partial, limited, and tempo- 
rary. Monopoly, in the sense of absolute monopoly power, is prac- 
tically nonexistent. 

Second, in the generic meaning of the word, monopoly may be 
said to exist only when a single seller controls the entire supply of 
a commodity. Here the prevalence of monopoly depends upon one's 


definition of the term commodity. If every product which is in any 
way unique is to be regarded as a separate commodity, even though 
the characteristics which distinguish it from similar products be 
limited to such matters as its superficial appearance, packaging, and 
brand name, then monopoly in this sense is common. But the pos- 
sessor of such a monopoly enjoys little monopoly power, since con- 
sumers have the alternative of substituting for his product another 
which is similar to it. If, however, the whole group of products 
which ser^'^e' a common purpose is to be regarded as constituting a 
separate commodity, the possessor of Fuch a monopoly would enjoy 
a considerable measure of monopoly power. But monopoly in this 
sense is rare indeed. 

Third, in the strictest sense in which the word is usually employed, 
monopoly may be said to exist both when a single seller and when a 
number of sellers, acting in unison through formal or tacit agree- 
ment, control the entire supply. Here, again, if the word com- 
modity be broadly defined, monopoly is comparatively rare. 

Fourth, in the widest possible meaning of the term, monopoly 
may be said to exist whenever the conditions under which goods 
are sold fall short of those which constitute perfect competition. 
Since perfect competition, like absolute monopoly, is practically non- 
existent, monopoly in this sense is well-nigh universal. But the 
range of actual market situations extends all the way from those that 
approach absolute monopoly to those that approach perfect competi- 
tion. The condition which generally obtains is properly to be de- 
scribed not as universal monopoly but as imperfect competition. 

Fifth, in the sense in which the word is most frequently used, 
monopoly may be said to exist whenever a single seller or a number 
or sellers acting in unison control enough of the supply of a broadly 
defined commodity to enable them to augment their profit by limit- 
ing output and raising price. Here monopoly is defined in terms 
not of absolute but of appreciable monopoly power. Monopoly in 
this sense is common. 


There are cases in which two sellers, instead of one, control the 
entire supply of a broadly defined commodity, or enough of it to 
enable them to augment their profits by limiting output and raising 
price. Here the existence of a second seller affords every buyer an 
alternative source of supply. But it is unlikely to afford him any 
real alternative in quality, service, price, or terms of sale. If the 
two sellers are of equal . strength, each must shape his policy with 
an eye to the action of the other. If they are of unequal strength, 
the weaker will usually follow the lead of the stronger. In either 
case, an understanding governing production and price is readily 
to be attained. In their essential character and in their ultimate 
effects, duopoly and monopoly are the same. 


Monopoly is sometimes so defined as to include concentration of 
control over production and price on either side of the market. A 


monopoly-like situation, properly called monopsony, exists on the 
buyers' side of the market when a single buyer, or a number of buyers 
acting in unison, control the entire demand for a commodity, or enough 
of it to enable them to augment their profits by restricting the amount 
that they will purchase or by reducing the price that they will pay. 

Duopsony, a situation comparable to duopoly, exists on the buyers' 
side of the market when two buyers control the entire demand for a 
commodity, or enough of it to enable them to augment their profits by 
limiting their purchases and depressing the price. Duopsony is almost 
as unlikely as monopsony to offer sellers any real alternative in sources 
of demand. 

The situations discussed in the following pages relate almost exclu- 
sively to the presence or absence of competition among sellers. The 
buyers' side of the ultimate market for consumers' goods is almost 
always effectively competitive. Ultimate consumers number in the mil- 
lions; they have seldom been able to attain a degree of organization 
sufficient to enable them materially to affect the volume of their pur- 
chases or the price at which they buy. Monopsony, duopsony, and 
oligopsony make their appearance almost exclusively in the markets 
in which the producers and distributors of goods and services purchase 
their supplies. Even here they appear to be of less frequent occur- 
rence than are the equivalent conditions on the sellers' side of the 
market. The discussion of noncompetitive situations which follows, 
therefore, deals principally with monopolistic control over supply. 
Only incidental consideration is given to monopoly-like control over 


At the one extreme of possible market situations stands perfect com- 
petition, a condition which is nonexistent. At the other stands abso- 
lute monopoly power, a condition which is likewise nonexistent. If 
the use of the term competition is confined to those situations which 
fulfill the requirements of perfection and if all those which fall short 
of this ideal are regarded as monopolistic, then all markets are monop- 
olistic. If, on the other hand, the use of the term monopoly is con- 
fined to situations in which monopoly power is absolute and if all 
others are regarded as competitive, then all markets are competitive. 
If both terms, are defined in their strictest possible sense, then no actual 
market can be described as either competitive or monopolistic. In none 
of these cases would it be possible to use the terms competition or 
monopoly to distinguish among actual market situations, which range 
all the way from those that approach perfect competition on the one 
hand to those that approach absolute monopoly power on the other. 
If they are to be practically useful, the terms must be employed in a 
looser sense. It is possible to describe as competitive those situations 
in which the conditions requisite to effective or workable competition 
appear to obtain and as monopolistic those in which there appears to 
exist an appreciable degree of monopoly power. It is in this looser 
sense that the terms are here to be employed. 



The line between effective competition and appreciable monopoly 
power is not an easy one to draw. Some industries are clearly com- 
j^<ititive ; some are as clearly monopolized. But there remains a middle 
area in which markets cannot be described with confidence as either 
competitive or monopolistic. The situations which obtain here shade 
imperceptibly from those which are more nearly competitive to those 
wMch are more nearly monopolistic. The qualifying adjectives, effec- 
tive and appreciable, which are used to distinguish among them, are of 
necessity too vague to admit of great precision in application. The 
differences which exist within this area thus become a matter of 
degree rather than of kind. 

There are practical diflSculties, too, which obstruct any attempt to 
classify markets according to the criteria of competition and monop- 
oly. Information on many industries is publicly unavailable. Con- 
spiracy in restraint of trade, since it is in violation of the law, is 
usually hidden. Large establishments frequently produce a variety 
of products ; they may enjoy a monopoly in one line and face compe- 
tition in another. Products and producers are interrelated; a com- 
modity that appears to be monopolized may actually be in competition 
with close substitutes; a firm that appears to face many competitors 
may be found, upon disclosure of the interrelationships existing within 
the industry, to possess appreciable monopoly power. Market situa- 
tions are constantly changing ; industries once competitive become less 
so with the development of trade organization and the enactment of 
restrictive legislation; industries once monopolized become competi- 
tive with the establishment of new units and the innovations made pos- 
sible by discovery and invention. The best that can be done, in the 
circumstances, is to analyze the situation that appears to have existed 
in those industries for which information is available at the time for 
which such information was obtained.^ 


Private business, whether it be competitive or monopolistic, seeks 
to realize a profit. But profit-seeking activity, under the differing 
conditions of competition and monopoly, employs quite different 
methods and produces dissimilar results. It is impossible, within the 
scope of the present study, to analyze the consequences of the situa- 
tions which obtain in each of the markets described. But the prob- 
able effects of competition and monopoly, in general, may be briefly 


The resources of a nation, in land, in labor, and in capital, are 
limited in supply. ' The varieties of goods which might be produced 

1 Objection has been made to the use of the word "monopolized" In the titles of chap- 
ters III, IV, and V. It is believed that every situation described in these chapters in- 
volves an exercise of power which has had an appreciable effect on output and price and is 
thus properly to be defined as monopolistic. It must be repeated, however, that the 
assignment of specific industries to these categories is not presented as an exhaustive, 
definite, or permanent classification and that it involves no judgment as to the legality 
or the morality of the practices described. The Post OflBce Department is a monopoly, 
but it is neither illegal nor wicked. 


with these resources are many Economy requires that scarce re- 
sources be devoted to the production of those goods which consumers 
demand and that they be allocated among the Nation's industries in 
proportions which correspond to that demand. Competition oper- 
ates to bring about this result. Failure in business curtails the sup- 
ply of unwanted goods. Freedom of entry into business enlarges 
the supply of wanted goods. Land, labor, and capital are withdrawn 
from the one field and added to the other in response to the changing 
direction of consumer demand. The mobility characteristic of com- 
petition thus tends to achieve that allocation of resources which 
economy requires. 

Competition serves the consumer. It operates negatively to pro- 
tect him against extortion. If the quality of the product oflfered by 
one producer is low, the quality of that offered by another may be high. 
If the price charged by one producer is high, that asked by another 
may be low. The consumer is not at the mercy of the one as long as 
he has the alternative of buying from the other. More than this, com- 
petition operates affirmatively to enhance quality and reduce price. 
The producer who wishes to enlarge his profits must increase his sales. 
To do so, he must offer the consumer more goods for less money. As 
he adds to quality and subtracts from price, his rivals are compelled 
to do the same. The changes which he initiates soon spread through- 
out the trade. Every consumer of its products gets more and pays less. 

Competition is conducive to the continuous improvement of indus- 
trial efficiency. It leads some producers to eliminate wastes and cut 
costs so that they may undersell others. It compels others to adopt 
similar measures in order that they may survive. It weeds out those 
whose costs remain liigh and thus operates to concentrate production 
in the hands of those whose costs are low. As the former are 
superseded by the latter, the general level of industrial efficiency is 
accordingly enhanced. 

Competition makes for material progress. It keeps the door open 
to new blood and new ideas. It is congenial to experimentation. It 
facilitates the introduction of new products, the utilization of new 
materials, and the development of new techniques. It speeds up in- 
novation and communicates to all producers the improvements ade 
by any one of them. Competition is cumulative in its effects. When 
competitors cut their prices, consumers buy more goods, output in- 
creases, and unit costs decline. The lower prices compel producers 
to seek still further means of cutting costs. The resulting gains in 
efficiency and in technology open the way to still lower prices. 
Goods ate turned out in increasing volume and the general plane of 
living rises accordingly. 

Competition may operate slowly; it may inflict incidental hard- 
ship; but it tends ultimately to serve the coj^xtoIl ro(x It induces 
the businessman to maximize total output, to aciiicve auU utilization 
of productive capacity, and to provide full employment for labor. 
It obtains his services for society at the lowest profit for which he 
is willing to perform them and forces him to distribute to workers 
in higher wages and to consumers in lower prices a major part of 
the gains resulting from improvements in technolog3\ It harnesses 
the profit motive and puts it to work, increasing the output of goods, 


distributing them more widely, and raising the plane of living to- 
ward the highest level which productive resources and technical skill 
can maintain. 


Although competition operates, in general, to serve the consumer, 
it does not invariably do so. It calls forth a needless variety of 
models and sizes and- places undue emphasis on style and fashion. 
It diverts a substantial share of the Nation's resources from the pro- 
duction of goods to the elaboration of advertising and salesmanship. 
Competition in persuasion is not always competition in service. 
Competitors, like monopolists, may misrepresent the quality of 
their products and the consumer may not detect the deception. Under 
pressure to cut costs, they may be more likely than monopolists to 
give short measure and to adulterate their goods. 

When labor is fully employed, competition to obtain workers 
operates to raise wages, shorten hours, and improve the conditions 
of work. But when there is a large reserve of idle labor, competitiom 
may have the opposite effect. Competitors may endeavor to cut costs 
by reducing wages, lengthening hours, and impairing the conditions 
of work. The employer who wishes tx) pursue a policy more favor- 
able to labor may find it impossible to meet the prices charged by his 
rivals if he attempts to do so. Under such circumstances, compe- 
tition operates to depress the standards of labor. In fact, it is in cer- 
tain of the most highly competitive trades that such standards have 
been notoriously low. Monopoly did not produce the sweatshop. 
The monopolist may not deal fairly with his workers, but no compet- 
itive necessity prevents him from doing so. 

Competition contributes to efficiency in manufacturing and in dis- 
tribution; it causes inefficiency in the utilization of natural resources. 
Competition in the production of timber, bituminous coal, and 
petroleum hinders the application of improved technology and en- 
courages the employment of wasteful methods of exploitation. It 
may provide the consumer with a large supply at a low price for 
the time being, but it does so at the expense of future generations. 
Competition is not conducive to conservation. 

Where competition does contribute to efficiency, the gain is offset, in 
part, by the wastes which it entails. Competition involves an unnec- 
essary duplication of plant, equipment, and personnel. It makes for 
secrecy and impedes the communication of new ideas. It multiplies 
the effort required to obtain information concerning conditions affect- 
ing a trade. It necessitates costly negotiation over matters which 
monopolists would handle by the issuance of orders. It compels 
managements to direct toward bargaining, attention which they might 
otherwise devote to the improvement of internal efficiency. In cer- 
tain fields, it prevents the coordination of services that might be bet- 
ter rendered by a single firm. It may even make it impossible for 
individual plants to attain thel most efficient scale of operation. Be- 
tween these wastes and the competitive stimulus to efficiency, a dif- 
ferent balance must be struck in every field. 

Competition is not without its costs. It may require a high rate 
of business morality; it may inflict serious losses on investors. Nor 


are the inefficient the only ones to suffer. The bankruptcy which 
eliminates a business entity does not destroy the productive equip- 
ment which it owns. Such equipment may be acquired at bargain 
prices by other concerns. With lower costs, they may proceed to 
undersell their rivals in the trade. Inability to meet their prices 
may bankrupt other firms, regardless of efficiency. A whole industry 
may thus be caught in a vicious circle of failure, loss, recapitalization, 
further failure, and repeated loss. Bankruptcy in small doses may 
prove healthful for a trade. But bankruptcy in too large a measure 
<may impair its usefulness. At best, the process is a wasteful one. 


With monopoly, as with competition, judgment must balance po- 
tential advantages and disadvantages. The verdict may differ with 
the differing circumstances of different trades. It may be favorable 
for specific trades ; adverse for the economy as a whole. 


There are but a few areas in which it is clear that the public interest 
can be better served by monopoly than by competition. In the natu- 
ral resource industries, the need for conservation suggests the desir- 
ability of noncompetitive exploitation. In certain other fields, as in 
the telephone business, the nature of the function performed is such 
as to demand coordinated development under common control. In 
still others, as in the case of the railroad industry during the first 
World War, the adequacy of the service rendered may be improved 
by unification. It is possible, too, that there are fields in which the 
technology of production is such that the most efficient scale of oper- 
ation can be attained only if a single firm is permitted to produce the 
whole supply. But such fields cannot be numerous. Realization of 
the economies of large scale production seldom requires monopolistic 
control. The efficiency of size has to do with the scale of production, 
marketing, and financing operations, not with the extent of control 
over supply in a market. It is probable that the demand for the vast 
majority of products is sufficiently great to enable a large number of 
plants, each under separate ownership, to realize the economies of 

The advantages of monopoly, in general, are the converse of the 
disadvantages of competition. Monopoly can avoid wasteful dupli- 
cation of productive facilities. It can simplify and standardize its 
products. It can minimize expenditure on advertising and salesman- 
ship. It can command essential information and cut the cost of bar- 
gaining and negotiation. It need not shroud its technology in secrecy ; 
it can apply the discoveries resulting from research to the entire out- 
put of a trade. The monopolist is under no competitive pressure to 
give short measure or to adulterate his goods. He is not driven to 
depress the standards of labor. If he wishes, he can so conduct his 
business as to serve the common interest. But, in the absence of effec- 
tive public regulation, he is under no compulsion to do so. 

Monopoly may afford the investor greater security and a steadier 
return than he could obtain under competition. It is designed to pro- 


long the life of the business unit. It is likely to sacrifice progress to 
stability. It need not go through a continuous cycle of bankruptcy 
induced by bankruptcy. But monopoly does not invariably serve the 
interest of the investor. Its formation and its preservation frequently 
involve the acquisition of extensive properties at an excessive price. 
Its prospective profits are often so highly capitalized as to yield the 
purchaser of *its securities a small and uncertain return. Its price 
policy is likely to be one that obstructs adaptation to economic change 
and thus imperils investment both in monopolized and in competitive 
fields. Under monopoly, as under competition, the investor must run 
the risk of incompetent or dishonest management and loss of markets 
through, shifts in consumer demand. 


The counts in the indictment of monopoly are ten in number : First, 
it causes an uneconomic allocation of productive resources. The 
monopolist limits his output to the quantity that the market will take 
at the established price. Consumers who would be willing to purchase 
larger quantities of his product at lower prices are forced, instead, to 
buy goods that are wanted less. Capital and labor are thus diverted 
from those things which the community prefers to those which are, at 
best, a second choice. The resources that are excluded from the su- 
perior occupation compete with others for employment in inferior 
ones and their productivity declines. 

Second, monopoly affords the consumer no protection against ex- 
tortion. The monopolist may persist in offering inferior quality at 
a high price, since the purchasers of his product lack the alternative 
of turning to another source of supply. He may obtain his profit, not 
by serving the community, but by refusing to serve it. 

Third, monopoly affords the worker no protection against low 
wages, long hours, and poor conditions of employment. The firm 
that possesses a monopoly in the sale of its products may also enjoy 
a monopsony in the purchase of the labor required for their produc- 
tion. It may control the only market for special types of skill, the 
only market for labor in a whole region. Such a situation deprives 
the worker of the alternative of turning to another employer for 
better terms. His only protection lies in organization for collective 
bargaining, enforced bj- tlie threat to strike. 

Fourth, monopoly inflicts no penalty on inefficiency. The monopo- 
list may achieve economies through combination and integration; he 
may eliminate wastes and cut costs; but he is under no competitive 
compulsion to do so. Through inertia, he may cling to traditional 
forms of organization and accustomed techniques. His hold upon 
the market is assured. 

Fifth, monopoly is not conducive to economic progress. The 
monopolist may engage in research and invent new materials, meth- 
ods, and machines, but he will be reluctant to make use of these in- 
ventions if they would compel him to scrap existing equipment or 
if he believes that their ultimate profitability is in doubt. He may 
introduce innovations and cut costs, but instead of moving goods by 
price reduction he is prone to spend large sums on alternative meth- 
ods of promoting sales; his refusal to cut prices deprives the com- 


munity of any gain. The monopolist may voluntarily improve the 
quality of his product and reduce its price, but no threat of com- 
petition compels him to do so. 

Sixth, monopoly prevents the full utilization of productive ca- 
pacity. Monopolistic agreements may, for a time, yield so large a 
profit that they attract new enterprises into the fields which they 
control. Capacity is increased but prices are maintained and output 
is not allowed to grow. A large part of the productive plant is 
condemned to idleness. 

Seventh, monopoly obstructs adjustment to economic change and 
thus contributes to general industrial instability. In the competitive 
sector of the economy prices are flexible ; in the monopolized sector 
they are rigid. In the former area, price is cut to maintain output 
when demand declines. In the latter, output is cut to maintain price. 
By refusing to sell at figures which would move his goods, the mo- 
nopolist leaves factories idle and labor unemployed. Consumer income 
falls and, with it, the demand for products of competitive industries. 
The prices of these products are further depressed. Their producers 
can no longer buy the goods whose prices are maintained. The re- 
sulting stalemate may persist for months or years. The necessary 
adjustments, when they occur, are violent instead of gradual. By 
stabilizing price, the monopolist unstabilizes the whole economy. 

Eighth, monopoly impedes the raising of the general plane of liv- 
ing. Because it does not compel the reduction of prices, because it 
fails to penalize inefficiency, because it is not conducive to economic 
progress, because it prevents full utilization of productive capacity, 
and because it creates industrial instability, it makes the total output 
of goods and services smaller than it otherwise would be. 

Ninth, monopoly contributes to inequality in the distribution of 
income. The monopolist is under no compulsion to pass on to labor 
in higher wages or to consumers in lower prices the gains resulting 
from improvements in technology. As a purchaser of labor and 
materials, he may be in a position to depress their prices and thus 
reduce his costs. As a seller of goods and services, he sets his own 
price at the point that is calculated to yield him the largest ob- 
tainable net return. 'The monopolist's price will almost always be 
above the one that he would charge if he were under the necessity 
of meeting competition. His freedom from competitive or regula- 
tory restraints enables him to obtain a profit much larger than that 
required to enlist his services in the administration of industrial 
activity. Enterprises which monopolize important fields are almost 
invariably corporate in form. Their net income, insofar as it is not 
reinvested in plant and equipment, declared as dividends on pre- 
ferred shares, or diverted to insiders, goes to the holders of their 
common stock. Declaration of dividends on common stock thus 
represents a distribution of the profits of monopoly. If this stock 
were widely held, monopoly would still operate to impair the gen- 
eral standard of living, but it would not accentuate inequality. But 
the ownership of all corporate stock is concentrated and corporate 
dividends go. mainly to the rich. In 1929, more than 83 percent 
of all the dividends paid to individuals went to the 3.28 percent of 
the population who filed income-tax returns; 78 percent of them 
went to the richest three tenths of one percent. Concentration in 


the distribution of dividends derived from monopoly is at least as 
great. Monopoly thus makes for economic inequality. The laborers 
whose incomes may be limited by the monopolist's failure to pay 
wages equal to their productivity are numerous. The producers of 
materials whose incomes are depressed by the low prices that the 
monopolist sometimes pays may also be numerous. The consumers 
whose real incomes are reduced by the high prices that the monop- 
olist charges are likewise numerous. The stockholders who share 
the unnecessarily high profits that the monopolist thus obtains are 
few in number. A more nearly perfect mechanism for making the 
poor poorer and the rich richer could scarcely be devised. 

Tenth, and finally, monopoly threatens the existence of free 
private enterprise and representative government. In some jBelds 
monopolistic arrangements cannot be established or enforced without 
legal coercion. Here, competitors who do not wish to compete may 
call upon the State to impose restraints upon those who do. In an 
effort to escape the consequences of freedom, they may be willing to 
'sacrifice freedom itself. The legislation which they seek, and fre- 
quently obtain, may fasten a strait jacket upon every firm in a 
trade. Monopoly in any field may so abuse its power that small 
producers, workers, and consumers will demand the enactment of 
regulatory laws. Private administration may then be subjected to 
public supervision; management may be compelled to submit essen- 
tial decisions to the approval of governmental agencies; the area of 
business freedom will be accordingly curtailed. Concentration in 
economic power begets concentration in political power. The re- 
sulting order in business and in government must differ materially 
from that envisaged by the philosophers of liberalism. Indeed, it 
may be questioned whether democratic processes can survive the 
trend toward centralized economic control. Monopoly impairs de- 
mocracy's ability to defend itself in time of war. National defence 
requires an expansion of output ; monopoly seeks to augment its profit 
by restricting output and maintaining price. It thus obstructs the 
procurement of arms and supplies, increases the cost of defense, adds 
to the burden of debt and taxation, and undermines national morale. 
Wlien the Nation is attacked, it may even turn the balance from vic- 
tory to defeat. Monopoly threatens democracy, too, when its con- 
tribution to industrial paralysis, to unemployment, and to distribu- 
tive inequality, induces those widespread attitudes of hopelessness and 
resentment that make ready converts for the propagandists of revo- 
lutionary change. In the words of the Federal Trade Commission, 
"The capitalist system of free initiative is not immortal, but is capable 
of dying and of dragging down with it the system of democratic 
government. Monopoly constitutes the death of capitalism and the 
genesis of authoritarian government." ^ 

•Hearings Before the Temporary National Leonomic Committee, 76th Cong., 1st Bess., 
Part 5, p. 2200. 



A few industries are clearly competitive, a few are as clearly 
monopolized, but in most cases it is difficult to determine the category 
to which an industry should be assigned. The number of producers 
and the extent to which production is concentrated in the hands of 
a few of them do not afford a certain test, since a large number of 
small firms may agree upon a common course of action, while a 
handful of large firms may engage in vigorous competition, and a 
concern which appears completely to have monopolized a product 
may actually be competing with numerous producers of substitutes. 
The presence or absence of uniformity in price quotations cannot be 
taken as an index, since uniformity may either be approached when 
competitors attempt to meet the prices set by their rivals or attained 
when conspirators agree, while disparity may be produced both when 
competitors undercut established prices and when conspirators rig 
their bids. The degree of price flexibility is not a satisfactory crite- 
rion, since competition may make its appearance in forms that are 
not reflected in price ; custom and convenience, as well as monopoly, 
may induce rigidity, and monopolists may choose to alter their prices 
at will. The volume of production and the extent of utilization of 
productive capacity are not reliable as measures, since declining 
demand and dwindling resources may eventually necessitate curtail- 
ment of output and abandonment of capacity in fields which are 
competitive, while the economies of large-scale production may lead 
to expansion of output and full utilization of capacity in fields which 
are monopolized. The rate of profit is not an adequate test, since 
firms that face competition may realize high profits, for a time at 
least, while a firm that possesses a monopoly may make low profits or 
suffer a loss. The turnover of producing units and the rate of busi- 
ness mortality are not infallible guides, since competitors sometimes 
enjoy long lives and monopolists sometimes go bankrupt. Nor does 
a combination of several of these indices necessarily afford an answer, 
since those industries that appear to be most competitive are the very 
ones in which the greatest efforts have been made, through private 
arrangements and through legislation, to bring competition under 
common control. The problem is further complicated by the fact 
that a concern may manufacture several products and sell in several 
markets ; it may possess a monopoly over one product and face com- 
petition in the sale of another; it may en;'">y a monopoly in one mar- 
ket and meet with competition in another. It must be noted, more- 
over, that any one of these conditions may be modified with the pas- 
sage of time. Determination of the status of an individual trade, 
therefore, requires nothing less than a detailed analysis, product by 
product, market by market, and year by year, of output and prices, 



of quality, service and terms of sale, of costs and profits, of private 
agreements and public regulations and of the eifectiveness with 
which tliey are enforced. Within those fields, however, where pro- 
ducers are numerous, where the degree of concentration is low, where 
the prices charged by different firms are not identical, where these 
prices are not rigidly maintained over long periods of time, where 
the volume of production is not drastically curtailed at the onset of 
depression, where productive capacity is largely utilized during each 
of the phases of the trade cycle, where profits are moderate, where 
the turnover of producing units is rapid, and where the rate of busi- 
ness mortality is high, there is a presumption that effective competi- 
tion prevails." These conditions, in part or in full, are characteristic 
of many American industries. 


In some extractive industries, physical concentration of scarce 
resources has made it possible for one or a few firms to take title 
to the whole supply. In others, extensive resources have been re- 
duced to common ownership. In still others, private arrangements 
and public regulations have succeeded in bringing production and 
prices under control. But, by and lar^e, this area is one in which 
conditions conducive to effective competition have normally obtained. 


In agriculture as a whole and in each of its branches, producing 
units are numerous, the typical unit is small, and the degree of con- 
centration is low. The number of farms in the United States is close 
to 7,000,000. In 1934 tobacco was grown on 422,000 farms, wheat 
on 1,364,000, cotton on 1,920,000, and corn on 4,850,000.^ In 1935 
sheep and lambs were raised on 635,000 farms, hogs on 3,971,000, 
cattle on 5,481,000, and chickens on 5,833,u00.^ These numbers, 
moreover, may be readily increased. Movement into agriculture is 
unimpeded ; knowledge of the processes involved is possessed by many 
and accessible to all; land suitable for cultivation covers an area 
three times as large as that which is now in use; the capital required 
for entry is low. In 1935 the average farm consisted of less than 
155 acres and represented an investment in land and buildings of 
less than $5,000.^ Farms engaging the gainful activity of more than 
5 persons numbered less than 42,000, while farms engaging 5 or 
fewer persons, numbering more than 6,770,000, accounted for 97 per- 
percent of those who were employed in agricultural pursuits.* In 
1929, according to one estimate, the value of crops and livestock 
produced on nearly half of the Nation's farms was less than $1,000.^ 
In that year, the products of cash-grain farms of typical size were 
valued at $2,500, those of dairy farms at $2,000, those of fruit farms 
at $1,750, those of track farms at $1,500, and those of poultry and 
specialty crop farms at $1,250.® Not more than 7 percent of agri- 
• 4 

1 Census of Agriculture, 1935 
« Ibid. 
« Ibid. 
*■ Ibid. 

^National Resources Board, Report, 1934, p. 177. 

• Bureau of the Census and Bureau of Agricultural Economics, Large-Scale Farming in 
the United States, 1929, p. 3 


cultural activity is carried on by corporations ^ and only 0.7 percent 
of these corporations have assets in excess of $5,000,000.^ Large- 
scale farms, defined, with certain exceptions, as those with products 
valued at $30,000 or more, numbered less than 6,000 in 1929, repre- 
senting onl}^ 0.1 percent of all farms, only 6.9 percent of farm acre- 
age, only 3.2 percent of the value of farm lands and buildings, and 
only 4.5 percent of the value of farm products.^ It has been esti- 
mated that the 4 largest producers account for only 0.14 percent and 
the 8 largest for only 0.25 percent of the output of cotton; the 4 
largest for only 0.13 percent and the 8 largest for only 0.22 percent 
of the output of wheat ; the 4 largest for only 0.09 percent and the 
8 largest for only 0.12 percent of the output of hogs.^° 

The producers of most agricultural commodities are powerless to 
fix the prices at which they sell. No one of them controls a part of 
the supply large enough to enable him, by curtailing output, appre- 
ciably to affect a price. No group of them acting in concert, in the 
absence of public intervention, can control a part of a supply large 
enough to enable it substantially to influence a price, since curtail- 
ment among its members, by holding out the promise of higher 
returns, will encourage nonparticipation and stimulate expansion 
among outsiders. No group, even though participation in its pro- 
gram is required by law, can control supply so comxpletely as to 
enable it to determine a price, since the size of a crop is affected 
more by weather than by conscious choice. Farmers, in the main, 
must sell their goods for whatever they will bring. Perishable prod- 
ucts must be marketed at once or thrown aw^ay. Other products may 
be stored from year to vear, but they too must eventually be sold. 
In each season prices will move toward the figure that will clear the 
market at the existing level of demand. 

Both in" the frequency and in the amplitude of their movement, the 
prices of agricultural products display a higher degree of flexibility 
than those of any other group of goods. In the 8 years from 1926 
through 1933 there were 95 opportunities for- month-to-month 
changes in price. During this period the prices of corn, wheat, bar- 
ley, oats, rye, cotton, tobacco, flaxseed, lemons, oranges, steers, and 
poultry showed 95 such changes; those of eggs, onions, potatoes, 
hops, cows, calves, hogs, and lambs showed 94; and those of every 
other product except alfalfa seed and fluid milk showed more than 
70. Between June 1929 and February 1933 the prices of beans and 
onions fell more than 80 percent; those of corn, clover seed, peanuts, 
and cows fell more than 70 percent ; those of oats, cotton, hops, steers, 
hogs, and sheep fell more than 60 percent ; those of wheat, flaxseed, 
timothy seed, sweetpotatoes, apples, oranges, eggs, wool, calves, 
lambs, and poultry fell more than 50 percent; and those of every 
other product except potatoes and rye fell more than 40 percent.^^ 

Wliether prices rise or fall, the farmer will continue to produce. 
His interest, rent, and taxes must be paid. His land, his equipment, 
his labor, and the labor of his family can be put to work without 

^ Hearings Before the Temporary National Economic Committee, pt. 1, p. 96. 

• Ibid., p. 230. • *- • 1 

» Bureau of the Census and Bureau of Agricultural Economics, op. cit., pp. 21. 24. 

10 National Resources Committee. The Structure of the American Economy, Part I, 
Basic Characteristics, 1939. p. 116. 

" Saul Nelson and Walter G. Keim, Price Behavior and Business Policy, Temporary 
National Economic Committee, Monograph No. 1, Part I, pp. 172-173. 

271817—40 — No. 21 3 


additional expense. He might better employ them fully than leave 
them in partial idleness. As long as the cost of seed and fertilizer, 
of feed and gasoline, does not exceed the price at which he can sell 
his crop, he can augment his income by maximizing his output. He 
can always hope, moreover, that total production in the coming sea- 
son will be low and prices high. In good times and in bad, unless 
the law forbids it, he will continue to produce at close to full capac- 
ity. This fact is illustrated by the record of prices and production 
from 1929 to 1932. During these 3 years the prices of agricultural 
commodities in general fell 54 percent ; their production fell by only 
1 percent.^2 The average price of wheat on the farm fell from $1.03 
to $0,39; the acreage sown to wheat fell only from 66,787,000 to 
64,927,000." Cotton and cottonseed prices fell nearly 70 percent, pro- 
duction only 13 percent ; grain prices fell more than 63 percent, pro- 
duction less than 9 percent; poultry product prices fell nearly 50 
percent, production less than 1 percent; truck crop prices fell more 
than 30 percent, production not at all ; dairy product prices fell 47 
percent, production rose nearly 4 percent; meat animal prices fell 
nearly 60 percent, production rose nearly 5 percent; fruit prices fell 
nearly 42 percent, production rose more than 7 percent." The output 
of the great majority of agricultural products declined only moder- 
ately, remained the same, or increased. The output of livestock and 
livestock products, fruits and vegetables was higher in each year of 
the depression than it had been in 1929. 

Agriculture is notoriously unprofitable. It is estimated that farm- 
ing operations yielded a gross income, including revenue from the 
sale of farm products, the value of products consumed on farms, and 
the rental value of farm homes, of $21,288,000,000 in the year end- 
ing June 30, 1927 ; the subtraction of rent, wages, interest, and other 
payments left a net income of $3,452,000,000; but interest on the 
farmers' investment, computed at 4.5 percent, plus wages for the 
farmers' labor, figured at $540 per year, amounted to $5,169,000,000 ; 
the industry therefore incurred a net deficit of $1,717,000,000 in that 
year.^'' Farms changing hands through tax delinquency, mortgage 
foreclosure, or bankruptcy numbered 14.8 in every thousand in 1929, 
54.1 in 1933, and 22.4 in 1937.^' The per capita withdrawals of 
entrepreneurs in agriculture stood at only $718 in 1929, $359 in 1933, 
and $516 in 1937.^^ The median income of farm families, including 
an allowance for products consumed on farms and for the rental 
value of farm homes, has been estimated at $910 and the mean in- 
come at $1,240 for 1929,^« the median at $965 and the mean at $1,349 
for 1935-1936.19 


The lumber industry has a large number of enterprises, most of 
them small in size, a large reserve of productive capacity, and a 

"Joseph S. Davis, Wheat and the A. A. A. (Washington, 1935), pp. 445, 457. 

'' Idem. 

^ Statistical Abstract of the United States, 1938, p. 620. 

^B Morris A. Copeland, The National Income and Its Distribution, ch. 12 in Recent 
Economic ChanRes (New York. 1929), p. 781. 

i» Agricultural Statistics, 1938, p. 451. 

" Bureau of Foreign and Domestic Commerce, Income in the United States, 1929-37, 
table 22. 

" Maurice Leven, H. G. Moulton, and Clark Warburton, America's Capacity to 
Consume (Washington, 1934), pp. 59-(>0. 

"National Resources Committee, Consumer Incomes in the United States (1938), p. 20. 


low degree of concentration. Establishments with an annual out- 
put worth more than $5,000 counted 18,556 in 1929, 5,981 in 1935, 
and 7,647 in 1937.^° Manufacturers of lumber and timber products 
other than furniture and vehicles, covered by the industry's code 
under the N. K. A., numbered, according to various estimates, be- 
tween 17,000 and 24,000.2i Among 17,467 sawmills included in 
reports made by divisional code authorities, 44 percent had a pro- 
ductive capacity of less than 500 board feet per hour, 81 percent 
had a capacity of less than 1,000 feet, 98 percent had a capacity of 
less than 10,000 feet, and 99.99 percent had a capacity of less than 
50,000 feet.-^ Additional units stand ready to enter the industry 
whenever demand improves. Nearly 500,000,000 acres of forest land 
are being held for commercial purposes, nearly 200,000,000 of them 
bearing growths of saw-timber size.-^ In 1925, the year of the biggest 
cut in the industry's history, only 58 petcent of existing sawmill capac- 
ity was in use ; ^^ in 1932, less than one-sixth was in use.-' The N. R. A. 
code, with its promise of higher prices, brought 5,000 idle sawmills 
into operation after August 1933.^*^ The index of concentration is low. 
In 1935 the 4 largest producers of lumber and timber products ac- 
counted for only 4.7 percent and the 8 largest for only 7.6 percent of 
the total output.^^ Other factors unite with these to make the industry 
competitive. The pressure of interest and taxes compels owners to con- 
vert their standing timber into cash regardless of the price. A high 
level of severance is required to liquidate investments in lands of 
diminishing value. Each of the species of timber competes with sev- 
eral of the others. The industry is faced, moreover, with increasing 
competition from steel, cement, stone, and other building materials 
and from paper and other forms of packaging. The annual per 
capita consumption of lumber has fallen steadily over many years. 

The prices of lumber and timber products are relatively flexible. In 
the years from 1926 through 1933, 92 month-to-month changes were 
recorded by yellow pine flooring, 91 by Douglas fir, 89 by yellow pine 
lath, 86 by cedar shingles, 76 by spruce, 59 by gum, 22 to 32 by poplar, 
red cedar, and cypress, 12 by chestnut, and 9 by redwood. From June 
1929 to February 1933, the prices of yellow pine flooring and lath, 
Douglas fir, cedar shingles, maple, and gum dropped more than 45 
percent, those of poplar, cypress shingles, yellow pine timber, Pon- 
derosa pine, Douglas fir lath, spruce, redwood, oak, and red cedar 
more than 25 percent, those of cypress and chestnut 19 percent and 15 
percent, respectively.^^ 

The industry is far from profitable. In 4 of the years from 1927 
through 1936, saw mills and planing mills reporting to the Bureau of 
Internal Revenue, numbering from 2,800 to 3,800, showed combined 
net profits ranging from $5,693,000 to $32,360,000, but in 6 years these 
companies showed net deficits ranging from $18,594,000 to $124,08x,000, 

*• Census of Manufactures, 1937. 

21 Peter A Stone and others, Economic Problems of the Lumber and Timber Products 
Industry, N. R. A., Division of Review, Work Materials No. 79 (mimeo., 1936), p. 79. 

22 Ibid., p. 289. 

23 National Resources Board, Report, 1934, p. 142. 

2* Constant Southworth, The Lumber Industry and the N. R. A. (mimeo., 1934), p. 5. 

* N. R. A., Division of Review, Evidence Study No. 22, the Lumber and Timber Products 
Industry (mimeo., 1935), p. 28. 

28 Southworth, op. cit., p. 21. 

^ National Resources Committee, The Structure of the American Economy, Part 1, pp. 

28 Nelson and Keim, op. clt., pp. 181-182. 


their operations over the 10-year period resulting in a cumulative net 
deficit of more than $340,000,000. Half or more of these concerns re- 
ported no net income in 9 of the 10 years, two-thirds or more of them 
reported no net income in 4 years, and nine-tenths of them reported no 
net income in 1932.-^ While these characteristics are ordinarily associ- 
ated with competitive industries, there is considerable evidence of col - 
lusive trade restraints in many branches of the lumber industry, 
u;sually associated with trade association activities. 


In bituminous coal mining, as in the lumber industry, producing 
units are numerous, most of them are small, and no one of them con- 
trols a significant fraction of the annual output. Mines listed as pro- 
ducing a thousand tons or more numbered 9,331 in 1923, 6,057 in 1929, 
5,427 m 1932, and 6,875 in 1936,^° but these figures did not include a 
multitude of truck and wagon mines, "snow birds" and "fly -by-nights" 
which contributed a portion of the total supply. The 6,057 mines listed 
in 1929 were owned by more than 4,000 companies,^^ but the total 
number of operators is even larger than this; 11,500 different concerns 
had signified their acceptance of the provisions of the Bituminous Coal 
Act of 1937 by November 15, 1938.^^ Most of the companies and most 
of the mines are relatively small. Among 4,976 concerns in 1929, more 
than a quarter had fewer than 6 employees and more than half had 
fewer than 21.^^ Among 6,548 mines in 1937, yearly three-fifths pro- 
duced less than 10,000 tons, three-fourths less than 50,000 tons, and 
nine-tenths less than 200,000 tons ; only 3 percent of them produced 
more than 500,000 tons. The bulk of the output, however, came from 
the larger mines, over two-thirds of it from the 10 percent that pro- 
duced more than 200,000 tons and over a third of it from the 3 percent 
that produced more than 500,000 tons. But the former group included 
661 different mines and the latter 212.^* It is clear that no one mine 
and no small group of mines controls a share of the national output 
large enough to enable it to determine or substantially to influence 
the price of coal. 

Bituminous production can be readily expanded. . Available capac- 
ity is only partially employed. In 1923, at a high rate of operation, 
theoretical capacjty was only 58 percent in use, in 1929 only 71 
percent, in 1932 only 47 percent, and in the years from 1934 through 
1937 about 60 percent.^^ There is no barrier to the establishment of 
new concerns and the development of new properties. Half of the 
world's coal is in the United States. Deposits of bituminous are 
widely scattered; title to workable seams is distributed among thou- 
sands of owners. Much of the supply is so readily accessible that 
mines can be opened quickly and at small expense. Any person or 
group who can muster a moderate amount of capital is free to enter 
the field. Rising prices will encourage operators to increase the 

* Bureau of Internal Revenue, Statistics of Income, 1927-36. 

»> Minerals Yearbook, 1938, pp. 711-713. 

*' National Bureau of Economic Research. Report of the Committee c-n Prices in the 
Bituminous Coal Industry (New York, 1939), p. 13. 

3» National Resources Committee, Energy Resources and National Policy (1939), p. 72. 

w Statistical Abstract of the United States (1938), p. 710. 

^Department of the Interior, Bituminous Coal Division, Bituminous Coal Tables, 
1937-38, p. 17. • 

» Ibid, p. &. 


output of existing mines, to re-open abandoned mines, and to bring 
new areas into production. Public regulation affords the only means 
by which supply and price can be controlled. 

The industry is quick to expand, but slow to contract. Falling 
prices do not result in a })roportionate reduction in the number of 
operators or the volume of output. A mine once opened cannot be 
closed without expense. It must be ventilated to prevent the accumu- 
lation of dangerous gases, pumped to prevent flooding, and timbered 
to prevent the loss of working places. Maintenance of idle proper- 
ties may be more costly than operation at a l<*<ss. Bankruptcy elim- 
inates mining companies but does not affect their mines; new owners, 
with a lighter burden of fixed charges, continue to produce. Enter- 
prises that might otherwise have disappeared were kept alive during 
the twenties by the establishment of wage differentials in union con- 
tracts, a significant concession since labor constitutes two-thirds of 
the cost of mining coal. Producers w\xo might otherwise have failed 
to reach the market have been enabled to do so by the inclusion of 
similar differentials in the structure of freight rates, another signifi- 
cant arrangement since the cost of transportation represents three 
fifths of the value of delivered coal.^^ Although the price realized 
at the mine in 1929 was 52 percent below that received in 1920, 
production was only 6 percent below the level established in the 
earlier year." 

Still other factors make for competition. Large consumers can 
obtain their own supplies. One fifth of the total output is produced 
by railroads, public utility corporations, by-product coke plants, and 
steel companies from captive mines.*^ Low wages and favorable 
freight rates have stimulated development in new areas. Greater 
efficiency in utilization has reduced demand, and coal has been forced 
to meet increasing competition from fuel oil, natural gas, and water 

Until it was subjected to public regulation, the price of coal was 
the result of the free interplay of the forces of demand and supply. 
Demand for this commodity, m the short run, is relatively inelastic. 
Much of it comes from railroads, public utilities, steel, and other 
industries whose prices show little flexibility. The cost of coal 
is but a small part of their total costs. The price at the mine is 
only half of the price they pay. Reduction in this price will not 
produce a proportionate gain in sales. But price will fall when 
output is increased or when it is maintained in the face of declining 
demand: The average spot price of bituminous coal fell steadily 
from $5.64 per ton in 1920 to $1.75 in 1930. Value realized at the 
mine fell from a high of $3.75 in 1920 to a low of $1.31 in 1932.3« 

The industry made high profits during the First World War and the 
5 years which followed. Among companies reporting to the Bureau 
of Internal Revenue, the net income of profitable concerns exceeded 
the net deficit of unprofitable concerns by more than $200,000,000 in 
1917 and by nearly $250,000,000 in 1920. But profits turned into deficits 
aft«r 1923 and the industry suffered losses during the remaining years 

^ Fred E. Berquist and Associates, Economic Survey of the Bituminous Coal Industry 
Under Free Competition and Code Regulation, N. R. A., Division of Review, Work Mate- 
rials No. 69 (mimeo. 1936), p. 32. 

^ Ibid., p. 46. 

^ Ibid., p. 28. 

^ Ibid., pp. 41, 46. 


of prosperity which mounted steadily in the depression. In each of 
the yeaYs from 1927 through 1936 the industry showed a deficit which 
ranged from $3,310,000 in 1936 to $51,167,000 in 1932. For the whole 
decade the total deficit exceeded $270,000,000. No net income was 
earned by 59 percent of the concerns reporting in 1929, by 83 percent 
in 1932, and by 68 or 69 percent in 1934, 1935, and 1936. No other 
industry covered by Treasury statistics has shown such widespread 
losses.*'* "Bituminous coal," writes F. G. Tryon, "offers the example 
par excellence of extreme competition among thousands of separate 
units." ^1 


The degree of concentration in the production of crude petroleum is 
far higher than that which obtains in the mining of bituminous coal. 
Between 15,000 and 18,000 producers operate some 355,000 wells in 
the United States.*- But 20 major oil companies owned 23.7 percent 
of the producing wells in 1937, accounted for 52.5 percent of the 
Nation's output of crude, and held title to 75.6 percent of crude capac- 
ity. Ten companies owned half of the proved reserve and produced a 
third of the oil. The largest of them provided 6.2 percent of the total 

The production of oil is nonetheless competitive. Accessible resources 
are abundant. Pools of appreciable size are known to exist in 22 of 
the States ; production is carried on in 19. Estimates as to the probable 
extent of future reserves are constantly revised upward ; the total size 
of the deposits is unknown. Exploration, prom'pted by the prospect of 
high profits, is continually going on. The chances against success in 
scientific drilling are said to be 6 or 7 to 1 ; in wildcatting they are as 
high as 20 to 1.** But there appears to be no lack of prospectors or of 
investors who are willing to take a chance. Discovery is unplanned, 
unregulated, and vmpredictable. But it frequently produces pools of 
major size, as it did in 1927 and 1928 in Oklahoma, in 1929 in Cali- 
fornia, in 1930 and 1931 in Texas, and more recently in Illinois. As 
long as this process continues the concentration of control cannot be 
made cornplete. \ 

The exploitation of a pool is necessarily competitive. Since title to\ 
land carries with it the ownership of subsoil rights, and since the dis- * 
tribution of surface holdings bears no relation to the boundaries of a 
subterranean reservoir, many owners can claim the oil which it con- 
tains and many producers can be granted access to it through their 
lands. Moreover, since oil moves underground without regard for 
lines of property, and since the law awards it to the first owner who 
brings it to the surface, a pool once tapped is exploited with all pos- 
sible speed as each owner attempts to withclra v as much of its contents 
as he can get before it is drained by his neighbors. Oil is removed 
from tlie earth to be stored above ground ; mounting production and 
accumulating stocks drive prices down ; but drilling proceeds without 
reference to demand and oil flows as freely in depression as in pros- 

*" Bureau of Internal Revenue, Statistics of Income, 1917-.^G. 

*' Edwin G. Nourse and Associates, America's Capacity to Produce (Washington. 1934), 
p. 45. 

•*- Ilearinss before Temporary National Economic CommittP(>. I'art 14. p. 7(!6^. 
«Ibid., pp. 7103, 7393, 7458, 7512, 7673: I'art 14-A, p. 7714. 
** Ibid.. Part 14, pp. 7664-7665. 


perity. The law of capture necessitates operation at capacity without 
regard to price. Proration of output among producers, if it can be 
enforced, will check the flow, but proration is not to be enforced with - 
out assistance from the State, and even then the way is open to 
expansion of output through exploration and discovery. 

The price of petroleum has not been rigidly maintained. Penn- 
sylvania crude showed 60 month-to-month changes, Kansas crude 45 
changes, and California crude 19 changes from 1926 through 1933.*^ 
Mid-Continent crude (36° gravity) dropped from $2.14 a barrel to 
$0.62 in these 8 years.*^ This price, however, is not the product of im- 
personal forces alone. The major companies dominate the market in 
which the independent sells his crude, l)uying to refine and to store. 
Twenty majors, producing 52.5 percent of the crude in 1937, had 
S3 or 84 percent of the runs to stills and 96.5 percent of the stocks 
above ground,*^ In the market as a whole and in many producing 
fields, the position occupied by these buyers is that of oligopsony. 
One of the majors may take the lead in setting a price which the 
others will follow or several of them may agree upon a price that will 
be paid. In some fields, moreover, a single company in control of 
pipe line transportation stands as a monopsonist.^^ But the situation 
in which the independent producer finds himself is a competitive one. 
He does not control the price at which he sells. 


The fishery industry proper embraces the activities of vessel, boat, 
and shore fisheries in the United States and Alaska which, in 1937, 
had a gross catch of 4,350,000,000 pounds of fish and shellfish worth 
some $100,000,000. Ten species accounted for roughly 65 percent of 
the total value of the catch. Salmon caught in the Pacific Coast and 
Alaskan regions were worth more than all the fish, exclusive of 
shellfish, landed in New England. The catch of the Pacific Coast 
fisheries, consisting largely of tuna, California sardines, salmon, and 
halibut was valued at nearly $29,000,000 ; that of New England fish- 
eries, consisting principally of cod, haddock, and shellfish, at about 
$20,000,000; and that of the Alaskan industry— nearly all of it sal- 
mon—at some $15,000,000." 

There are five-thousand-odd fishing vessels and some 70,000 fish- 
ing boats in the United States and Alaska, a vessel being a documented 
craft of 5 or more tons net capacity, a boat being an undocumented 
craft of smaller size. Most of the enterprises operating either type 
of craft are very small and the degree of concentration is low. Only 
a fifth of the vessels and less than a fifth of the boats are owned in 
fleets of two or more, some 4,000 vessels and some 60,000 boats being 
under separate ownership. Vessels account for 40 percent of the 
value of the total catch. But, if Alaska is excluded, only 1 vessel in 
5 is operated by a corporation. The rest belong to individuals or 
partnerships and 9 out of 10 in this group are captained by an owner. 
A study of fishing vessels in New England and California revealed 
that the average gross operating revenue per vessel in 1933 was less 

*5 Nelson and Keim, op. cit., p. 178. 

^* Hearings before the Temporary National Economic Committee, Part 14, p. 74.56. 

*"> Ibid., Part 14-A, pp. 7714, 7716. 

« Cf. infra, pp. 88-90. 

" Bureau of Fisheries, Fishery Industry of the United States, 1938, pt. 2. 


than $25,000, while the average for vessels and boats together did 
not reach $2,000 in any area.^**' Between 60 and 6& percent of the 
total output is caught by enterprises which are not integrated to 
the wholesaling or processing functions.^^ Although exact figures 
are unavailable, it appears that no company's catch reaches 4 percent 
of the total. There have been many trade associations in the industry, 
but no effective control over prices or production. While the average 
price of fish fell 35 percent and that of 7 of the 12 major species more 
than 40 percent, the size of the catch fell only 19 percent from 1929 
to 1933.^- 

A moderate amount of concentration is found in the New England 
industry. About 85 percent of the fish caught in this area is landed 
at Boston, where the largest fish, pier in the world is located. It is 
estimated that 5 large trawler fleets brought in about 47 percent of the 
fish landed here in 1934, the Bay State Fishing Co. accounting for 
nearly 15 percent and the Atlantic Coast Fisheries Co. for some 12 
percent.'^ The ability of these concerns to control the market for cod, 
haddock, mackerel, and other New England varieties is limited, how- 
ever, by tlie competition of small-scale fishermen who can expand 
their operations at little expense when prices rise, by that of imports 
from the maritime provinces of Canada, by that of species produced 
in other sections of the United States, and by that of meat — especially 
pork — as a dietary substitute for fish. Price and production figures 
bear out the hypothesis of effective competition in this branch of the 
industry. The price of haddock fell 34.3 percent, that of cod 40 per- 
cent, and that of mackerel 55.6 percent from 1929 to 1933; the catch 
fell off only 19 percent. The catch of mackerel in 1932 was the 
largest in 50 years.^* 

The production of salmon is more highly concentrated than that of 
any other fish. The salmon companies are combined fisheries and 
canneries, the typical firm operating on a scale much larger than that 
found in the Atlantic fisheries. Among some 70 companies, 21 are 
fairly large and 2 — Pacific- American Fisheries, Inc., and the Alaska 
Packers Association — accounted in 1937 for a quarter of the total 
pack.^^ The price of canned salmon, however, is relatively flexible. 
The price of the pink variety changed 30 times and that of the red 
variety 58 times from month to month in 1926-33. The price of pink 
salmon fell 50 percent and that of red salmon 47.2 percent from June 
1929 to February 1933;^*' The size of the catch fell less than 2 percent 
between these years, but this figure is not of great significance, since 
stocks of canned salmon may be carried over to await a better price. 


In the great majority of manufacturing industries production is 
more highly concentrated than it is in most extractive fields. Among 
the 275 categories included in the Census of Manufactures for 1935, 
however, there were 20 in which the 4 largest firms produced less than 
10 percent, by value, of the total output and 82 in which the 4 largest 

=•1 John R. .Arnold, The Fishery Industry and the P^shery Codes, N. R. A., Division of 
Review, Work Materials No. 31 (mimeo., 1936), op. 41-42. 
" Ibid., p. 1. 
sa Ibid., pp. 2-3. 
63 Fortune, April 1935, p. 152. 
" Arnold, op. cit., pp. 12, 28, 35. 
« Cf. Moody's Industrials, 1938. 
^ Nelson and Keim, op. cit., p. 174. 



produced less than 25 percent. In the latter group there were 23 
industries which sold their products in local, regional, or other mar- 
kets where a higher degree of concentration probably obtained and 10 
others in which the 8 largest firms produced a third or more of the 
supply. When these are subtracted, there remain 49 manufacturing 
industries in which the index of concentration was relatively low. 
These industries are listed in the table which follows." 

Industries selling their products on a national market in which the four largest 
firms produced less than a quarter and the eight largest firms less than a third, 
by value, of the total output in 1935 


Women's, misses', and children ^ apparel, not elsewhere classified 

Fur goods 

Printing and publishing, hock, music, and job 

Lumber and timber prouucts, n.e. c 

Men's, youths', and boys' clothing, n. e. c_ : 

Knit goods .^. 


Men's cotton garments __. 

llousefurnishings . 

Furnishing goods, men's 

Cotton manufactures 

Pocketbooks, purses, and cardcases-.- 

Jewelry -- 

Embroideries, trimmings, etc 

Silk manufactures.-- 

Miscellaneous articles, n.e. c 

M odels and patterns 

Stamped and pressed metal products 


Con feet ionery 

Dyeing and finishing cotton, rayon, and silk 

Boxes, paper, n. e. c 

Paper goods, n.e. c 

Gloves and mittens, leather 


Waste and related products :.. 

Baskets and rattan and willow ware .• 


Stoves and ranges (other than electric) and warm-air furnaces-- 

Macaroni, spaghetti, vermicelli, and noodles 


Toys, games, and playground equipment 

Insecticides and fungicides 

Mirror and picture frames 


Trunks, suitcases, and bags.- '. ^ 

Caskets, coflfiins, burial cases and other mortician's goods 

Hand stamps and stencils and brands 

Rayon manufactures 

Cheese ._ 

Minerals and earths, ground or otherwise treated 

Pottery, including porcelain ware 

Leather goods, n. e. c .-.. 

Rubber goods other than tires, tubes, boots, and shoes 

Cash registers, adding machines, and other business machines 

Screw machine products and wood screws 

Canned and dried fruits and vegetables; preserves, jellies, fruit butters, pickles, 

and sauces 

Wood turned and shaped and other wooden goods, n. e. c 

Wool and hair manufactures 





by the 4 

by the 8 





































































































Since an industry, as defined by the census, may manufacture many 
different products and since any one product may be made by but a 
few of the concerns that are classified as belonging to the industry, 
the actual degree of concentration within the foregoing fields may 
not be as low as the figures in the table would suggest. When data 
covering 1,807 representative products, nearly half by number and 
more than half by value of those included in the Census of Manu- 

" National Resources Committee, The Structure of the American Economy Part I 
pp. 248-258, 265-269. 



factures. for 1937, were analyzed by the Bureau of Foreign and 
Domestic Commerce, it was found that the largest manufacturer ac- 
counted for less than 5 percent, by value, of the total output of 20 
products, for less than 10 percent of 110, and less than 25 percent 
of 670, and that the 4 largest accounted for less than 10 percent of 
8 and less than 25 percent of 90. When goods which were not sold 
in Nation-wide markets and those which had a total value of less 
than $10,000,000 are eliminated, there remain 48 important products 
in whose manufacture the degree of concentration was relatively low. 
If the same situation obtains with respect to goods which were not 
covered by the survey, this number could be doubled. The 48 prod- 
ucts which were included in the Bureau's sample are listed in the 
table which foUows.^^ 

Products valued at more than $10;000,000 each, in whose manufacture the four 
largest producers controlled less than a quarter of the total output in 19S7 


Number of 

Percent pro- 
duced by the 
four largest 

One-piece dresses (except house dresses) made to retail for $2 and over. 

Coats, women's, misses', and juniors' — . 

Tomatoes, canned 

Trousers and knickers, wholly or partly wool 

Overcoats and topcoats 

Suits, men's and youths', 3-piece 

Suits, women's, misses', and juniors' --. - -. 

Wood bedroom suites - -- --- 

Awnings - 

Beans, canned green-pod •, , --- --- 

Work pants and breeches... . 

One-piece dresses (except house dresses) made to retail under $2 

Wood davenjwrts, sofas, day beds, studio couches, etc., upholstered 

Wood chairs and rockers, upholstered, pull-up or occasional 

Wood living room and dining room suites, upholstered . 

Mattresses, other than inner -spring 

Macaroni, spaghetti, and vermicelli.. 

Ensembles (dresses) -..- - 

Stove and furnace pipe and flue and air ducts 

Jigs, fixtures, etc., and specially designed tools... 

Skirts, women's, misses', and juniors' 


Corsets, girdles, and garter belts — 

Pottery, including porcelain ware, electrical supplies, other types 

Com meal - 

Women's boots and shoes, cemented 

Store and lunch room furniture: Counters, tables, partitions, window backs, 

showcases, wall cases, and cabinets 


Feed, screenings, etc 

Radio coils and condensers, etc 

Men's seamless hosiery _. 

Wood dressers, vanity dtessers, commodes, and dressing tables 

Misses' and children's boots and shoes, welted... 

Women's boots and shoes, welted 

Rough brass and bronze castings 

Plain print cloth (36 inch and wider) 

Men's and youths' shirts — . 

Clear lacquers. 

Other fllainent rayon dress goods 

Wood window and door screens — 

Boots and shoes, canvas, satin, and other fabric uppers with leather soles, 

cemented -l 

Canned com 

Men's and youths' 3-piece suits with extra trouserg 

Boots and shoes, part leather and part fabric uppers, with leather soles, 


Canned peas 

Wood dining room suites 

Women's full-fashioned pure thread sUk hosiery ._ 

Galvanized iron gutters, downspouts, carriers, ventilators, etc. 
















»* Willard L. Thorp and Walter P. Crowder, The Structure of Industry, Temporary Na- 
tional Economic Committee, monograph No. 27, Part III, Concentration of Production in 
Manufacturing, appendix A. 


Among the 16 major industrial groupings employed by the Census 
of Manufactures, that of "textiles and their products," including 24 
industries engaged in the spinning, weaving, and processing of vari- 
ous fabrics and in the production of wearing apparel and certain 
house furnishings, with more than 20,000 establishments, nearly 2,000,- 
000 employees, an annual output valued at $7,000,000,000, and a value 
product estimated at nearly $3,000,000,000, accounted, in 1937, for an* 
eighth of the total number of manufacturing establishments, more 
than a fifth of the total number of wage earners, and between a 
ninth and an eighth of the value of the total output and the -^alue 
added by manufacture, ranking third among the 16 groups in num- 
ber of. establishments, first in number of employees, third in the 
value of its output, and fourth in value added by manuf acture.^^ In 
almost every one of the industrial categories included in this group, 
conditions conducive to effective competition appear to obtain. 


The cotton textile industry, producing a great variety of fabrics 
for domestic and industrial uses, comprises all spinning and weaving 
mills which use cotton fiber or yarn as raw material. In 1937, there 
were 1,237 establishments **" and more than 435,000 wage earners in the 
industry and its output was valued at more than $1,250,000,000. It 
employed 6 percent of the workers engaged in manufacturing and 
produced more than 2 percent, by value, of the output of manufac- 
tured goods.^ 

Structurally, the industry is complex. There are units engaged 
exclusively in spinning, others in weaving, and still others in which 
these functions are combined. There are 30 or 40 subdivisions, each 
producing a fabric of a special type. Statements made for the in- 
dustry as a whole must therefore be modified when applied to its 
specific segments, but it may be said, in general, that producers are 
numerous, small, and widely scattered, that entrance is unobstructed, 
that production shows little concentration, and that prices are flexible 
and profits low. 

Among all of the cotton textile establishments in the United States 
in 1929, four-fifths had fewer than 500 employees each and three- 
fifths had fewer than 250. The output of 3 establishments in 5 was 
valued at less than $1,000,000 and that of 2 in 5 at less than $500,- 
000.^2 Among more than 900 mills engaged in spinning, it was re- 
ported in 1938 that there were only 18 with more than 150,000 spin- 
dles and that they accounted for oniy 18 percent of the total spin- 
dlage. The largest mill in the industry had only a thirtieth of the 
total. More than half of the spindles were in mills with less than 
60,000 each, more than a fourth of them in mills with less than 

The prevalence of small units may be attributed to the fact that 
productive eflficiency, in nearly all of the branches of the industry, 
•can be achieved by mills of moderate size. In the production of 

"■ Census of Manufactures, 1937. 

•"As used in the Census of Manufactures, an establishment usually means a single 
plant or factory. 

» Census of Manufactures, 1937. 

«2 Fifteenth Census of the United States, Manufactures, 1929. 

83 H. E. Michl, The TextUe Industries (Washington, 1938), pp. 92-93. 


print cloth, for instance, a mill of 60,000 spindles, costing perhaps 
$500,000, is large enough to realize the principal economies of large 
scale operation. For coarser yarn fabrics, such as sheeting, a mill 
of 30,000 spindles will suffice.^* Thus an establishment with but a 
tiny fraction of the total spindlage can operate with high efficiency. 
As a consequence, admission to the industry can be obtained with an 
investment that is smaller than that required in many other fields 
and new entrants can compete successfully with older and larger 
firms. Opportunity for new enterprises, under skillful management, 
is created, too, by the factor of style and by the constant fluctuation 
of the prices of cotton and finished goods. 

The degree of concentration in the industry is comparatively low. 
The largest 4 among 900 to 1,000 firms operated 25 establishments 
which produced 8.4 percent of the total output, by value, in 1935, 
and the largest 8 operated 58 establishments which produced 14.4 
percent.^^ The 15 largest companies selling cotton yarn accounted 
for only 18.3 percent of the production, the largest of them for only 
4.8 percent, in 1934-35. The 15 largest selling woven goods ac- 
counted for only 40.0 percent, the largest of them for only 4.6 
percent.**^ Concentration, of course, is higher where individual fabrics 
are concerned. Among the 10 most important products of the industry 
in 1937, there were 3 — tire cord fabric, Turkish and terry- woven 
towels, and denims — in which the 4 largest producers provided about 
three-fourths of the supply .'^^ Tire cord fabric is a special case, the 
largest mills being owne^ and operated by manufacturers of tires. 
Toweling is dominated by a single firm. In denims, one company 
sold a fifth of the total output in 1933.«« Among the 10 leading 
products, however, there were 7 in which the 4 largest producers 
provided less than half and 2 in which they provided less than a 
fourth of the supply.'^'' Concentration by product is lower in the 
manufacture of cotton " textiles than in manufacturing as a whole. 
The combination movement has made slight headway in this in- 
dustry. Mergers do not promise to cut the costs of operation. It is 
impracticable to purchase a large enough number of units to obtain 
substantial control over price. And finally, the existence of many 
small producers would constitute an ever-present threat to the main- 
tenance of such control.^° 

The prices of cotton textiles are highly flexible. Among 25 of 
the industry's products, 4 showed more than 90 month-to-month price 
changes in 95 months in 1926 through 1933; 12 showed more than 
60 changes; 18 showed more than 30; none showed less than 12. 
The prices of 24 products dropped more than 30 percent from June 
1929 to February 1933; those of 21 dropped more than 40 percent; 
those of 14 dropped more than 50 percent. The price of heavy drill 
fell 63 percent, that of light drill 64 percent.^^ During these y^ars 
the production of cotton goods declined by only 20 percent.^^ From 

«*S. .7. Kennedy, Profits and Losses in Textiles (New York, 1936), pp. 185»-186. 

* National Resources Committee, op. cit., pp. 250-251. 

«* Federal Trade Commission, Agricultural Income Inquiry, Part I (1937), pp. 319—320. 

" Thorp and Crowder, loc. cit. 

«* Federal Trade Commission, op. cit., pp. 316-317, 321. 

*• Thorp and Crowder, loc. cit. 

'"Cf. C. E. Fraser and G. F. Doriot, Analyzing Our Industries (New York, 1932), pp. 

■"^ Nelson and Keim, op. cit., pp. 176-177. 

" .Association of Cotton Textile Merchants, Ten Years of Cotfon Textiles (a table. New 
York. 1940). 


tlieir depression lows to their peaks in 1937, the prices of 4 products 
rose by more than 150 percent, those of 11 by more than 100 per- 
cent, and those of 20 by more than 75 percent.^^ In the same period, 
production rose by 33 percent^* 

Profits in the industi-y as a whole have been something less than 
moderate. The average annual rate of return on the avtrage in- 
vestment in the business realized by spinning companies, numbering 
from 108 to 113, reporting to the Federal Trade Commission for the 
period from January 1933 to July 1936, stood at 2.96 percent, rang- 
ing from a profit of 5.61 percent in 1933 to a loss of 0.35 percent in 
1935. The return obtained by 53 to 72 weaving companies also stood 
at 2.96 percent, ranging from a profit of 7.15 percent in 1933 to a 
loss of 0.03 percent in 1934. The return obtained by combined spin- 
ning and weaving companies, numbering from 264 to 302, stood at 
3.00 percent, ranging from a profit of 6.68 percent in 1933 to a loss 
of 1.04 percent in 1935. The return obtained by 77 to 91 dyeing 
and finishing companies stood at 3.24 percent, ranging from a profit 
of 7.50 percent in 1936 to a loss of 0.07 percent in 1934." Among 
the cotton textile manufacturing corporations reporting to the Bu- 
reau of Internal Revenue, numbering from 800 to 1,000 in each of 
the years from 1927 through 1936, less than two-tliirds received any 
net income in 9 of the 10 yeai-s, less than half in 6 years, and less 
than a quarter in 1930, 1931, and 1932. The net incomes of profitable 
corporations exceeded the net deficits of unprofitable corporations 
by $186,186,000 over 6 of these years; net deficits exceeded net in- 
comes by $219,001,000 over 4 years; the industry experienced an 
aggregate net deficit of $32,815,000 during the decade as a whole.'^" 


The woolen and worsted goods industry comprises mills engaged 
in the combing and scouring of wool, the spinning of weaving or 
knitting yarns, and the weaving, dyeing, and finishing of apparel 
fabrics, blankets, and upholstery in which wool is the raw material. 
While some mills specialize in spinning and others in weaving, in 
most of them both operations are combined. In 1937, some 700 
establishments, employing more than 150,000 workers, produced a 
total output valued at more than $800,000,000." Since 560 corpora- 
tions and more than 100 individual enterprises and partnerships were 
included in the industry in 1936," it is apparent that nearly every 
one of these establishments is operated by a separate firm. Most of 
these undertakings are relatively small. In 1929, three-fourths of the 
establishments had less than 250 employees, half of them less than 
100, and nearly a third of them less than 50. The output of 7 
establishments in every 10 was valued at less than $1,000,000, that 
of 5 at less than $500,000, and that of 3 at less than $250,000.^^ 

'3 Nelson and Keim, op. cit., pp. 176-177. 

''■' Association of Cotton Textile Merchants, loc. cit. 

■"^ Computed from Federal Trade Commission, Textile Industries in the First Half 
of 19.36, Part I. The Cotton Textile Industry (1937), p. 6. 

'" Computed from Bureau of Internal Revenue, Statistics of Income. 1027-36. 

■" Census of Manufactures, 1937. Census figures for this industry include a small num- 
ber of manufacturers of hair products. 

™ Bureau of Internal Revenue, Statistics of Income, 19.S6, p. 63. 

■"> Fif teentth Census of the United States, Manufactures, 1929. 


Production is more highly concentrated here than in the cotton 
textile industry. Nearly a fourth of the output, by value, was pro- 
duced, in 1935, by the leading 4 concerns, nearly a third of it by 8 
concerns.®" Among the 10 principal products of the industry, there 
were 7 in which the 4 largest firms produced between a third and a 
half of the total :>utput in 1937, 2 in which they produced from one- 
half to three-fourths, and 1 for which the degree of concentration 
was not disclosed.^^ The American Woolen Co., the .largest concern 
in the industry, accounted for about 12 percent of its total sales.^^ 
Further concentration is limited, however, by the advantage which 
the nature of the wool market and the factor of style give to the 
smaller firm. Since the large producer cannot readily purchase 
enough material in the open market to meet his needs, he is likely 
to accumulate a substantial inventory. Since he cannot hedge against 
this commitment, he may incur an* inventory loss. Since his suppl}?^ 
consists of special grades of wool, he may find it difficult to shift 
quickly to the production of styles requiring other grades. Com- 
plexity of organization also militates against adaptability. The 
small concern is more flexible. It can satisfy its material require- 
ments in the open market, buying from hand to mouth. It can ad- 
just its purchases to swiftly changing styles. It can base its sales 
appeal upon the quality of its fabrics and the uniqueness of their 
weave. It can initiate its own designs and copy the successful designs 
of the larger firms. It can produce style goods in the small quan- 
tities in which they are often sold. It can thus compete effectively 
with enterprises many times its size. The survival of the smaller 
units in the industry thus appears to be assured. 

The prices of woolen and worsted goods are less flexible than those 
of other textiles. Among 13 of the industry's products, 4 changed 
le-ss than 20 times in price from month to month in 1926-33 ; 5 changed 
between 20 and 30 times ; and 4 changed more than 30 times. Weaving 
3'arn, with 72 price changes, showed the greatest flexibility. Among 
14 products, 12 showed price declines of 35 to 50 percent from June 
1929 to February 1933; 1 fell only 23 percent; and 1 fell 56 percent.^^ 
Production during the same period dropped off by something over 20 
pe: lit.^ 

Profits in the industry have not been large. The Federal Trade 
Conmiission has published figures showing the average annual rate of 
return on money invested in the business for 46 to 61 spinning com- 
panies, 18 to 30 weaving companies, 125 to 157 combined spinning and 
weaving companies, and 5 to 10 dyeing and finishing companies during 
the period from January 1933 to June 1936. The return realized by 
the spinning companies averaged 3.40 percent, ranging from a profit 
of 6.97 percent in 1933 to a loss of 4.09 percent in 1934; that realized W 
the weaving companies averaged 3.73 percent, ranging from a profit 
of 10.16 percent in 1933 to a loss of 10.02 percent in 1934; that realized 
by the combined spinning and weaving companies averaged 5.64 per- 
cent, ranging from a profit of 9.14 percent in 1936 to a loss of 4.64 
percent in 1934; and that realized by the dyeing and finishing com- 

*" National Resources Committee, op. cit., pp. 248-249. 
^ Thorp and Crowder, loc. cit. 

8^0. W. Malott and B. P. Martin, The Agricultural Industries (New York, 1§39), pp. 

* Nelson and Eeim, op. cit., p. 177. 

••Estimate from Census of Manufactures, 1931, 1933. 


panies averaged 2.92 percent, ranging from a profit of 8.41 percent in 
1933 to a loss of 5.08 percent in 1934.®^ The large number of pro- 
ducers in this industry, the moderate degree of concentration, the ad- 
vantages enjoyed by the small concern, the relative flexibility of prices, 
and the absence of high profits combine to create a presumption that 
it is effectively competitive. 


This industry includes the throwing, spinning, and weaving of. silk 
and rayon, but not the production of rayon yarn and staple which is 
carried on by a branch of the chemical industry. In 1937 its 848 estab- 
lishments employed nearly 117,000 workers and produced an output 
valued at more than $400,000,000.^" Since there were 815 corpora- 
tions and a number of individual enterprises and partnerships en- 
gaged in the industry in 1936,^^ it is evident that nearly every one of 
these establishments was operated by a separate firm. 

The typical unit in the industry is small. In 1929, 77 percent of its 
establishments had fewer than 100 employees, 59 percent had fewer 
than 50, and 37 percent fewer than 20. The output of 77 percent of 
these establishments wa^ valued at less than $500,000 each, that of 
64 percent at less than $250,000, and that of 44 percent at less than 
$100,000.^ In the weaving of broad goods (18 inches and over in 
width), the most important portion of the industry, producing units 
fall into 3 distinct size groups. Large mills, with 1,000 or more looms 
each, numbering 35 and representing 3 percent of the total, operate 
35 percent of the looms. Mills of medium size, numbering 325 and rep- 
resenting 27 percent of the total, operate 58 percent of the looms. 
Small mills, with fewer than 100 looms, most of them with fewer than 
25 looms, numbering 842 and representing 70 percent of the total, op- 
erate 17 percent of the looms.^^ 

Most of the smaller units are located in Paterson, N. J. Many 
of them, according to Michl, "are so-called 'family shops.' They fre- 
quently occupy only a small space (40 x 40 feet) in a loft building, 
the firms being separated from one another by flimsy chicken-wire 
screening. Sometimes only 3 or 4 looms constitute the entire equip- 
ment, and are manned by parents and children." °° Many factors 
have combined to keep the scale of operation small. The highly styled 
character of silk and rayon goods prevents the development of mass 
production. Geographical centralization in the Paterson area and its 
proximity to the New York market have led to specialization by 
function and fabrication on a commission basis. Unemployment 
among weavers, during the twenties, and the availability of a large 
supply of second-hand looms that could be purchased on easy terms, 
says Michl, "caused many weavers to enter the industry as 'manu- 
facturers.' Second-hand looms were purchased or leased at low cost, 
a small space was rented in a loft building, and the sdlk was provided 

^ Computed from Federal Trade Commission, Textile Industries in the First Half of 
1936, part II, The Woolen and Worsted Textile Industry (1937), p. 3. 

* Census of Manufactures, 1937. 

^ Bureau of Internal Revenue. Statistics of Income, 1936, p. 63. 

« Fifteenth Census of the United States, Manufactures, 1929. 

™ M. Copeland and W. Turner, Production and Distribution of Silk and Rayon Broad 
Goods, p. 19, cited in Michl, op. cit., p. 234. 

•" Michl, loc. cit. 


by the converter. Thus, very little investment was necessary."®^ 
This situation has given the smaller units a marked advantage over 
the larger ones. With higher fixed charges, higher wage rates, big- 
ger inventories, and higher designing costs, the larger firms have 
found it difficult to compete. 

Tlie turn-over among producers , has been rapid. From 1921 to 
1929, 1,093 firms with 61,363 looms left the broad goods portion of the 
industry, while 1,218 firms with 61,987 looms took their places.^^ 
From 1935 to 1937, the nmnber of rayon establishments reported by 
the census dropped from 447 to 425, a decline of 22; the number of 
silk establishments dropped from 658 to 423, a decline of 235.^^ Ease 
of entry and departure operates to keep the industry competitive. 

The larger firms account for relatively small portions of the output 
of silk and rayon goods. In 1935 the 4 largest producers of rayon 
turned out 17.3 percent, by value, of the total supply; the 4 largest 
producers of silk turned out 8.5 percent. The 8 largest concerns pro- 
duced 25.6 percent of the rayon and 16.7 percent of the silk.^^ Con- 
centration by product, of course, is higher. The share of the total 
output in the hands of 4 concerns, in 1937, ranged from 23 to 69 per- 
cent in the case of the principal products of rayon and from 37 to 77 
percent in the case of silk.^^ 

Tlie industry is characterized by flexible prices, low profits, and 
frequent losses. Wliile the price of rayon is less sensitive than that of 
•silk, it showed 22 monthly changes from 1926 through 1933 and fell by 
54 percent from June in 1929 to February 1933."*^ Among 55 to 70 
companies engaged in throwing, annual profits on investment in the 
business averaged 2.86 percent from January 1933 to June 1936. 
Among 107 to 126 companies engaged in weaving, profits averaged 
1.32 percent when gains in other years were balanced against a loss 
of 0.63 percent in 1935. Among 38 to 49 companies performing both 
processes, losses averaging 2.08 percent for the period were incurred 
in every year. Among 59 to 71 dyeing and finishing companies, losses 
averaged 6.87 percent and ranged from 3.80 percent in 1934 to 11.53 
percent in 1935.^^ 


The knitted goods industry includes all of those concerns which em- 
ploy machinery in knitting purchased yarns into garments or cloth. 
In 1937 it had more than 230,000 workers, about 21/2 percent of those 
engaged in manufacturing, and an output valued at more than $660,- 
000,000. The three major branches of the industry produce hosiery, 
knitted underwear, and knitted outerwear. In 1937, the hosiery branch 
had more than 150,000 workers and an output valued at some $360,- 
000,000. About one-third of its product by volume and two-thirds by 
value consisted of women's full-fashioned hosiery ; about two-thirds by 
volume and one-thvrd by value of men's, women's, and children's seam- 
less hosiery. Th^knitted underwear branch had nearly 40,000 work- 
ers and an output valued at nearly $118,000,000. The knitted outer- 

•iMlchl, op. cit.,p. 238. 

•^ Copeland and Turner, op. cit., p. 22, cited in Michl, op. cit., p. 239. 
^ Census of Manufactures, 193&, 1937. 
*> National Resources Committee, op. cit., pp. 250-251. 
» Thorp and Crowder, loc. cit. 
»* Nelson and Keim, op. cit., p. 177. 

"Computed from Federal Trade Commission, Textile Industries in the First Half of 
1936,_Part III, The Silk and Rayon Textile Industry (1937), p. 3. 


wear branch, with more than 26,000 workers, produced sweaters, 
bathing suits, athletic apparel, women's and misses' suits and dresses, 
infants' wear, headwear, neckwear, slippers, and other garments valued 
at nearly $107,000,000.»8 

Firms in the industry are numerous and most of them are small. In 
1935 there were 1,758 companies operating 1,864 knitting mills, more 
than 86 percent of them engaged in a single branch of the industry, 
more than 95 percent of them owning a single mill, and more than 98 
percent of them operating in a single State. There were 749 com- 
panies producing hosiery, 204 producing underwear, and 857 produc- 
ing outerwear. Most of these concerns were small. The value of the 
output of the average plant was smaller than that found in the silk 
industry and only one-third as large as that found in the cotton and 
wool textile industries. In the hosiery branch, where the largest com- 
panies each operated more than 1,000 knitting machines, three-fifths 
of the firms had fewer than 100, two-fifths few^er than 50, and one- 
fourth fewer than 25. Half of the establishments had fewer than 100 
employees. In the underwear branch, where the largest companies 
operated more than 500 machines, half of the firms had fewer than 50 
and a fifth had fewer than 25. Here, again, half of the establishments 
had fewer than 100 employees. In the outerwear branch, where the 
largest companies also operated more than 500 machines, four-fifths of 
the firms had fewer than 50 and two-thirds had fewer than 25. Here, 
in 1937, three-fifths of the establishments had fewer than 20 employees, 
four-fifths had fewer than 50, and nine-tenths had fewer than 100. 
The products of nearly a fourth of the mills were valued at less than 
$20,000, those of nearly half at less than $50,000, and those of more than 
nine-tenths at less than $500,000.^** 

The degree of concentration in the industry is relatively low. The 
four largest producers of knitted goods accounted for only 5.3 percent 
and the eight largest for only 8.5 percent of the value of the total out- 
put in 1935.^ Concentration within the different branches of the indus- 
try, however, is higher. The four leading producers in each case ac- 
counted in 1937 for a fourth of the output of w^omen's full-fashioned 
silk hosiery and a fifth of the output of men's seamless hosiery, the 
two major products of the hosiery branch.^ In this branch, one-tenth 
of the companies had half of the knitting machines and half of the 
establishments had nine-tenths of the employees. In the underwear 
branch, one-fourth of the concerns had two-thirds of the machines and 
half of the establishments had nine-tenths of the employees. In the 
outerwear branch, a fifth of the firms had more than half of the ma- 
chines and a fifth of the establishments had two-thirds of the 

A number of factors contribute to the competitive character of 
the industry. The element of style is important, particularly so in the 
case of outerwear. Substitutes are readily available; knitted under- 

M Census of Manufactures, 1937. 

w W. A. Gill and others, The Knitting Industries, N. R. A. Division of Review, Work 
Materials No. 80 (mimeo.), pp. 12. 16, 19, 30, 37; Economic Section, Wage and Hour 
Division, Department of Labor, Report on the Knitted Underwear and Commercial 
Knitting Industry (mimeo., 1939), p. 20, Report on the Knitted Outerwear Industry 
(mimeo., 1939), p. 33. 

1 National Resources Committee, op. cit., pp. 250—251. 

^ Thorp and Crowder, loc. cit. 

^ Gill, op. cit., pp. 16, 30 ; Economic Section, loc. cit. 

271817— 40— No. 21 4 


wear and outerwear must both compete with garments produced by 
other processes. There are no serious obstacles to entrance into any 
section of the field. Equipment for the production of full-fashioned 
hosiery requires a moderate expenditure, each machine costing between 
$8,000 and $9,000. A small seamless plant can be equipped for less 
than $5,000, new machines being obtainable at about $350 and second- 
hand ones at even lower costs.^ The size of the investment neces- 
sary for the production of outerwear varies from product to product. 
New machines can be bought at prices ranging from $600 to $3,000, 
second-hand ones at two-thirds or even at one-third of these figures; 
both can be bought on instalments with down payments amounting 
usually to one-fourth but sometimes to as little as one-tenth of the 
price. It has been estimated that a plant can be set up in rented 
space with three or four second-hand power machines and a few 
sewing machines at an outlay of less than $2,000.^ Small producers 
find it easy to obtain credit from yarn jobbers and working capital 
from factors who advance money on the security of their open 
accounts.'*^ Nearly a fourth of those engaged in this branch of the 
industry are contractors who do not even purchase the yarns which 
they use, accepting them on consignment from jobbers or manufac- 
turers. Contract shops produce about a tenth of the total output of 
knitted outerwear. 

The prices of knitted goods are flexible, changing with relative fre- 
quency and declining during depression. Prices were cut and the 
volume of production was maintained after 1929. The wholesale 
prices of men's cotton and silk hosiery changed 24 times, those of 
women's rayon and silk hosiery 35 times from 1926 through 1933. The 
prices of nien's cotton hosier}^ dropped 40 percent, those of men's silk 
hosiery 47 percent, and those of women's rayon and silk hosiery 59 
percent from June 1929 to February 1933.^ The production of hosiery 
fell only from 9,870,000 dozen pairs in 1929 to 8,904,000 dozen in 1933; 
the dollar value of the output fell from $528,700,000 to $263,700,000 in 
the same period.* The price of men's cotton underwear changed 27 
times and that of women's cotton union suits 13 times in 1926-33, the 
former dropping 29 percent and the latter 43 percent from June 1929 
to February 1933.^ The production of knitted underwear other than 
infants' wear fell off only 10 percent, the value of the output more 
than 40 percent.^" The prices of various types of outerwear also 
dropped sharply during the depression and here, too, the volume of 
production was generally maintained. 

Such data as are available on profits and business mortality support 
the hypothesis that the industry is effectively competitive. Its best 
year in the period 1926-33 was 1928 when its members realized an 
average net income of 7.17 percent on net worth and more than a 
third of them reported no net income. Its worst year was 1932 when 
its members suffered an average deficit of 6.46 percent and three-fourths 
of them showed no net profit. In 6 of the 8 years its profit rate was 
lower or its deficit rate higher than those experienced in manufacturing 

* Gill, op. cit., pp. 42-43. 

» Economic Section, Report on the Knitted Outerwear Industry, pp. 57, 111. 
» Cf. Hearings before the Temporary National Economic Committee, Part 9, pp. 3993- 

' Nelson and Keim, op. cit., p. 177. 

8 Gill, op. cit., p. 62 ; Census of Manufactures, 1939, 1933. 

» Nelson and Keim, op. cit., p. 177. 

" Census of Manufactures, 1929, 1933. 


as a whole.^^ In a sample which covered from 74 to 106 producers of 
knitted outerwear in each of the years from 1931 through 1937, net 
income on tangible net worth ranged from an average loss of 4.08 
percent in 1932 to an average gain of only 4.23 percent in 1936.^^ 
The turnover of firms in each of the branches of the industry is rela- 
tively high. There were 350 full-fashioned hosiery plants in operation 
at the end of 1936 ; 42 of these were closed and 88 others were opened 
during 1937 and 1938 ; 396 were in operation at the beginning of 1939. 
There were 485 seamless hosiery plants at the end of 1936; 53 closed 
and 82 opened in 1937-38; there were 514 at the beginning of 1939. 
There were 923 knitted outerwear mills at the end of 1935 ; 86 closed 
and 49 opened in 1936 ; 44 closed and 38 opened in 1937 ; 55 closed and 
31 opened in 1938 ; there were 856 at the beginning of 1939." 

men's, youths', and boys' clothing 

Establishments engaged in the production of men's, youths', and 
boys' suits, overcoats, topcoats, and separate coats and trousers num- 
bered 2,217 in 1937, employed more than 138,000 workers and had a 
total output valued at more than $618,000,000.^^ A few of these es- 
tablishments operated on a large scale, but most of them were small 
and the degree of concentration was low. Forty-five percent of them 
had fewer than 5 workers in 1929, 67 percent had fewer than 20, and 
84 percent fewer than 50. The output of 45 percent was valued at 
less than $50,000 each and that of 60 percent at less than $100,000." 
The four largest firms in the industry accounted in 1935 for only 5.1 
percent, the eight largest for only 8.8 percent of its total output.^^ 
The four largest producers, in each case, accounted in 1937 for only 
13.5 percent of the output of men's and youths' three-piece suits, 11.9 
percent of the output of men's and youths' overcoats and topcoats, 
and 9.7 percent of the output of separate trousers and knickers.^^ 
The smaller units in the industry are apparently able to compete 
effectively with the larger ones. In one sample study, for instance, 
it was found that the medium-sized plants realized an average annual 
return of 9.2 percent on net worth, the small plants 7.2 percent, and 
the large plants only 3.6 percent.^^ 

Admission to the mdustry is not impeded by heavy capital require- 
ments. A wholesale establishment with an inside manufacturing shop 
may be set up with an investment of $50,000 to $75,000; many have 
been started with as little as $25,000. An establishment without an 
inside shop may be opened for even less. According to one 
authority : ^^ 

With a rental loft, a pair of shears and a cutting table,. a cutter and a salesman 
are in business. Piece goods may be obtained on credit from a commission house 

"Gill, op. cit., pp. 21-23. 

"Roy A. Foulke, Dun & Bradstreet, Inc., Behind the Scenes of Business (1937), pp. 136, 
192; Signs of the Times (1938), pp. 30, 38; They Said it With Inventories (1939), pp. 
22 — 28. 

^Economic Section, Report on the Full-Fashioned Hosiery Industry (mimeo., 1939), p. 
5; Report on the Seamless Hosiery Industry (mimeo., 1939), p. 4; Report on the Knitted 
Outerwear Industry, n. 127. 

" Census of Manufactures, 1937. 

" Fifteenth Census of the United States, Manufactures, 1929. 

1* National Resources Committee, op. cit., pp. 250-251. 

" Thorp and Crowder, loc. cit. 

"J. W. Hathcock and others. The Men's Clothing Industry, N. R. A. Division of Review, 
Work Materials No. 58 (mimeo.), p. 55. 

» Ibid., p. 54. 


or jdtber ; samples are cut and given to an outside manufacturer, or contractor, 
who is paid for his labor. If the sannples are favorably received and orders 
result, more materials are obtained on credit and the process repeated with the 
contractor. With no more than $2,000 to $5,000 capital such a small concern, 
if commitments are limited to business obtained from sample showing to sound 
retailers, may thrive in capable hands. 

The investment which must be made by a submaniifacturer or con- 
tractor is still lower, amounting in some cases to as little as $500. Sew- 
ing machines and other equipment are rented or bought at second 
hand. Cut materials are furnished by the wholesaler. Labor and 
overhead costs are covered by his payments. Two factories in five are 
operated on this basis ; in 1937 such, establishments employed a third 
of the workers in the industry and produced a fifth of its total output. 
With producers numerous, concentration low, small-scale operation 
feasible, and entrance unobstructed, there is active competition among 
the members of the trade. And since sportswear, summer clothing, 
and separate trousers made of cotton and cotton mixtures are fre- 
quently substituted for heavier garments, they must also compete 
with several hundred firms in the men's cotton garment industry. As 
a result, their prices are flexible and their profits low. 

The prices of men's three-piece suits and topcoats dropped 23 per- 
cent, those of men's, youths', and boys' four-piece suits from 30 to 37 
percent, and those of dress trousers and knickers 38 and 59 percent, 
respectively, from June 1929 to February 1933. 2° The profits ob- 
tained by 200 clothing manufacturers for whom data were avail- 
able over a period of 20 years ran betw^een 4 and 5 percent of net 
sales. The average annual return realized by 3 to 11 clothing cor- 
porations during the period from 1920 to 1935 stood at 5.6 percent 
of their investment, ranging from a loss of 16.1 perceilt in 1932 to a 
gain of 11,1 percent in 1923.-^ This sample, however, is not large 
enough to be representative and it is likely that earnings, in general, 
were lower than these figTires would suggest. It is estimated, for in- 
stance, that the life expectancy of the typical manufacturing unit 
in the industry is only 7 years.^^ 

Establishments engaged in the production of men's cotton gar- 
ments numbered 1,573 in 1937, employed 166,000 workers, and had 
a total output valued at more than $460,000,000. Among them w-ere 
675 establishments producing work and sport garments, 529 produc- 
ing shirts, collars, and nightwear, 232 producing trousers, wash suits, 
and service apparel, 78 producing leather and sheep-lined clothing, 
and 59 producing men's underwear.-^ Most of these units are owned 
by separate companies; a single plant was operated by each of 
95 percent of the firms in the industry in 1934.^* Some of the 
members of the trade are manufacturers who perform all of 
the operations involved in the production of the garments which 
they sell; some are manufacturers who perform certain opera- 
tions and let others out on contract; some are wholesale dis- 
tributors who farm out all of their manufacturing processes; 
some are contractors, 120 of the 529 establishments in the shirt, col- 

^ Nelson and Keim, op. cit., p. 176. 

21 Robert J. Myers, The Economic Aspects of the Production of Men's Clothing (Univer- 
sity of Chicago doctoral dissertation, 1937), p. 19. 

22 Hathcock, op. cit.. p. 52. 

2s Census of Manufacture.*:, 1937. 

^N. R. A. Division of Review, Evidence Study No. 8, Tlie Cotton Garment Industry 
(mimeo.), p. 5. 


lar, and nightwear branch falling into this category in 1937. Here, 
as in the men's clothing industry, there are a few large units and 
many small ones, entrance is unobstructed, and the degree of con- 
centration is low. The four largest firms produced 7.5 percent and 
the eight largest 16.9 percent of the output of men's cotton gar- 
ments in 1935.^^ The four largest, in each case, made 22.5 percent 
of the dress shirts, 36.8 percent of the work shirts, 31.3 percent of 
the overalls, 16.3 percent of the work pants, and 29.5 percent of the 
pajamas and nightshirts in 1937.^^ The prices of the industry's lead- 
ing products fell by one-third during the depression of the thirties 
while the volume of production was substantially maintained.^^ The 
average annual net profit of firms manufacturing shirts, pajamas, 
and underwear stood at 4.50 percent of net worth, that of firms 
making work clothing at 5.48 percent in the years from 1933 
through 1937.^® All of these facts suggest that the industry is effec- 
tively competitive. 

Establishments engaged in the production of hats, hat bodies, caps, 
iind hat and cap materials numbered 528 in 1937, employed 29,000 
workers, and had an output valued at $123,000,000.-^ Here, again, a 
few of the establishments are large and most of them are relatively 
small. Some of the smaller concerns rent their equipment and many 
of them merely provide the labor which is required to finish materials 
supplied by retailers. In general, however, the amount of capital 
needed for entrance is larger than in the men's clothing and cotton 
garment industries and the degree of concentration is compara- 
tively high, the four largest producers accounting for 23.7 percent 
and the eight largest for 33.8 percent of the output in 1935.^° In 
spite of these facts, the industry appears to be keenly competitive. 
The practice of going hatless cut the market for men's hats dur- 
ing the 1930's and led manufacturers to shift to the production of 
bodies for women's hats where they were in competition with members 
of the millinery trade. The introduction of low-priced brands and 
the production of unbranded hats by several of the larger firms cut the 
sale of high-priced branded hats and intensified competition in the 
low-priced field. The average value of men's sewed braid straw hats 
fell from $19.82 per dozen in 1929 to $10.70 in 1935 and rose only to 
$11.30 in 1937. That of woven body straw hats fell from $35.89 in 
1929 to $12.04 in 1935 and to $11.88 in 1937. That of men's fur felt 
hats fell from $50.25 in 1929 to $30.08 in 1935 and rose only to $35.74 
in 1937. That of wool felt hats fell from $11.44 in 1929 to $10.08 in 
1935 and to $9.66 in 1937.^^ The production of straw and fur felt hats 
declined during the depression, but had risen nearly to its earlier level 
by 1937. The output of wool felt hats increased steadily, rising from 
900,000 dozens in 1929 to 2,800,000 dozens in 1937.^- 

women's, misses', and children's apparel 

The lowest degree of concentration revealed in any of the 275 indus- 
trial categories employed by the Census of Manufactures occurs among 

^ National Resources Committee, op. cit., pp. 250-251. 

^ Thorp and Crowder, loc. cit. 

" National Resources Committee, op. cit., p. 191 ; Nelson and Keim, oip. cit., pp. 175-176. 

^ Foulke, They Said it With Inventories, pp. 44, 46. 

^ Census of Manufactures, 1937. 

*■ National Resources Committee, op. cit., pp. 256—257. 

^ Economic Section, Report on the Hat Industry (mimeo., 1939), p. 43. 

32 Census of Manufactures, 1029, 1937. 


the producers of women's and misses' dresses, coats, suits, and skirts, 
house dresses, uniforms, and aprons, blouses, underwear, and night- 
wear, and children's and infants' outerwear, all of which are included 
within the group designated as "women's, misses', and children's ap- 
parel not elsewhere classified." The four largest firms in this industry 
accounted for only 1.4 percent and the eight largest for only 2.4 per- 
cent of the value of its total output in 1935.^^ Its 6,337 establishments 
employed 243,000 workers and produced goods valued at more than 
$1,100,000,000 in 1937. The production of dresses other than house 
dresses, with 2,422 establishments, 124,000 workers, and an output 
worth $559,000,000, and the production of coats, suits, and skirts, with 
1,767 establishments, 40,000 workers, and an output worth $321,000,000, 
ranked first and second among the branches of the trade.^* In these 
fields, too, the degree of concentration is unusually low. Among 545 
firms making one-piece dresses to retail for $2 and over, 220 making 
one-piece dresses to retail for less than $2, and 119 making ensembles, 
the four largest accounted in 1937 for 3.1, 16.8, and 18.9 percent, 
respectively, of the total output. Among 885 making coats, 358 
making suits, and 129 making skirts, the four largest accounted, 
respectively, for 7.6, 14.0, and 19.0 percent.^^ 

The production of dresses other than house dresses is carried on 
by manufacturers who buy materials, cut them according to pat- 
terns, and either carry on all of the remaining operations in their 
own shops or let some of them out to contractors, by jobbers who 
make samples, cut materials, and let all of the remaining operations 
out to contractors, and by contractors who work for manufacturers or 
jobbers. The establishments in each of these groups are numerous; 
in 1937 those operated by manufacturers and jobbers numbered 1,147, 
those operated by contractors 1,275. The typical unit is small; in 
1937 the average manufacturing or jobbing enterprise hired only 31 
employees, the average contract shop only 30. There is no barrier 
to entrance to the field. The processes involved are simple, having 
changed little since the industry began; a small establishment can 
produce as cheaply as a larger one. An abundant supply of skilled 
labor is readily at hand. The talents required in management are 
such as appear rather frequently among men. There are many, 
experienced in the trade, who are willing to face the risks which it 
involves. The investment required for entry is small; that usually 
made by a manufacturer or jobber is between $25,000 and $50,000; 
that made by a contractor is between $1,000 and $5,000. Credit is 
readily available; the manufacturer or jobber can obtain loans from 
producers of materials, from commercial banks, and from finance 
companies, in amounts which may exceed the total of his long-term 
investmenti The contractor works with fabrics which are provided 
by the manufacturer or jobber, meets his wages and overhead costs 
from the payments which they make, and operates in a small space 
with inexpensive equipment which he rents or buys, new or second- 
hand, on the installment plan. 

The industry, in each of its stages, is actively competitive. Con- 
tractors bid against one another in offering the'r services to manu- 
facturers and jobbers. Manufacturers and jobbers bid against one 

*^ National Resources Committee, op. cit., pp. 250-251. 
*♦ Census of Manufactures, 1937. 
8* Thorp and Crowder, loc. cit. 


another in offering their products to distributors. Competition in 
the latter field is intensified by the character of the product and the 
organization of the market. Style is of paramount importance. 
Each manufacturing or jobbing liouse has its designer who is con- 
stantly engaged in turning out new models. Styles change with great 
rapidity; designs are numerous; the popularity of any one of them 
is unpredictable. Demand is seasonal, is affected by the vagaries 
of weather, and is subject to fortuitous changes in taste. The busi- 
ness is highly speculative ; the success or failure of a house depends 
upon factors which it cannot control; success in one season may be 
followed by failure in the next. The organization of the market, 
too, places the producer at a disadvantage in bargaining for the 
sale of his goods. The trade is concentrated geographically; most 
of its establishments are located within an area of 10 blocks in cen- 
tral Manhattan. Here, in their own showrooms and in resident 
buying offices, manufacturers and jobbers sell their output to buyers 
for department stores, mail order houses, chain stores, and independ- 
ent specialty shops, to manufacturers' representatives who receive a 
commission on purchases made for small retailers, and to resident 
buyers representing many independent stores. Here each seller makes 
many small sales and each buyer many small purchases. But the 
number of sellers is large and the total sold by each of them is 
small, the number of buyers relatively small and the total bought 
by each of them large. Lines are compared and orders are given 
by specialists who are on the spot. As a result, each seller is forced 
to compete with every other one in offering better quality, superior 
service, and a lower price. 

Detailed information on the industry's profits and losses is not 
available, but it is known that the average return on invested capital 
is low, that the rate of business mortality is high, and that the life 
expectancy of the individual enterprise is short. It is estimated that 
the annual mortality of dress firms in Manhattan stood at 22.2 per- 
cent in the period from 1927 to 1935 and at 44.9 percent in the year 
from the spring of 1932 to the spring of 1933.^^ The usual business 
life of a manufacturing establishment is said to be less than 5 years. 
The dress man, says Malin, "does not always wait for major or minor 
disaster to overtake him. Credit is so important to him that often, 
at the first hint of danger, he will change the firm name or address, 
his partners, or his price line. Reorganization sometimes derives 
solely from temperamental incompatability of associates. But the 
supreme cause of disaster or reorganization is competition." ^^ 

The millinery trade employs some 25,000 workers and has an annual 
output valued at nearly $100,000,000. In 1938, millinery was produced 
on a factory basis by 836 firms no one of which did as much as 2 per- 
cent of the total business. The typical firm has two or three mem- 
bers who not only manage the enterprise and buy materials, but also 
act as designers, salesmen, and artisans. It has about 30 employees. 
Among 598 concerns in 1937, the sales of 36 percent were under 
$50,000 each, those of 60 percent under $100,000, and those of 92 percent 

*" Lazare Teper, An Economic Analysis of the Women's Garment Industry (New York. 
1937), p. 20. J vt . 

" Patrick Murphy Malin, Competition Under Union Control (unpublished manuscript), 
ch. 2. 


under $300,000.^^ Access to the field is unobstructed. The processes 
of manufacture are simple; important materials such as hat bodies and 
decorations are purchased in a semimanufactured state. Manufactur- 
ing operations are petfotmed by hand and with light machinery, such 
as sewing machines and block and die presses. Many establishments 
have been set up with a few hundred dollars; a plant with an annual 
volume of $100,000 can be financed with as little as $10,000.^^ Like 
dresses, millinery is highly styled and sales are seasonal. Like the 
dress man, the milliner sells in a buyers' market to purchasers who are 
much larger and more powerful than he. His chief customers are a 
handful of millinery chains, a few score resident buyers, and about 30 
syndicates. The syndicates, leasing and operating more than a thou- 
sand millinary departments in strings of specialty shops and in more 
than half of the important department stores in the country, control 
two-fifths of the market.*" Competition among sellers keeps profits 
down. Among 458 firms in 1937, there was an average net profit 
before members' withdrawals of 4.9 percent of sales, an average book 
loss after withdrawals of 0.74 percent." It is estimated that a fifth of 
the establishments in the industry are eliminated every year. Among 
574 firms reporting to the Women's Bureau of the Department of 
Labor, two-thirds had been in business less than 9 years, nearly one- 
third less than 4 years.*^ 

The fur goods industry, with an output valued at more than $155,- 
000,000 in 1937, is similarly competitive. Establishments are numer- 
ous. There were 1,642 reported by the census in that year. Most of 
them are small. Half of those included in a sample taken in 1934 had 
fewer than 5 employees, three-fourths had fewer than 9, 99 percent 
had fewer than 50; the annual sales of half of them were under 
$10,000, those of three-fourths under $30,000, and those of 95 percent 
under $100,000.*^ The degree of concentration is low. Tlie 4 largest 
producers accounted for only 2.6 percent, the 8 largest for only 4.5 
percent of the value of the total output in 1935.*"* Entrance is unre- 
stricted. "A fur coat factory," says Fortune, "is a man with a needle 
and thread. Even by New York standards — where the craft has 
reached its highest development — it requires less than $200 in capital 
to equip a fur-manufacturing shop. A keg of nails, a table and chair, 
two sewi\.g machines, and you are equipped to make as good a coat as 
any man in the country." *^ Profits are low. Among concerns num- 
bering from 36 to 130 in each of the years from 1931 through 1938, the 
average annual profit was 2.16 percent of tangible net worth, ranging 
from a loss of 10.50 percent in 1932 to a gain of 9.95 percent in 1936.*" 
The turnover of business units is rapid. "Every January," according 
to Fortune, "about 300 new manufacturing firms are founded and as 
many dissolved." *^ 

^ U. S. Department of Labor, Women's Bureau, Conditions in the Millinery Industry, 
Bulletin No. 169 (1939), p. 19. 

» Ibid., p. 24. 

« Ibid., p. 29 ; Cf. Federal Trade Commission, Distribution Methods in the Millinery 
Industry (processed, 1939). 

<i Department of Labor, op. cit., ch. 7. 

*2 Ibid., p. 22. 

*^ N. R. A. Research and Planning Division, Special Fur Commission, Report and Recom- 
mendation on Wages and Hours in Fur Manufacturing (mimeo., 1935). 

^ National Resources Committee, op. cit., pp. 258-259. 

^Fortune, .Tanuary 1936, p. 120. 

*• Foulke, Behind the Scenes of Business (1935), p. 115, and Relativity of the Moral 
Hazard (1940), p. 46. 

*'' Fortune, loc. cit. 


The conditions obtaining in these fields are duplicated in other 
apparel trades. In the production of women's and misses' coats, 
suits, and skirts, and children's and infants' outerwear, the factor of 
style is important and the bargaining power of buyers is great. In 
these trades and in the production of underwear and nightwear, 
blouses and shirtwaists, scarfs and neckwear, handkerchieves, em- 
broideries, artificial flowers, umbrellas, men's furnishings, gloves and 
mittens, garters, suspenders and arm-bands, hand-bags, pocket 
books, and card cases, belts and other small leather goods, it may be 
said, in general, that the large number of enterprises, the small size 
of each of them, the low degree of concentration, the ease of entry, 
and the importance of contracting make for active competition, low 
profits, and a rapid turnover of firms. In the production of house 
dresses, uniforms, and aprons, and corsets, brassieres, and allied gar- 
ments, the number of enterprises is relatively smaller, the individual 
establishment somewhat larger, the degree of concentration slightly 
higher, and contracting less important. But here, too, it appears 
that markets are effectively competitive. 


The shoe industry, employing 215,000 workers, turned out 425,- 
000,000 pairs of shoes, boots, sandals, slippers, moccasins, and other 
footwear made from materials other than rubber, valued at more 
than $768,000,000 in 1937."' There were 1,080 establishments en- 
gaged in the production of finished footwear and another 470 in the 
production of cut stock and findings, including soles, inner soles, 
heels, and other parts. A third of the shoe factories had fewer than 
20 employees, 45 percent of them fewer than 100, and 70 percent 
fewer than 250. The output of 1 factory in 4 was valued at less 
than $100,000, that of 3 in 4 at less than $1,000,000. Among cut 
stock and findings plants, 4 in every 5 had- fewer than 50 employees 
and an output valued at less than $250,000.*^ Production, however, 
is more highly concentrated than in the other clothing trades and a 
few of the firms in the industry are very large. Fourteen com- 
panies produced a third and 3 produced a fourth of the domestic 
output in 1935.^^ The International Shoe Co., with $83,000,000 in 
assets and 30,000 employees in that year, was listed among the 250 larg- 
est corporations in the United States ^^ and is said to possess sufficient 
capacity to provide half of the country's population with a yearly pair 
of shoes.^^ The larger plants are engaged principally in the produc- 
tion of shoes of serviceable quality and conservative design, the smaller 
ones in the production of shoes which are hi^ly styled. The degree 
of concentration varies with the character of the product. The four 
leading producers, in each case, accounted in 1937 for around two- 
fifths of the output of each of the major types of shoes for men 
and boys and for little more than one-fifth of the output of the 
major types of shoes for women and girls.^^ 

■•^ t"ensus of Manufactures, 1937. 

** Economic -Section, Wage and Hour Division, Report on the Shoe Manufacturing and 
Allied Industries, Part I (mimeo., 1939), pp. 20-25. ; 

«• Federal Trade Commission, Agricultural Income Inquiry, Part I, 1937, pp. 214-215. 

"1 National Resources Committee, op. cit., p. 100. 

^2 H. B. Davis, "Business Mortality, The Shoe Manufacturing Industry," Harvard Busi- 
ness Review, vol. 17 (1939), pp. 331-338, at p. 334. . 

" Thorp and Crowder, loc. cit. 


Although the production of shoes necessitates the employment of 
expensive machinery, admission to the industry is not obstructed 
by heavy capital requirements. This situation is a product of the 
policy of the United Shoe Machinery Corporation, which controls 
the bulk of the supply of such machines. This concern, instead of 
selling its machinery, usually leases it to shoe manufacturers, col- 
lecting installation fees, royalties amounting to about 5 cents on 
each pair of shoes, and minimum monthly rentals when machines 
are not in use. It also provides repairs, replacements, advice on 
plant administration, and other services. As a consequence of this 
system, the initial capital required for entrance to the field or for 
the expansion of existing firms is small. This factor, together with 
the prevalence of contracting and the importance (in the case of 
women's shoes) of the element of style, operates to the advantage 
of the small concern. 

The prices of shoes are relatively inflexible, being set in customary 
grooves, such as $2.95 to $2.98 and $3.95 to $3.98, which retailers and 
consumers apparently accept as permanent. Manufacturers accord- 
ingly place their emphasis on competition in quality and style. Pro- 
duction is fairly stable, falling off less than 20 percent in the 
depression of the thirties. The industry's profits, in general, are low. 
The largest company has shown high earning power,, averaging 16.98 
percent on its investment in the business from 1929 through 1935. 
But the next 12 companies averaged only 5.39 percent in the same 
period ^* and the industry as a whole made an average annual net 
profit of only 0.66 percent on its net worth in the period from 1931 
through 1938, ranging from a loss of 10.51 percent in 1931 to a 
gain of 8.06 percent in 1936.^^ The rate, of business mortality is high. 
According to Davis : "In the decade 1925-35 more than one firm out 
of six ceased business in each year. The average life of all firms 
that did business in the period 1905 through 1935 was only about 6 
years. Approximately one-half of the shoe firms that started busi- 
ness in any year had gone out of business by the end of the third 
year thereafter." ^® 


The leather industry, with 402 establishments and 50,000 employees, 
produced an output valued at $395,000,000 in 1937. More than 98 
percent of this output came from 331 establishments which manu- 
factured leather from purchased skins and hides, less than 2 percent 
of it from 71 which operated on a contract basis. ^^ Most of the 
units in the former group were of moderate size; half of them had 
fewer than 100 employees and four-fifths had fewer than 250. The 
output of half of the establishments in the industry was valued at 
less than $500,000 and that of two-thirds at less than $1,000,000.^"^ 
A consolidation movement, beginning late in the nineteenth century, 
had cut the number of tanneries in the United States from more than 
7,500 in the seventies t(^ less than 750 before the outbreak of the 

" Federal Trade Commission, op. cit.. Part III, p. 21. 

" Foulke, Behind the Scenes of Business, p. 118, and Relativity of the Moral Hazard, 
p. 60. 

» Davis, op. cit., p. 332. 

" Census of Manufactures, 19"?. 

•* Research and Statistics Branch, Wage and Hour Division. Report on the Leather Indus- 
try (mimeo., 1940), pp. 28, 31. 


First World War. The United States Leather Co., a combination in 
1893 of 60 concerns operating 110 tanneries, controlled more than 
60 percent of the domestic output by 1904.^^ While establishments 
have since continued to decrease in number and increase in size, the 
degree of concentration has declined, the three largest producers 
accounting for only 9.9 jjercent and the eight largest for only 15.2 
percent of the physical output,"'' the four largest for 22.5 percent, 
and the eight largest for 32.3 percent of the value of the output in 
1935.®^ Admission to the industry is restricted by substantial capital 
requirements. Although the processes of production are relatively 
simple, they necessitate the acquisition of specialized plants and fixed 
equipment and the investment of considerable sums in skins and 
hides which must be carried for several months at a time. A constant 
fluctuation in the prices of these materials, which is unrelated to 
the demand for leather, introduces a highly speculative element into 
the field. 

The demand for the industry's products has declined abruptly in 
recent years. The use of automobiles has cut into the harness trade 
and lessened the amount of shoe leather w^orn out by walking. The 
shift to closed cars has led to the substitution of fabric for leather in 
upholstery. The virtual disappearance of high shoes and the intro- 
duction of rubber and composition soles and fabric tops have reduced 
the quantity of leather employed in making shoes. The advent of 
individual motors and gear drives for running machines in factories 
has cut the sale of industrial belting. The development of foreign 
production has impaired the export trade. The output of harness 
leather fell off 60 percent, that of sole leather 25 percent, and that of 
belting leather 12 percent from 1914 to 1926.*^- Productive capacity, 
expanded beyond peacetime requirements by the First World War, 
Avas only 70 percent in use in 1928, 54 percent in 1932, and 68 percent 
in 1933.«3 

Concerns engaged exclusively in the production of leather, competing 
among themselves, must also face the competition of plants 
controlled by the packing companies from w^hom they buy their raw 
materials and the shoe companies to whom they sell their finished 
products. The large packers, possessing the bulk of the supply of 
skins and hides, enjoy a strategic advantage in the trade. Swift & 
Co. and Armour & Co. are both in the leather business. The J. K. 
Mosser Leather Corporation, which is controlled by the latter concern, 
is the largest producer in the field. The three leading shoe compa- 
nies, in addition to buying leatlier, operate tanneries for the produc- 
tion of part of their supply. The Endicott-Johnson Corporation is 
second in the field. United States Leather, which once dominated the 
industry, now stands third."* 

With production speculative, demand declining, and capacity in ex- 
cess of requirements, with its producers of materials and its customers 
entering into competition, the industry has been characterized by 
flexible prices and low profits. The price of glazed kid leather changed 

^"Federal Trade Commission, op. cit.. Tart I, p. 217. 
"■' Ibid., p. L'14. 

•" National Resoiirce.s Committee, op. cit., pp. 250-251. 
"- Harvard Business Keview, vol. 8, p. 478. 

'■■• N. R. A. Division of Review, Evidence Study No. 21. Tlio Leather Industry (niimeo.), 
p. 12. 

8* Federal Trade Commission, op. cit., pp. 21G-220. 


20 times, that of harness leather 30 times, that of side chrome leather 
49 times, and that of sole leather 65 times from month to month in 
1926-33, falling 48.2, 36.5, 46.3, and 54.7 percent, respectively, from 
June 1929 to February 1933.^'' Eleven of the leading tanning compa- 
nies suffered an average annual deficit of 2.02 percent on their invest- 
ment in the business from 1929 through 1935.*^'' Seven companies lost 
money in 8 af the 16 years from 1923 through 1938, with an average 
annual deficit of 6.8 percent on invested capital, and made money in 
the other 8 years, with an average annual profit of 3.9 percent.**^ 

In the several industries which are engaged in the manufacture of 
various leather products, establishments are numerous and small, con- 
centration is negligible, prices are relatively flexible, and profits are 
low. The production of leather and leather goods thus appears to be 
effectively competitive. 


The rubber tire industry has been at once highly concentrated and 
vigorously competitive. Four firms, the Goodyear Tire & Rubber Co., 
the Firestone Tire & Rubber Co., the United States Rubber Co., and 
the B. F. Goodrich Co., manufactured nearly 80 percent of the tires 
produced in 1937. Goodyear, Firestone, Goodrich, and the General 
Tire & Rubber Co., fifth in size, are all located in the same city, a 
circumstance which might be expected to facilitate noncompetitive 
arrangements. Furthermore, since the demand for tires is almost 
wholly a function of new car sales and car mileage, competition might 
well be restrained by the knowledge that lower prices are unlikely to 
increase the total volume of sales. But competition has nonetheless 
occurred. The prices of tires fell almost without interruption from 
1920 to 1932. Taking 1926 as 100, the wholesale price stood at 230 in 
1920, at 115 in 1922, at 55 in 1929, and at 40 in 1932.«8 The quality of 
the product improved as steadily. In 1910 the average life of a fabric 
clincher tire was about 9 months ; by 1925 the life of a high-pressure 
cord tire was about 18 months; in 1937 the life of a low-pressure, bal- 
loon type tire was nearly 3 years. The cost per mile of tires and 
tubes employed in the operation of 10 large fleets of passenger cars was 
64 percent lower in 1938 than it had been in 1926.^^ 

Increased tire life and better roads have cut the number of tires sold 
per car and, since 1928, have narrowed the total market. Although 
motor vehicle registrations were 12 percent higher and new car sales 
only 10 percent lower in 1937 than in 1929, tire production was down 22 
percent. At the same time, productive capacity was increased. It is 
estimated that the industry was equipped to produce between 82,000,000 
and 98,000,000 tires in 1934; 2 large plants were built subsequent to 
that time, but only 54,000,000 tires were manufactured in a year as 
prosperous as 1937. Fixed charges on idle capacity provoked a strug- 
gle for volume. Falling prices and advancing technology/ set a pace 
that many manufacturers could not maintain. There were 52 insolven- 
cies reported in the industry between 1927 and 1934. Others who found 
the going too hard entered into mergers or were absorbed by the larger 

* Nelson and Keim, op. cit., p. 175. 

•* Federal Trade Commission, op. cit., p. 875. 

" Standard Statistics, Leather and Shoes, Basic Survey, Part I, June 30, 1939. 

<* Nelson and Keim, op. cit., pp. 64—65. 

• Automobile Manufacturers Association, Automobile Pacts and Figures (21st edition, 
1939), p. 49. 


and more successful firms. Of more than 500 companies that had 
manufactured tires at one time or another, only 26 remained in 1937.^° 

The competitive character of the industry may be attributed partly 
to the policy of Harvey S. Firestone, who directed the affairs of the 
second-largest tire concern, partly to the power of the large-scale buy- 
ers of tires. Mr. Firestone, a close friend of Henry Ford, shared Mr. 
Ford's philosophy of increasing volume by reducing price. He was 
able to make tires more cheaply than most of his competitors and, a 
stanch individualist, he insisted on selling them in his own way. The 
large-scale buyers have played an even more important role. The auto- 
mobile industry purchases about one fourth of all new tires. Automo- 
bile manufacturers, trading on the knowledge that their business is 
extremely attractive to tire makers, sometimes threatening to manu- 
facture tires themselves, have played off one seller against another 
and precipitated bitter rivalry for their long-term original equipment 
contracts. A few mass distributors, such as the large mail order 
houses, oil companies, and auto supply chains, have occupied a similar 
position in the market for replacement tires. In 1926, some 120,000 
independent retailers did about 90 percent of the renewal business; 
10 years later there were only 60,000 independents left and they did 
less than 60 percent of the business. Sears, Roebuck & Co., Mont- 
gomery Ward & Co., the Standard Oil companies and other oil con- 
cerns, contracting for the manufacture of private brands, were making 
a quarter of all renewal sales.^^ The Western Auto Supply Co. of 
Kansas City, largest of the auto supply chains, operating 200 stores 
of its own and serving 1,200 others, sold a million tires under its own 
brand names in 1938.^^ 

For many years manufacturers competed actively for private brand 
contracts, selling at prices well below those charged to independent re- 
tailers. Goodyear made "All State" tires for Sears at prices 29 to 40 
percent below those charged for its comparable "All Weather" brand. 
Sears then undersold Goodyear dealers by 20 to 25 percent, visibly cut- 
ting into their volume." Thereupon, says Abrahamson ^^ — 

Goodyear dealers prevailed upon the company to put out a second-line tire, the 
Pathfinder, to meet the Sears Roebuck price. In turn the mail order house retali- 
ated with a second-line tire also manufactured by Goodyear and marketed at a 
differential under the Pathfinder price. Eventually third-line tires appeared to 
be used in the war between the two types of outlets. 

In effect, Goodyear was competing with itself. At the same time, 
United States Rubber was making "Riverside" tires for Montgomery 
Ward and United States Rubber and Goodrich were making "Atlas" 
tires for Standard Oil. Distressed independents cried for prices which 
would enable them to meet the competition of the private brands^, 
From 1926 to 1934 reductions in manufacturers' list prices averaged 
two a year and the list prices themselves soon became fictitious as dis- 
counts were piled upon discounts in an effort to keep the independents 
alive. Firestone, with no mass distributor alliances, declared price 
warfare and entered the retail field, setting up a chain of more than 

'" Albert Abrahamson, "The Automobile Tire — Forms of Marketing in Combat," in 
Walton Hamilton and Associates, Price and Price Policies (New York, 1938), pp. 91 ft/; 
Lloyd G. Reynolds, "Competition in the Rubber Tire Industry," American Economic Review, 
vol. 28 (1938). pp. 459-468. 

" Fortune, November 1936, p. 142 ; Reynolds, op clt., p. 461. 

" Fortune, October 1939, p. 79. 

" Federal Trade Commission, Order, Docket No. 2116 (1936). 

" Abrahamson, op. cit., p. 106. 


500 company-owned stores. Goodyear, Goodrich, and others followed 
suit, thus entering directly into competition with the distributors to 
whom they sold. Each type of outlet competed with all of the others 
in offering lower prices, higher trade-in allowances, free tubes with 
tires, and larger guarantees. According to Reynolds, however, "It is 
not too much to say that the initiative in tire pricing since 1926 has lain 
with Sears and Firestone and that they are largely responsible for the 
great decline." ^^ 

Events since 1935 suggest that the stringency of competition among 
the manufacturers of tires has been somewhat modified. The Fed- 
eral Trade Commission in an order handed down in March 1936 held 
that the Goodyear-Sears contract was in violation of the price dis- 
crimination section of the Clayton Act.^^ This order was appealed 
to a circuit court, but when the Robinson-Patman Act was passed in 
June of that year the contract was voluntarily canceled. Fortune, 
calling attention in November to "the quietude that has fallen over 
the price cutting and the dealer swiping and the quarreling over 
mass outlets," continued : ^^ 

For 6 mouths before that [November 1935] some of the most killing warfare 
of the entire fight had been waged. What happened now was that the generals 
who had decreed the blood strategies wearily came together in some Hall of 
Mirrors and decided that the goose was better alive than dead even though her 
eggs were getting smaller. There had been get-togethers before ; the chief 
difference between this one and its itredecessors was that this one worked. For 
a full year now the merchandising of tires has been both quieter and more 
profitable than it has been in years. 

The composite wholesale price of tires and tubes rose 11 percent 
in 1936 and continued to rise steadily to October 1939 when it was 34 
percent above the figure reported at the beginning of 1936.'^® A suit 
for triple damages under the Sherman Act was filed by the United 
States in 1939 against Goodyear, Firestone, U. S. Rubber, Goodrich, 
and several other companies, alleging participation in a bidding 
ring in connection with public tire contracts. The Government con- 
tended that the defendants had submitted bids in four bid openings 
from 1936 to 1938 and that on all four occasions their bids were 
identical to the penny on more than 80 different types and sizes 
of tires.^^ The complaint was dismissed, however, on the ground that 
the Government could not sue for triple damages since it was not a 
"person" within the meaning of section 7 of the Sherman Act.®° 
The tire industry as a whole ranks low in the scale of industrial 
profitability. The number of companies reporting no net incomes to 
the Bureau of Internal Revenue exceeded the number reporting net 
incomes in every year from 1926 to 1935. The larger concerns, how- 
ever, have made money. Goodyear and Firestone showed a profit in 
each of the 11 years from 1928 through 1938, U. S. Rubber in 5, 
Goodrich in 7, and General in 9. Goodyear made an average annual 
net profit of 5.99 percent on tangible net worth in 1934^38, Firestone 
made 7.02 percent, U. S. Rubber 7.22 percent, Goodrich 4.13 percent, 

^ Reynolds, op. cit., p. 462. 
™ Federal Trade Commission, loc. cit. 
•" Fortune, November 1936, p. 145. 

'* Bureau of Labor Statistics, Wholesale Prices (monthly). 
« New York Times, February 20, 1939. 

"* Ibid.. February 6, 1940. This case is to be reviewed under an order issued by the 
Supreme Court ou November 12, 1940. 


and General 5.79 percent.*^ It should be noted, however, that the 
earnings of these companies do not represent the results of tire manu- 
facturing alone, since a third of the business of Goodj'ear and Fire- 
stone and nearly half of that of U. S. Rubber and Goodrich is in 
products other than tires and tubes. 


The production of mechanical refrigerators, like that of tires and 
tubes, has been characterized by increasing concentration and con- 
tinued competition, both in quality and price. The number of pro- 
ducers of all types of electric refrigerators is said to have declined 
from 250 in 1932 to 75 in 1933.^- Domestic models with a capacity 
under 6 cubic feet were made by only 21 firms in 1937, those with a 
capacity between 6 and 10 feet by only 25 firms, and tlwse with a 
capacity over 10 feet by only 14. The four leading producers in 
each case accounted for 69.2, 76.8, and 76.9 percent, respectively, of 
the value of the output of the smaller, medium, and larger sizes.^^ 
Although the degree of concentration has increased, quality has risen, 
prices have declined, and sales have grown. The product has been 
improved in appearance, capacity, convenience, durability, power, and 
economy of operation. The average life of an electric refi'igerator 
was 6 years in 1920, 11 years in 1926, 13 years in 1930, and 15 years 
in 1939. Refrigeration units are now commonly guaranteed for 5 
years. The current consumed by the typical 6-foot box fell off 21 
percent from 1931 to 1938.^* The average wholesale price of electric 
refrigerators fell nearly 58 percent from January 1929 to March 
1937. The average retail price fell 41 percent between the same 2 
years. The typical unit sold for $600 in 1920, $292 in 1929, and $169 
in 1939. Sales increased threefold from 1929 to 1937, rising from 
778,000 units in the former year to 2,310,000 in the latter. It is esti- 
mated that there were nearly 14,000,000 electric refrigerators in 
domestic use in 1939.^^ 

Here, as in the case of tires and tubes, it appears that the mass 
distributor has played a leading role. In 1930, when the major pro- 
ducers were maintaining prices at the level of 1928 and 1929, Sears 
Roebuck entered the field Avith "Coldspot" and soon thereafter it was 
selling tliis machine for $40 less than comparable models of other 
makes. This competition led to general price reductions in the fall 
of 1931. Sears took the lead again in 1934 when it offered a 6-foot 
box at the price formerly charged for the 4-foot size and other sellers 
followed suit. It is estimated that General Electric accounted for 
20.3 percent, Frigidaire 17.7 percent. Sears 14.8 percent, Westing- 
house 10.1 percent, Kelvinator 7.2 percent, Norge 5.6 percent, and 
Montgomery Ward 5.5 percent of the refrigerators sold in 1939.®^ 
For some time during the thirties the prices of comparable models 
of nearly all makes except "Coldspot" were maintamed at figures 

8' Work Projects Administration, Securities and Exchange Commission, Survey of Amer- 
ican Listed Corporations (1939), vol. 1, pp. 269-271. 

^ Electric Refrigerator News, May 1933, cited in Nelson and Keim, op. cit., p. 134. 

« Thorp and Crowder, loc. cit. 

«* Nelson and Keim, op. cit., pp. 64, 69. 149. 

* Federal Trade Commission, Agricultural Implement and Machinery Industry, 75th 
Cong., 3d sess.. House Doc. No. 702 (1938), p. 932; Nelson and Keim, op. cit., p. 112: 
Fortune, May 1940, pip. 75, 111. 

•• Fortune, op. cit., p. 104. 


which were identical almost. <<> tiie penny. Early in 1940, however, 
Kelvinator provoked new price oonipetition wi\en it slashed prices on 
all of its models to meet those chiuf^ed by Sears. Other sellers fol- 
lowed Kelviniitor's lead and prices were established at new lows; but 
Sears still undercut (lie tield, char<>;in<j; as little as $8;J for its cheapest 
6-foot box. Offering a l)etter pioduct for less money than at any 
time in its hist^)ry, the in(histry is still efl'e<'tively competitive. 

In the cases of certain other household appliances a somewhat simi- 
lar situation obtains. In 1937 the largest 4 amonjr 82 companies pro- 
duced 36.1 [)ercent by value of the output of porcelain-enameled, gas- 
burnin<:; kitchen stoves with ovens; 4 amon^ 32 produced 53 percent 
of the standard-size electric washing machines; and 4 among 29 pro- 
duced 69.6 i)erc-ent of the H(K)r vacuum cleaners.**^ In each of these 
fields there have been constant improvements in quality and marked 
reductions in price. In each of them the large mail order houses have 
entered into active competition with other tyi>es of distributors. 

Among some 50 companies engaged in the production of radio 
receiving sets in 1937, the four largest in each case accounted for 
from half to two-thirds of the outi)ut of most of the clieaper models 
and from three-fourths to nine-tenths of the output of the more 
expensive ones."" Here, again, quality has risen and prices have de- 
clined. In 1923 a 3-tube set cost $100; 15 years later a better one 
could ho purchased for $9.95. In 1929 the average retail price stood 
at $133; in 1938 at $45.'^" Mamifacturers have vied with one another 
and with the mail order houses in cutting prices and offering cheaper 
models. The turn -over of producing units has been high. Despite its 
concentration, the industry is actively competitive."^ 


Competitive conditions affecting the sale of processed foods vary 
markedly from product to product. There is a high degree of con- 
centration, for instance, among the producers of meats, shortenings, 
vegetable oils, oleomargarine, gi'anulated sugar, chocolate and cocoa, 
corn products, baking powder, yeast, canned soups, cereal prepara- 
tions, biscuits and crackers, and certain types of cheese; a low degree 
of concentration among the producers of butter, flour, macaroni, 
spaglietti, vermicelli, and noodles, com meal^ canned and preserved 
fish, poultry, fresh sausage, and animal feeds. The wholesale prices 
of bread, biscuits and crackers, cereal preparations, cocoa, baking 
powder, soda, salt, and canned soups are comparatively rigid; those 
of butter, oleomargarine, lard, flour, macaroni, corn meal, coffee, 
canned and preserved fish, meats, and poultry are relatively flexible. 
Many of these goods are sold under brand names, the producer in 
each instance obtaining a complete monopoly in the sale of products 

"'' Tliorp and Crowder, loc. cit. 

>» UiUI. 

"Fortune. Alay 10.S8, p. 118. 

""Competition has also made its appearance in another hinhly concentrated field. The 
bulk of the phonograph records maniifiictured in the United States arc made by three con- 
cerns. F'or many years the prices of records were rigidly maintained, most popular discs 
selling at TT) centsnnd most classioal recordings nt $1.5(t and !f2. In l'.)'M\, Decca Kecortls, 
nic. entered the held, cutting the price of popular records to 85 cents and the R. C. A. 
Victor Co. and the Columbia Kecoraint; (Corporation shortly followed its lead. But Decoa 
made few classical recordings and the prices of such records were still maintained. In 
11)38 and lOHO. however, a number of newspapers employing low-priced symphonic albums 
in promoting circulation met with such success as to denioiistrate the existence of a large 
potential market in this field. On August 6. 1940. Columbia cut its whole classical list to 
<5 cents and $1. On August ir>, 1940, Victor followed suit. Prices were again uniform, 
hut classical recordings could be obtained at half the former price. 


which bear his brand. But mf)st foods are sold und(!r many different 
brands and substitution is easy. Sonie of these brands are owned by 
mass distributors, such as the cFiain stores, who promote tiieir sale in 
competition with those owned by manufacturers. Almost every one 
of these commcxlities, moreover, must compete wilh dietary substi- 
tutes — meat with fish and i)Oultry, oleomargarine witli butter, and 
foods prepared in factories with tliose prepare^l at home. Despite the 
concentration and rif^idity which characterize certain [>ro(iucts, and de- 
spite the collusive practices which are encountered in the sale of many 
processed foods, the field appears to be predominantly competitive. 
The canning and preserving of fruits and vegetables is one of the 
most invportant among the industries engaged in tlie processing of 
foodstuffs. Its 2,772 establishments, employing some )^44,()00 w(jrkers 
at the height of the season, produciid an output valued at $789,()(KJ,000 
in 1937.^^ PV>r some of the industry's products the degree, of concen- 
tration is low ; for others it is comparatively high. The 3 leading firms 
in each case accounted for about a twentieth of the grape juicf;, a lif- 
teenth of the canned tomatoes, a tenth of the canned string beans, a 
sixth of the canned cherries, corr and peas, a fourth of tlie canned 
beets, apricots, applesauce, and gi.^fx'iruit juice, a third of the canned 
apples, peaches, pearSj prunes, grapefruit, spinach, and kraut, two- 
fifths of the tomato juice, baked beans, raisins, and dried prunes, lialf 
of the canned grapes, and nearly two-thirds of the canned plums and 
asparagus produced in 1935. The 1 leading firm in each case accounted 
for less than a fourth of the output of 20 of these prrxlucts, for about 
a fourth of the raisins, a third of the canned grapes, and two-fifths of 
the plums and asparagus. The California Packing Corporation was 
the largest producer of 9 varieties and the second largest produa^r of 
6. Libby, McNeill & Libby was the largest producer of 2 and the sec- 
ond larj^est producer of 10. Some other comy)iiny stood first in the 
production of each of the remaining 13."^ Although there is some 
concentration in the industry, the prices of its products are generally 
flexible, changing frequently and declining sharply in depression while 
the volume of production is maintained. Among 19 such products, the 
wholesale prices of 15 changed more than 25 times, those of 10 more 
than 50 times, and those of 5 more than 80 times from month to month 
in 192G-33; the prices of 10 dropped 29 to 49 jxircent and those of 5 
dropi)ed 50 to 61 percent from June 1929 to February 1933."'' How- 
ever, in view of the extent to which raw material prices fluctuate the 
flexibility of the prices of processed foods may conceal a higli degree 
of rigidity in processors' margins and may not afford an adequate 
criterion of their competitive character. The record of earnings in 
the trade reveals that a few large firms have made much higher profits 
than the many smaller ones. Among 102 fruit and vegetable process- 
ing companies reporting to the Federal Trade Commission, the 9 
largest, including Calpack and Libby, realized an average annual 
return of 9.48 percent, the 93 .smaller ones a return of only 3.87 per- 
cent, on their investment in the business in the 7 years from 1929 
through 1935.»^ 

" Census of Manufactures, 1837. 

"Federal Trade Commission, Agricultural Income Inquiry, Part II (19.37;, pp. 131, 
13.>— 134, 138. 

»• Nelson and Kelm, op. c!t., pp. lfil-193. 
•♦Federal Trade CommlsHion, op. clt., p. 783. 

271817— 40— No. 21 5 



There are several other manufacturing industries in which the pres- 
ence of numerous producers, the small size of the typical establishment, 
the moderate degree of concentration, the relative flexibility of prices, 
or the low level of earnings, or some combination of these factors, sug- 
gests that competitive conditions may obtain. Among them are the 
printing business, the production of cigars, candy, soft drinks, wines, 
and beer, of jewelry, buttons, toys, games, and playground equipment, 
of wooden household furniture and other wooden articles, of brooms, 
baskets, awnings, mattresses, and other housefurnishing goods, and the 
manufacture of certain types of pottery and porcelain ware, hardware 
and other metal products, paints, varnishes, and lacquers, paper 
products, and rubber goods. 

The production of drugs, medicines, soaps, cosmetics, and toilet 
preparations is characterized in general by substantial concentration, 
rigid prices, and high profits. The four leading producers in each 
case accounted for more than three-fourths by value of the output 
of 21 among 41 drugs and medicines in 1937,''^ for nearly three-fourths 
of the total output of soap, and for more than one-fourth of the total 
output of perfumes, cosmetics, and toilet preparations in 1935,^^ the 
degree of concentration in the latter case undoubtedly being higher 
where individual products were concerned. Aside from those drugs 
and medicines which are sold to or prescribed by physicians, such 
goods are usually branded and nationally advertised and their resale 
prices are maintained. The rate of return in this field has long been 
higher than that usually obtained under active competition; 14 of 
the larger producei-s of drugs and medicines made an average net 
profit on tangible net worth of 28.53 percent in 1937^ and 25.77 per- 
cent in 1938 ; 9 manufacturers of soaps and toilet preparations made 
9.83 percent in 1937 and 16.29 j)ercent in 1938." But if these trades 
present any barrier to the admission of new firms, it is to be found 
less in the cost of the equipment or the complexity of the processes 
employed in the manufacture of their products than in the size of the 
expenditures that are made in advertising the labels which they 
bear. The situation in this field is to be attributed primarily to the 
fact that the consumer lacks knowledge concerning the qualities of 
such products, is unable to make comparisons, and is reluctant to 
substitute one brand for another in response to differences in price. 
If it were not for this fact, the field might be effectively competitive. 


Large numbers of enterprises make for active competition in the 
wholesale and retail trades. There were 1,831,000 establishments en- 
gaged in distribution, 177,000 of them in wholesaling and 1,654,000 in 
retailing, in 1935.^^ In many cases more than one of these establish- 
ments was operated by the same concern, but it is estimated that there 
were 1,437,789 separate enterprises in these trades in 1934, among 

•* Thorp and Crowder, loc. cit. 
•• National Resources Committee, op. cit., p. 266. 

"f Work Projects Administration, Securities and Excliange Commission, op. cit., vol. 3, 
p. 264. 

H Census of Business, 1936. 


them 95,416 wholesale and 1,342,373 retail firms.®' Numbers are also 
large within the several subdivisions of the field. Among wholesale 
establishments in 1935, there were 45,900 in foods, 28,200 in petroleum 
products, 19j500 in raw materials produced on farms, 13,500 in ma- 
chinery, equipment, and supplies, 7,100 in automotive products, 6,000 
in beer, wines, and liquors, 5,700 in clothing and furnishings, 4^900 in 
dry goods, 4,100 in lumber and building materials, 3,800 in electrical 
goods, 3,200 in paper products, 2,700 in plumbing and heating equip- 
ment and supplies, 2,600 in chemicals and paints, 2,500 in tobacco 
products, 2,300 in farm supplies, 2,200 in jewelry and optical goods, 
2,000 in drugs and drug sundries, 1,700 in amusement and sporting 
goods, 1,500 in hardware, and 1,200 in coal and coke.^ Among retail 
establishments there were 477,000 food stores, 198,000 filling stations, 
77,000 clothing stores, 67,000 country general stores, 57,000 drug stores, 
55,000 candy stores, 45,000 furniture and household appliance stores, 
37,000 hardware stores, 36,000 lumber yards and builders' supply 
stores, 35,000 automobile agencies, 35,000 fuel and ice outlets, 29,000 
general merchandise and dry goods stores, 20,000 farmers' supply 
stores, 19,000 shoe stores, 15,000 cigar stores and stands, 14,000 auto 
supply stores, 12,000 jewelry stores, 12,000 variety stores, and 4,000 
department stores and mail order houses.^ There is much overlap- 
ping between these trades, such retail organizations as mail order 
houses, chain stores, and voluntary buying groups competing with 
wholesalers, distributors in one line competing with those in another, 
drug stores with hardware stores, hardware stores with auto supply 
stores, auto supply stores with variety stores, variety stores with 
candy stores, candy stores with food stores, food stores with tobacco 
stores, tobacco stores with drug stores, and mail order houses and 
department stores with stores of every other type. 

Wholesale markets in general are national or regional; retail 
markets are local, but even in the latter case the number of competi- 
tors is usually large. There was one retail outlet to every 80 persons 
in the United States, one to every 70 persons in cities with more than 
100,000 population, one to every 60 in towns and cities with 2,500 to 
100,000 population, and one to every 100 in other areas in 1935.^ There 
was a food store to every 270 persons, a filling station to every 650, 
a clothing store to every 1,680, and a drug store to every 2,280 in the 
country as a whole. In almost every trading center there are several 
establishments in every line.* The local merchant, moreover, must 
frequently compete with mail-order and house-to-house distributors 
and with stores in nearby towns. 

Most trading establishments are comparatively small. In whole- 
saling only one-half of them and in retailing less than one-sixth take 
the corporate form. Corporations engaged in trade, constituting 31 
percent of all corporations, had less than 6 percent of corporate 
assets in 1933. More than 57 percent of them had assets under $50,000 ; 
nearly 99 percent had assets under $1,000,000.' Among wholesalers, 

*» Bureau of Foreign and Domestic Commerce, National Income in the United States, 
1929-35, p. 163. 
1 Census of Business, 1935, Wholesale Distribution, vol. 5, pp. 27-28. 
» Idem., Retail Distribution, vol. 1, pp. 1-18. 

* Ibid., vol. 2, p. 88. 

* Cf., ibid, passim ; Intra-City Business Census Statistics for Philadelphia, Pa., passim. 
•Twentieth Century Fund, Big Business, Its Growth and Its Place (New York, 1937), 

pp. 56-57. 72. 


incorporated establishments had average sales of $373,000 and unin- 
corporated establishments had average sales of only $111,000 in 1935.^ 
Among retailers, 97 percent had sales below $100,000, 78 percent below 
$20,000, and 60 percent below $10,000J Nearly a million of them 
rang up less than $33 a day, hundreds of thousands of them less than 
$10 or $12 a day. 

Despite the large number of trading establishments and the small 
size of most of them, there is substantial concentration in the field. 
Although corporations operate a small minority of these establish- 
ments, they make three-fifths of all the sales. While only 43 percent 
of trading corporations had assets over $50,000 in 1933, they received 
94 percent of the net income reported by such concerns.® In whole- 
saling, the incorporated half of the establishments handled more than 
three-fourths and the unincorporated half less than one-fourth of 
the trade.^ In retailing, 3 percent of the stores, with sales over 
$100,000, did more than a third of the business, and 0.1 percent, with 
sales over $1,000,000, did more than a tenth. Chain stores made nearly 
one fourth of all retail sales in 1935, selling more than a third of the 
groceries, half of the shoes, half of the auto accessories, and more 
than nine-tenths of the variety goods.^° There were nine trading 
companies among the 250 largest corporations in the United States in 
that year. Two of them were mail-order houses: Sears, Roebuck & 
Co. and Montgomery Ward & Co. Four were chain-store organiza- 
tions : The F. W. Woolworth Co. the Great Atlantic & Pacific Tea 
Co., the S. S. Kresge Co., and S. H. Kress & Co: Three were depart- 
ment stores: Gimbel Bros., Marshall Field & Co., and R. H. Macy 
& Co." The largest of these concerns is Sears, with $286,000,000 in 
assets, 50,000 employees, and $500,000,000 in sales. The second largest 
is Woolworth's, with $230,000,000 in assets, 60,000 employees, and 
$300,000,000 in sales.^^ xhe third largest is A. & P., with $190,000,000 
in assets, 90,000 employees, and $900,000,000 in sales." 

Although such mass distributors have attained great size and 
although they handle a substantial fraction of the retail trade, it can- 
not be said that they possess anything approaching a monopoly. 
The degree of concentration in tliis field does not compare with that 
which obtains in manufacturing. The 3 percent of the stores mak- 
ing a third of the sales in 1935 numbered nearly 50,000, the 0.1 per- 
cent making a tenth of the sales nearly 2,000. The chain stores, 
numbering 140,000, were operated by 6,000 different chains. Inde- 
pendent merchants, each with a single store, owned nine-tenths of the 
outlets and made two-thirds of the sales, handling more than three- 
fourths of the radios, clothing, lumber, and building materials, and 
gasoline, more than four-fifths of the fuel and ice, furniture, and 
drugs, and more than nine-tenths of the jewelry, hardware, and 
motor vehicles.^* Goods of almost every kind are sold by scores of 
mail order houses, hundreds of chains, thousands of department 
stores, tens of thousands of independent retailers, and untold num- 

• Census of Business, 1935, Wholesale Distribution, vol. 1, p. 40. 
''Idem, Retail Distribution, vol. 1, pp. 1—31. 
» Twentieth Century Fund, op. cit., p. 72. 
•Census of Business, 1935. ^ holesale Distribution, loc. cit. 
1" Idem, Retail Distribution, vol. 1. pp. 1-24. 
" National Resources Committee, op. cit., p. 100. 

^ Work Projects Administration, Securities and Exchange Commission, op. cit., vol. 2, 
pp. 132, 141, 192, 201. 

" Fortune. April 1938, p. 97. 

^ Census of Business, 1935, Retail Distribution, vol. 1, p. 1-24. 


bers of consumers' cooperatives, supermarkets, door-to-door sales- 
men, and roadside stands. There is competition between distributors 
of the same type, between distributors of different types, and between 
distributors of all types and manufacturers who sell directly to 

Even if all of the larger trading corporations were to combine, it 
may be doubted that they could obtain or hold a position of mo- 
nopoly. There is no obstacle to entrance to the field. Capital re- 
quirements, particularly in the retail trade, are low. Quarters may 
be rented cheaply or obtained without expenditure. Among retail 
establishments in Poughkeepsie, N. Y., from 1923 through 1926, 
52 percent of the confectionery stores, 59 percent of the saloons, and 
66 percent of the independent grocery stores were located in the 
owners' homes.^^ The necessary equipment is inexpensive and can 
be bought at second hand. Stocks of goods are abundant ; sources of 
supply are numerous and widely scattered; credit is readily avail- 
able. Labor may be provided by unskilled workers hired at low 
wages, by the retailer himself, and by members of his family. The 
processes of distribution are simple. Technical training and man- 
agerial experience are not required. As a consequence, unemployed 
laborers and farmers by the thousands are constantly entering the 
retail field. It is estimated that the number of entrepreneurs in 
trade increased by 100,000 from 1933 to 1934, by another 100,000 
from 1934 to 1937.^® New types of distributive agencies are con- 
tinually springing into life; the field is in a constant state of flux. 

Instead of monopolizing the retail trade, the mass distributor has 
made it more actively competitive. Almost invariably, he has sought 
to obtain his profit by selling in greater volunie at a lower price. 
By integrating operations, purchasing in quantity, eliminating 
costly services, increasing managerial eflBciency, cutting operating ex- 
penses, and reducing profit margins, he has decreased his prices and 
increased his sales. His vigorous competition has forced the inde- 
pendent merchant to serve the consumer more efficiently. In the 
opinion of the Committee on Distribution of the Twentieth Century 
Fund, it "has brought widespread improvement of methods and 
lowering of costs and prices throughout retailing." ^^ 

The earnings of companies engaged in trade are usually low. In 
1936, for example, only 69,263 of the 149,805 trading corporations 
reporting to the Bureau of Internal Revenue, or less than half of 
the total number, had made a profit; their aggregate net income 
was little more than 3 percent on total sales. The other 76,257 con- 
cerns had operated at a loss. In the whole group, income was little 
more than 2 percent on sales.^® Unincorporated enterprises, which 
are many times as numerous, may have obtained an even lower re- 
turn. Among the wholesalers covered by Dun & Bradstreet surveys 
in 1936, grocers made 1.3 percent, confectioners 2.2 percent, whole- 
salers of dry goods 2.7 percent, and wholesalers of paints and var- 
nishes 4.0 percent on sales.^^ Among retailers, fruit and vegetable 

" R. G. and A. R. Hutchinson and M. Newcomer, "A Study in Business Mortality," Amer- 
ican Economic Review, vol. 28 (1938), jap. 497-514, at p. 506. 

" Bureau of Foreign and Domestic Commerce, Income in the United States, 1929^1937 
(processed), table 21. 

" Twentieth Century Fund, Does Distributiori Cost Too Much? (New York, 1939), p. 345. 

" Bureau of Internal Revenue, Statistics of Income, 1936. 

" Dun & Bradstreet, Wholesale Survey, 1937, Reports Nos. 1, 3, 4, 7. 


markets made 1.2 percent, grocery stores 1.7 percent, automobile 
dealers 2.2 percent, filling stations 2.3 percent, country general stores 
2.3 percent, city department stores 2.6 percent, hardware stores 3.6 
percent, jewelry stores 4.8 percent, radio stores 5.9 percent, furni- 
ture stores 6.6 percent, and variety stores 6.6 percent on sales.^ 

These figures, of course, cover limited samples which ido not include 
the smallest firms. They apply, moreover, to a profitable year. 
Average earnings are probably lower than the published information 
would suggest. According to the Twentieth Century Fund, "Consid- 
ering the entire field and offsetting good years against bad, it is not 
unreasonable to suppose that the average profit ratio is not more than 

2 percent on sales and may be as low as 1 percent." ^^ No data are 
available covering the rate of earnings on investment for trading 
enterprises as a whole. Figures for some of the larger corporations 
in the field reveal a satisfactory return. Thirty-one department 
stores obtained an average net profit on tangible net worth of 6.96 
percent in 1937 and 4.18 percent in 1938. Seven mail order houses 
made 12.14 percent in 1937 and 9.80 percent in 1938. Ten variety 
chains made 13.62 percent in 1937 and 10.96 percent in 1938. Four- 
teen grocery chains made 5.48 percent in 1937 and 6.72 percent in 
1938.^^ Most trading companies, however, earn a meager living for 
their owners and little or nothing more. The typical entrepreneur 
in the field withdrew $1,718 from his business in 1929, $1,140 in 1933, 
and $1,400 in 1937. His average annual withdrawal from 1929 
through 1937 was $1,392.23 

Firms in trade have a high rate of mortality and a short ex- 
pectancy of life. Among 157 wholesale companies established in 
Poughkeepsie, N. Y., between 1844 and 1926, two- thirds disappeared 
within 10 years, half within 5 years, one-third within 3 years, one- 
fourth within 2 years, and one-fifth within 12 months. Among 
4,998 retail enterprises set up during the same period, three-fourths 
disappeared within 10 years, two-thirds within 5 years, half within 

3 years, two-fifths within 2 years, and more than one-fourth within 
12 months.^* Three-fifths of the grocery stores and meat markets, 
two-thirds of the cigar stores, and three-fourths of the candy stores 
lasted Iqss than 5 years. More than one-fourth of the grocery 
stores, one-third of the meat markets and cigar stores, and nearly 
half of the candy stores failed to survive their first year." Among 
5,766 grocery stores opened in Buffalo, N. Y., between 1919 and 1927, 
three-fifths went out of business within a year. In the same city, 
from 1918 to 1928, the annual mortality rate was 12.6 percent among 
drug stores, 16.2 percent among hardware stores, 21.8 percent among 
shoe stores, and 35.9 percent among grocery stores.^^ In Pittsburgh, 
Pa., from 1925 to 1934, one-fourth of the newly opened hardware 
stores, one-third of the drug stores, two-fifths of the shoe stores, 
and almost half of the grocery stores failed to reach their second 
I 9r. The annual mortalitv rate was 9.4 percent for drug stores, 

^l(i~ ', Retail Survey, 1937. 

= Twt \ieth Century Fund, op. cit., p. 122. 

" WorL>. Projects Administration, Securities and Exchange Commission, op. clt. vol. 2, 
pp. 356-35 

23 Bureau ' Foreign and Domestic Commerce, op. cit., table 22. 

" Hutchir jn and Newcomer, op. cit., p. 500. 

»Ibld., p 502. 

" E. D. 1 :Garry, Mortality in Retail Trade, University of Buffalo Studies in Business, 
No. 4 (1930 


10.1 percent for hardware stores, 16.3 percent for shoe stores, and 
20.0 percent for grocery stores." In 32 county seat towns in 1935, 
only one-fourth of the drug stores, one-fiCth of the hardware stores, 
one-eighth of the clothing and dry goods stores, one-ninth of the 
shoe stores, one-tenth of the grocery stores, 1 in 14 of the general 
and department stores, and 1 in 22 of the women's wear stores 
that had been in existence in 1915 were still doing business at the 
end of the 20 years.^ 


More than a million enterprises are engaged in the business of 
rendering nonprofessional personal services. Included in this group 
in 1935 were 153,000 eating places, 125,000 barber shops, 98,000 drink- 
ing places, 80,000 automobile garages and repair shops, 66,000 beauty 
parlors, 63,000 cleaning and dyeing establishments, 61,000 shoe repair 
shops, shoe shining parlors, and hat cleaning establishments, 46,000 
local trucking businesses, 31,000 taxicab operators, 29,000 hotels, 
23,000 laundries, 20,000 blacksmith shops, 17,000 funeral directors, 
14,000 watch, clock, and jewelry repair shops, 13,000 printing shops, 
11,000 automobile storage garages and parking lots, 11,000 tourist 
camps, 10,000 photographic studios, 10,000 news dealers, 9,000 grist 
mills, 8,000 radio repair shops, 8,000 upholstery and furniture re- 
pair shops, 8,000 motion picture houses, 7,000 plumbing and heating 
repair shops, 6,000 billiard and pool parlors and bowling alleys, and 
other thousands of establishments in scores of other trades.^® Com- 
petition within each, of these fields is confined to local markets. But 
here again the number of competitors is usually large. In Philadel- 
phia, for instance, in 1935 there were 3,900 restaurants, 2,700 barber 
shops, 2,300 cleaning and dyeing establishments, 1,800 shoe repairing, 
shoe shining, and hat cleaning businesses, and 1,400 beauty shops.^° 
In the same year, there were 48 eating places, 39 barber shops, 31 
drinking places, 25 garages, 20 beauty parlors, 19 cleaning and dye- 
ing establishments, 19 shoe repair shops, 14 trucking businesses, 10 
taxicab operators, 9 hotels, 7 laundries, 6 blacksmith shops, and 5 
funeral directors to every town or city of more than 2,500 population 
in the United States. 

The typical local service enterprise is small. Average annual 
receipts in 1935 were $10,700 for eating places, $8,800 for news deal- 
ers, $7,200 for drinking places, $5,600 for garages, and $2,400 for 
tourist camps.^^ The receipts of 90 percent of the photographic 
studios, 95 percent of the beauty parlors and upholstery and furni- 
ture repair shops, 97 percent of the hand laundries, cleaning and 
dyeing establishments, and shoe repair shops, and 98 percent of the 
barber shops and watch, clock, and jewelry repair shops were under 
$10,000. Those of 60 percent of the photographic studios, 72 percent 
of the upholstery and furniture repair shops, 74 percent of the 

«A. E. Boer, "Mortality Costs in Retail Trade," Journal of Marketing, July 1937, 
pp. 52-60. 

^ Hearings before the Temporary National Economic Committee, Part 1, p. 235. 

™ Census of Business, 1935, Service Establisliments, vol. 1, pp. iii, 1-2, Retail Distribution, 
vol. I, pp. 1-18, Places of Amusement, p. xii, Hotels, p. 1, Tourist Camps, p. iii. Motor 
Trucking for Hire, p. 7; Statistical Abstract of the- United States, 1938. pp. 826-829; 
Bureau of Foreign and Domestic Commerce, National Income in the United States, 1929-35. 
p. 146. 

** Census of Business, 1935, Service Establishments, vol. 2, p. 190. 

^ Idem, Retail Distribution, vol. 1, pp. 1-18, Tourist Comps, p. 1. 


beauty parlors, 75 percent of the hand laundries, 76 percent of the 
cleaning and dyeing establishments, 80 percent of the watch, clock, 
and jewelry repair shops, and 85 percent of the barber shops and 
shoe repair shops were under $3,000.^2 Among all of the enterprises 
listed by the census as service establishments, three-fourths took in 
less than $3,000 and more than a third took in less than $1,000.'^ The 
average number of employees was only 1.3 in beauty parlors, 1.1 
in photographic studios, 0.7 in hand laundries, barber shops, and 
upholstery and furniture repair shops, 0.4 in shoe repair shops, and 
0.2 in watch, clock, and jewelry repair shops.^* In the majority of 
cases such enterprises are operated solely by proprietors or partners 
and by members of their families. There were 910,000 active pro- 
prietors and firm members connected with the 892,000 eating and 
drinking places, garages, and service establishments reported by the 
census in 1935.^° Aside from such organizations as the motion 
picture house and restaurant chains, there has been little concentra- 
tion in the field. 

Earnings are even lower and the expectancy of life is even shorter 
in local service than in retail trade. It is estimated that the per 
capita withdrawals of entrepreneurs in 1934 were $1,187 in recreation 
and amusement undertakings, $1,049 in automobile, radio, watch, 
and othef repairing businesses, and $881 in hotel, restaurant, laundry, 
cleaning and dyeing, and other personal service fields.^^ Among 
3,933 service enterprises established in Poughkeepsie, N. Y., between 
1844 and 1926, 67 percent of the barber shops, 73 percent of the 
express companies, 78 percent of the shoe shops, 83 percent of the 
tailor shops, 87 percent of the saloons, and 88 percent of the res- 
taurants lasted less than 10 years : 46 percent of the express compan- 
ies, 52 percent of the barber shops, 60 percent of the shoe shops, 65 
percent of the tailor shops, 67 percent of the restaurants, and 68 
percent of the saloons lasted less than 5 years; and 21 percent of 
the express companies, 26 percent of the barber shops, 30 percent 
of the shoe shops, 35 percent of the restaurants, 37 percent of the 
saloons, and 37 percent of the tailor shops lasted only 1 year.^^ 
All of the available evidence supports the conclusion that the local 
service trades, in general, are effectively competitive. 

The business of transporting property by truck beyond the boun- 
daries of local markets is carried on, says Fortune, bj "a ^ noisy, 
broiling mob of individual operators." ^^ The business is easily en- 
tered: A down payment on a second-hand truck and enough money 
to buy the license plates are all that is required. The number of 
trucking concerns engaged in interstate commerce in 1940 was close 
to 35,000; the total number engaged in intrastate commerce was un- 
known. Among concerns reporting to the census in 1935, more than 
four-fifths of those in the former group and more than nine-tenths 
of those in the latter were unincorporated.^^ Among those applying 
to the Interstate Commerce Commission for permits or certmcates 

'2 Idem, Service Establishments, vol 1, p. xrvili. 

» Ibid., p. xxvi. 

"Loc. cit. 

36 Idem, Service Establishments, vol. 1. p. 1, Retail Distribution, vol. 1, pp. 2-4'. 

" Bureau of Foreign and Domestic Commerce, op. cit., p. 207. 

" Hutchinson and Newcomer, op. cit., pp. 503-504. 

» Fortune, February 1936, p. 47. 

» Census of Business, 1935, Motor Trucking for Hire, p. 12. 


under the Motor Carrier Act up to June 1936, h, !f operated a single 
truck, two-thirds operated only one or two trucks, and nearly nine- 
tenths operated fewer than six.^'^ Only 1,200 of these concerns are 
designated as class I carriers with revenues over $100,000 a year. 
The bulk of the business is handled by the smaller firms. The field 
has long been vigorously competitive. Truckers are now restrained 
from cutting rates below the minima prescribed under the Motor 
Carrier Act and under the laws of many States. But common car- 
riers and contract carriers must still compete for traffic and both of 
them must meet the competition of large shippers who can buy 
trucks and haul goods for themselves. The industry has been char- 
acterized by low earnings and high mortality. Common carriers 
reporting to the Federal Coordinator of Transportation in 1932 
were earning less than 2 percent on invested capital."*^ In one group 
of truckers who w^ent into business in South Dakota in 1925, 60 
percent lasted less than 3 years, 43 percent less than 2 years, and 
28 percent less than 1 year.*^ 

The publishing business in general may also be said to be competi- 
tive. In the publication of newspapers, to be sure, the degree of con- 
centration is high. Among 2,000 dailies in the United States in 1937, 
more than 300 were controlled by 60 chains and more than 100 by 6 
chains."*^ Among 104 of the largest cities in the country in 1940, there 
were 7 with a single paper and 13 others in which all of the papers 
were published by the same concern; among 82 cities with morning 
papers, there were 74 with 1 and only 8 with 2 or more; ^mong 101 
cities with evening papers, there were 72 with 1 and only 29 with 2 or 
more.** In other respects, too, the field appears to be noncompetitive. 
Heavy capital requirements restrict the entrance of new concerns. 
The publishers' association discourages its members from cutting ad- 
vertising rates *^ and publishers sell papers to their readers at a cus- 
tomary price. But newspapers must compete with the radio and other 
media for advertising and with the radio and papers from other cities 
for circulation. Although, the price at which they sell is rigid, there 
is active competition in the quantity and quality of features which are 
offered at this price. In the publication of periodicals, producers 
number in the thousands and the market in which they sell is more 
than Nation-wide. Nearly 6,500 weeklies, semimonthlies, monthlies, 
and quarterlies are published in this country at the present time.*® 
Each differs from the others in form and content, but there ara several 
of every major type. Journals that catch the public fancy find imi- 
tators by the score : Witness the recent growth of picture weeklies and 
magazines of pocket size. Journals adhering to tested formulas give 
wry to those that have a new design; thus the Literary Digest was 
superseded by Time, the old Life by the New Yorker, and Vanity Fair 
by E -quire. The rate of turn-over is high; from January 1938 to 

*" Federal Coordinator of Transportation, Section of Research, Hours, Wages, and Work- 

ig Conditions in the Intercity Motor Transport Industries, Part II, Motor Truck Trans- 
portation (1936), p. 6. 

*ildem, Merchandise Traffic Report (1933), p. 11. 

*2F. T. Hadley, Motor Truck Transportation in Western South Dakota, South Dakota 
Agricultuial Experiment Station, Circular II (1933), p. 20; cf. D. Philip Locklin, Eco- 
nomics of Transportation (Chicago, 1938), pp. 763-765. 

*-■' Editor and Publisher, 1938 International Yearbook Number, p. 128. 

" romputed from Media Records, First Quarter, 1940, pp. 10-16. 

*^ Of. Clarence D. Long, Jr., "Newsprint : Costs and Competition," Harvard Business Re- 
view, vol. 18 (1940), pp. 372-383, at p. 383. 

46 Ayer's Direi tory of Newspapers and Periodicals, 1940, p. 11. 


December 1939, 428 new periodicals were launched and 142 others 

In the publication of books, 8,000 to 10,000 new titles are issued by 
some 300 houses every year. There is active competition in the sale 
of publishers' remainders, reprints, and cheap editions of older works. 
There is comparatively little competition in the pricing of newly pub- 
lished books. The copyright system grants the publisher a monopoly 
in the sale of every new title on his list. He establishes his price and 
maintains it for months at a time, seldom undercutting the prices 
charged for comparable titles produced by other firms. But the copy- 
right, unlike the patent right, is limited to specific articles; it does 
not confer upon its owner the power to monopolize his trade. The 
reader has real alternatives; the same material may be found in sev- 
eral different books, in newspapers and in magazines; books may be 
borrowed from private renting collections, from libraries, and from 
friends ; they may be bought at second hand. The publisher must face 
the competition of these other sources of supply. Entrance to the 
field, moreover, is unobstructed and the rate of turn-over among 
publisliing houses is high. 

The business of producing plays in the legitimate theater is like- 
wise competitive. Close to 5,000 plays are copyrighted every year; 
about 100 are produced on Broadway and, of these, three-fourths are 
failures, less than one-tenth are hits, and only two or three run into 
their second year.*^ The profits on a hit, however, are high; in a 
few cases they have run into the millions. The costs of producing a 
play, by comparison, are low; on anything but a musical show the 
curtain may be raised for a few thousands. Designers, costumers, 
and scene builders may be forced to wait for their pay. Theater 
owners may be persuaded to share in the risks of the venture. Other 
backers may be found to buy a piece of a prospective show. As a 
consequence, inexperienced producers are constantly entering the 
field. Half of those presenting plays on Broadway in any season 
are new concerns. The mortality among these enterprises is ex- 
tremely high; it is said that 95 percent of them fail to survive a 
single year.*^ "The commercial theater in New York," according to 
the editors of Theatre Arts, "is not a business but a gamble in which 
a hit show is the only winning ticket." ^^ 


The foregoing list of industries viewed as competitive is not an 
exhaustive one. It does include the more important trades in which 
there has been active competition in price. But even where custom 
or convenience make prices uniform and rigid, producers may com- 
pete in the quantity, quality, nnd appearance of the goods which 
they offer at the same figure, in upplementary services, in terms of 
payment, and in guarantees. Competition in these matters is more 
difficult to measure than is competition in price, but it may be quite 

^'^ As reported in the Bulletin of Bibliography and Dcamatic Index, January-April 1938 
to September-December 1939. 

*» Time, December 5, 1938, p. 44. 

« Fortune, February 1938, pp. 66 flf. 

60 Theatre Arts, May 1940, p. 328; Cf. Lee Simouson, "The Theater: Gambler's Para- 
dise, ' New Republic, vol. 72 (1932), pp. 93-96, Joseph Wood Krutch, "The Show Busi- 
ness," Nation, vol. 135 (1932), pp. 211-212, 227-228, 252-253 277-278 


as effective in giving the consumer his money's worth. It occurs in 
many industries which have not been mentioned in the preceding 
pages. There is competition, too, between the producers of sub- 
stitutes and even among producers of unrelated articles in making 

The area of the American economy that may be designated as 
effectively competitive is an extensive one, comprising as it does 
nearly all of agriculture, textile, and clothing production, wholesale 
and retail distribution, and the service trades, and many other ex- 
tractive and manufacturing industries. But it must be noted that 
the very factors that operate to make these fields competitive have 
also given rise to numerous arrangements whereby the rigors of 
competition may be restrained. In some cases these arrangements 
have been inaugurated and enforced by strong trade unions. In 
others they have been developed and administered through trade 
associations. In still others they have been written into law. Ar- 
rangements of the latter types will be discussed in chapter V. 



Industrial monopoly is no stranger to the American scene. Ever 
since the Civil War, business leaders have repeatedly coptrived to 
eliminate competition, both by getting independent concerns to agree, 
secretly or formally, that they would no longer compete and by bring- 
ing former competitors under common ownership and control. The 
early combination movement had its origin in the eighties, flourished 
during the last decacle of the nineteenth century, and reached its zenith 
in the opening years of the twentieth. By 1904, the so-called trusts 
had in their hands 40 percent of all the manufacturing capital in the 
United States.^ For varying periods of time and to varying degrees 
they controlled the production, among other things, of asphalt, bath- 
tubs, bicycles, cash registers, cordage, corn products, cotton yarn, cot- 
tonseed oil, chewing gum, electrical equipment, farm machinery, gun- 
powder, lead, leather, linseed oil, matches, meats, petroleum products, 
photographic materials, plate glass, rubber, shipping, shoe machinery, 
starch, steel, sugar, tobacco products, tin cans, window glass, and 
whisky. It is true that most of these combinations failed to achieve 
anything ap])roaching complete monopoly power, that a majority of 
them were short-lived, and that many ended in financial disaster. But 
there were, in 1904, 26 trusts which controlled 80 percent or 
more of the production in their respective fields.- And there were 
at least 8 concerns — the American Can Co., the American Sugar 
Refining Co., the Americaj^ Tobacco Co., the Corn Products Refining 
Co., the International Harvester Co., the National Cash Register Co., 
the Standard Oil Co., and the United Shoe Machinery Co. — that con- 
trolled, at one time or another, 90 percent or more of the output of 
some or all of their respective products. In this group one finds firms 
that succeeded in attaining a monopoly position sufficiently complete 
and sufficiently enduring to insure to their owners something well in 
excess of a competitive return. 


Foremost among the trusts was Standard Oil. This company came 
to dominate the refinery business in the United States, not by realiz- 
ing superior efficiency in the refining of petroleum, but by obtaining 
special advantages with respect to its transportation. The Standard, 

1 Henry R. Seager and Charles A. Gulick, Jr., Trust and Corporation Problems (New 
York, 1929), p. 61. 

2 John Moody, The Truth About the Trusts (New York, Chicago, 1904), p. 487. 



a large shipper, persuaded the railroads to grant it substantial re- 
bates, not only recovering 40 percent to 50 percent of the sums which 
it paid them for carrying its own oil, but also collecting a similar 
share of the rates paid by its rivals. At the same time it proceeded to 
acquire title to all of the pipe lines through which crude petroleum 
flowed from the producing fields on its way to the refineries. The com- 
pany thus stacked the cards against its competitors. It maintained 
prices in its exclusive markets, slashed them successively in competitive 
markets, forced independent refiners into insolvency, and bought up 
their properties on its own terms. By crushing its weaker rivals and 
combining with its stronger ones, it achieved a substantial monopoly 
in the purchase, transportation, refining, and marketing of petroleum 
and its products. For three decades Standard Oil controlled more 
than 90 percent of ttie refinery business in the United States. It was 
in a position both to depress the price which it paid for crude petro- 
leum arid to advance the price which it charged for its refined products. 
In the face of improvements in technology which cut refinery^ costs, 
it was able to widen, instead of narrowing, the refiner's margm. Its 
profits mounted accordingly. From 1896 to 1906, Standard's average 
annual earnings were $60,000,000, its average dividends $40,000,000. 
Its net income ranged between 48.8 percent and 84.5 percent of the 
cost of its properties, with an annual average of 61 percent; its divi- 
dends ranged between 30 percent and 48 percent on the investment 
in its capital stock, with an annual average of 39.7 percent.^ 

The Amencan Tobacco Co. was formed in 1890 by a combination of 
five manufacturers who produced, among them, 95 percent of the 
cigarettes made in the United States. It obtained, and held for 5 
years, exclusive control of the machinery used in the manufacture 
of cigarettes. It maintained its virtual monopoly in the trade for 20 
years. With the profits of the cigarette business it financed its expan- 
sion into allied fields. It waged relentless war on its competitors, 
temporarily producing fighting brands to undersell them, subsidizing 
bogus independents to compete with them, undercutting their prices 
in local markets, and making exclusive contracts with distributors 
which deprived them of their outlets. It bought and dismantled 
competing plants, exacting from their owners contracts which for- 
bade them to reenter the trade. By these methods, the company ex- 
tended its monopoly, controlling in 1910 the production of 76 percent 
of the smoking tobacco, 80 percent of the fine-cut tobacco, 85 per- 
cent of the plug tobacco, and 96 percent of the snuff. Its monopoly 
did not operate to increase the price paid by the ultimate consumer ; 
it did, however, maintain this price at a time when it should have been 
reduced. Congress had imposed heavy taxes on tobacco products dur- 
ing the Spanish- American War and their prices at retail had risen 
accordingly. It reduced these taxes in 1901 and 1902. But the trust, 
instead of cutting prices, maintained them and appropriated for itself 
the whole advantage of the lower rates. Thereafter, it increased its 
wholesale charges and further augmented its profits by encroaching 
on distributors' margins. From 1890 to 1904, American Tobacco's 
■ annual return never fell below 41 percent of the value of its tangible 
assets ; in the years 1895 to 1900 it ranged from 16 percent to 31 per- 
cent; in the years 190J. to 1908, it varied from 30 percent to 37 per- 

•JBUOt JOhcfl. The Trust Problem in the United States (New York, 1926). ch. 5. 


cent. The average annual profit during^ these 19 years was 34.5 
percent. From 1905 to 1910, the company paid an average annual 
dividend of 29 percent on the nominal value of its heavily watered 

Tlie American Sugar Refining Co., created in 1887, combined 17 
refiners who processed 70 percent of the Nation's sugar. By 1892 it 
had absorbed 5 of its 6 remaining competitors, bringmg under its 
control 98 percent of the domestic sugar supply. The trust was pro- 
tected from foreign competition by a duty on refined sugar which 
exceeded that on raw sugar by 1 cent per pound, an amount which 
was nearly double the cost of refining. It proceeded at once to raise 
its price, widen its margin, and realize large profits. When new 
refineries were built to compete with it, it undersold them, bought 
them out, and raised its price again. Repeatedly throughout its his- 
tory it thus lost and then regained control of the industry. The com- 
pany was aided in this process by customs officials who cut its tariff 
costs by underweighing its imports and by railroad officials who cut 
its freight bill by underweighing its shipments. It was able to pay 
dividends on its watered stock amounting to 22 percent in 1893 and 
averaging 12 percent from 1894 to 1899.® 

The Corn Products Refining Co., established in 1906, merged the 
Corn Products Co., itself an earlier combination of the starch and 
glucose trusts, with its one remaining rival in the glucose trade. The 
company and its predecessors followed the familiar pattern of com- 
bining existing concerns, raising prices, attracting new competition, 
waging a price war, acquiring the new properties, and raising prices 
again. During its early history, it entered into an agreement with 
other starch manufacturers for the purpose of maintaining the price 
of starch. It attempted to exclude competitors from the glucose 
market by offering year-end discounts to those of its customers who 
would buy nothing from them during the year. It set up bogus 
independents to run them out of business. It was also a beneficiary 
of discrimination in railroad rates. In 1906 and for a short period 
thereafter it processed 92 percent of the corn ground in the United 
States and controlled 100 percent of the country's trade in glucose 

The American Can Co., in 1901, combined 95 of the 100 arid more 
can makers in the United States. It entered into exclusive ..ontracts 
with the manufacturers of automatic can-making machinery which 
made it impossible for its competitors to obtain up-to-date equipment. 
It enjoyed an intimate connection with the American Tin Plate Co., 
which not only gave it a decisive competitive advantage by enabling 
it to obtain secret rebates on its purchases of raw material, but also 
threatened to interfere with the delivery of plate to other producers 
and even to cut them off completely from their source of supply. It 
established bogus independents to undercut the prices charged by its 
competitors. It thus forced them to sell out, purchased their plants, 
and dismantled two-thirds of the properties which it bought. In 
command of the industry, it proceeded to advance prices by as much 

* Ibid., ch. 7 ; Seager and Gulick, op. cit., ch. 10 ; Roy E. Curtis, The Trusts and Economic 
Control (New York, 1931), pp. 337-338, 352-354. 

' Jones, op. cit., ch. 6. , 

•Myron W. Watkins, Industrial Combinations and Public Policy (Boston, 1927), ch. 10. 


as 60 percent. At the time of its formation and for some years there- 
after it made nine-tenths of the Nation's cans/ 

The National Cash Register Co., organized in 1882, set out deliber- 
ately to destroy its competitors. It hired their employees away from 
them. It bribed their employees and the employees of common car- 
riers and telephone and telegraph companies to spy on them and dis- 
close their business secrets. It spread false rumors concerning their 
solvency. It instructed its agents to misrepresent the quality of their 
goods, interfere with their sales, and damage the mechanism of their 
machines in establishments where they were in use. It publicly dis- 
played their cash registers under labels which read, "Junk." It made, 
and sold at less than cost, inferior machines called "knockers," which 
it represented to be just as good as theirs. It threatened to bring suit 
against them and their customers for alleged infringements of patent 
rights. It induced their customers to cancel their orders and repudiate 
their contracts. It intimidated prospective investors in competing 
plants by publishing lists of defunct competitors and by exhibiting 
in a "graveyard" at its factory samples of the machines which they 
had formerly made. Such practices, carried on over a period of 20 
years, gave the company control of 95 percent of the Nation's produc- 
tion of cash registers.^ 

The International Harvester Co., organized in 1902, brought to- 
gether five manufacturers who sold 85 percent of the harvesting ma- 
chinery made in the United States. For 10 years it produced nine- 
■ tenths of the Nation's output of binders. At one time or another it 
made, as well, 71 percent of the rakes, 83 percent of the mowers, 85 
percent of the reapers, and 91 percent of the tedders. Its strength, 
during the years of its supremacy, is to be attributed to its large finan- 
cial resources, efficient organization of distribution, and relatively low 
costs of production, not to any special privilege or to an aggressive 
effort to eliminate its competitors. The company made larger profits 
on its monopolized than on its competitive products ; on its domestic 
than on its foreign 3ales; enjoyed a rate of profit higher than that 
earned by its rivals. It made 13.43 percent on its conservative capi- 
talization in 1909, 12.77 percent in 1910. 18.59 percent in 1917. and 19.59 
percent in 1918, its best years. But its profits, in general, were mod- 
erate, the annual average standing at 8.47 percent from 1903 to 1^11 
and at 12.48 percent from 1913 to 1918.^ 


Of the eight great corporations that almost completely monopolized 
their respective industries near the turn of the century, only one, 
the United Shoe Machinery Corporation, now retains its former de- 
gree of monopoly power. Prosecution under the anti-trust laws and 
the establishment of competing enterprises have compelled the others 
to relinquish exclusive control. Twenty major companies among some 
900 now refine more than four-fifths of the Nation's oil, but only 8 of 

' V. S. V. American Can Co. et al., 230 Federal Reporter 859. 

* Seager ai d Gulick, op. cit., pp. 446-449 ; Curtis, op. cit., pp. 72-74 ; Jones, op. cit., 
pp. 477-479. 

» Jones, OR. cit., ch. 10 ; Seager and Gulick, op. cit., ch. 15 ; Arthur F. Burns, The Decline 
of Competition (New York, 1936), pp. 109-118. 


them are former members of the Standard group.^" Three companies 
now share four-fifths of the output of cigarettes.^^ The American 
Sugar Refining Co. now owns 30 percent, instead of its former 98 per- 
cent, of the counti-y's sugar refining capacity.^ The Corn Products 
Refining Co. controls 40 percent, instead of 100 percent, of the glucose 
trade." The American Can Co. shares with two other concerns 90 
percent of the production of tin cans." While data on concentration 
of output among the manfacturers of cash registers are not disclosed, 
it appears that two of them produced nine-tenths or one of them three- 
f mirths of the total in ] 937." The bulk of the output of farm machin- 
ery is now manufactured by five corporations; the International 
Harvester Co. makes less than half of the total.^® 

These early trusts and their successor companies no longer enjoy 
exclusive occupancy of their respective fields. But the almost com- 
plete monopolization of a market by a single firm is by no means a 
thing of the past. Today one company in each field controls all, or 
nearly all, of the Nation's supply of aluminum, nickel, molybdenum, 
magnesium, shoe machinery, glass container machinery, and scientific 
precision glass, provides nearly all of the domestic telephone service 
and all of the trans-oceanic service, and operates all of the sleeping and 
parlor cars. Other concerns stand in a similar position with respect to 
important segments of the markets for international cable and radio 
comnmnication, oil pipe line and railway freight transportation and 
trans-oceanic aviation. There are, in addition, numerous public utility 
corporations and innumerable small-town enterprises which enjoy 
complete monopolies in the local markets which they serve. 


For more than 50 years, the Aluminum Co. of America has produced 
100 percent of the Nation's output of alumina and virgin aluminum 
ingot. For some 30 years it has been reported to own or hold more 
than 90 percent of the commercially available supply of the raw mate- 
rial, bauxite. It has used 100 percent of the bauxite produced in the 
United States. In 1937, according to the Department of Justice, the 
company owned or controlled more than 85 percent of the supply of 
secondary scrap aluminum and a similar share of all the virgin alum- 
inum produced in or imported into the country. It made and sold 50 
percent of the aluminum cooking utensils, owned 26 percent of the 
capital stock of the Aluminum Goods Manufacturing Co., the second 
largest producer of such utensils, and had two of its officers on the 
directorate of this concern. The Aluminum Co., together with licen- 
sees under its patents, manufactured 80 percent of the output of 
aluminum pistons. It made and sold 90 percent of the aluminum 
sheet, 95 percent of hard aluminum alloys, and 100 percent of the 
aluminum wire, cable, bars, rods, tubing, and extruded and structural 

10 Hearings before the Temporary National Economic Committee, Part 14, p. 7103. 
" Ibid., pt. 1, p. 137. 

^U. S. Cane Sugar Refiners Association, Sugar Economics (1938), p. 91. 
" Fortune, September 1938, p. 56. 

" Hearings before the Temporary National Economic Committee, pt. 1, p. 137. 
I'Thorp and Crowder, loc. cir. 

" Federal Trade Commission, Report on the Agricultural Implement and Machinery In- 
dustry, 75th Cong., 3d sess., H. Doc. No. 702 (1938), pp. 1023-1024. 

271817—40 — No. 21 6 


shapes.^^ The company has been protected throughout most of its 
history by customs duties high enough practically to exclude foreign 
competition from the American market. For more than 20 years it 
was made secure in its domestic monopoly by the ownership of the 
basic patents which covered the electrolytic process for the production 
of aluminum. When these patents expired in 1909 it was already in 
possession of the ores, the techniques, the personnel, the organization, 
and the financial resources which enabled it to maintain its position. 

The war demand for aluminum from 1915 to 1918 and the increasing 
popularity of the metal in the years after the war enabled the company 
greatly to expand the scale of its operations. It was entirely success- 
ful in its efforts to prevent the establishment of competing concerns. 
It acquired many of the available water power sites, built power plants, 
and generated its own electricity, large quantities of which were re- 
quired in its manufacturing processes. It is said to have entered into 
agreements with other power companies which bound them to sell 
electricity to no other producer of aluminum.^^ It bought stock in 
corporations which controlled two other manufacturers of aluminum 
sheet. When the Republic Carbon Co. undertook to enter the alumi- 
num business, it purchased one-third of the capital shares of that con- 
cern.^® When a French firm which had built a plant in North Carolina 
was deprived of its foreign backing by the outbreak of the First World 
War and sought capital in the United States, the Aluminum Co. was 
so powerful that no American banker would finance a competitor, and 
the company acquired the property on its own terms. When another 
promoter planned to produce aluminum at a power site on the Sague- 
nay River in northern Quebec, it bought the site for some $16,000,000 
from its oWner, James B. Duke, deprived the prospective competitor 
of his sources of power, and thus prevented him from entering into 

The Aluminum Co, competes with independent fabricators in the 
production of finished goods. It is also the only source from which 
these independents can obtain their supply of aluminum ingots and 
sheets. This situation gives the company a marked advantage over 
its competitors in the business of fabrication, an advantage of which 
it is said to have availed itself for the purpose of driving independent 
fabricators from the field. By raising the price of raw materials 
and lowering the price of finished products, the company can 
so reduce the margin within which such independents must operate 
as to make it unprofitable for them to remain in business.^^ The De- 
partment of Justice contends that the Aluminum Co. has thus com,- 
pelled two small manufacturers to suspend operations and driven a 
third into an alliance with a foreign concem.^^ The Department 
charges, moreover, that the company has extracted information from 
independent fabricators concerning their bids on contracts sought by 
its own subsidiaries, charged them prices higher than those charged 
its subsidiaries, supplied them with inferior aluminum, delayed ship- 
ments made to them, refused to sell to them, and prevented them from 

" U. 8. V. AlunUnum Company of America, et al.. District Court of the U. S., S. D. of N. Y., 
Equity, No. 75-83. Petition, April 23, 1937, pp. 14-15. 

"'nme, June 13, 1938, p. 60. 

"• U. 8. V. Aluminum Company of America, op. cit., pp. 35-36. 

*> Donald H., Wallace, Market Control in the Aluminum Industry (Cambridge, 1937), pp. 
115-117, 132-137. 

" Burns, op. cit., pp. 441, 445. 

" U. 8. T. Aluminum Company of America, op. cit., pp. 38-41. 


turning to foreign sources for raw materials by threatening to cut off 
their supplies.^^ 

For more than three decades the Aluminum Co. has undertaken to 
eliminate foreign competition by directly or indirectly extending its 
control over forei^ producers. According to the Department of Jus- 
tice, the company itself or its officers, directors, agents, subsidiaries, or 
affiliates have entered into agreements with foreign producers to re- 
move accumulated stocks, limit world production, allocate world mar- 
kets, and fix prices ; have purchased foreign ore deposits, power sites, 
and producing facilities, which could be used to undersell foreign pro- 
ducers in their own countries, thereby discouraging them from in- 
vading the American market; and have acquired joint interests in alu- 
minum properties with the major foreign producers, thereby creating 
an identity of interests on a world-wide scale.^* In 1908, the Northern 
Aluminum Co., Ltd., a Canadian corporation organized by the Alumi- 
num Co., entered into a contract with a Swiss company, then the prin- 
cipal foreign producer, whereby the American and Canadian concerns 
agreed not to sell in the European market and the Swi^s concern agreed 
not to sell in the Western Hemisphere. In 1912, the principal provi- 
sions of this contract were canceled by a decree of a United States 
district court. Thereupon the Northern Co. entered into another 
contract with the major European producers, which restricted sales, 
allocated markets, and fixed prices outride of the United States. This 
contract was abandoned after the outbreak of war.^^ In 1916, the 
Aluminimi Co. began to acquire holdings abroad, organizing or ob- 
taining control of concerns in British and Dutch Guiana, Norway, 
Yugoslavia, France, and Italy, and acquiring joint interests in other 
firms in Norway, France, Italy, and Spain.^^ Thereafter, the foreign 
producers submitted uniform bids to American purchasers and 
refused to sell aluminum in the American market at prices 
lower than those charged by the American concern. ^^^ In 1928, Alumi- 
nium, Ltd., was incorporated in Canada under the sponsorship of the 
Aluminum Co. The new corporation took over the Aluminum Co.'s 
European properties and delivered its capital stock to the latter con- 
cern which, in turn, distributed it among its own stockholders. Alu- 
minium, Ltd., makes no sales in the United States; the Aluminum Co. 
does not compete with it in the sales which it makes abroad. The 
Canadian concern has maintained the relationships with foreign pro- 
ducers originally established by the American firm. In 1931, it joined 
with British, French, German, and Swiss companies to form the Alli- 
ance Aluminium Compagnie, acquiring 28 percent of the stock and 
repre^ntation on the directorate of this agency. The Alliance used 
its funds to buy up accumulated stocks of aluminum and hold them off 
the market. Its board of directors was empowered to allocate produc- 
tion among its members and to fix the prices at which they might sell. 
The Department of Justice contends that the Aluminum Co., through 
Aluminium, Ltd., has undertaken to restrict competition in world mar- 
ket^ and to curtail foreign sales in the United States, thereby evading 

23 Ibid., p. 41 : see also Wallace, op. cit., pt. IV. 

** U. 8. V. Aluminum Company of America, op. cit., pp. 16-17. 

2BIbld., pp. 17-18. 

!»Ibid., pp. 18-24. 

'" Brief for the United States, U. S. v. Aluminum Company of America et al., District Court 
of the U. S., S. D. of N. Y., October 3, 1938, pp. 10-15 ; reply brief for the United States in 
the same case, June 16, 1939, p. 14. 


the provisions of the Sherman Act and the injunction laid down in the 
decree of 1912.28 

Throughout its history the company has set the price of aluminum 
in the United States. At times it has passed on to the consumer a 
large part of the reduction in cost which has resulted from continuous 
technological progress ; at other times it has increased its margin and 
augmented its profits. It cut prices steadily from 1889 to 1897, main- 
tained them rigidly from 1898 to 1908, cut them again before the war, 
raised them during the war, cut them in tlie post-Avar depression, 
raised them steadily from 1922 to 1925, cut them between 1925 and 
1928, maintained them from 1928 to 1930, cut them slightly in 1930, 
maintained them rigidly during the next 3 years of the great depres- 
sion, and cut them again between 1933 and 1937.^^ On March 1, 1937, 
the company again raised prices, despite the fact that its sales had 
nearly doubled and its profits more than doubled during the 2 preced- 
ing years. 

The Aluminum Co.'s profits have been large. In the 50 years from 
the time of its incorporation in 1888 up to 1939 its net income was in 
excess of $335,000 ,000.^° In the 24 years from 1889 through 1912 it 
made $33,000,000 on an original investment of $2,000,000. Its average 
annual return on invested capital stood at 35.7 percent from 1905 to 
1908, at 17.6 percent from 1909 to 1914, at 19.3 percent from 1915 to 
1918, at 9.4 percent in 1919 and 1920, at a loss of 2.3 percent in 1921 
and 1922, at 10.2 percent from 1923 to 1929, and at 2.6 percent from 
1930 to 1934.^^ The company averaged nearly 12 percent on invested 
capital from 1935 to 1939; its net income of $36,600,000 in 1939 was 
the largest in its history."- 


The United Shoe Machinery Co., organized in 1899, combined seven 
concerns which, owned patents covering virtually all of the ^hoe ma- 
chinery manufactured in the United States. This company and its 
successor, the United Shoe Machinery Corporation, shortly acquired 
possession of 50 of the remaining plants. By 1911 it was producing 
over 96 percent of the bottoming-room machinery and between 94 
percent and 100 percent of all but one of the other machines that were 
used in the manufacture of shoes. 

Instead of selling its machines, the company adopted the policy of 
leasing them, charging shoe manufacturers a royalty for each pair of 
shoes on which they were used. It inserted in its leases restrictive 
clauses which were designed to exclude its competitors from the mar- 
ket. It forbade the manufacturer to use any other maker's machine 
for any process in which one of its own machines was employed. It 
denied him the right to use its own machines on shoes which Avere 
processed at any stage of their production on machines made by its 
rivals. By means of the latter device, tlie company extended its con- 
trol from its exclusive fields to those in which it had formerly been 

28 Petition, op. cit., pp. 25-27. See also Donald H. Wallace, "Aluminum," eh. 6 in Wil- 
liam Y. Elliott and others, International Control in the Non-Ferrous Metals (J^ew York, 

29 Edwin G. Nourse and Horace B. Drurv, Industrial Price Policies and Economic Progress 
(Washington, 1938). pp. 176-183, 202-213. 

3» Petition, op. cit., p. 13 ; Moody's Industrials, 1939. 

« Wallace. Market Control in the Aluminum Industry, pp. 30, 226. 

'* Poor's Industrials, 1940. 


faced by competition. The shoe manufacturer, who could obtain a 
lasting machine only by leasing it from the United Shoe Machinery 
Corporation, was compelled to turn to it also for his welter, stitcher, 
and metallic fastener, and the independent producers of those ma- 
chines were robbed of their customers. The device operated also to 
continue far beyond the statutory 17 years the protection afforded the 
company by its patents. As long as any one of these patents granted 
it the exclusive right to produce a single machine, the tying clause in 
its contracts extended its monopoly to each of the others. 

In cases brought against it under the antitrust laws, the Supreme 
Court upheld the company in 1913 and 1918 and issued an order in 
1922 forbidding the further use of tying clauses in its leases. The 
latter decision has in no way affected the corporation's position in the 
industry. For more than four decades it has been virtually the sole 
producer of shoe machinery, the sole market for patents on new ma- 
chinery, and the sole purveyor of services on such machinery in the 
United States.^^ 

In its early years the company made huge profits, paid large divi- 
dends in cash and in stock, and built up a substantial surplus. From 
1925 to 1930, the average annual return on its capital stock and sur- 
plus stood at 11 percent; in 1931 and 1932, at 8.5 percent; and from 
1933 through 1937, at more than 13 percent.^* As Fortune puts it in 
the title to its article on the United Shoe Machinery Corporation, 
"But business is always good." 


The Hartford-Empire Co. owns more than 700 patents covering 
the automatic machinery which is used in the production of glass 
containers. The company does not itself manufacture machines or 
containers. Its business is that of research, experimentation, and the 
exploitation of patent rights. It hires other concerns to build its 
patented machines, retains title to them, and leases them to the manu- 
facturers of glass containers, providing certain services in connection 
with their use. It deri\;es its income from initial license fees and 
subsequent royalty charges which are designed to yield it one-third 
of all the savings realized by its licensees through the use of its 
equipment.^^ Hartford patents cover the plunger feeder which utilizes 
the gob-feeding method of feeding glass into the forming machine. 
The company has contrived to .prolong its patent protection on this 
process for a period of 44 years. Steimer, its inventor, filed the first 
application for a patent in 1910. Hartford purchased his rights for 
$2,300 in 1917. Interferences and appeals kept the application in the 
Patent Office for another 20 years. The company meantime divided 
the invention into four separate parts, obtained a patent on one in 
1925, on another in 1^28, on a third in 1931, and on the fourth in 
1937. The final patent will not expire until 1954.^^ The Owens- 
Illinois Glass Co. owns the rights tp the suction feeder which em- 
bodies the only other method of feeding that can be economically 
employed, Owens-Illinois, itself a manufacturer of glass containers, 

=3 Jones, op. cit., ch. 8 ; Seager and Gulick, op. cit., ch. 15 ; Fortune, September 1933, 
pp. 34 ff. 

"Moody's Industrials, 1939. 

»5 Hearings before the Temporary National Economic Committee, Part 2, p. 428. 

w Ibid., pp. 438-^41 ; Part 3, pp. 853-854. 1134. 


has refused, since 1918, to grant licenses permitting its competitors 
to use this machine.^^ Other container manufacturers, therefore, have 
had no alternative but to turn to Hartford for their feeding equip- 
ment. Hartford licensees produced 67.4 percent and Owens-Illinois 
29.2 percent of the glass containers made in the United States in 
1937. Together they produced 96.6 percent of the total output, leav- 
ing only 3.4 percent to the three remaining firms. Hartford licensees 
made 80 percent of the packer's ware, 80 to 85 percent of the fruit 
jars, and 100 percent of the milk bottles. Aside from Owens-Illinois, 
they produced more than 95 percent of the glass containers made in 
that year.^^ 

The Hartford Co. has consistently undertaken to eliminate com- 
petition in the production of machinery for the glass container in- 
dustry. According to a policy memorandum taken from its files, it 
has applied for patents designed "to block the development of ma- 
chines which might be constructed by others for the same purpose as 
our machines, using alternative means" and for other patents "on pos- 
sible improvements of competing machines so as to 'fence in' those 
and prevent their reaching an improved stage." ^^ The company's 
president was interrogated concerning the significance of this memo- 
randum in the hearings before the Temporary National Economic 
Committee : *° 

Mr. Cox. Is it your policy to take out patents to block the development of 
machines which might be constructed for the same purpose as your machines? 

Mr. Smith. Only insofar as to protect our own machines. 

Mr. Oox. There is no qualification of that kind in that memorandum, is there? 

Mr. Smith. Not as it reads. 

Mr. Cox. You mean you only take out a patent to block the development of 
some other patent when you are afraid somebody else is going to sue you? 

Mr. Smith. No ; I am not cognizant of any such puiix)ses or any such means. 
If we think that a new idea might be developed over a course of the year by 
someone else, and we think that idea may affect our machinery and our licenses, 
we may from time to time try to protect that idea. * * * 

The Chajrman. So in order to protect the inventions you now have it is 
naturally in your interest to secure whatever hold you can ujyon any com- 
peting idea or competing machinery. 

Mr. Smith. Correct. 

Mr. Cox, Not always with a view to using those ideas immediately, Mr. 

Mr. Smith. Yes and no. Sometimes yes, we do use them ; sometimes we don't. 

The company has required its licensees to surrender to it such patents 
as they may obtain by making improvements on its machines." It has 
compelled them to waive their right to contest the validity of its own 
patents.*^ It has repeatedly brought suit against its competitors for 
alleged infringement of patent rights.*^ It offered one competitor a 
cross license on condition that he raise the price of a machine from 
$9,500 to $13,500 and send the additional $4,000 to Hartford. When 
he refused, it brought suit against one of his customers and virtually 
drove him from the trade.** 

«< Ibid., Part 2, p. 505. 

88 Ibid., pp. 383, 385. 

"sibid., p. 776. 

<» Ibid., pp. 387, 389. 

"■ Ibid., p. 592. 

" Ibid., p. 453. 

« Ibid., pp. 443-444 ; 625-<i37. 

** Ibid., pp. 596-602. 


Hartford-Empire has entered into mutually advantageous arrange- 
ments with the more powerful interests in the industry. It signed 
a cross licensing contract with the Corning Glass Works in 1922 by 
the terms of which Hartford agreed to lease none of its machines to 
the manufacturers of a variety of glass products other than contain- 
ers, giving Corning the exclusive right to grant licenses under Hart- 
ford patents in this field, and Corning agreed to license no container 
manufacturers to use its patented formulae for the production of 
container glass, giving Hartford exclusive control of its patents in 
the container field.^^ This agreement was facilitated by the common 
ownership and interlocking directorates of the two concerns. Other 
agreements have been concluded as treaties of peace following pro- 
longed legal warfare. The company entered into an arrangement 
with Owens-Illinois, in 1924, whereby Hartford gave Owens the free 
use of 40 machines, a share of its divisible income — half for 8 
years, a third for another 3 years, and a lump sum of $2,500,000 in 
1935^and the right to veto its extension of licenses, to Owens' com- 
petitors, and Owens agreed, in return, to pay royalties to Hartford 
and to assume half of the cost of prosecuting infringement suits 
against third parties.*^ The company made a similar contract in 1932 
with the Hazel-Atlas Glass Co., the second largest manufacturer of 
glass containers in the country, Hartford agi'eeing to pay Hazel one- 
third of its divisible income, and Hazel, though not a user of Hart- 
ford machines, agreeing to take out a license and pay royalties on its 
entire output.*^ A third treaty, concluded in 1933, ended Hartford's 
warfare on Ball Bros., the Nation's largest producer of fruit jars. 
Hartford persuaded Owens and Hazel to restrict their output of jars, 
imposed limitations on another producer that forced him to sell his 
business to Ball, bought back still another license permitting the pro- 
duction c " jars, and bound itself to grant no further licenses in this 
field. Ball Bros., though it used no Hartford machines, took out a 
license and promised to pay royalties on its future output.*^ 

Hartford has employed the power conferred upon it by its i tents 
not only to monopolize the container machinery business, but aioo to 
eliminate competition from the container industry itself. It gave 
Owens and Hazel unrestricted licenses and, in effect, turned over to 
them part of the royalty charges which it collected from their compet- 
itors. It inserted restrictive clauses in its other leases, limiting the 
types of ware its licenses could make, the quantity they could produce, 
and the territories in which they could sell. Its contract with the 
Florida Glass Co. permitted that concern to manufacture milk and 
cream bottles, "provided, however, that the licensee shall not produce 
in any calendar year on any and all feeders licensed to it by licensor 
more than 21,000 gross of such bottles."*^ Similar limitations were 
imposed upon the Knox Glass Bottle Co. of Oil City, Pa. : ^° 

Mr. Cox. Now was that license you were given an unrestricted license? 
Mr. Underwood. No ; we were restricted with respect to a limited number of 
milk bottles, I believe 75,000 gross. 

^ Ibid., pp. 637-651. 

« I'Bid., pp. 491-498. 

*''Ibid., pp. 526-544. 

« Ibid., pp. 522-525, 561-571, 579-595. 

*»Ibid., p. 405. 

"oibid., p. 587. 


Mr. Cox. How many milk bottles had you been making before that? 

Mr. Undekwood. Approximately 100,000 to 150,000 per annum. 

Mr. Cox. You asked for more milk bottles? 

Mr. IjNDBiRWOOD. That's right. 

Mr. Cox. But you didn't get them? 

Mr. Underwood. We didn't get them. * * * 

Hartford's contract with the Northwestern Glass Co. permitted that 
concern to sell its wares only in Oregon, Idaho, Montana, and Alaska. 
Its agreement with the Laurens Glass Works, Inc.. read as follows : ^^ 

You are authorized to make under the said licenses a total of not over 4,000 
gross per calendar year under both of said licenses, of panel bottles not exceeding 
14 ounces in weight. The said bottles are to be sold chieffy to the Globe Medicine 
Co. or to the Standard Drug Co., or both, of Spartansburg, S. C. But you are 
also authorized, until further notice, to sell a part of such total of 4,000 gross 
per year to small users of such bottles in your vicinity. 

The Hartford company has refused to grant licenses to firms which 
undertook to enter into competition with its established licensees. A 
group of local business men sought to establish a plant in Detroit : ^^ 

Mr. Cox. And you asked them at that time for a license. 

Mr. DAT. I did. 

Mr. Cox. And what did they say in reply to that request? 

Mr. Day. They indicated that they would not refuse us a license, but that they 
would rather not extend a license to us, pointing out that Owens-Illinois was very 
close to us, that if we did start a factory they no doubt would put in a warehouse 
and then the competition would be too strong and we, of course, would be 
wiped out. 

The Knox company applied for permission to make carbonated bever- 
age bottles : ^^ 

Mr. Cox. Were you granted that privilege? 
Mr. Underwood. No, sir. 

Mr. Cox. Did they tell you why you couldn't do it? 

Mr. Undebwood. I can't say that they ever gave us any detailed reply on that. 
They simply refused it. 

An independent manufacturer in Texas testified to a similar ex- 
perience : ^* 

Mr. Coleman. * * * in all the talk that we had at Hartford * * * they 
consistently refused to discuss even the remote possibility of a milk-bottle license 
in Texas. They could offer no explanation and denied at that time that the 
Libert.v Qlass Co. did have exclusive right, but they could not grant us 
one. * ^, * 

The Chairman. So what it amounted to in the final analysis was that you 
couldn't receive a certificate of convenience and necessity from the Hartford- 
Empire Co. to operate a Texas plant with Texas capital to develop a Texas 

Mr. Coleman. That is true. 

According to the president of Owens-Illinois, however, "the Hartford 
Co. have always been liberal in granting licenses to anybody who 
should be of a business type." ^^ The preferred type of licensee is 
defined more explicitly in a policy memorandum taken from the Hart- 
ford files : ^® 

Consequently we adopted the policy which we have followed ever since, of 
restricted licenses; that is to say, (o) we licensed the machines only to manu- 
facturers of the better type, refusing many licensees who we thought would be 

»Ibid., p. 406. 
"2 Ibid., p. 621. 
wibid., p. 592. 
»*Ibid., pp. 613, G18. 
»Ibid., p. 50S. 
"Ibid., p. 417. 


price cutters; and (ft) we restricted their field of manufactare in each case to 
certain specific articles with the idea of preventing too much competition. * ♦ * 

That this policy was satisfactory to container manufac'^urers of "the 
better type" is indicated in the following excerpt from a letter written 
by the president of Owens-Illinois : ^^ 

With the plans we now have, there is certain to be a curtailmei.t of the promis- 
cuous manufacture of milk bottles on nonllcensed feeders, which w'U result in 
our company's and the Thatcher Co.'s securing a greater proportion of the avail- 
able milk bottle business. This" should stabilize the price and increase the earn- 
ings of the Thatcher Co. 

Hartford has enforced its control of the -container field by extensive 
litigation. It has brought suit against concerns that undertook to 
produce containers without its permission, eaten into iheir earnings, 
and 'driven them from the field.°* The experience of the producer 
who unsuccessfully sought to obtain a license to make milk bottles in 
Texas is illuminating : ^^ 

Mr. Coleman. We were sued for infringement of some 9 or 10 claims. I don't 
recall at the present time. 

Mr. Cox. Tell us about the outcome of that litigation. 

Mr. Coleman. We naturally were finally forced to hire a patent attorney. We 
had to acquire the services of a Texas attorney, and I think there are some two 
or three patent attorneys in the State. They brought us into court in April of 

1935, as I recall. Well, when I arrived at San Angelo and met them there in 
the hotel, I can conservatively say there was half a train load of attorneyr and 
equipment. There were motion picture projectors and attorneys all over the 
place. I don't know anyone of the Hartford legal staff that was not there. They 
were prepared to give us a nice battle. Well, I had only one attorney, and he 
was considerably lost in that crowd. I wish you might have seen his face that 
morning. So I promptly asked for a recess until the afternoon, in order to see 
if we couldn't settle the case out of court. 

Mr. Cox. Did you settle the case out of court? 

Mr. Coleman. We were able to settle the case out of court ; y°s, sir * ♦ *. 

Mr. Cox. Is that Knape-Coleman Co. operating today? 

Mr. Coleman. No, sir ; it is not. 

Hartford-Empire has thus enhanced its royalty income by keeping 
production and prices in the container industry under its control. 

The company has enjoyed substantial profits. From 1912 through 
1937 the average annual return on its investment was 9.99 percent. It 
made 16.64 percent in 1934, 23.59 percent in 1935, 48.24 percent: in 

1936, and 67.77 percent in 1937.^° 

On December 11, 1939, the Department of Justice filed a complaint 
in an antitrust suit against Hartford-Empire, Corning, Owens-Illinois, 
Hazel-Atlas, and other firms in the field, asking that the restrictive 
provisions in the Hartford-Empire leases be adjudged illegal and their 
further use enjoined, that the agreements between Hartford-Empire 
and each of the other defendants be dissolved and their further observ- 
ance enjoined, that Hartford- Empire be dissolved, that its patents 
and other properties be distributed among several separate and inde- 
pendent concerns, that Corning and the Empire Machine Co, and their 
stockholders (who own the shares of both concerns) be enjoined from 
holding stock in Hartford-Empire or any of its successors, and that 
each of the corporate defendants be enjoined from holding stock in 

^Mbid., p. 520. 

68 Ibid., pp. 611-618, 6251-637. 
^Ibid., pp. 614-615. 
^Ibid., p. 798. 


any of the others.®^ The legal issues in the case await final deter- 


The Bausch & Lomb Optical Co. manufactures some 17,000 differ- 
ent products, including lenses for spectacles, binoculars, microscopes, 
motion picture projectors, and various precision instruments employed 
in science and industry. While it faces competition in the production 
of some of these goods, the company manufactures every ounce of scien- 
tific precision glass which is made and sold in the United States. It 
is the only American concern to possess the techniques and the tech- 
nicians requisite to production in the field,®^ 

Bausch & Lomb has long been closely associated with the German 
producers of optical goods. The firm was established in 1853 and oper- 
ated for some years under the patents of the famous Carl Zeiss, of 
Jena. It sold one-fifth of its stock to Zeiss, who agreed, in turn, to 
withdraw from the American market. The resulting division of ter- 
ritory persisted until the First World War, when the American com- 
pany alienated its German associates by producing optical equipment 
for the Allied Governments. Bausch & Lomb thereupon repurchased 
its stock from the 2ieiss Co. and, by the end of the war, emerged as a 
strong competitor of the latter concern. 

In 1921, however, the two companies signed an agreement govern- 
ing the manufacture and sale of military optical instruments under the 
terms of which Bausch & Lomb took the United States and Zeiss took 
the rest of the world as th^ir respective territories ; each firm obtained 
the exclusive right to employ patents, technical information, equip- 
ment, and personnel belonging to the other; each agreed not to sell 
in the other's territory without its express permission and where per- 
mission was grjinted to sell only on terms which the other approved ; 
and each bound itself, when submitting bids at the request of govern- 
ments in territory allotted to the other, to add 20 percent to its regu- 
ular price.*^ This arrangement was attacked in a suit instituted by 
the Department of Justice in 1940; fines were imposed on Bausch & 
Ix)mb and its officers, and the agreement with Zeiss was enjoined in 
a consent decree.** 

According to a renewal of their contract which was signed in 1926, 
the two companies were to "remain in unrestricted competition" in 
the nonmilitary branches of the industry. But another provision fol- 
lowed : "They shall, however, endeavor to give due consideration to one 
another's interests as those interests may be disclosed by the joint 
work in the military line. Special agreements may be made regard- 
ing territories on nonmilitary articles." '^^ The fact that the Ameri- 
can company, although fully capable of producing high quality lenses 
for cameras, has abstained from entering into competition with the 
German producers of such lenses^ or from licensing other American 
firms to do so, suggests the continued existence of some sort of an 
international agreement covering the production and sale of non- 
military optical goods. 

« V. 8. V. Bartfordr-Empvre Company, et al.. District Court of the Uni+ed States, N. D. 
of Ohio, W. Div., Complaint, December 11. 1939. 

•Fortune, April 1931, pp. 41 ff.- 

".17. 8. V. Bausch & Lomb Optical Co., et al.. District Court of the U. S., S. D. of N. Y.. 
Tndictment, March 26, 1940. 

»♦ New York Times, May 28, 1940 ; July 10, 1940. 

* Securities and Exchange Commission, docltet section, file 2-3544-1, agreement between 
Carl Zeiss, Jena, and Bausch & Ixnnb Optical Co. 



The International Nickel Co, of Canada, Ltd., owns more than nine- 
tenths of the world's known reserves of nickel. The company produced 
more than 92 percent of the world's output of nickel in 1929. In the 
Sudbury deposits, concentrated within a few square miles in the 
Province of Ontario, it holds a store that will suffice, at the present 
rate of consumption, to satisfy the world's demands for the metal for 
the better part of a century. The company is without a serious rival. 
There is one other Canadian producer, Falconbridge Nickel Mines, Ltd., 
but International's production, in 1937, was 15 times as large and its 
reserves, were seventy times as large as those of the smaller concern. 
The principal source of nickel outside of the Dominion is in the island 
of New Caledonia. Here a number of French firms produced a tenth 
of the world's annual supply during the years from 1920 to 1931. But 
International's production in this period was nine times as large and 
its reserves were 50 times as large as those of New Caledonia. The 
geological character of the island's deposits is such that expansion of 
output is obtainable only at increasing unit costs. The character of 
the Sudbury deposits, on the other hand, is such that the technology of 
large scale production can be employed to turn out increasing quantities 
at a declining unit cost. Finnish deposits were being developed in 1939 
by the Mond Nickel Co., Ltd., of England. But this concern is a 
wholly owned subsidiary of International Nickel. Other known de- 
posits are low in quality and small in quantity. Unless important new 
reserves are discovered and independently developed, there is little 
prospect that competition will challenge International s supremacy in 
the field.«« 

The United States has a substantial interest in the Canadian nickel 
monopoly. This country accounted for 70 percent of the world's 
consumption of the metal in 1929. Contraction in the production of 
automobiles brought its share down to 35 percent in 1932.^^ Expansion 
in the production of armaments abroad brought it down to 25 percent in 
1938. But the United States is still the largest single market for nickel 
in the world.*'^ Industrial recovery at home and the cessation of hos- 
tilities abroad might be expected to restore something approaching 
its former share in total consumption. This country is almost entirely 
dependent upon the International Co. as a source of supply. Falcon- 
bridge and the New Caledonian producers sell their output in Europe. 
International has a virtual monopoly of the American market.®* 
Despite the fact that its ores and. its charter are Canadian, this com- 
pany is largely an American concern. Until 1928 its entire capital 
stock was owned by the International Nickel Co., a New Jersey cor- 
poration. In that year the Canadian company issued its own shares 
and exchanged them for those of its American parent "partly" says 
Fortune, "to avoid any antitrust complications with the U. S. Govern- 
ment.'* •* It still has an American subsidiary. International Nickel 
Co., Inc., a Delaware corporation, and this company with its subsidi- 

«» Elliott and others, op. cit., ch. 5, "Nickel" by Alex Skelton pp. 115, 118-122, 160, 174 ; 
Fortune, August, 1934, pp. 64 fif. Moody's Industrials, 1938 ; New York Times, October 22, 

" EJlUott and others, op. cit., p. 159. 

"New York Times, October 22, 1939. 

•B Elliott and others, op. cit., p. 159. 

■"> Fortune, op. cit., p. 102. 


aries owns and operates fabricating plants at Bayonne, N. J., and Hunt- 
ington, W. Va., and maintains sales oflfices in the United States. The 
principal ownership of the Canadian company is American. In 1934, 
citizens of the United States owned 42.6 percent, citizens of Great 
Britain 33.6 percent and citizens of the Dominion of Canada only 21.6 
percent of its shares.^^ Thus, a large part of International Nickel's 
revenue is derived from the price it charges consumers who are located 
in this country and a large part of its dividends is paid to owners who 
reside in this country. 

International Nickel set its price at 35 cents a pound on January 1, 
1926. It has neither raised nor lowered this price by so much as a 
fraction of a cent, during prosperity and depression, over a period of 
14 years.^^ From their 1929 peak the company's sales fell off 40 per- 
cent in 1930, 56 percent in 1931, and 73 percent in 1932," but the price 
was maintained. Unsold stocks accumulated in 1930 and in 1931, but 
instead of cutting its price, the company cut its output, operating its 
mines at 12 percent of their potential capacity in 1932 and making 
sales' from stores already above ground.^'* In the :latter year Interna- 
tional permitted its share in sales to>drop to 60 percent, that of Falcon- 
bridge to rise to 14 percent, and that of New Caledonia to 17 percent of 
the world total.^^ Rather than reduce its price, it chose to wait for 
business revival to restore its former share. It could w^ell afford to wait. 
In 1932, when its sales stood at less than 20 percent of its productive 
capacity, the company met all of its expenses, set aside substantial re- 
serves, and paid two-thirds of its interest bill out of its year's earn- 
ings.^^ With its break-even point thus established at about 20 percent 
of capacity, with the only source of nickel capable of satisfying a 
substantial revival in demand securely in its hands. International was 
content to sit out the depression. By 1934 it had recaptured 85 per- 
cent of the world market. By 1937 its sales were 500 percent above 
those of 1932, 65 percent above those of 1929." 

International Nickel has made money in 20 of the 22 years since the 
^irst World War. Its profits have fluctuated widely, however, reach- 
ing three successive peaks, first in the war years of 1917 and 1918, 
second in the prosperity years of 1928 and 1929, and third in the 
years since 1934. The price of nickel sold in the United States after 
this country entered the First World War was fixed by tlie War Indus- 
tries Board. In the summer of 1917, when the Federal Trade Com- 
mission estimated the cost of producing nickel at 18% cents a pound, 
the Board set its price at 40 cents. At the beginning of 1918, when 
the Conrunission's estimate stood at. 22 cents, the Board cut the price 
to 35 cents. The resulting margins of 21% cents, and, later, 17 cents, 
were highly profitable. The company made $14,000,000, realizing 23 
percent on its investment in the year ending March 31, 1918.^^ From 
a deficit in 1922, it climbed steadily to a net profit of $22,000,000 in 
1929.^» From a deficit of $135,000 in 1932, it climbed rapidly to net 

» Eniott and others, op. dt., p. 174. 

"New York Times, October 22, 1939. 

" Elliott- and others, op. cit., p. 192. 

'* Ibid., p. 154. 

"Ibid., p. 157. 

"Ibid., pp. 154, 190. 

"Moody's Industrials, 1938. 

" 74th Cong., 1st sess., S. Rept. No. 944, Part 2, Munitions Industry, Preliminary Report 
on Wartime Taxation and Price Control hy the Special Committee on Investigation of the 
Munitions Industry, pp. 70-72. 

T» Elliott and others, op. clt., p. 190. 


profits of $10,000,000 in 1933, $18,000,000 in 1934, $26,000,000 in 1935, 
$37,000,000 in 1936, and $50,000,000 in 1937.«" Its profits in 1937, 
equivalent to 23 percent of net worth, were more than three times those 
of 1918, more than twice those of 1929. The company made $32,000,000 
in 1938 and $37,000,000 in 1939, realizing 15 percent and 17 percent on 
net worth in these 2 years.^^ 


Molybdenum is an element which finds its principal employment, 
either in competition or in combination with other alloying metals, 
in the production of steels of exceptional toughness and strength. In 
Bartlett Mountain in Colorado, the Climax Molybdenum Co. owns 95 
percent of the world's known store of commercially workable deposits 
of this metal. At the present rate of exploitation th» company's 
proven reserves should last for a hundred years.^^ Its estimated an- 
nual productive capacity is 84 percent of the world's potential total. 
In 1937 Climax sold 22,0(30,000 of the 30,000,000 pounds of molybdenum 
consumed in the world. But w^ith its existing equipment the company 
could have produced 35,000,000 pounds, and with additional equip- 
ment some 45,000,000 pounds, an amount which was twice its actual 
output and one half again as much as the total of the world's con- 
sumption. In 1938 Climax was responsible for 85 percent of the 
domestic output of the metal. In 1939, however, the production of 
molybdenum as a by-product of copper assumed increasing impor- 
tance and the company's share fell to 70 percent of the total. 

Since 1931 Climax has found its principal markets abroad. It 
makes nine-tenths of its foreign sales in the form of molybdenum con- 
centrates, but itself converts nine-tenths of the metal which it sells 
at home. The company has participated in an international cartel 
which included in its membership the European converters of 
molybdenum and other metals. Under the terms of the cartel agree- 
ment, the European firms bound themselves to sell no molybdenum 
in the Western Hemisphere, in Japan, in China, or in Russia. These 
markets were reserved for Climax.^'' 

There has been no price competition in the American market, the 
smaller producers being content to adopt the figure set by Climax. 
For more than a decade the company consistently cut its price, selling 
molybdenum metal contained in fcrro- molybdenum at $5 a pound 
before 1920, at $2 to $2.75 from 1920 to 1924, at $1.50 in 1925, at $1.45 
in 1926 and 1927, at $1.20 from 1928 to 1930, and at 95 cents in 1931. 
In the latter year the price was stabilized ; it still stood at 95 cents 
in 1938. The lower price which obtained during the thirties still left 
Climax a substantial margin. Of everv dollar paid to the company 
for molybdenum in the years from 1934 to 1939. 52.4 cents were re- 
quired to cover the costs of its production and 47.6 cents were retained 
as profit.®* 

The Climax Co. was incorporated in 1918. It made no profits until 
1932. In that year it realized 3.12 percent on its invested capital { in 
1933 it made 14.42 percent, and in 1934, 26.45 percent. In 1935 the 

80 Moody's Industrials, 1938. 
*^ Moody's Industrials. 1940. 

82 Fortune, October 1936, pp. 105 ff. 

83 Memorandum in flies of Temporary National Economic Committee. 
s* Moody's Industrials, 1940 ; Poor's Industrials, 1939. 


company added a "discovered increment" of $70,500,000 to its appraisal 
of its ore deposits, raising the valuation of its invested capital from 
$7,500,000 to $78,000,000. On the new basis of valuation it realized 
7.65 percent in 1935, 6.65 percent in 1936, 9.10 percent in 1937, 9.97 
percent in 1938, and 13.13 percent in 1939. On the former basis of 
valuation its profit would have appeared to be 10 times as large, rising 
from_ 76.5 percent in 1935 to 131.3 percent in 1939. Of the equity 
items on tlie corporation's balance sheet in 1938, $67,000,000 were 
recorded as a "discovery increment surplus," $12,000,000 as an earned 
surplus, and only $39,311 as the value of its capital stock. The com- 
pany's net profit of $7,872,141 in that year gave it a return of 20,000 
percent on the book value of its shares.®^ 


Magnesium is .an element which is used in the production of light 
metal alloys. It occurs, never in the pure state, but always in com- 
bination, in deposits which are abundant and widely distributed. The 
only compound from which it has been economically extracted, how- 
ever, is magnesium chloride, and the only considerable supply of this 
compound is contained in the brine deposit of Midland, Mich. Mid- 
land's brine wells are owned by the Dow Chemical Co., and this com- 
pany, since 1927, has 'ixtracted 100 percent of the magnesium produced 
in the United States.^^ 

Magnesium can be substituted for aluminum in the production of 
light alloys. The metal was once produced by the American Magne- 
sium Co., a subsidiary of the Aluminum Co, of America, but this firm 
retired from the field when its own oxide process proved to be more 
costly than the chloride process employed by Dow. The patents cov- 
ering the use of magnesium in alloys, however, are controlled by the 
Magnesium Development Co., a joint subsidiary of the I. G. Farben- 
industrie and the Aluminum Co. The latter concern appears, there- 
fore, to be in a position to control the use of the metal in alloys. The 
price of magnesium has fallen and its production has increased over 
a long period of years. The price was maintained at 30 cents a pound, 
however, from 1931 to 1939 and stood at 27 cents in 1940. At such a 
figure the widespread substitution of magnesium for aluminum is 
unlikely to occur. It is evident that the Dow Co., in possession of the 
natural deposits, and the Aluminum Co., in control of the patent rights, 
have certain interests in common, and that both concerns have advan- 
tages over independent fabricators of magnesium and its alloys. 

In March 1940 Dow started building a plant at Freeport, Tex., 
where it planned to employ an electrolytic process in extracting mag- 
nesium from bea water. It was said that this plant, when completed, 
would more than double the company's annual productive capacity ,^^ 

Magnesium, according to Dow advertising, is "known in metallur- 
gic circles as Dowmetal (trade mark registered U. S. Patent Office) " 
and "Dowmetal is riding high !" ^® 

w Ibid. 

»• Fortune, April 1931, pp. 58 ft. 

«'Time, April 1, 1940, p. 66. 

* Fortuue, January 194C, Inside front cover. 



The American Telephone & Telegraph Co. owns 93 percent of the 
voting stock in 21 associated telephone companies whose operations 
cover the entire area of the United States. Directly or through its 
subsidiaries, it controls more than 50 percent of the voting stock in 
181 corporations with assets in excess of $5,000,000,000, the greatest 
aggregation of capital in the history of business. It has, within this 
system, some 300,000 employees, 700,000 inyestors, and 15,000,000 cus- 
tomers. Its gross revenues of more than a billion dollars a year are 
exceeded by those of few governments. From its oflSce in New York, 
the company controls between 80 and 90 percent of the Nation's local 
telephone service, 98 percent of the long distance telephone wires, 100 
percent of the teletypewriter and transoceanic radio telephone 
servi es and 100 percent of the wire facilities used in the transmission 
of radio programs. Through its wholly owned subsidiary, the West- 
ern Electric Co., it makes 90 percent of the telephone apparatus and 
equipment used in the United States.^^ The president of the Ameri- 
can Co. is empowered to vote its stock in the operating companies and 
to select the directors and officers of these concerns.^" The parent 
company is thus in direct and complete control of the entire telephone 

The company receives its principal income from dividends paid it 
by the associated telephone companies, from fees charged for services 
rendered them, from the earnings of the long distance lines which it 
operates itself, and from the profits of the Western Electric Co. This 
income is derived ultimately from the rates paid by subscribers to 
telephone service. It has long been recognized that this service is an 
essential one, that it is to be most efficiently performed by a single 
system, and that the rates charged for it must therefore be subject to 
public control. Intrastate rates are now regulated by State commis- 
sions in all but three of the States ; interstate rates are under the juris- 
diction of the Federal Communications Commission. But public 
control of the telephone system is far from complete; the American 
Co. is beyond the reach of the State commissions ; the fees it collects 
for services rendered its subsidiaries are not subject to direct regula- 
tory review ; the prices charged by the Western Electric Co. are wholly 
outeide the present scope of public authority. 

Absence of control in one area operates to defeat the attempt at 
regulation that is made in another; The American Co. is in a position 
to order its operating subsidiaries to adopt policies which will augment 
its own profits by increasing their costs and raising their rates. The 
Federal Communications Commission, in a report published in 1939, 
charges that the company has not hesitated to take advantage of its 
opportunity. American Telephone & Telegraph accounting proce- 
dures, the Commission contends^ require the associated companies to 
include in operating expenses depreciation charges known to be in 
excess of actual requirements, but forbid them to deduct more than a 
part of depreciation reserves in arriving at the valuation of their 
properties, thus inflating both operating expenses and property valua- 

» Federal Communications Commission, Investigation of the Telephone Industry in the 
United states, 76th Cong., 1st sess., H. Doc. No. 340, pp. xxiii-xxv, 21, 24, 65. 

""N. R. Danielian, A. T. & T., The Story of Industrial Conauest (New York, 1939), p. 4 
"1 Federal Communications Commission, op. cit., pp. 103—122. 


lions and thereby supporting excessive rates.^^ Annual charges for 
depreciation have not been reduced by an amount sufficient to com- 
pensate for the increasing length of life of the telephone plant. These 
charges, in 1937, were close to 20 percent of the total expenses involved 
in operating the system and therefore accounted for nearly a fifth of 
the telephone subscriber's bill. Reserves, built up out of such charges, 
exceed a billion dollars and represent more than 25 percent of the gross 
investment in telephone plant and property. The associated com- 
panies insist, however, that only "observable" depreciation should be 
deducted from the value of their plants in the determination of the 
rate base, and the depreciation "observed" by their experts has 
amounted to only 5 to 10 percent, instead of 25 percent, of this value.^^ 
To the extent to which reserves, accumulated from rates paid by sub- 
scribers, are thus permitted to swell the base upon which further rate 
payments are computed, the subscribers are compelled to pay the com- 
panies a return on money which they themselves have contributed. 

The fee which the American Co. collects from the associated com- 
panies, now set at li/^ percent of their gross income, includes many 
items which are not properly allocable to the service it renders them.^* 
The company requires its subsidiaries to support research and patent- 
ing activities through which it not only develops improvements in the 
art of telephony, but also obtains patents which are designed to pre- 
serve its monopoly in the telephone service and in the manufacture of 
apparatus and equipment and to enable it to extend its operations into 
industries outside the field of telephonic communication.^^ The com- 
pany has consistently undertaken to anticipate and control the devel- 
opment of related industries.**" A. T. & T. research in radio produced 
inventions which led, first, to a patent stalemate between the telephone 
company on the one hand, and the General Electric Co. and its then 
subsidiary, the Radio Corporation of America, on the other, and, sub- 
sequently, to a series of pooling agreements which gave each interest 
an exclusive territory within which it might exploit the patents owned 
by both. The first of these agreements, in 1920, gave radiotelegtaphy 
and transoceanic radiotelephony to G. E., domestic wire and radio- 
telephony and the manufacture and sale of radio equipment for use in 
public service telephony to A. T. & T. A long struggle for possession 
of the field of radio broadcasting was terminated by a second agree- 
ment in 1926. This treaty gave exclusive rights in wireless telegraphy, 
broadcasting, photo, facsimile reproduction, and television services to 
R. C. A., and in wire and wireless two-way telephony and in wire 
photo, facsimile reproduction and television services to A. T. & T. A 
third agreement, concluded in connection with the dismissal of an anti- 
trust suit in 1932, made the exclusive licenses nonexclusive, but left 
the existing division of territory undisturbed.®^ 

A. T. & T. research in sound recording and reproduction for mo- 
tion pictures again brought the company into conflict with R. C. A. 
Its subsidiary, Western Electric, established a sub-subsidiary, Elec- 
trical Research Products, Inc., to handle its business in this field. The 
telephone group attempted to monopolize the new industry by for- 

Mlbld., ch. 11. 

"Danielian, op. cit., pp. 351-353. 

** Federal Communications Commission, op. cit., ch. 6. 

»Ibid., ch. 7. 

*" Danic'ian, op. cit., pp. 114-116. 

<" Ibid. pp. 112-133, 


bidding producers using its recording equipment to distribute films 
to exhibitors who did not use its reproducing equipment and by for- 
bidding exhibitors using its reproducing equipment to display films 
not recorded on its recording equipment. It imposed upon one pro- 
ducer a contract which required him to pay royalties on all the films 
he distributed, whether recorded on its equipment or not.^^ Kepresent- 
atives of E. R. P. I. are said to have referred to apparatus manufac- 
tured by R. C. A. as "bootleg" and to have threatened the motion 
picture industry with patent infringement suits."^ Faced, however, 
with determined resistance by R. C. A. and with the prospect of pros- 
ecution under the antitrust laws, A. T. & T. finally came to recognize 
the necessity of sharing the field with the other concern. The two 
interests now divide the business of making sound recording and re- 
producing equipment and E. R. P. I. has become one of the major 
financial interests in the motion picture field.^ 

Still other A. T. & T. research, carried on by the Bell Telephone 
Laboratories, has to do with such matters as television, telephoto trans- 
mission, the properties of sound, phonograph recording, the artificial 
larynx, aids to the hard of hearing, marine signaling, submarine cable, 
ship-to-shore radio, aircraft communication, coaxial cable, and the, 
photo-electric cell. Altogether the patents to which the Bell System 
holds title numbered, in 1934, some 9,500.^ A. T. & T. research and 
patenting activities are financed in large measure by the fees collected 
from the associated companies.^ The resulting patents, however, be- 
long not to the associated companies, but to the parent concern. The 
American Company charges its subsidiaries for the use of the very 
inventions whose development their previous payments have financed 
and employs the resulting revenue to develop further inventions for 
whose use it will collect a further fee.* The company licenses firms 
outside the system to use its patents, collects royalties, and retains the 
resulting income, refunding nothing to the subsidiaries whose con- 
tributions have paid for the research from which this income is de- 
rived.'' The patent policy of the parent company thus affects the 
costs of its operating subsidiaries and influences the rates which the 
telephone subscriber is required to pay. 

The Bell System has spent large sums on advertising, propaganda, 
and other public relations activities.^ Its annual advertising budget, 
in the years from 1927 to 1935, fluctuated between $4,372,000 and $7,- 
477,000, In several cases it is said to have purchased space for the 
purpose of influencing the editprial policy of the journals which it 
employed.^ Contracts for printing telephone directories are said to 
have been let to high bidders for political reasons. Between 1925 and 
1934, the Bell companies and Western Electric spent nearly $5,000,000 
on membership dues and contributions to business, professional, scien- 
tific, social, and athletic clubs. Tlie associated companies have sought 
the friendship of local bankers ; in 1935 they had money on deposit in 
28 percent of all the banks in the United States. The system has 

•8 Ibid., pp. 142-143. 

"Ibid., p. 148, 

ilbid., p. 152. 

^ Hearings Before the Temporary National Economic Committee, Part 3, p. 1158. 

"Danielian. op. cit., pp. 169-171. 

* Ibid., p. 172. 

" Federal Communications Commission, op. cit., p. 172. 

•Ibid., ch. 17. 

' Danielian, op. cit., pp. .'314-317. 

271817— 40— No. 21 7 


financed lecturers, subsidized the publication of books, and produced 
motion pictures in an effort to cultivate good will.^ The costs of such 
activities, designed to protect and enhance the parent company's 
profits, are properly to be borne by its stockholders, not by subscribers 
to telephone service. 

The American Co. handles the financing of the whole system. It 
makes advances to the associated companies, supplies them with the 
capital which they require, and charges them for the costs incurred in 
the process.' The company's advances to its subsidiaries reached a high 
which averaged $317,000,000 during 1932. For a long period prior to 
October 1936, it charged interest on these advances at the rate of 5.88 
percent net ; in that month it cut the rate to 4.9 percent net. Year after 
year the company has collected at the rate fixed, neither altering its 
charge with fluctuations in the rates charged by other lenders, nor 
permitting its subsidiaries to borrow from other sources of supply.® 
The company includes, in computing its fee for financing its sub- 
sidiaries, the dividend which it pays on its own stock. This dividend 
is fixed at a rate far in excess of that required to obtain money in the 
open market. It is a distribution of profit, not a cost of doing business. 
Its size is attributable, in large measure, to the absence of effective 
regulation. Its inclusion in the costs of the associated companies is 
scarcely to be justified.^** 

The facilities employed by the American Co. and by the associated 
companies in rendering long distance service so overlap that it is 
impossible to determine either the reasonableness of the tolls charged 
or the fairness with which the resulting re^^enues are divided. The 
fact that the American Co. received an average annual return of 10.92 
percent on its investment in its long lines department from 1913 to 
1935 suggests either that its tolls have been excessive or that its divi- 
sions of territory, plant, revenues, and expenses have been such as to 
afford it an undue advantage.^^ Publication of this situation during 
the hearings before the Federal Communications Commission led to a 
reduction in long distance rates which cut the return on the long lines 
plant from 9.78 percent in 1936 to 7.64 percent in 1937.^- 

Until the end of 1927, the American Co. retained title to all of the 
telephone instruments used in the system and rented them to the asso- 
ciated companies for an annual fee. At that time the new type hand 
set, introduced during the previous year, threatened to render the 
existing desk set obsolete. On December 31, 1927, the company sold 
the instruments then in use to its subsidiaries for $38,183,727. Its 
profit on the transaction was $14,395,800, a return of 60 percent on its 
net investment in the property transferred. Production of the old 
fashioned sets declined sharply during the next 2 years and was vir- 
tually discontinued by 1930." According to the Communications Com- 
mission, however, "The American Co. disclaims that its knowledge of 
the obsolescence of the existing instruments was a motive for their 
sale to the associated companies."^* 

» Ibid., pp. 284-292. 

•Ibid., pp. 359-360. 

*" Federal Communications Commission, op. cit., ch. 15. 

"Ibid., pp. 524-529. 

*" Danielian. op. cit., p. 364. 

" Federal Communications Commisison, op. cit., pip. 151, 153. 

" Ibid., p. 152. 


The American Co. establishes standards and issues instructions which 
compel the associated companies to purchase practically all of their 
apparatus, equipment, and plant materials from the Western Electric 
Co. Six small independent producers of such supplies, subsisting 
largely on the business which the Western Co. gives them, are in no 
position really to compete with it in the telephone market. Since 
Western obtains its orders without competitive bidding, it is not 
forced to sell at a competitive price. The company's cost accounts do 
not afford an authentic basis for testing the reasonableness of the prices 
which it sets upon specific products. Its prices, moreover, bear no 
apparent relation to its own statement of costs. Both costs and prices 
for many items are above those reported by independent firms.^^ 
Western Electric profits have never been subject to any sort of public 
control. From 1882 to 1936 the company realized a net income on its 
common stock equity that exceeded 10 percent in 35 of the 55 years, 
and 20 percent in 13 years ; a net income on cash paid-in capital that 
exceeded 20 percent in 41 years, 50 percent in 25 years, and 100 percent 
in 6 years.^'' Commissioner Paul A. Walker, in his proposed draft of 
the Communications Commission's report, asserts that the company 
could cut the prices of its apparatus and equipment by 37 percent 
and still earn a return of 6 percent on its net investment. He comes 
to the con._lusion +hat "the American Co. utilizes its ownership and 
control of both the Western Electric Co. and the associated companies 
for the purpose of evading regulation of the associated companies and 
increasing its profits." ^^ 

Excessive charges made by the American and Western Cos. 
enter into the operating expenses and property valuations of the asso- 
ciated companies and compel the State commissioners to fix rates which 
yield them something more than a fair return on a fair value. In 
the opinion of Commissioner Walker, it should have been possible in 
1938 to reduce telephone rates by as much as 20 or 25 percent.^^ In 
its final report in 1939 the Commission asserts that, as a result of its 
investigation of the industry, "telephone-rate reductions now aggre- 
gating in excess of $30,000,000 were effected in the interest and for 
the benefit of the American telephone-using public." ^^ 

Its monopoly position hag brought the American Co. a hand- 
some return. This company and its predecessor realized 18.4 percent 
on the par value of its capital stock and paid an annual cash dividend 
averaging more than $15 on each $100 share thereof during the years 
from 1881 to 1899, declared a 100 percent dividend in stock in 1900, 
realized 11.44 percent on its doubled capitalization during the years 
from 1900 to 1929, paid an annual cash dividend of $7.50 f rom"^ 1900 
to 1905, $7.75 in 1906, $8 from 1907 to 1920, $8.75 in 1921, and $9 in 
every year after 1921, realized 7.9 percent on its capital stock in the 
years from 1930 through 1935, and had accumulated an undistributed 
surplus of $400,000,000 by the end of 1931 which enabled it to main- 
tain its $9 dividend without interruption throughout the great depres- 
sion.^" The company's ability consistently to obtain profits and dis- 

»Ibid., ch. 10. 

wibid., pp. 551-553. 

1' Federal Commnnications Commission, Proposed Report, Telephone Investigation (1938), 
p. 385. 

" Ibid., p. 675. 

"^ Federal Communications Commission, Investigation of the Telephone Industry in the 
United States, p. 602. 

"Ibid., pp. 504-508. 


tribute dividends far ^n excess of those necessary to enable it to sell 
its stock at par gives evidence that its return has been well above that 
which might be expected to prevail under either active competition 
or effective regulation. 


There are three companies each of which enjoys a monopoly of one 
form of communication between the United States and several foreign 
countries. The Commercial Pacific Cable Co., a subsidiary of the 
International Telephone & Telegraph Corporation, is the only con- 
cern to operate a submarine cable across the Pacific. Its lines ex- 
tend from San Francisco to Honolulu, Midway, Guam, Manila, and 
Shanghai and connect at Bonin with the Japanese Government cable 
which extends to Tokio. The company has a monopoly of cable 
service between the United States and these points. R. C. A. Com- 
munications, Inc., a subsidiary of the Radio Corporation of America, 
dominates the field of point-to-point radiotelegraphy. The company 
handled four-fifths of the commercial messages transmitted through 
this medium in 1938.-^ It was the only company licensed by the 
Federal Communications Commission to render a general commer- 
cial service between the United States and some twenty foreign coun- 
tries. The Mackay Radio & Telegraph Co. had a similar monopoly 
of the service to El Salvador, Hungary, and Peru; the Tropical 
Radio Co. to the Bahamas and Honduras; Globe Wireless, Ltd., to 
Guam and the South Puerto Rico Sugar Co. to Guadeloupe in the 
French West Indies.-^ -The American Telephone & Telegraph Co. 
and the Jladio Corporation of America have entered into cross-licens- 
ing agreements which give the former the right to' employ certain 
important patents in the field of international radio-telephony. The 
American Co. has licensed no other concern to use these patents. The 
Federal Communications Commission has licensed no other concern 
to engage in the business of providing two-way radiotelephone com- 
munication between the United States and foreign countries. As a 
result, the American Co. has a complete monopoly of this service.^^ 
In the general field of international communication each of these 
companies competes with the others. In the business of providing 
one-way communication to most points the cable and radiotelegraph 
offer competitive services. In the business of providing two-way com- 
munication they do not compete. Here the American Co. stands 
alone. The rates charged for these services are subject to regulation 
by the Federal Communications Commission. 


Most of the crude oil which moves from producing fields to refin- 
eries flows through trunk pipe lines. Comparatively little of it is 
transported in tank cars or in tank trucks. Shipment over the rails 
is more than twice as costly as shipment through pipes. Truck hauls 
are limited to small quantities and short distances. Nearly all of the 

« Federal Communications Commission, Selected Financial and Operating Data from 
Annual Reiporta of Telegraph, Cable, and Radiotelegraph Carriers, Year Ended December 31, 
1938 (mimeo.), sec. B, p. 21. 

22 Idem, Third Annual Report, pp. 64-65. 

»Idem, Investigation of the Telephone Industry in the United States, pp. 379-380. 


crude oil transported overland moves through pipes. Substantial 
quantities of oil are carried in tank ships, but this method of trans- 
portation can be employed only by those producers who have access 
to terminal facilities on navigable waterways. Seventy-one percent of 
all the oil received at American refineries in the years from 1934 to 
1938 was delivered by pipe lines.^* 

The largest oil producing fields are served by three or more trunk 
pipe lines, but smaller fields are served by only one or two, and the 
smallest fields are usually served by only one. Even in the larger 
fields, however, the individual oil producer may be so located that he 
can afford to lay gathering lines to only one of the trunk lines. In 
many cases, therefore, the only alternatives available to the producer 
are to purchase transportation service from a single concern or to 
sell his oil in the field to the same concern. In its relation to the pro- 
ducer who is so situated, the pipe line company stands either as a 
monopolist or as a monopsonist. 

Most of the companies which operate trunk pipe lines are owned or 
controlled by the major integrated oil companies. Fourteen of these 
concerns own 89 percent of the trunk pipe line mileage in the United 
States.^^ This situation gives the integrated company a competitive 
advantage over the independent producer and the independent re- 
finer. If it charges itself a high rate for transporting its own oil 
to its own refineries, it does not reduce the profitability of its opera- 
tions as a whole. But when it charges the independent producer the 
same rate for carrying his oil to an independent refinery, it augments 
its profits at his expense. High pipe line rates induce the independent 
producer to sell his output to the integrated concern, depress the price 
which he obtains, and make it unprofitable for him to compete in the 
business of production. High pipe line profits can be used to finance 
the refineries of the integrated concern and thus make it difficult for 
the independent to compete in the business of refining. 

The relationship between the major oil companies and their pipe 
line subsidiaries is similar to that which has obtained between the 
anthracite coal companies and the anthracite carrying railroads. Con- 
gress, in the Hepburn Act of 1906, prohibited common carriers from 
transporting commodities in the production of which they had an 
interest. In the same act, Congress gave oil pipe line companies the 
status of common carriers and made their rates subject to regulation 
by the Interstate Commerce Commission. But it specifically excluded 
these concerns from the provisions of the commodities clause. Divorce- 
ment of the business of transporting oil from the businesses of pro- 
ducing and refining it, although frequently proposed, has never been 
enacted into law. 

The common carrier status of the pipe line companies is nominal 
rather than actual. The companies have long made a practice of 
refusing to accept shipments in quantities which fall below some 
stated minimum, such as 100,000 or 50,000 barrels. By this device 
they have denied many independent producers access to pipe line 
facilities and thus compelled them to sell their output in the fields. 
The companies now hold title to more than nine-tenths of the oil which 

** Hearings before the Temporary National Economic Committee, Part 14-A, p. 7719. 
»Ibid., p. 7723. 


they transport.^^ The rates charged on oil carried for others have 
never been stringently controlled. These rates are set by the com- 
panies themselves and are allowed to stand unless they are challenged. 
They have rarely been contested, since shippers have lacked the re- 
sources, the independence, or the courage to bring cases before the 
Commission. Assertion has repeatedly been made, however, that rates 
charged for pipe line services have been exorbitant.^^ 

Pipe line operations have been highly profitable. The companies 
reporting to the Interstate Commerce Commission, taken together, 
realized more than 22 percent on their investment in each of the 10 
years from 1929 through 1938, more than 28 percent in 6 of these years, 
more than 30 percent in three, and more than 33 percent in the year 
1929.^^ Fifteen of the major pipe line companies enjoyed an average 
return of 28.4 percent in 1938 : the Atlantic Pipe Line Co. and the Sin- 
clair Refining Co. each made 50 percent in that year; the Texas- 
Empire Pipe Line Co. of Texas made 70 percent.^^ 


Outstanding among the monopolists of the nineteenth century, 
the railroads have been compelled to face severe competition in the 
twentieth. They are engaged, today, in a struggle for existence with 
trucks, busses, private automobiles, water carriers, airplanes, and pipe 
lines. But there is still some traflSc in which the railroads enjoy a 
monopoly. There are shipments which can be made only by rail and 
which must move between points served by a single line. Even here 
the rates charged are under the supervision of the Interstate; Commerce 
Commission. But the whole railway rate structure is such as to 
enable the roads to take advantage of their monopolistic position with 
relation to this portion of their traffic. Different commodities are 
hauled at different rates per ton mile. Goods which could be shipped 
over other carriers may get a lower rate. Those which must move over 
the rails may be required to pay a higher rate. Nor is the charge 
made for each mile that goods are hauled a uniform one. Communi- 
ties which have access to other means of transportation, communities 
which are served by two or more carriers, may ship at lower rates. 
Communities which must depend upon a single carrier may be com- 
pelled to pay higher rates. With the permission of the Interstate 
Commerce Commission, the rates charged for a shorter haul may even 
exceed those charged for a longer haul in the same direction over the 
same line. The resulting rate structure is a necessary consequence of 
the characteristics of the transportation system as it now exists. The 
level of railway rates, as a whole, is probably not excessive. But the 
rate structure does demonstrate the fact that competitive rates will 
be established on those goods and between those points where com- 
petitive conditions obtain and that higher rates will be collected on 

» Ibid., p. 7724. 

" Commi.ssIoJier of Corporations, Report on the Transportation of Petroleum (1906), 
pp. 29^30 ; Commissioner of Corporations, Report on the Petroleum Industry, Part I 
(1907), p. XX ; Federal Trade Commission, Report on Pipe Line Transportation of Petro- 
leum (1916), p. 18; Federal Trade Commission, Petroleum Industry: Prices, Profits, and 
Competition (1928), p. 41: Hearings on H. R. 9676 and H. R. 8572, Oil and Oil Pipe 
Lines, 73d Cong., 2d sess. (1934), pp. 220-222, 239-240: Hearings before the Temporary 
National Economic Committee, Part 14, pp. 7338. 7581-7586. 

^ Hearings before the Temporary National Economic Committee, Part 14-A, pp. 7727, 

^Ibld., p. 7725. 


those goods and between those points where the railroad stands in 
the position of a monopolist. 


Since 1900, the Pullman Co., a wholly owned subsidiary of Pullman, 
Inc., has enjoyed a complete monopoly of the business of operating 
sleeping cars, parlor cars, and combination sleeping and parlor cars 
on the railroads of the United States. Until recent years the com- 
pany rarely realized less than 8 percent on the valuation placed on its 
assets by the Interstate Commerce Commission. It made 9i^ percent 
in 1926, 211/3 percent in 1927, and 8% percent in 1928.^° During the 
1920's and 1930's, however, Pullman lost traffic to the private 
automobile, the motorbus, the airplane, and the improved railway 
coach. In the 1930's, too, depression cut into its volume. An aver- 
age Pullman car, with a capacity of 26 persons carried an average 
ol 141/2 persons in 1923, 11% persons in 1929, and only 8% persons in 
1932.31 The company's profits shrank steadily from $32,000,000 in 
1927 to $3,000,000 in 1931, turned into a deficit of $760,000 in 1932, 
another deficit of more than $1,000,000 in 1935. Business recovery 
produced profits of nearly $4,000,000 in 1936, more than $4,000,000 
in 1937, and nearly $2,000,000 in 1938, but these profits gave the com- 
pany a return, in the respective years, of only 2i/^, 3 and ll^ percent 
on the $150,000,000 valuation of its assets.^^ 

Pullman owns and operates more than 7,500 cars. At any one time 
5,000 or more of these cars will be moving over 78 railroads on 110,000 
miles of track. But the rest of them will be laid up in repair shops 
01 standing in railroad yards awaiting a period of peak traffic. And 
the cars that are in motion will be operating at only a fraction of their 
full capacity. Pullman's revenues from accommodations sold in 1933 
were $31,880,000 but the tariff value of the space which it did not sell 
was $51,826,000. Nine out of ten of the upper berths in motion during 
that year were empty.^^ Of the 26 places in the average Pullman car 
in 1937, 9 were occupied and 17 wer. idle.^* Yet despite its loss of 
traffic to other carriers, its declining revenues, its large reserve of 
idle cars and its high percentage of unused capacity, Pullman 
made little effort to improve its technology until well into the 
thirties. Even today the character of the service offered on the great 
majority of its cars is identical with that provided two decades ago. 
And the company has shown no disposition to recover its former share 
of the market by lowering its rates. In 1937, when its rates were at the 
highest point in history, it applied to the Interstate Commerce Com- 
mission for a further increase of 10 percent which was granted in 

*> Interstate Commerce Commission, Statistics of Railways in the United States. 

1 Fortune, February 1938, pp. 80-81. 

*■ Interstate Commerce Commission, op. cit. 

88 Federal Coordinator of Transportation, Section of Transportation Service, Passenger 
Traffic Report (1935), p. 255. 

8* Interstate Commerce Commission, op. cit. 

^ Increased Pullman Fares and Charges, 1937, Ex Parte No. 125, 227 I. C. C. 644, June 30, 
1938. In its report the Commission stated that : "Pullman stoctc outstanding aggregates 
$108,135,000, of which only $31,271,650 was issued for cash. Other stock aggregating 
$28,491,827 was issued for property or for other considerations, .^nd $64,238,300 was issued 
in stock dividends. * » • In the l2-year period 1919 to 1931 applicant [Pullman 
Co.] declared dividends aggregating over $196,000,000 * • •" (p. 653). Commis- 
sioner Joseph B. Fastmftn, concurring, said: "Few, if any, public service companies in this 
country have been more generously treated by the public than the Pullman Co. In addition 


Pullman's reluctance to adapt iteelf to changing conditions may be 
attributed largely to two facts. The first is the fact that the present 
level of rates is sufficiently high to enable the company to break even 
or, more usually, to make a profit while operating at but a fraction of 
full capacity. The second is the fact that the company's contractual 
arrangements with the railroads are such as to compel ihese carriers 
to assume a major part of the risks involved in fluctuations in the vol- 
ume of Pullman traffic. In 1933 when its actual revenues were only 
38 percent of its potential revenues the company just about broke even, 
its net income in that year standing at $8,500. In 1937, when it^ cars 
operated at less than 35 percent oi full capacity, the company made 
more than $4,000,000, Pullman's contracts with the railroads are so 
drawn that the company collects some form of payment from the roads 
for the operation of each car that yields it less than a stated sum per 
annum, and makes some form of payment to the roads for the oper- 
ation of each car that yields more than a stated sum or produces a 
profit.^^ The company is thu3 protected against loss when traffic de- 
clines and forced to share its profits when traffic increases. Its incen- 
tive to attract additional business either by increasing efficiency, cut- 
ting costs, and reducing rates, or by improving the quality of it3 serv- 
ice is weakened accordingly. In -eight of the years in the decade from 
1929 to 1939 when railroad followed railroad into bankruptcy and re- 
ceivership, Pullman made a profit. Protected by a rate level that 
enabled it to break even at less than 40 percent of capacity and by 
contracts which shifted a large part of its risks to others the company 
was in a position to wait and hope for better days. 

Pullman enjoys a marked advantage in negotiations with the rail- 
roads. Its contracts, running for long terms, can be canceled by 
either party 6 months before they expire. The roads, however, are 
not in a position to exercise their right of cancelation. Since Pull- 
man is the only purveyor of sleeping car service, they cannot buy it 
elsewhere; and since a large part of this service involves continuous 
travel over connecting lines, they cannot undertake to provide it 
themselves without arranging a complicated series of intercompany 
contracts. Pullman, on the other hand, is free to cancel and is in a 
position, by threatening to withdraw its service from a road or to 
provide it with inferior service, to force the latter to accept its terms. 
The Department of Justice now charges, in a complaint filed in an 
antitrust suit on July 12, 1940, that the company has taken advantage 
of its position to impose onerous provisions on the roads, requiring 
them to purchase its services and equipment exclusively, preventing 
them from obtaining light-weight, high-speed, stream-lined equip- 
ment, supplying them with antiquated equipment, and forcing them 
to pay a large part of the costs involved in its modernization.^^ 

to providing very liberal returns on the investment over a period of years, the public has, 
in substance and effect, itself supplied a very large part of the investment. If broad 
principles of equity could be applied to the situation before us, any increase in rates might 
well be denied. However, the decisions of the Supreme Court appear to Indicate that the 
company is entitled to an opportunity to earn a reasonable return on the fair value of its 
property devoted to public use, regardless of the source of the funds with which that 
property was acquired (p. 654). 

"Conclusions of the Federal Coordinator of Transportation on Passenger Traffic, 1936, 
Appendix I, pp. 65-93, 107-117. 

^ U. S. V. Pullman Company et al. District Court of the U. S., E. D. of Pa., Complaint, 
July 12, 1940. 


Pullman, Inc., the parent company, also owns the Pullman Standard 
Car Manufacturing Co., virtually the sole producer of sleeping, parlor, 
and dining cars in the United States. The current complaint charges 
that the Pullman Co. has given this concern the exclusive right to 
manufacture the cars which it owns and operates and that it has 
refused to operate cars that have been made by other firms, thus 
giving Pullman Standard an advantage over its competitors in the 
manufacturing field. Since 1900, this concern and its predecessor, 
the Pullman Car & Manufacturing Co., has produced all but 16 of the 
sleeping cars made in the United States. The complaint asks the 
court to divorce the Pullman Co. and the Pullman Standard Co. and 
to enjoin their corporate and individual stockholders from owning 
shares" in both concerns.^* 


At the end of 1939, the Pan-American Airways System enjoyed a 
complete monopoly of trans-Atlantic and trans-Pacific commercial 
aviation and a near monopoly in the Caribbean. Only in the South 
American service did it face active competition. In the trans- Atlantic 
trade, however, it appeared likely that the system's monopoly would 
prove to be a temporary one. Imperial Airways, Ltd., of Great 
Britain, and Air France had permits to fly the North Atlantic which 
they were not then using. American Export Air Lines, Inc., had 
applied to the Civil Aeronautics Authority for a trans- Atlantic per- 
mit,^® as had German, Italian, and Dutch air lines. Imperial Airways 
also had a permit, which it was not then exercising, to fly between 
New York and Bermuda. It seemed probable that competition on 
these routes would be restored in the course of time. On the trans- 
Pacific route, however, Pan-American's monopoly was unchallenged. 
The War and Navy Departments, impelled by considerations of na- 
tional defense, would not permit a foreign air line to land in Hawaii, 
and it was considered impracticable to operate a trans-Pacific service 
without a stop on these islands. Unless another American company 
applies for permission to fly the Pacific, Pan-American's complete 
monopoly of this traffic would seem to be assured. At the end of 
1939 no such application had been received. 


Nearly every privately owned public utility corporation in the 
United States enjoys a complete monopoly in the local market which 
it serves. In almost every case the rates charged by such a corpora- 
tion are subject to the control of a State regulatory commission. These 
rates are supposed to be set at levels that will allow the corporation 
to earn a fair return on a fair valuation of the property which it de- 
votes to the public service. Where regulation is effective, its monopoly 
position will not enable a public utility company to realize a monopoly 
profit. Where regulation is inadequate, however, a monopoly profit 
may be obtained. 

State control ovei atility rates has not, in general, been so effective 
as to prevent this development. State legislatures have handicapped 

3» Ibid. 

'"This permit was j,Tanted in July 1940. 


the commissions by denying them complete jurisdiction over the util- 
ity field, by refusing to grant them adequate powers, by failing to 
make proper provision as to the qualifications, selection, compensation, 
and tenure of their personnel, and by declining to provide them with 
funds sufficient to enable them effectively to carry on their work. The 
courts have handicapped the regulatory bodies by handing down de- 
cisions permitting methods of property valuation which have inflated 
rate bases and afforded utility companies a return on sums far in 
excess of those actually invested in the business. The commissions 
themselves, instead of taking the initiative in rate cases, have adopted 
a passive role, waiting for actions to be brought before them. The 
prosecution of such cases, supported by the taxpayer, has been insuf- 
ficiently financed ; the defense, supported by the rate-payer, has had 
abundant funds at its disposal. Attorneys representing the public 
interest, poorly paid and with no assurance of tenure, have fought a 
losing battle against the high-priced counsel of the utility concerns. 

Giant holding companies, in control of three-fourths of the elec- 
trical utility industry, have imposed upon their operating subsidiaries 
policies which have nullified governmental efforts to establish reason- 
able rates. These combinations were entirely outside the scope of 
public authority until the passage of the Public Utility Holding Com- 
pany Act in 1935 ; many of them contrived to profit by this immunity. 
They sold to their subsidiaries various construction, engineering, man- 
agement, and financing services, charging for them fees far in excess 
of the costs which they involved. Tliey compelled their subsidiaries 
to exchange property, supplies, power, and securities at high prices. 
They borrowed money from these subsidiaries at a low rate of interest 
and loaned it to them at a high rate. By thus padding the operating 
expenses and the property valuations of the subsidiary companies, 
they forced the State commissions to permit them to charge higher 
rates. By writing up the assets of their subsidiaries and selling 
securities against the inflated values which resulted, they minimized 
their apparent percentage of profit. By spending large sums on prop- 
aganda activities, they persuaded consumers of utility services to 
acquiesce in an excessive level of rates.^° 

There is evidence that all these factors have combined to support 
rates higher than those required to produce a fair return on a fair 
value. Comparison of the charges made by privately owned electrical 
utility corporations with those established by publicly owned com- 
panies in the Ontario-Hydro-Electric system, by the Tennessee Valley 
Authority, and by large numbers of municipal plants in the United 
States, suggests that private utility rates have been so high as to yield 
a considerable element of monopoly profit.*^ Many operating com- 
panies have obtained a return well above the 7 percent usually ac- 
cepted by legislatures and the courts as adequate. A legislative com- 
mission, examining 75 electrical properties in New York State in 
1928^ found 56 of them realizing more than 8 percent on the unde- 
preciated value of their capital investment, 34 of them more than 10 

*• Federal Trade Commission, Utility Corporations, 70th Cong., 1st sess., Senate Doc. 
No. 92, pt. 72 A, passim. 

"William E. MoBher and others, Electrical Utilities (New York, 1929), ch. 9; Stephen 
Baashenbush, The Power Fight (New York, 1928), ch. 7; Carl D. Thompson, Confessions 
of the Power Trust (New York, 1932), ch. 21; Bernhard Ostrolenk, El-ctricity: For Use or 
Profit? (New York, 1936), ch. 5: Federal Power Commission, Electric Rate Survey, Rate 
Series, 1935-39. 


percent, 15 more than 15 percent, 10 more than 20 percent, and 1 more 
than 30 percent.*^ Another legislative committee, examining 53 gas 
and electric companies in Pennsylvania in 1929, found 40 of them 
realizing more than the legal 7 percent on their own valuation of their 
property, 18 of them more than 14 percent, 11 more than 21 percent, 
6 more than 28 percent 4 more than 35 percent, and 1 of them nearly 70 
percent, 10 times the fair rate of return.*^ The Federal Trade Com- 
mission, examining 36 gas and electric companies in various parts of 
the United States, found 22 of them realizing more than 25 percent on 
actual investment in some year between 1922 and 1931, 17 of them 
more than 33 percent, 12 more than 50 percent, 1 of them 128 percent, 
a second 278 percent, and a third 435 percent." A few holding com- 
panies, siphoning off operating company revenues and pyramiding 
their dividends through the holding company structure did even 
better during the 1920's, obtaining rates of return that reached 
well nigh astronomical proportions. 


Beryllium is an element which can be combined with copper, nickel, 
or certain other metals to produce alloys combining extraordinary 
tensile strength, hardness, lightness, and conductivity, capable of re- 
sisting erosion and withstanding severe and prolonged vibration. Its 
possible applications in industry and in the national defense — notably 
in aviation — are many. The ores in which it occurs in combination 
with other metals are abundant. The technology employed in its 
extraction and utilization is a development of the last decade. The 
industry is still in its infancy. But in beryllium there may already be 
seen a monopoly in the making. 

The European patents covering the equipment and the processes 
involved in extracting beryllium from its ores, in producing alloys, 
and in employing these alloys in industry, were taken, out by the 
German firm of Siemens & Halske. This firm subsequently turned 
over to the Deutsche Gold-und-Silber-Scheideanstalt, known for short 
as Degussa, the business of producing beryllium metal, retaining for 
itself the business of producing the alloys. Between 1929 and 1931, 
Siemens & Halske assigned the American rights to its patents to the 
Metal & Thermit Corporation of New York, which undertook, for a 
consideration of $10,000, to prosecute applications in the United States 
Patent Office. Metal & Thermit did not itself take title to these pa- 
ents, nor did it take out a license under them which would have per- 
mitted it to engage in the production of beryllium. It merely ob- 
tained and held the American rights, reassigning them to Siemens & 
Halske in 1935. The Beryllium Corporation, an American concern 
organized in 1929, had meantime undertaken to enter the industry. 
This company approached both Metal & Thermit and Siemens & 
Halske in an effort to obtain a license which would permit it to pro- 
duce beryllium in the United States. For some years it met with scant 

** State of New York, Legislative Document, 1930, No. 75, Report of the Commission on 
Revision of the Public Service Commissions Law, p. 288. 

" Commonwealth of Pennsylvania, One Hundred and Twenty-ninth General Assembly, 
Session 1931, House of Representatives, Appendix to the Legislative Journal, Proceedings 
of and the Testimony Taken Before the Committee of the House Appointed Under the 
Provisions of House Resolution No. 10, p. 6979. 

"Thompson, op. cit, ch. 22. 


success. According to the testimony of its president, Andrew J. 
Gahagan : ^"^ 

* * * I couldn't find out whether the Metal Thermit Co. owned the pat- 
ents or whether they didn't own them, or whether Siemens were going into the 
beryllium business in the United States or whether they were not going into the 

The corporation finally did conclude an agreement with Siemens & 
Halske in 1934. Until that year, however, the German patents oper- 
ated to block the establishment of the industry in this country. 

The 1934 agreement contained a cross-licensing arrangement which 
gave to the Beryllium Corporation the exclusive right to manufacture 
under existing and subsequent Siemens patents in the United States 
and to Siemens & Halske a similar right under the corporation's pat- 
ents in Europe. The corporation's royalty payments to Siemens were 
to be used, at the outset, to discharge the latter's obligation to Metal & 
Thermit. The agreement provided not only for a sharing of patent 
rights but also for a division of world markets. Accordmg to its 
terms : *® 

The parties hereto agree that the entire ^continent of America is the exclusive ter- 
ritory of [the Beryllium Corporation] and that the entire continent of Europe is 
the exclusive territory of [Siemens & Halske] * * *. Each of the parties 
hereto agrees to refrain from producing or making sales directly or indirectly into 
the exclusive territory of the other, and, throughout the world from assisting 
third parties in producing beryllium except subject to the provisions of this 
agreement. * * * 

This arrangement was subsequently modified under the pressure of 
English interests to give the American concern the right to sell beryl- 
lium in the British Isles. The agreement was to run for an initial term 
of 10 years and was subject to renewal. In purpose and effect it di- 
vided tha earth between the contracting parties on the basis of patent 

There is evidence that the German producers have manifested a 
continuing interest in the establishment of a beryllium monopoly in 
the United States. The P. R. Mallory Co., of Indianapolis, is in a 
position to engage in the fabrication of a variety of beryllium prod- 
ucts in competition with the Beryllium Corporation. This concern 
and its British subsidiary, Mallory Metallurgical Products, Ltd., 
sought to obtain licenses under the Siemens patents which would grant 
them the exclusive right to employ beryllium alloys in the manufac- 
ture of electric welding machinery. When the subsidiary approached 
Siemens & Halske, it was informed that no such right would be granted 
unless an agreement were reached which not only would require the 
British unit to purchase its supply of the alloy from Siemens, but 
also would bind the American unit to buy its supply of the alloy ex- 
clusively from the Beryllium Corporation, to buy materials contain- 
ing beryllium only from concerns which had bought the metal from 
the Corporation, and to abstain from the fabrication of beryllium 
products in which the Corporation had an interest. German control 
of the supply and use of beryllium in England was thus employed to 
reenforce the position of the Beryllium Corporation in the United 

« Hearings before the Temporary National Economic Committee, Part 5, p. 2038. 
« Ibid., p. 2280. 


The Brush Beryllium Co. of Cleveland, Ohio, was established in 
1931 for the purpose of competing in the production of beryllium 
alloys. The firm operates under its own patents and under a license 
for one patent which is owned by a subsidiary of the Union Carbide & 
Carbon Corporation. It has proceeded on the principle that volume 
is to be obtained through a reduction in price. In 1936 the Beryllium 
Corporation was charging $30 per pound for contained beryllium 
metal in beryllium-copper master alloy. The Brush Co. cut the price 
to $23 and the corporation followed suit. In 1939 the Brush again 
cut the price to $15 and the corporation tardily followed. Repeated 
efforts have been made to persuade the Brush Co. to abandon this com- 
petition. In 1935 a spokesman for Degussa suggested two alterna- 
tives : a division of the industry, the Brush Co. to produce the metal 
and the Beryllium Corporation to produce the alloys, or a; combina- 
tion, the one concern to purchase the shares of the other. Of the ad- 
vantages of some such arrangement, he wrote : " 

I feel that beryllium and its alloys could be made an object, giving extensive 
profits to all concerned, saving tremendous expense to each and every one of 
us, and giving special benefit to all to make such thought worth while. 

Again in 1938 a representative of the Siemens interests urged the 
desirability of abandoning price competition, asserting, according to 
Dr. Charles B. Sawyer, president of the Brush Co.*® — 

* * * that he had brought together five or six British companies, who were 
quite at loggerheads, and that this had resulted in raising their prices 30 percent 
with dividends regularly ever since. 

When the Brush Co. resisted the lure of higher profits, the Beryllium 
Corporation appears to have made use of a stronger argument. Accord- 
ing to Dr. Sawyer's testimony : *' 

Mr. Cox. Has Mr. Gahagan ever threatened to sue you or any of your customers 
for patent infringement? 

Dr. Sawyer. Whether he has threatened to sue or whether he has threatened 
is a fine distinction. He has certainly threatened. 

The Beryllium Corporation, however, has not as yet attempted fully 
to exploit the position which it occupies. It has permitted other firms 
freely to produce under its patents. It has collected no royalties. But 
when, asj and if the validity of its patents is legally established, the 
corporation may be expected to take a different line, as is evidenced by 
the testimony of its president : °° 

The Chaieman. So that there is practically free use of these patents? * * * 

Mr. Gahagan. There has been up to date, but we are not going to continue it ; 
not free use ; no. * * * 

The Chaieman. Do you wish the comxiiittee to understand that the Beryllium 
Corporation is not now enforcing its imtent rights? 

Mr. Gahagan. We haven't tried to yet. 

The_CHAiEMAN. But you intend to? 

Mr. Gahagan. Yes, sir. 

The Chaieman. And if and when you do enforce those patent rights you will 
have practically complete control of the industry, is that correct? 

Mr. Gahagan. That is what I hope to have. 

The Chairman. And these competitors could not compete with you unless they 
had a license from you, assuming that the courts uphold the facts? 

Mr. Gahagan. That is right. 

*T Ibid., p. 2071. 

« Ibid., pp. 2081-2082. 

«Ibld., p. 2136. 

" Ibid., pp. 2049-2050. 


Whether or not a monopoly is to be established in the beryllium indus- 
try in the United States rests, then, upon the decisions which are to be 
handed down by the courts in the pending patent litigation and upon 
the licensing policy which the Beryllium Corporation, if it is victorious 
in this litigation, may choose to pursue. 


In each of tlie foregoing cases a single firm has monopolized a trade. 
There are other markets in which two establishments stand alone. 
Two companies provide all of the domestic telegraph service; two 
control all of the submarine cables between the United States and 
several foreign countries; two offer the only radio-telegraph service 
to many points abroad. Two companies, in each field, account for all, 
or nearly all, of the Nation's supply of bananas, of plate glass and 
safety glass, of bulbs, tubing and rod, and bases for electric lamps, of 
electric accounting machines, of railroad air brakes, of oxyacetylene, 
of sulfur, and certain chemicals. In many local markets, on a 
smaller scale, two petty enterprises share a trade. Under circum- 
stances such as these, formal or informal understandings governing 
price and production are readily attained. Each firm of a pair con- 
trolling the whole of a supply is likely to act as if it were a monopolist. 
In their effect upon the market, duopoly and monopoly are substantially 
the same. 


Ten companies are engaged in the business of providing wire tele- 
graph service between points within the United States. Eight of 
these concerns, most of them serving railroads or industrial establish- 
ments, confine their operation to limited areas ; together they handle 
less than one-tenth of 1 percent of the messages transmitted through 
this medium. There are only two carriers which offer a Nation-wide, 
public-message, wire-telegraph service. These are the Western Union 
T egraph Co. and Postal Telegraph, Inc. In 1938, these companies 
owned four-fifths and one-fifth, respectively, of the telegraph offices 
in the United States, handled four-fifths and one-fifth of the messages 
transmitted, and collected four-fifths and one-fifth of the revenues 
derived from the domestic telegraph business.^^ The two companies, 
however, do not share every phase of the business or every section of 
the market in these proportions. Both concerns must compete with 
the telephone carriers in providing leased private wire, timed wire, 
and teletypewriter exchange services. Western Union has a virtual 
monopoly of the Nation-wide ticker service. It is the only company 
which sends public messages over its own lines into every State in the 
Union. It maintains the only telegraph offices in some 14,500 Ameri- 
can communities. Postal Telegraph, on the other hand, maintains 
the only offices in some 750 other towns.'^ But both concerns are in a 
position to accept messages from, and deliver them to, any point in 
the United States. The situation which obtains in the public message 

" Federal Communications Commission. Selected Financial and Operating Data From 
Anmial Reports of Telegraph, Cable, and Radiotelegraph Carriers, Year Ended December 
31, J938 (mimeo.), sec. B, pp. 10-13. 

" Fortune, November 193^ p. 90 fif. 


department of the business over the country as a whole, therefore, is 
one of simple duopoly. 

The rate charged for telegraph service depends upon the length of 
the message, the time of day at which it is transmitted, and the dis- 
tance which it travels. But differences in rates are not closely ad- 
justed to differences in the cost of rendering the service. Telegraph 
rates are largely a matter of tradition. The 10 word limit in tne 
charge for a straight telegram was established in 1851. The rate map, 
according to which the charges for distance are arbitrarily computed, 
was adopted in 1875. Rate schedules have been modified in detail 
since the Federal Communications Coimiiission was given jurisdiction 
over the telegraph carriers in 1934. But the general level of rates h-^s 
not been altered in many years. 

The profitability of the telegraph business depends upon the volume 
of the traffic which it carries. The companies could handle many times 
the present volume without enlarging the existing facilities. The busi- 
ness is one of increasing returns. It has produced profits during 
years of prosperity and suffered deficits during years of depression. 
In 1929, when traffic was at its peak, Western Union had a gross 
income of $145,000,000 and a net income of $15,000,00a In 1932, the 
company incurred a deficit of $830,000; by 1933 its gross income had 
fallen t'^ a low of $82,000,000, a decline of 43 percent from the 1929 
level. In 1929 Postal Telegraph had a gross of $38,000,000 and a net 
of $3,000,000; in 1932 it incurred a deficit of more than $2,000,000 ; Try 
1933 its gross had fallen to $26,000,000, a decline of 32 percent. West- 
ern Union realized a profit in 8 of the 10 years from 1929 through 1938. 
Postal Telegraph has not made a profit since 1930 ; the company went 
into receivership in 1935 and was reorganized in 1940.^^ 

Western Union's preeminence may be traced in large part to its 
success in obtaining from the railroads contracts which have given it 
the exclusive right to use their rights of way for its poles and lines 
and their terminals and stations for its offices. These contracts had 
their origin in the middle of the nineteenth century, have been re- 
newed periodically ever since, and now apply to 185 railroads, includ- 
ing virtually every class I railroad in the United States. Postal Tele- 
graph, with only 12 such contracts, only 5 of them exclusive, has been 
compelled to string its wires along the public highways. The com- 
pany has contested the validity of several of the Western Union con- 
tracts in the courts and has won a number of suits. But its effort thus 
to overcome its disadvantage has been costly and its progress has been 
slow. The Department of Justice entered into this situation on De- 
cember 1, 1937, when it started suit against both companies under the 
Sherman Act in an f '^ort to have their exclusive contracts declared 
invalid. If the Government should win these cases. Western Union 
would be deprived of the relative advantage which it has so long 

Both telegraph companies have suffered from the competition of 
other types of carriers in the general field of rapid intercity comr 
munication. The share of this business carried by telegraph de- 
clined steadily from 100 percent in 1880 to 24.2 percent in 1938. The 
share carried by telephone rose from 5.6 percent in 1886 to 72.4 per- 

•* Moody's Public Utilities, 1932, 1938. 


cent in 1938 ; that carried by air mail rose from 1 percent in 1930 to 
3.4 percent in 1938.^* The companies have attempted to meet this 
com/petition by placing an increasing portion of their business in 
classifications which are carried at lower rates, but their efforts have 
proved unavailing. The precarious position of the Postal Co. and 
the unfavorable prospects of both Postal and Western Union have 
led the Federal Communications Commission to propose cohsolida- 
tion of the two concerns. The Commission argues that the policy 
which recognizes the telephone business as one affected with a pub- 
lic interest and grants it a monopoly position subject to public 
regulation is equally applicable to the telegraph carriers. It would 
include in the proposed merger the present services of Western Union 
and Postal Telegraph, tho^e of the minor wire telegraph carriers, 
and the leased wire and teletypewriter services now rendered by the 
telephone company. It would, however, preserve the independence 
of the wire-telegra]3h, radio-telegraph, and telephone industries and 
rely upon competition among them and with the air mail carriers 
to promote the efficient development of each type of service. The 
Commission recognizes the continued necessity of regulatings tele- 
graph rates and expresses the opinion that the general level of rates 
must be lowered and the whole rate structure readjusted if the con- 
solidated telegraph company is to retain or increase its share of the 
business of rapid intercity communication.^^ The suits initiated by 
the Department of Justice are being continued pending congressional 
action on the Commission's proposal. 


One or the other of the forms of telegraphic communication be- 
tween the United States and many foreign countries is controlled by 
only two carriers. The International Telephone & Telegraph Sys- 
tem and the Western Union Telegraph Co. share the bulk of the cable 
business. In 1938 the former handled 51 percent and the latter 45 
percent of the messages transmitted through this medium.®® An 
International subsidiary, as has been noted above, enjoys a monopoly 
of the trans-Pacific service. Western Union and the Commercial 
Cable Co., another International subsidiary, share some four-fifths of 
the trans- Atlantic business. Here a third concern, the French Tele- 
graph Cable Co., also participates. In the Central and South Ameri- 
can service, however, duopoly obtains, Western Union and All Ameri- 
can Cables, Inc., a third International subsidiary, being the only 
interests in the field. The Cuban American Telephone & Telegraph 
Co., which operates cables between Miami and Habana, is owned 
jointly by A. T. & T. and I. T. & T. The Mexican Telegraph Co., 
which alone provides cable service to points in Mexico, is owned jointly 
by Western Union and I. T. & T." K. C. A. Communications, Inc., 
and the Mackay Radio & Telegraph Co., a fourth International sub- 
sidiary, shared a duopoly of general commercial radiotelegraphic 
communications between the United States and 13 foreign coun- 

^ Federal Communications Commission, Report on tiie Telegraph Industry, submitted to 
the Senate Committee on Interstate and Foreign Commerce, Dec. 23, 1939 (mimeo.), p. 29. 

^ Ibid., pp. 5S-57, 78-80, 88-96. 

** Federal Communications Commission Selected Financial and Operating Data From 
Annual Reports o£ Telegraph, Cable, and Radiotelegraph Carriers, year ended Dec. 31, 1938 
(mimeo.), sec. B, p. 13. 

*' Federal Communications Commission, First Annual Report, pp. 44-46. 


tries in 1937. R. C. A. C. and some one other company occupied a 
similar position in the service provided to 10 other points abroad. 
In only 9 instances was such overseas service offered by 3 or 4 concerns.^^ 
Between most points, of course, the cables and radiotelegraphy afford 
alternative methods of one-way communication. It must be noted, 
however, that the International System includes both cable and radio- 
telegraph carriers and that Western Union and R. C. A. Communica- 
tions operate under an agreement which requires R. C. A. C. to trans- 
mit outgoing radio messages for Western Union and Western Union 
to deliver incoming messages for R. C. A. C. Though there are three 
large interests in the field, international telegraphic communication 
may, in general, be characterized as a duopoly, the bulk of the business 
being shared on the one hand by the International System, and on the 
other by Western Union and R. C. A. C. 

In 1940, following its proposal that Western Union and Postal 
Telegraph be combined, the Federal Communications Commission 
recommended the establishment of a similar monopoly in the field 
of international communications.''® 


While bananas are grown in all moist tropical countries, more than 
nine-tenths of those produced in quantity for the export market come 
from Central and South America and the West Indies. The United 
States is the world's largest consumer of bananas, its annual imports 
amounting to more than half of the world's total.^" For many years 
more than 99 percent of its supply has come from Latin America; 
70 percent of it comes from Mexico, Honduras, Guatemala, and the 
Republic of Panama.®^ The bulk of this trade is in the hands of two 
concerns, the United Fruit Co. and the Standard Fruit & Steamship 
Co. The former handled 60 percent and the latter 30 percent of the 
bananas imported into the United States in 1936.^^ 

The United Fruit Co., incorporated in New Jersey in 1899, is the 
giant of the industry. It owns or leases 3,500,000 acres of land. It 
operates a fleet of a hundred ships. It runs all but one of the banana- 
carrying railroad lines in Central America. It owns the Tropical Radio 
Telegraph Co., which offers the only telegraph service between the 
United States and Honduras. It operates docks and stores, hospitals 
and hotels, and occiipies a dominant position in the economic life of the 
Caribbean.^^ The company's control both of the supply of bananas 
and of the means of transportation gives it a decided advantage over 
its competitors. It produces half of the fruit which it sells, and pur- 
chases the other half from private planters under contracts which 
cover their entire output, thus excluding its rivals from this source 
of supply.^* The United is in a position to exact high railway rates 
of other shippers and to prevent other ships from loading bananas 

" Federal Communications Commission, Third Annual Report, pp. 64-65. 

» New York Times, February 25, 1940. 

•" Pan American Union, Commodities of Commerce Series, No. 2, The Story of the 
Banana, p. 14. 

•1 Bureau of Foreign and Domestic Commerce, Bananas : United States in Foreign Trade 
in 1938 (mimeo.). 

" Ibid. ; Moody's Industrials, 1938. 

« Charles D. Kepner, Jr., and Jay H. Soothill, The Banana Empire (New York, 1935), 
pp. 26, 178, 182 ; Fortune, March 1933, pp. 26ff. 

•* Kepner and Soothill, op. clt., pp. 27, 259. 

271817— 40— No. 21 8 


by giving preference to its own ships at its docks. It is said to have 
chartered cargo space which it did not use on the boats of other lines 
for the purpose of preventing other shippers from reaching the mar- 
ket.^^ The Fruit Dispatch Co., a United subsidiary with 50 branch 
offices located throughout the United States, has complete facilities 
for the distribution of bananas in this country. Elders & Fyffes, Ltd., 
another subsidiary, distributes United bananas in Great Britain and 
on the continent of Europe. 

United Fruit has absorbed a dozen competitors over a period of 
40 years. Its only important remaining rival, the Standard, accord- 
ing to Kepner and Soothill, "appears to prefer to work with the 
United rather than to oppose it. - ^^ The Standard does not compete 
with the United in Colombia, Costa Kica, or Guatemala. The United 
does not compete with the Standard in Mexico, Cuba, or Haiti. Both 
companies operate in Honduras, Panama, Nicaragua, and Jamaica. 
In Honduras, however, each concern buys in its own area, neither one 
competing with the other in the purchase of f ruit.^^ 

It has been asserted that the United deliberately restricts the sup- 
ply of bananas for the purpose of maintaining the price. "Some- 
times," write Kepner and Soothill, "when the United Fruit Co. de- 
sires to limit the supply of fruit, it discards bananas which it has 
raised or purchased. Occasionally it cuts mature bananas on its own 
plantations and leaves them to rot in their native habitat; again, 
after purchasing bananas from private planters, it abandons them at 
trackside to the immense satisfaction of goats and buzzards; more 
frequently it rejects considerable quantities of fruit on arrival at 
the wharf; and at other limes it heaves fruit overboard outside of 
northern ports * * *." ®^ The Fruit Dispatch Co. takes orders 
from jobbers through its branch offices and controls the volume of 
United banana imports accordingly. A fifth of these imports is sold 
at auction at the docks; the rest is distributed by the company at 
the price which it sets. If the fruit cannot be sold, according to 
Fortune, "it is not given away to the hungry poor. Sometimes it is 
dumped into the ocean with a great big splash." ®^ The company kept 
the retail price of bananas throughout the depression at figures that 
were close to predepression levels. As a result, imports into the 
United States fell from 65,000,000 bunches in 1929 to less than 40,000,- 
000 in 1933.^° 

United Fruit's capital and surplus grew from $11,230,000 in 1900 
to $205,940,000 in 1930. During this period it reinvested half of its 
earnings, declared two dividends in stock, and paid cash dividends in 
every year. The average annual income received by its stockholders 
amounted to 17 percent of the value of the original investment.^^ The 
average annual return on the company's net worth stood at 3.4 per- 
cent in the depression years of 1931 and 1932 and at more than 7 per- 
cent in the years from 1933 through 1939." 

«=Ibid., pp. 74-75, 187, 311. 

«« Ibid., p. 133 ; see also pp. 293, 311, 341-342. 

•"Ibid., pp. 131-132. 

« Ibid., p. 265. 

» Fortune, March 1933, p. 126. 

"> Kepner and Soothill, op. cit., pp. 264, 352. 

"Ibid., pp. 36-37. 

■" Moody's Industrials, 1938, 1940. 



The Pittsburgh Plate Glass Co. and the Libbey-Owens-Ford Glass 
Co. manufactured 95 percent of the plate glass produced in the United 
States in 1935. Only three other American concerns are equipped to 
make this product. The largest of these, however, is the Ford Motor 
Co. which produces only for its own use. The volume of sales made by 
the two remaining firms is comparatively insignificant.^^ The Amer- 
ican industry is protected frorn foreign competition by customs duties 
which amounted, when measured on an ad valorem basis, to 87.8 per- 
cent in the years from 1930 to 1935.^^ The Belgians have been the 
only foreign producers to sell appreciable quantities in the United 
States. Imports from Belgium, which were 27.4 percent as large as 
domestic production in 1923, had fallen to 0.04 percent in 1934. They 
rose to only 0.2 percent in 1936 after the reciprocal trade agreement 
had cut specific duties by a third." The position of the two major 
producers in the American market, therefore, approaches complete 

The demand for plate glass rose steadily with the growth of the 
automobile industry during the twenties. Automobile manufacturers 
have purchased more than 60 percent of the plate sold in recent years. 
They took 77 percent of the Nation's output in 1935. State laws re- 
quiring that new cars be equipped throughout with safety glass have 
given a new impetus to this demand, since laminated glass requires 
twice as much of the product in square feet as does ordinary plate. 
The industry's output in 1936 was larger than at any previous time 
in its history.^^ 

Output per man-hour in plate glass manufacture doubled between 
1899 and 1925 and again betw^een 1925 and 1935." Prices have been 
reduced substantially during the past 20 years.^^ But the wholesale 
price of plate, in sizes from 5 to 10 feet square, has stood unchanged 
for 3 years at a time. It fell only 5.2 percent from prosperity's peak 
in 1929 to depression's trough in 1933,^^ Evidence of noncompetitive 
behavior in the industry is afforded by the fact that the prices of 
smaller sizes, cut from larger sheets, are lower than those of equal 
quantities of uncut plates. The smaller pieces must compete with 
window glass; the larger ones are sold in a market where no such 
substitute exists.®" 

Pittsburgh Plate Glass has made money in every year of its cor- 
porate history except 1932. In that year it sustained a deficit of $60,- 
000. The company received a net income of $19,000,000, making 27.8 
percent on its investment in 1923 and cleared more than $18,000,000, 
making 17.1 percent again in 1937. It has doubled its capitalization 
by declaring stock dividends out of earnings and has paid cash div- 
idends in every year since 1899. In 4 of the years from 1934 through 
1939 it realized more than 10 percent on net worth, making more than 
$68,000,000 in the period as a whole." Libbey-Owens-Ford made 

"U. S. Tariff Commission, Flat Glass and Related Glass Products, Report No. 123, 
second series (1937), p. 24. 
w Ibid., p. 5. 
«Ibid., pp. 91, 98, 113. 
^« Ibid., pp. 12, 83, 107. 
"Ibid., p. 96. 
" Ibid., p. 111. 
•"Burns, op. cit., p. 224. 

«« Ibid., p. 276 ; Watkins, op. cit., p. 171 ; U. S. Tariff Commission, op. cit., p. 110. 
•1 Fortune, January 1934, pp. 42 ff. ; Moody's Industrials, 1938, 1940. 


more than $8,000,000 in 1935 and in 1939 and more than $10,000,000 
in 1936 and in 1937. Its net income stood at 10 percent of net worth 
in 1934 and 1938, at 14 percent in 1933, at 20 percent in 1939, at 23 
percent in 1935, and at 28 percent in 1936 and 1937.«2 


The electric lamp industry presents a complex picture of duopoly, 
monopoly, and control by a single firm, achieved through the owner- 
ship of patents and protected by international agreements. Two com- 
panies, the General Electric Co. and the Corning Glass Works, are the 
only American producers of the large glass bulbs that go into the 
manufacture of electric lamps. The same 2 companies are the only 
producers of glass tubing and rod for electric lamps. General Electric 
and the Westinghouse Electric & Manufacturing Co. are the sole 
domestic producers of metal bases for such lamps.^^ Twenty-nine 
firms, including these 2, participate in the manufacture of tungsten 
filament lamps. General Electric uses its own output of bulbs, tubing, 
and rod in its own assembly plants. Corning, therefore, is the only 
domestic concern to sell these products to the 28 other manufacturers. 
General Electric has a similar monopoly in the sale of domestic lamp 
bases to these concerns.^* With its incorporation in 1892, this company 
acquired all of the Edison patents relating to incandescent lamps. 
"Smce that time," says the United States Tariff Commission, "through 
the purchase and consolidation of numerous companies, through the 
purchase of patents, and through its own research organization, it has 
acquired most of the important patents covering electric lamps, their 
parts, and -machinery and processes for making them." ^^ General 
Electric and Corning, monopolistic sellers of parts for assembly, operate 
under cross-licensing agreements. Six assemblers, including Westing- 
house, likewise operate under General Electric licenses. General Elec- 
tric and these 6 licensees produce nine-tenths of the total domestic 
output of incandescent lamps; the 22 other assemblers share the re- 
maining tenth.^^ From this complex of relationships. General Electric 
emerges as the dominant factor in the industry. 

Licenses wanted under the company's patents contain restrictive 
provisions w^ich are designed to perpetuate its ascendancy. Coming's 
license to employ the inside frosting process in the manufacture of 
bulbs permits it to sell such bulbs only to General Electric's six lamp 
licensees.*^ Westinghouse "is licensed to manufacture and sell lamps 
under the Mazda trade mark, but the company agrees not to allo^ 
its selling agents more favorable terms or greater compensation than 
the General Electric Co. allows its agents, and it may not appoint as 
agents persons or companies of whom the General Electric Co, disap- 
proves." ®® Westinghouse pays General Electric a royalty of 1 percent 
on lamp sales which do not exceed 25.4 percent of the combined lamp 
sales of the two concerns ; it pays a royalty of 30 percent on sales made 
in excess of this share. "The prices, terms, and conditions of sales 

M Moody's Industrials, 1940. 

«»U. S. Tariff Commission, Incandescent Electric Lamps, Report No. 133, second series 
(1939), p. 100. 
«* Ibid., pp. 15, 39-40. 
»Ibld., p. 36. 
»• Ibid., p. 34. 
«Ibid., pp. 15-16. 
« Ibid., p. 36. 


at which the Westinghouse Co. is entitled to sell lamps made under 
license of General Electric patents are fixed by the General Electric 
Co." *^ The five other licensed assemblers are prohibited from making 
or selling lamps for export. They pay a royalty of 3i/^ percent on lamp 
sales which do not exceed a certain percentage of General Electric 
sales ; they are required to pay an additional royalty of 20 percent on 
sales made in excess of their stipulated shares. Although the licenses 
gi'anted these concerns do not compel them to maintain prices, "the 
prices set by the General Electric Co. are generally closely followed." ^° 

Bulbs and lamps manufactured abroad are excluded from the Amer- 
ican market by international agreements. Large bulbs were once im- 
ported in substantial quantities, chiefly from the Netherlands. Within 
the last decade, however, international licensing arrangements have 
deprived domestic assemblers of this source of supply."^ Dutch sales 
to the United States dropped from 12,833,691 bulbs in 1932 to 2,289,507 
in 1933. Total bulb imports fell from 14,846,430 in 1929 to 686,241 in 
1938.^^ Independent manufacturers now have virtually no choice but to 
buy their bulbs from Corning. The European lamp industry has been 
cartelized almost continuously since 1903. General Electric is not it- 
self a member of this cartel, but it is closely connected with many of 
its members through stock ownership or licensing agreements or both. 
The company is financially interested in lamp factories in 10 foreign 
countries, including England, France, Germany, and the Netherlands.^^ 
Through its subsidiary, the International General Electric Co., it "has 
entered into numerous agreements with foreign companies which pro- 
vide for the exchange of patent licenses and manufacturing informa- 
tion, and for the establishment of territorial limits to competition be- 
tween the parties to the agreements." ®* In return for the licenses 
which it grants to foreign manufacturers. General Electric "receives 
from each of the companies an exclusive license to make and sell lamps 
in the United States under all patents owned or controlled by these 
companies." ^^ As a consequence of these arrangements, foreign com- 
petitors, with the exception of the Japanese, are effectively barred from 
the American market for electric lamps. Japanese sales, too, are small 
when compared with domestic production. In 1938, Japanese pro- 
ducers sold 66,258,000 lamps worth $487,000 in the United States ; in 
the same year American producers sold 738,700,000 lamps, worth 
$63,000,000.^® Japanese competition, moreover, was confined in the 
main to the sale of miniature lamps of the type used in flashlights. 
Only 10,260,000 of the 66,258,000 lamps imported from Japan in 1938 
entered the market for lamps sold for general lighting purposes.^^ In 
this field, the American producers have an almost complete monopoly 
of the domestic market. 

The retail price of 25, 40, and 60 watt lamps in the United States is 
lower than the prices which obtain in all but 1 of 12 other important 
consuming countries. The exception is Japan, where the 60 watt lamp 
sells at less than half of the price which is charged in the United 

»Ibid., p. 37. 

»" Ibid. 

»ilbid., pp. 17, 20. 

»=■ Ibid., p. 17 ; cf., infra, p. 200. 

•• Ibid., p. 58. 

"♦Ibid., p. 59. 

•» Ibid. 

••Ibid.', p. 7. 

« Ibid., pp. 51-52. 


States.®^ Between 1920 and 1930, output per man-hour in American 
assembly plants was multiplied by four ^^ and the price of lamps was 
nearly cut in half. In the past decade, however, prices have been held 
steady, despite continued technological improvement, for considerable 
periods of time. The price of the common 40 watt lamp, for example, 
remained unchanged for 6 years, from January 1, 1929,:to January 1, 
1935. The prices of all sizes, from 10 to 1,500 watts, remained un- 
changed from January 1, 1930, to January 1, 1934.^ 


Many of the operations involved in large scale accounting and statis- 
tical work are performed by electrically driven machines. These de- 
vices, based upon the original Hollerith tabulator, include card punch- 
ing machines, verifiers, sorting machines, and accounting machines 
which compute, classify, and record all manner of data. Of all such 
machines manufactured in the United States, the International Busi- 
ness Machines Corporation controls 85 percent and Remington-Rand, 
Inc., the other 15 percent. Both concerns produce the tabulating cards 
that are used on their machines. The International Business Machines 
Corporation also manufactures time clocks, time stamps, time controls, 
fire alarm and school alarm systems, sound distribution systems, com- 
mercial scales, accounting scales, electric typewriters, and a variety of 
other devices. Altogether the company holds some 1,400 patents, takes 
out 300 new patents every year. But 74 percent of its revenues and an 
even larger share of its profits are derived from its business in electric 
accounting machines.^ 

The two companies retain title to their machines and lease them to 
users on 1-year contracts. They sell their cards outright. In 1938, 
the International Business Machines Corporation received a gross in- 
come of $25,600,000 from the rental of machines and $5,000,000 from 
the sale of cards. The latter business is said to be a highly profitable 
one.^ Until recently the two concerns attempted to exclude other pro- 
ducers from the market for cards by attaching to their leases a pro- 
vision which required the lessee either to purchase all of his tabulating 
cards at a fixed price from the lessor or to pay a higher rental for the 
use of h\s machine. At the same time they undertook to share the 
market by agreeing that each one would confine its sale of cards to 
its own lessees. This arrangement was the subject of an antitrust suit 
which resulted, in 1936, in a Supreme Court decree invalidating the 
tying clauses in the International Business Machines leases and en- 
joining their further enforcement. A consent decree, with similar 
provisions, was entered against Remington-Rand.* 

The International Business Machines Corporation has constantly im- 
proved the quality of its machines, but it has never reduced the rental 
which it charges for their use. Its revenues have displayed remark- 
able stability through prosperity and depression. Profits rose steadily 
from $5,700,000, yielding 13 percent on net worth in 1933, to $9,100,000, 

»8 Ibid., p. 49. 

»»Ibid., p. 29. 

1 Ibid., p. 47. 

' Fortune, January 1940, pp. 36 ff. 

' Ibid. 

*The Federal Antitrust Laus (Washington, 1938), p. 246. 


yielding 16 percent, in 1939. Net profits in recent years have run 
between 23 and 32 percent of sales and other revenues.^ 


Two companies manufacture all of the railroad air brakes made 
in the United States. The Westinghouse Air Brake Co., by virtue of 
its patent rights, has occupied the commanding position in the indus- 
try ever since it was organized in 1869. It now makes three out of 
every four air brakes. The New York Air Brake Co. makes the 
fourth.® The industry is favored by the fact that its customers are 
compelled by law to purchase its product. The demand for air brakes 
normally fluctuates from year to year with changes in the volume of 
railway purchases of new rolling stock. But the requirements of the 
modernization program adopted by the railroads at the behest of the 
Interstate Commerce Commission are such that a substantial annual 
market is now assured. When an improved air brake was perfected 
by Westinghouse and New York engineers in 1933, the Commission 
directed the roads not only to employ this brake in the equipment of 
freight cars purchased in subsequent years but also to install it on all 
existing cars by the end of 1944, This order alone created a man- 
datory market for brakes for some 2,300,000 cars.^ The railroads are 
thus obliged to purchase the product manufactured by these two con- 
cerns, but this obligation is accompanied by no sort of public control 
over the price which they may charge. 

The Westinghouse Co. has paid cash dividends in every year of its 
history. It financed, entirely out of earnings, an expansion in its 
capitalization from $500,000 in 1869 to $50,000,000 in 1923.^ The com- 
pany obtained a net return of 13.3 percent on its net worth in 1929, 
suffered a deficit in only 1 year (1933) during the depression, made 
11.9 percent again in 1936 and 13.7 percent in 1937." The New York 
Co.'s record of earnings has been less favorable. It sustained losses in 4 
depression years, made only 6 percent in 1936 and 7 percent in 1937.'° 
This contrast may be explained, in part, by the relationship which 
exists between the two concerns. The companies operate under a 
cross-licensing agreement which provides for the interchange of roy- 
alty payments, but, according to Fortune, "it is believed that Westing- 
house does much more of the collecting and much less of the paying, 
and that the royalty rate from New York to Westinghouse increases 
rapidly if New York's sales increase beyond a certain percentage of 
the total market." ^^ It should be noted that Westinghouse also has 
large stock interests in several foreign air brake companies and that 
it owns the Union Switch & Signal Co., which has only one important 
competitor and itself produces more than half of the signaling equip- 
ment sold in the United States.'^ 

» Fortune, op. clt. ; Moody's Industrials, 1940. 

• Fortune, March 1937, p. 115. 

^ Ibid., p. 118 ; Poor's Industrials, 1939. 

'Fortune, op. clt., pp. 118-119. 

•Moody's Industrials, 1938. 

M Ibid. 

>! Fortune, op. clt., p. 184, 

"Ibid., p. 116. 



Two companies divide nine-tenths of the business of furnishing com- 
pressed oxygen and acetylene to industrial consumers who employ the 
oxyacetylene torch in the cutting and welding of metal. One of these 
companies, the Union Carbide & Carbon Corporation, formed by a 
merger in 1917, is said to derive two-fifths of its g:ross income from 
this business. The other, the Air Reduction Co., incorporated in 1915, 
is a specialist in the field. The nature of the industry is such that no 
competitor is likely to challenge the position occupied by these con- 
cerns. The tanks in which compressed oxygen and acetylene must be 
sliipped are heavy ; transportation charges are high in relation to the 
value of the products; manufacturing plants must therefore be lo- 
cated close to the major industrial markets. Union Carbide has 164 
plants and 1,113 warehouses in the United States and Canada, a part 
of them being devoted to the production and distribution of oxyacety- 
lene. Air Reduction, which acquired 35 independent firms between 
1922 and 1937, has built up an organization of 129 plants and 535 
warehouses. To duplicate these facilities by constructing plants in 
each of the major markets would require a newcomer to make an 
enormous capital outlay. The present contractual arrangements be- 
tween the companies and their customers, moreover, would make it 
difficult, if not impossible, for him to break into the field. The existing 
duopoly appears to be secure.^^ 

Relations between the two companies have been harmonious; neither 
one has attempted to increase its share of the market by initiating a 
price war. Prices have been profitable and earnings high. It was 
estimated in 1933 that 100 cubic feet of oxygen cost about 75 cents to 
make and retailed on the average at $1 and that 100 cubic feet of 
acetylene cost $1.30 and sold at $2.30. The rare gases drawn from air 
yielded even better margins, a liter of krypton costing $50 to make 
and selling at $250.^* In the decade from 1928 through 1937 Union 
Carbide realized an average annual net income, from all of its opera- 
tions, of 11.02 percent on its net worth, and Air Reduction realized an 
average annual net of 14.24 percent. Union Carbide's return ranged 
from 4.3 percent in 1932 to 17.3 percent in 1937, standing at 10 percent 
in 1938 and 13.1 percent in 1939 ; Air Reduction's fell from 20.3 percent 
in 1929 to 6.8 percent in 1932, rose to 20.9 percent in 1937, and stood 
at 10.5 percent in 1938 and 13.7 percent in 1939.^^ 


Sulfuric acid, a product basic to many manufacturing operations, 
may be derived from sulfur or brimstone found in natural deposits, 
from pyrites, or from gases given off in the processing of copper, zinc, 
coal, lignite, coke, and petroleum. In the year 1937, 72 percent of the 
American supply was derived from brimstone, 18.9 percent from 
pyrites, and 9.1 percent from byproduct gases.^*^ The portion of the 
supply derived from the two latter sources, however, was largely con- 
sumed by its producers in the course of their own industrial opsra- 

" Editors of Fortune, Understanding the Big Corporations (New York, 1934), ch. 6. 

« Moody's Industrials, 1938, 1940. 

"Hearings before the Temporary National Economic Committee, Part 5, p. 2262. 


tions; relatively little of it was offered for sale in the commercial 
market. The bulk of the sulfur which enters the American market 
(96 percent in 1937) comes from naturally occurring ores.^'' The 
Texas Gulf Sulphur Co. and, the Freeport Sulphur Co., between them, 
own or lease virtually all of the workable deposits of brimstone in the 
United States, hold the patents covering the method by which sulfur 
is extracted from these deposits, and control the American rights to a 
Norwegian process by which sulfur may be extracted from pyrites. 
These two companies have produced 94 percent of the sulfur with- 
drawn from native deposits since 1924.^^ They produced 90 percent 
of the sulfur derived from all sources which was offered for sale in 
the American market in 1937.^'' 

Texas Gulf and Freeport jointly own the Sulphur Export Corpora- 
tion, through which they share, on a 50-50 basis, their foreign orders, 
a quarter of their total sales.^° This corporation has an agreement 
with the Ufficio Per La Vendita Dello.Zolfo Italiano, a sales office 
for the Italian interests, who are the only other producers of any 
importance, which allocates world markets down to the final ton, 
provides for the imposition of penalties when shipments are made 
in excess of the allotted shares, binds the contracting parties to resist 
expansion in the supply of manufactured sulfur, and stipulates that 
prices shall "be fixed from time to time * * * jn such manner 
as best to serve their mutual interests." ^^ Under its terms, the cor- 
poration exports 50 percent of the first 480,000 tons, 75 percent of 
the next 145,000 tons, and 90 percent of everything above 625,000 tons 
sold in any year outside of "the Kingdom of Italy, its dependencies 
and colonies, and North America, Cuba, the islands off the coast of 
Canada and the insular possession of the United. States of America." ^^ 
Although neither participant is explicitly excluded from the areas 
named, American sales to Italy and Italian sales to the United States, 
have, in fact, been negligible in quantity.^^ A supplementary memo- 
randum, signed in 1934, fixed the prices at which sulfur might be 
delivered at every port in the world and provided that they should 
be "effective until changed by mutual agreement of the parties." ^^ 
Agreements between the Sulphur Export Corporation and the Orkla 
Grube Aktiebolag, owners of the Norwegian patents, concluded in 
1933 and 1934, gave Sulexco exclusive rights under these and future 
patents, fixed the quantity that Orkla might produce, forbade it to 
increase its productive capacity, confined it to the markets of Nor- 
way, Sweden, and Finland, and set the price at which it was per- 
mitted to sell.^^ 

The two American companies have held the domestic price of sul- 
fur at a figure which has varied only slightly, during prosperity 
and depression, for a period of 17 years.^® In many of these 
years stocks above ground plus annual production have been far in 
excess of annual sales. In each of the years from 1925 to 1938 Free- 
ly Ibid., p. 2269. 

" Ibid., p. 1992. 

" Ibid., p. 2269. 

»'Ibid., p. 1992. 

" Ibid., p. 2210. 

»Ibid., p. 2209. 

»Ibid., p. 2270. 

»«Ibid., p. 2212. 

28 R. H. Montgomery, The Brimstone Game (New York, 1940), ch. 9. 

" Hearings before the Temporary National Economic Committee, Part 5, p. 1994. 


port sold only 31 to 65 percent of its annual supply. In each of the 
years from 1930 to 1938 Texas Gulf sold only 23 to 63 percent of its 
supply. In 4 of the 8 years from 1931 to 1938 the two companies 
together sold only a third of the brimstone available; in the other 
4 years they sold only half.^^ But at no time did the existence of 
surplus stocks bring about a competitive reduction in price. From 
1926 to 1938 the two companies charged $18 a ton for sulfur which 
Freeport was producing at an average cost, exclusive of royalties, of 
$6.13 and Texas Gulf at an average cost of $5.64.^8 From 1919 to 1938 
Freeport's net income averaged 23.08 percent of its gross income from 
sales ; Texas Gulf's net averaged 56.9 percent of its gross.^^ 

Such margins have been productive of handsome returns. Free- 
port's average annual profit on its investment in the years from 1919 
to 1938, according to estimates made by the Federal Trade Commis- 
sion, stood at 15.87 percent before certain deductions were made for 
property taxes, capital losses, and adjustment of depreciation reserves, 
and at 13.31 percent after these deductions were made.^'' The com- 
pany's own estimate places the figure at 12.28 percent.^^ Freeport 
made $5,000,000 on an investment .of $11,500,000' in 1929, a return in 
that year of 43.72 percent.^- Over a period of 25 years, its dividends 
have yielded an average annual return of 24.75 percent on the ledger 
value of its stock.^^ The Texas Gulf Co., according to the Federal 
Trade Commission, received an average annual profit of 28.75 percent 
from 1919 to 1938 and made $13,000,000 on an investment of $17,500,000 
in 1927, a return of 74.12 percent.^^ Over a period of 18 years, its 
dividends, on the basis of the original value of its stock, have amounted 
to 95.46 percent per year.^** 


There are still other markets in which one or two concerns possess 
all or almost all of a supply. Ninety-five percent of the heat-resisting 
glassware produced in the United States is manufactured and dis- 
tributed by the Corning Glass Works.^** Natural gas is delivered 
to many consuming areas by a single pipe-line system. The rates 
and services of pipe lines in intrastate commerce have long been reg- 
ulated by State utilities commissions, but those of lines in interstate 
commerce were not subject to effective control until they were brought 
within the jurisdiction of the Federal Power Commission by the Fed- 
eral Natural Gas Act of 1938.^^ About 50 percent of the American sup- 
ply of borates, used in the production of borax and boric acid, has been 
provided since 1921 by the Pacific Coast Borax Co., an American af- 
filiate of Borax Consolidated, Ltd., of Great Britain, another 40 per- 

" Ibid., p. 2271;. 

» Ibid., p. 2204. 

» Ibid., pp. 2245, 2252. 

"Ibid., pp. 2249, 2274-2275. 

» Ibid., p. "2260. 

M Ibid., p. 2249. 

^ Montgomery, op. cit., p. 57. 

** Hearings before the Temporary National Economic Committee, Part 5, p. 2242. 

^Montgomery, op. cit., p. 64. 

*" U. 8. V. Hartford-Empire Company et al.. District Court of the United States, Northern 
District of Ohio, Western Division, Complaint, December 11, 1939, p. 91. 

^Cf. Federal Trade Commission Report on Natural Gas and Natural Gas Pipe Lines in 
Temporary National Economic Committee Monograph No. 36. 


cent by the American Potash & Chemical Corporation.^^ All of the 
sodium nitrate sold in the United States in recent years has been sup- 
plied by the Chilean Nitrate Sales Corporation and the Barrett Co., 
a subsidiary of the Allied Chemical & Dye Corporation. =*^ The United 
States Tariff Commission, in a report covering some 2,250 synthetic 
organic chemicals in 1938, listed only one producer for nearly 1,200 
of these items and only two for more than 350.*° 

The total number of cases in which one or two firms control nine- 
tenths or more of the supply of a good or service in a Nation-wide 
market, while undoubtedly larger than that revealed by the preceding 
description of specific industries and products, is unknown. The most 
reliable source of information on concentration of production in manu- 
facturing industries, the Biennial Census of Manufactures, gives no 
data on this subject. The census reports do not usually show any degree 
of concentration beyond the portion of an industry's output controlled 
by its four largest producers. In some cases even this information is 
withheld, since its disclosure might reveal the share controlled by 
specific firms. The Bureau of the Census will not make public the con- 
centration index for an industry or a product if its largest producer 
controls 75 percent or more, or if its two largest producers control 90 
percent or more of its output, or if the share of the output which is not 
controlled by the four largest producers is similarly concentrated in 
the hands of one or two concerns. Among the 275 industrial categories 
listed in the Census of Manufactures for 1935, there were 9 for which 
concentration data were withheld. These were: Billiard and pool 
tables, bowling alleys, etc.; china firing and decorating, not done in 
potteries; copper smelting ard refining; essential oils; fuel briquettes; 
lead smelting and refining; locomotives, other than electric; tin and 
other foils, not including gold foil ; and typewriters and parts." Like- 
wise, in a group of 1,807 products, nearly half of those covered by the 
census for 1937, there were 328 for which data were withheld.*^ In 
these cases, of course, production is highly concentrated and it is pos- 
sible that one or two firms manufacture nine-tenths or more of the 
output of some of these industries or control nine-tenths or more of 
the supply of several of these products. 


There is little or no information available on the prevalence of situa- 
tions approaching complete monopoly or duopoly in regional or local 
markets. The figures published by the Census, showing only the share 
of the total national output of an industry that is controlled by its 4 
largest firms, may conceal a far higher degree of concentration within 
the several markets in which its products are actually sold. In the 
case of common brick, for example, not more than 7 percent of the 
national output was produced by the 4 largest firms in 1937, but a 
survey of the data for 5 localities reveals that 63.3 percent of the output 
in the Philadelphia area was controlled by 4 of the 10 local firms, that 

3« Cf. Clifford L. James, Industrial Concentration and Tariffs, Temporary National Eco- 
nomic Committee Monograph No. 10, ch. 5. 

3" Federal Trade Commission, Complaint, Docket No. 3764 (1939). 

«> U. S. Tariff Commission, Report No. 136, Second Series, Synthetic Organic Chemicals : 
United States Production and Sales (1938), pp. 5-52. 

" Cf. National Resources Committee, The Structure of the American Economy, Part 1, 
Basic Characteristics, pp. 248-20.'!. 

" Cf. Thorp and Crowder, op. cit., Part III. 


production in the New York City, Los Angeles, and Washington, D. C, 
areas was so concentrated that the share controlled by the 4 largest 
firms had to be withheld under the census disclosure rule, and that all 
of the production in the San Francisco area was in the hands of 2 
concerns.*^ Among planing mills, likewise, although the national 
index of concentration was only 4.6 percent, control over the supply of 
a number of products in the Chicago, Milwaukee, Kansas City, Los 
Angeles, and Seattle-Tacoma areas was so highly centralized that the 
local indices could not be disclosed."* In 1935, the 4 largest producers 
accounted for 48.9 percent of the national output of paving materials, 
29.9 percent of the cwnent, 27.7 percent of the lime, 10.2 percent of the 
concrete products, and 9.5 percent of the marble, granite, slate, and 
other stone, but these goods are sold in regional markets between which 
there is little overlapping and within which a few concerns may control 
the bulk of the supply. At the same time, the 4 largest firms produced 
37.6 percent of the national output of manufactured gas, 32.7 percent 
of the ice cream, 20.7 percent of the manufactured ice, and 18.2 percent 
of the bread and other bakery products, but these goods are sold almost 
exclusively in local markets where a far higher degree of concentration 
may obtain.*^ In these and other fields it is possible that one or two 
producers in many local areas control nine-tenths or more of the 


"There is a tendency," writes A. A. Berle, "to idealize the early 
nineteenth centui-y and to assume that small business and the prices 
it charged were the result of competition. As far as I am able to 
see, there is little, if any, foundation for this. The village store, the 
village blacksmith, the village grist mill, were all monopolies-. Until 
the advent of the automobile, they charged conventional or admin- 
istered prices which were not elastic. The people of the village 
could not go many miles to the next town. In a large measure this 
is still true in siyiall towns. Such competition as there has been, 
curiously enough, came from large scale enterprise ; mail order houses, 
and later the chain stores. The theory that prices were adjusted 
by competition under the old small scale production in small towns, 
as far as I can see, simply never was generally true, despite some 
nostalgic reminiscences which are indulged in todiy." *^ 

The development of transportation and communication in recent 
years has unquestionably reduced the isolation of local markets and 
has accordingly impaired the monopolistic position of the retail 
tradesman in the country town. But a few relatively isolated com- 
munities, with their petty monopolists, remain. In all local markets, 
moreover, there are trades whose character is sUch as to restrict the 
area within which competition may occur. Many small towns are 
served by only one or two bankers, butchers, plumbers, pharmacists, 
undertakers, hotels, garages, coal dealers, ice plants, and lumber 
yards. These enterprises may be tiny when compared with those 
that dominate an urban or a national market; the situations differ 
in degree but not in kind. 

« Hearings before the Temporary National Economic Committee, Part 11, p. 5548. 
" Ibid., pp. 5549-5551. 

** Natioua) Resources Committee, op. cit., pp. 265-260. 

** A A. Berle, Jr., "Investigation of Business Organization and Practices," Plan Age. 
September 1938, p. 186. 



In each of the cases discussed in the preceding chapter, one or two 
corporations controlled nine-tenths or more of the supply of an im- 
portant good or service in an American market. Such cases are com- 
paratively rare, but they are not the only ones in which large estab- 
lishments may dominate a trade. In some industries, a single firm, 
producing much less than nine-tenths of the total output, so far sur- 
passes its rivals in resources and sales as to govern the market. In 
others, small numbers of enterprises, roughly comparable in size, each 
of them overtopping their smaller competitors, together command the 


Among 1,807 products, representing nearly half, by number, and 
more than half, by value, of those included in the Census of Manu- 
factures for 1937, there were 291, or more than one-sixth of those in 
the sample, in which the leading producer accounted for 50 to 75 
percent of the total supply.^ One company, in each field, in some 
year between 1930 and 1940, produced 40 percent of the Nation's out- 
put of industrial alcohol,^ 40 percent of the com products,^ 41 percent 
of the farm machinery,* 50 percent of the towels,^ 60 percent of the 
fruit jars,^ 66 percent of the canned soup,'^ and 85 percent of the fire 
extinguishing apparatus and supplies.^ One company, in 1932, was 
said to manufacture 65 percent of the cinema negative film, 75 percent 
of the cinema positive filni, and 85 percent of the still film for 
amateurs.® The American Can Co., the American Car & Foundry 
Co., the American Smelting & Refining Co., the American Sugar 
Refining Co., the International Match Co., the Koppers Co., the Na- 
tional Biscuit Co., the National Lead Co., the Procter & Gamble Co., 
the Singer Manufacturing Co., and the Union Carbide & Carbon 
Corporation, among others appearing on a list of the 20O largest 
nonfinancial corporations, each with assets in excess of $90,000,000 
in 1932, had no rivals on the list in their respective fields,^" 

1 Thorp and Crowder, op. cit. 

2 Arthur P. Burns, The Decline of Competition (New York, 1936), p. 135. 
» Fortune, September 1938, p. 56. 

* Federal Trade Commission, Agricultural Implement and Machinery Industry, p. 1024. 

' Idem, Agricultural Income Inquiry, Part I, p. 321. 

« Hearings before the Temporary National Economic Committee, Part 2, p. 552. 

T Fortune, November 1935, p. 69. 

» Federal Trade Commission, Order, Docket 2352 (1935). 

» Fortune, May 1932, p. 51. 

^° Nourse and Drury, op. cit., p. 219. 



Two companies manufactured 70 percent of the heavier types of 
electrical equipment, 70 percent of the electric motors, and 75 percent 
of the watt-hour meters made in 1923 and produced 80 percent of the 
distribution and power transformers and 89 percent of the generators 
that were in use in 1925.^^ Two companies accounted for 63 percent 
of the farm machinery manufactured in 1936, producing more than 
50 percent of the output of 13 different implements, 88 percent of the 
grain and rice binders, and 89 percent of the corn binders.^^ Two 
companies possessed 89 percent of the domestic capacity for the pro- 
duction of synthetic nitrogen in 1937.^^ Two companies, in each field, 
in some year during the thirties, provided 47 percent of the beef 
products," 51 percent of the copper,^^ 56 percent of the glass con- 
tainers,^^ 62 percent of the biscuits and crackers,^^ 63 percent of the 
ophthalmic lenses,^^ 64 percent of the tire cord fabric,^^ 70 percent of 
the mijk bottles,^" and 80 percent of the locomotives.^^ 

Three companies, in each field, in some recent year, produced two- 
thirds of the national output of chemicals," 68 percent of the lead,^' 
69 percent of the copper ,-* 70 percent of the cast-iron enamel ware and 
vitreous china ware,^^ 73 percent of the farm combines,^^ 74 percent 
of the biscuits and crackers,^^ 75 percent of the ophthalmic lenses, 
frames, and mountings,^* 75 percent of the window glass,^^ 78 percent 
of the copper,^" 79 percent of the calcined gypsum,^^ 80 percent of the 
cigarettes,^^ 85 percent of the fruit jars,^^ 85 percent of the cotton 
gauze, bandages, adhesives, sponges, pads, etc.,^* 86 percent of the 
automobiles,^^ 87 percent of the gypsum board,^^ 90 percent of the tin 
cans,^^ 90 percent of the household cotton thread,^* and 97 percent of 
the snuff.^" Among 1,807 of the products covered by the Census of 
Manufactures in 1937, only three firms were reported as producing 

'^ Federal Trade Commission, Supply of Electrical Equipment and Competitive Condi- 
tions, 70th Cong., 1st sess., S. Doc. 46 (1928), pp. 93, 109-110, 113 120. 

"Idem, Agricultural Implement and Machinery Industry, pp. 150-153, 1024. 

'^U. S. Tariff Commission, Chemical Nitrogen, Report No. 114, 2d series (1937), pp. 184, 

1* Hearings before the Temporary National Economic Committee, Part 1, p. 137. 

» Elliott and others, op. cit., pp. 551-552. 

" Hearings before the Temporary National Economic Committee, Part 2, pp. 474, 536. 

1^ Federal Trade Commission, Report to the President on Monopolistic Practices and 
Other Unwholesome Methods of Competition (typescript), 1939, p. 580. 

^' U. 8. V. American Optical Company, et al., District Court of the United States, South- 
ern District of New York, No. 107-418, Indictment, May 28, 1940, p. 8. 

"Federal Trade Commission, Agricultural Income Inquiry, Part I, p. 321. 

" Hearings before the Temporary National Ek;onomic Committee, Part 2, p. 530. 

» Fortune, December 1939, p. 162. 

Mlbid., December 1937, p. 162. 

» Elliott and others, op. cit., p. 679. 

»* Ibid., pp. 551-552. 

*« U. 8. V. Central Supply Association et al.. District Court of the United States, Northern 
District of Ohio, Indictment March 20, 1940, p. 17. 

" Federal Trade Commission, Agricultural Implement and Machinery Industry, pp. 150- 

" Idem, Agricultural Income Inquiry, Part 3, p. 41. 

» U. 8. V. Opticai Wholesalers National Association, Inc., et al.. District Court of the 
United States, Southern District of New York, Indictment, May 28, 1940, p. 11. 

*U. S. Tariff Commission, Flat Glass and Related Products, Report No. 123, Second 
Series (1937), pp. 24, 41. 

"Verbatim Record of the Proceedings of the Temporary National Economic Committee, 
vol. 11, p. 67. 

siCf. infra, p. 162. 

» Hearings before the Temporary National Economic Committee, Part 1, p. 137. 

» U. 8. V. Hartford-Empire Company et al.. District Court of the United States, Northern 
District of Ohio, Western Division, Complaint, December 11, 1939, p. 92. 

"Federal Trade Commission, Complaint, Docket 3393 (1938). 

* Hearings before the Temporary National Economic Committee, loc. cit. 
» Cf. infra, pp. 161-163. 

*' Hearings before the Temporary National Economic Committee, Part 1, p. 137. 

* U. S. Tariff Commission, Cotton Sewing Thread and Cotton for Handwork, Tariff 
Information Survey (1927), p. 15. 

* Federal Trade Commission, Agricultural Income Inquiry, Part 1, p. 473. 



each of 28, including boric acid, printed linoleum, tennis balls, three 
types of marine engines, and four varieties of machine tools.*" 

In 1935, four companies in each field mined 42 percent of the zinc, 
63 percent of the asphalt, 64 percent of the iron ore, 78 percent of the 
copper, 80 percent of the gypsum, and 84 percent of the marble.*^ In 
the same year, four companies accounted for 66 percent of the slaughter 
of meat animals, killed 52 percent of the hogs, 67 percent of the cattle, 
71 percent of the calves, and 85 percent of the sheep, lambs, and goats, 
and sold 43 percent of the pork, 52 percent of the lard, 58 percent of 
the beef, 59 percent of the cured pork, and 70 percent of the veal: ^ 
Among the 275 categories included in the Census of Manufactures for 
1935, there were 54 in which the 4 largest firms produced more than 
two-thirds, by value, of the total supply. These industries are listed 
in the table which follows.*^ 

Industries in which the 4 largest firms produced more than %„ iy value, of the 

total output, in 1935 






by the 4 

by the 8 



























































































Typewriters and parts 

Oils, essential. - - 

Chewing gum 

Ammunition and related products..- 

C igarettes _ 

China firing and decorating, not done in potteries 

Combs and hair pins, other than metal and rubber 

Linseed oil, cake and meal. :_ 

Drug grinding -.. 

Motor vehicles, except motorcycles 

Graphite, ground and refined 



Safes and vaults 

Writing ink 



Rubber boots and shoes 


Bone black, carbon black, and lamp black 

Rubber tires and inner tubes 

Tin cans and other tinware 

Corn sirup, corn sugar, corn oil, and starch 

Compressed and liquefied gases... 

Oleomargarine, not made in meat-packing establishments 

Sewing machines and attachments 

Photographic apparatus and materials and projection apparatus. 

Chemical fire extinguishers 

Cork products 

Qypsum products 

Aluminum products 

Gold leaf and foil. 

Rayon and allied products : 

Soda fountains and accessories.. 


Agricultural implements... _ 

Electric and steam railroad cars 

Fountain and stylographic pens; gold, steel, and brass pen points 


Cane sugar refining 

Motor vehicle bodies and parts 

Shortenings, vegetable cooking oils, and salad oils 

Beet sugar 

Cereal preparations.. 

See footnotes at end of table. 

*• Thorp and Crowder, op. cit., Part III, Appendix A. 

*i Hearings before the Temporary National Economic Committee, Part 1, p. 137 ; Part 11, 
p. 5512. 

** Federal Trade Commission, Agricultural Income Inquiry, Part I, p. 198. 

"National Resources Committee, The Structure of the American Economy, Part I, pp. 
248-258, 262. 



Industries in i4Mich the 4 largest fimis produced more than %, by value, of the 
total output, in 1935 — Continued 






by the 4 

by the 8 




















Chocolate and cocoa products, except confectionery 

Abrasive wheels, stones, paper, cloth, and related products 
Surgical and orthopedic appliances and related products... 


Billiard and pool tables, bowling alleys, etc... 

Fuel briquettes 

Locomotives, other than electric 

Copper smelting and refining . 

Lead smelting and refining — 

Tin and other foils, except gold foil.. — 

• Information withheld in order to avoid the approximate disclosure of data for individual enterprises. 
The figure cannot be lower than 66 and is probably much higher. In the case of typewriters, for instance, it 
is said that the 4 largest companies produce between 95 and 98 percent of the new machines. Cf. U. S. v. 
Underwodd Elliott Fisher Co. et al.. District Court of the United States, Southern District of New York, 
Indictment, July 28, 1939, p. 7. 

Since an industry, as defined by the census, may manufacture 
many different products and since any one product may be made by 
but a few of the concerns that are classified as belonging to the in- 
dustry, the actual degree of concentration within the foregoing fields 
may be even higher than that which the figures reveal. In the study 
of 1,807 census products, previously cited, the Bureau of Foreign and 
Domestic Commerce found 37 in each of which 4 firms produced the 
whole supply.^* Four concerns, in some recent year, have accounted 
for the entire output of inlaid linoleum, watt-hour meters, rubber 
combs, borax, epsom salt, citric acid, tartaric acid, oxalic acid, calcium 
carbide,*^ flake calcium chloride,** and corn binders,*^ and 4 have 
handled 99 percent of the potash sold in the United States."** Among 
the products in the Bureau's sample, there were 164, or 9 percent of 
the total, in which the share manufactured by the 4 largest firms was 
over 90 percent and 328 others, or 18 percent, in which this share was 
not disclosed. Thus it appears that somewhere between one-tenth and 
one-fourth of the products covered by the census are made in fields 
where 4 concerns controlled nine-tenths or more of the supply. There 
were 670 products, over 37 percent of those in the sample, in which 
the 4 leading companies were reported as producing more than 75 
percent of the output or in which information was withheld because 
one firm produced more than 75 percent or two more than 90 percent, 
and there were 175 others, nearly 10 percent of those in the group, 
for which data were withheld in order to avoid disclosure of the share 
produced by the fifth and successive firms. It thus appears that two- 
fifths to one-half of the goods covered by the census are made in 
fields where 4 concerns controlled three-fourths or more of the supply. 
When products with an annual output valued at less than $10,000,000 
are eliminated, there remain 121 products, valued at more than 
$10,000,000, in which it is certain that more than 75 percent, by value, of 
the total output was manufactured by 4 firms. These goods are listed 
in the table which is given below.*^ 

** Thorp and Crowder, loc. cit. 
« Ibid. 

«• Federal Trade Commission, Order, Docket 3519 (1938). 
*' Idem., Agricultural Implements and Machinery Industry, p. 151. 

• U. 8. V. American Potash and Chemical Corporation, et al.. District Court of the United 
States, Southern District of New York, Indictment, May 26, 1939, p. 6. 
"Thorp and Crowder, loc. cit. 



Products valued at more than $10,000,000 each, in whose manufacture the 4 
largest producers controlled more than % of the total output in 1937 


Number of 

Percent pro- 
duced by 
the 4 largest 

Inlaid linoleum 

Watt-hour meters, alternating current. 

Refrigerator cabinets, domestic 

Asbestos shingles - 

Machine-finished paper containing ground wood.. 

Coal tar products; crudes 

Refrigerating systems, complete without cabinets 

Power transformers; 501 kw. and over.. 


Hydrocarbon; acetylene .-. 

Tractors; "all purpose," wheel type, belt horsepower under 30, steel tires. 

Plug chewing tobacco >■ 


Typewriters; standard - 

Radio receiving tubes for replacement, alternating current, glass and metal 

White lead in oil, pure 

Tractors; "all purpose," wheel type, belt horsepower 30 and over, rubber tires 

Aluminum ware, cast 

Copper plates and sheets 

Passenger cars and chassis. - — 

Corn starch 

Milk bottles ■ 

Metal working flies and rasps.. 

Tin cans, vent-hole top 

Cultivators; 2, 3, and 4, 5, and 6 tractor drawn or mounted 

Aluminum ware, stamped .• 

Distributor transformers, H to 500 kilowatts.. • 

Zinc oxides, Chinese white and zinc white 

Scrap chewing tobacco. ..■ 

Steam turbines, other than marine - 

Carburetor engines, motor vehicle, other types — ■ 

Steel strips and flats, hot rolled for cold rolling — -. 

Tractors; other than "all purpose," 30 and over, steel and rubber tires 

Window glass - - • 

Cigarettes -.-- — — 

Gypsum, neat plaster. 

Nickel alloys, plates, and sheets 

A. C. synchronous timing motors, 1/20 horsepwwer.and over, under 1 horsepower, 

capacitor type ■ 

Steel; rolled blooms and billets for forging 

Adding machines... - 

Rubber arctics and gaiters 

Refined sugar, softer brown .- 

Steel, skelp. - -- 

Rubber-soled canvas shoes 

Wallboard except gypsum, rigid, cellular fiber.. 

Aluminum ingots 

Matches, strike anywhere 

Wire and cable, paper insulated 

Cotton woven chambrays and cheviots. 

Rubbers and footholds -. 

Machine-made tumblers, goblets, and barware..'... — 

Batteries, dry, other than 6 inch, 1}4 volt 

Rayon yarns by denier; 100 (88-112) 

Motors, direct current, 1 horsepower to 200 horsepower 

Partially refined oil sold for rerunning 

Combines, harvester-thresher, 6 foot cut and widei 

Steel, plates, universal 

Brass and bronze tubing and pipe, seamless 

Heating and cooking apparatus, kerosene 

Truck and bus tires - 

Coal tar resins derived from phenol, a^d/or cresol 

Rayon yarns by denier, 300 (250-374) 

Radio receiving sets, beyond standard broadcast, socket power, $45 to $65. 

Turkish and terry-woven towels 

Smoking tobacco 

Tobacco and cheesecloth 

Machine-glazed Kraft wrapping paper, other 

Domestic refrigerators, 6 foot under 10 foot 

Canned meats. _. 

Passenger car tires. 

Steel; semifinished rolled blooms, billets, and slag 

Narrow-neck packers' ware .-- 

Steel; black for trimming 

Granulated sugar 

Woolen woven goods, other. 

A. C. synchronous tuning motors; 1/20 horsepower and over, under 1 horsepower, 
split phase 










271817—40 — No. 21- 




Products valued at more than $10,000,000 each, in whose manufacture the 4 
largest producers controlled more than % of the total output in 1931 — Con. 


Number of 

rerceni pro- 
duced by 
the 4 largest 

























































































Passenger car, truck, and bus inner tubes 

Commercial cars, trucks, and busses 

Thermostats . 

Steel rails '. -- --- 

Car and locomotive wheels, rolled and forged 

Lead oxides; litharge 

Beer cans 

Com and other sirups 

Axles, rolled and forged 

Corn sugar - 

Oxides, other -- 

Steel; pierced billets, rounds, and blanks for seamless pipes and tubes 

Electric household ranges, 2}^ kilowatts or over 

Steel; sheet and tin plate 

Ignition cable sets or wire assemblies for internal combustion engines 

Stainless steel plates and sheets 

Films, except X-ray 

Sensitized photographic paper 

Paper: ground wood, printing _. 

Beer bottles_ 

Lighting glassware, including electriclight bulbs 

Cameras, including motion picture 

Paekin? rings, electrodes; miscellaneous graphite and metal graphited specialties 

Ferro-alloys, electric furnace 

Steel; heavy web, 3-inch and over 

Carburetor engines, motor vehicle, industrial stationary 

Wool , meat-packing . 

Flat glass, other 

Sanitary cans, including condensed milk cans 

Carburetor engines, aircraft. _ 

Wallboard, except gypsum _ 

Cash registers, etc _ - 

Storage batteries, other 

Spark plugs 

Power switch-boards and parts ..' 

Telephone and telegraph apparatus — 

Men's work shttes, wood or metal fastened 

Canned soups 

Aluminum products, other -- 

Motor vehicle hardware, including locks 

Sheet metal; culverts, flumes, irrigation pipe, etc 

Metal davenports, sofas, day beds, studio couches, etc., upholstered 

Mattresses, innerspring. 

Cartridges -- 

> Information withheld in order to avoid the approximate disclosure of data for individual enterprises 

> Data not available. 

Among the 1,807 products in the sample for 1937, there were 382 
in which 5 to 10 concerns accounted for the whole supply. Eight 
companies, in recent years, have produced and distributed 80 to 90 
percent of the feature films, and produced, distributed, and exhibited 
65 percent of all the motion pictures shown in the United States.**" 
Nine companies have manufactured all the liquid chlorine made for 
industrial and commercial use.°^ Ten companies have supplied the 
entire domestic output of viscose rayon yarn.°^ 

In the cement industry, where 75 companies operated 162 mills in 
1938, the 5 largest produce nearly 40 percent of the total output, the 
next 6 produce 16 percent, and none of the others provides as much 
as 2 percent.^3 The leading firm in the industry, the Universal-Atlas 

* Department of Justice, V. S. v. Paramount Pictures, Inc., et al., Statement of Grounda 
for Action, July 20, 1938. 

« Federal Trade Commission. Order, Docket 3317 (1938). 

" Idem, Order, Docket 2161 (1937). 

ss Commodities in Industry — The 1940 Commodity Year Book (New York, 1940), p. 96; 
Federal Trade Commission, Cement Industry, 73d Cong., Ist sess., S. Doc. No. 71 (1933), 
p. 12. 


Cement Co., a subsidiary of the United States Steel Corporation, was 
formed by merger in 1930. It accounted for 15 percent of the national 
output at that time. But its dominance is greater within the regional 
markets where cement is sold. The Universal and Atlas companies, 
before they were combined, made nearly half of the shipments into 
New Hampshire and Illinois; a third in Indiana, Minnesota, and 
Vermont; and a quarter in Pennsylvania, West Virginia, and Wis- 

In the oil industry, between 1936 and 1938, 14 companies, among 
several thousand, owned 89 percent of the mileage of crude oil trunk 
pipe lines ; 15 companies owned 87 percent of the deadweight tonnage 
of oil tankers; 16 owned 96 percent of the mileage of gasoline pipe 
lines ; 18 made 80 percent of the domestic sales of gasoline ; and 20 pro- 
duced 52 percent of the crude, owned 57 percent of the mileage of 
gathering lines, 75 percent of the daily crude capacity, and 85 per- 
cent of the daily cracking capacity, made more than 82 percent of the 
runs to stills, produced nearly 84 percent of the gasoline, and held 90 
percent of the stocks of gasoline, 93 percent of the stocks of lubricants, 
and more than 96 percent of the stocks of refinable crude.^^ An even 
higher degree of concentration obtains within the regional rharkets 
where the major companies refine and sell their gasoline. There is no 
market within which all 20 of these companies compete ; in 16 States 
there are fewer than 10 of them to be found. The leading firm sells 
more than 20 percent of the gasoline consumed in each of 30 States, 
more than 25 percent in 15, more than 30 percent in 5, 40 percent in 
Wyoming, and 60 percent in Utah.^^ 

In the production of steel, again, a few large firms are dominant. 
The operations of each of the larger companies cover several stages 
of the productive process. Integrated enterprises possess about 90 
percent of the Nation's pig iron capacity, 90 percent of the steel ingot 
capacity, and 85 percent of the capacity for hot rolled steel.^^ Ten 
companies owned 88 percent of the industry's assets in 1937; four 
companies owned more than 66 percent ; two companies owned 55 per- 
cent. The United States Steel Corporation, with 40 percent, was two 
and one-half times as large as its closest rival, the Bethlehem Steel 
Corporation, and Bethlehem was nearly twice as large as the third 
concern, the Republic Steel Corporation, which, in turn, had assets 
exceeding the aggregate investment of all but 6 of the remaining 
firms.^® Productive capacity, in the case of the most important prod- 
ucts, is similarly concentrated. Of the capacity to produce steel 
ingots, United States Steel has 36 percent, Bethlehem 14 percent, and 
Republic 9 percent, the remainder being held by seven other com- 
panies no one of which has more than 5 percent. Of the capacity for 
hot rolled products. United Steel has 31 percent, Bethlehem 
13 percent, and Republic 9 percent, the remainder being divided 
among seven companies, no one of which has more than 6 percent.^* 
Any one of these firms may have a larger share within the regions 
where it sells. While United States Steel has but a third and Bethle- 

" Federal Trade Commission, Price Bases Inquiry, 1932, p. 95. 

■» Hearings before tlie Temporary National Economic Committee, Part 14, p. 7103. 

» Ibid., Part 14-A, pp. 7812-7816. 

"" Hearings before the Temporary National Economic Committee, Part 18, p. 10403. 

"Ibid., p. 10408. 

»8 Ibid., p. 10409. 


hem but a seventh of the the national total capacity, the two 
companies, according to the testimony of Mr. Grace, president of 
Bethlehem, before the T. N. E. C, sell in "distinctly different terri- 
tory." He continued, "We operate very largely in the eastern terri- 
tory. We are not important producers, say nothing, like as 
important producers, in the central western territory as the corpora- 
tion."*" United. States Steel is the giant of the industry. Its manu- 
facturing capacity is "greater than that of all German producers 
combined. It is more than twice that of the entire British steel 
industry and more than twice that of all the French mills com- 
bined."*^ In addition to its facilities for producing pig iron, 
steel ingots, and all forms of finished and semifinished steel 
products, the corporation owned and operated through some 
150 subsidiaries, in 1937, nearly 2,000 oil and natural gas 
wells, 89 iron ore mines, 79 coal mines, some 40 limestone, dolo- 
mite, cement rock, and clay quarries, a number of gypsum and flu- 
orspar mines, 2 zinc mines, a manganese ore mine in Brazil, over 
5,000 coking ovens, several water-supply systems with reservoirs, 
filtration plants, and pumping stations, over 100 ocean, lake, and river 
steamers, 500 barges and tugs, railroads, fire brick plants, and mills 
producing 12j000,000 barrels of cement.*^ By virtue of its tremendous 
size and its high degree of integration, the corporation is in a position 
to dominate the field. 

Situations similar to those described above obtain in certain local 
markets where one or a few establishments control a trade. There is 
a high degree of concentration for example, in the sale of common 
brick in New York, Philadelphia, Washington, San Francisco, and 
Los Angeles, and in the sale of doors, frames, sash, and other planing 
mill products in Chicago, Milwaukee, Kansas City, Seattle, and 
Tacoma, San Francisco, and Los Angeles.*^ Among 12,000 towns 
and cities in the United States in 1936, 75 percent had only one bank, 
18 percent had only 2 banks, 6 percent had only 3, 4, or 5 banks, and 
only 1 percent had 6 or more. Half of the bankers faced no competi- 
tion in their communities, a quarter of them had only one competitor, 
and only 5 percent of them had 5 or more.** In many cities the dis- 
tribution of milk is in the hands of a few large firms. Data for 34 
urban areas, in some year between 1929 and 1939, are presented in a 
table which appears on the following page. It will be noted that 2 
distributors handled approximately half of the milk sold in New York, 
Chicago, Philadelphia, Detroit, Boston, Pittsburgh, San Francisco, 
Milwaukee, and Youngstown, two-thirds of that sold in Baltimore, and 
nine-tenths of that sold in Akron, and that one distributor handled 
more than a third of the milk sold in Pittsburgh, Milwaukee, and 
Salt Lake City, half of that sold in Baltimore, Washington, Akron, 
and Richmond, and two-thirds of that sold in Madison. Many of 
these l<3cal distributors are controlled, in turn, by one or the other 
of the two large holding companies that operate on a national scale. 
Subsidiaries of these concerns handled half or more than half of the 
milk distributed in 9 of the cities on the list. 

«>Ibid., Part 19, p. 10590. 
«Ibid., Pa^t^8, p. 10410. 
"Ibid., p. 10393, chart 1. 
"Ibid., Part 11, pp. 5548-5551. 

•'Lester V. Chandler, "Monopolistic Elements in Commercial Banking," J urnal of 
Political Economy, vol. 46 (1938), pp. 1-22, at p. 7. 


Concentration in the distrihution of milk in representative cities 


Percent distributed by the 
largest companies 

Percent distributed by 
subsidiaries of— 


















Chicago ' 


Philadelphia » « 





Detroit * ... 









St. Louis «9. - - 







Pittsburgh ' * 








Milwaukee'' . - 




' 46.4 




Toledo ' 









Richmond * « 


Salt Lake City and Ogden * 







Hartford ' 












Madison ' » 



Phoenix ' 

I Hearings before the Temporary National Economic Committee, Part 7, exhibit 370, pp. 3135 ft. 

* Federal Trade Commission, Report on the Sale and Distribution of Milk and Milk Products, Chicago 
Sales Area (1936) p. 5 

« Hearings before the Temporary National Economic Committee, Part 7, exhibits 359, 360, pp. 3127-3128. 

« Ibid., pp. 2763-2764. 

» F. T. C, op. cit.. New York Milk Sales Area, (1937), p. 88. 

« E. W. Qaumnitz and O. M. Reed, Some Problems Involved in Establishing Milk Prices, U. S. Depart- 
ment of Agriculture, A. A. A., Marketing Information Series, DM-2 (1937) p. 41. 

' F. T. C, op. cit.. Twin City Sales Area (1936) p. 11. 

" Idem., Summary Report on Conditions with Respect to the Sale and Distribution of Milk and Dairy 
Products (1937) passim. „ ^ 

• Froker, Colebank, and Hoffman, Large-Scale Organization in the Dairy Industry, U. S. Department 
of Agriculture Circular No. 527 (1939) pp. 34-35. 


Where one or a few firms dominate a trade, price leadership is likely 
to obtain. If a single firm overtops its rivals, it may invariably take 
the initiative in raising or lowering the price. If two or more con- 
cerns are dominant, one may habitually serve as leader or more than 
one may lead, each in a different territory or each in turn. The 
smaller firms in such a field will follow the changes that are an- 
nounced and sell at the prices that are set. They may be subjected 
to hidden pressure by the leader. They may fear annihilation in the 
warfare that would be invoked by an attempt to undercut him. They 
may seek to obtain larger profits by taking refuge under the price 
umbrella which he holds over the trade. They may merely find it 


convenient to follow his lead. In any case, they abandon independ- 
ence of judgment and adopt his prices as their own. 

This procedure is illustrated by a passage from the hearings before 
the T. N. E. C. which deals with firms engaged in the fabrication of 
nonf errous alloys. The American Brass Co., a wholly owned subsid- 
iary of the Anaconda Copper Co., does 25 percent of tlie business in 
this field. The Riverside Metal Co. does II/2 percent.^^ Exhibits were 
introduced which demonstrated that the larger concern kept the smaller 
one informed of actual and proposed changes in price,^^ and.that an- 
nouncements made by the one were invariably followed by the other, 
usually on the same day.**^ The president of the Riverside Co. was on 
the stand : "* 

Mr. Cox. Mr. Jlandall, would it be correct to say that there is a well crystallized 
practice of price leadership in the industry in which you are engaged? 

Mr. RANEiALL. I would say so. 

Mr. Cox. And what company is the price leader? 

Mr. Randall. I woultj say the American Brass Co. holds that position. 

Mr. Cox. And your company follows the prices which are announced by the 
American Brass? 

Mr. Randall. That is correct. 

Mr. Cox. So that when they reduce the price you have to reduce it too. Is 
that correct? * 

Mr. Randall. Well, we don't have to, but we do. 

Mr. Cox. And when they raise the price you raise the price? 

Mr. Randall. That is correct. 

Mr. Cox. I will put this question to you, Mr. Randall. Why didn't you reduce 
the price of the fabricated product following that decrease in the price of the 
master alloy? 

Mr. Randali^. Well, of course I would not make a reduction in the base prices 
of beryllium copper unless the American Brass made a price reduction in 
beryllium copper. 

Mr. Cox. And the American Brass Co. made no reduction at that time. 

Mr. Randall. If they did, we did, as indicated on that sheet. 

Mr. Cox. ''Assuming you didn't make a price change then, the reason you didn't 
was because the American Brass Co. didn't. 

Mr. Randall. That is correct. 

Mr. Arnold. You exercise no individual judgment as to the price you charge 
for your product, then, in a situation? 

Mr. Randall. Well, I think that is about what it amounts to; yes, sir. 
*^* * * * * * 

Mr. Randall. Of course, as Mr. Cox first stated, the industry is one of price 
leadership, and a small company like ours, making less than 1% percent of the 
total, we have to follow * * *_ 

Mr. Arnold. When you say you have to follow, you don't mean anybody told you 
you had to follow? 

Mr. Randall. No, sir ; I don't mean that at all. 

Mr. Arnold. But you have a feeling that something might happen if you didn't. 

Mr. Randall. I don't know what would happen. 

Mr. Cox. You don't want to find out, do you? 

This arrangement was apparently acceptable to American Brass. The 
general sales manager of this concern was questioned concerning a 
letter in which he referred to Mr. Randall as "a satisfactory competi- 
tor" : «9 

Mr. Cox. Can you tell us what you mean by a satisfactory competitor? 
Mr. CoE3. I believe he carries on his business on a very high ethical plane. 
[Laught r.] 

"^Hearings before the Teniporary National Economic Committee, Pt. 5, p. 2091. 

« Ibid., pp. 2099-2115. 

«' Ibid., pp. 2284, 2287-22SS. 

«« Ibid., pp. 2085-2087. 

"»Ib5d., p. 2115. 


Prices established through leadership are not effectively competitive. 
The leader, controlling a substantial portion of the output of the trade, 
estimates the sales revenues and the production costs incident to the 
quantities salable at various prices and produces the amount, and sells 
at the figure, that is calculated to yield him the largest net return. In 
short, he behaves as a monopolist. When other sellers adopt the same 
figure, they offer buyers no real alternative. Leader and followers 
alike exact a monopoly price. 

Prices thus established may be rigidly maintained over long periods 
of time. In general, they are likely to be higher than those that could 
prevail under active competition. They are sometimes productive of 
high profits, but they are not invariably so. In many cases they tempo- 
rarily afford a return so large that additional firms are encouraged 
to enter the field. The business obtainable at the fixed price is shared 
by an increasing number of participants. The price leader gets a 
declining percentage of the trade. Idle capacity piles up, to be carried 
at heavy ccst. Monopoly pricing persists, but monopoly profits are 
not secured. Leadership serves but to forestall the competitive struggle 
that would otherwise obtain. 

Evidence concerning the occurrence of price leadership up to 1936 
is summarized by Professor Burns.^" Before 1920, the Philadelphia & 
Reading Co. served as the leader in the sale of anthracite coal,^^ the 
American Can Co. in the sale of packer cans,^^ the Corn Products Refin- 
ing Co. in the sale of corn products," the American Agricultural Chem- 
ical Co. and the Virginia-Carolina Chemical Co. in the sale of ferti- 
lizer,'^ and the Alaska Packers Association in the sale of canned 
salmon.''^ During 1928 and 1929 the United States Industrial Alcohol 
Co. took the lead in pricing industrial alcohol.''^ There is more recent 
evidence of leadership in the sale of steel, cement, agricultural imple- 
ments, gasoline, nonferrous metals, newsprint paper, glass containers, 
biscuits and crackers, and in the purchase of crude petroleum. 


The character of the costs incurred in producing steel and the 
nature of the demand for the product combine to create resistance 
to any modification of its price. Tlie industry requires heavy capital 
investments and involves high fixed charges. A modern blast fur- 
nace necessitates an outlay of some $5,000,000, a continuous strip mill 
$10,000,000 to $20,000,000; a single plant may cost upward of $60,- 
000,000. As a consequence, fixed charges tempt the operator to reduce 
prices in order that he may fully utilize capacity. The costs involved 
in making different kinds of steel are joint; those incurred in the 
production of one variety cannot be separated from those incurred 
in producing another. Tliis fact, too, encourages the operator to 
increase the output of a particular product by cutting its price. These 

™ Burns, op. cit., pp. 77-140. 

""■ Ibid., pp. 118-129. 

''^ Ibid., pp. 129-132. 

'3 Ibid., pp. 132-134. This company appears still to be the price leader. According 
to the Federal Trade Commission, "When respcndent [Corn Products Refining Company] 
reduces the prices of corn products, its competitors conformably reduce the price on the 
said commodities, and when respondent advances the prices, competitors make similar 
advances in their prices." — Complaint, Docket 3633 (1938). 

^*Ibid., pp. 134^135. 

''^ Ibid., p. 139. 

w Ibid., pp. 135-136. 


conditions, in the absence of counteracting forces, would doubtless 
lead to drastic price reductions whenever the industry failed to oper- 
ate at full capacity. However, since the demand for steel is derived 
from the demand for commodities which are produced with steel 
equipment or which contain some element of fabricated steel, and 
since relatively small portions of the prices of such goods can be 
attributed to the price of steel, steel operators hold that the demand 
for their product is inelastic, i. e., that cnanges in price will not induce 
signiiBcant changes in the volume of their sales. While this belief 
has been questioned by many students of the industry, it none the 
less persists. Moreover, the durability of steel injects a speculative 
element into the demand. Buyers, anticipating a rise in price, may 
order ahead of their immediate needs, thus accumulating substantial 
inventories, actual or deliverable. At other times, anticipating a 
decline, they may delay their purchases. Steel prices are announced 
in advance of an effective date and orders are accepted for future 
delivery. Announcement of an increase may bring immediate orders, 
while announcement of a reduction may stop all current buying. It 
is not surprising that the combination of these factors has created 
within the industry a strong antipathy to any change in price. 

The price paid by the purchaser of steel includes two elements: A 
base price at a basing point and freight to the point of delivery. The 
United States Steel Corporation has usually taken the lead in initiat- 
ing the base prices of the great majority of steel products and the 
rest of the industry has followed. Proof of this leadership is found 
in repeated statements by the Federal Trade Commission,'^^ in the 
evidence reviewed by Bums,^^ and in recent testimony from the indus- 
try itself. Mr. William A. Irvin, then president of United States 
Steel, told a committee of the Senate in 1936 that "we generally make 
the prices." The record continues : '^® 

The Chairman. You generally make the prices? 

Mr. Irvin. Yes, sir ; we generally make the prices unless some of the other 
members of the industry think that that price may be too high and they make 
the price. 

The Chairman. You lead off, then, with a price charged, either up or down, 
at Gary? Is that correct? 

Mr. Irvin. Yes, sir. 

The Chairman. Then the rest of them follow that? 

Mr. Irvin. I think they do. That is, I say they generally do. 

When Mr. Benjamin F. Fairless, who succeeded Mr. Irvin in the 
presidency of the corporation, was questioned before the T. N. E. C. 
in 1939 concerning changes in the "finished steel composite price 
index" during the preceding years, he willingly undertook to explain 
the considerations which dictated the announcement of new prices.®" 
If his own company had not been primarily responsible for these 
changes, Mr. Fairless presumably would have disclaimed knowledge 
of the causes which motivated the announcements of other sellers, or 
at least he would have taken a different approach to the question. 

"Cf. Brief on Pittsburgh Plus, pp. 167 fif. : Decisions, vol. 8, p. 32; Practices of the 
steel Industry Under the Code, p. 61 ; Hearings before the Temporary National Economic 
Committee, pt. 5, pp. 1867-1870 ; An Analysis of the Basing Point System of Delivered 
Prices (mimeo., 1940). 

™ Burns, op. cit., pp. 77-93. 

"Hearings before the Committee on Interstate Commerce, U. S. Senate, 74th Cong., 2d 
sess., on S. 4055, p. 595. 

*" Hearings before the Temporary National Economic Committee, Part 19, pp. 10486-10491. 


These indications of the corporation's leadership are confirmed by 
the testimony of Mr. Eugene G. Grace, president of Bethlehem Steel, 
its nearest rival. According to Mr. Grace : ®^ 

* * * one of the principal factors which we have in that process of reaching 
decisions as to what we will do sales-wise as a rule has been announcement of 
the Steel Corporation from time to time periodically as to what their prices are 
to be. 

And again : ^- 

When we put out a schedule, what we call our ofl5cial prices, they usually repre- 
sent and are the same as our competitor has put on the market, and in most 
instanc?s, as a general practice, not looking for a little difference here and there, 
as a general practice that pace is set, if that is a good word, by the Steel 

When the corporation reduced its prices in 1938, Bethlehem followed 
it down. Said Mr. Grace :^^ 

It seems to me I was very glad then of the opportunity to follow the corpora- 
tion's lead in the publishing of new base prices, which they did. I was glad to 
see that take place. I thought it was constructive and a good thing to do. 

When the corporation raised its prices in 1936 and 1937, Bethlehem 
followed it up. According to the testimony : ®* 

Mr. Feller. Your policy was to also announce prices as high as those which 
had been announced. 

Mr. Grace. That is right. It was very encouraging to find them doing that. 

Mr. Fexler. Then you follow them up and you follow them down. 

Mr. Grace. I would follow them up in that instance. 

Mr. FELLEit. Do you. remember any instance in which you didn't follow 
them up? 

Mr. Grace. No ; and I certainly remember no instances when we didn't follow 
them down. 

Indeed, it appears from the record that Bethlehem has followed 
United States Steel so closely that it has announced base prices for 
certain products at Birmingham which were $3 per ton higher than 
those quoted at Pittsburgh, an arrangement which had no significance 
for Bethlehem beyond the fact that it appeared in the announcements 
made by the corporation.^^ Mr. Grace's testimony makes it clear that 
United States Steel has exercised its leadership in a manner which has 
been entirely acceptable to his concern : ^^ 

Mr. Feller. Have you ever felt that the prices published by the corporation 
were too high? 

Mr. Grace. Never ; and results, earnings in the industry, would seem to me to 
support that view. 

In pricing tin plate, the Carnegie-Illinois Steel Corporation, a sub- 
sidiary of United States Steel, takes the lead. This company sells 
large quantities of plate to the American Can Co., the principal pro- 
ducer of tin cans. Once each year negotiations between this one seller 
and this one buyer establish a price which not only prevails for the 
ensuing transactions between the two concerns and between Carnegie- 
Illinois and its other customers, but also is published in trade journals 
and becomes "the" price for tin plate which is followed by other 
producers.^' American Can's contracts with these producers bind both 

"Ibid., p. 10586. 
"Ibid., p. 10602. 
S8 Ibid., p. 10592. 
^ Ibid., p. 1060.3. 
«»Ibid., p. 10604. 
8«Ibid., p. 10603. 
s^Ibid., Part 19, p. 1062.''), Part 1*0, pp. 10750, 10794-107 


parties to accept this price. Its long-term contracts with packers pro- 
vide that the price of cans will be raised and lowered, in accordance 
with a prescribed formula, as Carnegie-Illinois announces changes in 
the price of plate. As a result, the corporation, in effect, determines 
the price of. a commodity which it does not produce. This method of 
pricing tin plate and tin cans has existed for more than 25 years.^** 
The importance- of these prices is evident from the fact that the cost 
of the can constitutes 30 to 40 percent of the price of a can of tomatoes, 
25 to 40 percent of the price of a can of corn, and 22 to 38 percent of 
the price of a can of peas.^^ 

While United States Steel generally takes the lead in pricing steel, 
it appears that leadership in announcing the prices of certain special 
products is assumed by other firms. For instance, in the "case of a 
product referred to as "18 gage enameling iron for washing machines," 
developed and patented by the American Rolling Mill Co., Mr. Charles 
R. Hook, the president of that concern, testified as follows : ^° 

Mr. O'CoNNEix. When you were speaking of leadership, did you mean in the 

development or- 

Mr. Hook. In the market of that particular grade of material. 
Mr. O'CoNNEnx. Were you the price leader in the sale of that? 
Mr. Hook. I think we have been for a number of years. 


In the case of Portland cement, as in the case of steel, production 
requires large investments of capital, fixed charges are high, demand 
is largely influenced by factors other than price, sales are made on 
a delivered basis, and the prices charged by different sellers display 
a striking uniformity. Although the published evidence of leadership 
is inconclusive, it was the opinion of the Federal Trade Commission, 
in 1933, that the 5 largest producers "are the leaders in the industry 
and are generally followed by the smaller companies in the matters 
of policy and price." ^'^ 


The International Harvester Co. made more than 41 percent and 
Deere & Co. more than 21 percent of the American sales of farm 
machinery in 1936.^^ Among 27 representative implements. Interna- 
tional stood first in 20 and second in 1, Deere stood first in 1 and sec- 
ond in 18, and other companies stood first in 3 and second in 5.^^ The 
two largest producers dominate the industry. 

For many years, International Hai rester has taken the lead in an- 
nouncing the prices of most varieties of farm machinery.^* When 
the Federal Trade Commission last investigated the industry in 1937, 
"practically all manufacturers of competing lines stated that their 
price policy was guided by that of the International Harvester Co. 
and Deere & Co." ^' There was yoluminous evidence to the effect that 

» Ibid., Part 20, p. 10757 ff. 

"Ibid., D. 10989. 

•oibld., Part 19. p. 10702. 

"Federal Trade Commission, Cement Industry, p. xi ; Cf. Federal Trade Commission, 
Price Bases Inquiry, pp. 88-89, 94 ; Burns, op cit., pp. 136-138. 

"Federal Trade Commission, Agricultural Implement and Machinery Industry, p. 1024. 

"Ibid., pp. 150-153. 

•* Federal Trade Commission, The High Prices of Farm Implements, 1920, pp. 17, 196, 
224 ; Burns, op. cit., pp. 109-118. 

•• Federal Trade Cfommission, Agricultural Implement and Machinery Industry, p. 225. 


these concerns promptly mailed announcements of prices and price 
changes to their competitors and regularly provided them with con- 
tract forms showing discount rates and terms of sale, with machine 
specifications, catalogs, and other descriptive literature.^" 
The Commission found that *^ — 

with respect to the most important farm implements, the prices established by 
the leading manufacturers, especially International Harvester Co. and Deere & 
Co., constitute, insofar as the machines are of closely similar character, the price 
level which all manufacturers observe. 

The small companies generally cannot sell their products for more than the 
established prices of widely accepted similar products of the large companies; 
nor do they feel free to sell for less than the price leaders for fear of starting 
a price war in which their large and financially stronger rivals would have all 
the advantage. 

Lest their prices be out of line, it is the practice among lesser manufacturers 
to await the announcement of prices by the leading companies at the beginning 
of each season before announcing their own. Similarly, the price leadership of 
the large companies is followed in price changes made during selling seasons. 
In general, any price reductions are restricted to implements or machines for 
which the leaders of the industry have announced reductions. 

In this industry, as in others, price leadership has made for price 
rigidity. None of the 30 types of farm machinery included in the 
Bureau of Labor Statistics index of wholesale prices showed more 
than 6 month-to-month changes in price in 95 chances from 1926 
through 1933; 16 of them showed fewer than 4 changes; 4 of them 
changed only once ; 3 of them did net change at all.^^ From 1929 to 
1932, while the prices of agricultural commodities declined 54 percent 
and production fell oflf only 1 percent, the prices of farm machinery 
were reduced by only 14 percent and production dropped 84 percent."^ 
As the Federal Trade Commission has observed : ^ 

the industry sharply reduced production and employment and made only slight 
reductions in prices. Such price reductions as were made in 1932 and 1933 were 
in the form of temporary special discounts. The Commission does not believe 
that such conditions are characteristic of a competitive industry. 

-In the decade from 1927 through 1936, including 3 years of pros- 
perity, 4 of depression, and 3 of recovery. International Harvester 
made an average annual net profit of 10.61 percent on its investment 
in the farm machinery business, and Deere made 11.91 percent. In 
1927-30 and 1934-36, eliminating 1 year of low earnings and 2 years 
of deficits. International averaged 15.29 percent and Deere 19.60 per- 
cent. This record of profits, in the opinion of the Commission, is the 
result of a price policy which "could not have succeeded if conditions 
of free and open competition had prevailed in this industry." ^ 


In the oil industry, the major integrated companies, usually the suc- 
cessors to the former Standard Oil Trust, have long taken the lead in 
announcing the prices, in their respective territories, that will be paid 
for crude petroleum and charged for gasoline. Evidence of their 

<^ Ibid., pp. 227-230, 1026. 

9' Ibid., pp. 1025-1026. 

^ Nelson and Keim, op. cit., pp. 178-179. 

»» National Resources Committee, op. cit., p. 386. 

1 Federal Trade Commission, op. cit., p. 1026, 

* Ibid., p. 1031. 


leadership has been presented by the Federal Trade Commission in 
numerous reports ^ and has been summarized by Burns.* It appears 
again in the hearings before the Temporary National Economic Com- 

Several of the witnesses, when asked whether the major companies 
customarily led in posting the price that would be paid for crude, re- 
plied in the affirmative. Mr. J. Howard Pew, president of the Sun 
Oil Co., asserted that — 

the company who has the largest interest in the field, and who is most affected by 
competitive conditions, is very apt to be the leader in any price change.^ 

According to Mr. Louis J. Walsh, an independent refiner — 

In most fields there is usually one predominant buyer and he sets the price. We 
naturally are subject to go along with it.' 

And in the opinion o:: Mr. Karl A. Crowley, who represented inde- 
pendent producers in Texas, the integrated companies — 

fix the price of oil ; the price of the major company determines the market price 
of the oil, and that is all there is to it.' 

Questions concerning leadership in the pricing of gasoline elicited a 
similar response. Mr. Paul E. Hadlick, secretary or the National Oil 
Marketers Association, testified that prices in New England and New 
York are initiated by the Socony -Vacuum Oil Co., in Pennsylvania and 
Delaware by the Atlantic Refining Co., in 5 States along the Atlantic 
coast by Standard Oil of New Jersey, in 5 Southeastern States by 
Standard of Kentucky, in 3 South Central States by Standard of 
Louisiana, in 11 Midwestern States by Standard of Indiana, in Arizona 
and Nevada and on the Pacific coast by Standard of California, in 6 
Eocky Mountain States by the Continental Oil Co., in Oklahoma either 
by Continental or by Magnolia Oil Co., and in Texas either by Mag- 
nolia or by the Texas Corporation.^ Mr. Sidney A. Swensrud, vice 
president of Standard of Ohio, told the committee that "the forma^ 
announcement of a change in the posted price, which obviously must b< 
made by some company, nas usually been made by the largest marketei 
in theparticular territory." After pointing out that "there is no majoi 
marketing area in which all price changes are made by any so-called 
price lea(fer," he concluded : "In summary, therefore, the so-called price 
leadership in the petroleum industry boils down to the fact that some 
company in each territory most of the time bears the onus of formally 
recognizing current conditions." ^ A contract, dated October 26, 1934, 
between the Pennzoil Co., a refiner, and the New Deal Oil Co. of Canton, 
Ohio, a wholesaler and retailer, which was introduced into the record, 
stipulated that the price for gasoline purchased by New Deal was to 
be based upon and move with the posted prices of Standard of Ohio.^'' 
A letter, dated March 28, 1935, from the Pennzoil Co. to its distributors 
in Ohio, read, in part : ^^ 

3 The Price of Gasoline in 1915, pp. 5-6, 157-158 ; The Advance in the Prices of Petro- 
leum Products (1920), p. 32; The Pacific Coast Petroleum Industry (1922), II, pp. 76-78, 
127-129 ; Report on Gasoline Prices in 1924, Letter of Submittal ; Prices, Profits, and 
Competition in the Petroleum Industry (1928), pp. 168, 195, 201, 229-230, 240. 

* Burns, op. cit., pp. 93-109. 

» Hearings before the Temporary National Economic Committee, Part 14, p. 7224. 

« Ibid., p. 7352. 

^ Ibid., p. 7368. 

» Ibid., Part 16. p. 8880. 

8 Ibid., Part 15. pp. 8700, 8702. 

10 Ibid., Part 16, pp. 9221 «f. 

"Ibid., p. 9223. 


Effective March 21, 1935, and until furtlier notice, \ e ate increasing the margin 
on Pennzip and Pennzip ethyl gasoline to our distributors in Ohio to 6 cents off 
the retail price for the State of Ohio as posted by the Standard Oil Co. of Ohio. 

When Mr. George B. Ingram, president of the New Deal Oil Co., was 
questioned concerning this arrangement, he said : ^^ 

We are always notified approximately a day ahead of time of any price change 
taking effect by the Standard Oil Co. We are told that effective the n3xt morning 
our price will be so-and-so, which will be the same price as the Standard Oil. 

The Cities Service Oil Co., a subsidiary of the Cities Service Co., re- 
ported, in replying to a questionnaire, that it "determines prices by 
following the prices set by the market leader companies in the various 
areas in which it operates." ^^ That Sun Oil likewise adheres to a 
foUow-the-leader policy in pricing gasoline is suggested by the testi- 
mony of Mr. Pew : ^* 

Mr. Cox. There have been occasions when you have resorted to price comp' ition 
iu order to get a position in the market. 
Mr. Petw. I don't think we ever did much of that. 
Mr. Bebqe. You don't think you engaged in price competition? 
Mr. Pew. I don't think we ever tried. * * * 


The American Smelting & Refining Co. is by far the largest com- 
pany to be engaged primarily in the smelting and refining of copper 
and lead. It is said to refine and sell a fourth of the world's output 
of copper and to control a third of the output of lead.^^ Closely asso- 
ciated with the Kennecott Copper Corporation and dominant in its 
special field, it is paralleled by integrated companies in which the min- 
ing and smelting functions are combined. It is reported, however, 
that other producers have customarily contracted to sell at prices 
equal to those announced by this concern.^® According to Alex 
Skelton : " 

The company's position enables at to take a long-range point of view — Indeed its 
magnitude is such that it must — and its influence is habitually on the side of 
price sanity. It does not attempt to push the producers into bankruptcy on one 
hand, nor to antagonize consumers on the other, by price maneuvering. Conse- 
quently American Smelting & Refining has had a stabilizing influence on world 
as well as United States prices without establishing a rigid or uneconomic price 
structure ; it is almost needless to say that the company could not otherwise have 
survived as long with undiminished prestige. 

It is also needless to say that the company could not have pursued the 
policies described unless its competitors were content to accept its 


In the newsprint paper industry, Canada and the United States 
form a single economic unit. Many of the producers operate on both 
sides of the border and more than half of the American supply of 
newsprint comes in from the Dominion duty free. Markets are sep- 
arated by transportation costs. The eastern seaboard is served by 

i=Ibld., p. 8964. 
" Ibid., Part 14-A, p. 8124. 
"Ibid., Part 14, p. 7243. 
"Elliott, and others, op. cit., p. 615. 

!• Frank A. Fetter, The Masquerade of Monopoly (New Yoric, 1931), p. 202; Burns, op. 
cit., p. 138. 

" Chapter 10, "Lead," in Elliott, and others, op. cit., p. 616. 


Maine, New York, and Canada, the Middle West by Michigan, Minne- 
sota, and Canada, and the Far West by Oregon, Washington, and 
western Canada. Producers are few in number ; the largest, in order 
of their size, are the International Paper Co., with properties in Can- 
ada and the United States, the Abitibi Power & Paper Co., of Canada, 
the Crown Zellerbach Corporation, which operates in the Pacific 
Northwest and in British Columbia, and the Great Northern Paper 
Co. in Maine, largest producer within the boundaries of the United 

The production of newsprint necessitates heavy investments in 
timberlands and machinery. Here, as elsewhere, the pressure of fixed 
charges carries with it the threat of ruinous competition in price. The 
demand for newsprint depends upon the volume of business activity, 
the quantity of advertising, and the size and circulation of newspapers. 
It is inelastic ; competitive price reductions may alter the distribution 
of business among producers ; they will not appreciably affect the total 
volume of sales. It is subject to violent fluctuations; rising as busi- 
ness improves, it encourages the industry to expand; falling in de- 
pression, it leaves a surplus of capacity. The price of newsprint falls 
with the demand. From its all-time high of $130 per ton in 1921, it 
fell to $70 in 1922 ; from $62 in 1928 and 1929 it dropped to $40 in 
1934. Geared to peak production, the industry suffers deficits and is 
visited by bankruptcy as demand recedes. Each of these factors mili- 
tates against the maintenance ot active competition in the trade. 

The bulk of the newsprint output is sold directly to a few large 
publishers in carload or even in trainload lots. Sales are made under 
long-term contracts, running from 1 to 10 years. Prices and quantities 
are determined periodically. Each new price is set for 6 months or a 
year, the seller agreeing to meet any reduction made by a competitor. 
The figures quoted by different producers under this arrangement 
have usually been identical, the prices thus established remaining 
unchanged for 2 years at a time. 

T\ hen the Federal Trade Commission investigated the industry in 
1929, it came to the conclusion that: "The International Paper Co. 
really makes the market price of newsprint paper for the entire United 
States except for Pacific Coast." ^^ The International generally took 
the lead in announcing prices. Other producers subsequently adopted 
these prices as their own. Contracts signed by inembers of the trade 
called either for the delivery of newsprint at the average price charged 
by the three largest firms or at that announced by International alone. 
The sales manager of the Great Northern Paper Co. told one of the 
Commissions attorneys that : ^° 

* * • other manufacturers could not ask a higher price and would not accept 
a lower price than International made. If they asked a higher price, they ran the 
risk of losing their customers. If they accept a lower price they invite further 
reductions by the International. 

In recent years, however, Great Northern has assumed the leadership. 
In July 1936 it announced its 1937 price of $42.50 a ton which was 
adopted by International after several weeks. In the fall of 1937, 
after International had announced a price of $50 for the first 6 months 

"Fortune, December 1937, p. 113. 

^•Federal Trade Commission, Newsprint Pai)er Industry, 71st Cong., special session, S. 
Doc. No. 214 (1930), p. 81. 
» Loc. cit. 


of 1938, it set its own price at $48 for the first half and $50 for the 
second half of the latter year, figures which the other firms in the 
industry were compelled to match.^^ 

The Crown Zellerbach Corporation and three other companies pro- 
duce three-quarters of the newsprint sold in six Pacific Coast and 
Mountain States. An indictment returned against these four con- 
cerns in 1939 charged them with conspiring to suppress competition, 
allocate markets, and fix and maintain terms of sale.-^ If the facts 
alleged in the action are true, the price of newsprint in this area is a 
product of agreement rather than leadership. 


The testimony on price leadership in the glass container industry 
is explicit. In response to a questionnaire sent him by the T. N. E. C, 
Mr. Walter H. McClure, vice president and general sales manager of 
the Hazel-Atlas Glass Co., submitted the following replies : " 

Hazel-Atlas Glass Co. initiates the prices covering wide-mouthed container 
ware, and the Hazel-Atlas price list for ware of this class constitutes the 
recognized market of the industry. 

We initiate our own prices for automatically made pressed tumblers and 

We initiate our own prices on opal ware for tlie domestic and drug trade. 

As to prices on proprietary and prescription ware, we adopt the schedules 
of the Owens-Illinois Glass Co., and make their prices ours. 

The same conditions as regards proprietary and prescription ware apply in 
connection with our liquor ware lists and our beer bottle lists. We are relatively 
small operators in these lines, and follow the market as established by leaders 
in these branches of the industry. 

As to fruit jars, for similar reasons we adopt the prices as published by the 
Ball Brothers Co. as our prices for fruit jars, jelly glasses, and fruit jar tops. 

Milk bottle prices are initiated by the Tliatcher Manufacturing Co. 
According to the testimony of Mr. William E. Levis, president of 
Owens-Illinois : '^* 

* * * Thatcher sets a price on milk bottles and Ball does on certain lines 
and we do on certain lines and Hazel does on certain lines. We can't ask any 
more than they ask as leaders in that line, and we are not going to take any 
less, because we think our goods are as good as theirs. 


The National Biscuit Co. sold nearly 42 percent and the Loose- 
Wiles Biscuit Co. about 20 percent of the biscuits and crackers pro- 
duced by more than 330 American bakers in 1935.^^ The lines offered 
by the two concerns are practically identical; their prices are uni- 
form; their discounts are the same. The United Biscuit Co., third 
in the industry, according to Fortune, "strings along with them in 
certain products, offers better terms in others. And the rest of the 
Nation's bakers, with a few local exceptions, sell goods that are uni- 
formly cheaper * * * " ^e 3^^ f\^Q Federal Trade Commission re- 

21 Fortune, December 1937, p. 232. 

=2 U. 8. V. Crown Zellerbach Corporation et al.. District Court of the United States, Sonth- 
ern District of California, Southern Division, Indictment, July 12, 1939. 

2' Hearings before the Temporary National Economic Committee, Part 2, pp. 547-548. 

^ Ibid., p. 530. 

^ Federal Trade Commission, Agricultural Income Inquiry, Part III, p. 40. 

2« Fortune, August 1936, p. 110. 


ported, in 1929, that these firms "must and do follow the lead set by 
the National Biscuit Co. and the Loose-Wiles Biscuit Co." ^^ 

"Biscuit prices," as Fortune observes, "change very little from year 
to year, whether the times be good or bad." ^* The price of crackers 
showed 11 month-to-month changes in 95 mont' s of 1926-33.^^ Na- 
tional Biscuit sales dropped 37.8 percent from 1929 to 1933.^° The 
prices of ingredients declined precipitately; wheat flour fell 43.0 per- 
cent, butter 56.7 percent, and eggs 55.3 percent from June in 1929 to 
February 1933. But the prices of soda crackers were cut only 12.8 per- 
cent, those of sweet crackers only 3.3 percent.^^ 

The annual average of the profits realized by the three largest 
companies on their investment in the business stood at 15.49 percent 
in the years from 1929 through 1935, ranging from a low of 9.83 per- 
cent in 1935 to a high of 21.36 percent in 1929.^^ 


In markets where sellers are few in number, they may more readilj^ 
enter into agreements establishing and maintaining uniform prices 
and terms of sale. Such agreements, though plainly in violation of 
the law forbidding conspiracies in restraint of trade, have not infre- 
quently occurred. Since 1920, apart from those instances in which a 
trade association, industrial institute, or some other common agency 
was employed,^^ cease and desist orders have been issued by the Fed- 
eral Trade Commission and decisions have been handed down by the 
courts in cases involving the producers of viscose rayon yarn, pin 
tickets, flannel skirts, turbine generators and condensers, liquid 
chlorine, medical cotton goods, calcium chloride, corn cribs and silos, 
certain types of waterworks and gas system fittings, fire fighting equip- 
ment pulverized iron, rubber heels, music rolls, lithographed labels, 
plumbing supplies, fertilizer, metal lath, gasoline, and brushes.^^ More 
recently complaints have been issued by the Federal Trade Commis- 
sion against the distributors of foreign-type cheese and the manufac- 
turers of erasers ^^ and suits have been initiated by the Department 
of Justice against distributors of milk in Chicago, against producers 
of newsprint paper on the Pacific coast, and against firms engaged in 
the manufacture of tobacco products, typewriters, ophthalmic lenses, 
frames and mountings, hardboard, mineral wool for home insulation, 
and aircraft fabric.^*' It is not unlikely that such arrangements have 
been even more numerous than the official record would indicate. 

^ Federal Trade Commission, Open-Price Trade Associations, 70tli Cong., 2d sess., S. Doc. 
No. 266 (1929), p. 78. 

=» Fortune, August 1936, p. 108. 

"» Nelson and Keim, op. cit., p. 173. 

*" Federal Trade Commission, Agricultural Income Inquiry, Tart III, p. 36. 

*■ Nelson and Keim, op. cit., pp. 172-173. 

'^ Federal Trade (,'ommission, op. cit.. Part I, p. 826. 

»Cf. infra, pp. 235-240. 

"Federal Trade Commission, orders in Dockets Nos. 2161. 2.!29, 2755, 2941, 3317, 3393, 
3519, 3544, 3690, and 3929, and Federal Antitrust Laws (Washington 1938), cases Nos. 
209, 225, 231, 233, 310, 318, 332, 415, and 424, respectively. 

"Federal Trade Commission, Complaints in Doci^ets Nos. 4071 and 4170. 

** U. S. V. Borden Co. et al.. District Court of the United States, Northern District of 
Illinois, Indictment, Nov. 1, 1938 (a consent decree was acce'pted in this case on Sept. 16, 
1940) : U. 8. V. Crown Zellerbach Cor^p. et al.. District Court of the United States, Southern 
District of California, indictment, July 12, 1939 ; V. S. v. American Tobacco Co., et al., Dis- 
trict Court of the United States, Eastern District of Kenucisv. Information. July 24, 1940 ; 
U. S. V. Underwood Elliott Fisher Co., et al., District Court of the United States, Southern 
District of New York, Indictment, July 28, 1939 • U. 8. v. American Optical Co., Inc., et al.. 
District Court of the United States. Southern District of New Yorlj, Indictment, May 28, 



The base prices announced for various steel products apply to cer- 
tain standard sizes and qualities. Since buyers often want smaller or 
larger sizes or different qualities, producers must be prepared to quote 
modified base prices on thousands of possible variations. These modi- 
fications take the form of "extras" which are added to the prices of 
standard products and "deductions" which are subtracted from them 
in order to arrive at the prices of nonstandard goods. In the deter- 
mination of the amounts of these items, it appears that the United 
States Steel Corporation drops its price leadership in favor of a joint 
understanding with the other companies. 

When the Department of Justice prepared for the T. N. E. C. a 
study of extras and deductions applicable in February 1939 to a group 
of selected steel products (including plates, shapes, wire, tin plate, 
black plate for tinning, merchant bars, hot rolled sheets, cold rolled 
sheets, hot rolled strip, cold rolled strip, galvanized sheets, sheet piling, 
rails, skelp, and wire rods) it found that: ^^ 

with respect to each of the products examined the extras and deductions an- 
nounced by every manufacturer of the product were found to be identical. With- 
out exception the extras and deductions applicable to these products are uniform 
as between Sll producers of each. The only qualification to be made relate.s to 
specifications of a given product not rolled by a particular producer. In some 
cases lags in publication of changes in extras resulted in differences for limited 
periods. Otherwise it can accurately be said that throughout the steel industry 
extras and deductions are uniform for all producers. 

There is voluminous evidence of the detailed uniformity of these 
items.^^ In fact, the industry quite frankly described the collabora- 
tive manner in which they are determined. Mr. Fairless, president of 
United States Steel, after testifying before the T. N. E. C. that extras 
and deductions are based upon the costs of the specific sizes and quali- 
ties to which they apply, was questioned as follows : ^^ 

Mr. Feulek. The extras that you set up are on the basis of your costs or your 
anticipated cost? 

Mr. Faikless. Not only our cost but a cross section of the costs of the industry. 

Mr. Feller. How do you know that? 

Mr. Fairless. We make it our business to find out. We talk of extras with 
our competitors. 

Mr. Fexuer. Oh, you and your competitors consult with each other with respect 
to the extras. 

Mr. Fairless. Yes; and I am advised by my general counsel that that is per- 
fectly within our rights to do so. 

Referring to certain changes made in the extras and deductions in 
1938, the testimony continues : *** 

Mr. FELLEai. Mr. Fairless, prior to this announcement of these rather extensive 
extra changes, was there consultation with other members of the industry? 

Mr. Fairless. Mr. Adams worked with various members of the industry, as 
I told you. This was such a radical change and covered so many problems that 

1940; U. 8. v. Masonite Corp., et al., District Court of the United States, Southern District 
of New York, Complaint, Mar. 11, 1940 : U. 8. v. Johns Manville Corp., et al.. District Court 
of the United States, Northern District of Illinois, Complaint, June 24 1940: U 8 V 
Wellington 8ears Co. et al.. District Court of the United States, Southern District of New 
York, Indictment, Aug. 27, 1940. 

3' Hearings before the Temporary National Economic Committee, Part 19, p. 10725. 

»8 Cf. Ibid., Part 5, p. 1874, and Federal Trade Commission, An Analysis of the Basing 
System of Delivered Prices (mimeo., 1940.) 

»8 Hearings before the Temporary National Economic Committee, Part 19, n. 105G0. 

*° Ibid., pp. 10566-10567. 

271817— 40— No. 21 10 


were within this industry, there were many discussions in respect to it, many 

Whereupon Mr, Adams, a vice president of the United States Steel 
Corporation of Delaware, testified that "most of the companies in 
the steel industry were represented" in these conferences*^ and Mr. 
Grace, president of Bethlehem Steel, informed the committee that 
"different people, depending on the project you are appraising" had 
represented Bethlehem.*^ 

The significance of this procedure is indicated by the fact that ex- 
tras and deductions, thus agreed upon, constitute a large part of the 
base prices of many of the principal products of the industry. The 
study made by the Department of Justice disclosed that extras aver- 
aged 11.6 percent of the base price and 9.9 percent of the delivered 
price of 10 selected products, ranging from 0.8 percent of the base 
price in the case of cold rolled sheets to 45.2 percent in the case of 
cold rolled strip.*^ Not included in their uniform extras and deduc- 
tions are the identical discouiits for cash and 30-day payment which 
are allowed by all the companies.** 


The price of iron ore is an important element in the price of steel, 
since it takes about 2 tons of ore to make a ton of pig iron. The 
great steel companies are closely integrated with the sources of their 
ore, either through outright ownership and operation of mines by 
their subsidiaries or through contracts with "independent" ore con- 
cerns. According to testimony before the T. N. E. C, "there is hardly 
a steel company today operating its own blast furnaces that has not 
from 50 to 100 percent of its ore supply under its own ownership." *^ 
The Lake Superior region is the source of 85 percent of the ore used 
by the domestic industry. In normal years, 85 percent of the ore 
shipped from this region goes to companies owning the mines from 
which it comes.**^ United States Steel owns about half of the Supe- 
rior reserves and through its subsidiary, the Oliver Iron Mining Co., 
accounted for 42 percent of the shipments froni the region in 1937.*^ 
Producers who own their own mines have a special interest in keeping 
the price of ore high, since they may thus, without injuring them- 
selves, handicap competitors who own none or only a part of the 
sources of their ore. The latter producers buy from approximately 
ten "independent" ore concerns, among whom three or four are domi- 
nant. These companies are connected with the steel corporations 
through stockholdings and contractual relationships.*^ 

Evidence adduced before the T. N. E. C. indicates that firms pro- 
ducing ore have been consolidated in order to "strengthen" their 
"market position" and "to stabilize the market value of ore"; *^ that 
announcement of certain consolidations apparently has been withheld 
in order to forestall prosecution ; ^° that the ore business is "in the 

*ilbid., p. 10567. 

«Ibid., p. 10622. 

« Ibid., p. 10724. 

«Ibid., Fart 5, pp. 1877, 1891. 

«Ibid., Paic 18, p. 10223. 

« Ibid., 'pP- 10223, 10339, 10366. 

*' Ibid., pp. 10223, 10425. 

«Ibid., pp. 10231, 10265, 10268, 10279. 

«Ibid., pp. 10239, 10241. 

wibid., pp. 10253-10254. 


hands of a small group of men who all work on a close and friendly 
basis" ; ^^ that the independent producers of ore have found that 
"close cooperation of competitors is of great mutual advantage" ; ^^ 
that they form a "united front" in carrying on their activities ; ^^ and 
that they have participated in common agreements and understand- 
ings.^* During the period of the National Industrial Recovery Act, 
the ore companies formulated a code under which they cooperated and 
to which they adhered after the Schechter decision, despite the fact 
that it was never approved by the N. R. A.^^ It appears, in short, 
that the industry is so tightly organized that it is practically impos- 
sible for a new firm to enter. ^^ 

Sales contracts for ore are signed in the early spring and shipments 
are made during the open season on the Great Lakes. The price written 
into the first contract of the season becomes the "Lake Erie base price" 
and continues as the official price for ore during the remainder of the 
year.^^ There is abundant evidence that members of the industry have 
consulted with one another and carried on negotiations with reference 
to this price.^® They have attempted to prevent sellers from signing 
the opening contract with a large buyer, such as the Ford Motor Co., 
who might be in a position to obtain unusually favorable terms,^^ and 
when they have failed, they have not announced the initial price as 
the base price for the year.^° In at least one instance, according to testi- 
mony before the T. N. E. C, it appears that the season was opened with 
a "wash sale." ^^ The established quotation has been undercut sporad- 
ically, but the industry has always directed its joint efforts toward the 
elimination of such "concessions." ®^ 

The Lake Erie base price of ore has remained unchanged for years 
at a time. It stood at $4.25 per ton from 1925 through 1928, and $4.50 
from 1929 through 1936, and at $4.95 from 1937 through 1939,«2 being 
unaffected both by depression in 1930-33 and by the existence of a huge 
surplus turned out in 1937.'^* At the beginning of 1940, however, the 
Oliver Iron Mining Co., which had previously confined itself almost 
entirely to production for United States Steel, advertised ore for sale 
in unlimited quantities on the open market and was reported to have 
signed the year's first contract with the Ford Motor Co. at a price of 
$3.75 a ton, undercutting by $1.20 the quotation that had prevailed in 
the 3 preceding years.*'^ 


The prioe of gasoline in a regional market has sometimes been raised 
and maintained through an agreement among major oil companies 
and independent refiners under the terms of which the former have 
regularly bought from the latter any portion of their output that 

«Ibi(l., p. 10295. 

" Ibid., p. 10296. 

"Ibid., p. 10304. 

"Ibid., pp. 10304-10305. 

"Ibid., pp. 10298-10300. 

^ Ibid., pp. 10351 ff. 

<" Ibid., p. 10358. 

<« Ibid., pp. 10317-10321, 10342-10346, 10352-10355, 10382. 

wibid., p. 10370. 

•"Ibid., pp. 10333-10334. 

« Ibid., pp. 10354-10355. 

«"Ibid., pp. 10315-10317, 10338, 10383. 

«' Ibid., p. 10311. 

"Ibid., p. 10323. 

•« New York Times, January 28, 1940. 


would depress the price if it were freely sold. In some cases, the 
majors have even made purchases at figures which have exceeded their 
own production costs. They have then withheld these stocks from the 
open market, selling the gasoline through their own outlets, storing 
it, transporting it to other regions, or shipping it abroad. In this way, 
the price within the area has been controlled. 

Such an arrangement was employed by 12 or more companies, 8 of 
them among the 20 leading majors, for the purpose of raising and 
maintaining the price of gasoline in 10 Midwestern States in 1935 and 
1936. These concerns produced about 85 percent of the gasoline sold 
in the area ; independent refiners produced the other 15 percent. The 
majors marketed a large part of their output through their own retail 
chains. Both groups also made sales to independent jobbers who sold 
in turn to independent retailers. Most of these deliveries were made 
under contraci; the exchanges which took place from day to day (usu- 
ally at the independent refineries) constituted no more than 5 to 71/2 
percent of the total sales. The price established in these transactions, 
however, became the spot market price which was published in two 
trade journals of the industry. The contracts under which jobbers ob- 
tained their supplies from the major companies required them to pay 
the price which was published for the day on which shipments were 
made. Retailers who bought their gasoline from these jobbers were 
forced, accordingly, to pay a price which would cover this figure and 
to charge a price which would cover their expenditures. The retail 
price established by Standard of Indiana, which served as market 
leader in the area, was also set by adding a fixed differential to the spot 
quotation. As a consequence, the major companies, by controlling 
the price at which the small volume of spot market gasoline changed 
hands, were in a position to fix the retail price. 

The firms participating in the program accordingly agreed to sub- 
ject the spot quotation to control. Each of them selected an independ- 
ent refiner as a "dancing partner" and assumed responsibility for his 
"surplus" output. Buying in the spot market, in small quantities, at 
progressively higher figures, they contrived to raise the tank car price 
and to maintain it at an artificial level for the better part of 2 years. 
The price of regular-grade gasoline rose from 4% cents per gallon in 
February 1935 to 5% cents in June, an increase of more than 25 per- 
cent. It remained at this figure throughout the rest of 1935, display- 
ing a rigidity without parallel in the history of the industry. It was 
also stable for long periods in 1936, rising as high as 61/8 cents and 
never falling below 5^ cents. Independent refinery output no longer 
depressed the spot quotation. Independent jobbers, compelled to buy 
at this figure, advanced their own charges. Independent retailers 
were forced to follow suit. The integrated majors, protected thus from 
competition, augmented their profits by exacting higher prices from 
the consumers of gasoline than they otherwise could have obtained.**** 
The program was held to constitute a violation of the Sherman Act 
in a decision which was handed down by the Supreme Court of the 
United States on May 6, 1940.**^ 

"* Cf. JJ. 8. V. Socony -Vacuum Oil Co., Inc., et al.. United States Circuit Coirrt of Appeals 
for the Seventh Circuit, October Term, 1938, Brief for the United States. 
<"310 U. S. 150. 



Although it has many industrial uses in peacetime and is vitally 
important as a raw material for explosives in wartime, chemical nitro- 
gen is first of all a fertilizer, being one of three chemical substances 
essential to plant life. This product is applied directly to the soil in 
various forms or is compounded with potash and phosphates in the 
production of mixed fertilizers. The three principal sources of the 
American supply are the natural deposits of sodium nitrate in Chile, 
ammonia which is produced synthetically by an air-fixation process, 
and ammonia and ammonium sulphate which are derived as by- 
products from coke ovens in the United States. The Allied Chemical 
& Dye Corporation dominates both domestic branches of the industry 
and is reported to have had an agreement with the Chilean monopoly 
controlling competition in the sale of sodium nitrate. 

Domestic producers turned out 176,025 tons of synthetic nitrogen, 
valued at $20,860,000, in 1935.«« Although Allied Chemical does not 
publish figures covering its output, it is known that the air-fixation 
plant at Hopewell, Va., operated by its subsidiary, the Solvay Process 
Co., represented some 59 percent of the total capacity of the doriiestic 
industry in 1934, while two plants of E. I. du Pont de Nemours & Co. 
represented another 30 percent.^® However, since the du Pont ca- 
pacity is largely employed in furnishing nitrogen used elsewhere in 
the du Pont organization in the manufacture of explbsives and 
other products, this company does not occupy a very important place 
in the market for fertilizer. It is therefore probable that Allied 
Chemical sells substantially more than 59 percent of the domestically 
produced synthetic nitrogen which is used for this purpose. 

The output of by-product nitrogen amounted to 116,250 tons, valued 
at $10,266,000, in 1935. Tliere are some 65 firms, mostly iron and 
steel and public utility companies, which sell this product, 80 to 85 per- 
cent of it being marketed in the form of ammonium sulphate. Some 
35 to 40 percent of this supply, however, is handled by the Barrett 
Co., another subsidiary of Allied Chemical, which is also the mar- 
keting organization for the ammonia division of the Solvay Process 
Co.''" It is estimated by Fortune that this concern sold 66 percent 
of the domestic output of ammonium sulphate and benzol in 1937.^^ 
These figures, large as they are, show that the Barrett Co. has declined 
in relative importance since 1924, when it marketed about 85 percent 
of the nitrogen output of coke-oven plants in the United States.^^ 

Allied Chemical, using synthetic ammonia from its Hopewell plant, 
is the only domestic producer of sodium nitrate, turning out some 
550,000 tons in 1937. The only other source of the American supply 
is the Chilean monopoly, which exported nearly 700,000 tons to the 
United States in that year. Until the domestic industry began to 
manufacture synthetic nitrogen in commercial quantities in the late 
1920's, the Chilean producers, who supplied nearly all of the sodium 
nitrate used in this country, were able to charge a monopoly price. 
When Allied Chemical went into the business, however, vigorous com- 

""U. S. Tariff Commission, Chemical Nitrogen, Report No. 114, Second Series (1937), 
p. 192. 

» Ibid., p. 184. 

»« Ibid., p. 210. 

'1 Fortune, October 1939, p. 146. 

" D. S. Tariff Commission, loc. cit 


petition drove prices down. The quotation dropped by 50 percent from 
1927 to 1933, and imports from Chile fell off abruptly. But active 
competition apparently did not persist. The price of sodium nitrate 
displayed increasing rigidity during the 1930's. The monthly quota- 
tion changed only four times — rising on each occasion — between the 
fall of 1934 and the beginning of 1940 ; the last change was recorded 
in August 1937.''^ In April 1939 the Federal Trade Commission issued 
a complaint ^* against the Barrett Co. and the Chilean Nitrate Sales 
Corporation, alleging that the two firms, supplying all of the sodium 
nitrate sold in the United States, had entered into an elaborate con- 
spiracy to fix prices and allocate territories and to establish resale 
prices for distributors, the effect of which was "to regiment the nitrate 
of soda trade and industry" and "to substantially increase the cost of 
such nitrate of soda to consumers." 


Potash, another important fertilizer material, is found in bedded 
deposits of certain soluble salts and in surface deposits either as brine 
or salt lake crusts. American reserves — principally in New Mexico 
and Searles Lake, Calif. — are small in comparison with the resources 
of Europe, the Union of Soviet Socialist Republics, and Palestine. In 
1938, Germany produced about 60 percent of the world output of 
marketable potash salts, while France, in Alsace, produced I6I/2 Per- 
cent, the United States 9I/2 percent, and the Union of Soviet So- 
cialist Eepublics about 9 percent. Until the First World War, inter- 
national trade in potash was a German monopoly. When Germany 
placed an embargo on exportation, soon after the beginning of the war, 
American prices rose by 1,100 percent and numerous projects were ini- 
tiated to develop the domestic reserves. Nearly all of these enterprises 
collapsed, however, with the post-war resumption of imports and the 
consequent decline in prices. From 1923 to 1932, the only company 
producing potash from domestic deposits was the American Trona 
Corporation and its output was overshadowed by imports from Ger- 
many and France. 

In 1924, the French and German producers entered into a price com- 
pact and agreed to divide the American market, the French to make 
3214 percent and the Germans 67i/^ percent of the sales.^^ Two years 
later a 10-year Franco-German cartel agreement was negotiated, pro- 
viding for the establishment of a joint selling agency in the United 
States. In 1927, the Department of Justice instituted a suit against the 
foreign producers under the Sherman Act and the Wilson Tariff Act, 
alleging a conspiracy to share the market and to fix prices by agree- 
ment. In 1929, the defendants consented to a decree enjoining the fur- 
ther operation of the plan,^*' but it may be doubted that this decision 
altered the organization of the American market in a significant way. 
The common sales agency envisioned in the 1926 agreement, organized 
under the laws of the Netherlands as the Potash Export Maatschappy 
N. v., was established in the following year, with offices in Amster- 

*8Cf. Bureau of Labor Statistics, Wholesale Prices (monthly), 1934-40. 
T« Docket No. 3764. 

■"> Alfred Plummer, International Combines in Modern Industry, second edition (London 
1938), p. 96. 

'" Cf. Federal Anti-Trust Laws, case 325. 


dam and New York. From 1927 to 1938, this concern sold almost half 
of the potash marketed in the United States. 

Domestic production grew steadily throughout the thirties ; in 1938 
it exceeded imports by 60 percent. The development of the American 
industry came about largely as a result of exploration, drilling, and 
research carried on by the United States Geological Survey, the Bu- 
reau of Mines, and the Department of Agriculture. There are now 
three American companies in the field : the American Potash & Chem- 
ical Corporation, which absorbed the Trona Corporation in 1926, the 
Potash Company of America, and the United States Potash Co. Each 
of these concerns holds leases for the exploitation of public lands. 
Each of them accounts for about one-third of the domestic output." 
One of them is entirely under foreign control and another is partly so. 
Nearly 80 percent of the stock of American Potash & Chemical is 
owned by the Consolidated Gold Fields of South Africa, Ltd., and 
"a group of Netherlands companies." "^ Half of the stock of the 
United States Potash Co. is owned by the Pacific Coast Borax Co., 
which is controlled, in turn, by Borax Consolidated, Ltd., of 

Harmonious relations have been maintained between the American 
producers and the European cartel. Following a sharp break in 
prices in 1934, an "understanding" is said to have been reached in 
193S, "ostensibly for propaganda and research, but it is an open secret 
that it has a bearing upon sales also." ^° Base contract prices rose 
until 1937 and remained unchanged through 1939. With increased 
capacity, the American concerns, already exporting to Canada and 
Japan, sought to enter the European market. In November 1938 they 
formed the Potash Export Association and sent two directors abroad 
to negotiate with representatives of the cartel. This action was ex- 
plained in the following words : ^^ 

It is generally understood that the foreign cartel controls all the production in 
the world outside of the production in the United States. It also has such a grip 
on the markets of the world, particularly in Europe, that it would be very diflS- 
cult for the Export Association to sell any substantial tonnage in foreign markets 
except by some agreement with the cartel. 

A "temporary arrangement" was negotiated and it was announced 
early in 1939 that officers of the association were going abroad shortly 
to arrange for the exportation of additional tonnage. 

The domestic consumers of potash are centered in the eastern and 
southeastern States, although some of the fertilizer plants are located 
elsewhere. Since the cost of transportation from Europe and from 
Carlsbad, N. Mex., and Searles Lake, Calif., bulks large in the price 
of potash, nearby producers should be able to underbid their more 
distant rivals. Price uniformity has been effected, however, through 
the employment of a delivered price system, under which all sellers 
base their quotations on a number of ports on the Atlantic, Gulf, and 
Pacific coasts. As a result, consumers in certain inland sections have 
been required to pay delivered prices which have not reflected their 

" V. 8. V. American Potash atid Chemical Corp., et al.. District Court of the United 
States, Southern District of New York, Indictment, May 26, 1939. 

™ Willard L. Thorp and Ernest A. Tupper, The Potash Industry, a report submitted to 
the Department of Justice by the Department of Commerce (processed, 1940), p. 25. 

"Ibid., p. 39. 

*° Plummer, op. cit., p. 99. 

" Quoted in Thorp and Tupper, op. cit., p. TS. 


proximity to the domestic sources of supply. Since 1938, however, 
prices have also been quoted from Carlsbad. 

The three American companies, their trade association, the Ameri- 
can Potash Institute, Inc., and the Potash Export Maatschappy N. V.. 
were indicted in 1939 in a proceeding under the Sherman Act which at- 
tacked this system. The indictment also charged them with a conspir- 
acy to sell at identical prices and discounts and alleged an agreement 
"arbitrarily to raise the price of potash" and to fix "artificially and 
arbitrarily high prices." *^ On May 21, 1940, the domestic producers 
accepted a consent decree in which they were enjoined from fixing 
prices, discounts, and terms of sale, and from combining "to quote 
prices only on the basis of c. i. f. [costs, insurance, freight] certain 
ports or to select the ports which will be used for the purpose of such 
quotations." *^ The complaint against the Potash Export Maatschappy 
N. V. was dismissed because the agency had become inoperative since 
the beginning of the Second World War. 

The profit record of the domestic industry is an enviable one. The 
American Potash & Chemical Corporation, which was first in the field, 
made money in every year during the depression of the thirties and 
obtained a net income, before depletion, of more than 14 percent on 
its net worth in 1938. The United States Potash Co., which began 
commercial production ip 1932, realized 29 percent before depletion on 
its net worth exclusive of the value of its ore reserves in 1936, 40* per- 
cent in 1937, and 32 percent in 1938. The Potash Co. of America, in 
operation only since 1934, had a net income, after depletion based on 
cost, of 6 percent on net book worth in the 12 months v .iding June 30, 
1937, 12 percent in 1938, and 14 percent in 1939." 


Four companies, manufacturing 95 to 98 percent of all the new 
standard typewriters sold in the United States, accepted a consent 
decree in another antitrust suit on April 23, 1940. It was charged in 
the indictment in this case that these concerns had agreed upon uni- 
form prices, identical discounts, and a common schedule of trade-in 
allowance s ; that they had maintained these prices, discounts, and 
allowances in their own sales outlets and had required other distribu- 
tors to adhere to them; that they had arranged to submit identical 
quotations whenever bids were requested ; that they had cooperated 
in underbidding other manufacturers who sought to obtain a share of 
the business ; that each of them had bought from the others machines 
of their own make that had been accepted in trade and that all of 
them had agreed to destroy machines that had been made by other 
concerns. The price'50f standard models of Underwood, Kemington. 
Royal, L. C. Smit , and Corona typewriters were advanced simul- 
taneously from $105 to $110 on October 11, 1934, and from $110 to 
$115.50 on April 1, 1937.^^ The manufacturers of these machines real- 
ized substantial profits during the period from 1935 tlirougli 1939. 

^^ V. B V. American Potash and Chemical Corp.. ct nl.. Indictment. 

'^ U. 8. V. American Potash and Chemical Corp.. et al.. District Court of the United 
States, Southern District of New Yorlc, consent decree, May 21, 1940. 

** Thorp and Tupper, op. cit., pp. 28, 30, 42-43. 

^V. 8. V. Underwood Elliott Fiithrr Co. et al.. D'Strict Court of the United States, 
Southern District of New York, Indictment. July 28, 1939. 


Remington Rand, Inc., obti, a return which ranged from a low of 
6.40 percent on average invested capital in the fiscal year ending 
March 31, 1935, to a high of 14.03 percent in the year ending March 
31, 1938. L. C. Smith & Corona Typewriters, Inc., obtained a return 
which ranged from 5.18 percent in the year ending June 30, 1939, to 
16.82 percent in the year ending June 30, 1937. The Underwood 
Elliott Fisher Co. obtained a return which ranged from 8.31 percent 
in the calendar year 1938 to 23.99 percent in 1937. The Royal Type- 
writer Co. obtained a return which ranged from 15.75 percent in 1935 
to 29.75 percent in 1936.«*' 


Similar arrangements are alleged to have existed among the manu- 
facturers and wholesalers of ophthalmic lenses, frames, and mount- 
ings. Here three firms — the Americcir.- Optical Co., the Bausch & 
Lomb Optical Co., and the Shuron Optical Co. — control tjiree-fourths 
of the supply. According to four indictments whifch were returned 
in ,'i!Ttitrust proceedings on May 28, 1940, lens manufacturers have 
issu--d uniform price lists, adopted identical differentials of 25 percent 
between the prices of first and second quality lenses, executed uniform 
resale price maintenance contracts, issued lists of approved distribu- 
tors who were eligible to receive discounts, granted discounts from 
list prices which were set at 33 percent by each of the larger firms and 
at 43 percent by each of the smaller ones, and refused to grant dis- 
counts to price cutters who were not approved ; wholesalers .who pre- 
pare lenses on prescription for opticians and optometrists, one of the 
most important departments of the business, have made identical 
charges for these services ; the American Optical Co., through agree- 
ments with other manufacturers of frames and mountings, through 
licenses granted to them under certain patents which it controls, and 
through threats of ruinous competition, has forced these firms to ad- 
here to common prices on both patented and unpatented goods, to 
execute uniform resale price maintenance contracts^ and to refuse dis- 
counts to distributors who were not on its approved list. By these and 
other means, it is contended, identical prices have been established and 
maintained throughout the trade.®^ 


The consumption of cheese in the United States has shifted from 
bulk cheese to a variety of processed, packaged, trade-marked, and 
nationally advertised products for which bulk cheese is merely the 
raw material. All of the basic patents on the methods and the equip- 
ment employed in the business of processing and packaging have 
been held by the Kraft-Phenix Cheese Corporation, a subsidiary of 
the National Dairy Products Co., and the Lakeshire Cheese Co., a 
subsidiary of the Borden Co. These two holding companies, together 
with Armour & Co. and Swift & Co., sold nearly three-fourths of 
the domestic output of cheese in 1934 and 1935.^® 

" Poor's Industrials, 1940. 

^U. 8. V. American Optical Co. et al., Nos. 107-417, 107-418, 107-420. and U. S. v. 
Optical Wholesalers National Association. Inc. et al., No. 107-419, District Court of the 
United States. Southern Disfrict of New Yorl?. Indictments, May 28. 1940. 

"* Federal Trade Commission, Agricultural Income Inquiry, Part I, p. 250. 


The price of bulk cheese was formerly established on organized 
exchanges where sellers and buyers were numerous and quotations 
on the call boards fluctuated widely from week to week. The situa- 
tion in these markets has been radically altered in recent years by 
the concentration of the business in the hands of a few large firms. 
Nearly all of the transactions on the Wisconsin Cheese Exchange in 
1935 took pla^ among 10 members, none of them dairy farmers or 
manufacturers of cheese in bulk. Subsidiaries of the four large proc- 
essing concerns appeared on both sides of the market, not only buying 
■cheese, but also oflfering it for sale. It thus appears that the exchange 
has been employed as a medium through which these concerns have 
established the prices which they pay for raw material. ^^ Quotations 
have displayed increasing rigidity as transactions have become con- 
centrated in fewer hands. In 52 weeks in 1936, in 1937, and in 1938, 
the weekly price changed only 15, 9, and 21 times, remaining unaf- 
fected, even during the heaviest marketing seasons, for periods of 
12, 14, and 24 weeks at a time.''° This situation was explained by Mr. 
J. L. Kraft, president of Kraft-Phenix, in a letter addressed to an 
official of the United States Department of Agriculture in 1933:®^ 

For the past few years a fair price has been established on the Plymouth Call 
Board in Wisconsin, which, to a very large extent, has been the ruling price 
throughout the country, or, in other words, the basic price from which to 
figure. This price has not been established by agreement but rather by sort of 
a tacit or mutual understanding as to what a fair relationship or fair value for 
the product should be, based upon statistical information at hand and the law 
of supply and demand. * ♦ * 

It does not appear, however, that the dairy farmer has been invited 
to participate in the "tacit or mutual understanding" which deter- 
mines the "fair value" that he receives. 

Approximately, two-thirds of the Swiss, brick, Limburger, and 
Munster cheese produced in the United States is made in the State 
of Wisconsin, the bulk of it coming from 250 factories operated by 
farmer cooperatives in four counties in the southern part of the 
State. Approximately three-fourths of the foreign-type cheese j)ro- 
duced in this area is purchased by three distributors, National Dairy, 
Kraft-Phenix, and its subsidiary, the Badger-Brodhead Cheese Co. 
buying the output of 40 to 60 factories, Borden buying the output of 
some 75 factories, and J. S. Hoffman & Co. and its subsidiary, the 
Triangle Cheese Co., buying the output of some 60 factories. On 
March 23, 1940, the Federal Trade Commission issued a complaint 
against these firms charging that they had followed the practice, 
since October 1938, of holding monthly meetings at which they had 
agreed upon the prices they would pay, thus determining the prices 
of foreign types of cheese throughout the United States.^^ Disposi- 
tion of the case is still pending. 

There is also evidence of nonaggressive price practices in the sale 
of processed cheese. Reports published by the Federal Trade Com- 
mission indicate that the two leading companies in the field have pur- 
sued a live and let live policy, cooperating in the exchange of infor- 

•• Federal Trade Commission, Sale and Distribution of Milk and Milk ProducLs, Chicago 
Sales Area, 74th Cong., 2d sess., H. Doc. No. 451 (1936), pp. 91-96. 

»" William H. Nicholls, "Post-War Concentration in the Cheese Industry," Journal of 
Political Economy, vol. 47 (1939). pp. 82S-845, at pp. 834-837. 

" Federal Trade Commission, op. cit., pp. 98-99. 

•"Federal Trade Commission. Complaint, Docket 4071. 


mation, in the execution of resale price maintenance contracts, and 
in the enforcement of resale prices by threats of refusal to sell.^^ A 
letter which an official of the 3orden Co. directed to one of its repre 
sentatives in 1935 is quoted, in part, as follows : ^* 

You can save us a lot ot trouble if you will go out of your way a little and 
talk to Kraft's man in that market once in a while. Just a little sane and civil 
cooperation between manufacturers' representatives will go a long way toward 
keeping harmony in a market. 

• ••••*• 

Successful handling of a market makes it imperative that you cooperate with 
your competitor to a certain extent. * * * 

Under no circumstances do we want you to discuss or agree to anything that 
may be termed illegal, but sit down and talk your problems over. The chances 
are that Kraft's man up there is very human like yourself, and each of you can 
be a big help to the other without revealing any professional secrets and without 
incurring any criticism from headquarters. Try, please. 

Competition has apparently given way to cooperation both in the pur- 
chase of raw material from the farmer and in the sale of packaged 
products to the ultimate consumer. 


The price of life insurance differs from other prices in important 
respects. The payment that is made by the policyholder includes two 
elements: The net premium which is required to enable the insurer 
to meet the claims which may arise under the policy and a load factor 
which is designed to cover the expenses involved in conducting the 
business. It is clear that it would be undesirable for insurance com- 
panies to compete in reducing the net premium to a point where they 
would be unable to fulfill their contractual obligations. But it does 
not follow that they should not compete in cutting the other factor in 
their price. In insurance, as elsewhere, the costs of doing business 
vary with variations in the methods employed and in the efficiency 
obtained by different concerns. Competition in reducing the load 
factor might be expected to provide the policyholder with protection 
at lower cost. Agreement as to rates, on the other hand, might have 
the effect of preserving costly methods of operation and incompetent 
administration at his expense. The situation is further complicated, 
however, by the fact that most of the companies selling life insurance 
are mutuals and that most of the policyholders participate in the earn- 
ings of such concerns. In these cases, therefore, the net cost of a 
policy will usually be less than the amount of the annual premium. 
As a consequence, the companies might agree upon identical rates and 
still compete with one another in terms of actual cost. It must be 
noted, however, that mutuality in the control of these concerns is often 
nominal rather than real and that managements may find in rate 
agreements protection against the sort of competition that might force 
unwelcome readjustments in administrative expenditures and reduce 
the compensation of executives. The special character of the business 
does not justify collective action in the determination of its rates. 

It appears from testimony presented before the T. N. E. C. that rep- 
resentatives of life insurance companies have frequently met and 

«' Idem, Sare and Distribution of Mill£ and Milk Products, New York Milk Sales Area, 
75th Cong., 1st sess., H. Doc. 95 (1937), pp. 5, 66-68, 114-115. 
»* Ibid., pp. 67-68. 


agreed upon programs designed to circumscribe the area of competi- 
tion in the sale of ordinary life, group life, and annuity policies. About 
a tenth of the ordinary life insurance sold in the United States is 
written by stock companies. Of this, nearly half is accounted for by 
three Hartford firms: The Travelers Insurance Co., the Aetna Life 
Insurance Co., and the Connecticut General Life Insurance Co.^^ At 
various times during 1932, insurance rates and such matters as the 
mortality basis, the interest assumption, and surrender values were dis- 
cussed at meetings attended by officials of these concerns. Accord- 
ing to a memorandum taken from the Travelers' files, "expense loadings 
were discussed tentatively with the result that a reasonable loading for 
expenses and profit by age can be safely counted upon." ^® Mr. Bene- 
dict D. Flynn, vice president and actuary of the company, was ques- 
tioned as follows : ®^ 

Mr. Geseix. As a result of these memoranda, the Aetna, the Travelers, and the 
Connecticut General, the three largest nonparticipating companies, got together 
and agreed to a program of uniform rates for ordinary insurance, did they not? 

Mr. Fltnn. Right. 

Mr. Gbsell. Now, that program for uniform rates was a program for uniform 
rates, whether you call it pooling, or whether you call it rate fixing, or no matter 
what you call it, Mr. Flynn. You agreed to all the factors in ordinary life 
Insurance nonparticipating rates. 

Mr. Flynn. After full discussion and examination of the experience and the 
figures of each of the three companies, and after considerable debate, we reached 
a conclusion which was agreeable to all three. 

Rates were raised on April 1, 1933. Other conversations followed, 
Connecticut General resisting further advances because it feared that 
it would lose business to the mutuals. As a consequence — 

it was decided to call a conference with those participating companies whose gross 
rates in our opinion should be increased * * *»« 

Hartford officials met with officials of the Metropolitan, Prudential, 
and Provident Mutual Companies on March 2, 1934. Five of these con- 
cerns raised their rates on January 1, 1935 ; the sixth followed suit on 
April 1, 1935.^" Further conferences resulted in another increase on 
March 1, 1937.^ The smaller stock companies generally followed the 
Hartford lead. According to the testimony : ^ 

Mr. Gesell. So the result of the agreement reached by your companies was to 
bring about a considerable uniformity in rates throughout the nonparticipating 
field and certainly to bring about a rate increase throughout the nonparticipating 

Mr. Flynn. It would have that tendency. * * * 

Similar conferences have been held in the group insurance field. 
In 1919, when six companies were writing almost all of the group life 
contracts sold in the United States, the three Hartford companies 
adopted uniform rates for such policies while two of the participating 
companies — Metropolitan and Prudential — established rates that were 
uniformly higher by the customary differential of approximately 5 
percent.^ A memorandum written by the actuary of the Travelers 
at this time read, in part: * 

* Hearings before the Temporary National Economic Committee, Part 10, p. 4224. 
" Ibid., p. 4233. 

" Ibid., p. 4232. 

<* Ibid., p. 4262. 

" Ibid., pp. 4263-4265. 

> Ibid., p. 4275. 

» Ibid., p. 4277. 

» Ibid., p. 4163. 

* Ibid.. i». 4163. 


It would seem, therefore, that the action which has been sought by the Hartford 
companies involving an understanding as to rates and maximum commissions 
is now possible and that competition on the basis of rates and underwriting, 
as well as commissions, will in the future be avoided by an agreement of the 
three Hartford companies, the Metropolitan, and the Prudential. The Equitable 
rates being so much higher, they have not caused controversy. 

Informal conferences were held at various times during the following 
years and agreements were, reached concerning such matters as com- 
missions, underwriting rules, extra premiums for hazardous indus- 
tries, maximum limits in group contracts, and the transference of 
business from firm to firm.^ In 1926, a formal organization, the 
Group Life Association, was set up. The vice president and general 
counsel of the Prudential apparently viewed this move with some 
misgivings, for he wrote : ® 

As we all know, the old informal Group Committee was, on the whole, unusually 
successful in avoiding improper methods of competition, particularly in avoiding 
the cutting of premium rates. * * * 

• * * To an insurance commissioner looking for matter for criticism, 
I am afraid the formal constitution of the proposed Group Life Association 
would be found only too satisfactory as evidence that the companies were com- 
bining to prevent such freedom of competition as would result in the maximum 
service being offered for the premiums collected. 

The association, however, has become an important factor in the 
field. Twenty-eight different companies have been represented at its 
meetings ; ^ its members wrote 93.5 percent of the group life policies 
in force in the United States from 1926 through 1937.^ Minimum 
rates for such policies are now established by the New York State 
Superintendent of Insurance under a law enacted in 1926. Since 
companies which operate in New York must collect the same premiums 
in other States, and since members of the Group Association who are 
not subject to the jurisdiction of the New York authorities have 
agreed voluntarily ito make similar charges, the minima which are 
thus established are effective in the country as a whole. The result- 
ing rates are apparently those upon which the companies have agreed. 
According to a \Tice president and actuary of the Aetna Co., the super- 
intendent "has usually adopted our recommendations promptly."' 
The New York law does not cover group death and dismemberment 
insurance, group accident and health insurance, or group annuities. 
Rates for these policies are still set through the association and 
adopted by its members as their own.^'* 

While officials of companies writing annuity contracts have met oc- 
casionally to discuss premiums, -.commissions, interest rates, loading, 
and other annuity problems for nearly two decades, these meetings 
have been more frequent in recent years." In all but one of 14 such 
sessions between March 1933, and October 1938, those present repre- 
sented between 50 and 85 percent of the insurance in force in the 
United States." Dr. Arthur Hunter, chief actuary and vice president 
of the New York Life Insurance Co., who presided at the conferences, 
was questioned as follows : ^' 

» Ibid., p. 4173. 

• Ibid., p. 4702. 

■^ Ibid., pp. 4708-4709. 
»Ibid., p. 4710. 

• Ibid., p. 4191. 

" Ibid., pp. 4204-4206. 
» Ibid., p. 4508. 
"3 Ibid., pp. 4828-4829. 
^ Ibid., p. 4513. 


Mr. Gesell. The purpose of these meetings was to reach as near as possible a 
uniform program for increased annuity rates, was it not? 
Dr. HiTNTEB. Yes ; I think that is a fair statement. 

As a result of action taken at such meetings, annuity rates were, in 
fact, increased in 1933, in 1935, in 1936, and again in 1938." Individual 
companies'have conformed to the rates agreed upon. At one meeting, 
the chairman read letters from two concerns stating "that they would 
go along with the majority of the companies both as to rates and com- 
missions," ^^ and after the meeting an official of the Travelers wrote 
that "the general feeling was that if some missionary work were done 
on the Connecticut Mutual, Phcfenix Mutual, and New England Mu- 
tual, practically all important companies, with the possible exception 
of the Provident Mutual, would go along on the proposed program." ^^ 
Mr, H. R. Bassford, actuary of the Metropolitan, was asked if his 
tompany pursued this policy : ^^ 

Mr. Hbndekson. Where you get into a discussion at these meetings you have 
attended, and a proposal of some kind is made, don't you say, "We will go along 
if there is a large enough group going along?" 

Mr. Bassford. I guess we do ; yes. I think we have said that. 


In those industries where a few concerns sell a product so heavy that 
transportation costs are high, they have frequently contrived to elimi- 
nate competition by quoting prices which include a charge for delivery 
from a common basing point. This practice compels the buyer to pay 
the seller, not only for his goods, but also for their transportation. 
When he buys from a plant located at the basing point, he pays for 
delivery a sum which equals the cost the seller has incurred. But 
when he buys from a plant located elsewhere, he pays, not the cost of 
shipment actually involved, but freight from the basing point. He 
may purchase from a nearby mill and pay for freight from one located 
many miles away. The shipment he pays for is an imaginary one; 
the charge for freight included in his price is largely fictitious. 
Whether he buys from an adjacent or a distant plant, his payment for 
delivery is the same. He may have goods shipped to him at equal cost 
by any firm in the business. The fact that every seller is thus brought 
within the reach of every buyer has sometimes been advanced in proof 
of the contention that the practice fosters active competition. It 
proves the opposite. If firms selling heavy goods w^ere really to 
compete, each one, enjoying lower transportation costs to points within 
the terrritory adjacent to its plant, would undersell its distant rivals 
in this field. Wliere firms agree upon a conunon basing point, each 
one, foregoing the competitive advantage inherent in its location, 
makes its delivery charge so high as to enable every other one, however 
distant, to sell in territory that would otherwise belong to it alone. 
Without collusion, no such practice could obtain. It is true that 
many plants compete in making every sale. Their competition is in 
salesmanship, but not in price. 

In itself, of course, the basing point method of quoting prices need 
not involve price uniformity. The delivered price includes two ele- 

1* Ibid., pp. 4514-4521. 
« Ibid., p. 4520. 
« Ibid., p. 4624. 
" Ibid., p. 4561. 


ments: The charge for freight and the price of the product at the 
basing point. The members of an industry might conceivably make 
delivery to each buyer of their products at prices which included 
identical charges for freight on shipments made by a common method 
of transportation from the same basing point and still compete with 
one another in setting the base prices to which they added the uni- 
form delivery charges in arriving at their quotations on delivered 
goods. When a seller was closer to a buyer than was the basing 
point or when he employed a less expensive method of transportation 
than that assumed in computing the common delivery charge, he 
might include this charge in his quotation and still undercut his com- 
petitors by reducing his base price. Under such circumstances, the 
delivered price quotations of different sellers would not be identical. 
It is only when base prices as well as delivery charges are uniform 
that a basing point system contributes to such identity. This, how- 
ever, is usually the case. An industry so thoroughly in harmony that 
it can agree upon the one element in the delivered price is unlikely 
to encounter serious difficulty in reaching some sort of an understand- 
ing on the other. It is the combination of price leadership or price 
agreement with the delivered price practice that makes such prices 
noncompetitive. If leadership or agreement were to be abandoned, 
there would be little reason for selling on a delivered basis, since the 
practice finds its significance in the enforcement of uniformity. But 
on the other hand, if delivered pricing were to be discontinued, uni- 
formity through leadership or agreement would be less readily 
achieved. Each of them contributes to a common plan. Identical 
delivered prices at each delivery point are the result. 

Delivered price practices, common to whole industries, differ in 
detail. In the single basing point system, only one city in the country 
is used as a basing point. In the multiple basing point system, two 
or more such points are employed. Here each firm quotes the pur- 
chaser a delivered price which is the sum of the base price and the 
freight from the basing point nearest him. In the zone price system, 
uniform delivered prices obtain at all destinations within each of 
two or more geographical areas, varying from one area to another 
according to the difference in average freight rates from a common 
basing point to the several points in each. The zone system is- thys 
akin to the single basing-point device. Under the freight equaliza- 
tion plan, the seller computes his price to any buyer by first adding 
together the price quoted by the plant nearest the buyer and the 
freight rate for delivery from that plant and then subtracting from 
the resulting sum the freight that he himself must pay. This plan 
partakes of the nature of a multiple basing-point system, with each 
plant serving as a basing point. Each of these systems rests upon 
a common understanding in the trade. Each of them contributes to 
a program which makes price quotations uniform at any point of 
sale. Each operates, in greater or lesser degree, to raise prices to a 
level that could not otherwise obtain. 

Such systems, in one form or another, have been employed in the 
sale of asphalt roofing, bath tubs, bolts and nuts, cast iron pipe, ce- 
ment, coffee, copper, corn products, denatured alcohol, fertilizer, gaso- 
line, gypsum board, industrial rivets, lead, linseed oil, lumber, metal 
lath, newsprint paper, pig iron, power cable and wire, range boilers, 
salt, snow fence, soap, steel, stoves, sugar, tiles, turbine generators 


and condensers, and zinc, and also, under N. R. A. codes, in the sale 
of automobiles, automobile parts, bearings, builders' supplies, busi- 
ness furniture, china and porcelain, coal, construction machinery, 
cordage and twine, farm equipment, food and grocery products, glass 
containers, ice, ladders, liquefied gas, lime, lye, paint and varnish, 
paper and pulp, paper bags, ready-mixed concrete, refractory prod- 
ucts, reinforcing materials, road machinery, shovels, draglines and 
cranes, storage and filing equipment, structural clay products, valves 
and fittings, and vitrified clay sewer pipe.^^ 


For many years the prices of steel products have been quoted to 
prospective buyers through a basing point system. This practice had 
its origin in 1880 when three independent producers began quoting 
prices identical with those charged by the Carnegie Co. It was ap- 
plied experimentally to a few products until 1890 ; by 1900 it had been 
extended to every concern and every product in the field. In 1901, the 
United States Steel Corporation was organized, a combination of 12 
previous combinations, producing at the beginning 66 percent of the 
Nation's output of steel. From then on prices were effectively con- 
trolled : by open agreements, by pooling arrangements, by the famous 
Gary dinners, and finally, by price leadership. During 23 years, a 
single basing point system known as Pittsburgh plus obtained, every 
firm in the industry quoting its prices from a Pittsburgh base. In 1924, 
the Federal Trade Commission ordered the corporation to cease and 
desist from this practice, directing it to quote all prices f. o. b. at its 
mills. The corporation, replying that it would conform to the order 
"insofar as it is practicable to do so," thereupon substituted for Pitts- 
burgh plus a multiple basing point system which has been continued, 
with various modifications, to the present day.^^ This arrangement 
has now obtained, without interruption and without exception, for so 
many years that the industry and its customers have adjusted them- 
selves to its existence and its presumed continuance. 

The basing point system of pricing steel comprises the following 
features: (1) leadership by United States Steel in announcing the 
base prices of standard products and adoption of its announcements 
by the other firms, (2) agreement upon the extras that are to be charged 
and the deductions that are to be allowed for variations in size and 
quality in the pricing of nonstandard products, (3) refusal by all 
sellers to quote prices on any but a delivered basis or to ship steel to 
any place other than the one where it is to be used, (4) agreement, in 
the case of each product, as to the cities that are to be employed as 
basing points, each seller, wherever located, charging freight from 
these points, and (5) agreement concerning the method to be used in 
calculating the delivery charge. 

Any producer of steel is formally free to announce a price at any 
location he chooses, thus establishing his own basing point. In prac- 
tice, however, the points announced by the dominant corporations, 

^ Hearings before the Temporary National Economic Committee, Part 5, p. 1897 ; Part 
5-A, pp. 2321-2322, 2842, 2345-2346 ; Burns, op. cit, pp. 282-325. A detailed description 
at delivered price practices in American industry is included in TNEC Monograpli No. 1, 
Price Behavior and Business Policy, Part II. 

1* Jones, op. cit., ch. 9; Seager and Gulick, op. cit.. cli. 13, 14; Federal Trade Commission. 
Practices of the Steel Industry Under the Code, ch. 3. 


notably by United States Steel, are adopted by the other firms. The 
number of such points employed in quoting prices on the whole group 
of steel products is large and this fact has sometimes been cited in 
proof of the intention that the system is essentially competitive. 
Actually, it proves nothing of the sort, since different points are an- 
nounced for different products and the number employed in pricing any 
single product may be small. Since 1938, for example, there have been 
10 basing points for plates and hot rolled sheets, 8 for cold rolled sheets, 
7 for sheet and tinplate bars and heavy structural shapes, 6 for wire 
rods and for hot rolled strip, 5 for cold rolled strip, and only 4 for 
plain wire, as compared with 14 in 1935.-° In the cases of most prod- 
ucts, however, in response to pressure from buyers, from producers 
with newly developed facilities, and from the Government, the num- 
ber of points from which prices are quoted has been gradually in- 
creased. But there are still important centers which are not employed 
as basing points for the goods which they produce.^^ It must be noted, 
finally, that the reduction in freight charges resulting from the estab- 
lishment of an additional basing point has sometimes been neutral- 
ized by the announcement at the new location of a base price containing 
a differential over that announced at other centers which has canceled 
the saving involved. Such a location thus becomes a basing point in 
name only. 

Regardless of the method of transportation actually employed, the 
calculation of freight is usually based upon the assumption that steel 
is to be shipped by an all -rail route. Water or motor carriage may be 
available at lower costs, but only in exceptional cases is their existence 
recognized. If a buyer insists on taking delivery at the mill in his 
own truck, the custom has been to allow him a discount of 65 percent 
from the usual transportation rate.^^ He pays the other 35 percent 
although he hauls the goods himself. Where other shipments by water 
or motor carrier are permitted, the industry agrees upon the amount 
that must be taken as the lowest delivery charge.-^ Rail rates, together 
with these exceptions, are compiled by the Traffic Committee of the 
Iron and Steel Institute and published in an ofiicial "Freight Tariff" 
which is used by all sellers in place of the schedules issued by the roads 
themselves. When new freight schedules are announced, sellers await 
the committee's authorization before employing the altered rates in 
computing their quotations.^* Since steel which is shipped by water or 
by highway is often sold at a price which includes an all-rail charge, 
the arrangement is obviously profitable to the industry. But this does 
not appear to be the only reason for the all-rail rule. If no common 
mode of transportation were agreed upon, a seller might cut his price 
on the ground that a cheaper method was available, whether it was or 
not. If competitive pricmg were to be avoided, the industry would 
have to check all such quotations in great detail. With a uniform sched- 
ule of freight rates, based upon a common method of delivery, this door 
to competition in price is closed. 

In conformity with the prevailing system, the producer of steel 
employs the following procedure in computing the price that he will 

^ Hearings before the Temporary National Econoinic Committee, Part 18, p. 10413. 
21 Federal Trade Commission, An Analysis of the Basing Point System of Delivered 
Prices (mimeo., 1940), p. 43. 

=^ Cf. Hearings before the Temporary National Economic Committee, Part 5, p. 1875. 

^ Federal Trade Commission, op. cit., p. 19. 

"* Hearings before the Temporary National Economic Committee, Part 5, pp. 1874, 1876. 

271817—40 — No. 21 11 


quote: (1) He ascertains the base prices for a standard product that 
have been announced at a number of basing points. In doing this, 
he follows the announcements of United States Steel. (2) In the case 
of a nonstandard product, he adds to or subtracts from these prices 
the extras or deductions which are charged or allowed for variations 
in size and quality. In doing this, he adopts the figures that have been 
agreed upon by members of the industry. (3) He adds to the base prices 
(plus or minus the extras or deductions) freight charges from various 
basing points to the point of delivery. In doing this he consults the 
same schedule of rates that is used by his competitors. (4) He selects 
the smallest total as his price. Since every seller employs the same 
formula and since every item in the formula is standardized, whether 
by price leadership, by agreement, or by other factors which the seller 
cannot control, the result must be the same in every case. As a conse- 
quence, when the system is working without interference, every seller of 
any steel product quotes to any buyer an identical delivered price. 

The system is thus essentially noncompetitive. When a producer 
makes a shipment by a cheaper method of transportation than that 
assumed in the computation of his price and when he makes a charge 
for delivery from a basing point which is farther from the buyer than 
is his own establishment, he collects "phantom freight." His ability to 
do so arises from the fact that other producers employing the cheaper 
means of transportation and those located closer to the buyer make 
no attempt to undercut his price. When he makes a charge for delivery 
from a basing point which i^ nearer to the buyer than is his own estab- 
lishment, he "absorbs" freight. His ability to do this must be attrib- 
uted to the fact that the whole level of prices established by the system 
is high. When a producer is not located at the basing point from which 
he quotes his prices, his "mill net realization" varies with the amount 
of "phantom freight" and "freight absorption" involved in different 
sales. This variation, again, results from the fact that distant pro- 
ducers do not undercut the prices which he quotes on sales made in the 
area adjacent to their mills, while he sets his own prices at figures which 
enable them to sell in the area which would otherwise belong to him. 
"Cross-hauling" and the "inter-penetration of market territories" show 
that each seller is voluntarily foregoing his competitive advantages in 
order to support the system as a whole. Sellers who are close to con- 
sumers do not underbid those who are far away. Sellers who are located 
on waterways charge an all-rail freight. Sellers whose efficiency is 
high ask prices which enable the less efficient to survive. Such be- 
havior cannot be said to be competitive. 

Economists who have studied the problem have disagreed as to the 
causation of the basing point price practice, some of them holding it 
to be the consequence of conditions of demand, technology, and cost 
inherent in the production of steel,^'* others finding its origin in the 
profit-seeking propensities of those who held the power to impose 
it on the industry.^^ They have also differed concerning the relative 
desirability of this system and other possible methods of pricing steel. 
But they have agreed, almost without exception, that the system is 
essentially monopolistic in character. Daugherty, de Chazeau, and 

» Cf. C. R. Daugherty, M. G. de Chazeau, and S. S. Stratton, The Economics of the Iron 
and Steel Industry (New York, 1937). 

•• Cf. F. A. Fetter, The Masquerade of Monopoly (New York, 1931), 


Stratton conclude that : "The economie fact, which cannot be legislated 
away, is that we are dealing with an industry in which free com- 
petitive price equilibrium is not economically possible." ^^ And Pro- 
fessor de Chazeau testified before the T. N. E. C. that : "Prices of these 
materials * * * are either reflections of price decisions by man- 
agers who themselves are in control of the predominant proportion of 
the country's steel capacity or are determined by bargaining in a very 
narrow market." ^^ Professor Frank A. Fetter told the committee 
that, as a means of controlling prices, "the basing point practice is by 
far and away the most successful single device that large American 
business in these homogeneous products has hit upon in the last 75 
years." The effect of this practice, he said, "is that there is no price 
competition anywhere." The situation is the same as that which 
would obtain if there were "complete unified ownership of all the mills 
in the country." The industry proceeds upon "the principle of charg- 
ing what the traffic will bear." ^^^ According to the Federal Trade 
Commission, the "purpose and effect" of the basing point system is "to 
prevent price competition" and "the prevention of identical delivered 
prices for steel is, in the Commission's opinion, necessary for the 
restoration of competitive conditions." ^^ The Commission has come 
to "the conclusion that the basing point system in the steel industry 
is the negation and frustration of price competition." ^^ 

While officials of the steel companies have generally denied that 
the system substantially modifies competition in price, many of their 
public statements indicate that they understand and favor the non- 
competitive conditions which it entails. Thus Mr. Robert Gregg, 
vice president of United States Steel, told a committee of the Senate 
in 1936 that if the basing point plan "were universally followed there 
would be no competition insofar as one element of competition is 
concerned, namely, price." ^- And when prices were changed in 1938, 
Mr. Grace was reported to have said that "the situation was competi- 
tive" and to have expressed the hope that it had been "cured." ^^ The 
statements of the executives who appeared before the T. N. E. C. are 
replete with references to the iniquity ol cutting below announced 
prices, the desirability of "meeting" but no more than "meeting" 
competition, the need for "stabilized" prices, the impossible situation 
which would be created by daily fluctuations in price, the importance 
of looking at price reductions "from the point of view of the industry 
as a whole," the desirability of discussing price changes with cus- 
tomers before they are announced, the need for an agreement under 
which no company would quote any price below its own cost plus 
a fair profit, the unfairness of a price which includes no profit, and 
the desirability of prices which would permit profitable operation at 
35 percent of capacity. These attitudes are not without significance, 
since they constitute the frame of reference within which major deci- 
sions as to policy are made. 

" Daugherty, and others, op. cit., vol. 1, p. 578. 

^ Hearings before the Temporary National Economic Committee, Part 19, p. 10478. 

»Ibid., Part 5, pp. 1939-1940. 

8» Ibid., p. 2199. 

« Federal Trade Commission, op. cit., p. 77. 

«* Hearings before the Committee on Interstate Commerce, U. S. Senate, 74th Cone.. 
2d sees., on S. 4055, p. 207. 

w New York Times, October 28, 1938, quoted in Hearings before the Temporary National 
Economic Committee, Part 5, p. 2194. 


Against the weighty evidence tlxat the basing point system elim- 
inates competition in price, its defenders offer one significant argu- 
ment. They contend that announced base prices are merely official 
asking prices and that many sales of steel are individually negotiated 
at lower figures. They further insist that when actual prices fall and 
remain below those officially announced, revisions in the announce- 
ments cannot be avoided and usually do occur. It is difficult to evalu- 
ate the significance of this contention on the basis of any evidence that 
is now at hand. The Federal Trade Cotnmission takes the position 
that : 3* 

Without an investigation of sales records directed specifically to the above 
subject, there is no way of providing an answer that is dependable. The general 
opinions of parties interested in defending the basing point system are almost 
certain to exaggerate the number, proportion, and degree of departures from the 
system. Competitors are likely to have an honest but exaggerated idea of the 
departures made by their rivals and may unduly minimize their own. Yet de- 
partures undoubtedly occur, sometimes • unintentionally and sometimes inten- 

There is no evidence, however, that such departures occur often enough 
or persist long enough to establish effective competition in price as a 
normal characteristic of the industry. According to the Commission : ^^ 

With occasional lapses, the system works, and the buyer normally receives iden- 
tical quotations from all bidders ♦ * *. Occasional variations from this per- 
fect identity are observed, but only during short periods when there' was a tem- 
porary flurry of price cutting * * *. The available evidence indicates that 
secret violation of the identical delivered price system is seldom of such im- 
portance as to prevent the general economic effects of controlled prices. 

Certainly the fact that the prices which are established under the 
basing point system are occasionally shaded cannot be taken as proof 
that the system itself is competitive. Sporadic competition apparently 
involves little more than temporary departures from the pattern of 
uniformity which normally obtains. If this were not the case, it would 
be difficult to explain the industry's obvious reluctance to abandon 
its use of common basing points in favor of any other plan. It is 
contended, for instance, that buyers of semifinished steel, in selecting 
the most economical location for fabricating plants, have assumed that 
the system would be continued substantially in its present form, and 
it is argued that abandonment of the system would "disrupt" the 
industry and destroy property values that have been built up on the 
assumption that it would be retained. If these contentions are sound — 
and there is no reason to doubt them — they indicate that those who 
offer them in defense of the system of basing points believe that the 
pattern of prices which obtains under this system is substantiaHy 
different from the one that would replace it if the system were to be 
abandoned or materially revised. If the basing point system, through- 
out its history, had permitted effective competition, it would be im- 
possible to argue for its continuance on such grounds as these. 

Steel prices have been relatively inflexible. Steel rails, delivered 
to the railroads at the mills, sold for $28 a ton from May 1901 until 
April 1916 and at $43 a ton from October 1922 until October 1932. 
The prices of sheets, tank plates, bars, beams, wire, wire nails, and 
many other products, though not as rigid as the price of rails, have 

^ Federal Trade Commission, op. cit., p. 24. 

" Hearings before the Temporary National Economic; Committee, Part 5, p. 2192. 


stood unchanged for months and years at a time.^^ From 1929 to 1932, 
while production fell off 76 percent until, in August 1932, only 12 per- 
cent of the country's blast furnace capacity was in use, the average 
reduction in the prices of iron and steel products was only 16 percent.''' 
The price of tin plate was cut less than 12 percent, that of structural 
steel less than 11 percent, that of steel rails only 1.4 percent, and that 
of bar iron at Pittsburgh not at all.^^ In 1933, when the price index 
for all commodities stood at 65.9 percent of its average in 1926, the 
index for finished steel stood at 80.5 percent. In 1938, when the index 
for all commodities had risen to 78.6, percent, that for finished steel 
had climbed to 99.2 percent.^" 

Steel profits in recent years have not been high. Data collected by 
the Iron and Steel Institute indicate that the industry — ■*" 

earned an average return of 5.20 percent on capital inAested during ttie entire 
period 1909 through 1938 or an average of only 5.47 percent in the pre-war years 
through 1914, 11.69 percent during the war boom, 5.73 percent in the post-war 
period, 1919 through 1929, and only 1.65 percent during the years since the 1929 

The 10 leading producers of steel realized 7.53 percent on invested 
capital in 1937, 0.87 percent in 1938, and 5.02 percent in 1939. Wliile 
the profits of certain other companies, such as the National Steel Cor- 
poration and the Inland Steel Co., have been consistently high since 
1933, running in some years from 10 to 14 percent on invested capital, 
those of United States Steel have been low. The corporation lost 
0.57 percent on its capital in 1934, made 0.60 percent in 1935, 3.97 
percent in 1936, 7.55 percent in 1937, 0.23 percent in 1938, and 4.1 per- 
cent in 1939.*^ These figures are in decided contrast with those re- 
ported in earlier years. The corporation was originally capitalized 
at $1,402,000,000; of this, $682,000,000 represented the value of the 
tangible properties included in the combination ; the other $720,000,000 
was water. From 1901 to 1910 the corporation realized an average 
annual return of 12 percent on the value of its physical assets, paid 
moderate dividends, and reinvested $500,000,000 of its profits in the 
expansion of its plant, thereby wringing much of the water out of its 
original capitalization. By 1926, it had obtained profits aggregating 
$2,345,000,000, paid total dividends amounting to 131.25 percent of the 
par value of its stock, and set aside more than a billion dollars in 
reserves.*^ The lower profits of recent years, however, carry no sug- 
gestion that the industry has become effectively competitive. The 
prevailing system of arrangements has undoubtedly encouraged over- 
expansion, provoked such uneconomic expenditures as those involved 
in the practice of cross-hauling, and compelled producers to carry a 
heavy burden of idle capacity. A low return on capital is entirely 
consistent with a monopolistic pricing policy, 


The price of cement is governed by a system of multiple basing 
points. This system differs in certain respects from that employed in 

3« Burns, op. cit., pp. 205-212. 

^ National Resources Committee, op. cit., p. 386. 

3»Ibid., p. 194. 

3" Hearings before the Temporary National Economic Committee, Part 18, p. 10421. 

<» Ibid., p. 10423. 

01 Work Projects Administration, Securities and Exchange Commission, Survey of Ameri- 
can Listed Corporations, vol. 1 (New York, 1940), pp. 265-268, 275. and supplement 

*2 Jones, op. cit., ch. 9 ; Burns, op. cit., p. 88. 


pricing steel. There is no single price leader in the industry. The 
product is highly standardized and the need for agreement on extras 
and deductions does not arise. The number of basing points is larger 
than in the case of any variety of steel; there are some 60 basing 
points for cement and half of the mills in the country are located in 
their vicinity. In other respects, however, the two systeins are essen- 
tially the same. Terms of sale, including such matters as the effective 
period of price quotations, discounts, and charges and credits for 
sacks and containers, are uniform. Prices on all sales other than 
those made to the railroad companies are quoted on a delivered basis 
from common basing points and such quotations include a charge for 
all-rail freight. Each seller foregoes the competitive advantage in- 
herent in his location, making no effort to undercut the prices charged 
by distant fixms on sales in territory adjacent to his mill. The deliv- 
ered prices quoted by different sellers at any one time are identical 
and the prices announced over long periods display a marked rigidity. 
Base prices for cement are established through regional price leader- 
ship. Any producer, wherever located, can create a new basing point 
by quoting prices from that point. Any producer, likewise, can take 
the lead in establishing a new base price at any basing point by an- 
nouncing his readiness to make sales to all buyers at such a price. A 
single seller within a region may customarily initiate every change 
in price. None of the other firms can announce a higher price unless 
he does so and all of them must follow when he makes a cut. As 
long as they also copy his increases and refrain from initiating de- 
creases, he retains the lead. But when another firm fails to follow 
him upward or makes a price cut on its own account, leadership passes 
into other hands. It must not be concluded, however, that responsi- 
bility for cutting prices is lightly to be assumed. The lower figures 
announced by one seller are promptly met by all the others, as the 
Federal Trade Commission has observed:*^ 

Current basing-point prices are common knowledge to all cement manufac- 
turers. Each sales manager keeps himself thoroughly posted on the basing point 
price at each basing point. Information of any change in delivered prices by 
a manufacturer reflecting a change in its basing point price usually finds its way 
to the officials of all competing companies within a few hours after it has been 
made. The usual result is the immediate issuance of similar quotations by all 

The producer who initiates a lower price does not get a larger share 
of the business. He may even run a certain risk. If his location has 
not been a basing point, other firms may make it so by quoting prices 
there. If he maintains his price at home, and cuts his quotation from 
some distant basing point, they may retaliate by announcing lower 
prices at his point or at points in his vicinity. In either case, they 
cut the income he receives on the most remunerative portion of his 
sales. The industry may even establish an arbitrary delivered price 
zone in territory near his mill, selling in this one area at prices lower 
than the basing point formula would otherwise permit. At one time 
or another each of these devices has been employed in punishing pro- 
ducers who presumed to undercut the prevailing price.** The pub- 
lished reports, however, do not indicate that such tactics have been 

*» Federal Trade Commission, Cement Industry, p. xil. 

** Ibid., pp. 2, 45-^6 ; Idem., Price Bases Inquiry, pp.. 91-92. 


adopted as a result of agreement among the members of the industry. 
As the editors of Fortune have concluded — 

it is reasonable to suppose tliat cement prices remain steady not because of 
collusion but because the little fellows in the industry know what Is good for 
their economic health." 

The consequent reluctance of most producers to incur the risks of 
regional leadership thus operates to prevent effective competition in 

The procedure employed in pricing cement is similar to that which 
is used in pricing steel. In calculating the figure that he will quote 
to any buyer, the producer determines the base price prevailing at 
the basing point from which that buyer can get the lowest delivered 
price quotation. He then adds to this price the all-rail freight from 
the basing point to the buyer's destination and quotes the result as 
his delivered price. Since there are some 60 basing points and since 
a different mill may take the lead in quoting prices at any one of 
them, there are some 60 possible prices for cement. But since every 
seller adopts as his own the price announced at the same basing point, 
and since every one of them charges for delivery from this point over 
the same all-rail route, the buyer receives identical quotations from 
every seller to whom he turns. 

With cement, as with steel, the all-rail rule contributes to the main- 
tenance of uniformity. On the average shipment of cement, the 
charge for delivery constitutes almost a fifth of the delivered price.**^ 
Transportation by boat and by truck is frequently available at less 
than rail rates. If delivery charges were not standardized, sellers 
employing such carriers or professing to do so could undercut the 
prices set by those who shipped by rail. This sort of competition is 
prevented by the all-rail rule. The only important exception to this 
formula has been made in the case of coastal ports where dealers have 
been granted lower prices in order to enable them to compete with 
cement imported from abroad.*^ According to the Federal Trade 
Commission, the Cement Institute, in its administration of the re- 
quirement, has prepared and circulated rate books which the industry 
employs in preference to the schedules issued by the roads themselves, 
has prohibited the use of rates published in new schedules until they 
have been approved, has made it impossible for the Federal Govern- 
ment to take advantage of the favorable rates to which it is entitled 
on land-grant railroads, and has attempted to eliminate transporta- 
tion in buyers' trucks of cement bought f. o. b. at the mills.*^ These 
arrangements are fortified by a rule which prevents buyers from 
diverting shipments in transit from one destination to another when 
the operation of the system would make it advantageous for them 
to do so. 

There is abundant evidence that the prices established under this 
system are noncompetitive. Quotations have been identical, no seller 
attempting to undercut another's bid.*® Sales have been made in dis- 

« Fortune, May 1938, p. 122. 

** Federal Trade Commission, Price Bases Inquiry, pp. xiv, 19, 166. 

*' Idem, Cement Industry, p. 46. 

« Idem. Price Bases Industry, pp. 25, 99-100, 103-104 ; Cement Industry, pp. 35-36, 
100 ; Complaint, Docket No. 3167 (19^7), pp. 14-16. 

* Idem. Price Bases Inquiry, pp. 55-81 : Complaint, pp. 10-13 ; Procurement Division 
Group, Treasury Department Subcommittee, Temporary National Economic Committee, 
Study of Government Purchasing Activities (1939), p. 89. 


tant territories that sellers could not have entered unless the mills 
located there had acquiesced, and sellei-s have reciprocated by permit- 
ting distant mills to sell in their vicinities. Different sums have been 
realized on identical quantities sold to buyers located at varying dis- 
tances from the seller's plant.^" Heavy costs have bean incurred in 
the cross-shipment of cement."*^ Prices have been rigidly maintained 
over long periods of time.^^ From 1926 through 1933, the price of 
cement showed only 15 month-to-month changes in 95 months.^^ 
From 1929 to 1932, ^yhile production fell off by 55 percent, the price 
was cut by only 16 percent/''' In 1933, when shipments were smaller 
than they had been in years, the price began to rise and by July sur- 
passed the figure reached in 1929. From 1933 to 1940, despite the 
fact that the industry was prodi'cing only 37 to 71 percent of its 
1929 output and operating,' in 193-i and 1935, at only 30 percent of its 
capacity, the newly established level was effectively maintained." 
Profits, however, have been moderate, perhaps because the gains re- 
sulting from the system "have been canceled by the costs which it 
entails. But eight of the leading producers made 5.94 percent on 
their invested capital in 1937, 4.07 percent in 1938 when half of the 
industry's plant was standing in idleness, and 7.4 percent in 1939.^^ 
The Federal Trade Commission issued a complaint against the 
Cement Institute and 75 member corporations in 1937, charging that 
the basing point system constituted a violation of the Federal Trade 
Commission, Clayton, and Robinson-Patman Acts. According to the 
complaint : ^' 

The efifect of the adoption, continuance, and maintenance of the said pricing 
system, to the extent that it has been and is followed, has been and is completely 
to destroy competition in price. * * ♦ 

* * * Under the said pricing system, delivered prices are charged by re- 
spondent producers with little regard to the varying local conditions of supply 
and demand. Sard prices are made through a concert of action, which is formu- 
lated and expressed in terms of the said pricing system and applied throughout 
most, if not all, of the country. Thus respondents maintain, against thousands 
of private and public consumers in many parts of the United States, an artificial 
price level little related to and not governed by truly coi^petitive conditions. The 
result is higher base prices and higher delivered prices to the consuming public. 

A final disposal of this case is still pending. 

The arguments that have been advanced in support of the system 
are not persuasive. It has been pointed out, for instance, that every 
buyer of cement gets i^-ice quotations from more producers than he 
would if sales were made f. o. b. at the mills. While this is undoubtedly 
true, it cannot be said to prove the existence of competition, since each 
quotation is like every other one and all of them are set at a level which 
is high enough to cover the costs of the cross-hauling involved in the 
interpenetration of markets. Members of the industry sometimes 
describe their pricing policy as one of "meeting competition." But it 
is sophistry to argue that the reciprocal sharing of markets and the 

60 Federal Trade Commission, Price Bases Inquiry, pp. 43-55. 

" Ibid., pp. 134-146. 

62 Ibid., pp. 81-87. 

^ Nation.iI Resources Committee, op. cit., p. 105. 

" Ibid., p. .^St). 

« Bureau of Labor Statistics, Index Numbers of Wholesale Prices of Portland Cement 
(mimeo.) 1039; Monthly Labor Review. June 1039 to June 1940; Commodities in Industry 
(1940), pp. 96 97. Fortune, March 1938, p. 12'J. 

"Work Projects Administration. Securities and Exchange Commission, op. cit., vol. 3, 
pp. 249—251, 254, and su'pplement. 

" Complaint, Docket 3167, pp. 18-19, 


common use of a basing point formula in calculating delivered prices 
is "meeting competition." It is meeting the price of a regional price 
leader whose pricing practice is unlikely to be competitive. It may be 
true, as one prominent producer, a trustee of the Cement Institute, 
has put it, that "ours is an industry above all others that cannot stand 
free competition, that must systematically restrain competition or be 
ruined." ^^ 


Cast iron soil pipe is a standardized foundry product manufactured 
from pig or scrap iron and used chiefly for plumbing and the disposal 
of waste. Some 400,000 to 500,000 tons are produced annually by 45 
companies operating 65 foundries. A trade body, the Cast Iron Soil 
Pipe Association, has a membership of 35 concerns which account for 
more than 90 percent of the total output. The industry originated at 
Birmingham, Ala., and 65 percent of the output is produced within 75 
miles of that city, while the remainder comes from plants which are 
scattered throughout the United States. Not more than a tenth of the 
pipe manufactured in Alabama, however, is sold in the South. For 
many years the industry has priced its product under a single basing 
point system. The weight and bulk of pipe are such that the cost of 
transportation constitutes a substantial part of the delivered price. 

In 1937, the Federal Trade Commission issued a complaint in which 
it charged that the basing point system operated "to hinder, lessen, 
restrict, and restrain competition, and particularly competition in 
price." ^^ As described in this document, the system involves the quo- 
tation of all prices on a delivered basis, the selection of Birmingham 
as the only basing point, and the adoption of a common base price 
which is "arbitrarily postulated" by the industry. Thus, "throughout 
most, if not all, of the United States," the delivered price quotation is 
the Birmingham base price plus freight from Birmingham to the 
point of delivery. As a result, each buyer receives identical quotations 
from every seller. Each producer is able to "sell at the location or in 
the vicinity of the foundries of other producers without encountering 
any actual price competition from such other producers." Plants lo- 
cated outside of Birmingham collect "phantom freight" on shipments 
on which they pay a rate that is lower than that from Birmingham 
and "absorb" freight on those on which they pay a rate that is higher, 
realizing different sums on sales to buyers located at different points. 
Shipments cross as each producer sells into another's territory. Foun- 
dries outside of Birmingham abstain from turning the advantage of 
location to account in making sales and efficient foundries refrain 
from translating their lower costs into a lower price. The Commission 
charges that such practices "actually have unduly, directly, and sub- 
stantially hindered, lessened, restricted, and restrained, price competi- 
tion in interstate commerce in said pipe" and that they have "increased 
the prices of said pipe to the public." The proceeding awaits final 

"^Ibld., p. 17. 

™ Complaint. Docket 3091. 



A patent confers upon its holder for a limited time the exclusive 
right to make, use, and sell the patented product or device. It permits 
him to transfer this right to others or to retain it for himself, to em- 
ploy it in production or to withhold it from use. In short, it grants 
him a monopoly. The courts, however, have been una;nimous in hold- 
ing that such a grant does not carry with it exemption from the pro- 
visions of the antitrust laws. They have therefore been compelled to 
draw a line between the exclusive privileges conferred by patents and 
the statutory prohibitions against restraint of trade. If drawn in 
principle, this line might be clear; drawn in individual cases, it is 
necessarily wavering and blurred. The resultant "general confusion 
both at the bar and in contemporary legal literature as to the scope 
of the rights granted by a patent and the strictures of the antitrust 
laws"®" has created a "no-man's land" within which patents have been 
used as a means of subjecting prices and production to monopolistic 
control. It is with the economic rather than the legal aspects of this 
development that we are here concerned. 

Although the agencies of government, in their administration and 
interpretation of the patent laws, may preserve strict neutrality in 
dealing with different applicants for patent rights, inequality in the 
financial resources of such applicants may operate to the advantage of 
the stronger firms. While patent fees are low and the Patent Office 
and the courts will grant no special favors to large concerns, the com- 
plexity of the system creates potentialities of endless litigation and 
threats of litigation in which the party with the best legal talent is 
likely to be victorious. ''^ Thus a powerful patentee may be able to 
defeat the attempt of a small competitor to obtain or use a patent that 
Would cut into the area of privilege which he holds. Interference 
proceedings may force the smaller firm to sell a pending application at 
the buyer s price. Infringement suits may compel a weaker com- 
pany to transfer its patents to a stronger one. Exclusive rights thus 
tend to gravitate to large concerns, regardless of the legal status of 

~M. Feuer, "The Patent Monopoly and the Anti-Trust Laws," Columbia Law Review, 
VOL 38 (1938), p. 1147. 

" Alfred E. Kahn, writing on "Fundamental Deficiencies of the American Patent Law" 
in the American Economic Review, vol. 30, pp. 475—491, September 1940, says : 

"Only two groups are likely to gain from this welter of uselet s patents : patent lawyers 
wuo thrive on litigation and the taking out of patents ; and unscrupulous businessmen 
who hold patents and can afiford suit or threats of suit regardless of the merits of the 
case and who have here a legal method of unfair competition. The great research labora- 
tories are only' incidentally technological centers. From the business standpoint they are 
patent factories : they manufacture the raw material of monopoly. Their product is often 
nothing but a 'shot-gun,' a basis for threatening infringement suit and scaring off com- 
petitors ; or a 'scare-crow,' a patent which itself represents little or no contribution but 
seems, at least prima facie to cover an important part of a developing art and hence 
permits threat of suit. 

"Beyond the 'shot-gun' and 'scare-crow' techniques, there is a third monopolistic method : 
the 'drag-net,' whereby corporations and individuals keep alive at the patent office great 
numbers of applications covering all potential developments In the field, revise those 
applications to cover any new competitive devices subsequently developed, and then take 
out the patents as their own and sue to protect them. The 'drag-net' is also a means of 
Involving competitive patent applications in the long and costly interference proceedings 
of the Patent Office. Hence many individuals and corporations seek as a matter of course 
to keep applications pending as long as possible. Tardy response to Patent Office letters 
and requests to revise, the intentional filing of faulty applications which will require 
much correspondence about revision, are the chief methods * • • 

"The delay and expense of Interference proceedings and infringement suits (and hence 
tbe potency of a mere threat to sue), the mass of useless patents (and hence the possi- 
bility of 'drag-net' applications, or 'shot-gun' and 'scare-crow' patents), all play into the 
bands of the powerful and the unscrupulous who know how to profit by the deficiencies 
of the law. All this puts a premium on wealth. The patent field , ie one where sheer 
economic power often counts for as much as does the worth of the patent to the progress 
of science and the useful arts." (Pp. 485-486.) 


their claims. Moreover, the holder of a basic patent may be the only 
buyer to whom patents on improvements can be sold. During the life 
of the basic patent, he may command the field. Upon its expiration, 
his dominant positio , fortified by his ownership of patents on im- 
provements, may make it difficult, if not impossible, for others to com- 
pete. The system, in its operation, may thus involve a wider area and a 
longer tenure of power than those envisaged by the framers of the 

The patentee who licenses other firms to operate under his patent 
rights may include in his contracts provisions which are designed to 
preserve, strengthen, and extend his monopoly. He may prescribe the 
quantity that his licensees may produce, the territories in which they 
may sell, the customers with whom they may deal, and the prices 
which they must charge, thereby limiting their freedom to compete. 
He may insist that they buy exclusively from him, thereby restricting 
the market available to his competitors. He may require them to buy 
unpatented materials from him, thereby extending his control into 
fields where his patent does not apply. His power to refuse or with- 
draw licenses may thus be employed as a weapon whereby varying 
degrees of power over the markets for various products may be ac- 

In industries where essential patents are owned by several firms, 
each of them may grant licenses to all of the others or all of them 
may transfer their patents to a common pool. Under such a plan, 
improvements in products and processes resulting from invention are 
made available to all of the participants and costs are reduced by 
eliminating litigation within the group. If unrestricted licenses are 
granted to all applicants on reasonable terms, cross-licensing and pat- 
ent pooling do not contribute to monopoly. But these arrangements, 
too, may be abused. The group may employ its combined resources 
in litigation designed to exclude outsiders from the field. It may 
refuse licenses to nonmembers or grant them only on onerous terms. 
It may attempt to limit output, allocate markets, and control the prices 
charged by licensees. Here, again, patents serve as a weapon whereby 
competition may be destroyed.^^ 

Market control through patents has been found by the courts to 
have existed, since 1920, among producers of ophthalmic lenses, por- 
celain insulators, radios, and gasoline,*'^ and is asserted in current com- 
plaints to have existed among producers of ophthalmic frames and 
mountings, gypsum board, hardboard, and mineral wool.®* It has 

02 According to Kahn : "A pool of numerous patents, backed by the wealth, prestige, and 
vested interest of a well-organized industry, is a potent weapon. The temptation is great 
to use the pool as a legal foundation and instrument for the preservation of monopoly — a 
monopoly, be it noted, not over some innovation or series of innovations but over an entire 

"The licensing or cross-licensing agreement frequently becomes the instrument for 
exclusive tactics, for 'stabilizing the industry' by restricting the entrance of outsiders 
through refusal to license. Or it may be used for production control by license stipula- 
tions. Or the participants may divide the field among themselves, each getting a segment 
of the industry or of the territorial market. The result in any event is usually to 
change the patent fr-m a limited 17 year monopoly over particular inventions to a 
perpetual control over an industry." (Ibid., pp. 487-488.) 

«' Federal Anti-trust I>aws. cases 273 and 299, 305, 371, and 422, respectively. 

«* Cf. supra, p. 141 and infra, pp. 161-165. Another indictment returned in the District 
Court of the United States for the Southern District of New York on August 29, 1940 in 
the case of II. S. v. American Colloid Company et al., charges three producers of beij- 
tonite (an inorganic nat^ural clay or earth employed in the foundry tra(^ in the prepara- 
tion of molds used in making various types of metal castings) with obtaining con- 
trol of three patents which covered the use of this product in combination with other 
materials, and with employing these patents, through threats of litigation and refusal lo 
grant licenses, as means of monopolizing the production and sale and fixing the price of 
bentonite itself. 


made its appearance in the glass container fieldj where the Hartford- 
Empire leases have contributed to the suppression of competition by 
limiting the. number of firms permitted to produce each type of ware, 
by imposing restrictions on the output of certain licensees and on the 
prices they may charge, and by supporting the system of price leader- 
ship which prevails throughout the trade.^^ As is shown elsewhere 
in these pages, it has existed, too, among producers of aluminum, 
shoe machinery, optical glass, telephone equipment, electric lamps, 
electric accounting machines, air brakes, sulfur, asphalt shingle and 
roofing, and elevators.®'' 


In the early twenties, radio patents owned by the General Electric 
Co., the Westinghouse Electric & Manufacturing Co., the American 
Telephone & Telegraph Co., and the United Fruit Co. were placed 
in a common pool under the control of the Radio Corporation of 
America. The pool contained some 4,000 patents, covering virtually 
every device in the field, including the de Forest tube. Both General 
Electric and Westinghouse owned stock in R. C. A. ; both of them were 
represented on the board of R. C. A. ; both of them made sets for sale 
by R. C. A. The Radio Corporation, in turn, granted licenses to other 
manufacturers. At first these licenses were limited to firms whose 
total royalties would amount to $100,000 per year and a:^fee equal 
to 7l^ percent of its value was collected on each set. No licenses were 
granted for the manufacture of tubes, licensees being required to equip 
their sets with tubes made by R. C. A. In time, however, friction with 
licensees and a court decision outlawing the tube requirement led to 
modification of the licenses. The minimum royalty was reduced to 
$10,000, the fee per set was cut to about 5 percent, and, in 1929, other 
makers of tubes were licensed under R. C. A. patents. 

In May 1930 the Department of Justice entered suit against the 
members of the pool, charging that they had ceased to compete among 
themselves; that they had refused, individually, to grant licenses to 
other manufacturers; that they had agreed to include their future 
patents in the pool ; that they had exacted burdensome royalty pay- 
ments ; that they had been able to dictate prices and terms to the pro- 
ducers of 95 percent of the radio apparatus made and sold in the United 
States; and that their collective threat to bring suit against alleged 
infringers had excluded from the industry all firms but those who 
accepted the conditions they laid down.®^ In November 1932 a consent 
decree was filed. General Electric and Westinghouse were ordered to 
dispose of their stock in R. C. A. and remove their representatives 
from its board. The exclusive cross-licensing of patents was enjoined, 
thereby opening their use to other producers on reasonable terms.®* 
Since this decision, there has been every indication of active competi- 
tion in the industry. 


The Ethyl Gasoline Corporation is owned jointly by the Standard 
Oil Co. of New Jersey and the General Motors Corporation, which 

•*Cf. supra, pp. 75-77. 

•• Cf. supra, pp. 70, 72, 78, 84-85, 104-107, 109, and infra, pp. 246, 252. 
"^ Cf. Commercial and Financial Chronicle, May 17, 1930, pp. .3440-3443. 
«Cf. ibid., November 26, 1932, pp. 3632-3633. 


in turn is controlled by E. I. du Pont de Nemours Co. It is the' sole 
distributor in the United States of a patented fluid, chemically known 
as tetra-ethyl, which, when injected into "straight" gasoline, renders 
that fuel comparatively "knockless." The corporation has licensed 
all but one of the 124 leading refiners to use the ethyl compound. Its 
contracts formerly required refiners to sell "anti-knock" gasoline at 
a fixed differential over "straight" gasoline and forbade them to sell 
it to any but a licensed jobber. Every one of the 11,000 jobbers who 
distributed ethyl gasoline was thus compelled to obtain a license from 
the corporation and no license was granted unless the jobber agreed 
to abide by a "code of ethics," the provisions of which bound him, in 
effect, to follow the price policies of the major oil companies. 

In 1938 the Department of Justice initiated proceedings against the 
corporation for the purpose of preventing it from using its licenses 
to control the policies and prices of jobbers. The Department did 
not question the corporation's right to impose conditions controlling 
the sale of ethyl gasoline by refiners, but it contended that this right 
did not extend to subsequent sales. In March 1940 the United States 
Supreme Court found the defendant guilty of violating the anti-trust 
laws, asserting that the corporation, "by the leverage of its licensing 
contracts restmg upon the fulcrum of its patents" had "built up a 
combination capable of use and actually used as a means of controlling 
jobbers' prices and suppressing competition among them." Since "the 
regulation of prices and the suppression of competition among the 
purchasers of the patented articles" was not "within the limits of the 
patent monopoly," the practice of requiring jobbers to take out licenses 
was enjoined.®® 


Gypsum, consisting of calcium sulphate combined with water, is an 
abundant, easily mined, and widely deposited rock, which, when ground 
and dehydrated, is made into plaster, plasterboard or plaster lath, 
and wallboard. The techniques involved in the calcining and further 
processing of raw gypsum are relatively simple. Animal hair or 
vegetable fiber are added to the gypsum to make plaster, the process 
being unpatented. Plasterboard and wallboard are basically alike, 
each consisting of a flat core of gypsum enclosed, by a patented process, 
in a paper wrapper. Plasterboard is nailed to wall joists as the base 
for plaster, serving, therefore, as a substitute for wood or metal lath. 
Wallboard is used as the outer surface of the interior walls of build- 
ings and is made in a variety of finishes, one of which, "tiled" wall- 
board, is coated with a layer of enamel or processed paper which is 
scored to simulate tiles. While nearly all plaster, plasterboard, and 
wallboard is used in building construction, small amounts find other 
industrial uses. In 1937, the industry produced calcined products 
valued at $36,900,000, of which $35,500,000 represented sales for build- 
ing purposes. Of the latter, sales of plaster accounted for nearly half 
of the total, while plasterboard and wallboard each constituted one 

During recent years, a marked concentration in the production of 
calcined gypsum has occurred as the larger producers have bought 
the plants of smaller firms. In 1928, there were 30 companies operat- 

"» 309 U. S. 436. 


ing 67 plants; by 1939, there were 21 companies operating 56 plants. 
The United States Gypsum Co. had acquired 10 concerns, bringing 
under its ownership 36 percent of the establishments. The National 
Gypsum Co. had purchased 4 concerns and 2 of these had pre- 
viously bought out 4 others. In 1937, the 3 largest producers 
accounted for 79 percent, by value, of the total output of calcined gyp- 
sum, the fourth producer accounting for only 2 percent. A higher 
degree of concentration undoubtedly obtains within regional markets. 
Only 8 concerns were engaged in the production of plasterboard and 
wallboard in 1938 and 2 of them were under common control. United 
States Gypsum produced 57 percent of the total output in 1937, Na- 
tional Gypsum produced 19 percent, and the Certam-teed Products 
Corporation produced 11 percent; altogether 87 percent of the total 
supply was in the hands of the 3 largest firms. 

United States Gypsum has dominated the gypsum board industry 
through patent ownership. In 1912 the company acquired two patents 
which covered the process of closing the edges of gypsum board by 
folding the bottom cover sheet over the edge of the board and then 
aflSxing the top cover sheet. These patents, remaining in force until 
1929, were valuable, because closed-edge board was preferred to open- 
edge board, since it was less likely to chip at the edges during ship- 
ment or installation. In 1920 the company acquired another patent, 
running until 1937, which covered the process of closing the edges of 
the board by imbedding the ends of both covers in the body of the 
core. In 1926, following extensive litigation, it took over some 30 
other patents and applications from the Beaver Products Co. In 1924 
and 1926, it applied for three patents covering the "Eoos tenacious 
foam process" which involved the use of starch in producing the gyp- 
sum core in plasterboard and wallboard. Patents on this process, 
which the company has employed since 1924, were granted in 1935 to 
1937 to run until 1952 to 1954. Conflicting patents, covering the use 
of starch in wallboard filler, owned by the Universal Gypsum & Lime 
Co.', were acquired from its receivers in 1929 and supported United 
States Gypsum in its control of the industry until the first of the 
Roos patents was issued in 1935. 

The company has granted licenses under its patents to all of the 
manufacturers of gypsum board but one small firm, thus collecting roy- 
alties on 95 percent of the board produced in the United States. It 
has employed these licenses as a means of controlling prices in the 
trade. Its contracts have required its licensees to sell on a delivered 
basis under a multiple basing point system and to observe the minimum 
prices which it prescribes. Since 1929 the company has issued price 
bulletins and in 1932 it established a special department to investigate 
violations, thus attempting to prevent licensees from granting secret 
concessions to purchasers. Half of Gypsum's revenue is derived from 
unpatented building materials and it has sought to discourage the 
practice of cutting prices on such goods in transactions where the sale 
of patented and unpatented products was combined. Its pricing policy 
also appears to have been influenced by the fact that high prices for 
plasterboard may lead builders to use wood or metal lath. Although 
the cost of plasterboard is probably not more than $1 per 1,000 square 
feet below that of wallboard, it has been sold at prices from $10 to 
$13.50 below the wallboard price. This policy has preserved the mar- 


ket for the eight manufacturers of plasterboard, seven of whom are 
Gypsum licensees. But since less plaster is used with plasterboard 
than with wood or metal lath, it has operated to the detriment of 14 
companies producing gypsum plaster but no plasterboard. 

The prices of gypsun) products have been effectively maintained. 
While the index for building materials fell more slowly and rose more 
rapidly during the 1930's than did the index for all commodities, the 
indices for calcined gypsum products were at times more than 30 
points higher than the figure for the whole building materials group. 
In 1932, when all building materials stood at 71 percent of the price 
for 1926, base coat plaster stood at 120, plasterboard at 98, and wall- 
board at 112. This pricing policy has been productive of ample 
profits. In 1928, United States Gypsum reported that board produced 
in one of its plants at a cost of $10.50 per 1,000 square feet yielded a 
profit of $11.09 per 1,000 square feet. It is estimated that even during 
the worst years of the depression it was necessary for the company to 
operate its plants at only 14 percent of capacity in order to break 
even. Although its share of the industry's sales has declined in recent 
years. Gypsum has prospered. The company made $28,000,000 from 
1931 through 1938, nearly $5,000,000 in 1938.^° 

The licensing arrangements between United States Gypsum and 
the other members of the trade have been attacked in three suits brought 
under the Sherman Act in the summer of 1940. One indictment 
charges the company with employing the licenses previously described 
as means of fixing the prices of gypsum board.^ Another charges 
Gypsum, Certain-teed, and the American Gypsum Company (which 
was absorbed by the Celotex Corporation in 1938) with employing 
licenses under a patent "purporting to cover a gypsum lath with per- 
forations of a certain dimension and number and with a designated 
spacing relationship" for the purpose of fixing the price of this product, 
"well knowing that said patent was void and would not support lawful 
price control by U. S. G."' ^ The complaint in the third suit asks that 
all of these license agreements be cancelled and their further observ- 
ance enjoined.^^ At this date, no decision has been rendered on the 
legal issues involved. 


Hardboard is a homogeneous, dense, and grainless sheet of com- 
pressed vegetable fibers varying in thickness from one-tenth to five- 
sixteenths of an inch. The fibers from which it is made are produced 
by using steam to explode wood chips. They are then mixed with 
water, formed into a felt, placed in hydraulic presses, heated, and 
subjected to pressure. The resulting product is used in the building 
industry as wallboard or paneling, as a substitute for tile, as flooring, 
and as forms into which concrete is poured, and elsewhere in the 
manufacture of furniture, cabinets, advertising displays, motion pic- 

™ All of the fftregoing material is based upon a Report on Certain Economic Aspects of 
the Gypsum Wallboard and Plasterboard Industry and a Progress Report on Study of 
Gypsum Calcining Industry, prepared by George B. Haddock for the Temporary National 
Economic Committee (typescript, Washington, 1939). 

" U. 8. V. United States Oypsum Company, et at.. District Court of the United States, 
District of Columbia, Indictment, June 28, 1940. 

" U. 8. V. Certain^teed Products Corporation, et al.. District Court of the United States, 
District of Columbia, Indictment, June 28, 1940. 

" V. 8. V. United States Oypsum Company, et al.. District Court of the United States, 
District of Columbia, Complaint, August 15, 1940. 


ture sets, and automobile, street car, and railway car interiors. It 
has been made commercially since 1926 and, prior to 1929, the Mason 
Fiber Co. and its successor, the Masonite Corporation, was its sole 
producer, operatino; under patents which covered the product itself 
and the machinery and processes involved in its production. 

In 1929 the Celotex Corporation be^an to manufacture hardboard 
and a numbei* of other companies subsequently followed suit. In 
1931 Masonite sued Celotex, charging infringement, and in 1933, after 
conflicting decisions in the district court and the circuit court of 
appeals and an appeal to the United States Supreme Court, the two 
companies came to an agreement. Between 1933 and 1937, similar 
agreements were concluded with nine other firms. According to a 
complaint filed by the Department of Justice on March 11, 1940,^* 
Celotex and each of the other companies agreed to recognize the 
validity of the Masonite patents, to discontinue the manufacture of 
hardboard and competitive products, to purchase their supplies of 
hardboard from Masonite for resale, to sell it only to the building 
industry, leaving the remainder of the market to Masonite, to charge 
the prices and observe the terms prescribed by Masonite, and to grant 
no special concessions in price. Masonite, on its part, agreett to manu- 
facture hardboard for each of the other firms, to sell it to them; at 
prices 35 to 50 percent below those paid by dealers, and to refrain 
from undercutting the prices which it required them to charge. Obvi- 
ously, these agreements, which were to continue during the life of the 
Masonite patents, reserved the entire market outside of the building 
industry for Masonite and eliminated all price competition between 
this company and the other firms. The Department of Justice, in 
its complaint, charges that the company has used its position to 
maintain "high, uniform, and noncompetitive prices for hardboard" 
and that the parties to its agreements have "each made substantial 

Since 1934, Masonite has manufactured and, with its licensees, has 
distributed about 97 percent of the hardboard made in the United 
States. The other 3 percent, produced by the United States Gypsum 
Co., has been sold at prices identical with those charged by Masonite 
and fixed by it for its licensees. It may not be without significance 
that three of the Masonite licensees — Celotex, the Certain-teed Prod- 
ucts Corporation, and the National Gypsum Co. — also hold licenses 
under the United States Gypsum patents which were previously 


Mineral wool, consisting of a variety of rock, slag, or glass products 
having the appearance of loose wool, is used as an insulating material. 
In the form of batts or blankets it is placed between the outer and 
inner walls of buildings during construction. As loose wool it is used 
both in the construction of new buildings and in the insulation of 
previously constructed buildings wherever it can be jjacked in by 
hand. In granulated or nodulated form it is employed for the latter 
purpose alone, being blown by machine into air spaces between an 
outer and inner wall, above a ceiling, or below roofs and floors. For 
some time prior to 1929 various manufacturers, including the Johns- 

T* V. 8. V. Masonite Corporation, et al.. District Court of tiie United States, Southern 
■#trlct of New York Complaint, March 11, 1940. 


Manville Corporation, had manufactured mineral wool in this form 
and numerous contractors, including W. H. Kratzer & Co., one* of 
its customers, had engag:ed in the business of blowing it into build- 
ings. In that year, however, Games Slayter obtained a patent, not on 
the manufacture of the wool itself, nor on the machinery used in 
blowing it, but on the process of "providing openings to afford access 
to the air spaces" in existing structures, "inserting the outlet end of 
a conduit through said openings, and forcing through the said con- 
duit a comminuted heat insulating material * * *." In 1930 
Slayter brought suit against Johns-Manville and Kratzer, charging 
them with infr in element. As a consequence of this action, the parties 
came to an agreement which provided that Slayter should license 
Johns-Manville and other manufacturers of mineral wool and em- 
power them to sublicense agents, dealers, contractors, and installers. 
Between 1931 and 1939, Slayter granted such licenses to eight other 
firms. ' 

In a complaint filed on June 24, 1940,^^ the Department of Justice 
charges that the Slayter licenses have been employed as a means of 
bringing the price of granulated or nodulated mineral wool and the 
prices charged for blowing it into buildings under control. According 
to the complaint, unlicensed manufacturers have been harassed by in- 
fringement suits and threats of such suits, numerous applications for 
licenses have been rejected, the distribution of competing products has 
been limited, sublicensees have been required to obtain supplies exclu- 
sively from licensees, and have been granted discounts if they would 
refrain from using competing products or buying from competing 
firms. The prices charged by licensed manufacturers have been uni- 
form and these prices have been raised, sublicensees have been required 
to adhere to fixed prices in resales, violations of the program have 
been investigated, and the structure of prices has been supervised. It 
is charged that the firms participating in this program "have main- 
tained and are maintaining artificially high, uniform, and noncom- 
petitive prices" and that each of them has "made substantial profits in 
connection with the manufacture and distribution of such mineral 

The complex of interrelationships in the building materials indus- 
try extends into the insulation field. Johns-Manville, first of the 
Slayter licensees, is also a Masonite licensee. United States Gypsum, 
owner of the ^psum board patents and a follower of Masonite's lead- 
ership in pricmg hardboard, is also a Slayter licensee. 


Firms dominant in a field, by virtue of their superior bargaining 
power, have frequently imposed upon those with whom they deal 
arrangements calculated to place their weaker rivals at a competitive 
disadvantage. In some cases, they have made exclusive contracts with 
the only producers of equipment or materials or refused to buy from 
companies who sold to their competitors, thus cutting the latter off 
from sources of supply. One instance of such a practice, already 

« U. 8. V. Johns-Manville, et al.. District Court of the United States, Northern District 
of Illinois, Eastern Division, Complaint, June 24, 1940. 

271817— 40— No. 21 12 


cited/^ occurred in the early years of the century, when the American 
Can Co. contracted for the entire output of plants manufacturing 
automatic machinery for making cans. Another was found by the 
Federal Trade Commission to have occtirrecj more recently, when the 
three leading operators of candy vending machines arranged with the 
two largest manufacturers of chocolate bars to purchase all of certain 
types of bars sold for use in such machines.^^ In other cases, dominant 
firms have demanded and obtained prices which fell below those 
charged their competitors by an amount that could not be justified by 
differences in cost. Amon^ those found by the Commission to have 
benefited from such discrimination are chain store organizations, 
mail order houses, and other large distributors.^^ In still other cases, 
firms purchasing in quantity have compelled companies supplying 
them with goods or services to buy other goods or services from them. 
Thus, Swift & Co. and Armour & Co., larg:e shippers of meat, were 
each allied at one time with concerns producing minor railroad equip- 
ment. By threatening to divert their shipments to other lines, they 
forced the railroad companies to buy equipment from these concerns, 
thus indirectly obtaining lower transportation costs than those avail- 
able to their competitors.^^ A similar practice was formerly employed 
by the California Packing Corporation and its subsidiary, the Alaska 
Packers Association, who owned a wharfinger company which oper- 
ated a rail-water terminal in San Francisco Bay. These organiza- 
tions compelled producers from whom they bought to rout« shipments 
destined for other packing houses through this' terminal, thus giving 
it an advantage over its competitors in the wharfinger business and 
obtaining for themselves 'an advantage over their competitors in the 
packing trade.^^ Highly integrated firms have sometimes profited at 
the expense of independent companies whose operations were confined 
to a single stage of the productive process. By establishing a low 
price for raw materials and a high price for finished products, they 
have made it difficult for other producers of materials to compete ; or, 
by setting a high price on raw materials and a low price on. finished 
goods, they have obtained a similar advantage over independent fabri- 
cators. Such practices are said to have been employed, for instance, 
by integrated firms producing aluminum, steel, and gasoline.®^ 

Large concerns have frequently attempted to exclude their smaller 
rivals from the market by imposing upon distributors contracts for- 
bidding them to handle goods produced by other firms. Exclusive 
arrangements of this sort have been used, at some time since 1920, by 
the Eastman Kodak Co.,^^ ^j^^ National Biscuit Co.,*^ the National 
Broadcasting Co., and the Columbia Broadcasting System,^* and have 
obtained in the sale of dress patterns, electric switches, music rolls, 

" Cf. supra, p. 67. 

•"Federal Trade Commission, Order, Docket 3134 (1939). 

™Cf. Idem, Chain Stores, 74th Cong., 1st sess., S. Doc. No. 4 (1935), ch. 4, and Orders In 
Dockets 3031 (1938) 2116 (1936), and 3685 (1939), involving the Atlantic & Pacific Tea 
Co., Sears, Roebuck & Co., and Montgomery Ward & Co., respectively. 

■^Idem. Orders, Dockets 1727 (1932) and 1779 (1931). 

"Idem., Order, Docket 2786 (1937). 

" Cf. supra, pp. 70-71, 134, and infra, pp. 167-168. 

«>Cf. 7 Federal Trade Commission Decisions 434 (1924), 7 Fed. (2d) 994 (1925), and 
274 U. S. 619 (1927). 

^Federal Trade Commission, Order, Docket 3607 (1938). 

"•Federal Communications Commission, Keport of the Committee Appointed by the 
Commission to Supervise the Investigation of Chain Broadcasting (mlmeo. 1940), pp. 69-64. 


canned sirups, tinted lenses, pass books and account books, and auto- 
mobile carburetors.*'' 

Firms producing two or more goods or services have often made use 
of still another device, refusing to supply a customer with one of their 
products unless he would also take another, thus closing the market 
to competitors in the latter field. As noted in the preceding chapter, 
the United Shoe Machinery Corporation once compelled lessees of 
its lasting machines to turn to it for their welters, stitchers, and 
metallic fasteners, and the International Business Machines Corpora- 
tion and Remington-Kand, Inc., each required lessees of its tabulat- 
ing machines to buy its tabulating cards.®® Tying contracts of this 
sort have also been found or alleged, since 1920, to have been em- 
ployed in selling targets to lessees of clay pigeon traps,*^ accessories 
to purchasers of pressure gages for automobile tires,*® valves to 
lessees of bag-filling machines,®^ paper bags and sticks to lessees of 
machines used in the manufacture of frozen confections,*" and bands 
and wires to lessees of tying machines,*^ in each case giving the pro- 
ducer of the second article an advantage over his competitors in the 
production of the first. Firms selling a large number of goods or 
services have sometimes followed a similar practice, refusing to sup- 
ply any of their products to purchasers who would not a^ree to take 
several or all of them. Manufacturers of agricultural implements, 
by forcing their full lines on distributors, manufacturers of automo- 
biles, by requiring dealers to handle their parts and accessories and 
to use their subsidiary finance companies in making, sales on the in- 
stallment plan, a^d producers of motion pictures, by compelling ex- 
hibitors to book their films in blocks, have thus profited at the expense 
of competitors whose operations were narrower in scope.*^ 


The independent refiner of petroleum operates under a heavy handi- 
cap in competing with the integrated major companies. He must turn 
to them for materials and services. Since they produce more than 
half of the crude, he depends on them for part of his supply. Since 
they control the stocks of casing-head gasoline, recovered from natural 
gas, which he must blend with the product he obtains by straight-run 
refining to make it volatile enough for commercial use, he depends 
on them for this material. Since they own the trunk pipe lines, he 
depends on them for transportation. Since they hold the important 
patents in the field, he depends on them for the right to use improved 
productive processes. If they will not sell him these materials, rights, 
and services, he will find it diflficult to compete. If they will do so, 
his payments will be a cost to him and a source of income to them. 

The independent refiner must operate within the margin which ex- 
ists between the price of crude and the price of gasoline. The majors 
take the lead in establishing each of these prices. The independent 

* Federal Trade Cominission, Orders In Dockets 594 (1923), 747 (1923), 793 (1924). 
1580 (1930), 2717 (1938), 3050 (1937), and 3279 (1938), respectively. 
^ Ct. supra, p. 106. 

^^ Federal Trade Commission, Order, Docket 279 (1920). 
» Federal Antitrust Laws, case 260 (1922). 
«»Ibid., case 355 (1931). 

•"Federal Trade Commission, Complaint, Docket 3250 (1937). 
»ildem., Complaint, Dockets Nos. 3498 (1938), 3688, 3818 (1939). 
» Cf. infra, pp. 168-173. 


cannot buy crude for less than the' price they pay. He cannot sell 
gasoline for more than the price they charge. The refinery margin, 
within which he must operate, is thus determined for him by his 
powerful competitors. The width of this margin is of crucial im- 
portance to him; it has little more than a bookkeeping significance 
for them. If they should choose to reduce it, by raising the price 
of crude, by lowering the price of gasoline, or both, he might be driven 
from the field. This process is known to the industry as the "refinery 
squeeze." According to one witness who testified before the T. N. E. C, 
the application of the "squeeze" closed 100 independent refineries in 
the east Texas field between 1937 and 1939.^^ This assertion is not 
inconsistent with price data for east Texas crude and gasoline. From 
January 1936 to May 1937 while the price of gasoline rose from 5I/2 
to 61/2 cents a gallon, the price of crude rose from $1 to $1.35 
a barrel. But in the 15 months from May 1937 through August 1938, 
while the price of gasoline dropped steadily to 5 cents, the price of 
crude remained at $1.35, and the refinery margin was reduced accord- 

The independent refiner is also handicapped in marketing. Since 
he does not usually operate a cracking plant or maintain facilities for 
the distribution of fuel oil, he must sell this product to the major 
companies. Since many filling stations are controlled by these con- 
cerns, he frequently encounters difficulties in finding outlets for his 
gasoline. The majors now operate few stations of their own. Under 
the "Iowa plan," devised to avoid the burden of State chain store taxes 
and Federal and State pay roll taxes, they have leased their stations 
to former employees, collecting rentals based on gallonage. But the 
terms of these agreements leave the new "proprietors" little freedom 
to shape their own policies. The contracts frequently provide that 
the lessee shall not handle products that are unsatisfactory to the 
lessor, or those that are produced by his competitors. Exclusive deal- 
ing is enforced by inducements and penalties. The dealer who carries 
a single brand of gasoline may receive free equipment and free build- 
ing, painting, and paving services. He may lease his station to a 
major company at one figure and rent it from the major at a lower 
figure. In either case, he gets a subsidy. The dealer w^ho carries sev- 
eral brands, however, is often charged one-half cent more per gallon 
for his gasoline. He may also be denied the privilege of selling on 
credit to holders of company credit cards. In many cases, moreover, 
the lessor company may terminate its contract with the station lessee 
without cause on 5 or 10 days' notice, thus compelling the dealer to 
adhere to the policies which ii prescribes. As a consequence, in most 
sections of the United States, stations which carry more than one brand 
of gasoline are rare. The number of retail outlets which are open to 
the independent refiner is limited.^^ 


Companies manufacturing a full line of agricultural implements and 
machinery have usually forced their distributors to carry every prod- 
uct in the line and have forbidden them to handle equipment produced 

»» Hearings before the Temporary National Economic Committee, Part 14, op. 7367-7373. 
»• Ibid., pp. 7590-7591. 
»Cf. Ibid., Part 15-A. 


by other firms. The Federal Trade Commission, in its investigation 
of the industry in 1937, found that the International Harvester Co. 
and Deere & Co., the dominant long-line producers, with some 18,000 
distributors, had imposed such requirements over many years. Al- 
though International Harvester insisted that it did not forbid its 
dealers to handle products made by other firms, many of them testified 
to the pressure to which they had been subjected by its traveling rep- 
resentatives. One International dealer, who had been handling com- 
peting machines, told a Commission interviewer that an International 
"blockman" had called on him and told him that another dealer was 
about to be cut off for this offense ; a branch manager also called on him 
and left only after he had promised to confine his sales to International 
machines. Another dealer reported that the company had delayed the 
renewal of his contract while it waited for him to promise to discon- 
tinue a competing line. A third said that a "blockman" had told him 
flatly that his contract would not be renewed unless he would deal ex- 
clusively with International. In this case, according to the dealer, the 
"blockman" attempted to persuade a farmer who was one of his regu- 
lar customers to transfer his patronage to another firm. Other dealers 
said that they had to "bootleg" competing machines, keeping them 
hidden and selling them secretly ; one was reported to have keep such 
machines in a barn 2 blocks from his place of business.^*' Although a 
Deere executive testified that his company had abandoned its former 
policy of "not doing business with anyone who handles competitive 
goods," the Commission found that its representatives were still bring- 
ing pressure to bear on dealers in the fall of 1937, "always with the 
fear overhanging the dealer that if he does not comply, his contract 
as a Deere dealer may be withdrawn." ^^ The following case is pre- 
sented as typical : ^^ 

Dealer K, also a Deere dealer, handling implements of other manufacture, 
states that the Deere 'blockman" on many occasions told him stories of how 
other dealers' contracts had been canceled because they handled other lines. 
During the summer of 1936 the dealer was called to the Deere branch head- 
quarters where Deere representatives were insistent that he give up the competing 
line, but he did not promise. Early in December 1036 the "blockman" appeared 
at his place of business with a contract ready for the dealer's signature. The 
dealer was ready and eager to sign, but once more the "blockman" asked him to 
give up the competing line. When he refused, the "blockman" tore up the contract, 
stating that the dealer was not a proper person to represent the Deere line. Since 
that date the dealer has had no contract to purchase Deere goods. * * * 

Other long-line manufacturers are said to have used similar tactics. A 
representative of the J. I. Case Co. wrote to dealers in 1937 : "^ 

At several of our sales meetings held during 1936 and 1937 the writer stated very 
plainly that we did not want and would not tolerate dealers handling competitive 

Dealers desiring to handle one or a few of the products of short-line 
companies, when thus threatened with the loss of their long-line com- 
pany contracts, have usually elected to discontinue the sale of the com- 
peting lines. 

>* Federal T^ade Commission, The Agricultural Implement and Machinery Industry, pp. 
2 1 D — 2Ho. 

"7 Ibid., p. 273. 
»s Ihid.. p. 2»2. 
» Ibid., p. 283. 


Exclusive dealing and full-line forcing, as they have been practiced 
in this industry, operate to the disadvantage of the small manu- 
facturer, the dealer, and the farmer. The manufacturer is excluded 
from thousands of retail outlets. In rural markets which are too small 
to support more than two or three dealers, he is not represented at all. 
He may thus find it difficult to sell a new and useful product or to ex- 
pand into other lines. If he is to reach the farmer, he must set up out- 
lets of his own. As a result, dealerships are multiplied unnecessarily. 
The dealer's volume suffers, his cost per unit of sales rises, and his 
total profit falls. The farmer, in many cases, is denied an opportunity 
to see, examine, and buy the products of the small concern. When he 
does buy, he must pay a price that will cover the dealer's higher cost. 
He is thus deprived of the benefits that would flow from the mainte- 
nance of competitive conditions in the trade. It was the conclusion 
of the Federal Trade Commission that : ^ 

The elimination or restriction of the competition of the smaller manufacturers 
by such means tends to strengthen the dominant position held by a few large 
manufacturers and competition becomes progressively weakened both as to price 
and service to dealers and to farmers. To the extent that competition is re- 
stricted by monopolization of dealer outlets by the large manufacturers, the 
production and distribution of the country's supply of farm implements and 
machines is still further restricted to a few large companies that already control 
the bulk of the business. ♦ • * 

This situation makes it "much easier for manufacturers to arrive at 
effective secret price understandings," says the Commission, "and the 
usual result is the enhancement of prices to the consumer." ^ 


Automobiles are produced in the United States by 11 manufacturers 
and new automobiles are distributed by more than 30,000 retail dealers. 
The arrangements which exist between these manufacturers and their 
dealers are a product of unequal bargaining power. The manufac- 
turer needs a dealer organization to sell his cars, but his need for any 
single outlet in the group is slight. If a dealer should attempt to ob- 
tain concessions by threatening to drop his line, the manufacturer 
could easily refuse to yield. The dealer, on the other hand, usirill , 
depends upon a single manufacturer. If the manufacturer sh»' .a 
threaten to cancel his contract, he would face the alternatives of taking 
a loss in shifting to another line or retiring from the field. The legal 
relationship between manufacturer and dealer is that of vendor and 
vendee; the business relationship, in effect, is that of principal and 
agent. A Federal district judge, in a case involving the contract be- 
tween the Ford Motor Co. and its dealers, has described the situation 
in the following words : ^ 

Summarizing this recital of the relations between the Ford Motor Co. and the 
residents of Maryland who handle its products, it appears that while the company 
does not maintain within the State an agent with power to bind it by contract, 
nevertheless the actual supervision and control exercised by it through its travel- 

1 njid., pp. 21-22. 

2 Ibid., p. 288. 

^ La Porte Heinekamp Motor Co. v. Ford Motor Co., 24 Fed. (2d) 861, quoted in Federal 
Trade Commission, Report on Motor Vehicle Industry, 76th Cong., 1st sess., H. Doc. No. 
468. 1939, p. 140, 


ing representative is almost as complete as if the dealers were its agents in all 
respects. The privilege of handling Ford cars and other products is evidently 
valuable, and since the company may withdraw it at any time, it is not difficult 
to prevail upon the dealer to comply with the company's demands. 

There is evidence that manufacturers have used their superior bargain- 
ing power to control dealer policies and to impose restrictive arrange- 
ments on dealers against their will. 

Manufacturer-dealer relationships in this industry were investigated 
by the Federal Trade Commission in 1938. At tha,t time, dealers com- 
plained of many onerous practices. They were often forced, they said, 
to take more cars than they could profitably sell. Sales quotas were 
established and dealers were required to dispose of the quantities pre- 
scribed. Unordered cars were shipped to them, especially in the 
months preceding the appearance of new models. Orders for one 
model were not filled unless they agreed to accept other models which 
they did not want. Unordered accessories were sometimes installed on 
ordered cars. Dealers were compelled to handle certain tools, parts, 
tires, and accessories and to purchase advertising materials, salesmen's 
equipment, motion picture projectors, film services, and oflSce filing and 
record systems. Their operations were closely supervised by factory 
representatives. They were forced to make investments in the busi- 
ness which subsequently proved to be unprofitable. They were re- 
quired to discharge employees and replace them with persons acceptable 
to the manufacturer. They knew that dealers who failed to meet their 
quotas had been dropped. So, under the threat of cancelation, ex- 
pressed or implied, they did as they were told.^ 

Most of the manufacturers forbid their dealers to handle cars of 
other makes. , Contracts have been canceled when dealers have refused 
to discontinue "dual lines." A Packard distributor told a Commis- 
sion investigator that he had lost several subdealers because the Chrys- 
ler Corporation wpuld not permit them to carry a second line.^ Manu- 
facturer-dealer agreements also contain provisions which require the 
dealer to handle only those parts and accessories which the manu- 
facturer makes or approves. A Ford dealer said that a factory repre- 
sentative called upon him at intervals, inspected his stock of parts and 
accessories, laid aside those not made by Ford, and told him to get rid 
of them within 30 days. Manufacturers defend this policy on the 
ground that it protects motorists from "counterfeit" and inferior 
parts. In some instances, ^r^wever, they have objected to parts which 
were identical with those that they supplied, being made by the same 
company and sold directly to the dealer at a lower price. A Chevrolet 
dealer said : ^ 

Chevrolet's policy in regard to parts, while much better than it was prior to 1938, 
is still somewhat arbitrary. They still feel we should buy 100 percent of our 
parts, batteries, etc., from them, even though we can buy the identical merchan- 
dise from other sources on a more favorable basis. 

Exclusive dealing in this field has been profitable for the manufac- 
turers. The General Motors Corporation realized an average annual 
return of 58 percent on its investment in the parts and accessories busi- 
ness from 1927 to 1937.^ General Motors made a net profit of 28 cents 

* Federal Trade Commission, Motor Vehicle Industry, pp. 173-211, 264-278, 296-3Q3. 
» Ibid., p. 253. 
« Ibid., p. 263. 
'Ibid., p. 493. 


on every dollar's worth of parts and accessories sold in 1937 ; Chrysler 
made 16 cents ; figures for Ford are not available.^ 

Most sales of automobiles are made on credit. Each of the major 
manufacturers is associated with a company which is engaged in the 
business of financing such sales. The General Motors Acceptance Cor- 
poration is a subsidiary of General Motors. The Universal Credit Co. 
was organized by Ford in 1928 and sold to the Commercial Investment 
Trust Corporation in 1933 ; close relations between the companies have 
been maintained. The Commercial Credit Co, entered into a contract 
with Chrysler, agreeing to pay Chrysler a share of its profits if Chrys- 
ler, in turn, would recommend Commercial Credit's services to its 
dealers. These three companies, together, handle about 80 percent of 
the wholesale financing and To percent of the retail financing of auto- 
mobile sales. The manufacturers have sought to cut the cost of in- 
stallment buying and they have succeeded in doing so. But they have 
also required their dealers to use the services of these concerns, thus 
excluding competing enterprises from a major portion of the field. 
A Ford dealer was told that he had to use Universal Credit if he 
wanted to get new cars.^ A Chevrolet dealer said that he was forced 
to sell some $25,000 worth of choice installment paper to General 
Motors Acceptance Corporation after General Motors auditors had 
discovered that he was carrying it himself.^^ A De Soto-Plymouth 
distributor reported that he had attended a dealers' meeting at which 
a factory representative had said : ^^ 

We are through trying to induce you dealers to do business with Commercial 
Credit Co. and now we are going to use other methods beginning the first of the 

This distributor had used the services of other finance companies and 
for this reason, he said, all of his associate dealers were taken away 
from him.' Indictments charging that such practices constituted a 
violation of tlie Sherman Act were returned against General Motors, 
Chrysler, and Ford on May 27, 1938.^- Chrysler and Ford accepted 
consent decrees on November 15, 1938, agreeing to refrain from co- 
ercing dealers to use the facilities of their associated finance companies 
and from endorsing or advertising the services of such companies. 
General^Motors elected to stand trial and was convicted of violation of 
the Sherman Act on November 16, 1939." 


In the motion picture business, five of the eight leading producers of 
films also own and operate the finest theaters in the cities and the 
largest cliains of smaller theaters throughout the country. These 
eight companies together produce 80 to 90 percent of the feature 
films and produce and exhibit 65 percent of all of the pictures shown 
in the United States. Their dominant position gives them an advan- 
tage over their competitors in both the production and exhibition of 

» Ibid., pp. 535. 599. 

» Ihid., p. 286. 

i» Ibid., p. 287. 

" Ibid., p. 283. 

"Federal Antitrust Laws, cases 430. 431, 432. 

"New York Times. NovpTiiber 8 1938. November 18, 1939. This conviction has been 
appealed. On Octolier 4. 194(). tlie Government fl'ed a civil suit, seeking to compel the General 
Motors Corporation to divorce itself from the General Motors Acceptance Corporation. 


films. They refuse to share with independent producers the services 
of featured players and technicians and the use of sets and other 
properties which they freely share among themselves. Their own- 
ership of some theaters and their influence over others makes it diffi- 
cult for these independents to reach the market. Each of their chains 
is in a different territory ; they do not compete. The eight companies 
produce enough pictures to supply the houses in these chains with 
all the programs that they need. Independent producers, renting 
films to these houses, must do so on unfavorable terms. The major 
companies, moreover, impose upon independent exhibitors, who must 
turn to them for the great majority of their feature attractions, con- 
tracts including a block-booking clause, a tying arrangement which 
compels these houses to take many pictures they do not want in order 
to obtain the ones they do. Independent producers cannot rent their 
films to exhibitors whose programs are thus crowded with the products 
of the major firms. Independent exhibitors are at a similar disad- 
vantage. The producer-owned houses get the first runs of the feature 
films and pay a lower rental for pictures that prove to be unpopular. 
The independent houses are compelled to take the second runs and 
to pay higher rentals for films they do not want. If they refuse to 
acquiesce in this arrangement, they may get no films at all. In con- 
sequence, they may be driven into bankruptcy or forced to sell out to 
the chains. "Control of production and exhibition by a single group 
thus operates to drive its rivals from both fields." 

Tlie Department of Justice brought suit against the five integrated 
companies — Paramount, Loew's, Radio-Keith-Orpheum, Warner 
Bros., and Twentieth Century-Fox — and the three other major pro- 
ducers — United Artists, Columbia, and Universal — in 19^8, seeking the 
divorce of production and exhibition, the elimination of block -book- 
ing, and the prohibition of coercive practices.^^ A consent decree 
accepted by the five integrated companies in November 1940 for a 
trial period of 3 years, beginning September 1, 1941, requires pro- 
ducers to show films to the exhibitors to whom they are sold, forbids 
them to sell films in blocks of more than five, and sets up machinery 
to arbitrate disputes between producers and exhibitors. If the three 
remaining producers have not been compelled, by June 1, 1942, to offer 
trade showings and to confine their sales to blocks of five or less, these 
provisions of the decree are to be set aside. Meantime, the Govern- 
ment will not press its suit to divorce the production and exhibition 
branches of the integrated firms. 


Three hundred and fifty of the 660 radio broadcasting stations in 
the United States in 1938j including 28 of the 30 with clear channels, 
high power, and unlimited time, were affiliated with networks 
Nearly half of the broadcasting time of more than half of the stations 
in the country was devoted to network programs. Two companies 
dominated the field ; the National Broadcasting Co., with 160 outlets, 
and the Columbia Broadcasting System, with 107, together served 58 

" Department of Justice, Statement of Grounds for Action, TJ. 8. v. Paramount Pictures, 
Inc., et nl., July 20, 1938. 

" U. S. V. Paramount Ptciurex, Inc.. et cU., District Court of the United States, Southern 
District of New York, Petition in Equity, July 20, 1938. 


percent of the commercial stations and accounted for 56 percent of 
the total sales of radio time. One other national network and seven 
regional chains were comparatively minor factors in the industry.^^ 

The two dominant companies sell network time to advertising 
agencies and buy station time, under contract, from the outlets in 
their chains. They are also engaged in other businesses. They own 
or lease and themselves operate 23 stations, 15 of them among the 30 
with clear channels, high power and unlimited time.^^ They run 
talent bureaus which have contracts with more than 800 performers, 
including 400 individual artists and 100 popular dance bands.^^ The 
National Broadcasting Co. and its affiliate, the Radio Corporation of 
America, record entertainment and other audio matter, manufacture 
electrical transcriptions, and sell them to broadcasting stations in 
competition with some other concerns, doing more than a third of the 
business in this field.^^ 

The contracts which control the relationship between the major net- 
works and their station outlets contain many provisions which operate 
to the disadvantage of competing networks and station operators. 
They run for 5 or 10 years, although the licenses granted to stations 
by the Federal Communications Commission are for a single year. 
They may be renewed by the networks upon 30 days' notice, but not 
by the stations. The network typically takes an option on the station's 
time, obtaining the right to make use of preferred hours or of all of 
the hours available for broadcasting. On 28 days' notice it may re- 
quire the station to sell it any one of the contracted hours, even though 
this forces the operator to cancel an arrangement with a local cus- 
tomer, thus running the risk of losing his patronage. The network 
gives no guarantee that it will use the optioned time ; in practice, it 
uses only a third of the time that it reserves. It pays for the time it 
uses, but makes no payment for its right to use the other two-thirds 
of the station's hours. The station, however, cannot reject a program 
unless it can prove to the satisfaction of the network that the public 
interest would suffer if it w^ere used. The usual contract forbids the 
station to accept a program from another network, thus denying it the 
right to obtain profitable business and preventing new networks from 
getting a foothold in the industry. It also forbids the station to accept 
programs from national advertisers for local broadcasting at rates 
below those which the network charges for the station's time, thus 
preventing it from competing for national advertising. The division 
of revenues between the network and the station depends upon the 
latter's bargaining power. The network usually retains the proceeds 
of the first 4 or 5 converted hours (one evening hour or its equivalent 
in daytime hours) and pays the station for its remaining time at rates 
which rise in brackets as more time is used. As a result, the network 
gets a large share of its hours for nothing or at the rates obtaining 
in the lower brackets. In practice, it retains about 60 percent of the 
income derived from selling station time and pays the stations the 
other 40 percent.^" "These contractual arrangements," says a report 
submitted to the Federal Communications Commission by its commit- 

" Federal Communications Commission, op. cit., pp. 8-14. 
"Ibid., pp. 39-41. 
"Ibid., pp. 102-103. 
"Ibid., pp. 109-110. 
» Ibid., pp. 52-72. 


tee on chain broadcasting, "have resulted in a grossly inequitable rela- 
tion between the networks and their outlet stations to the advantage of 
the networks at the expense of the outlets." And the report con- 
tinues : ^^ 

The provisions of these contracts which forbid the outlet to accept programs 
from any other network, which prohibit the outlet from accepting programs from 
national advertisers at rates lower than those charged by the network, and which 
require the outlet to keep available for the use of the network all, or almost all, 
of its time, stifle competition and tend to make the outlet the servant of the 
network rather than an instrument for serving the public interest. 

The National Broadcasting Co. operates two netw^orks, the red and 
the blue. It broadcasts most of its commercial programs over the 
red network, calling on the outlets in this chain for three-fifths of 
its optioned time. It provides the outlets in the blue network with 
sustaining programs, calling on them for less than a fifth of its op- 
tioned time. Connection with the red chain is profitable ; connection 
with the blue chain is not. But the contracts which the company makes 
with its stations do not specify the chain to which they are to be 
attached. This situation has three effects: It excludes competing 
networks from the blue stations; it provides N. B. C. and R, C. A. 
with controlled markets for electrical transcriptions ; it gives N. B. C. 
the power of life and death over its outlets, thus compelling them 
to acquiesce in the arrangements which it prescribes. 

The integration of the major companies gives them an advantage 
over their competitors in many fields. As a manufacturer of tran- 
scriptions, N. B. C. is in a position to prevent rival manufacturers from 
recording programs by excluding them from its studios and to de- 
prive them of a market by forcing its own recordings on the stations 
in its chains. As talent agents, both companies are in a position to 
insure the dependence of their outlets and check the development of 
other networks by refusing to provide them with performers. As 
operators of broadcasting stations, competing with their own networks 
in selling time to advertisers, they are in a position to retain for them- 
selves business which they otherwise would share with the station 
owners who rely on them to make such sales. According to the com- 
mittee which reported to the F. C. C. : ^^ 

The network companies are engaged in two separate activities; they are operat- 
ing their own stations as well as directing a network under contractual arrange- 
ments with independently controlled stations. The networks are in a position 
to determine the extent to which they will emphasize the sale of network time 
as compared with the sale of non-network time over their own stations. They 
can devote a large amount of their capitaland personnel to the solicitation of non- 
network business for their own stations rather than for network business. To 
the extent that the network organizations emphasize the non-network business of 
their own stations at the expense of network time, they are favoring their own 
stations at the expense of the independently controlled stations. The conflict of 
interest is obvious. 

This conflict is heightened by the fact that the 23 stations owned or 
controlled by N. B. C. and C. B. S. receive a third of the total operat- 
ing income of all the stations in the United States and pay these 
companies more money than they derive from the operation of their 

"Ibid., p. ii. 

22 Ibid., pp. 45-46. 

» Ibid., pp. 40, 44. 


The situation in this industry has produced substantial profits 
for, the dominant concerns. With 28 percent of the industry's 
investment, N. B. C. and C. B. S. received 50 percent of its net oper- 
ating income in 1938. Together they had a net operating income equal 
to 89 percent of their total investment and more than 100 percent of 
their investment in tangible property. The net profit realized by 
N. B. C. yielded a return of 80 percent on its tangible property ; that 
realized by C. B. S. yielded a return of 71 percent.-* 


In certain industries, dominated by a few large firms, competition 
is avoided by behavior which maintains a settled distribution of the 
business in the field. Here the dominant concerns amicably share 
^supplies and markets, no one of them attempting to trespass on an- 
other's ground, each of them habitually abstaining from bidding 
against the others in making purchases and sales. In some cases they 
act in conformity with the terms of an explicit agreement ; in others 
they merely follow the conventions of the trade. Such behavior is 
customary among investment bankers. It has made its appearance 
among anthracite coal operators and meat packers and is alleged to 
have existed in the tobacco industry. 


The investment banker buys stocks and bonds from corporations 
and sells them to savers and savings institutions, thus providing in- 
dustry with capital and investors with securities. While corporate 
borrowers have frequently dispensed with his services in recent years 
by selling their obligations directly to insurance companies and other 
sources of investment funds, the banker still occupies a strategic posi- 
tion in the field. Of the $9,600,000,000 in new issues, other than those 
of governments, railroads, banks, and nonprofit institutions, which 
were registered with the Securities and Exchange Commission from 
January 1934, through June 1939, 96 percent were offered to the 
public through investment banks.^^ In underwriting an issue of any 
size, the banker customarily forms a syndicate consisting of a group 
of banks each one of which agrees to purchase a participation, i. e., 
to buy a specified portion of the securities involved. The firm that 
acts as the manager, or, with others, as a comanager of the under- 
writing syndicate, usually permits nonmembers to share in marketing 
the issue, determining the pattern and procedures of distribution tliat 
are to be employed. A few large houses get the bulk and the cream 
of the business. Eight banks managed 77 percent of the $9,600,000,000 
in securities registered in 1934^39, retaining as their own participa- 
tions 46 percent of this amount. Thirty-eight firms managed 91 
percent or the bond issues registered from 1935 through the first 6 
months of 1939. No firm located outside of New York City partici- 
pated in the management, of any of the first-grade issues mai.a,ged 
by these concerns. Morgan, Stanley & Co., successor to the under- 
writing business of J. P. Morgan & Co., managed one-third of all of 

»* Ibid., pp. 15-22. 

."Varbattm Record of the Proceedings of the Temporary National Economic Committee, 
VOL 10, p. 633. 


these issues and four-fifths of the first-grade issues, handling 100 
percent of the first-grade bond issues of manufacturing, transporta- 
tion, and communication companies, 71 percent of those of electric 
light and power, gas, and water companies, and 74 percent of those 
of all other concerns.^® 

Market sharing normally characterizes the investment banking field. 
Bankers, because the law requires it, submit competitive bids for Fed- 
eralj State, and municipal securities and for railway equipment trust 
certificates. But they do not compete for corporate stocks and bonds. 
Each investment house has its territory where others do not intrude. 
Houses do not solicit business from a corporation that is dealing with 
another firm. They do not bid on securities that have been offered to 
others. The same groups of bankers, united in the same combinations 
in a long series of syndicates, continue to underwrite the issues of the 
same corporations over extended periods of time. Issuers of securities, 
in effect, are allocated among the members of the trade and bankers 
are assigned participations in their issues in proportions which are 
constantly maintained. 

In some cases these arrangements have been set forth in written 
agreements ; in others they appear to be a product of informal under- 
standings which are faithfully observed. Goldman, Sachs & Co. and 
Lehman Bros., who had shared certain business since 1906, signed a 
memorandum in 1925, with a supplement in 1926, which provided 
that, with one exception, "our joint relation to all companies previously 
financed by the two houses was to remain exactly as it had been in the 
past," that the Goldman, Sachs office was to handle the business of 
41 specified corporations, thai the Lehman office was to handle that 
of 19, and that each house was to have an equal interest in securities 
issued by these 60 concerns.^^ A similar understanding has appar- 
ently governed participations in the securities issued by the American 
Telephone & Telegraph Co. and its affiliates during the past 20 years. 
J. P. Morgan & Co. managed every one of the 14 telephone bond issues 
from 1920 to 1930, reserving for itself a 20 percent participation in 
each. Eight other houses were accorded identical participations in 
each of the issues, as follows : First National Bank, 10 percent ; Na- 
tional City Co., 10 percent; Kuhn, Loeb & Co., 10.75 percent; Harris, 
Forbes & Co., 5 percent ; Lee Higginson Corporation, 5 percent ; Guar- 
anty Co., 4.75 percent; Bankers Trust Co., 4.75 percent; Kidder, Pea- 
body & Co., 29.75 percent. ^^ Morgan Stanley & Co. managed 11 
telephone issues from 1935 to 1939. The participation granted to 
Kuhn, Loeb & Co. in each of these issues was exactly half as large as 
Morgan Stanley's share. That granted to the First Boston Corpora- 
tion, in all but two cases, fell between 32 and 36 percent of Morgan 
Stanley's share. Kidder, Peabody^ participation hovered around 40 
percent of Morgan Stanley's, although twice it dropped to 33.3 per- 
cent. Lee Higginson 's participation, in most cases, was about 20 per- 
cent of Morgan Stanley's, although it fell as low as 16.7 percent and 
rose as high as 24 percent. The participations granted to other under- 
writers, with a few exceptions, conformed to this pattern.^ 

2« Ibid., pp. 632-638 ; cf. testimony of Dr. Oscar L. Altman. 

"Ibid., pp. 50&-510. 

"Ibid., p. 192. 

™ Ibid., p. 219. For another case in which proportionate participations remained wholly 
or substantially unchanged for a long period, see the record of the financing of the Chicago 
Union Station Co. Ibid., pp. 17-35. 


The methods whereby customers are allocated, participations as- 
signed, and comanagers of syndicates selected, under these market- 
sharing arrangements, are but partly known. In explaining the first 
of these processes, bankers speak of the "historical relationships" 
which exist between borrowing corporations and banking firms. 
When a corporation has gone back to the same house for advice and 
assistance in floating a second and a third issue, because they had in- 
terlocking interests or merely because it was satisfied with the service 
it had received, they have been said to be historically related and the 
banking community has assumed that the association would be main- 
tained. But the principles which govern the decisions involved in 
granting or refusing admission to syndicates, in maintaining, increas- 
ing, or reducing participations, and in selecting comanagers are not 
explained. Apparently, the power to make these decisions is in the 
hands of a small inner circle of large firms and presumably the mem- 
bers of this circle grant recognition to those bankers whose cooperation 
is assured.^" When disputes arise, the matter is settled amicably — in 
one case by the flipping of a coin.^^ Thus, as it was put by Mr. Harold 
L. Stuart, president of Halsey, Stuart & Co., "the boys all divide up 
something they don't own."^^ 

However they may be established, the right to certain customers, the 
right to certain participations, and the right to share in the manage- 
ment of syndicates are regarded by the members of the trade, in a 
moral if not in a legal sense, as proprietary interests, are tenaciously 
defended by their ow^ners, and are generally respected by others. 
Wliile the understandings embodying these rights, according to Mr. 
Carlton P. Fuller, president of Shroder, Rockefeller & Co., '^re thus 
not on a legally enforceable basis, they have worked without difficulty 
since 1929" and continue to "operate as long as the parties thereto are 
reliable." ^^ Traditional relationships between bankers and borrow- 
ers were not reshuffled when commercial and investment banking ac- 
tivities were separated in conformity with the requirements oi the 
Banking Act of 1933. The new houses which were established when 
the underwriting function was abandoned by some of the older firms 
obtained their capital and personnel from members of these firms and 
acquired their customers through inheritance. Thus, $6,600,000 of the 
$7,500,000 in the initial capital of Morgan, Stanley & Co., was provided 
by 9 of the 17 partners of J. P. Morgan & Co. ; three of its officers, hold- 
ing 60 percent of its voting stock, were former Morgan partners;^* 
and, according to the testimony of its president, Mr. Harold Stanley, 
before the T. N. E. C, the new house took over practically all of the 
Morgan accounts.^^ Such transfers were generally respected by the 
members of the trade. For instance, when the Armstrong Cork Co., a 
former client of the Guaranty Co. approached Kuhn, Loeb & Co., 

3" One form which this cooperation may be expected to take is suggested by the recom- 
mendation made to Blyth & Co. by Mr. Blyth that the firm maintain a sizable account 
with J. P. Morgan & Co. in order to "try to get under the tent in that way." Cf. Ibid., 
pp. 92-93. 

" Ibid., p. 235. 

33 Ibid., p. 203. 

=3 Ibid., (p. 605. 

"Ibid., pp. 250-251. 

" Ibid., p. 259. 


concerning a prospective issue of securities, a Kuhn, Loeb official 
wrote as follows: ^® 

Yesterday Mr. H. L. Freeman discussed with me the possibility of doing some 
financing for the Armstrong Cork Co. witli which he has a connection. I told 
him that I would discuss it here in the office, and asked him to return today. 

Having cliecked up on the company and found that the original financing had 
been done by the Guaranty Co., I explained to Mr. Freeman that the Guaranty 
Co.'s successor was E. B. Smith & Co. and that naturally we did not wish to poach 
on their preserves. 

Since such forbearance was mutual, "historical relationships" have 
been maintained. 

In justification of these practices, it is contended that the interests 
of corporate borrowers are better served when they form a permanent 
connection with a single house than they would be if corporations were 
to "shop around" in search of terms more favorable to them ; and it is 
further argued that investment banking is not a business, but a profes- 
sion, the implication being that ethical standards would be violated if 
bankers should compete. Thus, according to Mr. Stanley, "The in- 
vestment banker's sense of responsibility would be minimized under 
competitive bidding, and his professional relations with his client 
destroyed." ^^ Whatever the force of these contentions, it must be noted 
that abstention from competition also operates to widen the banker's 
margin and increase his profits. When the Interstate Commerce Com- 
mission, in 1925, adopted its rule requiring competitive bidding on 
equipment trust certificates, the banker's spread was reduced from 
$1.91 per unit of $100 in 1930 to 43 cents in 1931.38 ^^\^Q^^ the Chesa- 
peake & Ohio Railroad Co. forced competitive bidding on a $30,000,000 
security issue in 1938, Morgan, Stanley & Co., for whom the issue was 
originally intended, withdrew and the railroad obtained an . extra 
$1,350,000 from the sale.^^ Facts such as these suggest that the bank- 
ers' belief that competition is unethical may rest upon considerations 
other than those of morality. 


Virtually all of the hard coal mined in the United States, valued at 
some $200,000,000 a year, comes from an area of 480 square miles in 
northeastern Pennsylvania'. Prior to 1920, the anthracite industry was 
firmly in the grasp of eight railroads which served this region. These 
roads had apprehended many years before that the compactness of the 
deposits facilitated monopolistic control of the anthracite supply, and 
they were not slow to take advantage of their opportunity. Not only 
to safeguard their coal traffic but also in the expectation that coopera- 
tive restriction of output would raise coal prices and that increasing 
demand would enhance the value of coal lands, they bought up all 
available holdings and by 1895 owned more than 95 percent of the 
anthracite reserves. As carriers of the coal produced by their mining 
affiliates, the roads were then in a position to siphon off the industry's 
profits in high freight rates. Controlling all of the available trans- 

»«Ibid., p. 548. 

" Ibid., Reference Data Section I, p. 3 ; For similar statements see the testimony of Mr. 
John M. Schlff, of Kuhn, Loeb & Co., and Mr. Joseph R. Swan, of Smith, Barnev & Co 
Ibid., pp. 547-551, 566-567. . . j' 

» Stock Exchange Practices, 73d Cong., 2d sess., S. Rept. No. 1455, 1934, np. 85-87. 

» Time, July 24, 1939, p. 56. ^ . . vi' 


portation faciilities, they were in a position to keep the independent 
operators in line. Thus in command of the field, they long avoided 
competition by entering into pooling agreements, by following a price 
leader, and by sharing the market.^" 

In 1906, Congress passed the Hepburn Act, with iis commodities 
clause, prohibiting railroads generally from transporting in interstate 
commerce goods which they produced or owned. Beginning in 1907, 
the Department of Justice invoked this clause in an. effort to divorce 
the anthracite carriers from the mines. And finally, in 1920, a favor- 
able decision was obtained from the Supreme Court in the second 
Reading case.*'^ The Beading Co. and the Central Kailroad of New 
Jersey were required to divest themselves of their mining properties 
and a similar decree was entered against the Lehigh Valley. The Penn- 
sylvania and the Lackawanna voluntarily disposed of their holdings, 
but the Delaware & Hudson, the New York, Ontario & Western, and 
the Erie failed to follow suit.*^ The Federal Trade Commission com- 
mented on the effect of these divorcements in 1925 : *^ 

Only time and the future policies of the railroads and the coal companies of the 
combinations that have been segregated can determine whether the segregation 
has really brokendown the combination and restored competition among them. 

Fifteen years later, it may be said that segregation has not really 
broken down the combination and that competition has not been re- 
stored. Recognition of the continuance of alliances between the car- 
riers and the mines is implied in the common designation as "railroad 
companies" or "line companies" of those firms which have been under 
railroad ownership. At least four line companies, including the Hud- 
son Coal Co. and the Lehigh Coal & Navigation Co., which together 
produce 15 percent of the industry's output, are still owned by rail- 
roads or railroad holding companies. For the most part, however, 
mining and railroad companies now appear to be connected through 
common financial interests and interlocking directorates. Hundreds 
of such connections were depicted by the Pennsylvania Anthracite 
Coal Industry Commission in a chart showing the "Working Control 
of Anthracite Operating Companies by Financial and Other Interests 
Which Also Control Anthracite Carrying Railroads." ** According to 
another observer, "It is no secret that there are still strong financial 
affiliations between certain of the rail and coal interests" ; *^ according 
to a second, "coordination of mining companies and the railroads has 
been continued through financial interrelations and interlocking di- 
rectorates" ; *® according to a third, the companies, "were and still are 
largely dominated by the same financial group." *^ The anthracite 
carriers, deriving 30 percent of their revenue from this traffic in 1935, 
have continued to charge high rates. The Pennsylvania commission 
reported in 1937 that ^«— 

* * * freight rates on anthracite are much too high (ton-mile rates average 
roughly half again as much as bituminous rates, and ton-mile earnings perhaps a 

«» Burns, op. cit., pp. 118-129, 166-168. 

« U. 8. V. Reading Company, 253 U. S. 26. 

" Federal Trade Commission, Premium Prices of Anthracite, 1925, pp. 42-50. 

« Ibid., pp. 49-50. 

*» Philadelphia Record, October 26, 1937 ; Commonwealth of Pennsylvania, Bureau of 
Worlcmen's Compensation, A Study of the Anthracite Industry (mlmeo., 1938), Exhibit A. 

«A. T. Shurick, "Teohnologlcal Changes and PrIce-CuttIng Drying Up Anthracite Rev- 
enues," Annalist, August 13, 1937, p. 252. 

*• William R. Pabst, Jr.. "Monopolistic Expectations and Shifting Control in the Anthra- 
cite Industry," Review of Economic Statistics, February 1940, p. 45. 

♦'Fraser and Doriot, Analyzing Our Industries, p. 401. 

« Pennsylvania AntbracitP Poa! Industry Commission, Ad Interim Report fl937), p. 19. 


third higher). Various other handling charges also seem to be too high. The 
railroads still persist in regarding anthracite as a rich monopoly, however, and 
have stubbornly refused to make any large and lasting freight reductions on 
a wide front. 

The line companies, owning or controlling the lands on which several 
of the independents operate, have continued to exercise a measure of 
influence over the smaller concerns. The industry's pricing policies 
have continued to be noncompetitive. 

Anthracite prices, according to the National Resources Committee, 
"show the stair-step type of fluctuation characteristic of monopolistic 
pricing." *^ These prices reached unprecedented levels during the 
twenties and producers were apparently determined to keep them 
there, despite declining demand and unused qapacity. Although pro- 
duction fell 25 percent from 1917 to 1929, the average wholesale price 
of anthracite rose 24 percent and the line company price, of stove coal 
was doubled. These prices were among those which displayed the 
Jea^ses^jjtJYJty to the influences of business depression. From 1929 
to 1933, tne average wholesale price of anthracite fell less than 10 
percent;. the prices of certain sizes actually rose. In 1937, Federal 
Judge' Oliver B. Dickinson, sitting in a reorganization case, upbraided 
the industry for charging "inordinately high prices for coal to the 
consumer." ^° 

The anthracite operators apparently failed to realize that the in- 
creasing availability of such substitutes as oil, gas, coke, and bitu- 
minous coal had destroyed the power of their monopoly. Their pric- 
ing policy fostered the movement of consumers, by the thousands, to 
these other fuels. The output of anthracite fell steadily from 98,612,- 
000 net tons in 1917 to 51,856,000 in 1937. For most of the line com- 
panies, the decade of the thirties was a period of serious financial 
distress. The Philadelphia & Reading Coal & Iron Co., the second 
largest producer in the field, filed a petition for reorganization under 
the Corporate Bankruptcy Act in 1937. The share of the total output 
produced by the eight line companies fell from 74 percent in 1923 to 
between 60 and 65 percent in 1937.^^ A bootleg trade developed, 
unemployed miners removing coal from company lands and shipping 
it to urban markets by truck. In many cases, the line companies 
leased their idle collieries to independent operators, seeking thus to 
obtain the funds with which their tax and interest charges might be 
paid. But they did not compete among themselves.^^ 

In 1939, pleading that large supplies of "distress coal" had created 
a "chaotic situation" in the industry, the anthracite producers, with 
the encouragement and cooperation of the Governor of Pennsylvania, 
embarked upon a program of sharing the market by limiting colliery 
operation to a certain number of days per week. An anthracite pro- 
duction committee, representing the mining companies, administered 
the plan. At various times it was reported that the industry was 
operating on a 6-, 4-, 5-, and 3-day schedule, while on at least two 
occasions the shut-down lasted for a week.^^ Although some inde- 

*• National Resources Committee, Energy Resources and National Policy p 82 

" New York Times, Dec. 14, 1937. 

" E. E. Hunt, F. G. Tryon, and J. H. Willits, What the Coal Commission Found (Balti- 
more, 1925), p. 371; Pennsylvania Anthracite Coal Industry Commission Report of Com- 
missioner Morris L. Ernst (1937), p. 4. 

"Cf. Pabst, op. clt., p. 49. 

•» Cf. The Black Diamond, March 11, March 25, April 8, May 6, May 20 June 3 Novem- 
ber 4, November 18, and December 16, 1939. 

271817— 40— No. 21— — 13 


pendent producers opposed the scheme, compliance was apparently 
obtained. The type of persuasion which kept the recalcitrants in line 
was revealed by the trade journal of the industry : ^* 

It is very well known that Governor James, who has an intimate knowledge of 
the mining problems, has indicated to both the old line and other operators that 
it would not be too difficult for his Bureau of Mines' officials to find lack of exact 
observance of the laws and that any individual operator or group that sought to 
upset the situation by overproduction might find himself facing a complete 

In January 1940 the industry inaugurated an even more ambitious 
market-sharing program, involving the direct allocation of weekly 
production quotas to all participants. This scheme, which is without 
legal authority, is administered by a committee composed of three 
representatives of the Governor, three operators, and three repre- 
sentatives of the United Mine Workers of America. The Governor 
selected all 9 members, choosing the company and union representa- 
tives from panels submitted to him. Kecommendations of "pro- 
duction requirements" for each week are made by a board of 14 whose 
members are selected by the operators from among their own, number, 
7 of them on a numerical basis and 7 of them on a tonnage basis. 
The companies share in this production according to quotas 
which represent their portions of the total output in the 2 or 3 years 
preceding 1940.^^ Governor James pointed out that there are no 
price-fixing features in the plan, but "he also said he believed the 
operators would not undersell each other." ^^^ After the program had 
been in effect for 5 weeks, allocations totaled 4,622,811 tons and produc- 
tion 4,638,618 tons. It was announced that 98 percent of the pro- 
ducers had subscribed." Enforcement, it was asserted, rests on "the 
moral compulsion of the vast majority of operators and the punitive 
power of the United Mine Workers, who were made a part of the 
agreement for their influence on recalcitrant producers." ^^ Presum- 
ably the services of the Pennsylvania Bureau of Mines are still avail- 
able when needed. 


Market sharing, either by agreement or by convention, has existed 
in the meat packing industry for many years. Between 1885 and 
1902, price and production agreements ruled the trade. The packers 
acted together to depress the price of livestock by offering high prices 
until they attracted large shipments to the stockyards, then with- 
drawing from the market until the shippers, in desperation, were 
ready to sell at any figure they could get, and finally returning to 
the market one at a time, while the others stood aside, to buy their 
supplies at whatever price they chose to pay. At the same time 
they contrived to raise the price of meat by assigning shipping quotas 
to each packing house, establishing uniform charges, and imposing 
fines on those who shipped a quantity larger or sold at a figttf* lower 
than those prescribed. In 1905 the Supreme Court upheld a decree 
enjoining seven of the packing companies from continuing these 
activities.^® There is evidence that this decree did not have the effect 

•♦ Ibid., March 25, 1939. 

^ Philadelphia Record, January 24, 1940. 

"> Ibid., January 25, 1940. 

^ New York Times, March 15, 1940. 

»8 PhUadelphia Record, January 24, 1940. 

•"Jones, op. cit., pp. 10-11, 403-405, 485-490. 


of establishing competitive conditions in the trade. In 1910 the De- 
partment of justice brought an unsuccessful suit against the packers 
alle^ng violation of the injunction. In 1918 the Federal Trade Com- 
mission reported that the distribution of livestock purchases, slaugh- 
tering, and sales among the Swift, Armour, Morris, Wilson, and 
Cudahy Cos., during the 5 years previous, had remained the same from 
week to week and month to month, regardless of the total quantity of 
sales. In the opinion of the Commission : ®° 

The prearranged division of livestock purchases forms the essential basis of a 
system, by which the big packers are relieved of all fear of each other's com- 
petition and, acting together, are able to determine broadly not only what the 
livestock producers receive for their cattle and hogs, but what the consumer 
shall pay for his meat. 

Again in 1925 the Commission reported that the percentage distribu- 
tion of the slaughter in the 5 preceding years had shown little 
change.®^ In 1928, the Supreme Court upheld a consent decree, which 
had been entered in 1920, prohibiting the packers from holding stock 
in public stockyard companies, public cold storage plants, stockyard 
terminal railroads, or market newspapers, from dealing in commodi- 
ties not related to the meat-packing business, and from selling meat at 
retail. In 1932, the Court refused petitions requesting it to modify 
this decree so as to permit the packing companies to enter the whole- 
sale grocery trade. 

The big packing houses still dominate the markets in which live- 
stock is Dought and meat is sold. The "Big Four" — Swift & Co., 
Armour & Co., the Cudahy Packing Co., and Wilson & Co. — handled 
51 percent of the hogs slaughtered under Federal inspection in 1920 
and 51 percent again in 1937 ; they handled 71 and 63 percent of the 
cattle, 67 and 70 percent of the calves, 78 and 79 percent of the sheep 
and lambs, in the same 2 years.^^ In the markets for meat, these houses 
take the lead, which the smaller packers follow, in stating the prices 
at which they will sell. There are indications that the proportionate 
distribution of sales and the structure of prices within these markets 
are carefully maintained. According to Alspaugh : ^^ 

The most difficult problem in connection with the distribution of products from 
packing plants to branches arises from the necessity of "maintaining a i)osition" 
in each market, that is, the effort of each packer to maintain a minimum per- 
centage of the total volume of packing house products sold in a market. Any 
decline in the weekly volume of beef prompts an immediate investigation to 
determine whether it was due to a decrease in consumption or a larger shipment 
by competitors. If a competitor is shipping a larger quantity into the market, 
the packer will, in most cases, continue to make his regular shipments and follow 
an aggressive sales policy with timely price adjustments, which will insure his 
retaining his regular patronage. As a result the packer who has increased ship- 
ments experiences difficulty in moving the additional quantity of beef except at 
greatly reduced prices, which are out of line with the prices received in other 

It has also been stated by Swift & Co. that it is the practice of each 
packing house to determine the quantity of fresh meats that the others 
have on hand in city markets and to avoid making shipments that 

""Federal Trade Commission, The Meat Packing Industry, 1918, Summary and Part I, 

'ildem., Packer Consent Decree, 68th Cong., 2<i sess., S. Doc. No. 219 (1925), pp. 18-20. 

<" William H. Nicholls, "Market-sharing in the Meat Packing Industry," Journal of 
Farm Economics, vol. 22 (1940), pp. 225-240, at p. 232. 

<» Harold P. Alspaugh, Marketing of Meat and Meat Products (Ohio State University 
doctoral dissertation, Columbus, 1936, unpublished), pp. 142-143, quoted in NichoUs. op. 
cit., p. 234. 


would spoil the price.^* It thus appears that local price discrimina- 
tion and the control of shipments may be employed as a means of 
preserving the distribution of business and protecting the prices estab- 
lished within the several markets where meat is sold. But the packers' 
freedom to fix the general level of such prices is limited by factors 
which they cannot control. The supply of meat is determined by the 
production of livestock. The demand for meat is elastic, and dietary 
substitutes . are available. In general, the prices announced by the 
"Big Four" are merely those that are calculated to clear the markets 
of the supply. 

In the markets for livestock, however, a different situation obtains. 
Here the big packers take the lead, and here, again, the little packers 
follow, in setting the prices at which they will buy. But here the 
leaders have a freer hand. Sellers are numerous and supply, in the 
short run, is fixed, responding slowly to any change in price. Buyers, 
on the other hand, are few, and demand is consequently subject to con- 
trol. The livestock prices which the packers announce are determined 
by deducting their processing costs and profit margins from the cur- 
rent prices of meat. If they were to compete in bidding up livestock 
prices, these margins might be reduced. But there is continuing evi- 
dence that they do not compete. On a national scale, from 1913 to 
1935, Swift's share of the "Big Four" purchases of hogs, cattle, calves, 
sheep, and lambs increased significantly while Armour's fell; the 
Cudahy and Wilson shares showed relatively little change.^^ But 
within the several markets where the "Big Four" buy, the distribu- 
tion of their purchases still conforms to a pattern which has been 
constantly maintained. Although there is no evidence that they have 
exercised it, these companies undoubtedly have the power to preserve 
this distribution by bidding up prices and thus reducing the margin 
left to any packer who would seek to disturb it. It is, perhaps, sig- 
nificant that a firm has not usually increased its share of the purchases 
in a market unless it has acquired the assets of another house. 

Prof. William H. Nicholls, of Iowa State College, has recently 
analyzed the proportionate weekly purchases of hogs, cattle, and 
calves made by the "Big Four" companies in each of five terminal 
markets during the years from 1931 through 1937. Each packer's 
share of the "Big Four" purchases of each type of livestock in each 
of these markets was found to remain strikingly constant from week 
to week and from year to year. The weekly purchase percentages of 
hogs normally fell within 1.8 percent and those of cattle and calves 
within 2.8 percent of the annual averages. At Omaha, during the 7 
years, Armour's share of the annual purchases of hogs remained be- 
tween 44 and 45 percent, Cudahy's between 30 and 31 percent, and 
Swift's between 24 and 25 percent. At Sioux City, Armour's share 
fluctuated between 38 and 40 percent, Cudahy's between 38 and 40 per- 
cent, and Swift's between 20 and 23 percent. In Oklahoma City, 
Armour and Wilson divided their purchases on a 49.9-50.1 basis in 
1931, 50.2-49.8 in 1932, 52.3-47.7 in 1933, 50.3-49.7 in 1934, 50.1^9.9 
in 1935, 50-50 in 1936, and 49.8-50.2 in 1937. In St. Paul and St. 
Joseph, Armour and Swift shared the market with similar regularity. 

•* V. 8. V. Fi^rift and Co., et al., 196 U. S. 375 and Brief for Swift and Co., pp. 69-71, 
cited in Burns, op. cit., p. 165. 
« Nicholls, op. cit., p. 233. 


When the distribution of purchases in this period was compared with 
that which the Federal Trade Commission had published for 1913- 
17, it was found that the situation had remained virtually unchanged 
for a quarter of a century. In Omaha, for instance, Armour's share 
had changed from 46.6 to 44.6 percent, Cudahy's from 29.2 to 30.7 per- 
cent, and Swift's from 24.2 to 24.8 percent. In Oklahoma City, Ar- 
mour and Wilson took 50,6 and 49.4 percent, respectively, in 1913- 
17, and 50.4 and 49.6 percent, respectively, in 1931-37. The dis- 
tribution of the "Big Four" purchases of cattle and calves in each of 
the five markets, during the latter period, displayed a similar con- 
stancy.®® These figures, it should be noted, apply only to purchases in 
terminal markets. An increasing though minor percentage of live- 
stock is sold directly and therefore does not pass through these mar- 
kets.®^ Where such sales are important, according to Nicholls, "if 
sharing is carried on, it is on the basis of slaughter or division of l3uy- 
ing territory rather than on the basis of terminal-market purchases. 
Certainly, direct marketing would serve to complicate any generally- 
understood 'rules of the game' based on the simple expedient of con- 
stant on-market percentages." ®^ 

Although the packers have usually attributed the constancy of their 
purchase percentages to the existence of vigorous competition in the 
trade,®^ they have not always been so disingenuous. Thus, Dr. L. D. H. 
Weld, economist of Swift & Co., testified that ^° — 

If we try to exceed our customary percentages in any market, we could not get 
away with it, that is all. To do that, we would have to raise the bid over the 
market price. Morris, Armour, and Wilson would not stand for it, that is all. 
They would meet our prices and there would be cutthroat competition. 

And Mr. George E. Putnam, of the same firm, has written as follows : '^ 

It should be observed that the general practice among intelligent competitors of 
respecting one another's position need not be a matter of "tacit understanding." 
In the case of Swift & Co. it is an individual, commonsense policy, arrived at 
independently, not to invite retaliation and trade wars by using aggressive tac- 
tics. [Swift] has deliberately tried to avoid cutthroat competition wiierever it 
was legally possible to do so. 

These statements lend support to the conclusion reached by Nicholls 
that — 

such constant percentages are evidence of imperfectly competitive conditions in 
the packing industry, presumably with ill effects on prices to farmer and 


Of the total income received by the manufacturers of tobacco prod- 
ucts, amounting to more than $1,350,000,000 in 1937, 2 percent was de- 
rived from the sale of snuff, 5 percent from the sale of chewing tobacco, 
9 percent from the sale of smoking tobacco, 12 percent from the sale 
of cigars, and 72 percent from the sale of cigarettes," The least im- 

«» Ibid., pp. 224-231. 

*^ Cf. United States Department of Agriculture, The Direct Marketing of Hogs, Misc. 
Pub. No. 222 (1935), p. 2. 

« Nicholls, op. cit., p. 232. 

*" For an analysis of this argument, see Burns, op. cit., pp. 159-165. 

"•eeth Cong., 2d sess., Hearings on H. R. 6492, pp. 1023-1026, quoted in Nicholls, op. 
cit., p. 238. 

'1 George E. Putnam, Supplying Britain's Meat (London, 1923), quoted in Nicholls, 
op. cit., p. 239. 

■" Nicholls, op. cit., p. 240. 

™ Computed from Census of Manufactures, 1937. 


Eortant branch of the industry is the most highly concentrated, three 
rms accounting for more than 95 percent and four for more than 99 
percent of the total output of snuff. The branch which is second in 
importance shows the least concentration, the three largest producers 
of cigars contributing less than 28 percent of the output in 1934 ; the 
four largest less than 40 percent in 1937. Three companies, in each 
case, manufactured 65 percent of the smoking tobacco and 69 percent 
of the chewing tobacco in 1934, and four, in each case, manufactured 
more than 77 percent of the smoking tobacco and between 57 percent 
and 92 percent of the various types of chewing tobacco in 1937. In the 
most important branch of the industry, the "Big Three" — the American 
Tobacco Co., producers of Lucky Strikes; the Liggett & Myers To- 
bacco Co., producers of Chesterfields ; and the K. J. Reynolds Tobacco 
Co., producers of Camels — accounted for more than 80 percent of the 
output in 1934, and the "Big Four" — including the P. Lorillard Co., 
producers of Old Golds — accounted for nearly 85 percent of 
the output in 1937.^* Together, these companies had assets of nearly 
$700,000,000 and sales of nearly $850,000,000 in 1938.^^ Although the 
"Big Three" have maintained their dominant position for more than 
20 years, manufacturers of other brands — Old Golds, Philip Morris, 
and the 10-cent cigarettes — have occasionally succeeded in capturing a 
fraction of the growing sales. But since producers who seek to enter 
the industry must invest heavily in machinery, carry large stocks of 
aging tobacco, pay substantial taxes before they sell their products, and 
spend huge amounts on advertising campaigns that may or may not 
win acceptance for their brands, there are few who have the capital or 
the courage to make the attempt and, as a result, the established com- 
panies are quite secure against such invasions of the field. 

There has been no market-sharing in the sale of cigarettes. The 
leading producers have spent enormous sums on advertising and sales 
promotion work and their relative shares in the total business have 
fluctuated in response to changes in their comparative expenditures.^^ 
In this area, they have engaged in vigorous competition; in pricing, 
they do not compete. Cigarette prices are established through leader- 
ship; in six price changes from 1928 to 1934, Reynolds took the lead 
four times and American twice ; all of the other companies followed, 
four times on the same day, once within 2 days, and once within 4 
days.'^'^ "Although these prices may not be established collusively," 
says the Federal Trade Commission, "there seems to be an unwritten 
rule that any price change will be followed," ^^ Each firm is confident 
that a change announced by any one of them will immediately be 
adopted by all of the others, and this confidence operates to remove 
competitive restraints upon increases and to impose noncompetitive 
restraints upon reductions. Prices, discounts, and terms of sale are 
uniform, and producers have cooperated with distributors in maintain- 
ing resale prices."^ Manufacturers' prices, moreover, are highly in- 
flexible, frequently failing to respond to changing costs. In 20 years, 

''* Federal Trade Commission, Agricultural Income Inquiry, Part I, p. 262 ; Thorp and 
Crowder, op. cit.. Part III, Appendix A. 

"Work Projects Administration, Securities and Exchange Commission, op. cit., vol. 1, 
p. 16. 

™ Cf. Fortune, August 1938, pp. 25 ff. 

■" Federal Trade Commission, op. cit., p. 447. 

"Ibid., p. 464. 

'» Federal Trade Commission, The Tobacco Industry (1922), pp. 15-75; Agricultural 
Income Inquiry, Part I, pp. 524-550. 


from 1919 to 1939, they changed 11 times. From October 1922 to April 
1928 and again from January 1934 to January 1939, they did not change 
at all.^° These prices, according to the Commission, "are almost simul- 
taneously changed upward or downward with little regard to leaf to- 
bacco or general commodity price levels." ^^ Thus, in 1931, an increase 
"which carried the leading brands to the highest price in more than 
a decade" was made at a time when "commodity prices were on a down- 
ward trend and the average of wholesale prices was lower than at any 
time since 1915" and when "the 1931 crop of leaf tobacco sold at the 
lowest price of any year within the same period," circumstances which 
"strongly invited a reduction in the price of cigarettes." In the opin- 
ion of the Commission, "if the four companies had not been determined 
to charge all the traffic would bear and had not thought themselves 
beyond the reach of effective competition, it is doubtful that the in- 
crease would have been made or followed," since "undoubtedly any one 
of the manufacturers of the leading brands could have broken the new 
price by not following it." ^" On the one occasion when the position 
of the "Big Three" was seriously threatened by price competition, they 
acted decisively. After the 10 cent brands had captured a fifth of the 
market during"^ several months of 1932, they reduced their prices from 
$6.85 to $5.50 per thousand, thus cutting the sales of 10 cent cigarettes 
in half .^^ This move, says the Commission, may be taken to indicate 
either that "the price of $6.85 per thousand was exorbitant because of 
lack of competition or that the subsequent reduction to $5.50 per thou- 
sand was below cost for the purpose of checking, if not destroying, the 
growing competition of the 10-cent brands. Either alternative shows 
the powerful position of the four large companies and the manner in 
which that power is exercised." ** 

About 1,500,000,000 pounds of leaf tobacco is grown annually on 
some 500,000 farms located chiefly in Virginia, Kentucky, Tennessee, 
Georgia, and the Carolinas. About one-third of the crop is exported ; 
two-thirds is consumed at home. This 1,000,000,000 pounds, togethei' 
with some 70,000,000 pounds which is imported, largely for blending 
in the manufacture of cigarettes, provides the domestic industry with 
its raw material. With minor exceptions, tobacco growers sell their 
leaf directly to buyers for the manufacturers or to dealers, who may 
either act as agents for large or small manufacturers or buy for short- 
run speculation, at auctions which are conducted in some 600 ware- 
houses located in more than 100 towns scattered throughout the 
growing region. Sales are not made on the basis of standard grades. 
The grower sorts his tobacco as best he can, ties it in bundles, and 
brings it to the warehouse, where it is piled in baskets, weighed, tagged, 
and arranged in rows in readiness for the auctioning. As the buyers 
and the auctioneer proceed along these rows, conducting their trans- 
actions in a technical vocabulary which is unintelligible to the layman, 
sales are made to the highest bidders at breakneck speed, more than 
350 baskets changing hands within an hour. The grower may reject 
the highest bid and hold his leaf for later sale. If he accepts the 
offer, he is promptly paid. He thus has ready access to the market 
and profits from the rapid disposition of his crop, 

SOD. W. Malott and B. F. Martin. The Agricultural Industries, p. 387. 
*^ Federal Trade Commission, op. cit., pp. 550-551. 
" Ibid., p. 464. 
««Ibid., pp. 462-463. 
•* Ibid., p. 465. 


While the tobacco auction possesses the outward characteristics of 
active competition, this appearance may 'be deceptive. Buyers and 
sellers do not have equal knowledge or equal bargaining power. Buy- 
ers, contending that Government grades do not reflect the qualities 
which are important to the processor, base their bids on secret grading 
systems of their own. Sellers, being handicapped by the absence of 
standard grades and lacking the power to impose them, cannot insist 
that their products possess these qualities. Buyers, usually holding 
inventories of aging tobacco sufficient for a year's supply, are in a 
position to postpone their purchases. Sellers, requiring ready cash 
to meet their livmg expenses and pay their debts, dealing in a product 
which is subject to deterioration, and running the risk of finding no 
buyer after the auction has closed, are in no position to refuse the 
highest bid. Buyers, moreover, are few. In 1934, thirteen companies 
purchased 96 percent of the tobacco used in the United States.^^ Lig- 
gett and Myers bought nearly 25 percent of the crop, Reynolds 13 
percent, and American 11 percent, the "Big Three" together account- 
ing for nearly half of the total purchases.^® These three concerns 
are now said to buy more than two-thirds of the hurley tobacco and 
more than four-fifths of the Maryland tobacco and, together with 
two exporters, to buy approximately three-fourths of the flue-cured 
tobacco produced each year in the United States.®^ The concentra- 
tion of purchases! is even greater than these figures would indicate, 
since not every purchaser operates in every market in every year or 
buys as heavily in one market as he does in another.^^ The inequality 
inherent in this situation has been heightened by noncompetitive buy- 
ing practices. In 1922, the Federal Trade Commission found that the 
major companies had sometimes made their purchases through a sin- 
gle buyer, thus ceasing to offer independent bids,^^ that they had de- 
pressed tobacco prices by "holding off" from the market and "buying 
under cover," ^° that they had expressed their orders for purchases 
of leaf in terms of percentages of the offerings,^^ and that each of 
them, according to the complaints of sellers, had bought "only a cer- 
tain percentage of the offerings." ®^ In 1937, the Commission found 
little evidence that manufacturers were buying through common 
agents, but it reported that "each company is careful to distribute 
its purchases over the entire buying season and upon all principal 
markets" so as not to "force prices upward." ®^ Wliile such practices 
need not involve collusion, or even a stable distribution of purchases, 
they must lessen the competitive character of the markets in which 
they are employed. A more serious charge is made by the Department 
of Justice in an Information filed in the District Court of the United 
States for the Eastern District of Kentucky on July 24, 1940. 
According to this document : ^* 

The defendant major tobacco companies, as the principal purchasers of leaf to- 
bacco, have attempted to support, build up, and maintain marlieting systems and 

86 Ibid., p. 24. 

«8lbid., p. 259. 

»T U. 8. V. American Tobacco Co. et al., District Court of the United States, Eastern 
District of Kentucky, Information, July 24, 1940, par. 13. 

WF. T. C, op. cit., pp. 346, 416. 

* Idem., Tlie Tobacco Industry, p. 40. 

•"Ibid., pp. 39-40. 

91 Ibid., pp. 62, 64, 89, 96, 147, 149. 

»2 Ibid., p. 9. 

** Idem., Agricultural Income Inquiry, Part I, p. 415. 

•* v. 8. V. American Tobacco Co. et al.. District Court of the United States, Eastern 
Division of Kentucky, Information, July 24, 1940, par. 26 (a) (b). 


marketing conditions for leaf tobacco intentionally designed to deprive the 
growers thereof of any substantial bargaining power in connection with its sale, 
and to permit said defendants to control the instrumentalities through which leaf 
tobacco is marketed in order that defendants might purchase it under conditions 
unnaturally, unreasonably, and artificially favorable to themselves, and unnat- 
urally, unreasonably, and artificially restrictive to the growers, sellers, other 
purchasers, and other handlers of such tobacco. Defendants have in fact accom- 
plished these objectives through domination of the boards of trade, and members 
thereof, in the several marketing localities, and of the Tobacco Association of 
the United States, through which, as well as through other channels, they jointly 
foster and enforce regulations and practices with respect to the terms, methods, 
conditions, places, and times of sales of leaf tobacco. 

Within the framework of the marketing systems so brought about and main- 
tained defendants have further attempted arbitrarily to fix, establish, maintain, 
manipulate, and tamper with the prices of leaf tobacco, including that purchased 
by themselves, with the purpose and effect of enabling them to purchase leaf 
tobacco at such prices and unreasonably to restrain and dominate the trade of 
the growers thereof, and with the further purpose and effect of unreasonably 
eliminating and tending to eliminate and restrain competition among them- 
selves, competition from other purchasers and handlers of leaf tobacco, and com- 
petition from other manufacturers and potential manufacturers of tobacco prod- 
ucts, particularly the manufacturers of 10 cent cigarettes. Defendants have in 
fact accomplished these objectives by understandings in advance of the openings 
of the marketing seasons, and from time to time throughout such seasons, with 
respect to the prices to be paid for leaf tobacco ; and by intentionally formulating 
their grades, buying instructions, and products so as to avoid competition among 
themselves for the same or similar kinds of tobacco, at the same times, in the 
same markets. 

If this charge should be borne out by the facts developed in the case, 
it would appear that the markets for leaf tobacco have been effectively 

The profit record of the industry supports the hypothesis that it has 
not been actively competitive. In the 21 years from 1917 through 
1937, 13 companies, which in 1934 produced 97 percent of the output of 
cigarettes, 89 percent of the output of pipe tobacco, and 98 percent of 
the output of snuff, realized an average annual return of 16.44 percent 
on their total investment, 18.22 percent on the stockholders' investment, 
and 21,9 percent on the common stockholders' equity. Their return on 
their total investment fluctuated between a low of 10.07 percent in 
1933 and a high of 23.64 percent in 1918. The 4 cigar manufacturers 
in the group, facing many competitors, obtained an average annual re- 
turn of 9.32 percent; the 3 snuff manufacturers, encountering little 
competition, made 16.44 percent ; the 6 cigarette manufacturers made 
17.34 percent. The "Big Three" — American, Liggett & Myers, and 
Reynolds — made 17.16 percent, 16.70 percent, and 23.05 percent, re- 
spectively. It should be noted, moreover, that none of these figures 
include the substantial salaries and bonuses that have been paid to the 
chief executives of these concerns.®^ 


Common control of enterprises engaged in the same industry is not 
consonant with the existence of bona fide competition between them. 
Such control may be achieved through the ownership of voting stock, 
through interlocking directorates, through financial affiliations, or 
through personal ties of a less tangible sort. In the Clayton Act of 
1914, Congress undertook to prevent the employment of the first two 

»5 Federal Trade Commission Digest of Studies of Long-term Profits, Report to the 
Temporary National Economic Commitee (unpublished), pp. 4-35. 


of these devices as means of eliminating competition between two 
or more concerns. Section 7 of that act makes it unlawful for a cor- 
poration to acquire the stock of a competitor, or for a holding com- 
pany to acquire the stock of two or more competitors, where the effect 
of such action may be substanti^-lly to lessen competition, or to re- 
strain commerce, or where it may tend to create a monopoly. Section 8 
provides that np person may be a director of two or more corporations 
engaged in commerce, where any one of them has capital, surplus, and 
undivided profits aggregating more than $1,000,000 and where elimi- 
nation of competition between them would constitute a violation of 
the antitrust laws. The scope of these prohibitions,- however, was 
limited by Congress and has been further restricted by the courts. 
Section 7 does not forbid outright mergers and it does not prevent 
.individuals from holding stock in competing concerns. Section 8 
does not prohibit directors of two corporations in one field from sit- 
ting together, in another, on the board of a- third. In 1926, moreover, 
the Supreme Court of the United States decided, in the Swift and 
Thatcher cases, ^^ that the Federal Trade Commission could not order 
a company to divest itself of the assets of a competitor if it had effected 
a merger, while the proceeding was pending, by voting stock which it 
had unlawfully acquired. And again in 1934, the Court decided, in 
the Arrow-Hart <& Heg^man case^'^ that the Commission was po"wer- 
less to act when a holding company after acquiring the shares of two 
competing corporations^ had distributed them to its stockholders, who 
had thereupon voted to merge the two concerns. As a result of these 
limitations, stock ownership and interlocking directorates have con- 
tinued to contribute to concentration of control. 


Traffic over the detour which the Court built around section 7 has 
been heavy. This route has been followed by producers of copper, 
motion pictures, petroleum, salt, and whisky, by manufacturers of 
automobile parts, biscuits and crackers, electrical devices, glass, glass 
containers, gypsum products, heavy chemicals, paper- and fiberboard 
boxes, roofing materials, and steel, by packers of meat, by distributors 
of dairy products, by lessors of tank cars, and by firms engaged in 
many other .trades.^® Among 547 mergers between 1929 and 1936, 
the Federal Trade Commission found that 54 percent had been con- 
summated through the acquisition of assets.^® Section 7 is thus a 
source of minor inconvenience to those who seek to buy up competi- 
tion or impose control upon competitors, but it is little more. The 
Commission has repeatedly urged its amendment to prohibit the ac- 
quisition of assets as well as the acquisition of stock and the Temporary 
National Economic Committee has made a similar recommendation in 
its preliminary report.^ 

There are indirect forms of intercorporate stockholding, not within 
the purview of section 7, which may also operate to limit competition. 
In some cases, competing concerns have owned stock in a corporation 

»«272 U. S. 554. 
"" 291 U. S. 587. 

•" Hearings before the Temporary National Economic Committee, Part 5-A, pp. 2363-2388. 
"Temporary National Economic Committee, Preliminary Report, 76th Cong., 1st sess., 
S. Doc. No. 96, p. 21. 
1 Ibid. 


doing business in another field. General Electric and Westinghouse 
once thus held the shares of K. C. A. The Carnation Co. and the Pet 
Milk Co., which together produce 32 percent of the canned milk sold 
in the United States, are both interested in the General Milk Co., 
which operates abroad.^ There are 25 corporations — ^mostly pipe 
line, patent-holding, and foreign enterprises — which are subsidiaries 
or affiliates of two or more of the major oil companies. The Great 
Lakes Pipe Line Co., for example, is owned by eight of these con- 
cerns. Every one of tlie majors owns stock in some corporation in 
which at least one of the others has an interest.^ In other cases, the 
chain of relationships has several links. Thus, the du Pont Co. and 
the Dow Chemical Co., two of the largest manufacturers of chemicals, 
are connected through du Pont's ownership of stock in General Motors, 
which shares with Standard Oil of New Jersey the ownership of the 
Ethyl Gasoline Corporation, which shares with Dow the ownership 
of the Ethyl-Dow Chemical Co. In still other cases, stockholdings 
uniting firms in different industries may give them an advantage over 
their competitors in obtaining raw materials or in marketing their 
goods. The ownership of pipe lines by oil refiners, iron ore com- 
panies by steel producers, and anthracite mines by railroads are cases 
in point. The United States Rubber Co., which sells tires to General 
Motors, is also controlled by du Pont. 

The stock of two or more corporations which are nominally in com- 
petition is sometimes held by the same persons. In 1935 three men 
who controlled the Outboard Motors Corporation also held 85 per- 
cent of the capital stock of the Johnson Motor Co., another large 
manufacturer of outboard boat motors.* In 1939 the stockholders! of 
the Diamond Match Co., which alone accounted for more than half 
of the American match business, also owned the shares of the Ohio, 
Lion, Universal, Federal, and West Virginia match companies. 
Diamond's president held 51 percent and Diamond itself held the other 
49 percent of the stock of the Berst-Forster-Dixfield Co. These seven 
concerns, together, produced nine-tenths of the Nation's output of 
matches.' On December 31, 1938, each of 58 among the 120 largest 
stockholders in 17 major oil companies owned shares in 2 to 5 of these 
concerns ; 48 owned shares in 6 to 10 of them ; 14 owned shares in 11 
to 15 of them. Seventy-seven of those in the group had interests in 
the Socony-Vacuum Oil Co., 69 in Standard Oil of New Jersey, 68 
in the Ohio Oil Co., 67 in Standard of Indiana, 64 in the Consolidated 
Oil Corporation, 51 in Standard of Ohio, 49 in the Texas Corpora- 
tion, 46 in the Pure Oil Co., 44 in the Atlantic Refining Co., 43 in the 
Continental Oil Co., 38 in the Phillips Petroleum Co., 37 in 
the Skelly Oil Co., 27 in the Shell Union Oil Corporation and in the 
Cities Service Co., 26 in the Gulf Oil Corporation, and 25 in the Tide 
Water Associated Oil Co,* The Sun Oil Co. was the only member of 
the group which was comparatively free from interlocking ownership. 
Data for the Standard Oil Co. of California were not available. Each 
of the majors, of course, had thousands of stockholders, the numbers 
ranging from 3,152 in the case of Skelly Oil to 466,658 in the case of 

2 Federal Trade Commission, Agricultural Income Inquiry, Part I, pp. 255-256. 
s Hearmgs before the Temporary National Economic Committee, Part 14-A, pp. 7774-7775. 
* Hearings t)efore the Temporary National Economic Committee, Part 5-A, p. 2385 
" Fortune, May 1939, pp. 89 ff. 

'Hearings before the Temiporary National Economic Committee, Part 14-A, pp. 7776- 


Cities Service. But the 100 largest stockholders owned more than a 
fifth of the shares in all 17, more than two-fifths in 9, more than three- 
fifths in 5, and more than four-fifths in 3/ And here, as elsewhere, 
diffusion of ownership facilitated concentration of control. Members 
of the Rockefeller family and foundations established by the Rocke- 
fellers were in a controlling minority position in at least six of the 
major companies, holding 7.1 percent of the voting stock in Atlantic 
Refining, 13.8 percent in Standard of Indiana, 16.5 percent in Standard 
of New Jersey, 16.6 percent in Standard of California, 20.8 percent 
in Socony -Vacuum, and 24 percent in Ohio Oil.® Members of the 
Harkness, Flagler, Whitney, Bingham, Chapman, and Kenan fam- 
ilies also held stock in several of the successor companies of the former 
oil trust. While all of these concerns are independent enterprises, 
with complete freedom to determine their own policies, it seems hardly 
likely, in view of the extent to which they are owned by the same 
people, that any one of them would pursue a course which was preju- 
dicial to the interests of the others. 


Interlocking directorates between competitors, though not un- 
known, are uncommon. The Federal Trade Commission has issued 
only five complaints under Section 8 of the Clayton Act and all of 
these were dismissed. The Commission reported, in 1927, that : "The 
few cases arising under this part of the statute are probably due to 
the fact that its requirements can readily be met, and the desired 
results obtained by other means." ^ 

Section 8, however, does not forbid directors of two competing cor- 
porations to serve together on the board of a third corporation in 
another field. Such indirect interlocks appear to be common. A 
^udy of interlocking directorates among the 200 largest non-financial 
and the 50 largest financial corporations in the United States in 1935, 
made by the National Resources Committee, revealed several exam- 
ples of this type. Directors of General Electric and Westinghouse, 
the two leading manufacturers of electrical equipment, sat together 
on the boards of the American Telephone & Telegraph Co., the New 
York, New Haven, and Hartford Railroad Co., and the Chase Na- 
tional Bank. Directors of Armour and Wilson, two of the "Big Four" 
meat packers, sat together on the boards of International Harvester, 
the Chicago Great Western Railroad Co., and the Continental Illinois 
National Bank & Trust Co. Directors of Kennecott and Phelps 
Dodge, concerns which produced 55 percent of the American output 
of copper in 1937, sat together on the boards of Continental Oil and 
J. P. Morgan & Co. Among the major oil companies. Tide Water 
interlocked with Standard of California through the Anglo-Califor- 
nia National Bank, Gulf Oil with Continental Oil through Pullman, 
Inc., and Cities Service with Socony-Vacuum through the Manufac- 
turers Trust Co., of New York, and with the Texa^ Corporation 
through the Natural Gas Pipeline Co. of America.^" There are no 
means of gaging the extent to which such interlocks may operate to 

' Ibid., p. 7775. 

" National Resources Committee, The Structure of the American Economy, Part I, p. 311. 

• Annual Report, 1927, p. 17. 

^ National Resources Committee, op. cit., ch. 9, appendix 12. 


liiriAt competition. It does not seem likely, however, that two persons 
who are harmoniously associated in an enterprise in one field will 
disregard each other's interests in another. 

A third type of interlock occurs in those cases where concerns that 
trade with one another have directors in common. Among the 250 
corporations studied by the National Resources Committee, such rela- 
tionships were numerous. Insurance companies, which buy securi- 
ties, were widely interlocked with railroads, utilities, and manufac- 
turing concerns. General Motors and the Girysler Corporation, heavy 
purchasers of metals, were interlocked with steel companies, General 
Motors with a copper company. General Electric and Westinghouse, 
who sell electrical equipment, were interlocked with a number of rail- 
roads, General Electric with several public utilities. Pullman, Inc., 
whose subsidiary operates sleeping cars, was interlocked with various 
railroad companies. The B. F. Goodrich Co., a tire manufacturer, 
was interlocked with International Harvester, National Dairy Prod- 
ucts, and Sears, Roebuck & Co., all large purchasers of tires. 

There were many such cases ; 225 of the 250 corporations had inter- 
locks with others in the group. A corporation which is thus related 
to concerns in other fields may have a marked advantage over its com- 
petitors in obtaining supplies and in marketing its goods and services. 
Again, it is impossible to determine whether, or to what extent, inter- 
locking directorates are employed to this end; the temptation so to 
use them, however, must be felt in nearly every case where such a 
link exists. 


In their broadest aspect, intercorporate relationships take a form 
which the National Resources Committee designates as "corporate 
interest groupings." The members of these groups may be connected 
through stock ownership, interlocking directorates, common affilia- 
tions with investment banks, intangible personal ties, or a combina- 
tion of these means. Of the 250 corporations which it studied, the 
Committee placed 106 within eight such groups. In the Morgan-First 
National group are 41 concerns, including two copper com_panies, Ken- 
necott and Phelps Dodge, which account for more than half of the 
annual output, and the two largest anthracite mining companies, the 
Philadelphia and Reading Coal and Iron Corporation and the Glen 
Alden Coal Co., which together produce about 31 percent of the hard 
coal mined in the United States. Of this group, the committee says : ^^ 

While it is certain that the extensive economic activity represented by these cor- 
porations is in no sense subject to a single, centralized control, it is equally cer- 
tain that the separate corporations are not completely independent of each other. 
The climate of opinion within which their separate policies are developed is 
much the same, many of the same people participate in the formulation and review 
of the policies of the separate corporations, financing is carried on for the most 
part through the same channels, and in many other ways this group of corpora- 
tions constitutes an interrelated interest group. 

In the Rockefeller group are 6 major oil companies which own more 
than half of the total assets of that industry. Among the 14 corpora- 
tions in the Mellon group are 3 members of the steel industry, the 
Jones & Laughlin Steel Corporation, the American Rolling Mill Co., 
and the Crucible Steel Co. of America. Among the 11 in the 

" Ibid., p. 162. 


Chicago group are 2 packing houses, Armour & Co. and Wilson & Co. 
Among the 8 in the Cleveland group are 6 iron and steel companies : 
The Cleveland-Cliffs Iron Co., the Interlake Iron Corporation, the 
Republic Steel Corporation, the Youngstown Sheet & Tube Co., the 
Inland Steel Co., and the Wheeling Steel Corporation. Of these 
groups, too, the committee says that ^^ — 

It is not intended to imply that these aggregations of capital ever act as a unit 
under the rule of oligarchic dictatorships. The social and economic content 
of the relationships which bind them together are far more subtle and 
varied than this. 

And it closes its report on the investigation with a question which 
it does not attempt to answer : "Wliat is the significance of the exist- 
ence of more or less closely integrated interest groupings for the pric- 
ing process ?"^^ 


In a number of- important industries, where a few large firms are 
dominant, there is relatively little evidence of price leadership, price 
agreement, market sharing, or other monopolistic practices. During 
their early history, these industries have been characterized by a rapid 
development of technology and a steady expansion of output in re- 
sponse to growing demand. Over considerable' periods of time, they 
have reduced their prices, improved the quality of their products, and 
given the consumer more for his money. In part, if not in all, of their 
activities, they may still appear to be engaged in active competition.^ 
But it is nonetheless impossible, at the present time, to classify them as 
effectively competitive. Their high degree of concentration, the sub- 
stantial uniformity of their prices, and the ipsensitivity of these prices 
to changes in the volume of industrial activity compel their inclusion 
in the category of market dominance. This group may be illustrated 
by the automobile, electrical equipment, chemical, and rayon industries. 


At the beginning of the century, an attempt was made to subject the 
automobile industry to control through the exercise of patent rights. 
The major producers, with the notable exception of Ford, united in the 
Association of Licensed Automobile Manufacturers and took out li- 
censes under the Selden patent, which was said to cover the basic prin- 
ciples involved in the application of the internal combustion gasoline 
engine to the propulsion of motor vehicles. The members of this group 
were apparently of the opinion that the automobile was a luxury prod- 
uct which would be sold in a limited market at a high price and with 
a wide margin of profit. They made their cars larger and heavier and 
placed increasing emphasis on appointments, style, and other refine- 
ments. Ford, on the other hand, was the leading exponent of the view 
that the automobile could be sold in a wider market at a lower price 
and that larger promts could be obtained from a narrower margin on a 
greater volume of sales. He placed his emphasis on simplification, 
standardization, and mass production. In' 1903, members of the asso- 
ciation brought suit against Ford, charging infringement of the Sel- 

• M n)Id., p. 315. 
M Ibid., p. 316. 


den patent. A favorable decision would have enabled them to compel 
Ford to adopt their policies or to drive him from the field. In 1911, 
however, they lost their case, when the scope of the patent was re- 
stricted by a Federal court. 

For many years. Ford led the industry in reducing prices and in- 
creasing sales. He cut the price of his Model T from $950 in 1909 to 
$360 in 1916 and, although he raised it during the First World War, 
he cut it again to $295 in 1923: So thoroughly did he believe in the 
wisdom of this policy that he slashed his prices in years when he could 
have sold his whole output at higher figures and when he faced no com- 
petition in the low-priced field. In 1911, Ford sold 20 percent of the 
new passenger cars registered in the United States ; subsidiaries of the 
General Motors Corporation sold 18 percent; several other manu- 
facturers sold the other 62 percent. In 1921, Ford sold more than 55 
percent of the new cars. In 1923, he sold nine Fords to every Chevro- 
let. In that year, Ford accounted for 46 percent, General Motors for 
20 percent, and the other producers for 34 percent of the output of 
the industry.^* During this period. Ford made substantial profits, 
realizing more than 100 percent on his investment in several of the 
earlier years. It was his leadership that forced the rest of the industry 
to adopt the methods of mass production and to seek profits through 
the sale of a larger volume at a lower price. 

After 1923, Ford lost ground. The low-priced automobile faced in- 
creasing competition from used cars of more expensive makes. The 
development of installment selling facilitated the sale of new cars at a 
higher price. The Chrysler Corporation, a powerful competitor, en- 
tered the field in 1925. Consumer preference shifted from the stand- 
ardized Model T to cars of superior style and quality. Ford, who had 
said, in 1909, that "any customer can have a car painted any color that 
he wants so long as it is black," was forced to close his plants in 1927 
in a belated effort to adapt his output to the changing character of 
the demand. In the process, he fell into second place. In 1929, Gen- 
eral Motors sold 32 percent of the new automobiles ; Ford sold 31 per- 
cent ; Chrysler sold 8 percent ; and the remaining firms sold more than 
28 percent." During this period. Ford abandoned the policy of cut- 
ting prices drastically and repeatedly and began to follow the rest of 
the industry in producing annual models and devoting the energies of 
his organization to improvements in style and quality. 

The thirties were marked by growing concentration of production, 
accompanied by further shifts in the distribution of business among 
the major companies. In 1938, General Motors accounted for 45 per- 
cent, Chrysler for 25 percent, Ford for 20 percent, and all of the other 
producers for only 10 percent of the year's output of new passenger 
cars.^® In some respects, the industry is still competitive. Dealers in 
used cars compete in price. Dealers in new cars compete in trade-in 
allowances and thus, indirectly, in price. The manufacturers compete 
in advertising and salesmanship, in style and quality, but they do not 
compete in price. 

There can be no question that the industry has given the consumer 
more for his money from year to year. Its members, since 1914, have 

" Federal Trade Commission, Motor Vehicle Industry, p. 29. 
«Loc. cit. 
i«Ibid., p. 1058. 


followed a liberal patent licensing policy and major improvements in 
quality have been generally adopted throughout the field.^^ Its prod- 
uct has approved in appearance, in comfort, in ease of manipulation, 
in brilliance of performance, in safety, and in durability. Costs of 
operation have declined. Increasing weight and speed have prevented 
a reduction in the cost per mile of gasoline. But, according to a 
report issued by the Automobile Manufacturers Association, the cost 
per mile of oil fell 46 percent and that of repairs 67 percent from 
1926 to 1938.^® While some of this reduction may be attributable to 
public expenditures on better roads, the major part of it must be cred- 
ited to improvements in the cars themselves. "Consumer benefits from 
competition in the automobile manufacturing industry," says the Fed- 
eral Trade Commission, "have probably been more substantial than in 
any other large industry studied by the Commission." ^^ 

The retail prices of automobiles are characterized by substantial 
uniformity and a high degree of inflexibility. Manufacturers an- 
nounce the prices of their new models at approximately the same time, 
at the beginning of each season, on an f. o. b. basis at their factories. 
TJiey ship parts to assembly plants located at various points through- 
out the country and sell assembled cars to dealers both from factories 
and from assembly plants. Dealers, in turn, sell to consumers at a 
delivered price which covers the f. o, b. price at the factory and a 
charge for delivering an assembled car from the factory to the de- 
livery point. The prices of comparable models of different makes at 
any destination, while not identical, do not vary significantly. For a 
1940 standard two-door sedan, delivered in Philadelphia, Ford charged 
$750.49, Chevrolet $756.85, and Plymouth $747. For a standard four- 
door sedan, they charged, respectively, $796.50, $797.85, and $788; 
for a de luxe four-door sedan, $857.85, $871.15, and $865. These prices 
are relatively rigid, both in frequency and amplitude of change. From 
January 1926 to April 1929, there were only 5 month-to-month changes 
in 39 chances; the average movement in these 5 cases was only 3.5 
index points.^" From 1929 to 1932, while production fell off 74 per- 
cent, the average price of motor vehicles was reduced by only 12 per- 
cent. From 1932 to 1937, when production rose by 64 percent, the 
price was increased only 2 percent.^^ In the fall of 1937, producers 
raised their prices, and althougli production declined severely in De- 
cember of that year, they did not lower them in 1938. 

The behavior of automobile prices is similar to that observed in cases 
where goods are effectively monopolized. The industry's pricing 
policy, however, is to be attributed to factors other than collusion 
among the manufacturers. Its products are not homogeneous; indi- 
vidualization permits each producer, within limits, to charge a differ- 
ent price. But ease of substitution must operate to keep these different 
prices within a narrow range. Because purchases are postponable 
and because a large supply of used cars is available, the industry 
believes that demand is inelastic, showing little or no response to 
price reductions in hard times. Manufacturers, moreover, are under 
obligation to their dealers to protect the used car market,, a factor 

^^ Hearings before the Temporary National Economic Committee, Part 2, pp. 256-372 
^Automobile Manufacturers Association, Automobile Facts and Figures (2l8t Ed., 1939), 
p. 49. 

" Federal Trade Commission, op. cit., p. 1074. 

** Nelson and Keim, op. cit., p. 180. 

•i National Resources Committee, op. cit., p. 386. 



which restrains them from putting out a low-priced, low-horsepower, 
economy model, or from slashing the prices of Plymouths, Fords, and 
Chevrolets. There is some evidence, finally, that Ford is still the price 
leader of the industry. All of the other important producers belong 
to the Automobile Manufacturers Association, which Ford has never 
joined. At a meeting of the sales managers committee of this asso- 
ciation in 1932, Mr. R. H. Grant, chairman of the committee and vice 
president of General Motors, said : ^^ 

When the Ford model A came out, coaches were more potent than now. They 
were the keystone of the situation. He fixed the price of the coach $25 below 
the point at which it should have been fixed, from a cost standpoint. We fol- 
lowed suit and have been doing it ever since, and so has he. 

At another meeting, later in the same year, Mr. Grant said to the 
committee : " 

Mr. Ford, who won't play, is pretty much the price setter in tliis industry. 
I'll bet if Mr. Ford's cars were $50 higher, ours would be $50 higher. We care 
about Ford. We have been struggling with him for years. 

In April 1934, when Ford failed to follow Chevrolet and Plymouth 
in raising the prices of certain models, his sales increased at their 
expense and in June they cut the prices they had raised. Again in 
1939, Fortune reported that the other producers customarily fixed 
their prices within the lower limit set by their estimates of production 
costs and the upper limit set by Ford.^* His independence of action, 
says the Federal Trade Commission, "has been a keen disappointment 
to other more cooperative-minded motor vehicle manufacturers in 
the industry, particularly in the low-price field, for it compelled them 
to price their cars lower than otherwise might have been the case." ^^ 
In the automobile business, during the 11 years from 1927 through 
1937, the price leader failed to break even, while his most important 
followers made profits at amazing rates. Their net deficits and net 
profits as percentages of their investments in the motor vehicle busi- 
ness were as follows : 


Ford Motor 

Chrysler Cor- 
poration 2 

General Motors 
Corporation » 















1929 . . 



1930 ,- 










4 26 

' ?0 












1 Federal Trade Commission, Motor Vehicle Industry, p. 671, table 72. 
' Ibid., p. 567, table 44. 
* Ibid., p. 487, table 16. 

In these 11 years, General Motors made more money than any other 
manufacturing corporation in the United States, deriving 61.4 per- 

^ Federal Trade Commission, op. cit., p. 33. 

" Loo. cit. 

^ Fortune, March 1939, pp. 142, 145. 

^ Federal Trade Commission, op. cit., p. 33. 

271817— 40— No. 21- 



cent of its total profits from its motor-vehicle divisions, 22.4 percent 
from its accessories and parts divisions, and only 16.2 percent from all 
its other operations. ^^ Over the same period, the Studebaker Corpora- 
tion realized an average annual return of 6.13 percent; the Hudson 
Motor Car Co., 9.40 percent; the Packard Motor Co., 21.25 percent; and 
the Nash Motor Co., 36.90 percent.^^ These figures do not support the 
view that there 'is active competition in the field. Certainly, Ford 
has not succeeded in forcing his rivals to keep their prices closely 
related to their costs. One can only wonder where they could put 
these prices if Ford were able to set a stiffer pace, or where they would 
put them if he should drop out of the race. It is clear, at least, that 
the behavior of the other members of the industry is not effectively 


The electrical manufacturing industry comprises some 1,800 firms 
engaged in the production of many varieties of equipment for public 
^utility and other industries and numerous appliances for household 
use. Its sales, in 1937, were near $2,500,000,000; imports, by com- 
parison, were negligible. Twenty-five producers accounted for half 
of the total output and the two long-line producers, the General Elec- 
tric Co. and the Westinghouse Electric & Manufacturing Co., ac- 
counted for a fifth. General Electric, with sales close to $350,000,000, 
and Westinghouse, with sales above $200,000,000, were clearly 

The degree of concentration of production differs among the major 
divisions of the industry and among the several products in each 
field. In 1935, the eight largest firms manufactured 52.3 percent and 
the four largest 44.4 percent of the total output of electrical machin- 
ery, apparatus, and supplies, other than household appliances.^^ In 
1937, the four leading producers, in each case, made 65.8 percent of 
the electrical signaling apparatus, 76.3 percent of the resistance fur- 
naces, 79.2 percent of the direct current welding apparatus, 81.2 per- 
cent of the alternating current generators, from 60.6 to 92.8 percent 
of various types of motors, from 50.6 to 95.6 percent of the transform- 
ers, induction voltage regulators, etc., and from 43.8 to 97.0 percent 
of the switchboards, circuit breakers, and switches. In the household 
appliance division of the industry, they made 41.9 percent of the non- 
automatic toasters, 53.0 percent of the washing machines, 54.4 percent 
of the desk fans, 69.6 percent of the vacuum cleaners, from 69.2 to 
76.8 percent of the various sizes of refrigerators, 78.9 percent of the 
storage water heaters, 81.0 percent of the glass coffee pots and urns, 
59.5 to 84.7 percent of various types of flatirons, and 85.9 percent of 
the kitchen mixers and whippers.^" In the production of machinery 
and apparatus used in the generation and distribution of power and 
light. General Electric and Westinghouse are preeminent, accounting 
for three-quarters of the total output in 1923, for four-fifths of the 
transformers produced in that year, and for nearly nine-tenths of the ' 
generators in use in 1925.^^ In the electric lamp business, General 

*>Ibld., pp. 1060-1061. 
^ Ibid., p. 1062. 

» Fortune, February 1938, p. 43. 

* National Resources Committee, op. cit., pp. 248-249. 
^ Thorp and Crowder, loc. cit. 

1 Federal Trade Commission, Supply of Electrical Equipment and Competitive Conditions, 
pp. 74, 75, 110. 


Electric shares a duopoly of metal bases with Westinghouse and a 
duopoly of large glass bulbs, glass tubing, and rods with the Corning 
Glass Works.^2 In the manufacture of telephone apparatus and 
equipment, the Western Electric Co., a subsidiary of the American 
Telephone & Telegraph Co., provides nine-tenths of the supply.^^ 

Aside from the exceptional situation which exists in the telephone 
field, the two long-line companies appear, in general, to enjoy a marked 
advantage over their short-line competitors. They maintain large 
research laboratories and hold many patents. They can supply power 
plants with complete equipment of their own manufacture. They 
can bid on orders in which various types of equipment are combined. 
They can hold customers by oflPering quantity discounts. Their ex- 
tensive sales and service organizations give them an advantage over 
firms making a single pi^oduct in selling each of the items in their 
lines. They have secured the loyalty of dealers by providing financial 
assistance and establishing exclusive agencies. At one time, they 
obtained preferred positions in the Jimrket for heavy equipment by 
lending money to power companies at easy rates.^* Before 1925, 
through its control of the Electric Bond & Share Co., whose operating 
subsidiaries produced an eighth of the Nation's output of electrical 
energy, General Electric secured a lead in the utility market which 
its rivals have never been able to overtake.^^ 

The household appliance branch of the industry has been character- 
ized, in recent years, by fairly active competition, both in quality and 
price.^^ The production of small motors also appears to have been 
competitive; the wholesale price of quarter-horsepower motors was 
reduced from about $15 to about $5 from 1925 to 1936.^^ In 1928, the 
Federal Trade Commission reported that it had found extensive evi- 
dence of price and service competition in the heavy equipment division 
of the industry.^^ In 1936. however, the Commission ordered General 
Electric and other members of the National Electrical Manufacturers 
Association to cease and desist from maintaining identical prices, 
terms, and conditions in the sale of power cable and wire.^^ In 1937, it 
issued a similar order against General Electric, Westinghouse, the 
AUis-Chalmers Manufacturing Co., and the Elliott Co. as producers of 
turbine generators, and against the last three concerns as producers 
of condensers, finding that they had agreed to adhere to uniform de- 
livered prices and performance guaranties, each of them adopting the 
pricing sheets and performance data which one of them supplied.**' 
In 1939, a study of Government purchasing revealed 1,798 instances 
of identical bidding in the sale of generators, transformers, rheostats, 
meters, switchboards, switches, -conduit, line hardware and equipment, 
motors, bulbs, batteries, and several other types of apparatus and ac- 
cessories. In 558 of the openings, all of the bids were identical ; in 
397, the two or more lowest bids were identical." In August 1940, the 

•^ Cf. supra, pp. 104-106. 
3» Cf. supra, pp. 83, 87. 

" Federal Trade Commission, op. clt., pp. 21, 29, 87-93, 115-118. 
«» Fortune, op. cit., p. 49. 
s» Cf. supra, pp. 51-52. 
" Nourse and Drury, op. cit., p. 67. 

3* Federal Trade Commission, op. cit., pp. 73, 93-94, 101-102, 104, 108, 112, 113. 123-124» 
3» Cf . infra, p. 247. * 

*" Federal Trade Commission, Order, Docket 2941 (1937). 

*i Procurement Division Group, Treasury Department Subcommittee, Temporary National 
Economic Committee, Study of Government Purchasing Activities, p. 96. 


Department of Justice brought two suits against the General Electric 
Co. In one, it charged that the company had entered into an agree- 
ment, in 1928, with the German firm of Krupp, obtaining the right to 
fix the price in the American market of certain patented compounds 
used in the hardening of machine tools; that it had raised the price 
of one such compound from $48 to $453 a pound, reducing it subse- 
quently to $205; that it had further agreed in 1936 to refrain from 
entering the other markets of the world, obtaining from Krupp a 
promise not to sell in the United States ; that its subsidiary, the Car- 
boloy Co., in granting licenses to five producers of the compounds, 
had prescribed the prices they could charge; and that this concern 
had organized a bureau to police the trade.*- In the other suit, the 
Department charged that General Electric had conspired with the 
Corning Glass Works and the Philips Glowlamp Works, an important 
manufacturer of lamps in Holland, using as an intermediary another 
Dutch concern, to monopolize the supply of electric lamp bulbs and 
tubes in the United States by excluding the Dutch product from the 
North American market.*^ As early as .1920, a parliamentary com- 
mittee in Great Britain had observed that General Electric controlled 
one British lamp producer directly and another indirectly, through 
the Philips Glowlamp Works, and stated that : "There is already an 
arrangement between America and England whereby the respective 
markets are allocated and British Associated Manufacturers are pre- 
vented from exporting to the United States of America, Mexico, and 
Japan." ** It appears, therefore, that the status of competition in the 
industry varies from product to product and from year to year. 

Westinghouse realized "an average annual return of 3.6 percent on 
its investment in the decade from 1929 through 1938, losing 5 percent 
in 1933 and making 11 percent in 1937. General Electric averaged 
10.1 percent, with a low of 4 percent in 1933 and a high of 19 percent 
in 1937. No break-down of profits by industrial divisions is available, 
but it is noted that margins are higher on heavy equipment than on 
household appliances.*^ 


The production of chemicals is one of the most rapidly expanding 
of American industries and one of the most tightly disciplined. De- 
spite the disturbances occasioned by the continuous development of 
new products and processes, it has succeeded in avoiding the rigors 
of energetic competition. It is an "orderly" industry. Prices are 
steady and insensitive to the deflationary influences of depression; 
"overproduction" is seldom permitted to occur; profits are not sacri- 
ficed to volume ; producers have not been known to struggle for posi- 
tion at the expense of their competitors. The industry's instincts, ac- 
cording to Fortune, "are all against pushing and crowding" ; by and 
large, it "has regulated itself in a manner that would please even a 
Soviet commissar." *® 

^ U. S. V. General Electric Company, Friedrich Krupp Aktiengesellschaft, et al.. District 
Court of the United States, Southern District of New York, Indictment, August 30, 1940. 

^ U. 8. V. Coming Glass Works et al.. District Court of the United States, Southern 
District of New York, Indictment, August 28„ 1940. 

** Committee on Trusts, Findings and Decisions of a Subcommittee on the Electric Lamp 
Industry, Cmd. 622 (1920), pp. 13-14; quoted in Alfred Plumjner, International Combines 
In Modern Industry (Second Ed., London, 1938), pp. 87-88. 

" Standard Trade and Securities, Electrical Products, Basic Survey, Part II, vol. 93, 
No. 20, sec. 3, September 8, 1939. 

*• Fortune, December 1937, p. 157. 


The field is clearly dominated by three firms, E. I. du Pont de 
Nemours & Co., the Allied Chemical & Dye Corporation,^ and the 
Union Carbide & Carbon Corporation. All three are highly diversi- 
fied, being integrated both horizontally and vertically; du Pont and 
Union Carbide are active in many related lines which do not fall within 
a narrow definition of the industry. The American Cyanamid Co., 
the Monsanto Chemical Co., and the Dow Chemical Co. occupy the 
next three places in the field. The position of the market leaders has 
been attained largely through combinations and by acquiring the stock 
or assets of other firms. Since 1915, du Pont has bought the voting 
control or the properties of more than ^0 corporations. Allied Chem- 
ical is the product of a combination, at the end of the First World 
War, of 5 large companies, 1 of which had previously bought up a 
number of competitors. Union Carbide, formed by a merger in 1917, 
has 28 subsidiaries, several of them engaged in the production of chem- 
icals. There were many consolidations during the 1920's; from 
1919 to 1929, while output rose nearly 40 percent, the number of estab- 
lishments in the industry declined by more than 20 percent. By the 
end of the decade, according to Hempel, "the great financial interests 
had pretty well completed a rearrangement of ownership which 
strengthened the vertical and horizontal integration of the great chem- 
ical groups in a manner satisfactory to all. Thus peace was assured 
for the doubtful period to come." ^^ 

The bulk of the output of many chemicals is concentrated in the 
hands of a few firms. Among 200 chemical raw materials manufac- 
tured by some 600 companies covered in a survey made by a trade 
journal in 1939, there were 35 with 5 producers, 21 with 4, 11 with 3, 
and 7 with only 2 ; thus 74, more than one-third of those in the group, 
were made by less than 6 concerns.*^ Among 75 chemicals included in 
the Bureau of Foreign and Domestic Commerce study of concentrar 
tion of output in 1937, there were 11 where the 4 leading firms pro- 
duced between 40 and 70 percent, 17 where they produced between 70 
and 100 percent, and 10, including products as important as synthetic 
methyl alcohol and calcium carbide, where they produced 100 percent. 
In 37 cases, including soda ash, chemically pure glycerin, nitrocellulose 
(pyroxylin), and cellulose acetate, information was withheld because 
the degree of concentration was so high that it could not be revealed 
under the census disclosure rule. Among 212 items in a group of 
chemicals and allied products, for which figures were given showing 
the share of the leading firm, there were 112 where this share was 
over 35 percent, 41 where it was over 50 percent, and 13 where it was 
over 65 percent." The subsidiaries of Allied Chemical, in 1937, pro- 
duced some 28 percent of the sulfuric acid made for sale, 29 percent 
of the caustic soda, 38 percent of the coal tar, 40 percent of the alu- 
minum sulfate, 45 percent of the soda ash, 66 percent of the ammonium 
sulfate and benzol, and all of the sodium nitrate made in the United 
States,^*' Du Pont and Allied Chemical are each believed to produce 
about 30 percent and American Cyanamid another 15 percent of the 

*'' Edward H. Hempel, The Economics of the Chemical Industries (New York, 1939), 
p. 35. 

^ Chemical and Metallurgical Engineering, September 1939, pp. 572-600. 
*" Thorp and Crowder. loc. cit. 
^ Fortune, October 1939, pp. 45 flf. 


output of dyestuffs, together accounting for three-fourths of the 

The industry has attempted, at various times, to fix prices, delimit 
sales territories, and assign production quotas. Three of its largest 
firms were involved in orders issued by the Federal Trade Commis- 
sion in 1938. Allied Chemical, Monsanto, and seven other companies, 
producing nearly all of the output of liquid chlorine, had entered into 
an agreement to fix its price in 1931 ; Allied Chemical, Dow, and two 
other firms, producing all of the flake calcium chloride, had conspired 
to fix its price in 1937-38. °^ Other means of suppressing competition 
are at hand. There are thousands of patents in the field; du Pont 
alone, at the end of 1937, owned nearly 5,000 unexpired patents and 
had licenses to operate under 1,100 more. There are more than 200 
trade associations, representing 45 chemical and allied industries. 
Of one of these bodies, Fortune says : ^^ 

The Manufacturing Chemists' Association, to which most of the "proprietors" in 
the industry belong, is a quiet but active lobby, yet it is other things as well. It 
denies that it ever talks about prices — who can say that it does not discuss costs? 

Members of the industry are also said to have attempted to establish 
mutuality of interest by acquiring stock in competing companies and 
by offering directorships to the executives of such concerns.^* 

The "orderliness" of the trade is reflected in the behavior of its prices 
and the level hi its profits. From January 1926 to December 1933, 
the prices of more than half of 51 chemicals included in the Bureau 
of Labor Statistics index changed less than 12 times; those of 11 
changed less than 5 times; those of calcium carbide and coal tar (in- 
digo) changed only twice; the price of liquid carbon dioxide did not 
change at all. In February 1933, the prices of 12 of the industry's 
products, including nitric acid, sulfuric acid, aqua ammonia, calcium 
carbide, and coal tars, stood exactly where they had in June 1929; 
the prices of 9 had risen, those of anhydrous ammonia and sal soda 11 
percent, that of napthalene 22 percent, and that of phosphoric acid 
65 percent.^^ The prices of seven chemicals were the same in 1929, 
1932, and 1937.^^ The industry's leaders have enjoyed prosperity in 
recent years. From 1934 through 1938, du Pont realized an average 
annual return of 10.6 percent on tangible net worth; Union Carbide 
made 12.8 percent. Allied Chemical, 13.9 percent ; Monsanto, 14.2 per- 
cent ; and Dow, 15.5 percent.*^^ 

RATON ^^* 

But for the uses to which its product is put, the rayon industry 
would have nothing in common with the textile trades. In virtually 
every other respect — in its processes, rapid growth, concentrated con- 
trol, administered prices, and high profits — it bears the stamp of a 
chemical industry. 

n Ibid., September 1940. p. 102. 

"Federal Trade Commission, Orders, Dockets 3317, 3519 (1938). 

" Fortune, December 1937, p. 157. 

^Theodore J. Kreps, "The Chemical Industries," in George B. Galloway (ed.). Indus- 
trial Planning Under Codes (New York 1935), p. 229. 

<«> Nelson and Keim, op. cit.. pp. 183-184. 

" National Resources Committee, op. cit., p. 197. 

" Work Projects Administration, Securities and Exchange Commission, cyp. cit., vol. 1, pp. 
256-258. Comparable figures for American Cyanamid are not available, but it is known 
that this company is the least profitable of the "Big Six." 

<"« This section was written by Kermit Gordon. 


Rayon is a synthetic textile fiber bom with the twentieth century. 
The basic processes for its manufacture were all invented in Europe, 
and those in use in the United States today involve the passage of a 
thick cellulose solution (derived from cotton linters, spruce wood, or 
western hemlock) through the tiny holes of a metal "spinnerette" into 
a chemical bath or a current of warm air, which hardens the cellulose 
streams into filaments. Devised as a substitute for silk and called in 
the early days of its development "artificial silk," rayon was inflexible, 
coarse, weak, and excessively glossy. By brilliant chemical research, 
however, the product has been steadily improved, until it has become 
in some respects superior to silk; the layman is often unable to tell 
the difference between silk and rayon fabrics. The industry grew with 
amazing rapidity. American production of rayon yam and staple 
fiber ^8 rose from 10,000,000 pounds in 1920 to 122,000,000 pounds in 
1929 and 342,000,000 pounds in 1937, in which year it was valued at 
$211,000,000. Consumption of rayon passed that of silk in 1927 and 
drew abreast of wool in 1938. 

Holding the American rights to the use of the viscose process pat- 
ented by two English chemists, the American Viscose Co., from 1909 
to 1920, had a complete monopoly of the manufacture of rayon in the 
United States. When its patent protection lapsed in 1920, new com- 
panies began to enter the field, and by 1938, 29 were making rayon yam 
and staple. Three firms, however, produced 67 percent of the total 
output. Viscose had 30 percent, the rayon department of E. I. du 
Pont de Nemours & Co. 22 percent, and the Celanese Corporation of 
America 15 percent. ^^ With the addition of the German-Dutch group 
of companies — the North American Rayon Corporation, the Amer- 
ican Enka Corporation, and the American Bemberg Corporation — 
which were subject to common control and hence can be considered a 
single company, the four largest firms had about' 81 percent of total 
output. While Viscose held monopolistic sway, it took full advantage 
of its position. During the first 11 years of its operations, according 
to Fortune, the company made an average net profit (before taxes) of 
more than 70 percent on sales. In 1920 Viscose made rayon yarn at a 
cost of 60 cents a pound and sold it for $4.93 a pound.^^* Starting 
from the fantastically high level to which Viscose had pushed them 
in 1920, rayon prices have fallen with few interruptions ever since. 
In 1921 the price of yarn ^^ was $2.67 a pound ; iti 1925, $2 ; in 1929, 
$1.24; in 1933, 61 cents; in 1939, 52 cents.®^ It should be noted, 
however, that not until the depths of the depression of the thirties 
did the price reach a point equivalent to the cost at which Viscose 
had been producing yarn in 1920. Production costs, of course, had 
declined during this period as techniques were perfected and out- 
put soared. 

Price-making in rayon bears many of the characteristics commonly 
found in industries where a few firms are dominant. First, prices 
are not permitted to reflect short-run changes in supply and demand. 

w staple fiber, which has not yet achieved in this country the importance which it enjoys 
abroad, is made by cutting rayon filaments Into short fibers and spinning them into a yarn 
which can be used as a substitute for wool in woven or knit goods 

fCf. Federal Trade Commission, Digest of Studies of Long-Term Profits • • • 
(photostat, 1940), p. 114. 

00 Fortune, July 1937, pp. 40, 106. 

«iA grade, 150 denier, first quality. 
FrZS'Snm )^'^^^ Commission, op. cit., p. 123 ; Bureau of Labor Statistics, Wholesale 


Over the short period, rayon prices are very stable. The quotation 
lor the largest-selling grade (150 A denier) did not change from the 
spring of 1927 to the beginning of 1929, for nearly a year in 1929-30, 
and for more than a year in 1931-32. More recently, the price re- 
mained unchanged for 9 months in 1935-36, 1936-37, and again in 
1937.^^ Second, prices are substantially uniform, and although there 
are occasional lapses by some of the smaller companies, the producers 
seem on the whole content to follow the price leaders. Viscose and 
du Pont. From December 1933 to January 1939, Viscose and du Pont 
prices for 150 denier were identical. At least twice the companies 
changed their prices from the same figure to the same figure on the 
same day, several times within a few days. An inspection of the 
quotations of the various producers between December 1934 and 
July 1938 reveals that Viscose or du Pont or both in seven out of 
eight cases were among the groups of two or three companies which 
led off with price changes. Fortune's observation is pertinent here : ^ 

Competitors have indeed arisen — but not to take business away from Viscose so 
much as to fatten on the business that Viscose couldn't handle. 

Under the impact of the 1929 depression, the tacit restraint in pric- 
ing which normally prevails took a more explicit form. From Octo- 
ber 1931 to May 1932, Viscose, du Pont, and eight other firms entered 
into an agreement to fix uniform prices for viscose yarn, of which 
they produced substantially the entire output. The Federal Trade 
Commission in 1937 ordered the companies to cease and desist.®^ 
After the price conspiracy was suspended, but with stocks still greatly 
in excess of orders, the major viscose producers shut down their plants 
in the middle of June 1932, and kept them closed until the middle 
of August. 

Often the mere fact of a high degree of concentration of control 
is sufficient tfi account for such phenomena as the harmonious relations 
among rayon producers. In this case, however, there may be a fur- 
ther explanation, although its weight is difficult to gage. The Euro- 
pean rayon industry is — or at least was until the outbreak of the 
war which began in 1939 — a tangled mass of interlacing interests 
extending across national borders, and a large section of the American 
industry is involved in this web. Courtaulds, Ltd., the great English 
rayon company, owns about 95 percent of the capital stock of Viscose. 
The leading German producer, Vereinigte Glanzstoff Fabriken A. G. 
founded with Courtaulds in 1926 the German firm of Glanzstoff- 
Courtaulds G. m. b. H. Among the various foreign holdings of 
Glanzstoff are participations in American Bemberg and North Ameri- 
can Rayon (formerly the American Glanzstoff Corporation). The 
officers and directors of North American hold the same positions with 
American Bemberg. In 1929 Glanzstoff executed an arrangement 
resembling a merger with a Netherlands company, resulting in the 
establishment of the Dutch firm of Algemeene Kunstzijde Unie, N. V., 
in which Courtaulds also held shares. American Enka is a subsidiary 
of A. K. U., and a number of officers of North American and American 
Bemberg are also officers of American Enka. In 1925 Courtaulds and 
the Glanzstoff group entered into an agreement which included an 

°3 Bureau of Labor Statistics, op. cit. 
^ Fortune, op. cit., p. 110. 
» Docket No. 2161. 


exchange of shares with Snia. Viscosa, the principal Italian pro- 
ducer. In the same year the Industrial Rayon Corporation, a middle- 
size American firm, acquired control of the Industrial Fibre Corpora- 
tion, in which an Italian rayon group held an interest; it was not 
disclosed whether the Italians relinquished their participation at 
this time. Courtaulds also had a working agreement with the French 
rayon combine; a French group held a 40 percent interest in the 
Du Pont Rayon Company '^^ until 1929, when they were bought out 
by du Pont. At a later date, du Pont still had patent agreements 
with the French producers. Finally, Celanese is controlled by the 
Dreyfus Bros., who also control British Celanese, Ltd., and Ca- 
nadian Celanese, Ltd."'' Since the European community of interest, 
described by Plummer as "more than a gigantic international car- 
tel," ^^ had a profound effect on competitive conditions abroad, it 
is not unreasonable to suppose that the lines of authority and influence 
which ran from it to the American industry may have had somewhat 
similar consequences here. At least the behavior of rayon prices in 
this country has not been inconsistent with such a hypothesis. 

Handsome profits have been the reward of the rayon industry. Be- 
tween 1915 and 1938, the average annual return on stockholders' in 
vestment in eight of the largest concerns — all of the companies but 
Viscose having been in business for only a part of this period — was 
14.2 percent. From 1915 to 1920, when Viscose was the only producer, 
annual profits ranged from 26 percent to 109 percent of stockholders' 
investment. From 1921 to 1929, during which period du Pont, Celan- 
ese, and other firms entered the field, profits ranged from 18 to 50 
percent. From 1930 to 1938, they ranged from 1 percent to 12 percent. 
Viscose, from 1915 to 1938, had an average annual return of 21.3 per- 
cent, du Pont (rayon department) from 1921 to 1938, made 11.5 per- 
cent, and Celanese, from 1925 to 1938, averaged 10.2 percent. The 
above figure understates Viscose's true rayon profits, since the com- 
pany had large holdings of nontaxable Government securities and 
private stocks and bonds yielding a return much lower than that 
earned by Viscose in its own business. Eliminating these outside 
holdings. Viscose from 1915 to 1938, had an average annual return 
of 37.5 percent on its investment in the rayon business. Courtaulds' 
total out-of-pocket investment in Viscose was $930,000 ; the company's 
expansion has been financed entirely out of earnings.®^ Over the 
24-year period. Viscose had aggregate net profits of $354,000,000, or 
more than 38,000 percent of the original investment. In the same 
3^ears, .Viscose paid dividends, mostly to Courtaulds, of $237,000,000, 
or about 25,500 percent of the Courtaulds investment. The ratio of 
Viscose net profits to its sales of about $1,025,000,000 was 35 percent.'^" 
Reviewing the company's financial history. Fortune comments : '^^ 

* * * American Viscose, modest, secretive, and unknown, is one of the indus- 
trial miracles of our time — a phenomenon comparable to Standard Oil, or the 
automobile empire of Henry Ford. 

*8 In 1936 this firm was dissolved and became a division of tlie parent company. 
•"Of. Plummer, op. cit., pp. 35-38; Moody's Industrials; Fortune, October 1933, "p. 53. 
^ Plummer, op. cit., p. 35. 
«8 Fortune, July 1937, p. 106. 

'"> Cf. Federal Trade Commission, Digest of Studies of Long-Term Profits * • 
chapter on rayon. 

" Fortune, op. cit., pp. 40-41. 



There are local markets, as well as regional and national markets, 
in which a few sellers control the bulk of the supply of important 
goods or services. Here again, noncompetitive conditions are likely 
to obtain. Prices may be established through agreement or through 
leadership, markets may be shared, and outsiders may be excluded 
from the jfield. Conditions which probably exist in certain other local 
trades may be illustrated by those which typify the sale of commer- 
cial banking services and the distribution of fluid milk. 


Among 12,003 cities and towns in the United States in 1936, there 
were 8,962 with only one bank, 2,201 with only two banks, 723 with 
three, four, or five banks, and only 117 with more than five. In three- 
fourths of these communities, containing more than half of the banks 
in the country, a single banker enjoyed a monopoly of the local trade. 
In nearly a fifth of them, containing more than a fourth of the banks, 
two bankers possessed a duopoly.'^^ The customers of such bankers 
are free, of course, to take their business to another town. But this 
alternative is inconvenient, expensive, and frequently unreal ; the next 
town may be distant; its banker, unfamiliar with local credit risks, 
may be reluctant to make loans ; its bank and the local bank may both 
be branches of the same firm or units in the same group or chain. 
More than three-fourths of the country's banks are thus afforded pro- 
tection against internal or external competition. Nearly one-fourth 
of them, however, are located in the communities where three or more 
banks are found. But even here the banking business is not effectively 
competitive. In some sections of a city, there may be a single bank ; 
in others, one bank may have a better location than its rivals or pos- 
sess superior prestige. Large customers may shift readily from bank 
to bank; small customers are unlikely to do so. Even though they 
might incur lower service charges, obtain a higher rate of interest 
on time deposits, and borrow at a lower rate elsewhere, they continue 
to deal at the same bank, being held by ignorance of these alternatives, 
by the requirement that they maintain minimum deposit balances in 
order to protect their ability to borrow, by the belief that high service 
charges and low interest payments are signs of strength, by personal 
contacts, by convenience, and by habit. Since it can retain deposits 
without meeting the charges or the payments made by its competitors, 
and since it can continue to lend without meeting their interest rates, 
every commercial bank enjoys a measure of monopoly power. 

Interest rates on short-term, open-market loans are determined by 
free competition, fluctuating widely with variations in demand aad 
supply. Rates on loans to large customers are likewise affected by 
their ability to borrow elsewhere. But service charges, rates on time 
deposits, and rates on loans to small customers are not subject to com- 
petitive restraints. Since their contracts with borrowers are secret, 
banks are free to discriminate. Loans of the same size, with the same 
maturity, involving the same risk, are made to different borrowers at 
different rates. Even when rates are nominally the same, the cost of 

" Chandler, op. cit., p. 7. 


credit may be raised by employing a method of computing interest 
which is mi favorable to the borrower, by requiring him to maintain 
a minimum deposit balance, and by imposing various service charges, 
or it may be lowered by employing a favorable method of computation 
and by waiving the deposit requirement and the service charges. 
There is thus no common rate in the market where banks sell credit to 
their customers. The prices charged for the use of money vary from 
city to city, from bank to bank, and from borrower to borrower within 
a single bank. Large borrowers, possessing alternatives, pay lower 
rates ; small borrowers, lacking them, pay higher rates. The latter 
rates, moreover, are rigidly maintained for years at a time. They are 
not raised in periods of credit stringency because they are set at the 
highest figures which the laws allow. They are not reduced when 
credit is easy because there is no competitive pressure to bring them 
down. Discrimination and rigidity would stamp these charges as 
monopolistic even if it were assumed that bankers always acted inde- 
pendently. But agreement is not foreign to the field. 

Commercial banks are united in National, State, and local bankers^ 
associations and in city, county,- and regional clearing houses. There 
are some 350 city clearing houses and some 250 county and regional 
clearing houses in the United States. The latter organizations, with 
memberships ranging from 10 banks in 1 county to 100 banks in 10 
counties, are largely a development of the past decade. The bankers' 
associations have preached the evils of competition and the benefits of 
cooperation for many years. But it is through the rules adopted by 
the clearing houses that common action has been obtained. These 
rules prescribe the method by which interest is to be computed, specify 
the minimum balance which is to be required, limit the free services 
that may be rendered, regulate advertising expenditures, fix interest 
rates on time deposits, and establish uniform charges for checking, 
clearing, collection, exchange, and trust services. Thus, according to 
Chandler, "most of the service charges in effect at the present time 
have been determined and imposed b}' collusive action." ^^ In many 
cases, too, clearing house members have discouraged borrowers from 
"shopping around" by exchanging credit information and have shared 
the market by sending such "shoppers" back to their own banks.''* 
They have also cooperated in seeking legislation which would limit 
competition in the trade, supporting the provisions of the Banking 
Acts of 1933 and 1935 which prohibit banks under the supervision of 
the Board of Governors of the Federal Reserve System and the Fed- 
eral Deposit Insurance Corporation from paying interest on demand 
deposits and grant these agencies the power to fix maximum rates of 
interest on time deposits. And finally, in many instances, they have 
ceased to compete in bidding for deposits of public funds.^^ 

Through collective action, commercial banks have thus increased 
their incomes by adopting common methods of interest computation, 
by requiring minimum deposit balances, by imposing service charges, 
and by sharing customers for loans. At the same time, they have re- 
duced their costs by cutting advertising expenditures, by discontinuing 
free services, by ceasing to compete for public deposits, by eliminating 
interest on demand deposits, and by lowering the rate of interest on 

'2 Ibid., p. 15^ 
'* Ibid., p. 14. 
's Ibid., p. 13. 


time deposits. Kising incomes and falling costs must operate to aug- 
ment banking profits. It is argued, of course, that they also make for 
greater safety, but this contention is rejected by economists. As 
Chandler has observed, "Banking standards will not necessarily be 
improved by permitting banks to add through collusion to the 
monopoly power which they already possess." ^® 


Because milk is heavy and bulky in relation to its value, because it is 
perishable and easily contaminated, and because it cannot be sold in 
many cities unless their health officials have inspected the dairies where 
it is produced, its markets are limited in extent. Producers in the 
milksheds which serve these markets are small and numerous ; the dis- 
tributors to whom they sell are large and few. The bulk of the milk 
sold in the typical city, coming from thousands of dairy farms, is dis- 
tributed by two or three concerns. Unorganized, the farmer would be 
at a disadvantage in making his sale ; organized, he can bargain collec- 
tively for better terms. Milk producers have therefore established 
cooperative associations and, through these associations, have entered 
into negotiations with distributors for the purpose of fixing the farm- 
er's price. This price is thus a product, not of open competition, but 
of private agreement. In some cases, however, a cooperative has been 
influenced, dominated, or controlled by a distributor. Thus, in the 
New York market, the Sheffield Producers' Cooperative Association 
was organized by the Sheffield Farms Co., sells all of its milk to Shef- 
field Farms, and is said to be controlled by that concern." The price 
that is established under such circumstances cannot even be regarded 
as the outcome of two-party, arm's-length bargaining. 

In many urban markets, the price that the consumer pays for milk 
i^ likewise noncompetitive. Although he does not participate in the 
negotiations which lead to the agreement between producers and dis- 
tributors, the price he pays is nonetheless determined or affected by its 
terms. He is free to buy from one distributor rather than another ; 
wherever he buys he may be charged the same amount. Competition 
exists in the duplication of delivery services, in brand names, advertis- 
ing, and salesmanship. In many cities, competition in price does not 
occur. Where it has arisen, it has come from indep'indent dealers who 
have sold to peddlers and through stores. Since store distribution is 
less expensive ^han delivery, storekeepers have been able to undercut 
the delivered price. But since the large distributors have invested 
heavily in delivery facilities, and since they would rather deal with 
housewives than with price-conscious merchants, they have generally 
sought to check store sales. In this effort they have been aided by the 
organized farmers, who feel that their price depends upon the retail 
price, by members of the milk wagon drivers' union, whose jobs de- 
pend upon the retention of the high-cost system of home delivery, and, 
in some cases, by local health authorities. Cooperatives, union locals, 
and health officials have brought pressure to bear against price-cutting 
and unorthodox dealers ; the dominant distributors, in control of local 
milk bottle exchanges, have denied them equal privileges. Municipal 

""> Ibid., p. 17. 

■" Federal Trade Commission, Report on the Sale and Distribution of Milk and Milk 
Products, New York Sales Area, p. 98. 


ordinances and State laws, sponsored by these groups, have obstructed 
entrance to the market and hampered price cutters. Local inspection 
requirements have prevented the importation of milk from distant 
points. Pasteurization ordinances have excluded the small producer- 
distributor of raw milk from the field. Necessitating heavy invest- 
ments in processing plants, they have likewise operated to hinder the 
entrance of new firms into the business of pasteurization and distribu- 
tion. Other enactments have provided for the establishment of a mini- 
mum retail price, forbidden the sale of milk over the counter at a price 
lower than that charged for delivery, and discriminated against paper 
containers, the use of which facilitates store sales. All of these ar- 
rangements have had the effect of checking competition among dis- 

The payments that are made to the farmer are based upon an f . o. b. 
price at the city plant, which is subject to deductions for haulage, 
terminal, and other charges. They depend, also, upon the quantity 
and quality of his output and upon the uses to which it is put. For 
the portion of this output that is distributed to consumers as fluid 
milk, since it is sold in the sheltered urban market, he gets a higher 
price. For the "surplus" milk that is diverted to the manufacture of 
butter, cheese, and other dairy products, since it must compete with 
that produced outside the local milkshed, he gets a lower price. Dis- 
tributors have sometimes augmented their profits by deducting from 
their payments to the farmer transportation and other charges in ex- 
cess of those actually incurred, by understating the quantity and the 
quality of his deliveries, and by secretly diverting to the fluid market 
some of the milk acquired at the lower "surplus" rate. It is the func- 
tion of the cooperatives to prevent such abuses by inspecting company 
records and accounts. But where a cooperative is controlled by a dis- 
tributor, this function may not be performed. In the New York 
milkshed, in 1938, no cooperative had ever made an independent ex- 
amination of a company's books. The State department of agricul- 
ture, however, had made a number of such audits and, in the case of 
Sheffield producers alone, had obtained restitution of some $250,000 
between 1932 and 1936.^« 

The retail price of milk inrnany cities has remained unchanged dur- 
ing long periods of time, responding slowly in depression to losses in 
demand. This price is also unaffected from season to season, and from 
year to year by vari^^tions in supply. When farmers within the urban 
niilkshed increase their output, the retail price does not decline. The 
distributor sells as fluid milk only the quantity that the market will 
take at the established price; he sells the rest as "surplus." As an 
increasing portion of his output brings the lower "surplus" price, the 
farmer's average return per quart declines. If losses are involved, 
they fall on him. The distributor, normally assured of fixed prices 
in both purchases and sales of fluid milk, is unconcerned. When he 
charges the consumer less, he pays the farmer less ; when he pays the 
fa rmer more, he charges the consumer more. His margin is consistently 
maintained. In New York State, from 1930 to 1939, the farmer's 
price fluctuated between 2.7 cents and 6.2 cents per quart, the distribu- 
tion spread only between 7.1 cents and 8.8 cents.'^ When the distrib- 

'sjohn J Bennett. Jr., attorney general. Report on the Milk Industry of the State of 
New York, 1938, p. 44. 

™ Caroline Whitney, What Price Milk? (New York. 1939), p. 48. 


utor gives the farmer another fraction of a cent per quart, he may 
add a larger fraction or a full cent to the retail price. The remaining 
fraction goes to widen his margin. Distributors' margins have indeed 
been wide. In forty markets, in 1932, they averaged 5.8 cents per 
quart, ranging from 3.9 cents to 9.6 cents.^° In 12 large cities, in 1938, 
the average retail price was 12.38 cents per quart ; the farmer s f . o. b. 
price at the city plants was 5.56 cents; the distributor's spread was 
6.82 cents.^^ 

The distribution of fluid milk in many urban areas is dominated by 
the two giants of the dairy products industry, the National Dairy 
Products Corporation and the Borden Co. National Dairy is a hold- 
ing company, organized in 1923, w^hose 77 active American subsidiaries 
are now engaged in every section of the field. According to its 
president : ^^ 

* * * we are incorporated in every State in the United States, I think ; we do 
business in every State with our distribution system which is quite an extensive 
one. We are in practically every city that has a road into it with our ow!a 
mechanical unit or our truck once a week; so that we cover the United States 
pretty thoroughly. 

In addition to its fluid milk business. National Dairy, in 1937, han- 
dled more than 6 percent of the creamery butter, 17 percent of the ice 
cream, and 45 percent of the cheese (excluding cottage, pot, and bakers' 
cheese) manufactured for sale in the American market.^^ The com- 
pany's rapid expansion was achieved by exchanging its own stock for 
part or all of the voting stock or, more frequently, for the assets of 
other concerns. Three hundred and sixty-two subsidiaries were thus 
icquired between 1923 and 1937, the most 'important of these being the 
Kraft-Phenix Cheese Corporation, the Breyer Ice Cream Co., the Gen- 
eral Ice Cream Corporation, and the Sheffield Farms Co. The owners 
or managers of these concerns, in many cases, undertook to refrain 
from re-entering the business within prescribed areas for a certain 
length of time ; several of them were hired by National Dairy at salaries 
ranging from $5,000 to $50,000 a year.^* the Borden Co., originally 
a manufacturer of condensed milk, embarked upon a similar program 
of expansion in 1928 and had exchanged its own stock for the stock or, 
more often, for the assets of 207 separate enterprises by 1932. It is 
now engaged in virtually every branch of the industry. National 
Dairy's sales stood at $334,355,000 and Borden's at $212,039,000 in 
1938.^^ Subsidiaries of one or both of these concerns distribute milk 
in 13 of the 14 largest cities in the United States. National Dairy is 
represented in Philadelphia, Cleveland, St. Louis, Baltimore, Boston, 
Pittsburgh, Buffalo, and Washington; Borden in Chicago and San 
Francisco; both companies in New York, Detroit, and Milwaukee. 
One or both of them account for half or more than half of the sales in 
5 cities and for between 18 and 43 percent of those in 7 cities among 
the 12 for Avhich information is available.®^ In the areas where both 
firms operate, they do not appear to compete either in the prices paid 

«" John D. Black, The Dairy Industry and the A. A. A. (Washington, 1935), p. 54. 
*i Hearings before the Temporary National Economic Committee, Part 7, p. 3129. 
sa Ibid., p. 3032. 
M Ibid., p. 3147. 

^ Federal Trade Commission, Agricultural Income Inquiry, Part I, p. 238. 
85 Work Projects Administratlon.^Securities and Exchange Commission, op. cit., vol. 2, 
pp. 193-194. 

«e Cf. supra, p. 121. 


to farmers or in those charged to consumers. In sections where only 
one of them operates, its relations with the other large distributors 
have usually been cordial and competition in price has not occurred.^^ 
In the New York City market, Borden stands first, with 5 of its 26 
New York subsidiaries engaged in the distribution of milk. As a 
Borden executive wrote in 1934 : ^® 

We all know the advantages from our standpoint and from the standpoint of the 
public of a combination of millc companies in one city. These reasons, however, 
are unapprehensible to the general public. * * * Here in New York we. keep 
the identities of Borden's and Willow Brook absolutely apart and the same thing 
applies in ice cream to Borden's, Horton's, and Reid's. 

National Dairy stands second, with a number of subsidiaries, including 
Sheffield Farms and Muller Dairies, engaged in the distribution of milk 
(and several, including Breyer's, the Hydrox Ice Cream Co., and the 
Consolidated Dairy Products Co., engaged in the manufacture of ice 
cream). The Dairymen's League Cooperative Association, whose 
members supply about half of New York's milk, is the third largest 
distributor. Its policies, according to Whitney, are "often dictated 
by its interests as a dealer rather than by its interests as a farm coop- 
erative." ^^ In New York, in 1936, there were more than 300 whole- 
salers of unadvertised brands of milk and four wholesalers of adver- 
tised brands, including Borden, National Dairy, and the Dairymen's 
League, the former two accounting together for about half of the 
wholesale trade. There were 25 retailers engaged in door-to-door dis- 
tribution, six of whom handled nine-tenths of this business, Borden 
and National Dairy together accounting for more than three- fourths 
of the total.^° In the wholesale market, competition was intense ; price- 
cutting, rebates, discounts, bonuses, free goods, and easy credit char- 
acterized the trade. But, according to the attorney general of the 
State, the vendors of the four advertised brands, although occasionally 
offering rebates and discounts to obtain large accounts, charged the 
same prices, changed them infrequently, and made such changes at the 
same times. In the retail market, Borden and Sheffield granted no re- 
bates or discounts, charged identical prices, and made changes simul- 
taneously, the four other large distributors invariably following their 
lead. Here, said the attorney general, "competition, for all intents 
and purposes, is practically nonexistent.'"'^ On three occasions, be- 
tween 1922 and 1936, the retail price of milk in New York City re- 
mained unchanged for 18 months or more at a time.''- 

In Chicago, in recent years, harsh and violent tactics have been 
employed to protect established prices and to eliminate distributors 
whose methods have threatened the position of dominant interests in 
the trade. Ranged on one side of this conflict have been the major 
distributors, led by the Bowman Dairy Co. and the Borden-Wieland 
division of the Borden Co., who handle, respectively, 28 and 21 percent 
of Chicago's milk; the Pure Milk Association, the largest milk pro- 
ducers' cooperative in the country, whose members sell three-quarters 

^ Hearings before the Temporary National Economic Committee, Part 7 p 3203 

«« Federal Trade Commission, Report on the Sale and Distribution of Milk and Milk 
Products, Chicago Sales Area, pp. 26-27. 

^ Whitney, op. cit., p. 39. 

«> Bennett, op. cit., p. 10. The president of the Borden Co. contended that a proper 
allowance for sales made by small peddlers would reduce this fraction. C£. Hearings 
before the Temporary National Economic Committee, Part 7. p. 3015 

M Ibid., p. 16. 

" E. W. Gaumnitz and O. M. Reed, Some Problems Involved in Establishing Milk Prices. 
A. A. A. Marketing Information Series DM-2 (1937), p. 94. 


of their output to seven major companies; and Local 753 of the Inter- 
national Brotherhood of Teamsters, the milk wagon drivers' union. On 
the other side have been a number of independent distributors, along 
with the farmers who have sold to them and the drivers who have 
delivered their milk. In the depth of the depression of the thirties, 
the retail price of milk in Chicago had remained at 14 cents a quart 
from July 1923 to December 1930, and at 13 cents throughout 1931 ; the 
dealer's margin had fluctuated between 8 and 9 cents from May 1923 
to December 1931.^^ The apparent determination of the large dis- 
tributors to maintain prices in the face of declining sales invited inde- 
pendents to swell their volume by developing cheaper methods of dis- 
tribution and reducing their charges. Small dealers sold increasing 
quantities of milk through peddlers and through stores. Drivers who 
had lost their jobs with the major companies bought milk from these 
dealers and built up their own delivery routes. The major distributors, 
the cooperative, and the union sought to halt these inroads in many 
ways. According to an indictment returned under the Sherman Act, 
the Milk Dealers' Bottle Exchange, which is controlled by Bowman 
and Borden-Wieland, who own 73 percent of its voting stock, delayed 
deliveries to price cutters, failed to return bottles to them, and refused 
to sell its stock to them, thus depriving them of the discounts to which 
stockholders were entitled.^* One independent dealer sued the exchange 
in 1931 after the bottoms of 3,000 of his bottles were discovered in a 
carload of crushed glass. The case had not yet been decided in 1936.'^ 
It was the opinion of the Federal Trade Commission that ^^ — 

The Milk Dealers' Bottling [Bottle] Exchange was apparently organized and 
operated for the benefit of large distributors and of such small distributors as 
cooperated with them- in maintaining uniform practices to stabilize prices. 

Tha Pure Milk Association likewise sought to drive cut-rate dis- 
tributors from the field.^^ It was charged in the indictment that the 
cooperative subsidized a bogus independent and that it refused to sell 
to dealers who reduced prices or took customers from the major com- 
panies. The union also, says the Federal Trade Commission, "was 
apparently operated for the benefit of large distributors." ^^ It refused 
to admit drivers for price-cutting dealers to membership. It at- 
tempted, according to the indictment, to prevent new companies from 
entering the business without first buying out an existing firm, to 
eradicate the distribution of milk by peddlers, and to eliminate its 
sale through stores. To these ends, said the indictment, it called 
strikes, picketed, imposed secondary boycotts, destroyed property, kid- 
naped various persons, and inflicted beatings. In a suit brought 
against the union by the Meadowmoor Dairies, a nonunion, price- 
cutting distributor, evidence was introduced to prove that:^® 

The members, in their efforts to either unionize the drivers or force Meadowmoor 
Dairies, Inc.. out of business, resorted to force, bomb throwing, window breaking, 
and slugging drivers delivering Meadowmoor Dairies' milk. 

*^ Federal Trade Commission, op. cit., pp. 54—57. 

** U. S. V. Borden Company et al.. District Court of the United States, Northern District 
of Illinois, Eastern Division, Indictment, November 1, 1938. This indictment was dismissed 
in September 16, 1940, when the major defendants accepted a consent decree. 

•^ Federal Trade Commission, op. cit., p. 15. 

•9 Hearings before the Temporary National Economic Committee, Part 7. pp. 3203-3204. 

" Cf. Fortune, November 1939, p. 126. 

** Hearings before the Temporary National Economic Committee, Part 7, p. 3204. 

•» Federal Trade Commission, op. cit., p. 18. 


The indictment in the antitrust suit also charged that the Chicago 
Board of Health revoked permits granted to producers to ship milk 
into the Chicago market "on minor and feigned charges," closed the 
plants of independent distributors, refused to grant permits to new 
concerns, and, without proper authority, required other independents 
to construct new buildings and install new equipment. The enact- 
ment, in 1935, of the Mayor Kelly milk ordinance, requiring that milk 
be sold in bottled form, may not have been unrelated to the fact that 
paper containers facilitate store sales. All of these activities, private 
and public, should have the eflfect of driving competition from the 

Space does not permit the stories of other urban markets to be told. 
The experiences of New York and Chicago are not unique. There 
have been harmonious relations among large distributors in Phila- 
delphia, there have been restrictive ordinances in Boston, and there 
have been bombings in Detroit. In more than 30 cities, the sale of 
over-the-counter milk at prices lower than those charged for door-step 
milk has been prohibited by law.^ In Detroit, Washington, Los 
Angeles, and elsewhere, low-price, volume-minded dealers, selling 
through stores, have taken business from the major distributors. In 
a number of markets, the share of the sales made by National Dairy 
and Borden has declined in recent years. If the pricing policies 
which these concerns have followed in New York and Chicago are 
typical — and there is evidence that they are — it may be concluded 
that they have experienced the not uncommon fate of the monopolist 
who is unable to control admission to his field. 

Profits in the distribution of milk have been high. From 1929 to 
1934, 10 large processors and distributors realized an average annual 
return of 9.60 percent on their total investment in the business and 
10.25 percent on their stockholders' investment, as revised to exclude 
appreciation. 2 In 1930, 3 companies in Cincinnati, 2 in Boston, and 1 
in St. Louis made more than 20 percent, while one unidentified dealer 
in Baltimore made 86 percent on his investment after- the elimination 
of appreciation and good will. Among 11 companies in these cities in 
1933, only 1 suffered a loss ; 1 in Boston made 18 percent ; 2 in Balti- 
more made 23 and 25 percent. Six of the 11 made more than 13 per- 
cent in 1935.2 Nine distributors in Connecticut averaged 14.14 per- 
cent on their investment in the milk business from 1930 to 1933. One 
dealer in Philadelphia made more than 22 percent in 1930, 1931, and 
1932. Another made between 21 and 28 percent in every year from 
1930 through 1935.* When National Dairy bought the Supplee-Wills- 
Jones Milk Co. of Philadelphia in 1925 for securities then worth about 
$16,000,000, Supplee's total assets were valued on its books at $9,139,000. 
From 1929 to 1934, National Dairy collected more than $12,067,000 
in dividends from Supplee, an amount equivalent to 75 percent of its 
investment or 130 percent of Supplee's assets at the time of purchase. 
(When it bought the Breyer Ice Cream Co. of Philadelphia in 1925 it 

^Fortune, op. cit., p. 1.31. 

2 Federal Trade Commission, Agricultural Income Inquiry, Part I p 853 

3 Idem., Report on the Sale and Distribution of Milk and Milk Products, Boston Balti- 
more, Cincinnati, and St. Louis, p. 166. 

* Idem., Summary Report on the Sale and Distribution of Milk and Dairy Products, 
pp. oO — oX, 

271817—40 — No. 21 16 


paid $21,843,000 in securities for assets valued at $7,178,000. From 
1929 to 1934, it collected $15,356,000 in dividends from Breyer, an 
amount equivalent to 70 percent of its investment and more than 200 
percent of Breyer's assets at the time of purchase.^) National Dairy 
and Borden made money in every year of the depression. Borden's 
return ranged from a high of 14.2 percent on net worth in 1929, to a 
low of 3.4 percent in 1934 ; it stood at 7.9 percent in 1936, 6.3 percent in 
1937, 6.6 percent in 1938, and 8.2 percent in 1939. National Dairy 
averaged about 20 percent from 1928 to 1931, made 6.4 percent in 1934, 
its poorest year, and obtained a return of 12.7 percent in 1936, 9.6 
percent in 1937, 10.2 percent in 1938, and 11.6 percent in 1939.« 

5 Idem., Report on the Sale and Distribution of Milk and Milk Products, Connecticut and 
Philadelphia Milksheds, pp. 41-42 ; Hearings before the Temporary National Economic 
< ommittee, Part 7, pp. 2807-2808. 

* Moody's Industrials, 1940. 



Establishment of control over an industry is facilitated by the 
paucity of firms engaging in it and by the dominance of one or a few. 
But such control has also been achieved in fields where firms are 
numerous and none is dominant. Price and production have been 
governed, in both situations, at one time or another, by cartels, pools, 
trade associations, industrial codes, rackets, and other restraints, legal 
and illegal. 


A cartel is an association of independent enterprises in. the same 
or similar branches of industry, formed for the purpose of increasing 
the profits of its members by subjecting their competitive activities 
to some form of common control.^ Membership in such an association 
is usually voluntary, although in some cases it has been required by 
law. The association may be limited in form to a contractual agree- 
ment or it mav involve the establishment of administrative agencies. 
It may be limited in duration to a few months or it may persist for 
many years. It may or may not achieve a position of substantial 
monopoly power. The members of such an association remain under 
separate ownership, retaining their freedom of action with respect to 
matters which are not included, and surrendering it only with respect 
to matters which are included, within the scope of their agreement. 
It is the fact that this agreement invariably requires the substitu- 
tion of common policies for independent policies in the determina- 
tion of price and production that is the distinguishing characteristic 
of the cartel. 

Cartel types, differentiated according to the methods which they 
employ, fall into four major categories. In the first are those associ- 
ations that attempt to control the conditions surrounding a sale: 
standardization cartels, engaged in the simplification and standard- 
ization of products; term-fixing cartels, devoted to the regulation of 
such matters as conditions of delivery, time of payment, discounts, 
options, free deals, return privileges, quality guaranties and guaranties 
against price declines. In the second category are those associations 
that undertake to fix prices : trade-mark cartels that unite the pro- 
ducers of branded goods in boycotts directed against distributors who 
undercut the stated resale price ; calculation cartels that promote the 
adoption of common methods of cost accounting, common estimates 
of cost, and common margins of profit ; minimum-price and unif orm- 

1 See the definitions by Josef Grunzel in Roy E. Curtis, Trusts and Trust Control, p. 401 ; 
by Robert Liefmann in Encyclopaedia of the Social Sciences, vol. .3, p. 234 ; by Herbert von 
Beckerath in his Modern Industrial Organization, p. 211: and by Rudolf Callman in 
Hearings before the Temporary National Economic Committee, pt. 25, pp. 13347, 13348. 



price cartels that circulate lists of prices, hold meeting:s for the dis- 
cussion of prices, set up committees to issue detailed schedules of 
prices, and police their members to enforce adherence to such prices. 
In the third category are those associations that undertake to dis- 
tribute among their members particular productive activities, sales 
territories, and customers: specialization cartels that assign to cer- 
tain members the exclusive right to produce certain varieties of an 
industry's products; zone cartels that assign to certain members the 
exclusive right to sell in certain markets ; customer-preservation cartels 
that reserve for each member the exclusive right to sell to his former 
customers ; and order-allocation cartels that decide in the case of each 
submission of bids which member's bid shall be lowest. In the fourth 
category are those associations that undertake to award each member 
a fixed share of the business : plant restriction cartels that limit the 
number of hours during which plants may be operated, limit the 
number of machines that may be employed, and prohibit the installa- 
tion of new machines; fixed-production-share cartels and fixed-mar- 
keting-share cartels that assign quotas to each of their members and 
impose upon those who produce or sell more than their quotas permit 
fines whose payment is guaranteed by previous deposits ; production- 
equalization cartels and marketing-equalization cartels that assign 
production or marketing quotas and either operate equalization pools, 
making collections from those who exceed their quotas and payments 
to those who fail to attain them, or readjust quotas in succeeding 
periods, reducing the shares of those who exceed them and increasing 
the shares of those who keep within them ; profit-sharing cartels that 
operate profit pools, collecting part or all of their members' profits and 
redistributing them upon some predetermined basis ; and cartels called 
syndicates that employ common agencies, either to negotiate sales 
for their members and allocate orders among them, or to distribute 
part or all of their output, fixing terms and prices, assigning quotas, 
and dividing profits. 

In the widest definition of the term, cartels are taken to include asso- 
ciations that fall within all four of these categories ; ^ in a narrower 
definition they are taken to include only those that fall within the last 
three ; ^ in the strictest definition they are taken to include only those 
that fall within the last two : associations that distribute production or 
sales among their members by marking off exclusive areas of activity 
or setting up a system of quotas.* The methods employed by a single 
cartel may place it within more than one of these categories. Cartels 
of all types attempt to regulate the terms of sale ; term-fixing cartels 
are merely those that confine themselves to this activity. But few 
cartels stop here ; the tendency has been to move on from those forms 
of control that are mild and simple to those that are stringent and 
complex. In its highest development, in the syndicate, the cartel 
combines the functions characteristic of many cartel types. 

In a few industries, in a few countries, cartelization has been re- 
quired by law. Elsewhere the enforcement of cartel arrangements de- 
pends upon persuasion backed by various forms of economic pressure. 
Cartels are in a position to discipline their members by revoking 

* See the classification? by Herbert von Beckerath, op. cit., pp. 213-218, and Bruno Burn, 
Codes, Cartels, National Planning (New York, 1934), ch. 9, 10. 

' See the classification by Robert Tjiefmann In op. cit., vol. 3, pp. 235-236. 

* See the classification by Karl Pribram, Cartel Problems (Washington, 1935), ch. 2. 


licenses granted under patents which they hold in a common pool, by 
imposing fines against money which they hold on deposit, and by with- 
holding payments from equalization pools, profit pools, sales receipts 
and other funds which they control. They can compel outsiders to 
become members or may even drive them out of business by offering 
loyalty discounts to customers who do not deal with them, by boycot- 
ting suppliers who sell to them and customers who buy from them, and 
by malnng exclusive contracts with suppliers and with customers which 
cut them off from access to materials and to markets. 


Cartelization has enjoyed its longest history and has reached its 
greatest development in Germany. Dating from the seventies of the 
last century, the movement has advanced through successive stages 
with the approval of successive governments, until practically every 
form of business activity that lends itself to cartelization, from the 
extractive industries through heavy and light manufactures, transpor- 
tation and construction, to the wholesale and retail trades, is now or- 
ganized into one or more cartels. If France, during the 50 years 
from 1876 to 1926, the organization of numerous comptoirs, which 
functioned variously as joint purchasing offices, common export 
agencies, price-fixing cartels, zone cartels, quota cartels, and syndicates, 
was facilitated by the lenient interpretation of the provision of the 
Penal Code which forbade concerted action for the purpose of influ- 
encing prices. In 1926 this movement was further encouraged by an 
amendment to the code which expressly legalized combinations in- 
tended to assure their members no more than "normal" profits. In 
Belgium, likewise, cartelization has proceeded without public inter- 
ference since the end of the nineteenth century. Elsewhere on the 
continent the movement did not assume extensive proportions until 
the decades that followed the First World War. In Italy, as in Ger- 
many, during the thirties, cartelization served as an instrument in the 
economic policy of the totalitarian state.^ 

In Great Britain, the policy of freedom of trade long impeded the 
progress of cartelization by compelling British businessmen to meet 
the competition of foreigners. The abandonment of that policy, with 
the adoption of the Import Duties Act of 1932, provoked the most 
rapid transition to a predominantly cartelized economy that the 
world has ever seen. Ben W. Lewis, writing in 1937, was able to de- 
scribe the "typical British industrialist" in the following words: 

Today, as a member in good standing of a "rationalized" industry, he is 
allotted a specific percentage of the total business which his industry has decided 
to handle during the year (and he will pay into a "pool" if he exceeds his 
quota and will be compensated if he is "short") ; he will consult the industry 
schedule before pricing his goods and will not deviate therefrom without per- 
mission; he will submit his sales contracts to the oflBcials of his industrial 
association for advance approval and will throw open his books for industry 
inspection ; he will pay a levy to be used by the industry to purchase and destroy 
"redundant" capacity ; and he will deposit with the officers of his association a 
substantial amount to be forfeited if he is found guilty of noncompliance.' 

' Curtis, op. cit., ch. 38 ; Pribram, op. cit., ch. 6 and appendix. 

' Ben W. Lewis, Price and Production Control in British Industry, Public Policy Pamlphlet 
No. 25, University of Chicago Press, pp. 1-2. 


At that time, complete cartels, fixing prices, limiting output, assign- 
ing quotas, operating equalization pools, and imposing fines against 
penalty deposits, controlled the cement, coal, and iron and steel 
industries ; price and quota associations also governed many branches 
of the electrical manufacturing, metal products, paint and pottei-y 
industries; schemes involving the forced retirement of productive 
equipment were in operation in the flour milling, ship-building, 
shipping, and textile industries; and various forms of association 
price fixing were also in evidence in numerous branches of the chem- 
ical, glass, and paper industries. This kind of activity, wrote Dr. 
Lewis, "is characteristic of all British industry. Wherever the na- 
ture of the product or the conditions of production and marketing 
will permit, price-fixing schemes are in operation or contemplation, 
and in a large number of cases they are accompanied by devices for 
controlling and allocating production." ^ 


An international cartel may be an association of independent enter- 
prises, located in two or more countries. It may be a super-cartel, 
composed of a number of national cartels. It may include in its mem- 
bership publicly owned or operated enterprises or even governments 
themselves. The purpose of such an association is the same as that 
of a national cartel: to increase the profits of the participants by 
checking competition, in this case, however, in markets located beyond 
national boundaries. Since an international cartel agreement trans- 
cends national sovereignty, its provisions cannot be enforced by law. 
Each such agreement is a treaty among independent powers and each 
such cartel, in eflfect, a league of nations. 

Most of the cartel types found within national boundaries have 
also made their appearance in the international field. Price-fixing 
cartels have controlled the rates charged for international services 
and pegged the prices of goods sold in world markets. Territorial 
cartels have distributed exclusive sales areas among their participants. 
Quota cartels have curtailed production and exports and allocated 
output and export shares. Selling syndicates have handled foreign 
orders, fixed prices, and apportioned sales. Patent cartels have oper- 
ated international patent pools, including in their licenses provisions 
which have enforced a parcellation of the markets of the world. 

The price-fixing cartel is less frequently encountered in the inter- 
national than in the national field, since it is more difficult to estab- 
lish and enforce on an international scale. The quota cartel, under- 
taking as it does either to curtail world output and to assign quotas 
to producers 1 orated in every corner of the globe or, leaving domestic 
production and distribution undisturbed, to curtail exports and to 
assign quotas to each exporting group, or finally, to allocate to each 
group a specific share in each market, is even more difficult than the 
price-fixing association to organize and administer. The territorial 
cartel, presenting a simpler problem of organization and administra- 
tion, is the type most frequentlj^ employed. The usual arrangement 
reserves for members within each nation their own national market 

■flbld., p. 16. 


and either assigns further exclusive territories, establishes sales quotas, 
or permits free competition in the remaining markets of the world. 

No one knows how many international cartels are in existence at 
any time. They are said to have numbered 114 in 1914. A list pub- 
lished in 1929 included 46; one published in 1940 includes 56.^ Inter- 
national agreements are known to have affected trade, at sometime 
duri-ag the past two decades, in such basic materials as aluminum, ce- 
ment, coal and coke, copper, iron and ste«l, lead, rubber, sugar, tin, 
wheat, and zinc; in other metals and minerals, including antimony, 
bismuth, ferromanganese, ferrosilicon, magnesite, magnesium, mer- 
cury, titanium, and uranium; in many chemicals, including calcium 
carbide, cellulose, chlorine, citric acid, cobalt, dyestuffs, fertilizer, 
Glauber's salt,, iodine, lead oxide, nitrogen, paraffin, phosphates, pot- 
ash, quinine, saccharine, sulfur, sulfuric acid, and wMte lead; in 
bottles, ceramics, enameled ware, plate glass, and porcelain; in sul- 
fite pulp, newsprint, packing, and other paper; in flax, rayon, and 
wool textiles, felt clothing, and linoleum; in buttons, leather, glue, oils, 
fats, and greases; in metal products, including ball bearings, cables, 
plates, rails, rivets, screws, sheets, and wires ; in a variety of other fab- 
ricated products, including dental supplies, electric lamps, gas mantles, 
household appliances, matches, machinery, phonographs and records, 
railway cars, and tobacco;- and in such services as transoceanic ship- 
ping, cable and radio communication, marine insurance, and the dis- 
tribution of motion picture films.^ 


European producers have long been permitted and even encouraged 
to combine for joint action in the export trade. American producers 
before 1918 were prohibited by -the provisions of the Sherman Act 
from doing so. It was consequently argued that this situation pre- 
vented the expansion of American exports by compelling American 
firms to act independently when competing with and when selling to 
foreign firms which were united in cartels. In response to this conten- 
tion, Congress in 1918 passed the Webb-Pomerene Export Trade Act, 
exempting from the provisions of the anti-trust laws any "association 
entered into for the sole purpose of engaging in export trade and 
actually engaged solely in such export trade * * *," thus legaliz- 
ing the formation of export cartels in the United States. The act ex- 
pressly forbade collective action within the domestic market, approv- 
ing it only for foreign sales, and only "provided such association, agree- 
ment, or act is not in restraint of trade within the United States, and 
is not in restraint of the export trade of any domestic competitor of 
such association. And provided further, that such association does 
not, either in the United States or elsewhere, enter into any agreement, 
understanding, or conspiracy or do any act which artificially or in- 
tentionally enhances or depresses prices within the United States of 
comimodities of the class exported by such association, or which sub- 

» Cf. Curtis, op. cit., pp. 427-428 ; Verbatim Record of the Proceedings of the Temporary 
National Economic Committee, vol. 11, pp. 13368-13369. 

» Ibid ; Elliott and others, op. cit., passim ; Robert F. Martin, International Raw Com- 
modity Price Control (New York, 1937), passim; Plummer, op. cit., passim; Benjamin B. 
Wallace and Lynn R. Edminster, International Control of Raw Materials (Washington, 
1930), passim. 


stantially lessens competition within the United States or otherwise 
restrains trade therein." Associations were directed to file their chart- 
ers, bylaws, agreements, and other data with the Federal Trade Com- 
mission and to make periodic reports to that body. The Commission 
was not authorized to issue orders to cease and desist from violations 
of the law, but it was permitted to investigate association activities, 
to recommend readjustments that would keep such activities within 
the scope of the exemption granted by the law, and where deemed 
necessary to refer its findings and recommendations to the Attorney 
General for action. 

The number of export associations formed between 1918 and 1940 
was 118, the number on file with the Commission at the end of each 
year ranging from 43 to 58 with an annual average of 50. Of the 74 
associations which were liquidated before 1940, 39 had been in exist- 
ence for more than 5 years and 13 for more than 10 years. Of the 44 
associations surviving in 1940, 30 were more than 10 years of age 
and 14 were more than 20 years of age. Webb-Pomerene associations 
have engaged in the exportation of abrasives, alcohol, alkali, buttons, 
carbon black, cement, clothespins, clothing, coal and coke, copper, cot- 
ton linters, doors, electrical apparatus, fertilizer, flour and other grain 
products, foundry equipment, fruits (fresh, dried, and canned), furni- 
ture and office equipment, insecticides, iron and steel, locomotives, sev- 
eral varieties of lumber, machinery and implements, meat products, 
metal lath, canned milk, naval stores, paint and varnish, paper prod- 
ucts, peas, pencils, petroleum products, phosphate rock, pipe fittings 
and valves, plywood, potash, plate glass, provisions, rice, rubber tires 
and other rubber products, canned salmon, sardines, screws, shocks, 
signal apparatus, soda ash, soda pulp, springs, sugar, sulfur, tanning 
materials, textiles, tools and tool handles, canned vegetables, and zinc. 
The value of the goods exported by such associations rose from 
$75,000,000 in 1919 to $724,000,000 in 1929, fell to $133,000,000 in 1933, 
and had risen to $198,000,000 by 1937. Associations handled 3 or 4 
percent of American exports in the years from 1923 to 1926, 7 percent 
in 1927, 9 percent in 1928, 14 percent in 1929, 17 percent in 1930, 13 
percent in 1931, 9 percent again in 1932 and 1933, 7 percent again in 
1934, and 6 percent in 1935, 1936, and 1937." 

The direction in which export associations have developed has been 
influenced by the liberal interpretation which the Federal Trade Com- 
mission has placed upon the law. Most of the earlier associations were 
operating agencies, making sales abroad, allocating orders at home, 
assembling and shipping goods, making collections, and remitting 
payments to their members. It was generally assumed that mere price 
and quota agreements did not fall within the scope of the exemption 
granted by the act. In 1924, however, the Commission, in response to 
an inquiry from a group of silver producers, declared that : "The act 
does not require that the association shall perform all the operations of 
selling its members' product to a foreign buyer * * * an associa- 
tion may, without necessarily involving conflict with the act, be en- 
gaged in allotting export orders among its members and in fixing 
prices at which the individual members shall sell in export trade." ^°* 

^° Federal Trade Commission, Practice and Procedure under tlie Export Trade Act, Foreign 
Trade Series No. 2 (1935), Annual Reports, 1919-39; Verbatim Record of the Proceedings 
of the Temporary National Economic Committee, vol. 11, pp. 323^324. 

^0" Press release, August 6, 1924. 


A majority of the associations formed subsequent to the publication of 
this statement have left to their members the work of making sales, 
shipping goods, and collecting payments, themselves undertaking to 
fix prices or to assign quotas or both. In the course of the same opin- 
ion, the Commission asserted that : "there seems to be no reason why 
a Webb-Pomerene association composed of nationals or residents of 
the United States and actually exporting from the United States, 
might not adopt a trade arrangement with non-nationals reaching the 
same market providing this market was not the domestic market of 
the United States and the action of this organization did not reflect 
unlawfully upon domestic conditions." Many American export asso- 
ciations- subsequently accepted this open invitation to participate in 
international cartels.^^ 

The reasoning behind this legislation has not escaped criticism. 
Sven though foreign firms are permitted to unite in cartels, it does 
not necessarily follow thfit American exports will suffer unless their 
American competitors are also permitted to do so. Cartels are likely 
to curtail sales, share markets, and raise prices. The cartelization of 
foreign firms should therefore make it easier, rather than more diffi- 
cult, for their American rivals to undersell them. Cartels, to be sure, 
may sometimes follow the policy of charging high prices in tariff- 
encircled home markets and dumping at low prices in freer markets. 
In such a case, a competing American association, adopting a similar 
pattern, might capture the latter markets by dumping at prices even 
lower than those charged by its foreign rivals. But it would also 
attempt to recoup its losses by combining to raise prices within the 
United States, a project which the act specifically condemns. Ameri- 
can associations, in either case, can participate in international cartels, 
organized for the purpose of raismg prices in world markets. But 
this does not appear to be the most promising method of promoting 
foreign sales. Expansion of exports is to be encouraged by other 
means, notably by the reduction of tariffs and other barriers to trade. 

Doubt has been expressed, too, that firms can assign quotas and fix 
prices in foreign markets without influencing prices in the domestic 
market; that they can combine for sales abroad without abandoning 
competition at home. Collective decisions governing the volume of 
exports must inevitably affect the volume of domestic sales, or the 
volume and cost of production, and thus the prices which domestic 
consumers are required to pay. Territorial cartels that grant each 
group of producers exclusive occupancy of its national market, thereby 
placing a complete embargo on foreign goods, afford domestic 
monopoly greater protection than does a tariff, which allows some 
goods to pass. Export associations might conceivably engage in 
activities affecting local prices without committing those overt acts 
that would bring them into open conflict with the law. Prices agreed 
upon in making foreign sales might be adopted, without formal col- 
lusion, in making sales at home. It may be doubted that the vigilance 
of the Federal Trade Commission can keep the left hand of industry 
from knowing what its right hand is doing. Competitors with com- 
mon offices, adopting common policies, may not succeed completely 
in attaining that singleness of purpose which the law requires. 

" Leslie T. Fournier, "The Purposes and Results of the Webb-Pomerene Law," American 
Economic Review, vol. 22 (1932), pp. 18-33, at pp. 28-29. 


Of the operation of Webb-Pomerene associations, in general, and 
of their consequences, little or nothing is known. No comprehensive 
study of the subject has been published after an experience of more 
than 20 years. The Federal Trade Commission lists the names of 
the associations on file and gives the total value of their exports in 
its annual reports. Beyond this, it vouchsafed, in 1935, this reassur- 
ing note : "No case has arisen in which an association has refused to 
comply with recommendations of the Commission ; and no violations 
of law have been referred by the Commission to the Attorney 
General." ^^ 


There is evidence of American participation, direct or indirect, in 
international cartels which have controlled the sale of aluminum, 
copper, dental supplies, electric lamps, ferromanganese, lead, leather, 
paraffin, potash, quinine, railroad cars, rayon, rubber thread, steel 
tubes, sulfur, tin plate, titanium, and zinc." In some of these ar- 
rangements, American producers, united in export associations, have 
taken the lead. The copper cartels of the twenties are a case in point. 

In 1921 the United States was producing three-fifths of the world's 
output of copper; American firms, operating at home and abroad, 
were producing nearly three-fourths of the total supply. The Copper 
Export Association, one of the first of the Webb-Pomerene groups, 
included in its membership firms which controlled nine-tenths of the 
American output and two-thirds of the world output. At this time, 
the stocks of the metal accumulated during the First World War 
were still so large that rapid liquidation threatened seriously to de- 
press its price. Tlie association accordingly organized a pool to 
prevent distress sales. It borrowed $40,000,000 from the public 
through the sale of short-term debentures, bought 200,000 tons of 
copper, equivalent to a third of the domestic output for the previous 
year, and continued buying until at one time it held as much as 69 
percent of the total stock of refined copper in North and South 
America. The pool liquidated gradually, disposing of the last of 
its holdings in August 1923." At the time of the negotiation of the 
loan it apparently was understood that American producers would 
curtail production during 1921.^^ The curtailment, however, took 
the form of a virtual shut-down. Production by association members 
was almost entirely suspended from the spring of 1921 to the begin- 
ning of 1922. Asked to explain this development, Cornelius F. Kelley, 
president of the Anaconda Copper Mining Corporation, replied : ^^ 

Now as to whether or not that is a coincidence, that they all shut down together, 
I would say that the same circumstances that compelled Anaconda were known 
to every other one, and that they shut down certainly as a result of conditions 
that commonly affected every unit in the industry, and if there were any concert 
of action under the conditions that prevailed, I am sure that it would be justified 
as a matter of economic necessity and supported as a matter of law. 

^ Federal Trade Commission, Practice and Procedure Under the Esjport Trade Act, p. 
3. (A study of the operation of the Export Trade Act is included in Monograiph No. 6 in 
this series.) 

13 Cf. Elliott and others, op. cit., ch. 6, 8, 10, 12 ; Plummer, op. cit., pp. 21-22, 87-100, 
170-171, 196 ; Curtis, op. cit., p. 428 ; Hearings before the Temporary National Economic 
Committee, pt. 25, pp. 13368, 13369; 13304-06, and supra, pp. 71, 105, 109, 138-139, 
200, 204-205. 

1* Hearings before the Temporary National Economic Committee, pt. 25, pp. 13126- 
13129 ff. 
. "Ibid., pp. 13132-4. 

" Ibid., p. 13139. 


The price decline that had started in 1919 was arrested in 1921. Mr. 
Kelley testified that the price of copper "without doubt" would have 
fallen farther if it had not been for the establishment of the pool.^^ 
Since the world price and the domestic price were interdependent, the 
pool obviously had the effect of bolstering both. 

Partly because of competition from newly established foreign oper- 
ators, the Copper Export Association broke down. It was succeeded, 
in 1926, by a second Webb-Pomerene association, Copper Exporters, 
Inc. Copper Exporters was truly international in scope, comprising 
nearly all of the important producers and dealers in the world. By 
1927, its members controlled 93.8 percent of the American output and 
84.8 percent of the world output.^^ This cartel, through its New York 
headquarters and its Brussels office, centralized sales, allocated quotas, 
and fixed the price of copper throughout the world for the next 4 
years.^^ It raised the price per pound in the New York market from 
12.4 cents in June 1927, to 21.3 cents in March 1929. Mr. Kelley, who 
was president of Copper Exporters, attributed this increase largely 
to market factors other than the activities of the cartel, although he 
admitted that "unquestionably there was some relation" between these 
activities and the mounting price.^* The profitability of this price is 
suggested by the fact that 93 percent of the American output of copper 
during this period was produced at a cost of less than 13 cents and 
72 percent of it at a cost of less than 10 cents a pound. The cartel is 
said to have levied a tribute on consumersi amounting to $100,000,000 
in a single year. During the year from March 1928, to March 1929, 
the price of copper securities sold on the New York Stock Exchange 
rose at the rate of 20 percent each month. Profits were realized, not 
only in the sale of copper, but also from the sale of stock.^^ Accord- 
ing to Nourse and Drury, "There was in 1928 and 1929 a vast amount 
of collaboration between management and banking interests in pro- 
moting the sale and even the speculative manipulation of the stock of 
the Anaconda Copper Co."^^ j^ ^^g g^j^-j that 'a difference of a cent 
a pound in the price of copper meant a difference of roughly $1.25 a 
share in the value of this stock. From May 1929, to March 1930, in 
the face of the great depression, the price of copper in the New York 
market was held constant at 17.8 cents, a figure higher than that 
obtaining at any time between 1921 and 1928. According to Mr. 

In the latter-part of March, I became concerned over the situation. I felt that 
we were holding copper at a fictitious price. * * * We consulted with re- 
sponsible governmental officials and were urged to hold the price. We felt that 
it was our duty to cooperate. We did. That was a period of fictitious price, of 
artificial price, if you please. 

"When control was abandoned, the price of copper dropped below 10 
cents a pound in 1930 and below 5 cents in 1932, the price of shares 
suffering a similar decline. 

i^Ibld., p. 48. 
i« Ibid., p. 85. 

"Members were not forbidden to sell below the association price, but if they wished to do 
so they^were required to offer participation in the sale to all the other firms. Ibid., pp. 

"Ibid'., p. 87. 

" Elliott, op. cit., ch. 8, 9 ; Plummer, op. cit., First Ed., pp. 149-154. 

" Nourse and Drury, op. cit., p. 152. Cf. Ibid., pp. 152-156. 

23 Hearings before the Temporary National Economic Committee, pt. 25- p 13196 


Further arrangements designed to control production and price were 
entered into during the thirties. At a meeting held under the aus- 
pices of the Copper Institute in November 1930, domestic and foreign 
producers announced specific reductions in output planned for the 
coming year. At a second meeting, held in December 1931, producers 
were of the opinion that world output should be cut to 261^ percent 
of capacity. A third meeting was held in December 1932, but the 
conferees were apparently unable to reach an agreement.^* From 1933 
to 1935, during the life of the N. K. A., the American industry was 
governed by a code which cut output to about a quarter of capacity 
and assigned a specific sales quota to each producer. From 1935 to 
1939, the production of copper by British interests in Rhodesia, by 
Belgian-owned mines in the Congo, and by American companies in 
Chile was controlled by an international quota cartel. Although pro- 
duction within the United States was not included in the original 
agreement, it was understood, according to newspaper accounts at the 
time, that the American producers who participated would not export 
more than 9,000 tons of domestic copper in any month. The existence 
of such an understandiiig was denied, however, by Mr. E. T. Stan- 
nard, president of the Kennecott Copper Corporation, who attributed 
Kennecott's failure to export any copper from the United States be- 
tween June 1935 and August 1938, to the fear that large exports might 
lead to the imposition of tariffs abroad.^^ 

The production of copper, during the period of these activities, 
was marked by two important trends. The proportion of the Amer- 
ican output controlled by the three dominant companies, Anaconda, 
Kennecott, and Phelps Dodge, grew from 26 percent in 1920 to 77.6 
percent in 1937.^® At the same time the domestic industry was losing 
its hold on the world market. Production in the United States fell 
from 58.7 percent of the world total in 1920 to 23.5 percent in 1935 
and rose only to 33.3 percent in 1937. Production by American-owned 
mines abroad grew from 15.2 percent of the total in 1920 to 22.0 percent 
in 1937, but this gain compensated only partially for the decline in 
the relative importance of the industry at home. Although there are 
undoubtedly many reasons for the development of foreign-owned cop- 
per properties during this period, it seems probable that their growth 
was stimulated by the fact that the American pioducers were hold- 
ing a price umbrella over the industry for months and years at a time. 


Cartel-like arrangements in the United States have not been con- 
fined to the export trade. They have made their appearance in the 
domestic market in the simple agreements and pools of the latter half 
of the nineteenth century and in the activities of trade associations and 
industrial institutes in the twentieth. 

The simple agreement was the typical form of restraint employed 
during the decade which followed the Civil War. It has been de- 
fined as an express understanding which controlled prices and the 
conditions of trade but did not attempt to impose restrictions upon 

i^Ibid., pp. 13212, 13479-13484. 
^ Ibid., pp. 128, 13231, 13234-6. 
*>Ibid., p. 13391. 


the volume of production. In some cases it was secret; in others, open. 
In some cases, it was merely an oral agreement among gentlemen; 
in others, it was embodied in a written contract. In some cases, it 
rested upon little more than the observance of the spoken word; in 
others, it was enforced by fines and forfeits and by the application 
of pressure through the organization of boycotts. In general, it in- 
volved little or nothing in the way of formal organization. Such 
agreements obtained during this period among anthracite producers, 
bridge builders, gunpowder manufacturers, meat packers, railroad 
companies, tile manufacturers, and, in local markets, among drug- 
gists, coal, ice, lumber, and tile dealers, and truck growers. In form 
and purpose they corresponded to the arrangements which are known 
in Europe as term-fixing and price-fixing cartels.^^ 

The pool is to be distinguished from the simple agreement by 
two facts : it controlled prices by restricting output and sharing mar- 
kets and it maintained administrative machinery for the enforcement 
of its control. In some cases, it granted its members exclusive mar- 
ket territories. In others, it assigned them quotas in allowable pro- 
duction or sales. In still others, it paid them fixed shares of the gross 
or net income of the trade. Pooling arrangements of this sort are 
clearly analogous to the zone, quota, and profits cartels which exist 
abroad. Such arrangements were common in the United States dur- 
ing the last quarter of the century, being employed in the control of 
railway traffic and in the sale of bathtubs, bottles, brass, cast-iron 
pipe, cordage, cotton bagging, cotton thread and yarn, explosives, 
iron and steel, meat, nails, naval stores, sugar, tobacco, whisky, and 
manj- other goods. In a few cases, pooling was accomplished through 
the operation of a central selling agency, similar in character to the 
European syndicate. Such agencies were maintained by the pro- 
ducers of blue stone ware, coal, lumber, manila and fiber paper, pe- 
troleum products, salt, shade rollers, wallpaper, window glass, and 
wooden dishes.^^ By the end of the century all of these arrangements 
were prohibited by law. In 1887, the pooling of railway traffic and 
earnings was explicitly forbidden by the passage of the Interstate 
Commerce Act. In 1899, the decision of the Supreme Court in the 
Addystone Pipe case made it clear that the Sherman Act would be 
applied to pools in other fields. The cartelization of American industry 
was temporarily restrained. 


A trade association or industrial institute is an agency through 
which many or all of the sellers of a like commodity unite to promote 
their common interests. It exists solely to serve its members ; it does • 
not itself engage in the production or sale of goods. An association 
may be incorporated or unincorporated. It is usually governed by 
a board of directors elected by its members and financed by dues which 
they contribute in proportion to their output, pay rolls, capital, or 
sales. Its activities are administered by a salaried secretary and car- 
ried on by a paid staff. The members of such an association retain 
their legal independence. They are free to enter or to withdraw from 

"Lewis H. Haney, Business Organization and Combination (New York, 1913), cli. 10. 
^ Ibid., ch. 11, 12 ; Jones, op. cit., ch. 2 ; Seager and Gulick, op. cit., ch. 7. 


it at will. They cannot even be compelled to pay their dues. An 
association, therefore, may be strong or weak, according to the force 
of circumstances making for voluntary cooperation within the trade. 
The trade association movement is a product of the past 30 years. 
The few associations that were formed during the latter half of the 
nineteenth century were, in the main, impotent, clandestine, or 
ephemeral. Trade organization, in the twentieth century, took its 
initial impetus from the enunciation of the rule of reason by the 
Supreme Court in 1911 and from the publication of a popular book 
on "The New Competition" by Arthur J. Eddy in 1912. both statements 
holding out the hope that competitors might cooperate in common 
activities and remain within the law. The formation of associations 
was further stimulated in 1917 and 1918 by the function assigned to 
them by the War Industries Board in the procurement of supplies, 
and again in 1933 and 1934 by the opportunity afforded them to adopt 
and administer codes of fair competition under the National Indus- 
trial Recovery Act. In 1940 there were more than 8,000 trade asso- 
ciations — local, regional, and national — in the United States, some 
2,000 of them national in scope. 


The functions performed by trade associations for the benefit of 
their members are numerous and diverse. Many of them do not appear 
to be inconsistent with the preservation of competition ; many others 
may involve the imposition of restraints. Typical association activities 
include cooperative industrial research, market surveys, the develop- 
ment of new uses for products, the provision of traffic information, the 
operation of employment bureaus, collective bargaining with or- 
ganized labor, mutual insurance, commercial arbitration, the publi- 
cation of trade journals, joint advertising and publicity, and joint rep- 
resentation before legislative and administrative agencies, all of them 
undertakings that may serve a trade without disservice to its cus- 
tomers. But they also include the establishment of common cost 
accounting procedures, the collection and dissemination of statistics, 
the operation of price reporting plans, the standardization of prod- 
ucts, terms of contracts, and price lists and differentials, the pro- 
vision of credit information, the interchange of patent rights, the 
administration of basing point systems, the joint purchasing of sup- 
plies, and the promulgation of codes of business ethics, each of them 
practices which may operate to restrain competition in quality, serv- 
ice, price, or terms of sale. As Adam Smith remarked in 1776, "People 
of the same trade seldom meet together, even for merriment and 
diversion, but the conversation ends m a conspiracy against the public 
or in some contrivance to raise prices." ^^ 


Conspicuous among association activities is the promotion of cost 
accounting, or, in association parlance, cost education. As described, 
by Burns,^° this educational work is carried on through six grades. 
In the first, the association provides its members with standard forms 

•» Wealth of Nations. Book I. ch. 10, pt. II. 
«* Arthur F. Burns, The Decline of Competition (New York, 1936), pp. 47-55. 


for use in cost determination. This is expected to eliminate any price 
cutting that might arise from ignorance of costs. It may also carry 
the suggestion that no seller's price should fall below his costs as set 
forth on the standard forms. In the second grade, the association 
prescribes detailed procedures for computing costs, showing its mem- 
bers the proper way to figure charges for materials, the proper way 
to compute depreciation, and the proper way to distribute overhead. 
This is designed to reduce the price disparities that might result from 
the employment of diverse methods of calculation. In the third grade, 
the association suggests a uniform mark-up. Each of its members is 
encouraged to add the same percent of profit to his costs to get his 
price. But one member may undersell another if he has lower costs. 
In the fourth grade, however, the association publishes some sort of 
an average of the costs of all the firms in the trade. Where this 
figure is adopted by members in place of their individual actual costs, 
it affords a basis for the establishment of a common price. But prices 
may still vary if members do not add a uniform mark-up to the uni- 
form cost. In the fifth grade, therefore, says Burns, "Some associa- 
tions have taken the final step and included an allowance for profit in 
the so-called average costs. Average costs then become merely a 
suggested selling price, uniform for all, and provide a means by which 
to define and detect price cutting and a stimulus to attempts to elimi- 
nate it." ^^ In the sixth and final grade, the association undertakes 
to enforce adherence to the average "costs." Through editorials pub- 
lished in trade journals, through resolutions passed at association 
meetings, and through conferences and correspondence between asso- 
ciation officials and members of the trade, it endeavors to persuade 
all sellers that they should adopt the common estimate of "cost" and 
therefore charge a common price. 

Not every association has carried cost education through all six 
grades. But every student of the activity has recognized that it is 
subject to abuse. Whitney, for instance, lists three methods of con- 
trolling price: direct, through price fixing; indirect, through persua- 
sion; and technical, through cost accounting.^- The Federal Trade 
Commission quotes a statement made by the secretary of the National 
Association of Cost Accountants at a meeting of the American Trade 
Association executives : "I cannot see a great deal in uniform costing 
unless it does lead to an exchange of information and a comparison of 
costs with, a view to securing a certain amount of cost stand- 
ardization, which is something entirely different from uniformity of 
method * * * It is perfectly true that the exchange of informa- 
tion is likely to have an influence on price levels in the industry, but 
why shouldn't it?"^^ According to the Commission, "These words 
sum up very well the philosophy of cost accounting and cost compari- 
son as a trade association activity." ^* The study of average cost data 
by the members of an industry "will promote uniformity of practice 
in computing costs and generally influence them in the direction of 
uniformity of prices." ^^ It is, moreover, "the natural tendency of 

" Ibid., p. 52. 

^ Simon N. Whitney, Trade Associations and Industrial Control (New York, 1934), 
p. 42. 

^ Federal Trade Commission, Open-Price Trade Association, 70th Cong., 2d sess., S. Doc. 
2C)fi, p. 181. 

^ Loc. cit. 

36 Ibid., p. 175. 


trade associations to include everything possible in costs and tnus to 
swell the amount." ^^ The Commission therefore concludes ; "Among 
the many legitimate kinds of trade association activities which may 
easijy and imperceptibly pass over from the stage of useful service to 
that of abuse and even illegality, there are probably few more prone 
to this sort of transition than cost- accounting work." ^^ Kirsh enu- 
merates several practices f ouiid to be illegal : the falsification of pub- 
lished data, the identification of reporting firms, the recommendation 
of specific figures, the concealment of accounting activities, the de- 
tailed supervision of cost systems, and the enforcement of common 
costing methods by the imposition of penalties.^* "The value of imi- 
form cost accounting and of cost education cannot be overestimated," 
writes Foth, "but unfortunately many associations have used these 
cost activities as a means of unlawfully controlling prices." ^^ 


The statistical activities of trade associations may affect prices by 
influencing the production policies of member firms. Association sta- 
tistics cover such matters as the volume of production, inventories, 
unfilled orders, idle capacity, shipments, and sales. Reports on the 
volume of production may show output as a ratio of capacity and 
compare it with some ratio designated as "normal." They may com- 
pare output with orders or with shipments. They may compare it 
with the quantity produced during some "normal" period in the past. 
Such comparisons are likely to carry the suggestion that production 
is getting out of hand. The consequent curtailment amounts, says 
Burns^ "to adapting production to demand and avoiding the accumu- 
lation of unsold stocks. It is implied that when demand declines 
there is only one proper response, viz, an equal reduction of output." ^^ 
In some cases, association reports have compared changes in the volume 
of one member's output with changes in the total output of the trade. 
"These calculations are aimed at deterring the firm whose sales have 
been falling from attempting to increase its sales by increased sales 
effort or price cutting at a time when the sales of all firms are falling. 
Thus a 'demoralized market' is avoided. Such an interpretation of 
the statistics must tend to fix the distribution of business between 
firms. Insofar as price cutting is deterred when business falls off, 
there is also a tendency to maintain unchanged prices." *^ Reports on 
the volume of inventories likewise "are likely to be used as a guide to 
production policy, production being diminished when stocks are ac- 
cumulating and increased when stocks are falling * * *. The ex- 
isting price of the product tends to be maintained and production 
adjusted to changes in demand at the unchanging price." ^^ So, too, 
with reports on unfilled orders. If they reveal an increase in the 
volume of such orders, output may rise ; but if they reveal a decline, it 
is probable that output will be curtailed and the established price 
maintained. Reports on the volume of idle capacity may have a 

««Ibid., p. 176. 

^ Lqc. cit. 

»* Benjamin S. Kirsh, Trade Associations in Law and Business (New York, 1938), ch. 3. 

» Joseph H. Foth, Trade Associations (New York, 1930), p. 274. 

*" Burns, op. cit., p. 57. 

« Ibid., p. 58. 

« Ibid., p. 59. 


similar effect. They serve to warn the members of the trade that a 
price cut may provoke a price war. They may also deter existing 
firms from adding to their equipment and new firms from entering 
the field, even though it might be possible to put the added capacity 
to work at a lower price. Whitney's three methods of price control 
are paralleled by three methods of controlling production: direct, 
through quota systems; indirect, through persuasion; and technical, 
through the collection and dissemination of statistics.*^ 


Trade association statistics cover prices as well as production. 
Through their pric^. reporting systems, association members make 
available to one another, and sometimes to outsiders, information 
concerning the prices at which products have been, are being, or are 
to be sold. It is argued that such systems, by increasing the amount 
of knowledge available to traders, must lessen the imperfection of 
markets and make for more effective competition. Whether they do 
so, in fact, depends upon the characteristics of the industries which 
use them and upon the characteristics of the plans themselves. 

For a price reporting system to increase the effectiveness of com- 
petition in a trade, many conditions must be fulfilled. As for the 
characteristics of the trade : Sellers must be numerous, each of them 
relatively small, and no one of them dominant. Entrance to the 
field must not be obstructed by legal barriers or by large capital 
requirements. Otherwise a reporting system may implement a price 
agreement, or promote price leadership, and facilitate the applica- 
tion of pressure against price cutters. Moreover, the market for the 
trade must not be a declining one. Supply, demand, and price must 
not be subject to violent fluctuation. The product must consist of 
small units turned out in large volume and sales must be frequent. 
Otherwise sellers will have a stronger incentive than usual to restrict 
competition and, even though numerous, they may agree upon a 
common course of action. Under such circumstances, a price report- 
ing plan may serve as a convenient instrument for the administra- 
tion of a scheme of price control. And finally, the demand for the 
product of the trade must be elastic, falling as prices rise and rising 
as prices fall. Otherwise it is not to be expected that the provision 
of fuller information would force a seller to reduce his price. 

So, too, with the characteristics of the reporting plan itself: The 
price reports must not be falsified. If members do not return their 
lowest prices, if the association excludes such prices from the figures 
it reports, competitive reductions to meet the lowest figure actually 
charged will not occur. The reports must be available to all sellers 
on equal terms. If they are not, the sellers who fail to see them 
will not be informed of lower prices that they otherwise might 
meet. The reports must also be available to buyers. If informa- 
tion is withheld from them, they cannot seek out the seller who has 
filed the lowest price or compel another seller to meet this price to 
make a sale. The reports must not identify individual traders. 
The reporting agency must be neutral, keeping each seller's returns 

*3 Whitney, op. clt., p. 42. 

271817— 40— No. 21 16 


in confidence and transmitting tlie collective information to all con- 
cerned. If price cutters are openly or secretly identified, those who 
desire to sell at higher prices may employ persuasion or even sterner 
methods to bring them into line. The prices reported must be 
limited to past transactions. If current or future prices are ex- 
changed, sellers will hesitate to cut their charges to make a sale, 
since they will know that lower figures will instantly be met. Each 
seller must be free to change his price at any time. If a seller can- 
not cut a price until sometime after he has filed the lower figure, thus 
affording his rivals an opportunity to meet it instantly, the chances 
that he will do so are accordingly reduced. The plan must carry 
no recommendation as to price policy. If the publication of aver- 
age "cbsts" suggests the figures to be filed, if uniform charges are 
.voted at trade meetings, then the reporting system becomes a method 
of policing the observance of a common price. The system, finally, 
must make no provision for the supervision of prices charged or for 
the imposition of penalties on those who sell below the figures they 
have filed. If association officials supervise the filing and persuade 
sellers whose quotations are low to raise them, if penalties are im- 
posed on those who quote figures below those recommended or sell at 
figures below those quoted, then the reporting plan becomes but an 
incident in the whole price fixing scheme. When every one of these 
conditions is fulfilled, a price reporting system may promote effective 
competition. But where any one of them is unsatisfied, price re- 
porting is likely to implement the non-competitive arrangements 
within the trade.** It follows that competition must more often be 
diminished than increased through the operation of price reporting 


The standardization of products, terms of contracts, and price 
lists and differentials, though frequently advantageous to buyers and 
sellers alike, is also subject to abuse. Standardization of products 
contributes to convenience and lessens waste. But it may limit com- 
petition in quality, restrict the consumer's range of choice, and by 
eliminating the sale of cheaper grades, compel him to buy a better 
and a more expensive product than the one that he desires.*^ Stand- 
ardization of the terms of contracts saves time, prevents misunder- 
standing, and affords a common basis for the comparison of prices. 
If limited to such matters as allowable variations in the quality of 
goods delivered, the time when title passes, and the method to be 
employed in the settlement of disputes, it does not restrain competi- 
tion. But a trade may go on to establish common credit terms, 
create uniform customer classifications, eliminate or standardize dis- 
counts, forbid free deals, limit guarantees, restrict the return of 
merchandize, minimize allowances on trade-ins, fix liandling charg^es, 
forbid freight absorption, discourage long-term contracts, and agree 
upon a common policy with respect to guarantees against price de- 
clines. In the judgment of the Federal Trade Commission, "the 
standardization of terms of sale, and of elements in the sales contract, 

** Leverett S. Lyon and Victor Abramson, The Economics of Open Price Systems (Wash- 
ington, 1936), ch. 2, 4, 6, 7 ; Federal Trade Commission, op. cit., ch. 3. 

^ National Industrial Conference Board, Trade Associations : Their Economic Signifi- 
cance and Legal Status, ch. 12 (New York, 1925) ; Federal Trade Commission, op. cit., 
pp. 204-218. 


appears to be entirely desirable, and at least as beneficial to the buyer 
as to the seller, and yet it is hard to arrive cooperatively at such 
standardization without an agreement on some element in the price 
paid." *^ At best, such an agreement restricts the scope of competi- 
tion and deprives buyers of options which they are entitled to enjoy. 
At worst, it serves to supplement other elements in a comprehensive 
scheme of price control, preventing indirect departures from the 
established price and facilitating its enforcement through the opera- 
tion of a price reporting plan. So, also, the standardization of price 
lists and differentials involving the selection of a single variety or 
size of product for use as a base in quoting prices and the adoption 
of a system of uniform extras and discounts for use in computing 
the prices of other varieties and sizes, contributes to the convenience 
with which negotiations may be carried on. But here again, as the 
Trade Commission has observed, "the simplification of the process 
of quotation doubtless facilitates agreement on prices between sellers ; 
and the devising of a base price list, or of standard differentials, by 
an association may be accompanied by elements of agreement that 
are contrary to the anti-trust laws." *' 


The provision, through a central bureau, of information on credit 
risks increases the safety with which credit may be granted. If 
confined to the exchange of ledger data on individual buyers in re- 
sponse to specific requests and accomxpanied by no recommendation 
as to policy, it helps the members of a trade without injustice to 
their customers. But an association may go on to limit the freedom 
of members to extend credit where they please, to circulate blacklists, 
to boycott delinquent debtors without affording them a hearing, to 
set up uniform terms to govern the extension of credit, and to employ 
the denial of credit as a means of controlling the channels of distri- 
bution or enforcing the maintenance of a resale price.*^ 


The interchange of patent rights through a system of cross-licenses 
lowers costs by reducing the volume of litigation and makes it pos- 
sible for every member of an association to employ the inventions 
controlled by any one of them. But patent pooling, too, may lessen 
competition. By controlling the, market for new inventions in the 
field, by drawing upon the combined resources of its members in pros- 
ecuting and defending patent suits, by requiring non-members to 
take out a license under a major patent as a condition of obtaining 
a license under a minor one, by charging exorbitant royalties, and by 
refusing to license outsiders, a pool may afford its members a marked 
advantage over their competitors. By including in its contracts 
provisions which restrict the quantity a licensee may produce, the 
area in which he may sell, and the price that he may charge, it may 
serve as a powerful instrument of price control.*^ 

« Ibid., p. 292. 
«T Ibid., p. 199. 

*^ National Industrial Conference Board, op. cit., ch. 10 ; Harry A. Toulmin, Trade 
Agreements and the Anti-Trust Laws (Cincinnati, 1937), pp. 9.3-95. 

** Kirsh, op. cit., ch. 8 ; National Industrial Conference Board, op. cit., ch. 9. 



Still other association activities, not necessarily inconsistent with 
the maintenance of competition in a trade, may be carried to a point 
where they restrain the freedom of its members to compete. The 
operation of a basing point system need not involve the quotation of 
a common price. But an industry that can agree to quote its prices 
from common basing points is not likely to encounter serious diffi- 
culty in arriving at an understanding concerning price itself. The 
maintenance of a joint purchasing department is likely to increase 
efficiency in buying and to obtain supplies in quantity at lower costs. 
But such departments, according to Toulrain, "are the most dangerous 
of all departments of a trade association with respect to the antitrust 
laws." ^ Joint purchasing lessens competition among members as 
buyers. It may be employed as a means of forcing sellers to discrimi- 
nate against their competitors. And where an association controls 
enough of the demand for a commodity to fix its price, it acts as a 
monopsonist. The promulgation of a code of business ethics is 
avowedly designed to raise standards of conduct among the members 
of a trade. Such a code customarily contains an affirmation of belief 
in the usefulness of the trade and the value of its product, an acknowl- 
edgement of its responsibility to the community, and a renunciation 
of methods of competition generally held to be unfair. These protes- 
tations, hanging in their frame upon a member's office wall, may do 
some good and can do little harm. But many a code is less con- 
cerned with the obligations and duties of members than with the 
protection of their margin of profit. "A good deal of business ethics," 
says the Federal Trade Commission, "is of the nature illustrated by 
the story of the partner in a clothing store who was, by mistake, given 
two $20 bills instead of one in payment for a suit and who found the 
ethics of the situation in a question as to whether he should tell his 
partner about the extra $20." ^^ Thus, codes of ethics frequently con- 
tain detailed provisions concerning matters which affect the making 
of a price, denouncing as unethical many practices that are found 
to be offensive merely because they are competitive. Where an asso- 
ciation lacks the power of enforcement, these prohibitions are merely 
persuasive. But where some measure of coercion is at hand, they 
may take on the force of law. 


Trade associations, in general, have manifested less interest in those 
activities which are designed to enable the members of a trade, without 
sacrificing their essential independence of action, to cooperate in in- 
creasing efficiency, reducing costs, and improving their service to the 
public, than in those which are calculated to secure their adherence 
to a common policy governing production and price. "It is not gen- 
eral advice and assistance to the members, but the desire for industrial 
control, which is the driving force behind the whole movement," says 
Whitney. "Legislative, statistical, and technical aid may be helpful 

"> Toulmin, op. cit., p. 97. 

" Federal Trade Commission, cp. cit., p. 307. 


to businessmen, but the elimination of overproduction and price cut- 
ting is vital. The real core of the trade association movement has 
lain in its attack on free competition * * *."^^ In the opinion 
of Burns, "The outstanding characteristic of trade association policies 
has been their attempt to restrict price cutting." ^^ Associations have 
"aimed in general at securing profits for all their members by main- 
taining prices and restricting output * * *." °* The Federal 
Trade Commission comes to a similar conclusion : "Not only are trade 
associations organizations of competitors, but the purpose of the 
organization is usually to regulate, if not to limit, competition in some 
way or other." ^^ According to the Commission, "In trade associa- 
tion circles, emphasis on seeking profits instead of volume of business 
is current and conspicuous. * * * Emphasis on restriction of out- 
put, though, of course, on its face without any element of concert or 
agreement, is the central idea of the theory back of a good deal of 
trade association work." ^^ 

It is impossible to measure the extent to which members of trade 
associations are actually engaged in cooperating to serve the public 
and in conspiring against it. The line between cooperation and con- 
spiracy is not an easy one to draw. The courts, to be sure, must at- 
tempt to draw it. Price reporting, for instance, is held to be legal 
if reports are confined to past transactions, is of uncertain legality 
if they cover current or future transactions and if members are re- 
quired to adhere to the prices they have filed, and is illegal if essential 
information is withheld from buyers, if sellers are identified, if mem- 
bers agree upon the prices they will file, and if adherence to these 
prices is enforced by detailed supervision and by the imposition of 
pejialties.^^ But no one can say with confidence how many of the price 
reporting systems now in operation fail to overstep this line. And so 
it is with many other phases of association work. There are some two 
thousand national trade association offices in the United States. In 
each of them, a secretary with his staff is working, presumably 6 days 
in every week, 52 weeks in every year, to administer activities in which 
competitors do not compete. Upon occasion, the Federal Trade Corn- 
s' Whitney, op. cit., p. 38. 

•* Burns, op. cit., p. 67. 

^ Ibid., p. 75. 

" Federal Trade Commission, op. cit., p. 347. 

'•Ibid., p. 365. For the most recent and the most comprehensive survey of trade 
association activities see : C. A. Pearce, Trade Association Survey, Temporary National 
Economic Committee, Monograph No. 18. This study contains a nuM)er of interesting 
statements by association officials. According to the monograph : "These statements with 
varying degrees of explicitness suggest a retreat from free competition and, in its place, 
the 'new' or cooperative competition of trade association. The en^ in view is the collec- 
tive security of the members, to be achieved by mutually restraining price competition 
for the available business of the industry, on the one hand, and by expanding the aggre- 
gate volume of the business through trade promotion, the development of markets and 
product uses, improved efficiency, and intelligent adjustment to general market trends, 
on the other" (p. 98 of the manuscript). 

One "prominent trade association administrator" is quoted as follows : "♦ * * the 
business leader of today achieves success by managing his individual volume in relation 
to his industry's volume so as to maximize his revenue and not his physical output. To 
maximize revenue the indiv'dual business man must formulate his policies in light of their 
effect on the industry of which he is a part as well as in consideration of the facts of his 
individual enterprise * • *. In the vast majority of instances today, if the rate of 
growth of an individual producer's volume exceeds the rate of growth of his industry's 
volume, that growth does not represent a corresponding expansion of the industry's 
total market ; it represents business acquired from a competitor. Every businessman 
within my hearing knows the inevitable result of a continued loss of volume from one 
competitor to another. It is for these reasons that businessmen must manage volume so 
as to share the market, not monopolize it, and, thus, to safeguard the conditions which 
maximize revenue" (p. 410 of the manuscript). 

^ Lyon and Abraoson, op. cit., eh. 2, 3 ; Kirsh, op. cit., ch. 2. 


mission or the Department of Justice makes an investigation and cer- 
tain practices of an association are proscribed by the Commission or 
the courts. But no such sporadic action can be expected to disclose 
each of the cases in which competition is restrained. Nor can there ever 
be assurance that the merriment, diversion, and conversation, of which 
Adam Smith once spoke, do not lead to the conspiracies or contrivances 
to raise prices which he feared, unless an agent of the Federal Govern- 
ment is placed in every trade association office to read all correspond- 
ence, memoranda, and reports, attend all meetings, listen to all con- 
versations, participate in all the merriment and diversion, and issue 
periodic reports on what transpires. No such systematic oversight 
is now authorized by law. 


The fact that trade associations have frequently succeeded in bring- 
ing prices and production under common control is revealed by the 
results of economic inquiries published by the Federal Trade Com- 
mission and by independent investigators, by cease and desist orders 
issued by the Commission, and by decisions handed down by the courts. 
It is also suggested by numerous complaints issued by the Commission 
and by indictments returned by grand juries in proceedings which are 
still open. A partial list of the instances, involving some hundreds 
of groups in 135 different trades, in which it has appeared, at some time 
during the past 20 years, that a trade association, industrial institute, 
or other common agency was exercising some form of control over 
production, price, and terms of sale in national or regional markets is 
given on the pages which follow. The list includes no suits instituted 
by private parties. It includes only one of the cases ^^ decided under 
the antitrust laws of the several States. It includes no case in which 
the Federal Trade Commission dismissed a complaint and, with but 
few exceptions,^° none of those in which the Government either dropped 
a suit or suffered a reversal at the hands of the courts. It is obvious, 
however, that the area in which the economist will find effective com- 
petition to be superceded by common control must be much larger 
than that in which the courts will hold such control to constitute a 
conspiracy in restraint of trade. The number of cases involving the 
elimination of competition through common agencies must therefore 
be substantially greater than the list reveals.^^* 

^ The People of the State of New York v. The National Elevator Manufacturing Indus- 
try, Inc., et al. 

^^ The Government dropped its suit against the Asphalt Shingle and Roofing Institute 
after a code for the industry had been approved by the N. R. A. The court rendered no 
decision upon. the facts involved in the case. The Sup'-eme Court, while not questioning 
the fact that sales were centralized and prices fixed by Appalachian Coals, Inc., or that 
production was controlled by the National Window Glass Manufacturers' Association, 
held that these activities did not constitute a violation of the anti-trust laws. 

^^ Objection has been made to the employment here and elsewhere in this monograph of 
allegations from indictments and complaints. If this material were excluded, however, 
the discussion would be limited to situations proven to exist at some time in the past. 
The source of the data on current cases is indicated in the text. The charges in these cases, 
like the reports of other investigations, public and private, can only be taken for what they 
are worth. 



Trade associations, industrial institutes, and other common agencies said to ie 
exercising some form of control over production, price and terms of sale, and 
organizing boycotts in national or regional markets from 1920 to 194O 




Agricultural implement deal- 

Agricultural implement manu- 

Agricultural insecticide and 
fungicide manufacturers. 

Aluminum cooking utensil 

Amusement ticket manufac- 

Asphalt shingle and roofing 

Automobile parts and acces- 
sories jobbers. 

Bakers - 

Barbers' supplies distributors.. 
Bean and barley shippers 

Binders' board manufacturers. 

Bituminous coal producers. 
Book paper manufacturers. 

Building materials distribu- 

Blue print paper manufactur- 

Bolt, nut, and rivet manu- 

Brick manufacturers 

Broom manufacturers 

Brush manufacturers 

Butter tub manufacturers 

Button and buckle manufac- 
Candy manufacturers 

Candy stick manufacturers.. . 
Candy wholesalers 

Nation<il Federation of Implement 
Dealers Associations and affiliated 
recional associations. 

Ea.stern Federation of Farm Equip- 
ment Dealers Associations. 

National Implement and Vehicle As- 

Farm Equipment Institute 

Agricultural Insecticide and Fungi- 
cide Association. 
Aluminum Wares Association 

Amusement Ticket Manufacturers 

Asphalt Shingle and Roofing Institute. 

Birmingham Automotive Jobbers As- 

National Standard Parts Association. . 

Motor and Equipment Wholesale As- 
sociation and three regional associa- 

American Bakers A.ssociation and As- 
sociated Bakers of America and 
alliliated resional associations. 

Barbers Supply Dealers Association. .. 

Michigan Bean Shippers Association. . 

Binders Board Manufacturers Asso- 

Appalachian Coals, Inc 

Book Paper Manufacturers Associa- 

National Federation of Builders Sup- 
ply Associations and affiliated 
regional associations. 

Florida Building Material Institute... 

Scientific Apparatus Makers of 

Bolt, Nut, and Rivet Manufacturers 

Common Brick Manufacturers Associ- 

National Broom Manufacturers As- 

Broom Handle Manufacturers As- 
American Brush Manufacturers As- 

Common agent 1 

Butter Tub Manufacturers Council... 

Covered Button and Buckle Creators. 

Western Confectioners Association 

Imperial Wood Stick Company 

Atlanta Wholesale Confectionery 

Wholesale Confectioners Club of 

Columbus Confectioners Association.. 
Chicago Association ol Candy Jobbers. 
Evansville Confectioners Association.. 

Confectioners Club of Baltimore 

Southern New York Candy Distribu- 
tors Association. 
Wyoming Valley Jobbers Association 

New York State Wholesale Confec- 
tionery Association. 

F. T. C, Report on the Agricul- 
tural Implement and Ma- 
chinery Industry (1938) pp. 
29-32; 326-357; 1036. 

Ibid., pp. 217-218. 

Ibid., pp. 22-26; 240-265; 1034- 

F. T. C, complaint, Docket 4145 

F. T. C, Report on House Fur- 
nishings Industries, vol. 3 
(1924) pp. 06-07. 

F. A. L.,icase 319(1926). 

F. A. L., case 377 (1930); N. R. A., 
Division of Review, Work Ma- 
terials No. 76, Price Filing 
Under N. R. A. Codes, (1936) 
vol. 2, pp. 504-511. 

F. T. C, order, Docket 2382, 

F. T. C, complaint. Docket 2942 

F. T. C, Competition and Prof- 
its in Bread and Flour (1928) 
Ch.4. 5. 

F. A. L., case 214(1920). 

F. T. C, order. Docket 3937 

F. T. C. Open-Price Trade As- 
sociations (1929) pp. 260, 268- 

F. A. L., case 383 (1933). 

F. T. C, complaint, Docket 3760 

F. T. 'C, Cement Industry, 
(1933) pp. 102-110; F. T. C. 
order, Docket 2191 (1937). 

F. T. C, order, Docket 2857 

F. T. C, complaint, Docket 3092 

F. A. L., case 378 (1931). 

F. T. C, Open-Price Trade 

Associations (1929), pp. 267-268. 

F. T. C, Report on House Fur- 
nishings Indu.slries, vol. 3, 
(1924), pp. 193-202. 

Ibid., pp. 183-192. 

Ibid., pp. 202-208. 

F. A. L., case 424 (1937). 

F. T. C, order, Docket 2650 

F. T. C, order, Docket 3186, 

F. T. C, complaint, Docket 4132 

F. A. L., case 445 (1939). 
F. T. C, order, Docket 1364, 

F. A. L., case 326 (1927). 

F. A. L., case 330 (1927). 
F. A. L.. case 331 (1927), 
F. A. L., case 360 (1929). 
F. A. L., case 350 (1930). 
F. T. C, order, Docket 2292 

F. T. C, order, Docket 2403 

F. T. C, order. Docket 2613 




Trade associations, industrial institutes, and other common agencies said to he 
exercising some form of control over production, price and terms of sale, and 
organizing boycotts in national or regional markets from 1920 to 1940 — 





Card do thing manufacturers.. 

Carpet and rug manufacturers 

Cast iron soil pipe manufac- 

Chalk, crayon, and watercolor 

Cellulose sheeting manufac- 

Cement manufacturers 

Charcoal Manufacturers 

Cheese dealers 

Cigar manufacturers. _ 

Clay sewer pipe manufac- 

Compressed air machinery and 
pneumatic tool manufac- 

Concrete pipe manufacturers- . 

Copper producers 

Com products refiners 

Corrugated and solid fibre 

board shipping container 

Corrugated paper manufad- 

Cotton textile manufacturers.. 

Cotton yarn manufacturers. 
Cottonseed crushers 

Cottonseed oil refiners. 


Dress manufacturers. 

Dry goods and notions dealers. 
Elevator manufacturers 

Wisconsin Canners Association. 

Card Clothing Manufacturers Associa- 

Institute of Carpet Manufacturers 

Cast Iron Soil Pipe Association ^ . . 

Crayon, Water-Color, and Craft In- 
National Converters Institute 

Cement Institute 

Hardwood Charcoal Co 

Manufacturers Charcoal Co. 
Wisconsin Cheese Exchange. 

Cigar Manufacturers Association of 

Southern Vitrified Pipe Association... 

Compressed Air Institute 

Arlington Concrete Pipe Corporation 
Copper Institute. 

Com Derivatives Institute 

National Container Association and 
affiliated regional associations. 

Corrugated Paper Manufacturers 

Cotton Textile Institute 

Curtailment Program Committee.. .^. 

Southern Yam Spinners Association. 

State cottonseed crushers associations 
aflHiated with Interstate Cotton- 
seed Cmshers Association and its 
successor, National Cottonseed 
Products Association. 

National Cottonseed Products Asso- 
ciation, oil and shortening division, 
and its successor, Institute of Cot- 
tonseed Oil Foods. 

Distilled Spirits Institute 

Dress Creators League of America 

Party Dress Guild 

Half-Size Dress Guild 

Fashion Originators Guild 

Popular Priced Dress Manufacturers 

Dress Returns Control Bureau 

Wholesale Dry Goods Institute 

National Elevator Manufacturing 

F. T. C, Open-Price Trade As- 
sociations (1929) pp. 270-271, 

F. T. C, complaint. Docket 3019 

New York Times, Feb. 23', 1940. 

F. T. C, complaint, Docket 3091 
(1937). . 

F. T. C, order. Docket 2967 

F. T. C, complaint. Docket 3897 

F. T. C, Price Bases Inquiry 
(1932) pp. 39-42, 98-101; Ce- 
ment Industry (1933) pp. 98- 
101; complaint. Docket 3167 

F. T. C, order. Docket 3670 

F. T. C, Agricultural Income 
Inquiry (1937), vol. 1, pp. 262- 

F. T. C, order. Docket 709 

F. T. b., order, Docket 386S 

F. T. C, complaint, Docket 3958 

F. T. C, order. Docket 3127 

Verbatim Record of the Pro- 
ceedings of the T. N. E. C. 
(1940) vol. 11, pp. 96-97; Whit- 
ney, Simon N., op cit., (1934) 
pp. 95-96. 

F. A. L., case 382 (1932). 

F. A. L., case 511 (1940). 

F. A. L., case 226 (1921). 

Whitney, S. N., op. cit., pp. 

17. S. V. Joseph E. Serrine, et al., 
District Court of U. S., W. D. 
of S. C, information, Jan. 2, 

F. T. C, Open Price Trade Asso- 
ciations (1929) pp. 280-282. 

F. T. C, Report on the Cotton- 
seed Industry (1933) Part 13, 
pp. 15,737-16,742; Ch. 4. 

Marshall, George, "Cottonseed, 
etc.," in Hamilton, Walton H., 
Price and Price PoUcies, New 
York, 1938, pp. 276-285. 

F. T. C, orders, Dockets 2988- 
2992 (1938); Hearings before 

. the T. N. E. C. (1939) pp. 1767- 
1763, 2628-2673. 

F. A. L., case 401 (1934). 

F. A. L., case 402 (1934). 

F. A. L., case 403 (1934). 

F. T. C, order, Docket 2769 
(1939) . 

F. T. c!, complaint. Docket 3778 


F. T. C, complaint. Docket 3751 

People of the State of New York v. 
National Elevator Manufactur- 
ing Industry, Inc., et al., special 
term, part II, Supreme Court, 
State of N. Y., decree (1939). 



Trade associations, industrial institutes, and other common agencies said to be 
exercising some form of control over production, price and terms of sale, and 
organizing boycotts in national or regional markets from 1920 to 1940 — 




Fire hose manufacturers. 
Fireworks manufacturers 
Flour millers 

Flower growers and distribu 

Fur coat pattern makers 

Fur dressers 

Furnace manufacturers. 

Galvanized ware manufac- 
Glass container manufacturers. 

Glass distributors. 

Glass manufacturers 

Glassware wholesalers 

Glazed paper manufacturers.. 

Golf ball manufacturers 

Grocery wholesalers 

Gummed tape manufacturers.. 

Gypsum products manufac- 
Hardware wholesalers 

Rubber Manufacturers Association- 
Pyrotechnic Industries 

Washington Cereal Association 

Oregon Cereal and Feed Association. . . 
Millers National Federation and 
aflUiated regional associations. 

Flower Producers Cooperative Asso- 
Empire Style Designers League 

Protective Fur Dressers Corporation.. 

Fur Dressers Factors Corporation 

National Warm Air Heating and 
Ventilating Association. 

The Midland Club 

Sheet Metal Ware Exchange. 

Glass Container Association. 

National Glass Distributors Associ- 

Glass Jobbers Association of San Fran- 
cisco and Oakland. 

National Window Glass Manufactur- 
ers Association. 

Hotel, Restaurant, and Tavern Equip- 
ment Association. 

Common selling agency 

Glazed and Fancy Paper Manufac- 
turers Association. 

Golf Ball Manufacturers Association.. 

Wholesale Grocers Association of El 
Paso, Tex. 

Atlanta Wholesale Grocers-.. 

St. Louis Wholesale Grocers Associa- 

Missouri-Kansas Wholesale Grocers 

North Dakota Wholesale Grocers As- 

Southern Californ'a Grocers Associa- 

California Wholesale Grocers Associa- 

Utah-Idaho Wholesale Grocers Asso- 

Oregon Wholesale Grocers Association. 

Wisconsin Wholesale Grocers Associa- 

Arkansas Wholesale Grocers Associa- 

Wholesale Grocers Association of New 

Fall River Wholesale Grocers Associa- 

National Association of Gummed 
Tape Manufacturers. 

Gypsum Industries Association 

Southern Hardware Jobbers Associa- 

F. T. C, order, Docket 2352 

F. T. C, order, Docket 3309 

F. T. C, order, Docket 1345 


F. T. C, Competition and 
Profits in Bread and Flour 
(1928) ch. 10; Conditions m 
the Floiur Milling Business 
(1932) passim; Agricultural 
income Inquiry (1937), vol. 1, 
pp. 292-295. 

F. A. L.. case 307 (1926). 

F. T. C, complaint. Docket 4136 

F. A. L., case 394 (1936). 

F. A. L., case 396 (1937). 

F. T. C, Report on House Fur- 
nishings Industries, vol. 2 
(1923), Ch. 11. 

Ibid., Ch. 12. 

F. A. L., case 250 (1922). 

U. S. V. Hartford-Empire Com- 
panv, et al., District Court of 
the U. 6., N. D. of Ohio, W. 
Div., complaint, Dec. 11, 1939. 

F. T. C. orders. Dockets 3154 
(1937) and 3491 (19381. 

U. S. V. W. P. Fuller & Co, 
et al., District Court of the 
U. S., N. D. of Calif., S. Div., 
indictment. Mar. 15, 1940. 

F. A. L., case 269 (1923); Wat- 
kins, Myron W., op. cit. (1927), 
pp. 160-161. 

F. T. C, complaint, Docket 3861 

F. A. L., case 232 (1921). 

F. T. C, Open-Price Trade As- 
sociations (1929), p. 269. 

F. T. C, order, Docket 3161 

F. T. C, order. Docket 501 (1920). 

F. T. C, order. Docket 579 (1922). 
F. T. C, order. Docket 893 (1923). 

F. T. C, order, Docket 990 (1925). 

F. T. C, order. Docket 1085 

F. A. L., case 283 (1925). 

F. A. L., case 284 (1926). 

F. A. L., case 285 (1926). 

F. A. L., case 291 (1926). 

F. T. C, Older, Docket 1145 

F. T. C, order. Docket 1232' 

F. T. C, order. Docket 1343 

F. T. C, order, Docket 2677 

F. T. C, Open-Price Trade As- 
sociations (1929), pp. 272-273. 

F. A. L., case 268 (1922). 

F. A. L., case 316 (1926). 



Trade associations, industrial institutes, and other com/mon agencies said to be 
exercising some form of control over production, price and terms of sale, and 
organizing boycotts in national or regional markets from 1920 to 19^0 — 




Harness and saddlery dealers. - 

National Harness Manufacturers As- 
sociation of the United States. 

Wholesale Saddlery Association of the 
United States. 

F. T. C, order, Docket 16 (1920). 

Hat frame manufacturers 

National Hat Frame Association 

F. A. L., case 322 (1927). 

Household furniture manu- 

Southern Furniture Manufacturers 

F. T. C, Report on House Fur- 



nishings Industries, vol. 1 
(1923), Part 2, Ch. 3. 

National Alliance of Case Goods As- 

Ibid., Part 2, ch. 4. 


Central Bureau of Dining Table 

Ibid., Part 2, ch. 6, sees. 2, 3. 


Association of Living Room Table 

Ibid., Part 2, ch. 6. sec. 4. 


National Association of Chair Man- 

Ibid., Part 2, ch. 5; F. A. L., case 


297 (1925). 

National Alliance of Furniture Man- 

F. A. L., cases 298, S02, 303 (1925). 


Industrial alcohol manufac- 

Industrial Alcohol Institute. 

Whitney, S. N., op. cit., pp. 


131, 136. 

Industrial rivet manufacturers. 

Institute Df Tubular Split and Out- 

F. T. C, order. Docket 3107 

. side Pronged Rivet Manufacturers. 


Jewelry retaUers 

Eighteen Karat Club 

F. A. L., cases 312, 317 (1927). 

Kitchen utensUs manufac- 

Open price association. 

F. A. L., case 25? (1922). 


Kraft paper manufacturers 

Kraft paper association 

U. S. V. Kraft Paper Association 

et. al., District Court of the 
U. S., S. D. of N. Y.. indict- 
ment, July 20, 1939; F. A. L., 
case 544 (1940). 

Ladies' handbag manufac- 

National Association of Ladies Hand- 

F. T. C, order. Docket 2226 


bag Manufacturers. 



Southern California Laundry Owners 

F. T. C, order, Docket 1954 



Lead pencil manufacturers ' 

Lead Pencil Institute and its successor, 

F. T. C, order, Docket 3643 

Lead Pencil Association. 



American Lecithin Company 

F. T. C, complaint. Docket 

4173 (1940). 


Group Life Association. 

Hearings before the T. N. E. C, 
Part 10, pp. 4154 ff. 

Lime manufacturers 

Common agent 

F. T. C, complaint, Docket 

Linseed crushers 

Linseed Crushers Council 

3591 (1939). 
F. A. L., case 215 (1923). 

Liquor dealers 

Wholesale Liquor Distributors Asso- 

F. T. C. complaint, Docket 

ciation of Northern California. 


Liquor Trades Stabilization Bureau. .. 


National Retail Liquor Package 

F. T. C, complaint, Docket 4168 

Stores Association and constituent 


State and local associations. 

Lumber distributors 

California Lumbermens Council and 
affiliated regional clubs. 

F. T. C, order, Docket 2898 


National Association of Commission 

F. .V. L., cases 489, 490 (1940). 

Lumber Salesmen. 

Lumber manufacturers 

American Hardwood Manufacturers' 

F. A. L., case 210 (1921). 

Southern Pine Association 

F. A. L., cases 489, 490 (1940). 

West Coast Lumbermens Association.. 

F. T. C, Lumber Manufacturers 
Trade Associations (1922), pas- 

Western Pine Manufacturers Associa- 
Northern Hemlock and Hardwood 


F. T. C, Northern Hemlock and 

Manufacturers Association. 

Hardwood Manufacturers As- 
sociation (1923) pp. viii, xiii, 
24, 27, 30, 33. 

Maple Flooring Manufacturers Asso- 

Maple Flooring Manufacturers 


Association v. U. S., 268 U. S. 
663 (1925) Reply Brief for the 
United States; Petition by the 
Attorney General for Rehear- 

Hardwood Institute 

F. T. C, complaint. Docket 3418 

Machine tools manufacturers.. 

Machine Tool Distributors, Chicago 

F. T. C, order, Docket 1882 



MaDeable iron castings manu- 

American Malleable Castings Associa- 

F. A. L., case 282 (1926). 





Trade associations, industrial institutes, and other common agencies said to be 
exercising some form of control over production, price and terms of sale, and 
organizing boycotts in national or regional markets from 1920 to 1940 — 




Malt manufacturers 

Metal window manufacturers 

Millinery manufactiuers 

Music composers 

Music publishers... 

Oil refiners 

Optical goods wholesalers 

Paper cup and container man- 

Paper distributors 

Paper, pulp, and wooden dish 

Peanut cleaners and shellers 


Plumbing supplies distribu- 

Potato chip manufacturers.. 

Potato dealers- 

Power cable and wire manu- 

Power lawnmower manufac- 


Range boiler manufacturers 

Refrigerator manufacturers 

Retail credit reporters 

Rice millers 

Rubber heels and soles dealers 

Sardine canners 

Sanitary pottery manufactur- 
Shoe findings wholesalers 

Snow fence manufacturers 

Sponge distributors 

Steel manufacturers 

United States Alaltsters Association.. 
Metal Window Institute 

Millinery QuaUty Guild 

American Society of Composers, 
Authors, and Publishers. 

Consolidated Music Corporation 

Music Publishers Association of the 
United States. 

Music Publishers Protective Associa- 

Independent Refiners Association of 

Optical Wholesale National Associa- 
tion; Optical Wholesalers Associa- 
tion of New York; Philadelphia As- 
sociation of Wholesale Opticians. 

Cup and Container Institute 

Pacific States Paper Trade Associa- 

Food Dish Associates. 

National Peanut Cleaners and Shellers 

American Photo-Engravers Associa- 

American Institute of Wholesale 
Plumbing and Heating Supply 
Associations and affiliated state, 
county, and city associations. 

Eastern States Potato Chip Manu- 
facturers Association. 

Potato Chip Manufacturers Associa- 
tion of the United States. 

Potato Sales Co 

Freehold Potato Sales Co 

Grower-Dealer Potato Market Com- 

National Electrical Manufacturers 

Power and Gang Mower Manufac- 
turers Association. 

United Typothetae of America. 

Range Boiler Manufacturers Associa- 

National Refrigerator Manufacturers 

National Retail Credit Association 

CaUfornia Rice Industry 

National Federation of Master Shoe 

Maine Cooperative Sardine Co 

Norwegian Canners Price Committee. 
Sanitary Potters Association 

Northwest Shoe Finders Credit Bu- 

United Fence Manufacturers Associa- 

Tarpon Springs Sponge Exchange, 
Sponge Institute. 

Florida Sponge Packers Association 

American Iron and Steel Institute 

F. T. C, complaint. Docket 3555 

F. T. 'c, order. Docket 2978 

F. A. L., case 386 (1934). 
F. A. L., case 404 (1935). 

F. A. L., case 216 (1922). 

F.- T. C, order. Docket 4(X) 

F. A. L., case 404 (1935). 

F. A. L., case 460 (1940). 

U. S. V. American Optical Co., 
et al., U. S. V. Optical Whole- 
salers National Association^ 
Inc., et al., indictments, Dis'. 
trict Court of the U: S., S. D 
ofN. Y., May 28, 1940. 

F. T. C, complaint. Docket 3046 

F. T. C, order, Docket 934 
(1923); F. T. C. v. Pacific 
States Paper Trade Association, 
88 Fed. (2d) 1009 (1937). 

F. T. C, order, Docket 3397 

F. A. L., case 294 (1925). 

F. T. C, orders, Dockets 82, 928 

U. S. V. Central Supply Associa- 
tion, et. al., District Court of 
the U. S., N. D. of Ohio, 
indictment. Mar. 29, 1940. 

F. T. C, Agricultural Income 
Inquiry (1937) vol. 1, pp. 621- 

Ibid., pp. 632-633. 
Ibid., p. 634. 
Ibid., p. 634. 

F. T. C, order. Docket 2565 

F. T. C, complaint. Docket 3689 

F. T. C, order. Docket 459 

Hearings before the T. N. E. C. 

(1939) pp. 2408-2409. 
F. A. L., case 296 (1925). 

F. A. L., case 390 (1933). 

F. T. C, order, Docket 3090 

F. T. C, order, Docket 2802 

F. A. L., case 329 (1927). 
F. A. L., case 374 (1931). 
F. A. L., case 259 (1927). 

F. A. L., case 324 (1928). 

F. T. C. order. Docket 3305 

F. T. C, order. Docket 3024 

F. T. C, order, Docket 3026 

F. T. C, order, ' 'docket 760 
(1924) ; Practices of the Steel In- 
dustry Under the Code (1934) 
Ch. 3; Hearings Before the 
T. N. E. C. (1939), pp. 1860- 
1901, 2192-2200. 



Trade associations, industrial institutes, and other common agencies said to be 
exercising some form of control over production, price and terms of sale, and 
organizing boycotts in national or regional markets from 1920 to 19^0 — 




Steel oflBce furniture mama 

Stove manufacturers 

Sugar refiners 

Surgical instrument distribu 


Terra cotta manufacturers 

Textile refinishers 

Tile manufacturers 

Tin plate manufacturers 

Tobacco wholesalers 

Uniform cap manufacturers 

Vacuum cleaner manufacturers 

Washing machine manufac- 
Waxed paper manufacturers... 

Water gate valves, hydrants, 
and fittings manufacturers. 

Water-marked paper manufac- 

Wooden container manufac- 

Woolen textUe manufacturers . 
Zinc- and copper-plate prod- 
ucts manufacturers. 

Steel Oflice Furniture Institute 

National Association of Stove Manu- 
facturers and affiliated product and 
regional associations. 

Sugar Institute 

Metropolitan Surgical Instrument 

Tanners Products Co 

National Terra Cotta Society 

Textile Refinishers Association 

Tile Manufacturers Credit Association 

National Association of Tin Plate 

Wholesale Tobacco and Cigar Dealers 
Association of Philadelphia. 

National Association of Tobacco Dis- 

Wholesale Tobacco Distributors of 

New York. 
Philadelphia Division, National Asso- 
ciation of Tobacco Distributors. 
Cleveland Tobacco Jobbers Associa- 
Chicago Tobacco Jobbers Association. 
Chicago Division, National Associa- 
tion of Tobacco Distributors. 
Detroit Tobacco Jobbers Association. _ 
Uniform Cap Manufacturers Institute- 
Cap Association of the United States.. 
Vacuum Cleaner Manufacturers Asso- 

American Washing Machine Manu- 
facturers Association. 
American Waxed Paper Association... 

Waterworks Valve and Hydrant 
Group of the Valve and Fittings 

Common agent 

Standard Container 


American Veneer Package Association 

and four regional associations. 
Wool Institute 

Photo-Engravers Copper Zinc and 
Grinders Association. 

F. T. C, order, Docket 3319 

F. T. C, Report on House Fur- 
nishings Industries, vol. 2 
(1923), Ch. 4-10. 

F. A. L., case 379 (1936). 

F. T. C, order, Docket 2409 

F. A. L., case 300 (1927). 

F. A. L., cases 242, 256 (1923). 

F. A. L., case 414 (1936). 

F. A. L., case 248 (1923). 

F. T. C, Brief on Pittsburgh 
Plus (1924), pp. 44, 225. 

F. T. C, order, Docket 886 (1924). 

F. T. C, Agricultural Income 
Inquiry (1937), vol. 1, pp. 624- 

Ibid.i P- 531. 

Ibid., pp. 539-540. 

Ibid., pp. 540-542. 

Ibid., pp. 542-546. 

Ibid., pp. 546-547. 

F. T. C, order. Docket 2630 


F. T. C, Report on House Fur- 
nishings Industries, vol. 3, 
(1924) Ch. 2. 

Ibid., Ch. 3. 

F. T. C, Open-Price Trade 
Associations (1929), pp. 261- 

F. T. C, order. Docket 2958 

F. A. L., case 352 (1928). 

F. T. C, Agricultural Income 

Inquiry (1937), vol. 2, p. 616; 

F. T. C, order, Docket 3289 

F. T. C, order. Docket 3556 

F. A. L., case 375 (1930). 
F. T. C, order, Docket 2660 


• The Federal Antitrust Laws, Government Printing OflSce, Washington, 1938, pp. 81-269, "Summary 
of Cases Instituted by the United States Under the Antitrust Laws," with mimeographed supplement 
issued by the Department of Justice. 


The instances in which trade associations are known to have ex- 
erted control over prices are so numerous that discussion of this 
aspect of their activities must be limited to a few illustrations. 


Control in the flour milling industry has taken the form of drives 
to outlaw sales below lOr at "cost," centralized determination of the 
elements which enter into "cost," agreement concerning the terms of 
sale, and both informal and systematic exchange of price quotations. 


A president of the Millers National Federation is quoted by the Fed- 
eral Trade Commission as saying that ^° — 

The ultimate purpose of all our activities is to bring about in the industry 
a condition where every miller in the United States can demand and secure 
a reasonable profit on every barrel of flour manufactured and sold. 

To this end millers were urged, in trade meetings and through cor- 
respondence, to maintain prices at profitable levels. "It was the con- 
sensus of opinion" at a meeting of the Federation held in October 
1923, according to an association official, "that all should determine 
not to sell without a profit." ^^ A representative of a large Minne- 
apolis mill, speaking at a meeting of a Southern Minnesota associa- 
tion, assured its members that the large millers °^ — 

would not sell flour without a margin, that they would not sell beyond 60 days 
without a carrying charge, and that they had fully determined to make a profit 
on everything they sold, and had given up the idea that they would run their 
mills full time anyway. 

One Minneapolis miller, objecting to an article in a trade journal 
which suggested that "a number gt northwestern and Wisconsin mills 
are in conference, resulting in their quoting identical prices for flour," 
wrote as follows : ®^ 

I presume this rumor started by the fact that the millers got together, just 
as we did the other day, but there was no attempt to make any fixed price on 
flour or to do anything except to open the eyes of some of the millers who do 
not figure cost and are quoting flour way beyond reason. 

Local millers' clubs in Kansas encouraged members to study their 
costs and add 25 cents a barrel, "the profit allowed by the Food Ad- 
ministration during the war." A Kansas miller explained that "at 
these meetings they talk over the millers' troubles and try to get them 
all to agree not to sell below cost ; that is, to 'agree each one with him- 
self not to sell below his cost.' " ^* Millers assured one another that 
they were adhering to these programs. The president of one large 
mill wrote to the vice president of another : ®^ 

It is exceedingly encouraging to have you write that even in the face of 
declining sales you are going to maintain a rigid policy as to making a profit 
on all orders. 

And a Milwaukee miller reported that — ^^ 

* * * the conclusions on the part of the millers has [sic] already borne con- 
siderable fruit notwithstanding and in face of the fact that sales are practically 
at a standstill. While here and there we find that millers are weak enough to 
make sales which certainly do not represent their cost, our sales force is unani- 
mous in reporting that prices are quite in line with ours, which represent full 
milling cost with a profit added to it. 

The establishment of uniform prices in the industry was facilitated 
by a centralized determination of "costs." Northwestern millers set 
up a "service bureau" in 1924 to issue information on "costs." This 
agency distributed "market cost cards" which were taken as reflecting 
the average cost of producing flours in all the mills of the Northwest. 
The Federal Trade Commission's characterization of the bureau's 

•0 Federal Trade Commission, Competition and Profits in Bread and Flour. 70th Cong., 

J.Sl SGSS-, o. X-'OC. i/O (iy^ol. p. oo^. ' 

«i Ibid., p. 354. 

« Loc. cit. 

«^ Ibid., p. 360. 

^ Ibid., p. 362. 

«5 Ibid., p. 357. 

«8 Ibid., pp. 355-356. 


figures as "inflated specification costs" is supported by the fact that 
they sometimes exceeded the prices prevailing during periods when 
the mills wer.> enjoying substantial profits.^^ The Millers National 
Federation adopted a "uniform cost and accounting system" in 1925. 
It not only issued a "standard cost card," but also proposed that certain 
"costs" be computed on the basis of operation at 60 percent of capacity, 
and even suggested in dollars and cents the sums to be included in the 
estimate of "costs." ®® 

The federation was also interested in standardizing certain price 
elements in the terms of sale. It adopted a schedule of uniform 
package differentials, setting forth the sums to be added to or sub- 
tracted from a basic price for flour packed in various sizes and in con- 
tainers of various types. It fixed a uniform carrying charge for flour 
held by the miUer beyond the time named in the contract. Constituent 
associations — regional, State, and local — recommended to their mem- 
bers that they employ the standardized differentials and carrying 
charge. According to a member of the federation staff, the schedule 
of differentials, which was revised from time to time, came to be 
"accepted as official throughout the country." ^^ 

A plan for the systematic exchange of price information was put 
into effect after a meeting of the federation in 1923. Price reporting 
apparently commended itself to the industry as a means of preventing 
price cutting. The president of the federation, in answer to a com- 
plaint that flour was being offered in New York City "below cost of 
production," voiced a desire "to have the chance of checking up on 
the people who are making destructive prices." ^^ And a Kansas City 
miller, writing in support of the exchange of price data, argued that 
"if a miller was really cutting prices, he would stop as soon as he 
found out that it was public Imowledge." ^^ 

A study by the Federal Trade Commission, covering 91 companies in 
the years 1923 and 1924, suggests either that the gravity of the "sales 
below cost" problem was exaggerated by the millers or that association 
activities were successful in relieving it, since the average annual 
return which these concerns realized on their investment stood at 8.9 


Associations have also undertaken to control competition in the 
bread baking industry. The American Bakers' Association, a national 
body whose membership in 1925 included 13 constituent associa- 
tions and 526 concerns, has been instrumental in the adjustment of 
competitive conflicts and in the negotiation of agreements on price. 
This body undertook to settle "price wars" in Western Pennsylvania, 
in Fort Wayne, Ind., Danville, 111., Hastings, Mich., and Denver, 
Colo.,^^ in Kenosha, Wis., and Kansas City, Mo., and in the Pacific 
Northwest. In the Kenosha case, the association persuaded a Chi- 
cago baker selling in the Kenosha market to sell at prices set by the 

8' Ibid., p. 391. 

8S Fpderal Trade Commission, Conditions in the Flour-Milling Business, 72d Cong., let 
sess.. S. Doc. 96 (1932), p. 24. 
«> Ibid., p. 9. 
■"> Ibid., p. 15. 

Ti Fpderal Trade Commission, Competition and Profits in Bread and Flour, p. 367. 
'2 Feder'al Trade Commission, Conditions in the Flour Milling Business, p. 2. 
'"' Federal Trade Commission, Competition and Profits in Bread and Flour, ch. 4. 


Kenosha firms.^* In the Kansas City case, the secretary-business man- 
ager of the association wrote : ^^ 

* * * you will be glad to know that the Kansas City troubles have been 
straightened ^ut and that bread went back on a 7- and 10-cent basis Monday morn- 
ing. I think we can give our committee on trade and industrial relations the 
credit for this settlement. For the present, however, the subject had better not 
be discussed. 

In the Northwest, the Washington State Master Bakers' Association 
cooperated with the national body in effecting a settlement. In a letter 
to its membership this association said : ^® 

When the association started there were several bread and cake wars in various 
parts of the State — some of them quite serious * * *. Today an armistice 
has been signed on the battle front of every large scrap, and the outlook is sub- 
stantially improved. The secretary is ready to go to any part of the State at any 
time an outbreak is threatened. 

The Washington association also distributed a bulletin cont^ming the 
results of a cost- analysis survey which concluded : " 

The above figures speak for themselves and eertainly do not justify any cut in 
prices. The correct wholesale . rice of bread is 8 Jents fo- pound loaf and 12 cents 
for pound-and-one-half loaf. 

The Associated Bakers of America, another national group, carried 
on most of its activities through State, district, and local associations. 
One of these, the Associated Bakers of Illinois, held 37 district meetings 
in 1 year, effected agreements on prices, premiums, and other relevant 
matters at 11 meetings, and prepared the ground for such agreements 
at several others.^^ The Indiana Bakers' Association organized local 
groups and held similar meetings. Its secretary wrote : ''^ 

ELad a fine meeting in Evansville last Wednesday and the boys organized a local 
association to be known as the Tristate Bakers' Club. I believe they are going 
to get along fine from now on for some time at least. I understand their prices 
next Monday will De 8 cents and 12 cents wholesale, which I hear is about tho 
same action as has taken place in Wabash, Logansport, Marion, and Huntington. 

The Potomac States Association and the New England Bakers' 
Association were likewise instrumental in bringing prices under con- 

High profits went hand in hand with these activities during the 
period covered by the Federal Trade Commission's survey. In 1925, 
67 companies, producing 30 percent of the commercial output of bread, 
realized a return of 15.32 percent on their stated investment and 23.55 
percent on their investment as revised by the Commission to exclude 
intangible assets and all ascertainable appreciation of assets during 
the preceding 5 years. In the 6 years from 1920 through 1925, they 
averaged 14.90 percent annually on their investment as stated and 25.?9 
percent on their investment as revised.^^ 


Price fixing was found to be a characteristic activity of certain trade 
associations in the household furniture industry between 1920 and 1922, 

■'ilbid., pp. 72-76. 
'6 Ibid., p "^ 

•?« Ibid., p. 92. 

" Ibid., p. 92. 

'8 Ibid., p. 134. 

™Ibid., p. 153. 

8» Ibid., pp. 170-190. 

» Ibid., p. 283, table 50. 


capital levy which will make it unnecessary to burden the nation 
with a staggering debt. 

3. Recognizing the condition of many people whose low 
incomes do not permit further withdrawals for deferred payment 
funds, an exempt rninimum is provided, a sharply progressive 
scale of deferred payments based on increments of income is 
used, and a system of family allowances made to ease the burden 
on those who have no satisfactory margin above the barest 
necessities of life. 

4. Provision of an "iron ration" of absolute necessities which 
will not be permitted to vary in cost or consumption as general 
prices change. 

The" timing" in this bold proposal is left up to the Government, 
which shall determine from general economic conditions when to 
release funds from the deferred-payment accounts, in the inevitable 
depression following the war. The passage of a capital levy would be 
up to the Parliament in power during that post-war period. Its 
size would be determined by the amount of debt incurred to finance 
the war, and the forced lo'ans to be repaid. 

A capital levy made during the war to finance it cannot prevent 
inflation through curtailing purchasing power and lessening the 
demand for consumers' goods, for it does not divert such mass pur- 
chasing power. After the war is over, however, it provides an 
immediate means of paying off the war debt, distributes purchasing 
power among the consuming public, and reduces savings in a period 
of constriction of the investment market when they would inevitably 
remain idle. Also, it redistributes wealth on a more equitable basis. 

What are the alternatives confronting the British nation? As 
Keynes points oiit, the so-called "normal" methods of meeting wartime 
needs arc a combination of stiff taxation along accepted lines, volun- 
tary savings stimulated by active propaganda, and sufficient inflation 
to raise income to the level needed to produce high tax yields and large 
savings. Then, by withdrawing an adequate amount of potential 
consumers' purchasing power through taxation and borrowings, the 
force which otherwise would irresistibly raise prices and bring on the 
inflationary spiral can be controlled. But Keynes believes it is 
impossible to achieve this, and at the same time preserve the best 
objectives of a democracy in wartime. The controls necessary for 
this method of preventing inflation deny the basic objectives of 
democracy. If strict controls are not established, the inflationary 
spirals cannot be prevented. 

Germany has apparently been successful in enforcing a wartime 
fiscal policy which has prevented inflation and at the same time 
provided the nation with the resources needed to wage a successful 
war. But she has done so through the imposition of drastic con- 
trols, including a comprehensive system of rationmg and frozen 
prices, a system of direct deductions from wages for social and gov- 
ernmental purposes, and a complete regimentation of workers, man- 
agement, and owners of business. But Germany is a totalitarian 
state which mocks the weal-messes of dehiocracy and its inability to 
marshal its economic forces for successful war activities. Germany, 
furthermore, has no obligation to preserve any measure of free enter- 
prise or individual choice. To adopt her policies would be to deny 
the very essentials of democracy. 


Probably the soundest criticism to be leveled at the Keynes plan 
is that it involves drastic changes of fiscal policy and taxation, so 
radical in comparison with the customary procedures as to appear 
revolutionary. Whether anything short of such drastic changes will 
suffice can be proved only by experience. It is hardly likely that 
the Keynes plan wiil be adopted, however, not only because of its 
complexity, but because it involves great sacrifices of wealth, and 
much foresight and abstinence on the part of the whole population. 
Even the stress of war seems insufficient to force such widespread 
changes in public policy. 


The Senate committee investigating the munitions industry de- 
voted considerable time to the study of wartime taxation and price 
control, with John T. Flynn, noted publicist and authority on finance, 
as consultant to the committee. He is largely responsible for a plau 
which seeks to defray the cost of war on a pay-as-you-go basis, 
thereby removing the forces which cause- inflation and its evils.*^ 

Senator Arthur Vandenberg, member of the committee, stated 
Flynn's fundamental thesis succinctly as follows: 

It is proposed to strike at the economic heart of the war profit by the simple 
fundamental device of requiring that no future war be fought on borrowed 
money, but should be paid for substantially by current taxes. It is the process 
of making war on borrowed money which primarily creates the sinister inflation 
out of which grows: 

1. The opportunity for swollen profits. 

2. The economic dislocation of the war era. 

3. The post-war calamity of deflation.^** 

The Flynn plan consists primarily of dependence on drastically 
revised corporate and personal income taxes. The former provides 
that corporation profits up to 6 percent of the capital value of such 
corporations will bear a 50-percent tax. An excess-profits tax of 
100 percent will be le^'ied on all profits above 6 percent. To cite 
Flvnn's example, a corporation with an adjusted declared value of 
$100,000,000 makes $50,000,000 in a war year. Profits of 6 percent 
of the declared value, or $6,000,000, would be taxed at 50 percent, or 
$3,000,000. The remaining profits of $44,000,000 would be taxed at 
100 percent. Thus this corporation would pay a total tax of $47,- 
000,000. leavins: it with a net profit after taxes during that war year of 

The personal income-tax changes proposed are also very drastic. 
The elaborate mechanism of normal and surtaxes is to be eliminated^ 
and a rate structure imposed wiiich does not permit even the topmost 
tax-free income to exceed $10,000. As Flynn says: 

That may look very drastic to the man wlio is making §50,000 now and who 
made $100,000 a year in the last war, but it ought not to be so bad, because, after 
all, you ought not to be accused of unreasonableness when you ask a man to run a 
factory for the same sum that you pay a general commanding in the field. ^^ 

In order to speed up the collections from these taxes, Flynn proposed 
that they be collected on a quarterly basis. He also advised requiring 
corporations to file with the Government a list of officers' salaries 

*» Hearings before the Special Committee Investigating the Munitions Industry, U. S. Senate, Part 22, 
Wartime Taxation and Price Control, 1935. 
*"Ibid., p. 6243. 
»i Ibid., p. 6186. 


tions, and divergent across State lines, save in those cases where 
State secretaries cooperated in exchanging information.®^ 

Cottonseed oil refiners, like cottonseed crushers, have employed 
price reporting as a means of achieving price uniformity. They set 
up a reporting system in 1926, when they belonged to the Oil and 
Shortening Division of the National Cottonseed Products Association, 
and have continued it under the auspices of the Institute of Cotton- 
seed Oil Foods which they organized in 1932. When the Depart- 
ment of Justice ruled in 1929 against the interchange of current 
prices, the refiners, like the crushers, adopted the subterfuge of label- 
ing them as past prices."® Administration of the program has been 
facilitated by the standardization of container sizes and the estab- 
lishment of uniform terms of sale.®^ Through these devices, "appar- 
ently supplemented by customary adherence and gentlemen's agree- 
ments," the refiners have maintained virtually identical prices in the 
markets in which they sell.®^ 


The producers of asphalt shingle and roofing are said to have held a 
meeting in May 1928, at which they agreed to base the prices of non- 
patented products on the minimum prices fixed by the Flintkote Co. 
for products manufactured under patents, numbering a thousand or 
more, which it owned, and under patents belonging to other concerns 
which it administered in a common pool. Prices charged by the in- 
dustry immediately rose by 11.5 percent, and for a time remained both 
uniform and constant. Tjiey broke, however, when some of the firms 
failed to adhere to the agreement.^® In the following year, the Asphalt 
Shingle and Koofing Institute, profiting by this experience, adopted a 
"merchandising plan" which included a penalty provision designed 
to insure compliance. Shortly thereafter, the Department of Justice 
entered suit against the institute and its officials, charging that its 
members had fixed uniform and noncompetitive prices, terms, dis- 
counts, and freight charges, that they had adopted an arbitrary classi- 
fication of customers, that they had agreed upon the credit qualifica- 
tions of customers, that they had operated a price reporting system 
under which no member could change his prices without first notifying 
the others, and that they had enforced these arrangements by requiring 
each member to post a $100,000 bond and to agree to the imposition of 
penalties which might amount to as much as $25,000 for a single breach 
of the agreement.^ The suit was dropped in 1935 after a code of fair 
competition for the industry had been approved by the N. R. A. It is 
contended, however, that this "did not indicate a weakness in the De- 
partment of Justice's cause of action, nor may it be inferred that it 
acted in the nature of an absolution of the alleged conspirators." ^ 

* Ibid., p. 15826. 

'"George MarshaU, "Cottonseed — Joint Products and Pyramidal Control," in Walton H. 
Hamilton. Price and Price Policies, 1938, pp. 280-281. 

»^IWd., p. 283. 

Bsibid., p. 279. 

" Enid Baird. Price Piling Under N. R. A. Codes, N. R. A. Division of Review, Work 
Materials No. 76 (mlmeo.), vol. 2. pp. 504-505. 

^ U. 8. V. Asphalt Shingle and Roofing Institute, et al.. Bill in Eauitr No. 57-162. District 
Court of the United States, Southern District of New York. 

» Baird, op. cit., p. 510. 



The decisions of the Federal Trade Commission reveal many other 
cases in which the members of an industry, acting through a trade asso- 
ciation, have succeeded in eliminating competition in price. Before 
1937 the producers of copper cable and wire for electrical transmis- 
sion, combined in the National Electrical Manufacturers' Association, 
held frequent meetings at which they agreed to quote identical prices 
and to sell on identical conditions and terms. Some of the larger manu- 
facturers compiled and circulated detailed price lists to which their 
smaller competitors were expected to conform, promising to notify 
them of contemplated changes and to instruct them concerning the 
methods of calculation to be employed. Association members agreed 
that no customer should be allowed to purchase except upon a delivered 
price basis and adopted a formula by which such price? were to be 
computed. They determined who should be recognized as jobbers, 
offered them identical discounts, required them to adhere to fixed resale 
prices, and refused to deal with those who failed to conform. The 
association administered a reporting system through which its mem- 
bers exchanged detailed information as to prices, discounts, and terms 
of sale. It investigated cases of alleged price cutting and imposed pen- 
alties on manufacturers who failed to adhere to the prices upon which 
the industry had agreed. On December 29, 1936, the Commission 
ordered the association and its members to cease and desist from these 


The manufacturers and distributors of steel window products, act- 
ing through the Metal Window Institute, published a "basic price 
book" which contained a detailed list of gross prices for all of these 
products and set forth formulas whereby specific prices were com- 
puted by deducting standard discounts from the basic figures. They 
adopted common schedules of discounts, filed them with the associa- 
tion, and agreed not to deviate from them without giving notice of 
their intention to do so. They adopted and agreed to adhere to com- 
mon conditions and terms of sale. They established and rnaintained 
a number of regional clearing bureaus to which they submitted their 
estimates on the plans and specifications set forth in connection with 
requests for bids on various construction projects and through which 
they compared these estimates and agreed upon identical gross or net 
prices which they then used in submitting bids. According to the 
Federal Trade Commission, "The association required its members 
to adhere to the established prices by actively policing the industry 
and threatening to impose penalties on those who sold for less." * 
The Commission issued a cease and desist order in this case on Novem- 
ber 30, 1987. 


The producers of snow fence, members of the United Fence Manu- 
facturers' Association, maintained a system of identical delivered 

' Hearings before the Temporary National Economic Committee, Part 5-A, p. 2319. 
* Ibid., p. 2329. 


prices and employed a price reporting scheme. Their activities are 
described by the Commission : 5 

Delivered price lists, discounts, and terms of sale were filed with the secretary 
of the association and maintained until revised. Such delivered price charges 
were not made effective by all producer-members on the same day, but soon 
after any producer-member filed one, the others followed. Delivered prices for 
carload and less-than-carload quantities were identical on snow fence products 
of each standard type. Likewise, the discounts and terms of sale were identical. 
* * * Producer-members refused to make shipments upon consignment, and 
reported all price cutting to their secretary, who undertook to stop it. Each 
producer-member agreed to submit to an investigation and examination, under 
oath, conducted by a board of trustees, if he were charged at any time with a 
violation of his undertakings pursuant to the * * * agreement. 

Distributors were arbitrarily classified and a different discount was 
allowed those in each class. They were required to maintain fixed 
resale prices and to report all instances of price cutting. Those who 
failed to do so were threatened and cut off from their sources of sup- 
ply. The Commission issued a cease and desist order on July 13, 


In some cases, trade associations have undertaken to distribute 
among their members exclusive sales areas or groups of customers. 
"It appears to be a widely accepted principle" says the Federal Trade 
Commission, "that concerns selling in the local territories of others 
in the industry should respect the prices established by the local con- 
cern. Cases of violation of this principle have been reported to asso- 
ciation executives, who in turn have taken to task the offending 
member." '^ This sort of pressure was applied by officials of the 
Common Brick Manufacturers' Association in 1924 and 1925 and by 
those of the Nebraska Millers' Association and the National Associa- 
tion of Gummed Tape Manufacturers in 1926 and 1927.^ Wliile such 
activity permits one member to invade another's market, it denies 
him the right to do so by competing oh the basis of price. While it 
does not involve the allocation of exclusive territories, it clearly 
points in that direction. There are cases, however, in which the divi- 
sion of markets has been complete. 


The consumer credit reporting business operated, for a time, under 
a comprehensive market sharing plan. The National Retail Credit 
Association had some 20,000 members, some 1,300 of them credit re- 
porting agencies and some 18,000 of them credit granting firms. The 
member agencies collected information from the member firnjs and 
sold consumer credit reports. The plan devised by the association- 
distributed the markets of the United States among the member agen- 
cies by dividing the country into regions and assigning the regions as 
exclusive reporting territories to these concerns. Each member firm 
agreed not to furnish information to any agency other than^the one 

"Ibid., p. 2345. 

' Federal Trade Commission, Open-Price Trade Associations, p. 285. 

' Ibid., pp. 285-288. 


with which it was affiliated and to which its region was assigned. 
Each member agency agreed not to gather information or make re- 
ports in another region except through the agency to which that 
region was assigned. The association was enjoined from the further 
employment of this plan in a consent decree which it accepted in 1933.* 


The manufacturers and distributors of window glass, acting through 
the Window .Glass Manufacturers' Association and the National Glass 
Distributors' Association, adopted a market sharing scheme in 1935. 
They set up an arbitrary classification of customers, defining as quan- 
tity buyers those who purchased from 3,000 to 5,000 fifty-foot boxes 
of glass for stock each year and as carlot buyers those who purchased 
in carlots but in smaller quantities. The manufacturers' association 
made the final decision as to the classification of individual buyers. 
Manufacturers published price lists ohly for quantity buyers and sold 
only to them. The distributors' association published price lists for 
carlot and other buyers who were required to make their puichases from 
firms designated as quantity buyers. Each quantity buyer was as- 
signed a restricted territory and forbidden to sell beyond its boundaries. 
Since his designation carried with it a special discount of 7i/2 percent 
which would be denied him if he were not so classified, he had a strong 
incentive to confine his sales to the area assigned to him. The Federal 
Trade Commission ordered the associations to cease and desist from 
these activities in a decision issued on October 30, 1937.'' 


The National Federation of Builders Supply Associations, organized 
in 1933 as a successor to the Building Material Dealers Alliance, under- 
took to confine the distribution of building materials to "recognized" 
dealers. In connection with this program it appointed a number of 
committees to cooperate with affiliated associations of dealers in as 
many different building materials in working out plans for the control 
of distribution in each of these fields. The committee representing the 
distributors of cement recommended, among other things, that their 
associations should be permitted to assign market territories to dealers 
and that manufacturers should not be permitted to ship cement for 
dealers to construction jobs located outside of the territories which 
were prescribed. The Federation adopted these recommendations in 
1936. The Federal Trade Commission issued a cease and desist order 
against the program as a whole on December 30, 1937." 


Market sharing in the textile refinishing industry has taken the 
form of allocation of customers. Thirty firms, including substantially 
all of those engaged in the business of examining and sponging cloth 
for manufacturers of clothing in the New York market, were com- 
bined in the Textile Refinishers Association. Acting through the 

* U. 8. V. National Retail Credit Association, District Court of the United State;?, Eastern 
District of Missouri, Equity No. 10420, petition, filed June 12, 1933. 
» Hearings before the Temporary National Economic Committee, Part 5-A, p. 2330. 
" Ibid., pp. 2331-2333. 


association they not only agreed upon uniform prices, terms, and con- 
ditions of sale, but also assigned the business of each manufacturer to 
a single member of the association and compelled the manufacturer 
to have his work done by the member to whom he was assigned. This 
arrangement was enforced, in part, through the cooperation of the 
Textile Examiners and Finishers Union, which refused at times to 
examine and sponge a manufacturer's cloth, and the Cloth Sponging 
Drivers and Helpers Union, which refused to transport it. Its con- 
tinuation was forbidden by a consent decree which was accepted by 
the association and its members in 1936.^^ 


The distribution of business among association members has been 
accomplished not only by allocating markets and customers, but also 
by assigning fixed shares in production and sales. In some cases, this 
has taken the form of a reduction in output based upon productive 
capacity or upon the volume of goods sold in a previous year. In 
others, it has involved the adoption of an elaborate system of quotas. 


Production has been allocated through concerted restriction of out- 
put by producers of canned peas, copper, cotton yarn, cotton textiles, 
window glass, and wooden containers. For some time prior to 1923, 
the producers of window glass, acting through the National Window 
Glass Manufacturers' Association, permitted none of their plants to 
operate for more than 6 months in a year, permitted no more than half 
of them to operate at any one time, and fixed the dates between which 
such operations might be carried on.^^ During 1925 and 1926 the 
Southern Yam Spinners' Association issued frequent bulletins in 
which it urged its members to confine production to the volume re- 
quired to fill orders and to restrict their output as orders declined. The 
resulting curtailment took the form of a complete suspension of opera- 
tions during 1 or more days in each week.^^ In 1927 the Wisconsin 
Canners' Association succeeded in obtaining a reduction in the acreage 
planted by the canners of peas. The program was apparently en- 
forced, through the cooperation of the Wisconsin Bankers' Associa- 
tion, by persuading bankers to withhold sujB&cient credit from the can- 
ners to compel them to curtail their acreage by the amount desired.^^ 
The producers of copper, meeting under the auspices of the Copper 
Institute, pledged themselves, in 1930, to cut output by 16 percent, and 
announced in 1931 that production should be limited to 261/2 percent of 
capacity.^^ In 1930 the Cotton Textile Institute adopted the so-called 
55-50 plan, under which three-fourths of the firms in the industry 
agreed to limit day shifts to 55 and night shifts to 50 hours per week. 
It further discouraged full-time operation by persuading four-fiftlis 
of the firms to' discontinue the employment of women and children at 

" V. 8. V. Textile Refinishers Association, Inc., et al.. District Court of the United States, 
Southern District of New York, Equity No. 83-26, petition, filed May 1, 1936. 
i^Watl£ins, op. eit., pp. 160-161. 

" Federal Trade Commission, Open-Price Trade Associations, pp. 280-282. 
"Ibid., pp. 282-283. 
« Temporary National Economic Committee, Hearings, Part 25, pp. 13211, 13479-13485. 


night. In 1932 the Institute promoted curtailment programs in 
several branches of the industry. Print cloth mills, for example, 
undertook to reduce their output by amounts which ranged from 10 
percent to 50 percent." From 1933 to 1935, hours of operation were re- 
stricted by the code approved for the industry by the N. R. A. And 
again in 1939, print cloth mills were said to be operating under a "Print 
Cloth Curtailment Program" administered by a "Curtailment Pro- 
gram Committee," which required them to restrict production by 25 
percent and forbade them, without permission, to sell from stocks on 
hand.^^ In an order issued in 1940, the Federal Trade Commission 
found that 25 firms, members of the Standard Container Manufac- 
turers' Association, producing all of the baskets, boxes, crates, ham- 
pers, and other wooden containers for fruits and vegetables made in the 
States of Florida and Georgia, had agreed, among other things, to 
curtail the f)roduction of such containers and had enforced this agree- 
ment by requiring each member to check on the output of some other 
member and report on his compliance with the scheme.^^ In each of 
these cases, it appears that the several firms in an industiy have, in 
effect, been allotted shares in its market on the basis of their past pro- 
duction or capacity. In other cases, definite quotas have been assigned. 


A quota system controlled the oil refining industry in California 
until it was outlawed by a consent decree in 1930.^^ A similar sys- 
tem, administered by the Pacific Coast Oil Cartel, was set up under an 
N, R, A. codean 1^33 and maintained until the Schechter decision in 

1935. It is now charged that a third such plan was inaugurated in 

1936. As set forth in an indictment returned in this case, -° the facts 
are these: Seven major companies, members of the Fair Practices 
Association, accounted for 70 percent of the refining and 85 percent of 
the marketing of gasoline in California. Thirty independents, all 
but three of them members of the Independent Refiners' Association 
of California, accounted for 30 percent of the refining and 15 percent 
of the marketing. Under the leadership of the majors, the two groups 
cooperated in establishing and maintaining a common price. Each 
of the independents sold part or all of his output to the I. R. A. The 
majors, in turn, purchased large quantities of gasoline from the I. R. A. 
at "arbitrary, high, and non-competitive prices," thus deterring the 
independents from underselling them in the open market. The two 
associations surveyed the prices posted by retailers and disciplined 
price cutters by threats to suspend and by actual suspension of de- 
liveries. Members of the associations shared their customers, refusing 
to supply gasoline to dealers who were being served or had been cut 
off by others unless permitted to do so by the latter concerns. The 
I. R. A. assigned to its members production quotas, called "allow- 
ables," sent them monthly estimates of consumption, and advised each 
of them as to the quantity which his "allowable" would permit him 

i« Whitney, op. cit., pip. 70-73. 

" U. 8. T. Joseph E. Sirrine, et al., op. cit. 

w Federal Trade Commission, Order, Docket 3289. 

^'>U. 8. V. Standard Oil Co. of California, District Court of the United States, Northern 
District of California, Consent Decree, Seiptember 15, 1930. 

*> U. 8. V. Oeneral Petroleum Corporation of California et al.. District Court of the 
United States, Southern District of California, Indictment, November 14, 1939. 


to produce. The percentages employed were substantially the same as 
those that had obtained under the N. K, A. code. The quota system 
supplemented the program of price control by preventing any expan- 
sion of output which would have operated to depress the established 
price. In July and August 1940, most of the defendants in this case 
pleaded nolo conteridere and fines aggregating $67,500 were imposed. 
The National Elevator Manufacturing Industry, a trade association 
whose members control 98 percent of the elevator business in the United 
States, fixed prices and terms of sale, assigned production quotas, re- 
quired its members to report on prices and production, and compelled 
them, by threats and penalties, to maintain the established prices and 
remain within the prescribed quotas. The Otis Elevator Co., one of 
the largest firms in the industry, distributed detailed price lists, called 
"Otis white sheets," to other manufacturers through the secretary of 
the association, and sent out notices of contemplated price changes 
through the same channel. The association assigned to its members 
production quotas based upon the share of the total business handled 
by each of them in the years from 1928 through 1933 and adopted a 
rule which bound them to refuse to accept orders in excess of these 
shares. It required them to submit reports covering bids made by 
them, contracts awarded to them, prices charged on each sale, and quan- 
tities produced and sold. It compelled them to adhere to the estab- 
lished prices and quotas by threatening to oust them from the associa- 
tion and to have them sued for infringement of patent rights if they 
failed to do so. On October 30, 1939, the Supreme Court of the State 
of New York issued a permanent injunction against the continuance of 
the practices described.^^ The Stanley Elevator Co., one of the smaller 
firms in the industry, subsequently filed a complaint against the Otis 
Co., the Westinghouse Electric Elevator Co., the N. E. M. I., and their 
officers, charging that the two larger concerns had dominated the asso- 
ciation, that they had operated under an agreement for the cross- 
licensing of patents and had included in licenses granted to other man- 
ufacturers restrictions on production identical with those imposed by 
the association's system of quotas, that the quota assigned to the Stan- 
ley Co. by the association had confined it to eight-tenths of 1 percent 
of the industry's output, permitting it to sell only 20 elevators per 
year, a number much smaller than its normal volume of business, and 
that Otis and Westinghouse had brought 3 patent infringement suits 
against Stanley and a fourth against one of its customers for the 
purpose of punishing the companv for producing more than its quota 
allowed. The complaint asked for an injunction against the patent 
suits and for triple damages under the Sherman and Clayton Acts.^^ 


In an increasing number of cases, in recent years, the activities of 
trade associations have been administered by firms of management 
engineers. Maintenance of uniform prices and allocation of produc- 
tion have sometimes been among the policies promoted by such con- 

^ People of the State of New York v. National Elevator Manufacturing Industry, Inc., 
et al., Special Term, Part II, Supreme Court, State of New York, Decree (1939). 

'^Stanley Elevator Co., Inc. v. Otis Elevator Co. et. al.. District Court of the United 
States, District of New Jersey, Civil Action No. 891, Complaint. 


cerns. The methods employed in these instances are described by the 
Department of Justice in the following words : -^ 

In the hypothetical case which we are using to illustrate the general pattern, 
the engineering firm selected by the group desiring to eliminate competition con- 
ducts a militant campaign among the scattered manufacturers to organize them 
into trade associations. In such campaigns the benefits which come from higher 
prices and the discouragement of competition are usually emphasized. The firms 
who desire to maintain their own price policies are then subjected to increasing 
pressure. Finally, when a majority of the units are organized the engineering 
firm provides the permanent personnel which operates the trade association. 
Through tho*^ control of the personnel the whole industry is controlled. 

That control is exercised in various ways. The Department's preliminary 
investigation indicates that certain trade associations not only disseminate pro- 
duction statistics but take steps to see that their members produce no more of 
the total Supply than those statistics indicate has been their proportionate share. 
These steps range from mass pressure on dissenting individuals during meetings 
of the association to actual boycott and retaliation. The fear of retaliation is 
always present because of various methods that may be employed sub rosa by a 
small group having, permanent management control. Under such circumstances 
veiled threats are usually all that is required. The Department h^s evidence 
that where threats are not effective more direct method? are often used. 

Another device is tied up with cost accounting methods. Advice on account- 
ancy is used to establish standard amounts to be charged as an expense for each 
operation regardless of its actual cost. Thus, a fixed and uniform differential for 
profit is established and maintained by the careful policing of association personnel. 

Sometimes these firms also enter into direct agreements for the restriction of 
productive machinery. 

Another device is the creation of a fund among a small group to buy competin'^ 
plants which are troublesome competitors. Upon acquisition, such plants are 
often shut down and dismantled. * * * 

There are many variations to the pattern which has been described above. More- 
over, there is evidence that new associations of this general character have been 
formed even during the progress of the preliminary investigation by the Depart- 
ment. The danger that inheres in this type of combination is obvious. * * * 

Conspicuous among the concerns engaged in the business of organizing, 
advising, directing, and managing trade associations is the Stevenson 
Corporation of New York. This firm, operating under the name of 
Stevenson, Jordan & Harrison, administers the affairs of some 30 
national associations, shaping their policies, providing their executives 
from among its own employees, and exercising detailed and continuous 
supervision over their activities. Its approach toward the problems of 
a trade is suggested by a passage from the writings of its president and 
principal owner, Mr. Charles R. Stevenson : ^* 

What are these fetishes before which we are all bowing down, these idols of brass 
and sto: into whose fiery maws are being thrown the peace, security, and happi- 
ness of all our people? First, the belief that competition is the life of trade. 
Second, the belief that the individual has the fundamental right to engage in 
trade in Whatever form or manner he desires. * * * 

Let us suppose that we are able to overcome these fetishes and that we are will- 
ing to admit the advantages which would come from controlled production and the 
adjustment of hours and wages of labor to the production which we require. How 
could we go about handling the thin<T from a practical standpoint? 

First of all, then, we must change our laws regulating business, so that each 
industry will be given the right to form a firm organization and to govern and 
control, itself. This organization of the industry must carry with it compulsory 
membership on the part of every firm engaged in the industry and must give to a 
suflSciently large majority, let us say 66% percent of the capital invested in the 

23 Defpartment of Justice, Statement of Grounds for Actio. i. Investigation of Manage- 
ment Engineering Companies. Control of Trade Associations, June 27. 1939. 

2* Charles R. Stevenson, The Way. Out (Stevenson, Jordan & Harrison, New York), pp. 
25. 30-31. 


industry, the right to control the operations of the industry and to compel the 
adherence of the minority to the will of the majority. Industry, when so organ- 
ized, must have the right to schedule and regulate production, to allot production 
between plants and territories and to determine a fair price at which the products 
of the industry will be offered to the public. New capital desiring to engage in an 
industry in which the capacity is in excess of production schedules must first 
secure a certificate of convenience and necessity. 

Writing again in the fall of 1939, Mr. Stevenson argued that "agree- 
ments which are in the interest of the industry and therefore of the pnh- 
Uc, should be binding upon non-signers." ^^ Producers should be per- 
mitted to "allocate production fairly "^^ and to fix prices "which would 
assure a fair margin of profit above cost." ^^ The programs adopted by 
the National Container Association, the American Veneer Package 
Association, and the Kraft Paper Association under Stevenson man- 
agement reveal the practical application of this point of view. 

The 110 members of the National Container Association and the 165 
members of 12 constituent regional associations are engaged in the busi- 
ness of manufacturing and distributing shipping containers and other 
products made from corrugated and solid fiber board. The Stevenson 
firm, employed to manage the affairs of these associations in 1932, in- 
troduced an elaborate plan of price and production control. It devel- 
oped a "Basic Unit Plan" under which the numiBrous varieties of the 
industi"y's products were reduced to comparable elements. It prepared 
and circulated "Industry Estimating Manuals" containing "formulas, 
factors, and differentials" which were to be used by members in com- 
puting their prices. It urged members to ignore their actual costs and 
employ the arbitrary estimates set forth in these manuals. It enforced 
compliance through a plan of "Invoice or Order Analysis" which re- 
quired each member to submit to his regionaL association copies of 
invoices or orders giving complete details on every sale. Association 
officials employed by the Stevenson firm kept records to insure the sub- 
mission of this information, followed up members who failed to sub- 
mit it, checked the figures reported, and applied the "formulas, factors, 
and differentials" contained in the manuals to members' sales in order 
to determine whether they were adhering to them in fixing their 
charges. They also prepared and circulated reports and charts which 
compared each member's basic unit price with the average for the indus- 
try and sometimes distributed lists of invoices on which the prices fell 
below the average. These materials were discussed at frequent meet- 
ings of the regional associations and members with prices below the 
average were urged to raise them. Traveling auditors and engineers 
were sent out by the Stevenson firm to verify the information submit- 
ted, to call attention to prices below the average, and to promote the use 
of the "Industry Estimating Manuals." The program also involved 
the allocation of customers and the assignment of fixed production 
shares. Members filed with the regional associations memoranda stat- 
ing that they had obtained contracts or orders from certain buyers. 
Association secretaries thereupon disseminated the information with 
the understanding that other members would not compete for this busi- 
ness. Prod Uv^u on was allocated under a plan which was variously des- 
ignated as "Prorationing of Business," "Equitable Sharing of Avail- 

^ Charles R. Stevenson, "To Amend the Law of Supply and Demand," Advanced Manage- 
ment, F&ll, 1939, pp. 115-121, at p. 120. [Italics mine.] 
» Aid., p. 121. 
" Ihid., p. 119. 


able Business," and "Live and Let Live." The Stevenson firm divided 
the country into zones and made surveys of the volume of business 
transacted by each member in each zone during a "normal" or "base" 
period of 3 years. On the basis of these surveys it assigned mem- 
bers definite percentages of the business in their zones. Members 
agreed that they would accept and adhere to their quotas and supplied 
copies of invoices and other reports to the regional associations in 
order to enable officials to determine whether they were doing so. 
Association employees prepared bi-weekly reports and charts showing 
each member's share in the sales made during the current period and 
during the past year and comparing it with his quota. TTiese mate- 
rials were discussed at association meetings and members who had ex- 
ceeded their quotas were urged to curtail production. The reports, 
accounts, and records of members were verified and production in 
excess of quotas brought to their attention by the traveling represent- 
atives of the Stevenson concern.^^ A Government suit against the 
associations, their members, the management firm, and their officers 
was terminated by a consent decree on April 23, 1940. 

The producers of veneer containers used in packaging fruits and 
vegetables, members of the American Veneer Package Association, 
and four regional associations, also adopted the Stevenson "live and 
let live" plan. They divided the country into zones and sold at 
identical delivered prices to all points within each zone. They agreed 
upon uniform price lists, conditions, and terms of sale, customer 
classifications and class discounts, and filed current and future prices 
with zone secretaries employed by the Stevenson concern. These 
officials checked invoices and applied pressure where sales were made 
at prices below those filed or discounts allowed in excess of those 
authorized. The zone secretaries exchanged price reports through 
the national association and members who made sales in zones other 
than their own conformed to the prices established there. The Stev- 
enson firm conducted surveys of the business done in each zone and 
furnished a statistical report to each member showing his share of 
the total during a period of 2 years. Thereafter, it issued monthly 
reports showing the cuiTent share of each concern. Members were 
expected to keep current operations within the limits set by their 
original shares.^® Those who sought larger allotments were re- 
quired to purchase the shares belonging to others. The zone secre- 
taries approached those who had produced more than the quotas 
allowed and urged them to curtail their output. The Federal Trade 
Commission issued a cease and desist order against the five associa- 

"* V. S. V. national Container AssooiaUon et ,al.. District Court of the United States, 
Southern District of New Yorls, Indictment, August 9, 1939. 

™ Counsel for the Stevenson firm said : "By means of surveys made for the various 
groups, the total amount of business in each group was disclosed over a period of years, 
and likewise the participation in such business by each individual member of the group for 
that period. Thus there was developed a historical volume relationship of each respondent 
member of each group to the total business of the group. It was pointed out to each and 
every member * » » that any violent dislocation of this volume relationship could 
only be accomplished insofar as current business was concerned by adversely effecting (sic) 
the volume relationship of other members of the grouip. The inevitable result would be, 
it was pointed out, the institution of retaliatory measures to gain back lost volume with a 
concomitant spiral of declining prices resulting in a demoralized market and sales at 
unprofitable levels. In other words, each member was a.skefl to consider the consequences 
upon his own business of a course of action which would attempt to gain and hold a pro- 
portion of current business unwarranted by past volume relationship." — In the Matter of 
American Veneer Package Association, Inc., et al., Federal Trade Commission Docket No. 
3556, Brief for the Stevenson Corporation et al., p. 4. 


tions, their members, the management firm, and their officers on 
March 15, 1940.^° 

Stevenson, Jordan & Harrison also administer the affairs of the 
Kraft Paper Association whose 35 members produce 90 percent of 
the Nation's output of kraft paper. An indictment brought against 
these parties in the summer of 1939 charges that the program adopted 
by this industry involved the determination and assignment of pro- 
duction quotas, the circulation of weekly forecasts of estimated de- 
mand, the collection of weekly reports on production, inventories, 
shipments, orders, and sales, the distribution of weekly statistical 
reports covering this information, the discussion of prices and pro- 
duction at association meetings, and the periodic examination of 
members' books and records by field auditors and association repre- 

It is also charged, in a complaint against various members of the 
glass container and glass container machinery industries filed by the 
Department of Justice on December 11, 1939, that a similar program 
has been administered for the Glass Container Association since 1928 
by the Stevenson firm.^^ 


Trade association quota systems have seldom been enforced by the 
imposition of pecuniary penalties, Members of the American In- 
stitute of Steel Construction, some 200 firms controlling 85 to 90 per- 
cent of the business of structural steel fabrication, voted in 1931 to 
refer to the Institute's board of directors a plan which was designed to 
afford each firm a "reasonable ratio" of the available business by 
assigning quotas based upon productive capacity and by collectihg fines 
in the form of extra dues from firms producing in excess of the quota 
limits,^^ but it does not appear that this plan was ever put into opera- 
tion. For some time before 1938, the Coast Counties Lumbermen's 
Club of California allocated markets among its members and imposed 
penalties amounting to 10 percent of the price on goods sold outside 
of the territories assigned. The club also established sales quotas, but 
the penalties were ncJt applied to sales made in excess of the quota 

The only trade association production quota and penalty system on 
record is that administered by the California Rice Industry between 
1935 and 1938. California's eight rice millers, all members of this 
association, agreed upon uniform buying prices for paddy, uniform 
selling prices for processed rice, and uniform terms of sale, quantity 
discounts, and brokerage fees. The association established a formula 
for the computation of individual prices and announced a basic "in- 
dustry price" on Tuesday of each week. Association accountants 
checked members' invoices and records in order to determine whether 

•» Federal Trade Commission, Order, Docket 3556. 

»i V. 8. V. Kraft Paper Association et al.. District Court of the United States, Southern 
District of New York. Indictment, July 20. 1039. 

»2 V. 8. V. nartford-Empire Company et al., District Court of the United States, Northern 
District of Ohio, Western Division. Complaint, December 11, 1939. 

" Hearings on the Establishment of a National Economic Council before a subcommittee 
of the Senate Committee on Manufactures, 1931, p. 468. 

•* Hearings before the Tem'porary National Economic Committee, Part 5-A, pp. 2343- 


they were adhering to the program and made monthly reports which 
were discussed at association meetings. The group also assigned a 
monthly processing quota to each miller and required him to pay into a 
"millers' trust fund" 10 cents for every 100 - pound- bag of rice 
processed within his quota and 20 cents for every bag processed out- 
side his quota. After association expenses were paid, the remaining 
money was distributed among the participants, penalties being de- 
ducted from the shares going to those who had violated any of the terms 
of the agreement. The program was terminated by a cease and desist 
order issued by the Federal Trade Commission on March 26, 1928.^^ 


Trade associations have frequently undertaken to enforce their pro- 
grams by organizing boycotts or by threatening to do so. They have 
sought to confine the business of a trade to association members, to 
force non-member competitors to join the association or to withdraw 
from the field, and to compel members and non-members alike to 
adhere to association rules. To these ends, loyal association members 
have applied concerted pressure, directly by refusing to deal with 
recalcitrant members and non-member competitors, and indirectly by 
refusing to buy from suppliers who have sold to them or to sell to 
purchasers who have bought from them. In the same way, association 
members have sought to compel purchasers for resale to maintain fixed 
resale prices by collectively refusing to sell to those who have failed 
to do so. Associations have thus extended their control beyond the 
boundaries of their own membership and have forced outsiders to 
conform to their policies by threatening to deprive them of markets 
and supplies. 

In the wholesale and retail trades, associations have concerned them- 
selves largely with the preservation of the traditional channels of 
distribution. Associations of wholesalers have sought to prevent 
manufacturers from selling to other types of distributors, to retailers, 
or directly to consumers. Associations of independent retailers have 
sought to prevent manufacturers and wholesalers from selling to other 
types of distributors or to consumers. Members of these associations 
have adopted definitions of "recognized" or "legitimate" dealers, have 
issued "white lists" of approved dealers and "black lists" of disapproved 
dealers, have required manufacturers or wholesalers to grant differen- 
tial discounts, or to confine their sales to firms who fell within the 
approved categories, and have refused to buy from those who failed 
to do so. National and regional associations found to have resorted to 
such practices at some time during the past 30 years, and associations 
recently charged with doing so, include those whose members were 
engaged in the distribution of automobile parts and accessories,''*^ build- 
ing materials,^^ candy,^^ coal,^^ dry goods,"' flowers," glassware,*- gro- 

^ Ibid., pp. 2340-2342. 

3' Federal Trade Commission Order, Docket 2382 ; Complaint, Doclcet 2942. 
^ Federal Trade Commission Orders, Dockets 21U1, 2857. 

»» Federal Antitrust Laws, cases 326, 330, 331, 350, 360 ; Federal Trado Commission Orders, 
Dockets 1364. 2292, 2403, 2613. , 

""Federal Trade Commission Orders, Dockets 1098, 1118, 1145. 

^"Federal Trade Commission Complaint, Docket 3751. 

" F. \. L., case 307. 

*2 Federal Trade Commission Complaint, Doc,ket 3801. 


ceries/^ hardware,** harness and saddlery goods,*^ hot air furnaces,** 
jewelry,*^ liquor,*^ lumber,*^ paper,^" rubier heels and soles,^^ shoe 
findings,^^ sponges,^^ apd surgical instruments.^* By boycotts and by 
threats of boycotts, these groups have diverted the traflSc in such goods 
from the routes it might otherwise have followed and, in the phrase 
of the Federal Trade Commission,^^ have taken toll on it as it has 

Association members in other fields have attempted to monopolize 
their respective trades by employing similar tactics. Plumbing sup- 
plies jobbers and plumbing contractors have been charged with con- 
spiring to maintain a "restricted system of distribution" under which 
goods were to move only from manufacturers, through the jobbers, to 
the contractors, who sold and installed them, the jobbers confining their 
purchases to manufacturers who sold only to them, the contractors 
confining their purchases to jobbers who sold only to them and refus- 
ing to install equipment which had not arrived by the designated 
route.^® Cigar manufacturers have refused to buy cigar boxes," cap 
manufacturers have refused to buy visors and trimming,^* and laundry 
owners have refused to buy machinery and supplies ^^ from firms who 
have sold to competitors who were not approved by their respective 
associations. Hat frame manufacturers ^^ and peanut shellers and 
cleaners ^^ have refused to deal with competitors who have failed to 
adhere to association rules, and hardwood lumber producers have been 
charged with similar activity.*^ Millinery manufacturers have re- 
fused to sell to retailers who have handled copies of styles which they 
claim to have originated,*'^ and the manufacturers of fireworks,®* power 
cable and wire,®^ and snow fence,^® among others, have refused to sell 
to distributors who have failed to maintain fixed resale prices. In all 
of. these cases, association members have employed the boycott as a 
means of forcing outsiders to conform to programs which they have 
adopted in their own interest. 


With the single exception of the Pacific Coast Oil Cartel, the organi- 
zations whose activities are here described have called themselves 

« F. A. L cases 283, 284, 291 ; Federal Trade Commission Orders, Dockets 501, 579, 
S593, 990, 1085, 1196, 1232, 1343, 2677. 

"F. A. L., case 320; Federal Trade Commission Order, Docket 603. 

« Federal Trade Commission Order, Docket 16. 

*^ Federal Trade Commission Order, Docket 2931. 

*'' F. A. L., cases 312, 317. 

*» Federal Trade Commission Complaint, Docket 4093. 

*• Federal Trade Commission Order, Docket 2857 ; U. 8. v. National Association of Com- 
mission Lumber Salesmen, et al.. District Court of the United States, Eastern District of 
Louisiana, New Orleans Division, Consent Decree, Februaiy 21, 1940. 

^ Federal Trade Commission Order, Docket 934. 

" Federal Trade Commission Order, Docket 2802. 

62 F. A. L., case 324. 

^ Federal Trade Commission Order, Docket 3025. 

^ Federal Trade Commission Order, Docket 2409. 

^ Federal Trade Commission, Open-Price Trade Associations, p. 303. 

" U. S. V. Central Supply Association, et al.. District Court of the United States, Northern 
District of Ohio, Indictment, March 29, 1940. 

" Federal Trade Commission Order, Docket 709. 

" Federal Trade Copimission Order, Docket 2530. 

^ Federal Trade Commission Order, Docket 1954. 

9" F. A. L., case 322. 

« F. A. L., case 294. 

»* Federal Trade Commission Complaint, Docket 3418. 

«3 Federal Trade Commission Order, Docket 2812. 

9« Federal Trade Commission Order, Docket 3309. 

«" Federal Trade Commission Order, Docket 2565. 

" Federal Trade Commission Order, Docket 3305. 


associations, institutes, industries, or clubs, but not cartels. -The activi- 
ties themselves, however,, are identical with those in which cartels 
have been engaged. Almost every trade association, like the European 
term-fixing cartel, attempts to regulate the terms of sale. Many asso- 
ciations, like price-fixing cartels, attempt to control the prices at which 
goods are sold. Some associations, like zone cartels and customer- 
preservation cartels, allocate markets and customers among their mem- 
bers. Others, like plant-restriction cartels, seek curtailment of out- 
put on the basis of past production or capacity. Still others, like 
fixed-production-share cartels and fixed-marketing-share cartels, 
assign each of their members a quota in the total volume of production 
or sales. There have even been Cases in which a common selling 
agency, like the European syndicate, has been employed. Such agen- 
cies made their appearance, at some time between 1920 and 1940, among 
the canners of sardines and the composers and publishers of copy- 
righted music, among tanners, and among the producers of bituminous 
coal, candy sticks, charcoal, concrete pipe, and water-marked and 
white glazed paper. It is charged in a complaint issued by the Fed- 
eral Trade Commission that a similar arrangement has existed among 
the producers of lecithin, an organic chemical used in foods and other 
products.^^ In many cases, too, associations have resorted to the boy- 
cott, a weapon which has been used in the same way and for the same 
purposes by the European cartels. The parallel that may be drawn 
between trade associations and cartel activities lends support to the 
statement that was made by President Roosevelt in the message that 
led to the creation of the Temporary National Economic Committee. 
"Private enterprise," he said, "is ceasing to be free enterprise and is 
becoming a cluster of private collectivisms ; masking itself as a system 
of free enterprise after the American model, it is in fact becoming a 
concealed cartel system after the European model." ®^ 


If the program adopted by a trade association is to be effective, 
adherence to its provisions must be general in the trade. Where one 
or two large firms dominate an 'association, fear of retaliation may 
keep their smaller competitors in line. Where members are more 
nearly equal in size and power, adherence must be secured either by 
persuasion or by coercion. If all of the firms in a trade are like- 
minded, persuasion may suffice. But if a minority refuses to coop- 
erate, some measure of compulsion is required. Many such measures 
are at hand. Members may be granted restrictive patent licenses 
and threatened with revocation and infringement suits. They may be 
asked to enter into contracts' which provide for the payment of 
damages in the event of a violation of their terms. They may be 
required to maket deposits against which penalties can be imposed. 
They may be threatened with boycotts which would deprive t>hera 
of markets and supplies. They may be subjected to pressure by 
persuading outsiders with whom they deal to. cooperate in the en- 
forcement of the plan. But e^ch of these measures has its limitations. 
Patents may either be lacking or of insufficient importance to enable 

«' Cf. supra, pp. 235-240. 

^ Hearings before the Temporary National Economic Committee, Part 1, p. 186. 


their holders to exercise effective control. Contracts affecting prices 
and. production may not be upheld by the courts. Kecalcitrant 
minorities may refuse either to make deposits or to participate in 
boycotts. Outsiders may be unwilling to act as enforcement agencies. 
If' general adherence to association programs is to be insured, they 
must be enacted into law and enforced by the State. This, in effect, 
is what was attempted under the National Kecovery Administration 
in the years from 1933 to 1935. 


The "codes of fair competition" which governed American indus- 
try during the life of the N. E. A. were exempt from the prohibitions 
of the anti-trust laws. Violation of any of their provisions was 
made^an unfair method of competition subject to action by the Fed- 
eral Trade Commission, and a misdemeanor punishable by a fine 
of $500 for every day in which it occurred. These codes were 
originated, almost without exception, by trade associations. The 
code authorities which were set up to administer them were largely 
composed of or selected by trade associations. The personnel and 
the policies of these authorities were controlled by trade associations. 
In three cases out of four, the code authoritj^ secretary and the trade 
association secretary bore the same name and did business at the 
same address.®'' Code administration was usually financed by manda- 
tory assessments imposed upon each of the firms in an industry. In 
the garment trades, collection of the levy was assured by the require- 
ment that a label purchased from the code authority must be sewed 
in every garment sold. The program thus involved a virtual delega- 
tion to trade associations of the powers of government, including in 
many cases the power to tax. 

The N. K.. A. undertook, Jn the words of its own declaration of 
policy, "to build up and strengthen trade associations throughout all 
commerce and industry." ^° It conferred new powers and immunities 
on strong associations, invigorated weak associations, aroused mori- 
bund associations, consolidated small associations, and called some 
eight hundred new associations into life. It sought to employ these 
agencies as instmments in the promotion of industrial recovery. But 
many of the provisions which it permitted them to write into their 
codes were ill designed to achieve this end. 


The N. R. A. a})proved 557 basic codes, 189 supplementary codes, 
109 divisional codes, and 19 joint N. R. A.-A. A. A. codes, a grand 
total of 874. All of these codes contained provisions which governed 
the terms and conditions of sale, subjecting to detailed regulation 
in various combinations such matters as quotation, bid, order, contract, 
and invoice forms, bidding and awarding procedures, customer 
classifications, trade, quantity, and cash discounts, bill datings, credit 
practices, installment sales, deferred payments, interest charges, 
guaranties of quality, guaranties against price declines, long-term 

* Cf. Code-Sponsoring' Trade Associations, Bureau of Foreign and Domestic Commerce, 
■Market Research Series, No. 4 (1935). 

WN. R. A., Bulletin No. 7, January 212, 1034 


contracts, options, time and form of payments, returns of merchan- 
dise, sales on consignment, sales on trial or approval, cancellation 
of contracts, trade-in allowances, advertising; allowances, supplei- 
mentary services, combination sales, rebates, premiums, free deals, 
containers, coupons, samples, prizes, absorption of freight, delivery 
of better qualities or larger quantities than those specified, sale of 
seconds and of used, damaged, rebuilt, overhauled, obsolete, and dis- 
continued goods, the payment of fees and commissions, and the 
maintenance of resale prices. A mere listing of the categories of 
regulations involved in the various codes covers more than fifty 
manuscript pa^es of single-spaced typewritten material.'^ In gen- 
eral, these provisions were designed to affect the allocation of business 
between trades and among the firms within a trade and to prevent 
the granting of any indirect concession w^hich would operate to 
reduce a price. 


Of the first 677 codes, 560 contained some provision for the direct 
or indirect control of price. Of these, 361 provided for the estab- 
lishment of standard costing systems; 403 prohibited sales below 
"cost"; 352 forbade members to sell below their individual "costs"; 
and 51 forbade them to sell below some average of the whole indus- 
try's "costs". Thirty-nine standard costing systems were approved 
by the N. R. A. In many cases, the adoption of a common formula 
for use in the determination of individual "costs" led to the estab- 
lishment of an arbitrary minimum price. In the limestone industry, 
the code authority prescribed itemized "costs" for successive opera- 
tions that added up, in every case, to a uniform total.^^ In the 
trucking industry, the authority drew up a schedule of "costs" in 
dollars and cents and charged truckers whose rates fell below the 
resulting figures with violation of the code.^^ So, too, with the pro- 
cedure followed in the determination of average "costs." In the 
commercial relief printing industry, the code authority collected 
data from 200-odd printers among some 17,000 and issued "cost 
determination schedules" in the form of detailed price catalogs, 
dating from pre-code days, which set forth minimum prices rather 
than costs.^* In the paint, varnish, and lacquer industry, the au- 
thority sent questionnaires to 160 among some 2,000 firms, rejected 
34 of the 74 replies, and employed the 40 remaining schedules (which 
included no data on certain of the industry's products and no re- 
turns from certain of its more important members) in arriving at 
figures which were said to represent "the lowest reasonable cost of 
manufacturers, large and^mall, thr-owghout theTiHktstry" and were 
to be "used as the minimum processing cost by all members of the 
industry." ^^ In some cases, the code provided not only for uniform 
"costs," but also for a uniform mark-up. Thus, the code of the 
crushed stone, sand and gravel, and slag industry ''^ forbade produc- 

■^N. R. A., Division of Review, Work Materials, No. 2, Summary of Analvsis of Certain 
Trade Practice Provisions in the N. R. A. Codes (mimeo.), sees, l-lll, Vil-VlII. 

'2 N. R. A., Advi.sory Council Decisions (mimeo.), vol. 4, pp. 279-2S1. 

•^»Ibid., pp. 313-316. 

''* Ibid., pp. 358-376. 

'^ Ibid., vol. 3, pp. 255-260 ; Code for the Paint, Varnish, and Lacquer Manufacturing 
Industry, art. 22, sec. 4. 

'»Art. VII, sec. 2 (d). 

271817—40 — No. 21 18 


ers to sell below "prime plant cost" plus 10 percent; that of the 
water-proofing, damp-proofing caulking compounds and concrete 
floor treatments industry" forbade them to sell below "allowable 
cost" plus a "reasonable" percentage to be determined by the code 
authority ; and that of the structural clay products industry ^^ for- 
bade them to sell below "direct factory cost" plus an item called 
"weighted average indirect allowable cost," this item being stated by 
the code authority in terms of dollars at a figure which was uniform 
throughout the industry. 

Some 200 codes provided for the establishment of minimum prices 
in the event of an "emergency." When a code authority found that 
"destructive price cutting" had created an "emergency," is was em- 
powered to determine the "lowest reasonable costs" of producing 
the goods involved and to fix prices which would cover these costs. 
These concepts were never clearly defined. "An emergency", it was 
said, "is something that is declared by a code authorit3^" According 
to spokesmen for the retail solid fuel trade, "We have always had an 
emergency in retail solid fuel." The code for this trade '^^ provided 
for the declaration of an emergency "Whenever, upon complaint or 
upon its own initiative without complaint, the National Code Au- 
thority is of the opinion that an emergency exists * * *." The 
code became effective on February 26, 1934; the authority declared 
an "emergency" on March 1, 1934. "Emergencies" wel-e also de- 
clared among manufacturers of agricultural insecticides and fungi- 
cides, cast iron soil pipe, and mayonnaise and salad dressing, and 
among dealers in ice, lumber and timber products, tires, tobacco, and 
waste paper. Such declarations afforded members of these trades 
an opportunity to arrive at "cost determinations" which could be 
used to justify high minimum prices. The history of 'the N. K. A. 
gives evidence that they made the most of this opportunity.^" 

A few codes granted to code authorities the power to establish 
minimum prices in the absence of an "emergency" and, in some cases, 
without reference to "costs." The code for the wood-cased lead pencil 
industry .^^ forbade manufacturers to sell pencils at a price "less than 
the fair minimum price thereof as ascertained by the code author- 
ity * * *." The code for the bituminous coal industry^- stated 

The selling of coal under a fair market price * * * is hereby declared to 
be * * * in violation of this code * * *. The fair market price of 
coal * * * shall be the minimum prices * * * which may be estab 
lished * * * • by a marketing agency or * * * by the respective code 
authorities * * *. The term "marketing agency" shall include any trade 
association of coal producers. * * * 

Similar provisions appeared in the codes for the lumber and timber, 
petroleum, cigar container, cigar manufacturing, motpr bus, domestic 
freight forwarding, inland water carrier, fur dressing and dyeing, 
and cleaning and dyeing industries, and in those of certain wholesale 
and retail trades. Through one or another of these methods, mini- 

" Art. VII (2). 

™Art. VI (b). ^^- -^ 

^* Art. V sec. 4. ' ■ - '-» ^ ' 

* Investigation of the National Recovery Administration, Hearings before the Com- 
mittee on Finance, U. S. Senate, 74th Cong., 1st sess.. Part 4, pp. 868-875. 881-883. 
" Art. X, sec. 4. " . 

« Art. VI, sees. 1 and 2. 


mum prices became legally effective in 93 different industries and 
practically operative in many more. 


Four hundred and twenty-two codes provided for the establishment 
of open-price reporting systems. Most of these systems were of a 
character that would probably have been outlawed under the earlier 
decisions of the Supreme Court. One hundred and sixty-one of them 
gave no information to buyers; most of them required the filing of 
identified price lists; most of them required sellers to adhere to the 
prices they had filed until new filings became effective, and 297 of 
them required a waiting period before a new filing was permitted to 
take effect. In many cases the reporting system was employed as a 
means of enforcing a code provision against sales below a "cost"- 
covering, "emergency," or minimum price. In a few cases, the system 
itself facilitated the establishment of a common price. The code for 
the iron and steel industry *^ provided that — 

The board of directors shall have the power * * * to investigate any base 
price for any product * * * filed * * * by any member of the code * * *. 
If the board of directors, after such investigation, shall determine that such 
base price is an unfair base price for such product * * » * the board of 
directors may require the member of the code * * * to file a new list show- 
ing a fair base price * * *. if such member of the code shall not within 
10 days * * * file a new list showing such fair base price * * * the 
board of directors shall have the power to fix a fair base price. ♦ * * 

The code for the tag industry forbade producers who did not file prices 
to sell below the lowest figures filed by any of their competitors. In 
practice, prices were filed by one or two large firms and these prices 
were circulated throughout the industry in the form of a price book 
which showed the remaining concerns the minimum figures at which 
they were required to sell unless and until they chose to file prices of 
their own.^* 


A number of codes contained provisions which were designed to 
effect an allocation of markets among the members of a trade. Some 
of them prohibited freight allowances, thus preventing sellers from 
entering distant markets by absorbing freight. Others prohibited 
"dumping," forbidding firms to sell outside their "normal market 
areas" at prices lower than those "customarily" charged within such 
areas and granting code authorities the power to determine which 
areas were "normal" and which prices "customary." Still others 
divided the country into zones and forbade producers located in one 
zone to sell in another below the prices charged by producers located 
there. Thus, the code for the salt-producing industry ^^ provided 
that — 

The minimum prices established in any marketing field by any producer in that 
field shall be the lowest prices at which any producer shall sell in that 
field ♦ * * 

Such provisions, in effect, set up a tariff wall around each of the 
designated areas. 

** Schedule E, sec. 6. 

*♦ Investigation of the National Recovery Administration, op. cit., p. 870. 

•'Art. 4-a. 



Ninety-one codes provided for the restriction of output and the dis- 
tribution of available business among the firms in a trade. Four codes 
limited the size of inventories, compelling manufacturers to confine 
their operations to the volume permitted by current sales. Fifty-three 
codes imposed limitations upon the construction, conversion, or reloca- 
tion of productive capacity, or made some provision for the imposi- 
tion of such limitations, thus keeping total output within the limits 
set by existing facilities and distributing this total in proportions 
which conformed to the distribution of such facilities. The code for 
the iron and steel industry ^^ asserted that — 

It Is the consensus of opinion in the industry that, until such time as the demand 
for its products cannot adequately be met by the fullest jwssible use of existing 
capacities for producing pig iron and steel ingots, such capacities should not be 
increased. Accordingly, unless and until the code shall have been amended as 
hereinafter provided so as to i)ermit it, none of the members of the code shall 
initiate the construction of any new blast furnace or open hearth or Bessemer 
steel capacity. 

Tlie codes for the motor vehicle storage and parking and the ready- 
mixed concrete trades authorized membei's to agree upon restrictions 
on capacity. Xwenty-f our codes forbade producers to add to capacity 
without permission, and twenty-six provided for the subsequent sub- 
mission of recommendations affecting capacity. Sixty codes imposed 
limitations on the number of hours or shifts per day. or the number 
of hours, shifts, or days per week during which machines or plants 
might be operated, thus curtailing output and allocating the resulting 
volume of business on the basis of capacity. In certain of the textile 
industries, the permissible hours of operation were subsequently re- 
duced, by administrative action, below those allowed in the codes. 

Five codes provided for the assignment of fixed quotas in produc- 
tion or sales. The code for the glass container industry ^^ provided 

* * * so long as the industry is operating below 70 percent of yearly regis- 
tered capacity * * * the principle of sharing available business equitably 
among the members of the industry shall be recognized. * * * To make this 
principle effective, the code authority * * * shall, from time to time, but 
not less frequently than each 6 months, prepare an estimate of expected con- 
sumption of glass containers. Upon the basis of such estimate the code author- 
ity shall make equitable allocations to each member in the industry. * * * 
After such allotments have been assigned, no person shall produce glass containers 
in excess of his allotment. 

The code for the Atlantic mackerel fishing industry ^* empowered the 
code authority to "estimate consumer demand" and to limit the catch 
of mackerel to a quantity which would maintain "a reasonable bal- 
ance" between production and consumption, thereby assuring pro- 
ducers "minimum prices for mackerel not below the cost of produc- 
tion." T'le authority successively curtailed the number of pounds 
which any boat could catch and sell on a single trip, divided the boats 
into two squadrons and required them to fish in alternate weeks, and 
limited the quantity of mackerel which any boat could land in any 
week.®^ The code for the lumber and timber products industry^" 

^ Art. V. sec. 2. 

s' Schedule A (a) and (d). 

8* Art. VIII. tiUe C, 1. , 

* Investisation of the National Recovery Administration, op. cit., pp. 883-88C. 

"Art. VIII. 


authorized code agencies to determine "estimates of expected con- 
sumption" and to establish production quotas for divisions of the 
industry "in proportion to the shipments of the products of each dur- 
ing a representative recent past period" and for individual producers 
in proportion to their average hourly or weekly production or volume 
of employment during a previous 3-year period, their tax payments 
during the preceding year, their ownership or control of reserves of 
standing timber, or some combination of these bases. It forbade each 
member of the industry to "produce or manufacture lumber or timber 
in excess of his allotment." The code for the petroleum industry ^^ 
provided that — 

Required production of crude oil to balance consumer demand for petroleum 
products shall be estimated at intervals by a Federal agency designated by the 
President * * *. The required production shall be equitably allocated among 
the several States by the Federal agency * * * 

The subdivision into pool and/or lease and/or well quotas of the production 
allocated to each State is to be made vpithin the State. Should quotas * * * 
not be made within the State, or if the production of i^etroleum within any 
State exceeds the quota allocated to said State, the President may regulate the 
shipment of petroleum * * * out of said State * * * and/or he may 
compile such quotas and recommend them to the State regulatory body in such 
State, in which event * * * such quotas shall become operating schedules 
for that State. 

If any subdivision into quotas of production allocated to any State shall be 
made within a State, any production by any person * * * jn excess of such 
quotas assigned to him shall be deemed an unfair trade practice and in violation 
of this code. 

The code for the copper industry ^^ limited the output of primary 
copper, produced from ore, to 20,500 tons per month and that of secon- 
dary copper, produced from scrap, to 9,500 tons per month ; assigned 
to each of 10 primary producers an absolute monthly sales quota, 
stated in terms of a fixed percentage of annual capacity ; provided for 
the allocation of quotas among secondary producers "by some equitable 
method agreed upon by such producers and approved by the code 
authority ; permitted the authority to increase quotas by a majority 
vote or to decrease them by a unanimous vote; required producers to 
accept the orders assigned to them by a "sales clearing agent" ; and 
outlawed sales made "by any member of the industry * * * jj^ 
contravention of any of the provisions" of the code. The codes for 
the California sardine, cement, corrugated and solid fiber shipping 
container, cotton garment, folding paper box, iron and steel, ma- 
chined waste, paper and pulp, a^id piano manufacturing industries 
provided for the consideration and later presentation of similar plans. 


Adherence to code requirements was enforced not only by public 
penalties provided in the law but also by private penalties established 
in the codes. Twenty-six industries bound their members to pay 
"liquidated damages" into the treasury of a code authority in the 
event of a violation. The code for the iron and steel industry ^^ con- 

"1 Art. III. sees. 3 and 4. 
B2 Art. VII. s«c. 6. 
B'Art. X, sec. 2. 


tained the following provision : 

Recognizing that the violation by any member of the code of any provision 
[dealing with base prices, delivered prices, or terms of sale] will disrupt the 
normal course of fair competition in the industry and cause serious damage 
to other members of the code and that it will be imjwssible fairly to assess the 
amount of such damage to any member of the code, it is hereby agreed by and 
among all members of the code that each member of the code which shall violate 
any such provision shall pay to the Treasurer "¥ * * as and for liquidated 
damages the sum of $10 per ton of any products sold in violation of any such 

In this case, as in others, it appears that the "liquidated damages" were 
really fines imposed on violators of the code rather than payments made 
to injured parties in order to reimburse them for losses actually 


In some of the cases cited above, the activities of trade groups 
under the codes did not go as far toward eliminating competition as 
the provisions of the codes themselves would suggest. In others, 
actual practice went beyond the privileges granted by the codes, 
usually without the knowledge or approval of the N. K. A. In al- 
most every case the more extreme grants of power were conditional, 
requiring further authorization by the administration or being sub- 
ject to its veto. During the later months of the experiment, more- 
over, certain provisions of the type that had been written into the 
earlier codes were no longer granted, many privileges that had been 
conferred for a limited term were not renewed, and numerous appli- 
cations for the approval of activities requiring specific sanction were 
denied. N. R. A. policy was moving away from the liberal authori- 
zation of noncompetitive practices that had characterized its earlier 

The codes were invalidated by the decision of the Supreme Court in 
the Schechter case in 1935. But their provisions are still significant. 
They had their origin in the activities carried on by trade associa- 
tions prior to 1933. They have persisted, in large measure, in the 
activities carried on by such associations since 1935. In certain areas, 
they have been reenacted into law. In others, such reenactment has 
been proposed. The policies embodied in the codes still command 
the support of a substantial segment of the business community. 
The Chamber of Commerce of the United States, as late as 1939, 
contended that ^* — 

There should be inquiry into need for legislation permitting industry rules of 
fair competition allowing agreements increasing the possibilities of relating 
production to consumption, . affording means for authoritative advice in ad- 
vance of consummation of mergers and consolidations desirable for normal 
business reasons, and providing special facilities for curtailment of production 
in natural resource industries, when the public interest makes it desirable. 
There should be such modification of tjhe antitrust laws as would make clear 
the legality of agreements increasing the possibilities of keeping production in 
proper relation to consumption, with protection of the public interest at all 
times through Government supervision of such agreements. 

The movement toward "self government in industrjr" has been 
checked, but not reversed. The logical outcome of this movement, 

»* Policies Advocated by the Chamber of Commerce of the United States (Washington, 
1939), pp. 5-6. 


as it is revealed by the contents of the codes, is the collective deter- 
mination of prices, the curtailment of output, the allocation of 
markets and production, and the enforcement of these arrangements 
by the imposition of penalties; in short, the complete cartelization 
of American business. 


In several trades where sellers are numerous the imposition of 
restraints upon competitive activity has been authorized by laws 
enacted by the Congress of the United States and by the legislatures 
of the several States. 


Competition in the bituminous coal industry has been successively 
subjected to control by the N. R. A. code approved for the industry in 
1933, by the Bituminous Coal Conservation Act of 1935, and by the 
Bituminous Coal Act of 1937. Unless extended by Congress, the act 
of 1937 will expire on April 26, 1941. Under this act, producers are 
governed by the provisions of a code, set forth in this case in the law 
itself. The code regulates various trade practices and outlaws numer- 
ous forms of indirect concession in price. It authorizes boards elected 
by producers in 23 districts to propose minimum prices to the Bitumi- 
nous Coal Division in the Department of the Interior, successor, in 
1939, to the National Bituminous Coal Commission established in the 
law. These prices must be so calculated — 

* * * as to yield a return per net ton for each district in a minimnm price 
area * * * equal as nearly as may be to the weighted average of the total 
costs per net ton * * * of the tonnage of such minimum price area. The 
computation of the total costs shall include the cost of labor, supplies, power, 
taxes, insurance, workmen's compensation, royalties, depreciation, and deple- 
tion * * * and all other direct expenses of production, coal operators' associ- 
ation dues, district board assessments for board operating expenses * * * 
and reasonable costs of selling and the cost of administration. 

On the recommendation of the district boards, the Division may estab- 
lish minimum prices. On its own initiative, it may establish maximum 
prices, provided, however, that "no maximum price shall be established 
for any mine which shall not yield a fair return on a fair value of the 
property." Producers who subscribe to the code are exempt from the 
prohibitions of the Sherman Act. Those who do not subscribe must 
pay a punitive tax of 19i/^ percent on the value of the coal they sell. 
Those who violate any of the provisions of the code and those who sell 
below the minimum prices or above the maximum prices fixed by the 
Division may be subjected to the tax by revocation pf membership and 
may be sued for treble damages by any of their competitors. In pur- 
suance of the authority vested in it by the law, the Division has under- 
taken to fix thousands of minimum prices, covering every grade of 
coal, shipped by every means of transportation, from every shipping 
point in the United States. 


In all of the major oil-producing States, legislatures have under- 
taken to conserve the supply and maintain the price of petroleum by 


authorizing administrative agencies to curtail production and to assign 
quotas to individual producers. But uncoordinated action by individ- 
ual States may prove to be ineffective as a means of maintaining price, 
since the curtailment effected in one State may be offset by expansion 
in another. Accordingly, the cooperation of the Federal Government 
has been enlisted in the enforcement of the plan. An "Interstate Oil 
Compact" binding six producing States to conserve supplies by re- 
stricting output was ratified by Congress in 1935. The forecasts of 
"market demand" which afford the basis for the distribution of quotas 
among the States are issued monthly by the Bureau of Mines. And 
finally, the shipment in interstate commerce of petroleum produced in 
violation of State laws and regulations has been prohibited; first under 
the N. R. A. code for the industry in 1933; and subsequently, under 
the Connally "Hot Oil Act" passed by Congress in 1935, and extended, 
in 1939, until June 30, 1942. 


Competition in the trucking industry is restrained both by State 
and by Federal law. Intrastate trucking has been controlled by the 
States for many years. Nearly all of the States now require common 
carriers to obtain certificates of public convenience and necessity and a 
majority of them require contract carriers to obtain permits as a con- 
dition of entering or continuing in the industry. State commissions 
are empowered to establish minimum and maximum rates for common 
carriers and minimum rates for contract carriers. Between 1933 and 
1935, the industry operated under an N. R. A. code which provided for 
the adoption of a "cost" formula and prohibited sales below "cost." 
Interstate trucking was subsequently brought under the control of 
the Federal Government by the Motor Carrier Act of 1935. This law- 
requires common and contract carriers, respectively, to obtain cer- 
tificates of public convenience and necessity and permits to operate, 
and it empowers the Interstate Commerce Commission to fix maximum 
rates for common carriers and minimum rates for carriers of both 
types. Both State and Federal laws are designed not only to insure 
the safety of highway transportation, the financial responsibility of 
carriers the dependability of service, the stability of rates, and the 
prevention of discrimination, but also to limit the number of firms 
engaging in the industry and to establish and maintain rates at levels 
higher than those which would prevail under active competition. 
Both State and Federal commissions have adopted the policy of deny- 
ing numerous applications for certificates and permits, thus protecting 
firms already established and forestalling further competition between 
highways and railways. At the same time, they have set minimum 
rates at levels which have been calculated to check the diversion of 
traffic from the rails to the roads. In the railway industry, it was the 
original purpose of regulation to prevent monopolistic price increases 
by establishing maifimum rates. In the trucking industry, it is the 
apparent purpose of regulation to prevent competitive price reductions 
by establishing minimum rates.®^ 

*Cf. Philip D. Locklin, Economics of Transportation (revised edition, Chicago, 1938), 
ch. 34. 



Several acts of Congress have been designed to enable farmers to 
limit competition in the production and distribution of their crops. 
The Clayton Act of 1914 specifically exempted non-profit agricultural 
and horticultural organizations from the prohibitions of the anti-trust 
laws. The Capper- Volstead Act of 1922 authorized agricultural pro- 
ducers to form cooperative associations for the collective processing, 
preparation, handling, and marketing of farm products, subject to the 
issuance of a cease and desist order by the Secretary of Agriculture 
if he "shall have reason to believe that any such association monopo- 
lizes or restrains trade in inter-state or foreign commerce to such an 
extent that the price of any agricultural product is unduly enhanced 
* * *" The Cooperative Marketing Act of 1926 further authorized 
such associations to distribute "crop, market, statistical, economic, and 
other similar information." The Agricultural Marketing Act of 1929 
set up a Federal Farm Board and empowered it to organize and finance 
cooperative associations and to establish stabilization corporations for 
the purpose of maintaining the prices of agricultural products by tem- 
porarily withholding them from the market. The Agricultural Ad- 
justment Act of 1933, which superseded this measure, authorized the 
Secretary of Agriculture to enter into voluntary contracts with the 
producers of certain "basic" commodities, providing for the restriction 
of output, the assignment of quotas, and the payment of cash benefits, 
and to finance these operations by imposing taxes on millers, ginners, 
packers, and other processors. The list of "basic" commodities, limited 
in the original Act to wheat, cotton, corn, hogs, rice, tobacco, and milk 
and its products, was extended by amendments adopted in 1934 to 
include rye, flax, barley, grain sorghums, cattle, peanuts, and sugar, 
and in 1935 to include potatoes. Participation in the curtailment pro- 
gram, voluntary in the original Act, was made compulsory for the pro- 
ducers of cotton in the Bankhead Act of 1934, for the producers of 
tobacco in the Kerr-Smith Act of 1934, and for the producers of pota- 
toes in the Warren Act of 1935, by imposing punitive taxes on those 
who exceeded the limits set by their quotas. The use of processing 
taxes to finance benefit payments under A. A. A. contracts was invali- 
dated by the Supreme Court on January 6, 1936, and the cotton, tobacco, 
and potato control measures were promptly repealed. The act of 1933, 
as amended, also exempted from the prohibitions of the antitrust laws 
agreements entered into by producers, processors, and distributors for 
the puqDose of controlling the marketing of agricultural products, and 
empowered the Secretary of Agriculture to issue marketing orders 
enforcing these agreements. Agreements and orders restricted grades 
and sizes, established "shipping holidays," diverted commodities to by- 
product uses, imposed marketing quotas, regulated marketing charges, 
required price reporting, and in the case of fluid milk fixed producers' 
and consumers' prices and distributors' margins. These arrangements 
survived the decision handed down by the Court in 1936 and were car- 
ried over into the Agricultural Marketing Agreement Act of 1937. 
Control of the production and importation of sugar, enacted in 1934, 
also survived the decision and was carried over into the Sugar Act of 
1937. This measure directs the Secretary of Agriculture to estimate 
the "probable consumption" of sugar and to control the total supply, 


imposes quotas on the importation of raw and refined sugar and on 
the production, in domestic areas, of beet and cane sugar, provides for 
the assignment of quotas to individual producers and for the payment 
of cash oenefits to those who remain within their quotas, and finances 
these arrangements by levying a tax of one-half cent per pound on all 
sugar marketed in the United States. Control of the output of other 
commodities was continued for 2 years under the Soil Conservation 
and Domestic Allotment Act of 1936, a stop-gap measure which au- 
thorized the Secretary of Agriculture to make payments to farmers for 
diverting land from "soil-depleting" to "soil-conserving" crops. The 
Agricultural Adjustment Act of 1938, which retains this device, pro- 
vides also for the establishment of an elaborate scheme of control affect- 
ing the production of wheat, cotton, corn, tobacco, and rice. This 
measure empowers the Secretary of Agriculture to enter into voluntary 
contracts with producers, providing for the restriction of output, the 
assignment of quotas, and the payment of cash benefits, to make loans 
to producers who withhold their crops from the market, to impose com- 
pulsory marketing quotas when supplies exceed a certain size and when 
two-thirds of the producers voting in a national referendum approve 
such compulsion, and to enforce these quotas by levying a punitive tax 
on quantities produced in excess of quota limits and by refusing to 
make loans to producers who fail to cooperate in the program. 

State as well as Federal laws permit the producers and distribu- 
tors of agricultural commodities to engage in collective activities. 
Michigan first authorized the establishment of agricultural coopera- 
tives in 1865 and every State but Delaware had followed suit by 1928. 
The laws of 42 States follow the language of the standard cooperative 
marketing bill, which grants to cooperative associations the power ^ — 

To engage in any activity in connection with ttie marketing, selling, preserving, 
harvesting, drying, processing, manufacturing, canning, packing, grading, sort- 
ing, handling, or utilization of any agricultural products produced or delivered 
to it by its members ; or the manufacturing or marketing of the by-products 
thereof; or any activity in connection with the purchase, hiring, or use by its 
members of supplies, machinery, or equipment ; or in the financing of any such 
activities. * * * 

The bill further provides that ®^ — 

Any association organized hereunder shall be deemed not to be a conspiracy nor 
a combination in restraint of trade nor an illegal monopoly ; nor an attempt to 
lessen competition or to fix prices arbitrarily or to create a combination or pool 
in violation of any laws of this State; and the marketing contracts and agree- 
ments between the association and its members and any agreements authorized 
in this act shall be considered not to be illegal nor in restraint of trade nor con- 
trary to the provisions of any statute enacted against pooling or combinations. 

Associations established under these laws have been able to exercise 
appreciable influence over prices and production only in the cases of 
certain fruits and vegetables, which are grown within limited geo- 
graphical areas, and in the case of fluid milk, which is sold in regional 
markets. The American Cranberry Exchange controlled, in 1926 and 
1927, about 64 percent of the cranberries grown, in the three major 
producing States — Massachusetts, New Jersey, and Wisconsin. Ac- 
cording to the Federal Trade Commission, "The main function of the 
exchange is to determine an opening price." °^ The California Prune 

»" Federal Trade Commission, Cooperative Marketing, 70th Cong., 1st sess., S. Doc. No. 
95 (1928). p. 386. 
" Ibid., p. 392. 
"Ibid., p. 120. 


and Apricot Growers' Association handled, from 1922 to 1926, be- 
tween 44 and 66 percent of the California prune crop, which was more 
than nine-tenths of the Nation's crop. The association stored, proc- 
essed, and packed the fruit, fixed its price, and fed it to the market 
at this price.^'' The California Fruit Growers Exchange assigned 
weekly shipping quotas to growers and shippers of lemons in 1925 and 
pro-rated shipments among growers of Valencia oranges in 1932 and 
1933. Its subsidiary, the Exchange Orange Products Co., receives 
oranges, lemons, and grapefruit classified as "unmerchantable" from 
local packing associations and places them in a common pool. From 
this pool, according to the Federal Trade Commission ^ — 

Such quantities as can be sold at prices asked by the Exchange Orange Products 
Co. are disposed of to independent orange juice buyers or processors. Next, 
the Exchange Orange Products Co. takes all the fruit that it feels it can process 
to advantage. If there still remains a balance that nobody wants at the prices 
asked by the company, the fruit is given away to relief agencies in such quan- 
tities as they can use. If there still remains a balance undisposed of, it is 
dumped. During the 6 years from 1931 to 1936, inclusive, the Exchange Orange 
Products Co. sold 11.8 percent, processed 56 percent, gave away 7.5 percent, and 
dumped 24.7 percent of the fruit received into its pool. In different years the 
percentages of the total dumped ranged from 1.9 in 1936 to 55.7 in 1932. 

California peach growers adopted a production restriction program 
in 1930 and 1931, levying assessments on canners to finance pay- 
ments to growers who did not harvest their crops. An association 
of lettuce growers in the Imperial Valley has frequently restricted 
shipments by conferring on its secretary the exclusive right to place 
shipping orders with the railroads. Similar proration plans have 
been adopted by growers of California grapes and cantaloups.^ 
Associations of milk producers control the bulk of the fluid milk 
which is sold in urban markets. Members of such associations pro- 
duced about 50 percent of the milk sold in New York, St. Louis, and 
Kansas City and between 70 and 90 percent of that sold in Chicago, 
Philadelphia, Boston, Baltimore, Washington, Detroit, and the Twin 
Cities in 1935.^ These associations customarily enter into collective 
bargaining agreements with distributors, fixing producers' and con- 
sumers' prices and, incidentally, distributors' margins. In some 
cases, these agreements provide for payment according to a "base 
rating" or "base and surplus" plan. Under this plan, producers are 
assigned quotas corresponding to their low production during the 
fall and winter months and are paid throughout the year at a higher 
price for "base" milk, produced \5^it1iin their quotas, and at a lower 
price for "surplus" milk, produced in excess of their quotas. This 
arrangement is designed, primarily, to lessen seasonal fluctuations in 
supply. But it has also been employed, at times, as a means of re- 
stricting and allocating output and excluding new producers from 
the field. By refusing to revise quotas from year to year, thus com- 
pelling producers who have expanded output to accept the "surplus" 
price for the additional supply, associations have sometimes checked 
production and imposed pecuniary penalties on those who sought 
to obtain a larger share of the market. By refusing to assign quotas 

»» Charles F. Phillips, Marketing (Boston, New York, 1938), pp. 129-130. 

1 Federal Trade Commission, Agricultural Income Inquiry, Part II, 1938, p. 682. 

2 Henry H. Bakken and Marvin A. Schaars, The Economics of Cooperative Marketing 
(New York, 1937), pp. 508-511. 

» John D. Black, The Dairy Industry and the A. A. A. (Washington, 1935), p. 48. 


to new producers and by requiring them to accept the "surplus" 
price for their entire output during a probationary period and for 
a large part of their "basic" output during an additional period of 
several months, they have obstructed the establishment of new con- 
cerns.* The ability of an association to control the allocation of 
quotas may thus confer upon its members an appreciable measure 
of monopoly power. 

More than half of the States have enacted temporary or perma- 
nent milk control laws since 1933. Twenty-one States had such meas- 
ures on their statute books at the beginning of 1940. These laws 
typically confer upon some State agency — usually a milk control 
board composed, in most cases, of representatives of producers and 
distributors — the power to promulgate rules and regulations govern- 
ing the production, transportation, processing, handling, storage, and 
sale of milk and its products; to define and designate milksheds and 
marketing areas; io fix minimum producer, wholesale, and retail 
prices; to grant licenses to persons engaged in the industry; and to 
refuse or revoke licenses for violation of its orders. The prices fixed 
and the quotas established witliin a local market by a State milk 
control board are likely to be those agreed upon by the producers 
and distributors who serve that market. In such a case, the State's 
program may be said to constitute a public underwriting of a private 
scheme of price and production control.^ 

Statutes containing provisions, similar to those of the Agricultural 
Adjustment Act, authorizing producers and distributors of other com- 
modities to enter into marketing agreements have been enacted by a 
few States. The "little A. A. A." laws passed by Washington ® and 
Oregon ^ in 1935 were invalidated by th« courts of those States in the 
same year.^ The provision of the Growers' Cost Guarantee Act^ 
of 1935 empowering the Florida Citrus Commission to fix minimum 
prices on the basis of average "costs" was held unconstitutional by a 
United States district court in 1939.1° xhe Citrus Marketing Act " 
passed by Texas in 1937 empowered the Commissioner of Agriculture 
to execute marketing agreements and licenses establishing production 
and marketing quotas and systems of surplus control for citrus fruits, 
but the Supreme Court of that State held in 1939 that the act did not 
authorize him to fix prices.^- In California, however, the Agricultural 
Prorate Commission Act ^^ of 1933, providing for the allocation of 
quotas upon the approval of two-thirds of the producers concerned, 
was upheld by a sweeping decision of the State Supreme Court in 
1936.1* The California Legislature has enacted numerous other meas- 
ures empowering the State Director of Agriculture to approve market- 
ing agreements, to license producers and distributors, and to assign 

♦ Ibid., pp. 94, 207-208 ; Irene Till, "Milk — The Politics of an Industry," in Hamilton, 
op. cit. 

° Black, op. cit., ch. 11 : J. M. Tinley, Public Regulation of Milk Marketing in California 
(Berkeley, 1938), ch. 5^ 6; W. P. A., Marketing Laws Survey, Barriers to Trade Between 
States, chart 2. 

8 Washington Laws, 1935, ch. 78. 

' Oregon Laws. 1935, ch. 250. 

« U. S. Law Week, 2 : 1104 ; 3.: 83. 

» Florida Laws. 1935, ch. 16,862. 

I'lr. S. Law Week, 6; 1299-1300. 

" Texas. Laws, 1937, ch. 362. 

" Dallas Morning News, April 27, 1939. 

" California Statutes, 1933. ch. 754. 

^ A^gricultiiral Prorate Commission v. The Su-perior Cmirt in and for Los Angeles 
County et al., 55 P. (2d) 495. 


purchase and marketing^ quotas. The Agricultural Marketing Act of 
1937 ^^ authorizes the Director, with the assent of 65 percent of the 
producers or handlers, or both, to limit the quantity of any agricul- 
tural commodity that may be marketed, to assign quotas to processors 
and distributors, to establish "surplus or reserve pools" of the com- 
modity, and to apportion the proceeds of sales made from such pools. 
The Processed Foodstuffs Marketing Act,^^ passed in the same year to 
expire on September 30, 1939, empowered the Director, with the assent 
of 65 percent of the producers concerned, to issue orders prohibiting 
the sale of processed foodstuffs below "cost" or at prices other than 
those filed, and to make "cost" determinations which bound producers 
unless they could demonstrate that their own "costs" were lower. An 
Oregon law,^^ passed in 1935, permits the State Director of Agricul- 
ture to fix maximum and mimimum prices, margins, and discounts, 
and to regulate terms and conditions governing the sale of dairy prod- 
ucts, fruits, and vegetables. A Georgia law,^* passed in the samie year, 
authorizes the State Commissioner of Agriculture to establish farmers' 
markets within the State and to fix and enforce minimum prices for 
fruits, vegetables, and truck crops sold in these markets. An Idaho 
statute of 1935 ^^ empowered the State Agricultural Adjustment Board 
to approve agreements or codes among producers, processers, or 
handlers of agricultural commodities produced or marketed in Idaho, 
regulating trade and marketing practices and prices. 


In the distributive trades the pressure exerted by associations of 
independent retailers in an effort to obtain protection against cut-rate 
stores, chain stores, mail order houses, department stores, and other 
mass distributors has resulted in the enactment of four types of laws 
which are designed to limit competition in this area. 

By the end of 1939, "fair trade laws" were in effect in every State 
except Delaware, Missouri, Texas, and Vermont. These statutes x>er- 
mit the producers of branded goods to enter into contracts with 
individual distributors specifying the minimum prices at which such 
goods may be resold and, through a "nonsigners clause," make these 
contracts binding on all distributors, whether they have signed them 
or not, thus establishing a mandatory minimum price on every sate of 
any product to which any such contract has been applied. The Miller- 
Tydings amendment to the Sherman and Federal Trade Commission 
Acts, passed by Congress in 1937, supplements these measures by legal- 
izing resale price maintenance contracts in interstate commerce where 
they are lawful in the State in which the resale takes place. Success- 
ful in the State legislatures and in Congress, the retailers' associations 
have applied pressure to manufacturers in an effort to force them to 
sign contracts, to maintain prices, and to widen distributors' margins.^" 

15 California Statutes, 5 937, ch. 404. 

M California Statutes, 1937, ch. 789. 

" Oregon Laws, 1935. ch. 65. 

" Georgia Laws, 1935, No. 44. 

"Idaho Laws, 1935, ch. 113. 

^ Ralph Cassady, Jr., "Maintenance of Resale Prices by Manufacturers," Quarterly 
Journal of Economics, May 1939, p. 45Q; Corwin D. "Edwaras, Appraisal of "Fair„Trade 
and "Unfair Practice" Acts, statement before the fifty-second annual meeting of the 
American Economic Association, December 27, 1939. 


Price maintenance contracts now cover many drugs, cosmetics, toilet 
goods, books, cigars, and liquors, much stationery and photographic 
equipment and supplies, and some jewelry, radios, electrical appli- 
ances, confectionery, soft drinks, bakery products, tobacco, wines, beer, 
and men's furnishings; altogether between 5 and 10 percent of all 
goods sold at retail in the United States.^^ 

Statutes of a second type, called "unfair practices acts," were in 
effect in 27 States at the end of 19bo. These measures typically forbid 
retailers and wholesalers ^^ to sell goods at less than invoice or replace- 
ment cost, whichever is lower, plus a minimum mark-up. In some 
cases the distributor must add a percentage which covers his "average 
cost of doing business." In others he must observe a percentage speci- 
fied by law unless he can prove that his own "cost" is lower. In still 
others he must add a percentage which covers the average "cost" 
revealed by a survey of the "costs" of all distributors. Here, as else- 
where, the determination of "cost" is subject to abuse. In Montana 
surveys signed by three- fourths of the grocers in a county have been 
accepted as evidence of average "cost" ; ^^ in California, statements of 
specific prices that must be charged in order to cover "cost" have been 
circulated by trade groups.^* 

Statutes of a third type prohibit discrimination in price. Such laws 
were in effect, at the end of 1939, in the Nation and in 32 of the States. 
The Robinson-Patman Act, passed by Congress in 1936 as an amend- 
ment to the Clayton Act, forbids sellers to fix different prices for 
"different purchasers of commodities of like grade and quality" unless 
the differences involved "make only due allowance for differences in 
the cost of manufacture, sale, or delivery, resulting from the differing 
methods or quantities in which such commodities are sold or delivered." 
This rule, oi course, should serve merely to place purchasers, as com- 
petitors, on an equal footing. But the act goes on to authorize the 
Federal Trade Commission to "fix and establish quantity limits" be- 
yond which differences in price may be forbidden even though they 
make "only due allowance for differences in the cost of manufacture, 
sale, or delivery" and to provide for the punishment, by fine and 
imprisonment, of any person who shall "sell, or contract to sell, goods 
at unreasonably low prices for the purpose of destroying competition 
or eliminating a competitor." It is obvious that such provisions are 
designed to handicap the large distributor who buys in quantity and 
sells at prices which his competitors believe to be "unreasonably low." 

The fourth, and most important, type of legislation that limits retail 
competition is the chain store tax. This tax is typically imposed on 
every store in a chain at a rate which rises with the number of stores 
maintained within a State, the maximum levy ranging from $100 in 
Wisconsin to $500 in Idaho and $750 in Texas. In Louisiana, however, 
the rate rises with the number of stores in a chain, wherever located, 
reaching a maximum of $550 on each outlet maintained within the 
State by chains operating more than 500 stores. By 1939, such laws 
had been enacted by 23 States and bills had been introduced in Congress 
calling for Federal taxation at even higher rates. Georgia also imposes 

« Ewald T. Grether, Price Control Under Pair Trade Legislation (New York, 1939), 
p. 323. 

" South Carolina's law applies also to manufacturers. 
« Grether, op. cit., p. 367. 
*« Edwards, op. cit. 


on mail-order chains a tax which rises from $2,000 for the first unit, 
tlirough $8,000 for each of the next 4, to a maximum of $10,000 for 
each unit in excess of 5. Minnesota imposes a similar tax at lower 


Congress, from time to time, has exempted agreements among pro- 
ducers in a number of other trades from the prohibitions of the anti- 
trust laws. The Shipping Act of 1916 authorized steamship companies 
to enter into agreements restricting the number of sailings, allotting 
ports, limiting and apportioning traffic, fixing rates and fares, pooling 
earnings, "or in any manner providing for an exclusive, preferential, or 
cooperative working agreement." The United States Shipping Board 
was required to pass on these agreements and to approve all those 
which were not "unjustly discriminatory or unfair" and did not "oper- 
ate to the detriment of the commerce of the United States." This func- 
tion was inherited by the United States Maritime Commission in 1936. 
The Webb-Pomerene Act of 1918 permitted producers to form associa- 
tions for the purpose of engaging in the export trade.^^ The Merchant 
Marine Act of 1920 authorized marine insurance companies to enter 
into "any association, exchange, pool, combination or other arrange- 
ment for concerted action" which might be formed in order "to transact 
a marine insurance and reinsurance business in the United States and in 
foreign countries and to reinsure or otherwise apportion among its 
membership the risks undertaken by such association or any of the 
component members." The Fisheries Cooperative Marketing Act of 
1934 permitted fishermen to act together in associations engaged "in 
collectively catching, producing, preparing for market, processing, 
handling, and marketing" aquatic products, subject to the issuance of 
a cease and desist order by the Secretary of Commerce if he should 
find "that such an association monopolizes or restrains trade in inter- 
state or foreign commerce to such an extent that the price of any aquatic 
product is unduly enhanced * * *.". The latest of these measures, 
the Maloney Act of 1938, authorizes associations of over-the-counter 
brokers and dealers in securities to operate as self -regulatory agencies 
under the supervision of the Securities and Exchange Commission, 
provided their rules are not designed "to permit unfair discrimination 
between customers or issuers, or brokers or dealers, to fix minimum 
profits, to impose any schedule or fix minimum rates of commissions, 
allowances, discounts, or other charges." 


Legislatures have granted similar exemptions under the antitrust 
laws of many States. For some years, Colorado and California, in 
effect, exempted virtually every agreement among competitors. The 
California statute was amended in 1909 to provide ^^ — 

* * • that no agreement, combination, or association sliall be deemed unlaw- 
ful or within the provisions of this act, the object and business of which are :to 
conduct its operations at a reasonable profit or to market at a reasonable profit 
those products which cannot otherwise be so marketed * ♦ ». 

2s Cf. supra, pp. 219-222. 

» California Statutes, 1909, p. 594. 


The Colorado provision was invalidated by the Supreme Court of the 
United States in 1927; "' the California provision by a Federal district 
court in 1938.28 

During the life of the N. K. A., 24 States enacted supplementary 
statutes, exempting the national codes from State antitrust laws, pro- 
viding for State participation in their enforcement, and in some cases 
authorizing State agencies to approve codes controlling competition in 
intrastate trades. Most of these measures were abandoned following 
the decision of the Supreme Court in the Schechter case in 1935. Wis- 
consin's "little N. R. A.," however, was revised and continued in 1935 
and again in 1937. "Codes of fair competition," approved by a Trade 
Practice Department, governed the barber, shoe repair, cleaning and 
dyeing, and highway construction trades throughout the State at the 
beginning of 1938, and a code for "beauticians" was pending.-^ 

The Legislature of New Jersey set up a State Board for the Clean- 
ing and Dyeing Trade in 1935 and authorized it to regulate prices 
in the trade. The Board promulgated a code in December of the 
same year, fixing a minimum price of 59 cents with a 10-cent delivery 
charge and prohibiting the practice of cleaning garments and return- 
ing them in a rough state for pressing at home. The price fixing 
provisions of the law were held to be unconstitutional by a United 
States district court and the code was abandoned within 3 months.^*^ 

California's Service Trades Act, passed in 1935, empowered counties 
and cities to approve codes for the barber shop, beauty shop, clean- 
ing and dyeing, rug cleaning, and hat renovating trades, provided 80 
percent of the establishments in the area signified their willingness 
to participate. An amendment passed in 1937 reduced this percentage 
to 65.^^ Pursuant to this authority, several communities, among them 
San Francisco, Sacramento, Bakersfield, Santa Monica, and San 
Diego, enacted codes as local ordinances. San Francisco's code for 
the cleaning and dyeing trade established a minimum price of $1, 
eliminated the cash and carry' differential, and provided for the pun- 
ishment of violators by fine and imprisonment. The code was con- 
tested by the operator of a chain and was shortly declared unconsti- 
tutional by a State court. The decision nullified the other codes as 
well.^2 ^ 

- Minimum price fixing in the ser\ ice trades Has been authorized by 
law in 13 other States : Alabama, Arizona, Colorado, Delaware, Flor- 
ida, Indiana, Iowa, Louisiana, Minnesota, Montana, New Mexico, Ok- 
lahoma, and Tennesset. These statutes take various forms: some of 
them empower a State agency to regulate the trades; others permit 
such an agency to approve codes submitted by their members; still 
others authorize local governments to adopt regulatory ordinances. 
In some States these laws cover only the barbering, cleaning and dye- 
ing, laundermg, or beauty culture businesses ; in others they embrace 
all of the service trades. Tlie acts have been challenged in the courts 
of at least 9 States ; they were upheld in Colorado, Louisiana, Minne- 

« Gline v. Frink Dairy Co., 247 U. S. 445. 

^ Blake v. Paramount Pictures, Inc., et al.. District Court of the United States, Southern 
District of California, Central Division, 22 Fed. Supp. 249. 

2» Grether, op. cit., pp. .T98-399. 

»" Morrison Handsaker, The Chicago Clea'^lng and Dyeing Industry (University of Chicago 
doctoral dissertation, 1939, typescript), pp. 97-98. 

" Grether, op. cit., pp. 76-77. 

*^ Handsaker, op. cit., pp. 98-99. 


sota, and Oklahoma, but they were declared unconstitutional in Ala- 
bama, Delaware^ Florida, Iowa, and Tennessee.** 

A State commission in Utah has administrative powers under an act 
which "suggests N. R. A. technique for fostering concerted action by 
producers under the plea of protecting employment." The Montana 
Board of Railway Commissioners, which administers the Unfair Prac- 
tice Act of that State, is said to be "a vehicle for promoting trade 
association price maintenance combinations." ** 

In November 1938, 21 States licensed dealers in new automobiles 
and used cars taken in trade, 5 others licensed dealers in used cars, 
and 3 others authorized municipalities to require such licenses. In 
some of these States it appears that the licensing power has been em- 
ployed to limit competition in the field. Under the Nebraska act,*^ 
"willfully or habitually making excessive trade-in allowances for the 
purpose of lessening competition or destroying a competitor's busi- 
ness" is sufficient ground for denying, suspending, or revoking a deal- 
er's license. At the request of 40 percent of the retailers in any sec- 
tion of the State, the administrator of the act can authorize a survey 
for the purpose of determining a fair basis for allowances. There- 
after, any dealer who makes allowances in excess of the amounts that 
are so determined may be denied the right to continue in business. 
The Wisconsin law ^^ gives the State Banking Commission power to 
promulgate rules and regulations and to define "unfair trade prac- 
tices." In pursuance of this authority, the Commission declared on 
October 15, 1937, that>- 

such consistent and material overallowances on used car trade-ins over a period 
of time wliich shall tend to adversely affect competition, demoralize the industry, 
or injure the consumers shall be considered an unfair trade practice.'^ 

The dealer is required to file reports on his allowances and if his figures 
are consistently higher than the average for the trade he may find that 
his license is in jeopardy. A Pennsylvania statute,*^ which was found 
to be unconstitutional before it took effect, created a motor vehicle 
dealers' commission and provided that — 

The commission shall, within 30 days from the time it is established, determine 
by a survey vphat the average sale price for used motor vehicles was for each 
make, model, body type, and year, and shall issue orders that for the ensuing 
30 days no appraiser shall appraise a used motor vehicle for a greater amount. 

According to the Federal Trade Commission, the laws of Ohio ^^ and 
Iowa *" also "appear to have been enacted primarily for the purpose 
of regulation of the trade rather than to produce revenue." ^^ The 
Automobile Manufacturers Association has commented on this legis- 
lation as follows : 

Proponents of the laws in every case have been organizations of the dealers 
themselves, whose spokesmen have testified to the desire for control over acute 
types of competition. * * * There has been no popular sponsorship nor support 
from organizations speaking for consumers as such.*^ 

S3 Works Progress Administration, Marketing Laws Survey, State Price Control Legisla- 
tion, Washington, 1940 (in galley proof). 
" Ibid. 

» Bill No. 388, Nebraska Laws of 1937. 

^ Sec. 218.01, Wisconsin Statutes, as amended by House Bill No. 429, Laws of 1937. 
s' Federal Trade Commission, Motor Vehicle Industry (1939), p. 405. 
** Senate bill No. 815, Laws of 1937 (Act No. 461). 
»» House bill No. 581, Ohio Laws of 1937. 
*o House bill No. 218, Iowa Laws of 1937. 
" Federal Trade Commission, op. cit., p. 400. 
«ated in Ibid., p. 407. 

271817— 40— No. 21 19 



The erection of artificial barriers obstructing imports from abroad 
and impeding trade between the States is another method by which 
competition has been limited by law. The "protective" tariff protects 
domestic producers from the necessity of meeting the prices chatged by 
their foreign competitors. Various measures recently enacted by State 
legislatures are designed to protect producers who are located in one 
State from ithe competition of those who are located in another. 

A majority of the States grant special favors to local producers of 
alcoholic beverages and of the ingredients from which they are made. 
Twenty-six States impose higher license fees and excise taxes on 
brewers and distillers who use imported ingredients than on those who 
use ingredients produced at home. Maine collects a fee of $3,000 from 
those in the former group, a fee of $100 from those in the latter. Four 
barley-producing States require that malt beverages sold within their 
borders contain two-thirds barley malt. Thirty States restrict imports 
of liquor. Montana imposes a tax of $1 on every barrel of imported 
beer. In some States, a corporation is not allowed to import alcoholic 
beverages unless a certain number of its directors are citizens of the 
State. In several, distributors who import liquor must pay higher 
fees than those who buy at home. In a few. State liquor stores must 
buy, if possible, from local sources of supply.*^ 

Many States undertake to protect local dairy interests by obstructing 
the sale of oleomargarine. Two-thirds of the States jDrohibit the sale 
of yellow margarine, while many require persons selling any butter 
substitute to display signs and make announcements that are calculated 
to discourage its use. Twenty States forbid State institutions to pur- 
chase substitutes. Sixteen impose annual license fees ranging from $1 
to $1,000 on firms engaged in the manufacture, distribution, sale, or 
serving of margarine. Twenty-three impose excise taxes ranging from 
5 to 15 cents a pound. In the Cotton Belt, however, most of the 
States exempt butter substitutes containing local vegetable products 
from these taxes; in the cattle country, three States exempt substitutes 
containing a certain percentage of animal fats.** 

State inspection, grading, and labeling requirements are frequently 
employed as a means of restricting the importation of livestock, nurs- 
ery stock, milk, poultry products, fruits, and vegetables. Several 
States require out-of-State shippers of livestock to obtain permits and 
produce health certificates and tuberculin test charts. ' Some of them 
make a second inspection, holding imported livestock in quarantine for 
several days, thus subjecting shippers to needless expense and delay. 
Forty-seven States inspect imported nursery stock. In 1939 the Fed- 
eral Government was imposing quarantines against 11 plant diseases 
and insect pests; the States against 239. Many States, requiring in- 
spection of dairies by State authorities, check the flow of milk across 
their borders by limiting inspection areas. Some States, through grad- 
ing and labeling requirements, attempt to restrict imports of chickens 
and eggs. Florida defines "fresh dressed poultry" as poultry free from 
disease, slaughtered in Florida. Florida, Georgia, and Arizona each 

^ W. p. A. Marketing Laws Survey, Barriers to Trade Between States (Washington, 
1939), chart 6. 
" Ibid., chart 3 


define "fresh eggs" as eggs laid within the State. A number of States 
maintain rigorous standards in grading fruits and vegetables and 
either require that distinctive labels be attached .to those falling in the 
lower grades or exclude them altogether. Georgia goes so far as to 
empower its commissioner of agriculture to embargo out-of-State 
fruits, vegetables, and truck crops when he believes the domestic sup- 
ply to be sufficient for the markets of the State.^^ 

State tax laws and traffic regulations operate to handicap interstate 
truckers. Intrastate truckers pay registration fees, gross receipts taxes, 
and mileage taxes to a single State ; interstate truckers must pay them 
to several States. The cumulative burden may be heavy. A trucker 
traveling from Alabama, through Georgia, to South Carolina, for in- 
stance, is required to pay registration fees aggregating $1,100. Nine 
States avoid such pyramiding by granting complete tax reciprocity, 
but 32 grant only partial reciprocity; and 7 grant none at all. 
Some States also impose special taxes on itinerant merchants who sell 
from trucks or temporary stands. State laws governing the height, 
length, weight, and equipment of vehicles, moreover, are so diverse that 
a truck which conforms to the regulations of one State may be ex- 
cluded from another. A few States have erected ports of entry at their 
borders where out-of-State trucks must register, pass inspection, pay 
taxes, satisfy liability requireme^its, and obtain clearance certificates 
before they are permitted to proceed."*^ 

Fifteen States which tax intrastate sales impose an equivalent "use 
tax" on imports. Nine of them exempt from this tax goods that have 
already paid a sales tax in another State ; six of them do not. In the 
latter case, an out-of-state producer who must pay both taxes is handi- 
capped in competing with a domestic producer who pays the sales 
tax alone.^^ 

Every State except Alabama requires that some sort of preference 
be shown to residents in making public purchases. State departments 
and institutions, cities, counties, townships, and school districts must, 
where possible, hire local labor, award all contracts or specific con- 
tracts to local bidders, and purchase all supplies or designated sup- 
plies from local firms. Eighteen States direct that all public print- 
ing must be done within their boundaries. Seven States require their 
purchasing agents to buy coal from local mines. Four require them 
to buy home-made stationery, blank-books, and office supplies. In 
Indiana, they must buy Indiana limestone ; in Maryland, green mar- 
ble ; in Virginia, soft winter wheat flour ; in Missouri, products of the 
State's "mines, forests, and quarries"; in Oklahoma, goods "mined, 
quarried, or manufactured" within the State; and in Nebraska, 
"Nebraska-produced butter." *^ 

The desirability of legislation of any of the types described above 
is not here in question. It is sufficient to note that each of these meas- 
ures was designed to limit competition in a field which might otherwise 
have been highly competitive. 

« Ibid., charts 2, 4, 5. 
*« Ibid., chart 1. 
« Ibid., chart 7, 
« Ibid., chart 8. 




In local, as well as in national markets, the presence of many 
sellers affords no guaranty that active competition will prevail. 
Bakers, barbers, building contractors, cleaners and dyers, coal dealers, 
cold storage houses, garages and parking lots, hotels, ice manufactur- 
ers, laundrymen, lumberyards, milliners, movers, printers, restaurants, 
retailers of every description, shoe repairmen, tailors, theaters, truck- 
men, and undertakers all had their "codes of fair competition'' during 
the days of the N. R. A. Many of them, before and since, have entered 
into price agreements, shared markets, and inflicted boycotts on those 
who dealt with their competitors. A partial list of the instances, in- 
volving more than 150 groups in some 50 different trades in many 
different localities at some time during the past 20 years, in which it 
has appeared that a trade association, a trade union or some other 
group, formal or informal, has imposed limitations on competition in 
local markets is given on the pages which follow. 

Trade associations, trade unions, and other groups said to te exercising some 
form of control over production, price and terms of sale, and organizing toy- 
cotts in local markets from 1920 to 1940 

Trade and locality 



Artichoke dealers: New York 

Automobile retailers: 

BeUeville, ni 

Boston, Mass 

Kansas City, Mo.. 
Los Angeles, Calif. 

Milwaukee, Wis.. 
Muskegon, Mich. 
Norfolk, Va 

Philadelphia, Pa. 
Rockford, m 

St. Louis, Mo 

St. Paul, Minn... 

Building supplies dealers: 

Milwaukee, Wis. 
Cleaners and dyers: 

Albany, N.y 

Boston, Mass- 
Chicago, 111... 

Minneapolis and St. Paul, 

Montgomery, Ala