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76th  Congre8s|        SENATE  COMMITTEE  PRINT 
od  Session     I 


INVESTIGATION  OF  CONCENTRATION 
OF  ECONOMIC  POWER 


TEMPOEARY  NATIONAL  ECONOMIC 
COMMITTEE 

A    STUDY    MADE    FOR    THE    TEMPORARY    NATIONAL 

ECONOMIC    COMMITTEE,    SEVENTY-SIXTH     CONGRESS, 

THIRD    SESSION,   PURSUANT   TO   PUBLIC   RESOLUTION 

NO.    113    (SEVENTY-FIFTH    CONGRESS),    AUTHORIZING 

AND    DIRECTING   A    SELECT    COMMITTEE    TO   MAKE    A 

FULL    AND    COMPLETE    STUDY    AND    INVESTIGATION 

WITH  RESPECT  TO  THE  CONCENTRii.TION  OF  ECONOMIC 

POWER  IN,  AND  FINANCIAL  CONTROL  OVER, 

PRODUCTION   AND    DISTRIBUTION 

OF  GOODS  AND  SERVICES 


MONOGRAPH  No.  21 

COMPETITION  AND  MONOPOLY 

IN  AMERICAN  INDUSTRY 


Printed  for  the  use  of  the 
Temporary  National  Economic  Committee 


UNITED  STATES 

GOVERNMENT  PRINTING  OFFICE 

WASHINGTON  :  1940 


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 


•Alternates. 


Representing  the  Department  of  Commerce 

•     •     « 

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

MONOGRAPH  NO.   21 


COMPETITION  AND  MONOPOLY  IN  AMERICAN  INDUSTRY 

CLAIR  WILCOX 
II 


ACKNOWLEDGMENT 

This  monograph  was  written  by 
CLAIR  WILCOX,  Ph.  D. 

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. 

Ill 


TABLE  OF  CONTENTS 


Page 

Letter  of  transmittal ix 

Author's  acknowledgments xi 

CHAPTER   I 

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 

CHAPTER   II 

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 

V 


VI  CONTENTS 

CHAPTER  III 

Page 
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 

CHAPTER  IV 

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 


CONTENTS  VII 

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 

CHAPTER  V 

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 


VIII  CONTENTS 

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 

CHAPTER   VI 

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 


LETTER  OF  TRANSMITTAL 


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- 
bution. 

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 
author. 

Respectfully^  submitted. 

Theodore  J.  Kreps,  Economic  Adviser. 

October  8,  1940 

IX 


AUTHOR'S  ACKNOWLEDGMENTS 

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.  ^  ,^ 

C.W. 

Swarthmore,  Pa.,  October  16^  Wlfi. 

XI 


CHAPTER  I 

THE    NATURE    AND    SIGNIFICANCE    OF    COMPETITION 

AND  MONOPOLY 

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. 

THE  NATURE  OF  COMPETITION 

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. 

1 


2  OONCE'NTRiATION  OF  EOONOMIC  POWER 

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, 

PERFECT   COMPETITIGN 

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. 


C'ONCE'NTRiATION  OF  ECONOMIC  POWER  3 

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. 

PUBE    COMPETITION 

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. 

rMPERFECT   COMPETITION 

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 


4  OOM>CB?NTRATION  OF  ECONOMIC  POWEK 

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 

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. 

NON-PRICE  COMPETITION 

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. 


OOK'GDNTRiATION  OF  ECONOMIC  POWER  5 

OLIGOPOLY 

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. 

CUTTHROAT  OR  DESTRUCTIVE  COMPETITION 

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. 

PREDATORY  AND  DISCRIMINATORY  COMPETITION 

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- 


g  (JON^BNTRiATION  OF  EOONOMIC  POWEK 

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. 

UNFAIR  AND  FAIR  COMPETITION 

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- 


CONGE'NTRiATION  OF  EICONOMIC  POWER  7 

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 

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 


g  OONCBNTRATION  OF  ECONOMIC  POWEH 

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. 

EFFECTIVE    OR    WORKABLE    COMPETITION 

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 


OONCBNTRiATION  OP  ECONOMIC  POWER  Q 

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. 

THE  NATURE  OF  MONOPOLY 

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 


IQ  C'ONOBNTRiATION  OF  EIOONOMIC  POWER 

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. 

DUOPOLY 

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. 

MONOPSONY  AND  DUOPSONY 

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


CONCENTRATION  OF  ECONOMIC  POWER  H 

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 
demand. 

THE  USE  OF  TERMS 

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. 


12  CONCENTRATION  OF  ECONOMIC  POWEH 

THE  CLASSIFICATION  OF  MARKETS 

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.^ 

THE  SIGNIFICANCE  OF  COMPETITION 

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 
outlined. 

THE  ADVANTAGES  OF  COMPETITrON 

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. 


CONCENTRATION  OP  ECONOMIC  POWER  13 

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, 


14  C'ON'GENTRiATIO'N  OF  EICONOMIC  POWER 

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

THE   DISADVANTAGES    OF    COMPETITION 

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 


OONICBNTRATION  OF  HOONOMIC  POWER  15 

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. 

THE  SIGNIFICANCE  OF  MONOPOLY 

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. 

THE  ADVANTAGES  OF  MONOPOLY 

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 
size. 

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- 


IQ  OONOBNTEATION  OF  EOONOMIC  POWER 

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  DISADVANTAGES  OF   MONOPOLY 

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- 


CONCENTRATION  OF  ECONOMIC  POWER  17 

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 


Ig  CONOBNTRiATION  OF  EOONOMIC  POWER 

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. 


CHAPTER  II 

COMPETITIVE  MARKETS 

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, 

19 


20  CX>NiClEiNTEiATION  OF  EICX)NOMIC  POWEH 

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. 

EXTRACTIVE  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. 

AGRICUI/TTJRE 

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 


C■O^X?E'NTRATIaN  OF  ECONOMIC  POWER  21 

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 


22  OONOBNTBATION  OF  ECONOMIC  POWEH 

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 

LUMBER 

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. 


CONGBNTRATION  OF  EIOONOMIC  POWER  23 

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. 
250-251. 

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


24  OONCIE'NTRiATION  OF  EICONOMIC  POWER 

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. 

BITUMINOUS  CX)AL 

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.  &. 


CONCEN'TRiATION  OF  EICONOMIC  POWER  25 

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 
power. 

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. 


26  CONCIENTRATION  OF  ECONOMIC  POWETl 

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 

PETROLEUM   PRODUCTION 

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 
supply.*^ 

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. 


CONCENTR/ATION  OF  BOONOMIC  POWER  27 

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. 

FISHERIES 

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. 


28  C'ONOBNTRiATION  OP  ElOONOMIC  POWER 

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. 

MANUFACTURES 

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. 


CONCENTRATION  OF  ElCONOMIC  I'OWER 


29 


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 


Industry 


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 .^. 

Furniture 

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 

Electroplating 

Con  feet  ionery 

Dyeing  and  finishing  cotton,  rayon,  and  silk 

Boxes,  paper,  n.  e.  c 

Paper  goods,  n.e.  c 

Gloves  and  mittens,  leather 

Paper 

Waste  and  related  products :.. 

Baskets  and  rattan  and  willow  ware .• 

Buttons 

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

Macaroni,  spaghetti,  vermicelli,  and  noodles 

Brooms 

Toys,  games,  and  playground  equipment 

Insecticides  and  fungicides 

Mirror  and  picture  frames 

Butter 

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 


Percent 

Percent 

produced 

produced 

by  the  4 

by  the  8 

largest 

largest 

1.4 

2.4 

2.6 

4.5 

4.4 

6.5 

4.7 

7.6 

5.1 

8.8 

5.3 

8.5 

5.6 

8.8 

7.5 

16.9 

7.7 

12.7 

7.7 

13.0 

8.4 

14.4 

8.4 

15.8 

9.5 

15.4 

9.8 

14.7 

11.5 

18.5 

11.6 

18.7 

11.7 

16.7 

12.0 

18.6 

12.4 

17.7 

12.5 

19.9 

13.9 

22.3 

14.1 

20.7 

14.2 

23.7 

14.4 

23.2 

14.7 

21.6 

14.9 

24.1 

15.1 

25.6 

15.4 

27.0 

16.1 

23.0 

16.1 

26.4 

16.2 

23.0 

16.6 

25.6 

16.6 

27.1 

17.0 

31.2 

17.2 

25.7 

17.2 

26.4 

17.6 

23.5 

18.1 

28.9 

18.5 

27.1 

18.6 

22.5 

18.8 

32.2 

19.0 

29.1 

19.1 

26.5 

19.2 

28.5 

21.3 

31.4 

22.2 

32.9 

22.7 

30.4 

23.6 

28.6 

24.2 

32.9 

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. 


30 


C'ON^OENTRATION  OF  EICONOMIC  POWER 


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 


Product 


Number  of 
producers 


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' 

Sheetings 

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 

Noodles. 


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, 

cemented 

Canned  peas 

Wood  dining  room  suites 

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

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


545 
885 
787 
415 
587 
634 
358 
212 
365 
320 
304 
220 
561 
251 
523 
504 
263 
119 
443 
781 
129 

93 
156 

37 

1,256 

175 

396 
329 
1,087 
151 
366 
187 

72 
150 
806 

83 
303 
200 

49 
1,100 

74 
313 
241 

103 
313 
118 
129 
570 


3.1 
7.6 
8.9 
9.7 
11.9 
13.5 
14.0 
14.1 
14.5 
15.7 
16.3 
16.8 
16.9 
16.9 
17.0 
18.0 
18.7 
18.9 
18.9 
19.0 
19.0 
19.1 
19.3 
19.4 
19.5 
19.8 

20.2 
20.7 
20.9 
21.0 
21.2 
21.9 
21.9 
22.0 
22.1 
22.3 
22.5 
22.5 
23.3 
23.4 

23.5 
23.6 
23.6 

23.9 
24.0 
24.2 
24.4 
24.8 


»*  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. 


CONCENTRATION  OF  EICONOMIC  POWER  31 

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. 

COTTON  TEXTURES 

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 
30,000.«3 

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. 


32  C'ON'CENTRATION  OF  ECONOMIC  POWEU 

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. 
13i-133. 

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

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


CONCE'NTRATIOiN  OF  ECONOMIC  POWER  33 

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.'^" 

WOOLEN    AND   WORSTED   GOODS 

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. 


34  CONOENTRATIOiN  OF  ECONOMIC  POWER 

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. 
441-442. 

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

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


CONCiBNTRATION  OF  ECONOMIC  POWER  35 

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. 

SILK   AND  llAYON 

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. 


36  CONOBNTRATION  OP  ECONOMIC  POWER 

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.^^ 

KNITTED  GOODS 

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. 


CONCENTRATION  OP  EXIJONOMIC  POWER  37 

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 
employees.^ 

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 


38  CONOEJNTRATION  OF  BCONOMIC  POWEH 

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- 
4005. 

'  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. 


CONCENTRATION  OF  ECONOMIC  POWER  39 

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. 


40  OON'ClE'NTRATIOiN  OF  EIOONOMIC  POWEK 

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. 


CONCENTRATION  OF  EIOONOMIC  POWER  41 

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. 


42  OON'OBNTRiATION  OF  EIOONOMIC  POWER 

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. 


CONGBNTRiATION  OF  ECONOMIC  POWER  43 

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. 


44  CON'OBNTRiATIOiN  OP  EOONOMIC  POWER 

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. 


CONCENTRATION  OP  ECONOMIC  POWEU  45 

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. 

BOOTS   AND  SHOES 

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. 


46  OONOBNTBtATION  OP  EIOONOMIC  POWER 

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."  ^® 

LEATHER 

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. 


CONCBNTRATION  OF  ECIONOMIC  POWER  47 

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. 


4g  OONCEiNTRATION  OP  EOONOMIC  POWER 

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. 

TIRES  AND  TUBES 

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. 


CONCENTRATION  OF  ECONOMIC  POWER  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. 


5Q  OONOE'NTRiATION  OF  ECONOMIC  POWEK 

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. 


CONCE'NTRATIOJS'  OP  ECONOMIC  POWER  51 

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. 

HOUSEHOLD  APPLIANCES 

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. 


52  CONCENTRiATIdN  OF  ECONOMIC  POWER 

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."^ 

FOOD  PRODUCTS 

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. 


rX)N'a^NTI{iATK>N  OF  ECONOMIC  I'OWK'R  53 

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 


54  CX>NaBNTRlATION  OF  EICX>NOMIC  POWEIR 

OTHER  MANUFACTUKED  GOODS 

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. 

WHOLESALE  AND  RETAIL  DISTRIBUTION 

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. 


OONCBNTRiATION  OF  EOONOMIC  POWER  55 

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. 


56  CONOENTEiATION  OF  ECONOMIC  POWER 

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. 


CONGE'NTRiATION  OF  ECONOMIC  POWETl  57 

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 
consumers. 

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. 


58  OONCfENTEiATION  OF  EIOONOMIC  POWEIR 

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 


OOISPCBNTRATION  OF  EICX>NOMIC  POWEH  59 

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.^ 

SERVICE  TRADES 

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. 


QQ  CONCENTRATION  OF  ECONOMIC  POWEH 

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. 


C'ONICENTRATION  OF  EIOONOMIG  POWER  gl 

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. 


g2  OONGE'NTRATION  OP  EIOONOMIC  POWEH 

December  1939,  428  new  periodicals  were  launched  and  142  others 
disappeared.*^ 

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."  ^^ 

OTHER  ASPECTS  OF  COMPETITION 

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 


CONCENTEA.TION  OF  ECIONOMIC  POWER  53 

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 
sales. 

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. 


CHAPTER  III 

MONOPOLIZED  MARKETS:  THOSE  IN  WHICH  ONE  OR 
TWO  FIRMS  CONTROL  NINE-TENTHS  OR  MORE  OF 
THE   SUPPLY 

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. 

FIRMS  APPROACHING  COMPLETE  MONOPOLY  IN 
AMERICA  BEFORE  THE  FIRST  WORLD  WAR 

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. 

65 


QQ  OONGBN'TRiA.TIOiN  OF  EIOONOMIC  POWEK 

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. 


C'ONCBNTRiAiTION  OF  EOONOMIC  POWER  gy 

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 
stock.* 

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 
products.* 

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. 


gg  CONCENTRATION  OF  EIOONOMIC  POWEK 

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.^ 

FIRMS    APPROACHING    COMPLETE    MONOPOLY    IN 
AMERICA  SINCE  THE  FIRST  WORLD  WAR 

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. 


CON?CBNTRiATION  OF  BOONOMIC  POWER  69 

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. 

ALUMINUM 

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 


70  OONOBNTRATION  OF  EICONOMIG  POWER 

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 
competition.^" 

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. 


C'ONICEiNTRATION  OF  ECONOMIC  POWER  71 

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. 


72  C'0NCIE'NTRiATlO.N  OF  ECONOMIC  POWER 

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."- 

SHOE  MACHINERY 

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, 
19.S7). 

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. 


CONICENTKiATION  OF  EIOONOMIC  POWER  73 

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." 

GLASS  CONTAINER  MACHINERY 

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. 


74  CONOBNTRATION  OF  EIOQNOMIO  POWER 

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. 
Smith? 

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. 


CONCENTRATION  OF  EIOONOMIC  POWER  75 

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. 


76  CONCENTRATION  OF  HOONOMIC  POWEH 

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 
production. 

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. 


CONCE'NTEiATION  OF  EICONOMIC  POWER  77 

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. 


7g  CJONOEJNTRATIOiN  OF  EIOONOMIO  POWER 

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

OFnCAL  GLASS 

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. 


CONCENTRATION  OF  EOONOMTC  POWER  79 

NICKEL 

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, 
1939 

"  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. 


gQ  CONCBNTRiATION  OF  ECONOMIC  POWEH 

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. 


CONCENTRATION  OF  EICONOMIC  POWER  gX 

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 

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. 


32  OONODNTIIATION  OF  EIOONOMIC  POWEH 

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 

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. 


CONCENTRATION  OP  EOONOMIC  POWER  g3 

TELEPHONE    SERVICE 

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 
system.**^ 

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. 


34  CONCBNTRiATION  OP  EIOONOMIC  POWETl 

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, 


CX)N)CE'NTRATK)N  OF  HOONOMIC  POWER  85 

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 


gg  CONOBNTRtATION  OF  BOONOMIC  POWER 

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. 


CONCENTRATION  OF  ECONOMIC  POWEU  87 

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. 


gg  OONH3BNTRATION  OF  EICONOMIC  POWEH 

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. 

INTERNATIONAL  COMMUNICATIONS 

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. 

OIL  PIPE  LINES 

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. 


OONGDNTRATION  OF  ECONOMIC  POWEU  89 

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. 


9Q  CONiCBNTRATiaN  OF  EIOONOMIC  POWER 

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.^^ 

RAILKOADS 

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, 
7797. 

^Ibld.,  p.   7725. 


CONCENTRATION  OF  EIOONOMIC  POWER  91 

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

PULLMAN  CARS 

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 
1938.30 


*>  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 


92  OONCBNT^'IHATION  OF  EIOONOMIC  POWER 

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. 


OONCEiNTRATION  OF  HOONOMi      POWEIl  93 

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.^* 

TRANS-OCEANIO   AVIATION 

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. 

LOOAI.  UlTLITTES 

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. 


94  OONOENTRATTOiN  OF  ECONOMIC  POWER 

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. 


CONCENTRATION  OF  ECONOMIC  POWER  95 

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 

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. 


gg  OONCBNTKiATION  OF  EIOONOMIC  POWEH 

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 
business. 

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 
control. 

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 
States. 


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


CONCE'NTRuVTION  OF  ECONOMIC  POWER  97 

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. 


98  OONCEiNTRATION  OF  ECX)NOMIC  POWEH 

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. 

PAIRS  OF  FIRMS  APPROACHING  COMPLETE  DUOPOLY 
IN  THE  AMERICAN  MARKET 

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. 

DOMESTIC  TELEGRAPH  SERVICE 

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. 


CONCENTRATION  OF  ECONOMIC  POWER  99 

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 
enjoyed. 

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. 


XOO  CONCSEONrTEiATIOiN  OF  EOONOMIC  PO^^R 

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. 

INTERNATIONAL  COMMUNICATIONS 

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. 


OONOEJNTRATION  OF  EIOONOMIC  POWEK  IQl 

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.''® 

BANANAS 

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 


102  C'ONCENTEATION  OF  ECONOMIC  POWEK 

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. 


OONCE'NTEATION  OF  ECONOMIC  POWEIR  103 

PLATE  GliASS 

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 
duopoly. 

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. 


JQ4  OONOENTRATIOiN  OF  ECONOMIC  POWEiR 

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 

EaLECTRIC  LAMPS 

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. 


OONdETNTHATION  OF  ECONOMIC  PQWEiR  105 

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. 


106  OONCETNTRATIOiN  OF  BOONOMIC  POWER 

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.^ 

ELECTRIC  ACCOUNTING  MACHINES 

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. 


CONCENTRATION  OF  ECONOMIC  PCWER  107 

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

AIR  BRAKES 

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. 


108  OONaE'NTRATIOiN  OF  EIOONOMIC  POWER 

OXYACETYIiENE 

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.^^ 

SULFUR 

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. 


CX)NC3ENTKlATION  OFEICONOMIC  POWEJR  IQQ 

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. 


no  CONCCETNTRATION  OF  EIOQNOMIC  POWEIR 

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.^** 

MONOPOLY  AND  DUOPOLY  IN  OTHER  MARKETS 

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. 


CX)NOENTRL\TION  OF  EOONOMIC  POWEH  HI 

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. 

LOCAL  MARKETS 

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. 


222  OONCIENTRATIOlN  OF  ECONOMIC  POWEH 

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 
supply. 

SMALL  TOWN  MARKETS 

"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. 


CHAPTER  IV 

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 

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 
field. 

CONCENTRATION  OF  PRODUCTION 

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. 

113 


]^J4  OONOENTRATIOiN  OF  ECONOMIC  POWER 

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, 
210. 

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- 
153. 

"  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. 


CONCIENTElATION  OF  ECONOMIC  POWER 


115 


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 


Industry 


Percent 

Percent 

produced 

produced 

by  the  4 

by  the  8 

largest 

largest 

(') 

99.3 

(') 

98.3 

92.0 

97.3 

91.7 

100.0 

89.7 

99.4 

(') 

89.3 

88.1 

98.4 

87.9 

97.2 

87.8 

96.7 

87.3 

94.2 

86.4 

100.0 

85.8 

94.9 

85.1 

100.0 

84.8 

97.5 

83.0 

93.6 

82.0 

93.1 

81.9 

92.4 

81.8 

100.0 

81.6 

100.0 

81.0 

92.1 

80.9 

90.4 

80.8 

85.6 

79.2 

95.0 

79.2 

87.0 

79.1 

96.0 

78.9 

90.4 

77.9 

84.9 

77.1 

87.3 

76.9 

90.2 

76.1 

86.4 

76.0 

83.7 

75.5 

87.4 

74.3 

90.2 

74.0 

80.4 

73.6 

83.1 

72.4 

87.7 

71.7 

84.0 

70.4 

82.8 

70.3 

91.3 

69.6 

88.3 

69.4 

76.8 

69.0 

85.9 

68.8 

89.4 

68.1 

82.2 

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 

Files 

Bluing. 

Safes  and  vaults 

Writing  ink 

Explosives 

Firearms 

Rubber  boots  and  shoes 

Linoleum 

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.. 

Soap 

Agricultural  implements... _ 

Electric  and  steam  railroad  cars 

Fountain  and  stylographic  pens;  gold,  steel,  and  brass  pen  points 

Matches... 

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. 


116 


OONCE'NTRATION  OF  ECONOMIC  POWEIR 


Industries  in  i4Mich  the  4  largest  fimis  produced  more  than  %,  by  value,  of  the 
total  output,  in  1935 — Continued 


Industry 


Percent 

Percent 

produced 

produced 

by  the  4 

by  the  8 

largest 

largest 

67.8 

77.6 

67.4 

74.3 

67.3 

76.1 

67.0 

76.4 

(') 

(') 

(') 

(0 

(■) 

« 

(') 

0) 
(0 

8 

Chocolate  and  cocoa  products,  except  confectionery 

Abrasive  wheels,  stones,  paper,  cloth,  and  related  products 
Surgical  and  orthopedic  appliances  and  related  products... 

Excelsior 

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. 


CON'OENTRATION  OF  EICONOMIC  POWER 


117 


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 


Product 


Number  of 
producers 


Percent  pro- 
duced by 
the  4  largest 


Inlaid  linoleum 

Watt-hour  meters,  alternating  current. 
Snuff. 


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.. 

Lithopone 

Hydrocarbon;  acetylene .-. 

Tractors;  "all  purpose,"  wheel  type,  belt  horsepower  under  30,  steel  tires. 

Plug  chewing  tobacco >■ 

Oxygen- 


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 


4 

4 
11 
11 

8 
11 
14 
15 
14 
10 
23 
10 
IP 
26 

8 
12 
106 
11 
14 
17 
15 
10 
12 
14 

8 
14 
25 
24 
18 
64 

9 
16 
14 
11 

9 

32 
23 
13 


15 
9 
12 
12 
10 
11 
15 
24 
9 
12 
19 
16 
8 
14 
13 
40 
36 
12 
14 
18 
12 
26 
19 
15 
24 
26 
119 
21 
23 
25 
24 
26 
37 
25 
12 
21 
24 


271817—40 — No.  21- 


-9 


118 


CONCENTRATION  OF  ECONOMIC  POWER 


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. 


Product 


Number  of 
producers 

rerceni  pro- 
duced by 
the  4  largest 

26 

75.3 

82 

75.3 

54 

75.1 

5 

(') 

5 

(') 

5 

(') 

5 

(') 

6 

(') 

6 

(') 

7 

(') 

7 

(') 

8 

(') 

» 

0) 

9 

(') 

9 

« 

10 

(') 

10 

(') 

11 

(') 

11 

(1) 

11 

(■) 

12 

(') 

13 

(') 

13 

0) 

14 

(') 

14 

(') 

16 

(') 

18 

(') 

18 

0) 

18 

(') 

19 

(') 

25 

(') 

27 

(') 

28 

0) 

30 

(') 

31 

(') 

31 

(') 

33 

(') 

44 

(') 

61 

(') 

62 

0) 

105 

0) 

146 

(') 

525 

0) 

(2) 

(') 

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. 


OONCBNTEiATION  OF  ECONOMIC  POWER  119 

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- 
consin.^* 

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  Stat.es  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. 


120  OONOENTRATION  OF  ECONOMIC  POWER 

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. 


OONCJENTEJATION  OF  EtCONOMIC  POWEH  121 

Concentration  in  the  distrihution  of  milk  in  representative  cities 


Year 

Percent  distributed  by  the 
largest  companies 

Percent  distributed  by 
subsidiaries  of— 

City 

Largest 

Two 
largest 

Three 
largest 

Four 
largest 

National 

Dairy 
Products 

Borden's 

Both 

1938 
1935 
1937 
1930 
1930 
1938 
/1930 
\1936 
1937 
1930 
1938 
1938 
1937 
1934 
1937 
1930 
1930 
1930 
1930 
1930 
/1930 
\1935 
1930 
1938 
1930 
1937 
1934 
1935 
1934 
1930 
1930 
1937 
/1930 
\1937 
1937 
1935 
1937 

25.7 

49.8 
49.0 
45.9 
62.0 

55.0 

67.3 

24.1 

25.7 
21.0 

49.8 

Chicago ' 

21.0 

Philadelphia » « 

57.2 

64.3 

24.2 
27.0 
17.9 
55.1 
40.0 

24.2 

Detroit  *                            ... 

25.0 

62.0 

65.1 

63.9 

69.6 

72.7 

65.1 

40.0 

St.  Louis  «9. - - 

68.7 
62.7 

29.9 
42.5 
55.5 
28.3 
36.6 
29.7 
30.1 
30.0 

49.0 
57.0 

56.0 

19.1 
42.6 
65.6 

19.1 

Pittsburgh '  * 

42.6 

65.6 

63.1 
59.2 

61.2 
71.3 

67.2 
79.1 

28.3 
36.6 

28.3 

Milwaukee''        .           - 

22.6 

69.2 

39.9 

'    46.4 

62.2 

30.1 

30.1 

Toledo ' 

21.8 

48.2 
32.6 
38.6 

48.2 

32.5 

53.3 
59.0 

91.9 

53.3 

91.9 

Richmond  * « 

89.9 

Salt  Lake  City  and  Ogden  * 

36.0 
28.1 

64.4 

68.4 

60.5 

26.3 
23.8 
28.8 
30.6 

26.3 

Hartford ' 

28.8 

30.5 

63.0 

33.6 

33.6 

45.5 
27.1 

46.6 

72.0 

65.3 

65.3 

65.3 

Madison  ' » 

\ 

91.0 
76.0 
84.4 
48.0 

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. 

PKICE  LEADERSHIP 

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 


122  CONCENTRATION  OF  EOONOMIC  POWEiR 

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. 


OON'CIE'NTR'ATION  OF  EICONOMIC  POWER  123 

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. 

STEEL 

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. 


124  OONCIE'NTRATIOlN  OF  EIOONOMIC  POWETl 

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. 


OONCE-NTRATION  OF  EICONOMIC  POWER  125 

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 
Corporation. 

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 


J26  OONClfeNllRATIOiN  OF  EIOQNOMIC  POWEiR 

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. 

CEMENT 

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."  ^'^ 

AGRICULTURAL  IMPLEMENTS 

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. 


OON€IE7NTR'ATION  OF  ECONOMIC  POWEiR  127 

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."  ^ 

PETROLEUM  AND  GASOUNE 

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. 


128  OGNCE'NTRATIOiN  OF  EOONOMIC  POWER 

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- 
mittee. 

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. 


OONClETNTltiATION  OF'EOONOMlp  POWRft  129 

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.     *     *     * 

CX3PPER  AND  LEIAD 

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 
leadership. 

NEWSPRINT  PAPER 

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. 


130  OONCIENTRATIOiN  OF  ECONOMIC  POWER 

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 
States." 

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. 


OONdENTKATION  OF  EiQONOMIC  POWEH  131 

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. 

GLASS  CONTAINERS 

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 
tableware. 

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. 

BISCUITS  AND  CRACKERS 

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. 


J  32  CONCENTRATION  OF  EICONOMIC  POWEH 

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.^^ 

PKICE  AGREEMENTS 

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, 


CX)NOENTItATION  OF  ECJONOMIC  POWER  133 

STEEL 

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 


J34  OONCIENTRATION  OF  EIGONOMIC  POWER 

were  within  this  industry,  there  were  many  discussions  in  respect  to  it,  many 
discussions. 

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.** 

IRON  ORE 

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. 


CONdENTRATION  OF  EIOONOMIC  POWER  J 35 

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.*'^ 

GASOLINE 

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. 


136  CONClENTRATiaN  OP  ECONOMIC  POWEH 

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. 


OON'OENTKlATION  OF  EOONOMIC  POWEOR  I37 

CHEMICAL.  NITROGEN 

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 


138  OONCETSITRATIOflS:  OF  EIOONOMIC  POWEH 

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 

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. 


CONCIE'NTRATION  OF  EICONOMIC  PQWEK.  139 

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 
England." 

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. 


140  C?ONCENTRATIOlN  OF  EICONOMIC  POWER 

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." 

TYPEWRITERS 

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. 


C'ONCIE'NTEATIO'N  OF  EIOONOMIC  POWHR  141 

Remington  Rand,  Inc.,  obti,  i.cd  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.«*' 

EYEGLASSES 

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.®^ 

CHEESE 

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. 


142  CTONCENTRATION  OF  EIOQNOMIC  POWDB 

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. 


CONOENTRiATION  OF  ECJONOMIC  POWER  143 

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. 

LIFE    INSURANCE 

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. 


144  OOTsCENTRATION  OP  ECONOMIC  POWER 

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 
field? 

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. 


C'ON'CIB'NTE.ATION  OF  EIOONOMIC  POWER  145 

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. 


146  CONOENTRATIOlN  OF  ECONOMIC  POWETl 

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. 

DELIVERED-PRICE  SYSTEMS 

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. 


CON'CiE'NTR'ATION  OF  EK30N0MIC  POWEIR  147 

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 


148  CONCENTRATION  OF  EIOONOMIC  POWEH 

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.^^ 

STEEL 

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. 


CON-OENTRiATION  OF  ECONOMIC  POWER  149 

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 


150  OON'OE'NTRATICXN  OF  EC5ON0MIC  POWEH 

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), 


C^N-OENTRATION  OF  EIOONOMIC  POWER  151 

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. 


152  C'ONCIEINTKATION  OF  ElOOxNOMIC   POWER 

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- 
tionally. 

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. 


C'ON'OE'NTRiATION  OF  EICOXOMIC  POWEiR  153 

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 
slump. 

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, 

CEMENT 

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 
(1940). 

*2  Jones,  op.  cit.,  ch.  9 ;  Burns,  op.  cit.,  p.  88. 


154  CONCENTRATION  OF  EKXVNOMIC  POWER 

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 
manufacturers. 

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. 


CONCENTRATION  OF  ECONOMIC  POWEH.  155 

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 
price. 

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. 


156  CONCENTRATION  OF  ECONOMIC  POWER 

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, 


CONCENTRATION  OF  EIOONOMIC  POWER  157 

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 

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 
determination. 


"^Ibld.,  p.  17. 

™  Complaint.  Docket  3091. 


158  CON€IENTRATIOiN  OF  BC30N0MIC  POtVEiR 

PATENTS 

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.) 


CONOENTRATION  OF  EICONOMIC  PQWEIR  159 

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 
law. 

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- 
quired. 

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 
industry. 

"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. 


160  CONCENTRATION  OF  EIOONOMIC  POWER 

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.®'' 

RADIOS 

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. 

ETHYL  GASOLINE 

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. 


OONCENTRiATION  OP  EOONOMIC  POWEH  Igl 

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  BOARD 

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 
quarter. 

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. 


Ig2  OON€IENTBATION  OF  EICJONOMIC  POWEH 

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- 


OONOKNl^RiATION  OF  EOONOMIC  POWER  163 

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 

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. 


164  CJONCIEJNTRATION  OF  EICON OMIC  POWER 

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 
profits." 

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 
described. 

MINERAL   WOOL 

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. 


CX>N'aBNTRiATIO'N  OF  EKX>NOMIC  POWEIR  165 

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 
wool." 

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. 

COMPETITIVE  PRACTICES  OF  DOMINANT  FIRMS 

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 


IQQ  OONC3E7NTRATION  OF  EICX)NOMIC  POWER 

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. 


CX)NaBNTRiATION  OF  EOONOMIC  POWER  167 

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.*^ 

GASOLINE 

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. 


168  CONOENTRATION  OF  EKX>NOMIC  POWETt 

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- 
ingly." 

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.^^ 

AGRICULTURAL  IMPLEMENTS 

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. 


OON€IE'NTRATION  OF  ECONOMIC  POWER  1^9 

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 
goods. 

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. 


170  CON-CETSTRATION  OF  EICX>NOMIC  POWER 

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 

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, 


CX)NOBNTRiATIO'N  OF  ECONOMIC  POWEK  171 

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. 


172  CON'CIENTRATION  OF  EK^ONOMIC  POWER 

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 
month. 

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." 

MOTION  PICTURES 

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. 


OONOBNTRATION  OF  ECONOMIC  POWER  173 

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. 

RADIO  BROADCASTING 

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. 


174  CON'CENTRATION  OF  ECONOMIC  POWEH 

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. 


OONOENTR'ATION  OF  EOONOMIC  POWER  175 

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 
chains.-^ 


"Ibid.,  p.  ii. 

22  Ibid.,  pp.  45-46. 

»  Ibid.,  pp.  40,  44. 


276  CONCIEKTRATION  OF  ECONOMIC  POWfiE 

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.-* 

MAKKET  SHARING 

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. 

INVESTMENT  BANKING 

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. 


CONOBNTRATION  OP  EiOQNOMIC  POWER  177 

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. 


]^78  OONOENTRATION  OF  EOONOMIC  POWER 

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. 


OONOENTRATION  OF  ECONOMIC  POWEIR  179 

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. 

ANTHRACITE  COAL 

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' 


IgQ  CON'OENTRATION  OF  EICONOMIC  POWER 

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. 


OONOE'NTR'ATION  OP  ECONOMIC  POWER  IgJ 

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 


J^g2  CONCENTRATION  OF  ECONOMIC  POWER 

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 
shut-down. 

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. 

MEAT 

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. 


OONCMNTRATIO'N  OF  EICONOMIC  POWER  183 

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 
jnarkets. 

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. 


184  OONCETSTRATION  OF  ECONOMIC  POWER. 

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. 


OONCIENTRATION  OF  EICONOMIC  POWEK  185 

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 
consumer." 

TOBACCX) 

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. 


186  CONOENTRATION  OF  EIOONOMIC  POWEiR 

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. 


CiONCIE'NTKiATIO'N  OF  ECONOMIC  POWER  lg7 

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. 


18g  CJONCEISTTRATION  OF  ElOONOMIC  POWEH 

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). 


OOITOBNTRATION  OF  ECONOMIC  POWER  lg9 

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 
shared. 

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.®^ 

INTERCORPORATE  RELATIONS 

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. 


IQO  OONCENTRATION  OF  EOQNQMIC  POWER 

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. 

STOCK  OWNERSHIP 

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. 


OONCJBNTRATIO'N  OF  EICONOMIG  POWER  IQJ 

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- 
7778. 


J  92  CON'OENTRATIO'N  OF  EIOONOMIC  POWEH 

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  DIKECTORATES 

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. 


OONOENTRATION  OP  ECONOMIC  POWER  193 

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. 

INTEREST  GROUPINGS 

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. 


j^94  CONCENTRATION  OF  ECONOMIC  POWER 

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  ?"^^ 

MARKET  DOMINANCE 


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. 

AUTOMOBILES 

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. 


CONCENTRATION  OF  ECONOMIC  POWEH  195 

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. 


J  95  OONCENTRATION  OF  EOONOMIC  POWEfR 

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. 


OONdBNTKlATION  OF  EIOONOMIC  POWEK 


197 


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 : 


Year 

Ford  Motor 
Co.i 

Chrysler  Cor- 
poration 2 

General  Motors 
Corporation » 

Deficit 

Profit 

Deficit 

Profit 

Deficit 

Profit 

1927                                             

5.21 
12.47 

57.22 
41.09 
21.35 
.64 
5.08 

"26."44' 
12.17 
45.93 
74.46 
59.44 
28.59 

"'6.28" 

63.05 

1928                                                                             

66.24 

1929                                                               .  .  

15.26 
5.81 

51.54 

1930                                                        ,- 

26.80 

1931                                                                             

6.71 
13.89 
2.16 

22.32 

1932 

9.75 

1933                                                        

19.33 

1934         

4  26 

'  ?0 

26 

.76 

22.70 

1935                                                                  

34.87 

1936 

43.77 

1937 

37.30 

.80 

35.50 

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- 


-14 


198  CX)NCIENTEATION  OP  EIOQNOMIC  POWEH 

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 
competitive. 

ELECTRICAL  EQUIPMENT 

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 
dominant,^^ 

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. 


OONCBNTRATION  OF  HOONOMIC  POWER         199 

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. 


200  OONOEISITRATION  OF  EIOONOMIC  POWER 

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.*^ 

CHEMICALS 

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. 


OONOENTRIATION  OF  EICONOMIC  POWEiR  201 

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. 


202  CJONOBNTIIATION  OF  ECONOMIC  POWER 

output  of  dyestuffs,  together  accounting  for  three-fourths  of  the 
supply/^ 

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. 


OONOEJNTRIATION  OF  EICONOMIC  POWKR  203 

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 


204  OONOENTRATION  OF  ElOONOMIC  POWEOR 

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. 


OONOEJNTEiATION  OF  EOONOMIC  POWEH  205 

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. 


206  OON'OBNTRATIOiN  OF  EICQNOMIC  POWBTl 

LOCAL  MAEKETS 

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. 

COMMERCIAL  BANKING 

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. 


OONOETSfTKlATION  OP  ECONOMIC  POWEiR  207 

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. 


208  OON'CIENTRATION  OF  EOONOMIC  POWER 

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."  ^® 

MILK 

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. 


OON'OENTBlATIOiN  OF  EICON  OMIC  POWER  209 

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- 
tributors. 

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. 


21Q  OONCKNTRATICWSr  OP  ECONOMIC  POWBH 

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. 


OONaE'NTRlATION  OF  EICONOMIC  POWER  211 

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. 


212  CONCENTRATION  OF  EIOONOMIC  POWBR 

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. 


0O>PaEJNTRlATION  OF  ECONOMIC  POWER  213 

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 
field. 

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 


2J4  OONCIENTRATiaN  OP  EiOONOMIC  POWER 

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. 


CHAPTER  V 

MONOPOLIZED  MARKETS:  THOSE  IN  WHICH  SEVERAL 
FIRMS  PURSUE  A  COMMON  POLICY 

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. 

CARTELS 

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. 

215 


216  OONCJENTRATION  OF  ECONOMIC  POWER 

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. 


OON'ClENTRIATIOiN  OF  EIOQNOMIC  POWER  217 

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. 

EUROPEAN  CARTELS 

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. 


218  OONOENTRATION  OF  EIGONOMIC  POWEOR 

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."  ^ 

INTERNATIONAL   CARTELS 

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. 


OONCIENTR^TIOiN  OF  ElOQNOMIC  POWER  219 

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.^ 

EXPORT  ASSOCIATIONS 

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. 


220  GON'OENTRATiaN  OF  ECONOMIC  POWKR 

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. 


OONOEyNTRIATIOiN  OF  EIOONOMIC  POWEOR  221 

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. 


222  CONCENTRATION  OF  ECONOMIC  POWER 

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."  ^^ 

COPPER  CARTELS 

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. 


OONOENTRATIOiN  OF  EIOQNOMIC  POWER  223 

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. 
Kelley:" 

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 


224  CONCENTRATION  OF  ECONOMIC  POWER 

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. 

POOLS 

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. 


OONCENTEATION  OF  ECONOMIC  POWEiR  225 

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. 

TRADE  ASSOCIATIONS 

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. 


226  CONCENTRATION  OF  EiOONOMIC  POWER 

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. 

ASSOCIATION   ACTIVITIES 

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."  ^^ 

COST  ACCOUNTING 

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. 


CONCENTRATION  OF  ECONOMIC  POWER  227 

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. 


228  OONCIENTRATiaN  OF  EIOONOMIC  POWER 

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."  ^^ 

STATISTICAL  ACTIVITIES 

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. 


OONCENTBlATIOiN  OF  EIOONOMIC  POWEH  229 

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.*^ 

PRICE  REPORTING  SYSTEMS 

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 


230  C'ONCElMTEATICWSr  OF  ECONOMIC  POWER 

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 
plans. 

STANDARDIZATION 

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. 


OONCOENTRIATIOiN  OF  ECONOMIC  POWEIR  231 

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."  *' 

CREDIT  BUREAUS 

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.*^ 

PATENT  POOLS 

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. 


232  OONCIENTRATION  OP  EOQN'OMIC  POWEK 

OTHER  ACTIVITIES 

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. 

COOPERATION  OR  CONSPIRACY  ? 

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. 


OONCIE'NTRIATION  OF  EDONOMIC  POWER  233 

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. 


234  OONOBNTRATIGN  OF  ECONOMIC  POWER 

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. 

LIMITATION  OF  COMPETITION  THROUGH  TRADE 
ASSOCIATIONS 

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. 


CONCENTRATION  OF  ECONOMIC  POWER 


235 


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 


Trade 


Agency 


Reference 


Agricultural  implement  deal- 
ers. 


Agricultural  implement  manu- 
facturers. 


Agricultural  insecticide  and 
fungicide  manufacturers. 

Aluminum  cooking  utensil 
manufacturers. 

Amusement  ticket  manufac- 
turers. 

Asphalt  shingle  and  roofing 
manufacturers. 


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- 
tors. 


Blue  print  paper  manufactur- 
ers. 

Bolt,  nut,  and  rivet  manu- 
facturers. 

Brick  manufacturers 

Broom  manufacturers 

Brush  manufacturers 

Butter  tub  manufacturers 

Button  and  buckle  manufac- 
turers. 
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- 
sociation. 

Farm  Equipment  Institute 


Agricultural   Insecticide   and   Fungi- 
cide Association. 
Aluminum  Wares  Association 


Amusement    Ticket    Manufacturers 

Association. 
Asphalt  Shingle  and  Roofing  Institute. 


Birmingham  Automotive  Jobbers  As- 
sociation. 

National  Standard  Parts  Association. . 

Motor  and  Equipment  Wholesale  As- 
sociation and  three  regional  associa- 
tions. 

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- 
ciation. 


Appalachian  Coals,  Inc 

Book  Paper  Manufacturers  Associa- 
tion. 

National  Federation  of  Builders  Sup- 
ply Associations  and  affiliated 
regional  associations. 

Florida  Building  Material  Institute... 


Scientific  Apparatus  Makers  of 
America. 

Bolt,  Nut,  and  Rivet  Manufacturers 
Association. 

Common  Brick  Manufacturers  Associ- 
ation. 

National  Broom  Manufacturers  As- 
sociation. 

Broom    Handle    Manufacturers    As- 
sociation. 
American  Brush  Manufacturers  As- 
sociation. 

Common  agent 1 

Butter  Tub  Manufacturers  Council... 

Covered  Button  and  Buckle  Creators. 

Western  Confectioners  Association 


Imperial  Wood  Stick  Company 

Atlanta      Wholesale      Confectionery 

Association. 
Wholesale     Confectioners     Club     of 

Richmond. 
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- 
1035. 

F.  T.  C,  complaint,  Docket  4145 
(1940). 

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, 
(1935). 

F.  T.  C,  complaint.  Docket  2942 
(1936). 


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 
(1940). 

F.  T.  C.  Open-Price  Trade  As- 
sociations (1929)  pp.  260,  268- 
269. 

F.  A.  L.,  case  383  (1933). 

F.  T.  C,  complaint,  Docket  3760 
(1939). 

F.  T.  'C,  Cement  Industry, 
(1933)  pp.  102-110;  F.  T.  C. 
order,  Docket  2191  (1937). 

F.  T.  C,  order,  Docket  2857 
(1938). 

F.  T.  C,  complaint,  Docket  3092 
(1937). 

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 

(1937). 
F.   T.   C,  order,   Docket  3186, 

(1937). 
F.  T.  C,  complaint,  Docket  4132 

(1940). 
F.  A.  L.,  case  445  (1939). 
F.   T.   C,  order,  Docket  1364, 

(1927). 
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 

(1935). 
F.   T.    C,   order,   Docket  2403 

(1935). 
F.   T.    C,   order.   Docket  2613 

(1936) 


236 


CX)NC!BNTRiATION  OF  EOONOMIC  POWER 


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 — 
Continued 


Trade 


Agency 


Keference 


Canners-— 

Card  do  thing  manufacturers.. 

Carpet  and  rug  manufacturers 

Cast  iron  soil  pipe  manufac- 
turers. 

Chalk,  crayon,  and  watercolor 
manufacturers. 

Cellulose  sheeting  manufac- 
turers. 

Cement  manufacturers 


Charcoal  Manufacturers 

Cheese  dealers 

Cigar  manufacturers.  _ 

Clay  sewer  pipe  manufac- 
turers. 

Compressed  air  machinery  and 
pneumatic  tool  manufac- 
turers. 

Concrete  pipe  manufacturers- . 

Copper  producers 


Com  products  refiners 

Corrugated    and    solid    fibre 

board    shipping    container 

manufacturers. 
Corrugated    paper    manufad- 

turers. 
Cotton  textile  manufacturers.. 


Cotton  yarn  manufacturers. 
Cottonseed  crushers 


Cottonseed  oil  refiners. 


Distillers. 


Dress  manufacturers. 


Dry  goods  and  notions  dealers. 
Elevator  manufacturers 


Wisconsin  Canners  Association. 


Card  Clothing  Manufacturers  Associa- 
tion. 

Institute  of  Carpet  Manufacturers 

Cast  Iron  Soil  Pipe  Association ^ . . 

Crayon,  Water-Color,  and  Craft  In- 
stitute. 
National  Converters  Institute 

Cement  Institute 


Hardwood  Charcoal  Co 

Manufacturers  Charcoal  Co. 
Wisconsin  Cheese  Exchange. 


Cigar  Manufacturers  Association  of 

Tampa. 
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 

Association. 
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 
Group. 

Dress  Returns  Control  Bureau 

Wholesale  Dry  Goods  Institute 

National  Elevator  Manufacturing 
Industry. 


F.  T.  C,  Open-Price  Trade  As- 
sociations (1929)  pp.  270-271, 
282-283. 

F.  T.  C,  complaint.  Docket  3019 
(1936). 

New  York  Times,  Feb.  23',  1940. 

F.  T.  C,  complaint,  Docket  3091 
(1937).      . 

F.  T.  C,  order.  Docket  2967 
(1938). 

F.  T.  C,  complaint.  Docket  3897 
(1939). 

F.  T.  C,  Price  Bases  Inquiry 
(1932)  pp.  39-42,  98-101;  Ce- 
ment Industry  (1933)  pp.  98- 
101;  complaint.  Docket  3167 
(1937). 

F.  T.  C,  order.  Docket  3670 
(1940). 

F.  T.  C,  Agricultural  Income 
Inquiry  (1937),  vol.  1,  pp.  262- 
263. 

F.  T.  C,  order.  Docket  709 
(1922). 

F.  T.  b.,  order,  Docket  386S 
(1940). 

F.  T.  C,  complaint,  Docket  3958 
(1939). 

F.  T.  C,  order.  Docket  3127 
(1938) 

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. 
70-73. 

17.  S.  V.  Joseph  E.  Serrine,  et  al., 
District  Court  of  U.  S.,  W.  D. 
of  S.  C,  information,  Jan.  2, 
1940. 

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 
(1939). 

Ibid. 

F.  T.  C,  complaint.  Docket  3751 
(1939). 

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). 


OONCMNTEIATION  OF  ECONOMIC  POWER 


237 


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 — 
CJontinued 


Trade 


Agency 


Reference 


Fire  hose  manufacturers. 
Fireworks  manufacturers 
Flour  millers 


Flower  growers  and  distribu 

tors. 
Fur  coat  pattern  makers 

Fur  dressers 

Furnace  manufacturers. 


Galvanized     ware    manufac- 
turers. 
Glass  container  manufacturers. 


Glass  distributors. 


Glass  manufacturers 

Glassware  wholesalers 

Glazed  paper  manufacturers.. 

Golf  ball  manufacturers 

Grocery  wholesalers 


Gummed  tape  manufacturers.. 

Gypsum    products    manufac- 
turers. 
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- 
ciation. 
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- 
ation. 

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- 
tion. 

Missouri-Kansas  Wholesale  Grocers 
Association. 

North  Dakota  Wholesale  Grocers  As- 
sociation. 

Southern  Californ'a  Grocers  Associa- 
tion. 

California  Wholesale  Grocers  Associa- 
tion. 

Utah-Idaho  Wholesale  Grocers  Asso- 
ciation. 

Oregon  Wholesale  Grocers  Association. 

Wisconsin  Wholesale  Grocers  Associa- 
tion. 

Arkansas  Wholesale  Grocers  Associa- 
tion. 

Wholesale  Grocers  Association  of  New 
Orleans. 

Fall  River  Wholesale  Grocers  Associa- 
tion. 

National  Association  of  Gummed 
Tape  Manufacturers. 

Gypsum  Industries  Association 

Southern  Hardware  Jobbers  Associa- 
tion. 


F.  T.  C,  order,  Docket  2352 
(1935). 

F.  T.  C,  order,  Docket  3309 
(1938). 

F.  T.  C,  order,  Docket  1345 
(1927). 

Ibid. 

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 
(1940). 

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 
(1939). 

F.  A.  L.,  case  232  (1921). 

F.  T.  C,  Open-Price  Trade  As- 
sociations (1929),  p.  269. 

F.  T.  C,  order,  Docket  3161 
(1938). 

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 

(1925). 
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 
(1926). 

F.  T.  C,  order.  Docket  1232' 
(1926). 

F.  T.  C,  order.  Docket  1343 
(1927). 

F.  T.  C,  order,  Docket  2677 
(1936). 

F.  T.  C,  Open-Price  Trade  As- 
sociations (1929),  pp.  272-273. 

F.  A.  L.,  case  268  (1922). 

F.  A.  L.,  case  316  (1926). 


238 


CONCENTRATION  OF  ECONOMIC  POWEK 


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 — 
Continued 


Trade 

Agency 

Reference 

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- 

facturers. 

Association. 

nishings     Industries,     vol.     1 
(1923),  Part  2,  Ch.  3. 

National  Alliance  of  Case  Goods  As- 

Ibid., Part  2,  ch.  4. 

sociations. 

Central    Bureau    of    Dining    Table 

Ibid.,  Part  2,  ch.  6,  sees.  2,  3. 

Manufacturers. 

Association  of  Living  Room  Table 

Ibid.,  Part  2,  ch.  6.  sec.  4. 

Manufacturers. 

National  Association  of  Chair  Man- 

Ibid., Part  2,  ch.  5;  F.  A.  L.,  case 

ufacturers. 

297  (1925). 

National  Alliance  of  Furniture  Man- 

F. A.  L.,  cases  298,  S02,  303  (1925). 

ufacturers. 

Industrial    alcohol    manufac- 

Industrial Alcohol  Institute. 

Whitney,   S.   N.,  op.   cit.,  pp. 

turers. 

131, 136. 

Industrial  rivet  manufacturers. 

Institute  Df  Tubular  Split  and  Out- 

F.   T.   C,  order.  Docket  3107 

.  side  Pronged  Rivet  Manufacturers. 

(1938). 

Jewelry  retaUers 

Eighteen  Karat  Club 

F.  A.  L.,  cases  312,  317  (1927). 

Kitchen     utensUs     manufac- 

Open price  association. 

F.  A.  L.,  case  25?  (1922). 

turers. 

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 

turers. 

bag  Manufacturers. 

(1935). 

Laundries 

Southern  California  Laundry  Owners 

F.   T.   C,  order,  Docket  1954 

Association. 

(1932). 

Lead  pencil  manufacturers ' 

Lead  Pencil  Institute  and  its  successor, 

F.   T.    C,   order,   Docket  3643 

Lead  Pencil  Association. 

(1939). 

Lecithin 

American  Lecithin  Company 

F.    T.    C,    complaint.    Docket 

4173  (1940). 

Lifbinsnrere.. 

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. 

4093(1940). 

Liquor  Trades  Stabilization  Bureau. .. 

Ibid. 

National     Retail     Liquor     Package 

F.  T.  C,  complaint,  Docket  4168 

Stores  Association  and  constituent 

(1940). 

State  and  local  associations. 

Lumber  distributors 

California  Lumbermens  Council  and 
affiliated  regional  clubs. 

F.   T.    C,   order,   Docket   2898 

(1Q38). 

National  Association  of  Commission 

F.  .V.  L.,  cases  489,  490  (1940). 

Lumber  Salesmen. 

Lumber  manufacturers 

American  Hardwood  Manufacturers' 
Association. 

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- 
tion. 
Northern   Hemlock   and   Hardwood 

sim. 
Ibid. 

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 

ciation. 

Association  v.  U.  S.,  268  U.  S. 
663  (1925)  Reply  Brief  for  the 
United  States;  Petition  by  the 
Attorney  General  for  Rehear- 

Hardwood Institute 

ing. 
F.  T.  C,  complaint.  Docket  3418 

Machine  tools  manufacturers.. 

Machine  Tool  Distributors,  Chicago 

(1938). 
F.   T.   C,   order,  Docket  1882 

District. 

(1932). 

MaDeable  iron  castings  manu- 

American Malleable  Castings  Associa- 

F. A.  L.,  case  282  (1926). 

facturers. 

tion. 

CK)N'aE7NTEATION  OF  ECONOMIC  POWER 


239 


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 — 
Continued 


Trade 


Agency 


Reference 


Malt  manufacturers 

Metal  window  manufacturers 

Millinery  manufactiuers 

Music  composers 

Music  publishers... 

Oil  refiners 

Optical  goods  wholesalers 


Paper  cup  and  container  man- 

lifacturers. 
Paper  distributors 


Paper,  pulp,  and  wooden  dish 

manufacturers. 
Peanut  cleaners  and  shellers 

Photo-engravers 


Plumbing   supplies   distribu- 
tors. 


Potato  chip  manufacturers.. 


Potato  dealers- 


Power  cable  and  wire  manu- 
facturers. 

Power  lawnmower  manufac- 
turers. 

Printers 

Range  boiler  manufacturers 

Refrigerator  manufacturers 

Retail  credit  reporters 

Rice  millers 

Rubber  heels  and  soles  dealers 

Sardine  canners 

Sanitary  pottery  manufactur- 
ers. 
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- 
tion. 

Independent  Refiners  Association  of 
California. 

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- 
tion. 


Food  Dish  Associates. 


National  Peanut  Cleaners  and  Shellers 
Association. 

American  Photo-Engravers  Associa- 
tion. 

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- 
mittee. 

National  Electrical  Manufacturers 
Association. 

Power  and  Gang  Mower  Manufac- 
turers Association. 

United  Typothetae  of  America. 


Range  Boiler  Manufacturers  Associa- 
tion. 

National  Refrigerator  Manufacturers 
Association. 

National  Retail  Credit  Association 

CaUfornia  Rice  Industry 


National  Federation  of  Master  Shoe 
Rebuilders. 

Maine  Cooperative  Sardine  Co 

Norwegian  Canners  Price  Committee. 
Sanitary  Potters  Association 

Northwest  Shoe  Finders  Credit  Bu- 
reau. 

United  Fence  Manufacturers  Associa- 
tion. 

Tarpon  Springs  Sponge  Exchange, 
Sponge  Institute. 

Florida  Sponge  Packers  Association 

American  Iron  and  Steel  Institute 


F.  T.  C,  complaint.  Docket  3555 

(1939). 
F.    T.   'c,   order.    Docket   2978 

(1937). 
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) 

(1923). 
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 
(1940). 

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 
(1938). 

F.  A.  L.,  case  294  (1925). 

F.  T.  C,  orders,  Dockets  82,  928 
(1928). 

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- 
623. 

Ibid.,  pp.  632-633. 
Ibid.,  p.  634. 
Ibid.,  p.  634. 

F.   T.    C,   order.   Docket  2565 

(1936). 
F.  T.  C,  complaint.  Docket  3689 

(1939). 
F.    T.    C,    order.    Docket    459 

(1923). 
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 

(1938). 
F.    T.    C,   order,    Docket  2802 

(1937). 
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 
(1938). 

F.  T.  C,  order.  Docket  3024 
(1938). 

F.  T.  C,  order,  Docket  3026 
(1939) 

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. 


240 


OONODNTRiATlOiN  OF  ElOONOMlC  POWER 


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 — 
Continued 


Trade 


Agency 


Reference 


Steel    oflBce   furniture  mama 

facturers. 
Stove  manufacturers 

Sugar  refiners 

Surgical  instrument  distribu 
tors. 

Tanners... 

Terra  cotta  manufacturers 

Textile  refinishers 

Tile  manufacturers 

Tin  plate  manufacturers 

Tobacco  wholesalers 


Uniform  cap  manufacturers 

Vacuum  cleaner  manufacturers 


Washing    machine    manufac- 
turers. 
Waxed  paper  manufacturers... 


Water  gate  valves,  hydrants, 
and  fittings  manufacturers. 

Water-marked  paper  manufac- 
turers. 

Wooden  container  manufac- 
turers. 


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 
Council. 

Tanners  Products  Co 

National  Terra  Cotta  Society 

Textile  Refinishers  Association 

Tile  Manufacturers  Credit  Association 

National  Association  of  Tin  Plate 
Manufacturers. 

Wholesale  Tobacco  and  Cigar  Dealers 
Association  of  Philadelphia. 

National  Association  of  Tobacco  Dis- 
tributors. 

Wholesale   Tobacco   Distributors  of 

New  York. 
Philadelphia  Division,  National  Asso- 
ciation of  Tobacco  Distributors. 
Cleveland  Tobacco  Jobbers  Associa- 
tion. 
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- 
ciation. 

American  Washing  Machine  Manu- 
facturers Association. 
American  Waxed  Paper  Association... 


Waterworks  Valve  and  Hydrant 
Group  of  the  Valve  and  Fittings 
Institute.' 

Common  agent 


Standard    Container 
Association. 


Manufacturers 


American  Veneer  Package  Association 

and  four  regional  associations. 
Wool  Institute 

Photo-Engravers    Copper   Zinc   and 
Grinders  Association. 


F.  T.  C,  order,  Docket  3319 
(1940). 

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 
(1936). 

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- 
525 

Ibid.i  P-  531. 

Ibid.,  pp.  539-540. 

Ibid.,  pp.  540-542. 

Ibid.,  pp.  542-546. 
Ibid. 

Ibid.,  pp.  546-547. 

F.  T.  C,  order.  Docket  2630 
(1937). 

Ibid. 

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- 
265. 

F.  T.  C,  order.  Docket  2958 
(1937). 

F.  A.  L.,  case  352  (1928). 

F.  T.  C,  Agricultural  Income 

Inquiry  (1937),  vol.  2,  p.  616; 

F.  T.  C,  order,  Docket  3289 

(1940). 
F.    T.    C,   order.    Docket  3556 

(1940). 
F.  A.  L.,  case  375  (1930). 
F.   T.    C,   order,    Docket   2660 

(1936). 


•  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. 

CONTROL  OF  PRICES  THROUGH  TRADE  ASSOCIATIONS 

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. 


FLOUR 


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. 


OONCIBNTRIATION  OF  EIOONOMIC  POWER  241 

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. 


242  OONCJENTEiATIOiN  OF  EiCON'OMIC  POWER 

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 
percent.''^ 

BREAD 

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. 


OONCMNTRlATIOiN  OF  EIOONOMIC  POWEiR  243 

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- 
trol.«° 

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.^^ 

HOUSEHOLD  FURNITDEE 

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. 


244  CONCENTRATION  OF  ECONOMIC  POWER 

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. 


CONCpNTRATION  OF  ECONOMIC  POWER  245 

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    FLYNN    PLAN 

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 
$3,000,000. 

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. 


246  GONOENTRATIOiN  OF  ECONOMIC  POWER 

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.®^ 

ASPHALT  SHINGLE  AND  ROOFING 

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. 


CONCENTRIATION  OF  EICONOMIC  POWER  247 

POWER  CABLE  AND  WIKE 

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 
activities.^ 

STEEL  WINDOW  PRODUCTS 

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. 

SNOW  FENCE 

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. 


248  OONOBNTRATION  OF  E!OONOMIC  POWEH 

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, 
1938. 

ALLOCATION  OF  MAKKETS  AND  CUSTOMERS  THROUGH 
TRADE  ASSOCIATIONS 

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. 

CONSUMER  CREDIT  REPORTING 

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. 


OONCIENTRlATiaN  OF  EICJONOMIC  POWEH  249 

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.* 

WINDOW  GLASS 

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.'' 

BUILDING  MATERIALS 

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." 

TEXTILE  REFINISHING 

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. 


250  OONOBNTRiATION  OP  ElOONOMIC  POWER 

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.^^ 

ALLOCATION  OF  PRODUCTION  AND  SALES  THROUGH 
TRADE  ASSOCIATIONS 

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. 

PLANT  RESTRICTION 

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. 


CONCENTRIATION  OF  ECONOMIC  POWEIK  251 

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. 

PRODUCTION  QUOTAS 

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. 


252  OONOE'NTRiATION  OF  EICONOMIC  POWEH 

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.^^ 

MANAGEMENT  ENGINEERING  COMPANIES 

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. 


OONCIE'NTElATIOiN  OF  EICONOMIC  POWER  253 

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. 


254  OONOENTRATION  OF  ECONOMIC  POWER 

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. 


OONCENTK^TIOiN  OF  EH:X)N0MIC  POWE'R  255 

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. 


256  OONaBNTR'ATION  OF  ElOON'OMIC  POWER 

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- 
sentatives.^^ 

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.^^ 

QUOTA  AND  PENALTY  SYSTEMS 

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 
limits.^* 

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- 
2344. 


OONOENTRIATION  OP  EIOONOMIC  POWER  257 

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  ASSOCIATION  BOYCOTTS 

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. 


258  OONCIENTRATION  OP  ECONOMIC  POWEE 

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 
passed. 

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. 

CARTELS  IN  THE  AMERICAN  MARKET 

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. 


OONCJENTElATIO'N  OF  ECONOMIC  POWER  259 

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."  ®^ 

THE  N.  R.  A.  CODES 

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. 


260  OON'CIENTRATION  OF  ECONOMIC  POWER 

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. 

TRADE  ASSOCIATIONS  AND  THE  N.  R,  A. 

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. 

CONTROL   OF  TERMS   OF   SALE 

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 


OONdBNTKlATION  OP  ECONOMIC  POWER  261 

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. 

CONTROL  OF  PRICES 

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 


262  CONOBNTRiATION  OF  ECONOMIC  POWER 

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 
that— 

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. 


OONOEJNTKIATION  OF  EIOONOMIC  POWEIR  263 

mum  prices  became  legally  effective  in  93  different  industries  and 
practically  operative  in  many  more. 

PRICE  REPORTING  SYSTEMS 

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.^* 

ALLOCATION  OF  MARKETS 

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. 


264  CO>:'C5ENTRATION  OF  ECONOMIC  POWER 

AIXOCATTON  OF  PRODUCTION 

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 
that— 

*  *  *  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. 


OONOE'NTRIATION  OF  EIOONOMIC  POWER  265 

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. 

PENALTIES 

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. 


266  OO^PCIBNTRlATION  OF  EKX)NOMIC  POWER 

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 
provision. 

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 
sustained. 

THE  AFTERMATH  OF  THE  N.  R.  A. 

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 
days. 

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. 


OONCET^TRIATION  OF  EICONOMIC  POWEiR  267 

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. 

LEGALIZED  RESTRAINT  OF  COMPETITION 

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. 

BITUMINOUS  COAL 

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. 

PETROLEUM 

In  all  of  the  major  oil-producing  States,  legislatures  have  under- 
taken to  conserve  the  supply  and  maintain  the  price  of  petroleum  by 


2gg  OONCIBNTRATIO'N  OF  EICONOMIC  POWER 

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. 

TRUCKING 

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. 


OONCIE'NTRATION  OF  EIOONOMIC  POWER  269 

AGRICULTURE 

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, 


270  OONOBNTR'ATION  OF  EOONOMIC  POWEH 

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. 


OONCIENTR'ATION  OF  ECONOMIC  POWEH  271 

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. 


272  OONOBNTEiATION  OF  EKX>NOMIC  POWEK 

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. 


OONCIENTR'ATION  OF  EICONOMIC  POWER  273 

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. 

THE  DISTRIBUTIVE  TRADES 

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. 


274  OON'OENTRATION  OF  ECONOMIC  POWE'R 

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. 


OONCIBNTRATION  OF  EIOONOMIC  POWEiR  275 

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 
rates. 

OTHER  TRADES  EXEMPT  FROM  FEDERAL  ANTITRUST  LAWS 

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." 

OTHER  TRADES  EXEMPT  iUOM  STATE  ANTtTRUST  LAWS 

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. 


276  OOISPCIBNTRATION  OP  EICX>NOMIC  POWEK 

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. 


OONOBNTElATION  OF  EICONOMIC  POWEIR  277 

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 


278  CON'CIBNTR'ATIO'N  OF  EIOONOMIC  POWER 

INTER-STATE  TRADE  BARRIERS 

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 


OONOENTEIATION  OF  EDONOMIC  POWEK  279 

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. 


280 


OONCIBNTR'ATION  OF  ECONOMIC  POWEOR 

LOCAL  MARKETS 


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 


Group 


Reference 


Artichoke  dealers:  New  York 

City. 
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, 
Minn. 

Montgomery,  Ala 

Sacramento,  Calif 


Seattle,  Wash 

Washington,  D.  C. 


No  formal  organization  . 


East  Shore  Dealers  Cooperative  Bu- 
reau. 

Metropolitan  Ford  Dealers  Associa- 
tion. 

The  Service  Bureau,  Inc 

Market  Analysis,  Inc 

Dealers  Service,  Inc 

Motor  Car  Dealers  Association  of 
Southern  California. 

Los  Angeles  Motor  Car  Dealers  Asso- 
ciation. 

Wisconsin  Automotive  Trades  Asso- 
ciation. 

Muskegon  District  Auto  Trades 
Association. 

Norfolk-Portsmouth  Automobile 
Dealers  Appraisal  Bureau. 

Buick  Dealers  Association — 

Winnebago  County  Automobile  Deal- 
ers Association. 

Authorized  Ford  Dealers  Association. 

Twin  City  Ford  Dealers  Association.. 

Common  agent 


.do- 
.do. 


Chicago  Master  Cleaners  and  Dyers 
Association. 

Cleaners  and  Dyers  Institute  of  Chi- 
cago. 

Chicago  Association  of  Cleaners  and 
Dyers. 

International  Brotherhood  of  Team- 
sters, Local  712. 

Cleaners,  Dyers,  and  Pressers  Union, 
Federal  Local  17742.    ' 

Retail  Cleaners  and  Dyers  Union, 
Federal  Local  17792. 

Cleaners  and  Dyers  Institute  of 
Minnesota. 

No  formal  organization 

Sacramento  Cleaners  and  Dyers  Asso- 
ciation. 

AUied  Cleaners  and  Dyers  of  Seattle.. 

No  formal  organization 


Federal  Antitrust  Laws,  case  387 
(1933). 

Federal  Trade  Commission,  Mo- 
tor Vehicle  Industry,  (1929)  pp. 
383-385. 

Ibid.,  pp.  396-398. 

Ibid.,  pp.  393-394. 
Ibid.,  pp.  385-386. 
Ibid.,  pp.  386-387. 
Ibid.,  pp.  387-389. 

Ibid.,  pp.  389-390. 

Ibid.,  pp.  390-393. 

Ibid.,  pp.  370-371. 

Ibid.,  pp.  394-395. 

Ibid.,  pp.  377-383. 
Ibid.,  pp.  395-396. 

Ibid.,  p.  396. 
Ibid.,  p.  376. 

F.  T.  C,  complaint,  Docket  3631 
(1938). 

Handsaker,   Morrison,  op.  cit., 

p.  72. 
Ibid. 
Ibid.,  passim. 


Ibid.,  pp.  73-5. 

Ibid.,  pp.  71-2. 
Ibid.,  p.  71. 

F.  A.  L..  case  327  (1927). 
F.  A.  L.,  case  358  (1929). 


CONCIENTRlATIOiN  OF  EIOONOMIC  POWER 


281 


Trade  associations,  trade  unions,  and  other  groups  said  to  be  exercising  some 
form  of  control  over  production,  price  and  terms  of  sale,  and  organizing  boy- 
cotts in  local  markets  from  1920  to  1940 — Continued 


Trade  and  locality 


Reference 


Coal  retailers: 

California  communities... 

Midwestern  communities- 
Northwestern    communi- 
ties. 
Bicbmond,  Va 


Carpenters:  Detroit,  Mich 


Drug  retailers:  New  York  City. 

Electrical  contractors: 

Detroit,  Mich 


New  Orleans,  La 

Pittsburgh,  Pa 

San  Francisco,  Calif 
San  Pedro,  Calif 


Santa  Barbara,  Calif. 


Electrical  supplies  dealers:  De- 
troit, Mich. 


Electrical   supplies   manufac- 
turers and  contractors: 
Chicago,  111 


New  York  City. 


Excavating  contractors:  Wash- 
ington, D.  C. 


California  Retail  Fuel  Dealers  Asso- 
ciation. 
Midwest  Retail  Coal  Association 


Northwestern    Traffic    and    Service 

Bureau. 
Retail  Coal  Merchants  Association 

District  Council  of  the  United  Brother- 
hood of  Carpenters  of  Detroit. 


New  York  Pharmaceutical  Confer- 
ence, Inc. 

Detroit  Electrical  Contractors  Asso- 
ciation. 

International  Brotherhood  of  Elec- 
trical Workers,  Local  68. 


New  Orleans,  La.,  Chapter  of  Na- 
tional Electrical  Contractors  Asso- 
ciation. 

Electrical  Contractors  Association  of 
Pittsburgh. 

International  Brotherhood  of  Elec- 
trical Workers,  Local  5. 

San  Francisco  Electrical  Contractors 
Association. 

Electrical  Contractors  Association  of 
Alameda  &  Contra  Costa  Counties. 

Harbor  District  Chapter,  National 
Electrical  Contractors  Association. 

International  Brotherhood  of  Elec- 
trical Workers,  Local  B-83. 


Santa  Barbara  Coimty  Chapter,  Na- 
tional Electrical  Contractors  Asso- 
ciation. 

International  Brotherhood  of  Elec- 
trical Workers,  Local  413. 

Common  agent.- 


International    Brotherhood   of   Elec- 
trical Workers,  Local  134. 


International   Brotherhood   of  Elec- 
trical Workers,  Local  3. 


New  York  Electrical  Contractors  As- 
sociation, Inc. 

Heating,  Piping,  and  Air  Condition- 
ing Contractors,  New  York  City 
Association,  Inc. 

Association  of  Contracting  Plumbers 
of  the  City  of  New  York,  Inc. 

Building  Trades  Employers  Associa- 
tion of  the  City  of  New  York. 

Excavators  Administrative  Associa- 
tion, Inc. 


F.   T.   C,   order.   Docket   1098 

(1925). 
F.   T.    C,   ordec,   Docket   1118 

(1926). 
F.   T.    C,   order,   Docket   1196 

(1926). 
F.  T.  C,  complaint.  Docket  3911 

(1939). 
F.  T.  C,  Report  to  the  President 

on  monopolistic  practices  and 

other  unwholesome  methods  of 

competition  (typescript),  Ch.  6. 
F.    T.    C,   order,    Docket    1392 

(1928). 

U.  S.  V.  Brooker  Engineering  Co. 
et.  al.,  District  Court  of  the 
U.  S.,  E.  D.  of  Mich.,  indict- 
ment, Mar.  21,  1940;  F.  T.  C, 
Report  to  the  President,  op. 
cit. 

F.  A.  L.,  cases  465,  492  (1940). 


U.  S.  v.  William  F.  Hess  et  al., 
District  Court  of  the  U.S.,W. 
D.  of  Pa.,  indictment,  Nov.  3, 
1939. 

U.  S.  V.  San  Francisco  Electrical 
Contractors  Association,  Dis- 
trict Court  of  the  U.  S..  N.  D. 
of  Calif.,  S.  Div.,  indictment, 
Dec.  18, 1939. 

U.  S.  V.  Harbor  District  Chapter, 
National  Electrical  Contractors 
Association  et.  al..  District 
Court  of  the  U.  S.,  S.  D.  of 
Calif.,  Central  Div.,  indict- 
ment, Feb.  16. 1940. 

U.  S.  V.  Santa  Barbara  County 
Chapter,  National  Electrical 
Contractors  Association,  Dis- 
trict Court  of  the  U.  S.,  S.  D.  of 
Calif.,  Central  Div.,  indict- 
ment, Feb.  28, 1940. 

U.  S.  V.  Cadillac  Electric  Supply 
Co.  et  al..  District  i-Court  of  the 
U.  S.  E.  D.  of  Mich.,  S.  Div., 
indictment,  Dec.  22, 1939. 


U.  S.  V.  Beardslee  Chandelier 
Manufacturing  Co.,  et  al..  Dis- 
trict Court  of  the  U.  S.,  N.  D. 
of  111.,  E.  Div.,  indictment, 
Feb.  14, 1940. 

U.  S.  V.  Local  Union  No.  S,  Inter- 
national   Brotherhood   of   Elec- 
trical   Workers  et  al.,  Distri<> 
Court  of  the  U.  S.,  S.  D. 
N.  Y.,  indictment.  Mar. 
1940. 

U.  S.  V.  New  York  Mcctrical  Con- 
tractors Association,  Inc.,  et  al.. 

District  Court  of  the  U.  S.,  S. 

D.  of  N.  Y.,  indictment.  Mar. 

28,  1940. 


U.  S.  V.  Excavators  Administra- 
tive Association,  Inc.,  et  al..  Dis- 
trict Court  of  the  U.  8.,  D.  of 
C,  consent  decree,  Dec.  22, 
1939. 


282 


OONaEWTRATION  OF  EKX)NOMIC  POWER 


Trade  associations,  trade  unions,  and  other  grmtps  said  to  be  exercising  some 
form,  of  control  over  production,  price  and  terms  of  sale,  and  organizing  boy- 
cotts in  local  markets  from  1920  to  19^0 — Continued 


Trade  and  locality 


Reference 


Fish  and  seafood  dealers:  New 
York  City. 


Fresh    fruit    and    vegetable 
dealers: 
Chicago,  ni 


New  York  City. 


Philadelphia,  Pa- 


Seattle,  Wash 

Furniture  retailers:  St.  lyouis, 

Mo. 
Gasoline  retailers: 

Several  communities 

Canton,  Ohio 

General  contractors:  New  Or 
leans,  La. 


Glaziers: 

Chicago,  m. 


Cleveland,  0_ 


Indianapolis,  Ind. 


Grape  dealers:  Chicago,  III 

Grocery  retailers:  Milwaukee, 

Wis. 
Hardware  retailers: 

Several  communities 


California  communities 

Hardwood  flooring  contractors: 
San  Francisco,  Calif 


San  Fransisco  Bay  region. 


Fish  Credit  Association,  three  other 

trade  associations  and  one  unioii. 
Fish  Purchasing  Corporation 


Market  Service  Association 

Chicago  Commission  Team  Owners 
Association. 

Chicago  Potato  Division  of  the  Amer- 
ican Fruit  and  Vegetable  Shippers' 
Association. 

International  Brotherhood  of  Team- 
sters, Local  703. 

Fresh  Fruit  and  Vegetable  Associa- 
tion of  New  York. 

International  Brotherhood  of  Team- 
sters, Local  202. 

Market  Truckmen's  Association 


Fruit  and  Produce  Trade  Association 
of  New  York. 

New  York  Fruit  and  Vegetable  Ex- 
change. 

Perishable  Fruit  and  Produce  Haulers' 
Association. 

Philadelphia  Perishable  Carlot  Re- 
ceivers' Association. 

National  League  of  Wholesale  Fresh 
Fruit  and  Vegetable  Distributors. 

Fruit  Auction  Buyers'  Association. 

Buyers  Protective  Association. 

Seattle  Produce  Association 

Retail  Furniture  Dealers'  Association 
of  St.  Louis. 

National    Association    of    Petroleum 

Retailers. 
Distributors'  association 

New  Orleans  Chapter,  Associated 
General  Contractors  of  America, 
Inc. 


Glaziers  Local  Union  No.  27 

Glass  Contractors'  Association- ,_ 

Glaziers'  Local  No.  27  of  the  Brother- 
hood of  Painters,  Decorators,  and 
Paperhangers  of  America. 

Painters,  Decorators,  Paperhangers, 
Glaziers  Local  No.  181. 


Brotherhood  of  Painters,  Decorators, 

and  Paperhangers  of  America. 
Glaziers  Local  No.  1165 
District  Council  No.  27 
Santa  Fe  Grape  Dealers  of  Chicago 

Milwaukee  Jewish  Kosher  Ddicates- 
sen  Association. 

National  Retail  Hardware  Associa- 
tion and  affiliated  regional  and  local 
associations. 

California  Retail  Hardware  and  Im- 
plement Association. 

San  Francisco  Hardwood  Floor  Con- 
tractors Association. 
Hardwood  Floor  Institute. 


Common  agents. 


F.  A.  L.,  case  389  (1933). 

F.   A.   L.,  cases  304  (1925),  311 
(1926). 


F.  T.  C,  Report  to  the  Presi- 
dent. *  *  *,  op.  cif.,  pp. 
492-504. 

F.  T.  C,  Agricultural  Income 
Inquiry  (1937),  Part  I,  pp. 
609-10. 

Ibid.,  pp.  660-2. 

F.  A.  L.,  case  392  (1933),  indict- 
ment. 

F.  A.  L.,  case  393  (1938),  indict- 
ment. 

F.  A.  L.,  case  392  (1933),  indict- 
ment; F.  T.  C,  Report  to  the 
President    *    *    *,  op.  cit. 

F.  T.  C,  op.  cit. 


Ibid. 


F.  A.  L.,  case  ^9  (1924). 
F.    T.    C,    order.    Docket   2757 
(1936). 

Hearings  before  the  T.  N.  E.  C. 
Part  16,  pp.  9040  ff. 

Ibid. 

U.  S.  V.  New  Orleans  Chapter, 
General  Contractors  of  America, 
Inc.,  District  Court  of  the 
U.  S.,  E.  D.  of  La.,  New  Or- 
leans Div.,  consent  decree, 
Jan.  15,  1940. 

F.  A.  L.,  case  345  (1928). 

U.  S.  V.  Glass  Contractors'  Asso- 
ciation, et  al.,  District  Court  of 
the  U.  S.,  N.  D.,  of  111.,  E.  Div., 
indictment.  May  10,  1940. 

U.  S.  V.  Glaze-Rite,  el  at..  Dis- 
trict Court  of  the  U.  S.,  N.  D. 
of  Ohio,  E.  Div.,  indictment, 
Nov.  10,  1939. 

F.  T.  C,  order,  Docket  3858 
(1940),. 


F.  T.  C,  Agricultural  Income 
Inquiry,  Part  II,  p.  618. 

F.  T.  C,  complaint,  Docket  3908 
(1940). 

F.  T.  C,  Report  on  the  House 
Furnishings  Industries  (1925) 
vol.  3,  pp.  224-247. 

F.  A.  L.,  case  320  (1927). 


U.  S.  V.  San  Francisco  Hardwood 
Floor  Contractors  Association, 
et  al.,  District  Court  of  the 
U.  S.,  N.  D.  of  Cahf.,  S.  Div., 
indictment,  Dec.  20,  1939. 

U.  S.  V.  E.  L.  Bruce  Co.,  Inc.,  et 
al.,  District  Court  of  the  U.  S., 
N.  D.  of  Calif.,  S.  Div.,  indict- 
ment, Dec.  20, 1939. 


OONdENTEATIOiN  OF  EICONOMIC  POWER 


283 


Trade  associations,  trade  unions,  and  other  groups  said  to  be  exercising  some 
form  of  control  over  production,  price  and  terms  of  sale,  and  organizing  'boy- 
cotts in  local  markets  from  1920  to  19JiO — Continued 


Trade  and  locality 


Reference 


Heating  contractors: 

Los  Angeles  and  Pasadena, 
Calif. 


New  York  communities. 
Pittsburgh,  Pa 


Seattle,  Wash. 


Ice  dealers: 

Kansas  City,  Mo.. 
Washington,  D.  C. 


Lathers:  New  York  City 


Linen      supply      companies: 

Washington,  D.  C. 
Liquor  dealers:   Washington, 

D.  C. 


Lumber   and  millwork   com- 
panies: 
Chicago,  ni -. 


Pittsburgh,  Pa. 


Long  Beach,  Cal. 


Marble  contractors: 

Northern  California  com- 
munities. 


Pittsburgh,  Pa. 


Southern  California  Com- 
munities. 


Mason  contractors:  Washing- 
ton, D.  C. 


Medical  services:  Washington, 
D.  C. 


i'Heating,  Piping,  and  Air  Condition- 
ing Contractors  Association  of 
Southern  California. 


New  York  State  Sheet  Metal  Roofing 
and  Air  Conditioning  Contractors 
Association. 

Voluntary  Code  of  the  Hefitiug,  Piping, 
and  Air  Conditioning  Industry  for 
Allegheny  County,  Pa. 

United  Association  of  Steam,  Hot 
Water  •  *  *  and  Process  Pipe 
Fitters.  Local  449. 

Associated  Plumbing  an^  Heating 
Merchants;  United  Association  of 
Journevmen  Plumbers  and  Steam- 
fitters,  Local  473. 


No  formal  organization 

National  Capital  Ice  Institute- 


Wood,    Wire,    and    Metal    Lathers' 
International  Union,  Local  No.  46. 


Linen  Supply  Association  of  the  Dis- 
trict of  Columbia. 

D.  C.  Exclusive  Retail  Liquor  Dealers 
Association. 

Wholesale  Liquor  Dealers  of  Wash- 
ington. 


United  Brotherhood  of  Carpenters  and 
Joiners  of  America. 

Lumber  Institute  of  Allegheny  Coun- 
ty. 

Master  Builders  Association 

United  Brotherhood  of  Carpenters 
and  Joiners  of  America  and  Local 
422. 

Carpenters  District  Council  of  Pitts- 
burgh and  Vicinity. 

Harbor  District  Lumber  Dealers 
Association. 


Associated  Marble  Companies. 


Marble  Contractors  Association 

Joint  Arbitration  Board  for  the  Marble 
Industry. 

Bricklayers,  Masons,  and  Plasterers 
International  Association  of  America 
Local  33. 

Southern  California  Marble  Associa- 
tion. 


Mason  Contractors  Association  of  the 
District  of  Columbia. 


American  Medical  Association 

Medical   Society  of  the   District  of 

Columbia. 
Washington  Academy  of  Surgery 


U.  S.  V.  Heating  ,Piping,  and  Air 
Conditioning  Contractors  Asso- 
ciation of  Southern  California, 
District  Court  of  the  U.  S., 
S.  D.  of  Calif.,  Central  Div. 
indictment,  Jan.  26,  1940. 

F.  T.  C,  order.  Docket  2931 
(1937). 

U.  S.  V.  Voluntary  Code  of  the 
Heating,  Piping,  and  Air  Con- 
ditioning Industry  for  Allegheny 
County,  Pa-,  District  Court  of 
the  U.  S.,  W.  D.  of  Pa.,  con- 
sent decree,  Dec.  8,  1939. 

U.  S.  V.  As'inciated  Phimhivg  and 
Henting  Merchants  et  at..  Dis- 
trict Court  of  the  U.  S.,  W.  D.  ■ 
of  Wash.,  indictment,  Apr.  27, 
1940. 

F.  A.  L.,  case  400  (1934). 

F.  T.  C,  complaint,  Docket  3946 

(1939). 
U.  S.  V.  Wood,  Wire,  and  Metal 

Lathers'    International    Union, 

Local    No.   46,  et   al..  District 

Court  of  the  U.  S.,  S.  D.  of  N. 

Y.,  indictments.  May  10,1940. 
F.    T.    C,   order.    Docket   2256 

(1935). 
F.    T.    C,   order.    Docket   3400 

(1940). 


F.  A.  L.,  case  240  (1921). 

U.  S.  V.  Lumber  Institute  ol  Alle- 
gheny County,  District  Court 
of  the  U.  S.,  W.  D.  of  Pa., 
indictment,  Feb.  23,  1940. 


17.  S.  V.  Harbor  District  Lumber 
Dealers  Association,  District 
Court  of  the  U.  S.,  S.  D.  of 
Calif.,  Central  Div.,  indict- 
ment. Mar.  15,  1940. 

V.  S.  V.  Associated  Marble  Com- 
panies et  al..  District  Court  of 
the  U.  S.,  N.  D.  of  Calif., 
Central  Div.,  indictment,  June 
17. 1940. 

U.  S.  V.  Marble  Contractors  As- 
sociation et  al..  District  Court 
of  the  U.  S.,  W.  D.  of  Pa., 
consent  decree,  Feb.  29,  1940. 


U.  S.  V.  Southern  California 
Marble  Association  et  al.,  Dis- 
trict Court  of  the  U.  S.,  S.  D. 
of  Calif.,  Central  Div.,  indict- 
ment, Feb.  16,  1940. 

U.  S.  V.  Mason  Contractors  Asso- 
ciation of  the  District  of  Colum 
bia,  District  Court  of  the  U.  S. 
D.  of  C,  consent  decree,  Mar 
12,  1940. 

F.  A.  L.,  case  441  (1938),  indict- 
ment" 


284 


OOITOENTRlATION  OP  EIOONOMIC  POWER 


Trade  associations,  trade  unions,  and  other  groups  said  to  be  exercising  some 
form  of  control  over  production,  price  and  terms  of  sale,  and  organizing  boy- 
cotts in  local  markets  from  1920  to  1940 — Continued 


Milk  distributors: 
Chicago 


Detroit,  Mich 

Honolulu,  Hawaii.-- 

Painters   and   painting   con- 
tractors: 
Chicago,  Dl 

St.  Louis,  Mo 

Washington,  D.  C- 


Plastering    contractors    and 
plaster  dealers: 
Detroit,  Mich — 


Long  Beach,  Calif- 


Pittsburgh,  Pa.. 


St.  Louis,  Mo 

San  Francisco,  Calif. 


Plumbing  contractors- 
Several  communities. 


Chicago,  111. 


Detroit,  Mich 

Washington,  D.  C. 


Associated  Milk  Dealers,  Inc.... 

Pure  Milk  Association 
Milk  Dealers  Bottle  Exchange 
International  Brotherhood  of  Team- 
sters, Milk  Wagon  Drivers  Local  753. 
Metropolitan  Detroit  Milk  Dealers, 

Inc. 
Milk  Council 


Painters  District  Council  No.  14  and 
other  painters'  unions. 

Painters  District  Council  No.  2  and 
other  painters'  unions. 

Union  Painters  Administrative  Asso- 
ciation, Inc. 


Detroit  Plasterers  Contractors  Asso- 
ciation. 
Operative    Plasterers    and    Cement 

Finishers  International  Association, 

local  union. 
Contracting  Plasterers  Association  of 

Long  Beach,  Inc. 
Contracting   Lathing  Association  of 

Long  Beach. 
Harbor  Material  Dealers,  Inc. 
Operative  Plasterers    •    »    •    Inter- 
national Union,  Local  343. 
Wood,    Wire,    and    Metal    Lathers 

International  Union,  Local  172. 
International   Hod   Carriers    •    •    • 

Union  of  America,  Local  507. 
Employing  Plasterers  Association  of 

Allegheny  County. 
Operative     Plasterers    International 

Association,  Journeymen  Plasterers 

Local  31. 
Wood,    Wire,    and    Metal    Lathers 

International  Union,  Local  33. 

Contracting  Plasterers  Association 

Lathers  Union  local. 

Plasterers  Union  local. 

Master  Plasterers  Association  of  San 

Francisco. 
Operative     Plasterers    International 

Union,  Local  66. 


National  Association  of  Master 
Plumbers  of  the  United  States  and 
affiliated  state,  county,  and  city 
associations. 

Chicago  Master  Plumbers  Associ- 
ation. 

Voluntary  Trade  Agreement  of  the 
Plumbing  Contractors  Division  of 
the  Construction  Industry  of  Cook 
County,  m. 

Journeymen  Plumbers  Union,  Chi- 
cago local. 

Master  Plumbers  Contracting  Asso- 
ciation. 

Plumbing  and  Heating  Union  local. 

Plumbing  and  Heating  Industries 
Administrative  Association,  Inc. 

United  Association  of  Steamfltters 
and  Helpers,  Local  602. 


U.  S.  V.  The  Borden  Co.,  et  al., 
District  Court  of  the  U.  S., 
N.  D.  of  111.,  indictment,  Nov. 
1,  1938. 

Hearings  before  the  T.  N.  E.  C. 
Part  7,  p.  3225. 

F.  A.  L.,  case  426  (1937),  indict- 
ment. 


F.  A.  L.,  case  349  (1928). 

F.  A.  L.,  case  372(1930). 

U.  S.  V.  Union  Painters  Admin- 
istrative Association,  Inc.,  et  al.. 
District  Court  of  the  U.  S., 
D.  of  C,  consent  decree,  Dec. 
22,  1939. 


F.  T.  C,  Report  to  the  Presi- 
dent, loc.  cit. 


U.  S.  V.  Contracting  Plasterers 
Association  of  Long  Beach,  Inc., 
et  al..  District  Court  of  the 
U.  S.,  S.  D.  of  Calif.,  indict- 
ment, Feb.  2, 1940. 


U.  S.  V.  Employing  Plasterers 
Association  of  Allegheny  Coun- 
ty, et  al..  District  Court  of  the 
U.  S.,  W.  D.  of  Pa.,  consent 
decree.  Mar.  18, 1940. 


F.  T.  C,  Report  to  the  President 
•    •    ♦    loc.  cit. 

U.  S.  V.  Master  Plasterers  Asso- 
ciation of  San  Francisco,  el  al.. 
District  Court  of  the  U.  S., 
N.  D.  of  Calif.,  S.  Div.,  con- 
sent decree,  Dec.  22, 1939. 

U.  S.  V.  Central  Supply  Associ- 
ation, et  al..  District  court  of 
the  U.  S.,  N.  D.  of  Ohio, 
indictment.  Mar.  29,  1940. 

F.  T.  C,  Report  to  the  Presi- 
dent   •    •    •     loc.  cit. 


Ibid. 


U.  S.  V.  Plumbing  and  Heating 
Induttries  Administrative  As'o- 
elation.  Inc.,  et  al..  District 
Court  of  the  U.  S.,  D.  of  C, 
consent  decree,  Dec.  22, 1939. 


CONOE'NTELA.TION  OF  ECONOMIC  POWER 


285 


Trade  associations,  trade  unions,  and  other  groups  said  to  be  exercising  some 
form  of  control  over  production,  price  and  terms  of  sale,  and  organizing  boy- 
cotts in  local  markets  from  1920  to  1940 — Continued 


Poultry   dealers:   New   York 
City. 


Sand  and  gravel  producers: 
New  York  City 


Pittsburgh,  Pa. 


Sheet  metal  contractors:  New 

Orleans,  La. 
Stone  fabricators: 

Chicago,  111 


New  York  City. 


Tile  contractors: 
Detroit,  Mich . 


Chicago,  Ill- 


Pacific  northwest  commu- 
nities. 
Pittsburgh,  Pa 


St.  Louis,  Mo. 


Tobacco  retailers: 

Chicago,  111 

New  York  City 

Other  communities 

Truckers: 

New  York-Philadelphia.. 

New  York  City 

Sewer  pipe  dealers:  Rochester, 

N.  Y. 
Wine  bottlers:  New  York  City 


Live  Poultry  Dealers  Protective  Asso- 
ciation. 

Greater  New  York  Live  Poultry 
Chamber  of  Commerce. 


Long  Island  Sand  &  Gravel  Producers 
Association. 

Nassau  County  Sand  &  Qravkl  Pro- 
ducers Credit  Association. 

Western  Pennsylvania  Sand  &  Gravel 
Association. 


Sheet  Metal  Association. 


Journeymen  Stone  Cutters  Associa- 
tion of  North  America,  Chicago 
local. 

Chicago  and  Cook  County  Building 
and  Construction  Trades  Council. 


Journeymen  Stone  Cutters  Associa- 
tion of  North  America,  5  local  stone- 
cutting  and  setting  unions  and 
building  trades  council. 

Tile  Contractors  Association  of  Amer- 
ica. 

Detroit  Tile  Contractors  Association. 

Greater  Detroit  Tile  Contractors  As- 
sociation. 

Bricklayers,  Masons,  and  Plasterers 
International  Union,  Local  32. 

International  Association  of  Marble, 
Stone  and  Slate  Polishers.  *  *  *, 
Local  40. 

Chicago  Mantel  &  Tile  Contractors 
Association. 

Bricklayers,  Masons,  and  Plasterers 
International  Union,  Local  67. 

Northwest  TUe  and  Mantel  Contrac- 
tors Association. 

Pittsburgh  Tile  &  Mantel  Contractors 
Association. 

Joint  _A.rbitration  Board  for  the  Tile 
Industry. 

Bricklayers,  Masons,  and  Plasterers 
International  Union,  Tile  Setters 
local. 

St.  Louis  Tile  Contractors  Associa- 
tion, Tile  Layers  Local  Union  No. 
18. 


Retail  Tobacco  Dealers  of  America, 
Inc.,  Chicago  branch. 

New  York  Retail  Tobacco  Council 

Retail  Tobacco  Dealers  of  America 

Motor  Freight  Transportation  Asso- 
ciation. 

International  Brotherhood  of  Team- 
sters, Local  202. 

Rochester  Builders  Supply  Associa- 
tion. 

Wine,  Liquor,  and  Distillery  Workers 
Union,  Local  20244. 


F.A.  L.,  case  279  (1924). 

F.  A.  L.,  cases  356  (1929),  368 
(1930),  391  (1933). 

F.  A.  L.,  cases  461,  522  (1940). 


U.  S.  v.  The  Western  Pennsyl- 
vania Sand  and  Gravel  Associ- 
ation, et  al..  District  Court  of 
the  U.  S.,  W.  D.  of  Pa.,  con- 
sent decree,  Feb.  21,  1940. 

F.  A.  L.,  case?  466,  485  (1940). 


U.  S.  v.  Chicago  and  Cook  County 
Building  and  Construction 
Trades  Council,  et  al.,  District 
Court  of  the  U.  S.,  N.  D.  of 
III.,  indictment,  Feb.  1, 1940. 


F.  A.  L.,  case  323  (1927). 


F.  A.  L.,  cases  462,  540  (1940). 


F.  A.  L.,  cases  478,  528,  531  (1940). 


F.  T.  C,  order,  Docket  1764 
(1930). 

U.  S.  V.  Pittsburgh  Tile  and 
Mantel  Contractors  Association, 
et.  at..  District  Court  of  the 
U.  S.,  W.  D.  of  Pa.,  consent 
decree,  Feb.  29, 1940. 


U.  S.  V.  St.  Louis  Tile  Contrac- 
tors Association,  et  al..  District 
Court  of  the  U.  S.,  E.  D.  of 
Mo.,  E.  Div.,  consent  decree, 
July  1, 1940. 

F.  T.  C,  Agricultural  Income 

Inquiry,  Part  I,  pp.  542-6. 
Ibid.,  pp.  528-34. 
Ibid.,  pp.  525-«. 

F.  A.  L:,  case  380  (1931). 

P.  A.  L.,  case  412  (1936),  indict- 
ment. 

F.  T.  C,  complaint.  Docket  4034 
(1940). 

F.  A.  L.,  cases  445,  458  (1939;, 
indictment. 


236  CON'OENTRATION  OP  EOONOMIC  POWER 

RETAIL    TRADES 

Competition  among  retailers  in  each  of  a  number  of  local  markets 
has  frequently  been  suppressed  through  the  efforts  of  associations 
organized  on  a  regional  and  national  scale.  The  Federal  Trade  Com- 
mission reported,  in  1925,  that  retailers  of  hardware,  united  in  local, 
State,  and  national  associations,  numbering  more  than  22,000  mem- 
bers, had  undertaken,  in  many  cases,  to  prevent  manufacturers  from 
selling  to  price-cutting  mail  order  houses  and  to  prevent  manu- 
facturers and  wholesalers  from  selling  directly  to  consumers,  by 
organizing  boycotts  against  them  and  by  threatening  to  do  so;  that 
they  had  circulated  "price  books"  containing  "suggested  resale  prices" 
that  were  held  to  be  "scientifically  correct";  and  that  they  had  held 
meetings  where  prices  were  discussed,  price  cutters  were  brought  to 
a  better  understanding  of  "business  ethics"  and  "problems  of  com- 
petition" were  "ironed  out".*^  The  Commission  also-  reported  in 
1929,  that  retailers  of  drugs  had  long  followed  the  practice  of  mark- 
ing prices  on  copies  of  prescriptions  by  employing  the  code  word 
"pharmocist"  or  "pharmecist"  in  which,  by  eliminating  one  duplica- 
tion, the  successive  letters  were  made  to  stand  for  the  numerals  1  to 
9,  the  last  letter  representing  zero,  thus  compelling  the  customer 
who  took  a  prescription  to  a  second  druggist  to  be  refilled  to  inform 
him,  inadvertently,  concerning  the  price  charged  by  the  first. ^^  The 
pressure  that  has  induced  legislatures  to  enact  "fair  trade"  laws  and 
compelled  manufacturers  to  sign  resale  price  maintenance  contracts 
has  come,  in  the  main,  from  an  association  representing  retailers  of 
drugs.  The  pressure  that  has  persuaded  legislatures  to  enact  "unfair 
practice"  and  chain  store  tax  laws  has  come,  largely,  from  associa- 
tions representing  retailers  of  groceries.  Members  of  both  trades 
have  attempted,  through  such  measures,  to  make  it  difficult  for  their 
more  powerful  rivals  to  compete  on  the  basis  of  price. 

Local  associations  of  automobile  dealers  have  employed  a  variety 
of  devices  for  the  purpose  of  restricting  competition,  principally  by 
controlling  trade-in  allowances.  They  have  used  common  appraisal 
sheets.  They  have  operated  secret  appraisal  bureaus  through  which 
they  have  exchanged  reports  on  their  allowances.  In  some  cases  a 
second  bidder  has  been  free  to  exceed  another's  bid.  In  others  he 
has  been  prohibited  from  doing  so  or  required  to  make  a  lower  bid. 
In  still  others  he  has  been  discouraged  from  raising  an  earlier  bid  by 
a  rule  which  compelled  him  to  offer  an  amount  so  much  higher  that 
it  would  seriously  impair  his  profit  on  the  sale.  Under  some  of  these 
plans  observance  is  voluntary.  Under  others  it  is  enforced  by  re- 
quiring members  to  make  deposits  against  which  fines  can  be  imposed. 
Under  one  scheme  dealers  who  refuse  to  join  and  those  who  make 
allowances  regarded  as  excessive  are  declared  to  be  "outlaws"  and 
members  concentrate  on  taking  sales  away  from  them,  successful 
bidders  being  reimbursed  for  losses  from  association  funds.  Other 
arrangements  cover  such  matters  as  new  car  prices,  discounts,  re- 
bates, accessories,  and  supplementary  services  which  might  be  used 
as  means  of  granting  indirect  concessions  in  making  sales.    Exclusive 

<»  Federal  Trade  Commission,  Report  on  the  House  Furnishings  Industry,  vol.  3,  pp.  224- 
"  Federal  Trade  Commission,  Open-Price  Trade  Associations,  pp.  48-49. 


OONCENTEATION  OF  ECONOMIC  POWEK  287 

territories  are  commonly  assigned  to  dealers  in  cars  of  the  same  make 
and  the  observance  of  territorial  boundaries  is  enforced  by  penalties. 
The  Federal  Trade  Commission  in  its  investigation  of  the  automo- 
bile industry  in  1938  found  such  arrangements  to  be  widely  prev- 
alent throughout  the  trade.^^ 

Associations  of  retail  dealers  in  gasoline  ha  e  likewise  undertaken 
to  prevent  price  cutting.  One  of  the  more  extreme  measures  em- 
ployed for  this  purpose  is  the  "blockade":  the  dealers'  association 
sends  several  automobiles  to  the  price  cutter's  filling  station;  each 
driver  buys  1  gallon  of  gasoline,  utilizes  all  of  the  free  services  of  the 
station,  and  proffers  a  $20  or  $50  bill  in  payment;  "blockaders"  jam 
the  station  and  customers  are  unable  to  drive  in.  A  circular  letter 
sent  out  by  the  National  Association  of  Petroleum  Retailers  instructs 
dealers  in  the  use  of  this  practice : 

If  you  have  to  use  the  blockade  method  be  sure  that  it  is  f i-iendly'  and  peaceful, 
so  as  to  prevent  injunctions  for  disturbing  the  peace,  or  disorderly  Conduct, 
or  assault,  conducting  yourselves  as  customers  who  are  making  small  purchases 
and  utilizing  the  free  services  which  the  station  offers  to  the  public,  and  block 
the  driveways  for  a  short  time  only — but  during  the  busiest  part  of  the  day. 

The  Association  also  sought  to  raise  prices.  Its  letter  explains  how 
this  should  be  done:  first  make  a  small  advance  which  will  not  be 
noticed  by  the  public,  then  "you  can  make  another  advance  later 
when  others  have  followed  your  lead."  ^^ 

Price  fixing  arrangement  have  also  characterized  the  cleaning  and 
dyeing  trade  in  many  communities.  In  Denver,  Detroit,  St.  Louis, 
and  Portland,  Ore.,  and  in  certain  localities  in  Iowa,  where  no  pro- 
vision was  made  for  their  enforcement,  "gentlemen's  agreements" 
establishing  common  charges  have  broken  down.  In  the  Twin  Cities, 
the  Cleaners  and  Dyers  Institute  of  Minnesota  succeediBd  for  a  time 
in  maintaining  a  minimum  price,  issued  an  emblem  to  cooperating 
plants,  and  conducted  an  advertising  compaign  designed  to  convince 
consumers  that  cleaners  displaying  the  emblem  offered  a  superior 
quality  of  work.  In  Montgomery,  Ala.,  the  local  association  required 
members  to  cut  prices  sharply  in  order  to  bring  individual  price 
cutters  back  into  line  and  imposed  fines  on  those  who  violated  their 
agreement.  In  Sacramento,  Calif.,  association  members  put  "a  sub- 
stantial deposit  up  for  forfeit  in  the  event  they  should  break  faith 
or  violate  the  rules  and  regulations  of  their  organization."  In  Al- 
bany, N.  Y.,  cleaners  maintained  a* minimum  price  of  $1  during  a 
period  of  business  depression  by  cooperating  in  a  contract  plan.  A 
common  agent  entered  into  one  series  of  contracts  which  bound  tailors 
to  give  him  all  their  wholesale  cleaning  work  and  another  which 
bound  cleaners  to  do  such  work  for  him  alone.  The  sole  seller  and 
the  sole  buyer  of  wholesale  cleaning  work,  he  was  in  a  unique  posi- 
tion to  maintain  the  price.  A  similar  plan  was  put  into  effect  in 
Boston,  Mass." 

BUILDING   CONSTRUCTION 

Competition  in  the  construction  industry  in  many  urban  areas  has 
been  restrained  by  the  activities  of  associations  of  dealers  in  various 

"Federal  Trade  Commission,  Motor  Vehicle  Industry,  1939,  pp.  117-121,  369-400. 

l^  Hearings  before  the  Temporary  National  Economic  Committee,  Part  16,  pp.  9308-9309. 

"3  Handsaker,  op.  cit.,  pp.  68-75. 


288  OONCENTRiATION  OF  ElOONOMIC  POWEE 

building  materials,  by  the  operation .  of  rings  of  subcontractors  or, 
less  frequently,  general  contractors,  and  by  the  practices  of  trade 
unions. 

The  dealer  groups  have  sought  to  confine  the  distribution  of  build- 
ing materials  to  "regular"  channels,  to  establish  common  prices,  and 
in  some  cases  to  effect  a  division  of  the  market.  Members  of  asso- 
ciations at  various  stages  of  the  distributive  process  have  agreed  to 
limit  their  purchases  and  sales  to  members  of  associations  at  the  pre- 
ceding and  following  stages.  Combinations  of  dealers  have  employed 
the  boycott  as  a  means  of  compelling  producers  to  sell  and  con- 
sumers' to-  buy  exclusively  through  them.  They  have  refused  or 
threatened  to  refuse; to  buy  from  manufacturers  who  were  selling  to 
mail  order  houses,  contractors,  consumers,  or  governmental  agencies, 
and  they  have  refused  or  threatened  to  refuse  to  sell  to  contractors 
and  others  who  were  buying  outside  the  "regular"  channels.  They 
have  also  made  use  of  the  boycott  in  disciplining  their  own  members, 
refusing  to  buy  from  manufacturers  who  were  selling  to  dealers  who 
had  failed  to  adhere  to  the  prices  they  had  fixed.  Boycotts  or  threats 
of  boycotts  have  been  employed  by  hot  air  furnace  dealers  in  New 
York,^*  lumber  dealers  in  California,^^  and  building  supplies  dealers 
in  many  sections  of  the  country j^*^  and  it  is  charged  in  indictments 
recently  returned  under  the  Sherman  Act  that  they  have  been  used 
by  marble  dealers  in  southern  California,"  and  by  plumbing  supplies 
dealers  throughout  the  United  States.^®  Groups  of  dealers  have  fre- 
quently negotiated  price  agreements  at  trade  meetings,  establishing 
a  fixed  mark-up  between  invoice  cost  and  selling  price,  promising  to 
adhere  to  some  recognized  price  list,  or  conspiring  with  groups  of 
manufacturers  to  set  up  a  joint  system  of  price  control.  Such  agree- 
ments have  been  found  to  exist  at  various  times  among  sand  and 
gravel  dealers  in-  New  York  City  ^^  and  in  Pittsburgh,^*'  plumbing 
supplies  dealers  in  the  Chicago  area^^  and  in  Virginia,*'^  and  tile 
dealers  in  New  York  City,®^  and  are  alleged  to  have  existed  recently 
among  sand  and  gravel  dealers  in  New  York,^*  sewer  pipe  dealers  in 
Rochester,*^  building  supplies  dealers  in  Milwaukee,®^  electrical  sup- 
plies dealers  in  Detroit,^^  lumber  dealers  in  Pittsburgh,®^  hardwood 
flooring  dealers  in  Seattle,®^  and  in  the  San  Francisco  Bay  area,^°  and 

«  Federal  Trade  Commission  Order,  Docket  2931  (1037). 

"Federal  Trade  Commission  Order,  Docket  2898  (1938). 

»  Federal  Trade  Commission  Orders,  Dockets  2191  (1937)  and  2857  (1938). 

*' U.  8.  V.  Southern  California  Marble  Association  et  al.,  District  Court  of  tlie  United 
States,  Soutiiern  District  of  California,  Indictment,  February  16,  1940. 

^  U.  8.  V.  Central  Supply  Association  et  al.,  op.  cit- 

60  Federal  Antitrust  Laws,  cases  220,  222. 

*>  17.  8.  V.  Western  Pennsylvania  Band  and  Gravel  /  nsooiation  et  al..  District  Court  of 
the  United  States,  Western  District  of  Pennsylvania,  Consent  Decree,  February  21,  1940. 

«  F.  A.  L.,  case  234. 

63  F.  A.  L.,  case  310. 

«  F.  A.  L.,  case  239. 

•*  V.  8.  T.  Long  Island  Sand  and  Gravel  Producers'  Association  et  al.,  District  Court  of 
the  United  States,  Southern  District  of  New  Tork,  Indictment,  November  22,  1939..  (The 
association  and  its  members  pleaded  nolo  contendere  on  May  24,  1940,  and  fines  were 
imposed.) 

«  Federal  Trade  Commission  Complaint,  Docket  4034  (1940). 

«•  Federal  Trade  Commission  Complaint,  Docket  3631  (1938). 

<"  U.  8.  V.  Cadillac  Electric  Supply  Co.  et  al.,  District  Court  of  the  United  States,  Eastern 
District  of  Michigan,  Southern  Division,  Indictment,  December  22,  1939. 

*  U.  8.  V.  Lumber  Institute  of  Allegheny  County  et  al..  District  Court  of  the  United  States, 
Western  District  of  Pennsylvania,   Indictment.  Februarv  23,   1940. 

"»  U.  B.  V.  Kelly-Goodwin  Hardwood  Co.  et  al.,  District  Court  of  the  United  States,  West- 
ern District  of  Washington,  Indictment,  April  27,  1940. 

'o  U.  S.  V.  E.  L.  Bruce  Co.  et  al.,  op.  cit. 


OONCENTR'ATION  OF  EICONOMIC  POWEIR  ,  289 

lumber  dealers  ^^  and  plaster  and  plastering  materials  dealers  ^^  in  the 
harbor  district  of  California.  Members  of  dealers'  associations  have 
sometimes  gone  beyond  mere  price-fixing  to  agree  upon  a  division  of 
the  market,  assigning  to  each  of  their  number  a  certain  percentage  of 
the  total  business,  or  assigning  certain  customers  to  certain  firms. 
Markets  have  been  shared  in  this  way  by  lumber  dealers  in  the  coast 
counties  of  California  ^^  and  are  alleged  to  have  been  shared  by  lum- 
ber dealers  in  the  harbor  district,^*  by  marble  dealers  in  southern 
California,^^  by  glass  distributors  in  northern  California  ^^  and  in 
Chicago,"  and  by  steel  sash  dealers  in  ClevelandJ^ 

Local  rings  of  subcontractors  in  the  various  branches  of  the  build- 
ing trades  have  concerned  themselves  principally  with  the  determina- 
tion of  the  bids  submitted  hj  their  members  and  with  the  allocation 
of  contracts  among  them.  In  some  cases,  such  a  group  operates  a 
central  estimating  bureau  which  either  maintains  a  uniform  costing 
system  and  circulates  specifications  for  the  material  and  labor  to  be 
included  in  each  job,  thus  enabling  all  of  its  members  to  arrive  at 
the  same  bid,  or  itself  calculates  the  cost  of  jobs  and  tells  its  mem- 
bers what  to  charge.  Since  identical  bids  result,  contract-letting 
authorities  are  forced  to  award  contracts  by  lot  and  every  member 
of  the  bidding  group  is  ultimately  afforded  an  equal  share  in  the 
market,  each  of  them  accepting  the  particular  jobs  that  come  to  him 
by  chance.  In  other  cases,  the  group  determines  in  advance  which 
of  its  members  is  to  get  a  job  and  so  arranges  the  bids  that  his  is 
lower  than  the  rest.  In  still  others,  it  maintains  a  depository  where 
copies  of  estimates  and  bids  are  filed.  Here  members  may  open, 
read,  and  revise  their  bids  before  submitting  them  to  architects  or 
general  contractors.  Tliey  may  raise  the  level  of  these  bids  by  mak- 
ing certain  that  they  conform  to  prescribed  prices  for  materials, 
labor,  and  overhead,  or  by  requiring  that  an  arbitrary  sum  be  added 
to  each.  They  may  allocate  contracts  according  to  some  general  rule', 
making  the  lowest  bidder  withdraw  his  bid  and  submit  a  new  one 
higher  than  the  highest,  averaging  the  bids  and  throwing  out  those 
that  fall  more  than  10  percent  below  the  average,  or  assigning  each 
job  to  the  bidder  whose  bid  comes  closest  to  the  average  and  requir- 
ing those  whose  bids  fall  below  this  figure  to  submit  new  bids  to 
exceed  it.  Or  they  may  merely  decide  which  of  their  number  is  to 
receive  each  contract  and  rig  the  bids  accordingly.  Practices  such 
as  these  have  been  found  to  exist  among  plumbing  contractors  in 
Chicago,^^  among  plumbing  contractors  and  plastering  contractors 
in  Detroit,^"   among  plastering  contractors,   tile   contractors,^^   and 

'I  U.  8.  V.  Harbor  District  Lumber  Dealers'  Association  et  al..  District  Court  of  the  United 
States,  Southern  District  of  California,  Central  Division;  Indictment,  March  15,  1940. 

72  U.  8.  V.  Contracting  Plasterers'  Assoriation  of  Long  Beach,  Inc.,  District  Court  of  the 
United  States,  Southern  District  of  California,  Indictment,  February  2,  1940. 

•'a  Federal  Trade    Commission   Order.    Docket   2898    (1938). 

**  U.  8.  V.  Harbor  District  Lumber  Dealers'  Association  et  al.,  op.  cit. 

"  U.  8.  V.  Southern  California  Marble  Association  et  al.,  op  cit. 

'«  U.  8.  V.  W.  P.  Fuller  &  Co.  et  al..  District  Court  of  the  United  States,  Northern  District 
of  California,  Southern  Division,  Indictment,  March  15,  1940. 

"  U.  8.  V.  Olass  Contractors'  Association  et  al,  District  Court  of  the  United  States, 
Northern  District  of  Illinois,  Eastern  Division,  Indictment,  May  10,   1940. 

'«  U.  8.  V.  Olaze-Rite  et  al.,  District  Court  of  the  United  States,  Northern  District  of  Ohio, 
Eastern  Division,  Indictment,  November  10,  1930. 

■">  Federal  Trade  Commission,  Report  to  the  President  on  Monopolistic  Practices  and 
Other  Unwholesome  Methods  of  Competition  (typescript),  ch.  6. 

*"  Ibid. 

*  V.  8.  V.  8t.  Louis  Tile  Contractors  Association  et  al..  District  Court  of  the  United 
States.  Eastern  District  of  Missouri,  Eastern  Division,  Consent  .ecree,  July  1,  1940. 


290  OONOBNTRATION  OP  ECONOMIC  POWER 

glazing  contractors  ^2  in  St.  Louis,  among  plastering,^'  marble,^* 
tile,*^  and  heating,  piping,  and  air  conditioning  ^^  contractors  in  Pitts- 
burgh, and  among  plumbing  and  heating,^'  mason,^  excavating,^^  and 
painting  ^°  contractors  in  Washington,  D.  C,  and  are  alleged  to  have 
existed  among  glazing  contractors  in  Chicago,''^  heating  contractors 
in  Seattle,^'  sheet  metal,  built-up  roofing,  and  air  conditioning  con- 
tractors in  New  Orleans,^'  marble  contractors  in  Northern  Cali- 
fornia,^ heating,  piping,  and  air  conditioning  contractors  in  Southern 
California,**^  plastering  contractors  in  the  Long  Beach  area,^*^  and 
hardwood  flooring  contractors  in  San  Francisco,^^  and  among  elec- 
trical contractors  in  Pittsburgh,^^  New  Orleans,^  and  Detroit,^  and 
in  the  San  Francisco,^  San  Pedro,=^  and  Santa  Barbara*  areas  of 
California. 

In  a  few  cases,  contractor  groups  appear  to  have  gone  beyond  mere 
price-fixing  to  establish  profit  pools.  It  has  recently  been  found,^ 
for  instance,  that  general  contractoi-s  in  New  Orleans  had  agreed  to 
add  to  their  estimates  sums  sufficient  to  enable  successful  bidders  to 
reimburse  unsuccessful  bidders  for  costs  assertedly  incurred  in  con- 
nection with  their  bids.  It  is  also  charged  in  current  indictments 
that  pooling  arrangements  have  existed  among  electrical  contractors 
in  New  Orleans  "  and  Detroit.'     In  the  former  case,  14  firms,  handling 

«a Federal  Trade  Commission  Order,  Docket  3491  (1938). 

w  {/  S.  V.  Employing  Plasterers'  Association  of  Allegheny  County  et  al..  District  Court  of 
the  United  States,  Western  District  of  Pennsylvania,  Consent  Decree,  March  18,  1940. 

«  £/  S  V.  Marble  Contractors'  Association  et  al.,  District  Court  of  the  United  states, 
Western  District  of  Pennsylvania,  Consent  Decree,  February  29,  1940.       ^  „  ^ 

"  17  S  V  Pittsburgh  TUe  and  Moiitel  Contractors'  Association  et  al..  District  Court  of 
the  United  States,  Western  District  of  Pennsylvania,  Consent  Decree,  February  29,  1940. 

^U  S  V  Voluntary  Code  of  the  Heating,  Piping,  and  Air  Conditioning  Industry  for  Alle- 
gheny County,  Pa.,  District  Court  of  the  United  States,  Western  District  of  Pennsylvania, 
Consent   Decree,    December   8.    1939. 

"^  U  8.  V.  Plumbing  and  Heating  Industries  Administrative  Association,  Inc.,  et  al., 
District  Court  of  the  United  States,  District  of  Columbia,  Consent  Decree,  Deceihber  22,  1939. 

^U  S  V  Mason  Contractors'  Association  of  the  District  of  Columbia  et  al..  District 
Court  of  the  United  States,  District  of  Columbia,  Consent  Decree,  March   12,   1940. 

»  f7  8.  \.  Excavators  Administrative  Association,  Inc.,  et  al..  District  Court  of  the  United 
States.    District   of  Columbia,  Consent  Decree,  December  22,   1939. 

*«  U.  8.  V.  Union  Painters  Administrative  Association,  Inc.,  et  al.,  District  Court  of  the 
United  States,  District  of  Columbia,  Consent  Decree,  December  22,  1939. 

91  U.  S.  V.  Glass  Contractors'  Association  et  al.,  op.  cit. 

»2  u.  8.  V.  Associated  Plumbing  and  Heating  Merchants  et  al..  District  Court  of  the  United 
States,  Western  District  of  Washington,  Indictment    April  27,  1940. 

»3  U.  8.  V.  Sheet  Metal  Association,  Inc.,  District  Court  of  the  United  States,  Eastern  Dis- 
trict of  Louisiana,  Indictment,  December  12,  1939.  (The  association  pleaded  nolo  conten- 
dere on  February  5,   1940.   and  was  fined.) 

*•  17.  S.  V.  Associated  Marble  Companies  et  al..  District  Court  of  the  United  States, 
Northern  District  of  California,  Central  Division,   Indictment,  June  17,  1940. 

*5  U.  S.  V.  Heating,  Piping,  and  Air  Conditioning  Contractors'  Association  of  Southern 
Californiu  et  al..  District  Court  of  the  United  States,  Southern  District  of  California, 
Central  Division,  Indictment,  January  26,   1940. 

^  U.  8.  V.  Contracting  Plasterers'  Association  of  Long  Beach,  Inc.,  et  al.,  op.  cit. 

*'  U.  8.  V.  8ati  Francisco  Hardwood  Floor  Contracting  Association,  et  al..  District  Court 
of  the  United  States,  Northern  District  of  California,  Southern  Division,  Indictment, 
December  20.  1939. 

»8  U.  8.  v.  William  F.  Hess,  et  al..  District  Court  of  the  United  States,  Western  District 
of  Pennsylvania,  Indictment,  November  3,  1939. 

•9  V.  8.  V.  Engineering  Survey  d  Audit  Co.,  Inc.,  et  al..  District  Court  of  the  United  States. 
Eastern  District  of  Louisiana,  Indictment,  December  12,  1939.  (The  defendants  pleaded 
nolo  contendere  on  January  12,   1940,  and  fines  were  imposed.) 

^  U.  8.  V.  Brooker  Engineering  Co.,  et  al^  District  Court  of  the  United  States,  Eastern 
District  of  Michigan,   Indictment,  March  12,   1940. 

*  U.  8.  V.  San  Francisco  Electrical  Contractors'  Association,  Inc.,  et  al..  District  Court 
of  the  United  States,  Northern  District  of  California,  Southern  Division,  Indictment, 
December  18,  1939. 

*  U.  S.  V.  Harbor  District  Chapter,  National  Electrical  Contractors'  Association  et  al.. 
District  Court  of  the  United  States,  Southern  District  of  California,  Central  Division,  In- 
dictment,  February  16,   1940. 

*  U.  8.  V.  Santa  Barbara  County  Chapter,  National  Electrical  Contractors'  Association 
et  al..  District  Court  of  the  United  States,  Southern  District  of  California,  Central  Division, 
Indictment,  February  28,    1940. 

"  U.  8.  v.  Neto  Orleans  Chapter,  Associated  General  Contractors  of  America,  Inc.,  District 
Court  of  the  United  States,  Eastern  District  of  Louisiana,  New  Orleans  Division,  Consent 
Decree,  January  15,  1940o 

*  U.  8.  v.  Engineering  Survey  &  Audit  Co.,  Inc.,  et  al.,  op.  cit. 
*T7.  S.  V.  Brooker  Engineering  Co.  et  al.,  op.  cit. 


OONOE'NTEATION  OF  EDONOMIC  POWER  291 

about  80  percent  of  the  city's  electrical  contracting  business,  are  said 
to  have  entered  into  a  "joint  venture  arrangement"  under  which  tlie 
profits  made  by  each  of  them  were  shared  with  all  of  the  others. 
Such  a  plan  would  be  equivalent,  on  a  local  scale,  to  the  highest 
development  of  the  cartel. 

Subcontractor  groups  have  sought  not  only  to  compel  their  members 
to  adhere  to  their  price-fixing  plans,  but  also  to  cripple  or  eliminate 
their  competitors  by  excluding  outside  contractors  from  the  local 
market,  by  preventing  the  employment  of  nonmembers,  by  forbidding 
builders  to  use  prefabricated  products  or  materials  produced  by  out- 
siders, by  forcing  them  to  make  their  purchases  through  "regular" 
channels,  and  in  some  cases  by  requiring  them  to  use  materials  which 
the  members  of  the  group  control.  To  these  ends,  a  variety  of  sanc- 
tions has  been  employed.  Associations  of  subcontractors  have  levied 
fines  on  members  who  have  violated  association  rules,  organized  boy- 
cotts against  producers  and  distributors  who  have  sold  to  them,  and 
arranged  with  trade  unions  to  deprive  them  of  labor.  Members  of 
such  associations  have  harassed  nonmembers  by  circulating  false 
rumors  concerning  their  ability  to  obtain  materials  or  credit,  by  ob- 
taining open  accounts  owned  by  them  and  instituting  suits  for  collec- 
tion, by  persuading  unions  to  provide  them  with  incompetent  workmen 
or  to  order  their  employees  to  loaf  on  the  job,  and  by  threatening  them 
with  violence  and  damaging  their  work.  They  have  cut  nonmembers 
off  from  markets  by  declining  to  submit  bids  to  general  contractors 
who  have  accepted  bids  from  them,  by  refusing  to  work  on  jobs  where 
prefabricated  products  or  materials  produced  by  outsiders  have  been 
used  or  where  nonmembers  of  subcontractor  groups  have  been  em- 
ployed, and  by  procuring  the  enactment  of  restrictive  laws  and  ordi- 
nances. Many  jurisdictions  now  require  State  and  local  authorities 
to  let  contracts  for  public  construction,  by  preference,  to  resident 
firms.  One  State  rates  bidders  on  private  as  well  as  public  work  ac- 
cording to  vague  standards  which  can  be  employed  to  deny  an  outside 
firm  the  right  to  bid.^  Municipal  ordinances  give  boards  of  con- 
tractors authority  to  license  and  register  members  of  the  trade,  and 
with  it  the  power  to  discipline  them  by  refusing  or  withdrawing  the 
right  to  do  business.  Building  ordinances,  ostensibly  designed  to 
eliminate  health  and  safety  hazards,  sometimes  contain  provisions 
which  operate  to  exclude  material  produced  by  outsiders  from  the 
local  market  and  to  compel  builders  to  use  materials  controlled  by  local 
firms.  It  is  said,  moreover,  that  building  inspectors  have  often  been 
in  league  with  rings  of  local  contractors.**  Subcontractor  associations 
have  also  contrived  to  cut  nonmembers  off  from  supplies  of  material 
and  labor  by  entering  into  agreements  with  associations  of  producers 
and  distributors  which  bind  these  groups  to  sell  exclusively  to  mem- 
bers, by  entering  into  similar  agreements  with  trade  unions  which  bind 
them  to  provide  labor  exclusively  to  members,  by  boycotting  or  threat- 
ening to  boycott  dealers  who  have  sold  to  nonmembers,  and  by  per- 
suading unions  to  call  strikes  against  the  jobs  they  have  in  hand. 
Exclusive  dealing  arrangements  and  boycotts  have  been  employed  as 
disciplinary  measures  by  tile  contractors  in  the  Pacific  Northwest  " 
and  are  now  said  to  have  been  employed  by  heating  contractors  in 

8  Hearings  before  the  Temporary  National  Economic  Commission,  Part  11,  p.  5151 
» Ibid.,  p.  5167.  .  f 

"Federal  Trade  Commission  Order,  Docket  1764   (1930). 


292  COISPCENTRATION  OF  ElOON'OMIC  POWER 

Seattle,"  tile  contractors  in  Chicago  ^^  and  Detroit/^  electrical  con- 
tractors in  Detroit  ^*  and  in  the  San  Pedro  area  of  California,^^  plaster- 
ing contractors  in  the  Long  Beach  area,^®  and  marble  ^^  and  heating, 
piping,  and  air  conditioning^*  contractors  in  Southern  California. 
Unions  have  been  used  as  enforcement  agencies  among  plastering 
contractors  in  Detroit,^®  among  plastering  ^°  and  tile  '^^  contractors  in 
St.  Louis,  among  plastering  ^^  marble,^^  and  tile  ^*  contractors  in 
Pittsburgh,  and  among  plumbing  and  heating,^^  painting,^®  and  exca- 
vating "  contractors  in  Washington,  D.  C,  and  it  is  now  charged  that 
they  have  also  been  used  among  electrical  contractors'  in  Detroit,-® 
Pittsburgh,  29  San  Francisco,^"  Santa  Barbara,^^  and  San  Pedro,^^ 
plastering  contractors  in  San  Francisco  ^^  and  Long  Beach,^*  tile  con- 
tractors in  Chicago  ^^  and  Detroit,^^  glazing  contractors  in  Chicago  ^' 
and  Cleveland,^*  hardwood  flooring  contractors  in  San  Francisco,^'' 
heating  contractors  in  Seattle  *°  and  in  Southern  California,*^  and 
plumbifig  contractors  in  many  parts  of  the  United  States.*^ 

To  the  restraints  which  they  have  enforced  on  behalf  of  subcon- 
tractor groups,  craft  unions  in  the  building  trades  have  added  re- 
straints of  their  own.  In  certain  trades  where  members  of  the  same 
union  local  work  at  successive  stages  of  the  productive  process,  those 
at  the  later  stages  have  sometimes  refused  to  work  with  materials 
which  have  not  passed  through  the  hands  of  their  fellow  members 
at  an  earlier  stage.  Electricians,  for  example,  have  refused  to  install 
any  equipment  but  that  manufactured,  wired,  or  assembled  in  local 
plants  employing  members  of  their  own  union,  thus  conferring  a 
monopolistic  advantage  on  local  firms.     Electricians  in  New  York  *^ 

"  U.  S.  V.  Associated  Plumbing  and  Heating  Merchants  et  al.,  op.  cit. 

"  v.  8.  V.  Mosaic  Tile  Co.  et  al..  District  Court  of  the  United  States,  Northern  District  of 
Illinois,  Indictaient,  January  15,  1940.  (Defendants  pleaded  ?iO/o  contendere  and  fines 
were  imposed  on  July  10,  1940.) 

^  U.  8.  V.  Wheeling  Tile  Co.  et  al..  District  Court  of  the  United  States,  Eastern  District 
pf  Michican,  Indictment,  December  6,  1939.  (Most  of  the  defendants  pleaded  nolo  conten- 
dere in  July  1940  and  fines  were  .imposed. ) 

^'  V.  8.  V.  Brooker  Engineering'  Co.  et  al.,  op.  cit. 

"  U.  8.  V.  Harior  District  Chapter,  National  Electrical  Contractors'  Association  et  al., 
op.  cit. 

1*  U.  8.  r.  Contrasting  Plasterers'  Association  of  Long  Beach,  Inc.,  et  al.,  op  cit. 

^'  U.   8.  V.   Southern   Oalifornia  Marble  Association  et  al.,  op  cit. 

"  U.  8.  V.  Heating,  Piping,  and  Air  Conditioning  Contractors'  Association  of  Southern 
California  et  al.,  op.  cit. 

"  Federal  Trade  Commission,  Report  to  the  President     *     *     *,  loc.  cit. 

2»  Ibid. 

^  U.  8.  V.  St.  Louis  Tile  Contractors'  Association  et  al.,  op.  cit. 

23  u.  S.  V.  Employing  Plasters'  'Association  of  Allegheny  County  et  al.,  op.  cit. 

23  U.  8.  V.  Marble  Contractors'  Association  et  al.,  op.  cit. 

2*  U.  8.  V.  Pittsburgh  Tile  and  Mantel  Contractors'  Association  et  al.,  op.  cit. 

25  U.  S.  V.  Plumbing  and  Heating  Industries  Administrative  Association  et  al.,  op.  cit. 

2'  U.  8.  V.  Uniwi  Painters  Administrative  Association,  Inc.,  et  al.,  op.  cit. 

2'  U.  8.  V.  Excavators  Administrative  Association,  Inc.,  et  al.,  op.  cit. 

2»  U.  8.  V.  Brooker  Engineering  Co.  et  al.,  op.  cit. 

2"  U.  8.  V.  William  F.  Hess  et  al.,  op.  cit. 

*•  U.  8.  V.  San  Francisco  Electrical  Contractors'  Association,  Inc.,  et  al.,  op.  cit. 

^  U.  8.  V.  Santa  Barbara  County  Chapter,  National  Electrical  Contractors'  Association 
et  al.,  op.  cit. 

32  u.  8.  V.  Harbor  District  Chapter,  National  Electrical  Contractors'  Association  et  al., 
op.  cit. 

3' t/.  )S.  T.  Master  Plasterers'  Association  of  8an  Francisco  et  ai..  District  Court  of  the 
United  States,  Northern  District  of  California,  Southern  Division,  Consent  Decree,  De- 
cember 22,  1939. 

**  U.  8.  V.  Contracting  Plasterers'  Association  of  Long  Beach,  Inc.,  et  al.,  op.  cit. 

98  u.  8.  V.  Mosaic  Tile  Co.  et  al.,  op.  cit. 

»»  V.  8.  V.  Wheeling  Tile  Go.  et  al.,  op.  cit. 

»'  U.  8.  V.  Class  Contractors  Association  et  al.,  op.  cit. 

»  U.  8.  V.  Olaze-Rite  et  al.,  op.  cit. 

3»  V.  8.  V.  San  Francisco  Hardwood  Floor  Contractors'  Association  et  al.,  op.  cit. 

*"  U.  8.  V.  Associated  Plumbing  and  Heating  Merchants  et  al.,  op.  cit. 

*^  U.  8.  V.  Heating,  Piping,  and  Air  Conditioning  Contractors'  Association  of  Southern 
California  et  al.,  op.  cit. 

*2  U.  8.  V.  Central  Supply  Association  et  al.,  op.  cit. 

*•  D.  8.  V.  Local  Union  No.  S  of  the  International  Brotherhood  of  Electrical  Workers  et  al.. 
District  Court  of  the  United  States,  Southern  District  of  New  York,  Indictment,  March  28, 
1940. 


CONCiE'NTElATION  OF  EICONOMIC  POWER  293 

and  Chicago/*  lathers  in  New  York,*^  and  carpenters  in  Chicago*® 
and  Pittsburgh  *^  have  engaged  in  such  activit^y  or  are  charged 
with  having  done  so.  Trade  unions  have  also  resisted  the  introduc- 
tion of  materials  and  processes  which  reduce  the  amount  of  work 
required  of  artisans  at  the  building  site.  In  some  cases,  a  single 
union  has  prevented  the  use  of  prefabricated  products  by  refusing 
to  supply  labor  for  jobs  where  they  were  to  be  employed,  by  calling 
strikes  against  jobs  where  they  were  introduced,  and  oy  threatening 
to  do  so.  In  others,  a  group  of  sympathetic  unions  has  combined 
to  apply  such  pressures.  It  is  charged,*^  for  example,  that  the  Chi- 
cago local  of  the  Journeymen  Stone  Cutters'  Association  of  America 
and  other  unions  affiliated  with  the  Chicago  and  Cook  County  Build- 
ing and  Construction  Trades  Council  refused  to  supply  labor  for  con- 
struction projects  where  prefabricated  limestone  was  to  be  employed, 
insisting  that  stone  used  in  Chicago  be  cut,  trimmed,  and  sized  on 
the  job  rather  than  at  the  quarry  where  it  originated,  thus  compelling 
builders  to  pay  freight  on  stone  removed  in  the  process  of  fabrication. 
Similar  practices  have  existed  or  are  said  to  have  existed  among  stone 
cutters  *^  and  electricians  ^°  in  New  York,  among  glaziers  in  Chi- 
cago,^^  Cleveland,^^  and  St.  Louis,^^  among  painters  in  Chicago^*  and 
St.  Louis,^^  and  among  plasterers  in  Pittsburgh.^® 

As  these  lines  are  written,  the  campaign  initiated  by  the  Depart- 
ment of  Justice  for  the  enforcement  of  the  antitrust  laws  in  the 
building  trades  is  well  under  way.  New  indictments  are  being  handed 
down  and  consent  decrees  accepted  by  trade  and  labor  groups  during 
each  succeeding  week.  It  seems  probable  that  practices  such  as  those 
described  above  are  more  widespread  than  even  these  prosecutions 
have  revealed.  The  combined  effect  of  the  restraints  imposed  by 
associations  of  producers  and  distributors  of  materials,  by  rings 
of  subcontractors,  and  by  trade  unions,  must  have  been  so  to  increase 
the  cost  of  construction  asi  seriously  to  limit  the  volume  of  building 
that  could  be  done. 

RACKETS 

In  several  local  trades,  competition  has  been  suppressed  and  monop- 
olistic arrangements  enforced  by  a  resort  to  violence  and  intimidation. 
Thugs  and  gunmen,  employed  by  racketeers,  have  damaged  goods, 
destroyed  them  and  interfered  with  their  movement,  broken  windows, 
thrown  bombs,  demolished  equipment,  set  fire  to  places  of  business, 
and  assaulted,  kidnaped,  and  even  murdered  tradesmen  and  their  em- 
ployees.    This  sort  of  terrorism  pervaded  the  bootleg  liquor  traffic 

**  U.  S.  V.  Beardslee  Chandelier  Manufacturing  Co.,  et  al..  District  Court  of  the  United 
States,  Northern  District  of  Illinois  Eastern  Division,  Indictment,  February  14,  1!)40. 

•^  U.  8.  V.  Wood,  Wire,  and  Metal  Lathers  International  Union,  Local  No.  46,  et  al.. 
District  Court  of  the  United  States,  Southern  District  of  New  Yorl£,  Indictments,  May  10, 
1940. 

*•  F.  A.  L.,  case  240. 

*'  U.  8.  V.  Lumber  Institute  of  Allegheny  County  et  al.,  op.  cit. 

**  V.  8.  V.  Chicago  and  Cook  County  Building  and  Construction  Trades  Council  et  al.. 
District  Court  of  the  United  States,  Northern  District  of  Illinois,  Indictment,  February  1, 
1940. 

«  F.  A.  L.,  case  323. 

^  U.  8.  V.  Nev;  York  Electrical  Contractors'  Association,  hic.,  et  al.,  District  Court  of 
the  United  States,  Southern  District  of  N«w  Yorli,  Indictment,  March  28,  1940. 

"  F.  A.  L.,  case  345;  U.  8.  v.  Olasa  Oontractors'  Association  et  al.,  op.  cit. 

"  U.  S.  V.  Glaze-Rite  et  al.,  op.  cit. 

«  Federal  Trade  Commission  Order,  Docket  3491  (1938). 

"  F.  A.  L.,  case  349. 

65  F.  A.  L.,  case  372. 

58  U.  8.  V.  Employing  Plasterers'  Association  of  Allegheny  County  et  al.,  op.  cit. 

271817— 40— No.  21 20 


294  CONCENTRiATION  OF  EOONOMIC  POWER 

during  the  period  of  national  prohibition.  But  it  has  by  no  means 
been  confined  to  outlawed  trades.  It  has  existed  for  years  in  various 
branches  of  the  construction  industry  in  many  urban  areas  "  and  has 
recently  been  alleged  to  exist  among  electrical  contractors  in  San 
Pedro,  Calif.,^^  among  plastering  contractors  in  Long  Beach,  Calif./^ 
and  among  glazing  contractors  in  Cleveland,  Ohio.^''  It  has  con- 
trolled the  sale  of  artichokes  in  the  city  of  New  York.*'^  It  has  been 
employed  in  the  coercion  of  cleaners  and  dyers,*'^  iaundrymen,^^  bar- 
bers,^* undertakers,  ^^  fur  dressers,®®  window  washers,^^  junkmen,®^ 
truckers,*"*  operators  of  garages  ""■  and  filling  stations,^^  distributors  of 
candy,^^  ice,"  milk,''*  and  soft  drinks,^^  and  dealers  in  fresh  fruits  and 
vegetables,^"  poultry,^^  and  fish.^*  It  has  made  its  appearance  in  New 
York,  Chicago,  Philadelphia,  Cleveland,  Detroit,  St.  Louis,  Kansas 
City,  Washington,  and  the  cities  of  the  Pacific  coast. 

Among  the  most  notorious  of  these  rackets  was  the  one  which  con- 
trolled the  live  poultry  market  in  metropolitan  New  York.  For  many 
years  a  ring  of  27  to  30  commission  men  fixed  the  price  of  chickens 
bought  from  producers  in  40  States  and  the  price  of  those  sold  to 
some  200  slaughterhouses  and  several  hundred  retailers  in  New  York 
City.  The  consumers  in  this  market  are  largely  Jewish.  The  chickens 
they  buy  must  be  killed  by  ritual  slaughterers  known  as  schochets. 
The  schochets  are  united  in  a  trade  union,  as  are  the  laborers  who  un- 
load chickens  from  trains,  those  who  load  them  into  trucks,  and  those 
who  haul  them  to  slaughterhouses.  In  alliance  with  these  four  unions 
the  ring  was  able  to  exclude  other  commission  inen  from  the  market 
by  denying  them  access  to  the  supply  of  labor.  It  augmented  its  prof- 
its by  granting  one  compa'ny  a  monopoly  of  the  business  of  providing 
coops,  another  a  monopoly  of  the  business  of  selling  chicken  feed,  and 
a  third  a  monopoly  of  the  trucking  service.  It  compelled  slaughter- 
houses and  distributors  to  deal  with  these  concerns  by  calling  strikes 
against  those  who  turned  elsewhere  for  supplies  or  services.  It  pre- 
vented poultry  from  reaching  the  market  through  other  channels  by 
having  trucks  overturned,  chickens  fed  sand  and  gravel  and  plaster 
of  paris  or  sprinkled  with  poison  or  kerosene.  Ex-convicts  and  plug- 
uglies  policed  the  trade ;  10  murders  were  committed  within  a  period 

"  Cf.  Luke  Grant,  "The  National  Erectors'  Association  and  the  International  Association 
of  Bridge  and  Structural  Iron  Workers,"  U.  S.  Commission  on  Industrial  Relations,  1915, 
pp.  114-137  ;  Royal  E.  Montgomery,  Industrial  Relations  in  the  Chicago  Building  Trades 
(Chicago,  1927),  ch.  11. 

**  U.  8.  V.  Harbor  District  Chapter,  National  Electrical  Contractors  Association  et  al., 
op.  cit. 

^  V.  S.  V.  Contracting  Plasterers  Association  of  Long  Beach,  Inc.,  et  al.,  op.  cit. 

8»  U.  S.  V.  Glaze-Rite  Co.  et  al.,  op.  cit. 

81  F.  A.  L.,  case  387. 

82  Handsaker,  op.  cit.,  passim ;  Gordon  L.  Hostetter  and  Thomas  Q.  Beesley,  It's  A  Racket 
(Chicago,  1929),  ch.  3. 

^  Hostetter  and  Beesley,  op.  cit.,  ch.  4. 

8*  Ibid.,  pp.  154-155. 

85  Ibid.,  pp.  141-143. 

88  F.  A.  L.,  cases  265,  394,  395,  396. 

*'  Hostetter  and  Beesley,  op.  cit.,  ch.  5. 

88  Ibid. 

89  P.  A.  L.,  cases  380,  412,  433,  447. 
''8  Hostetter  and  Beesley,  op.  cit.,  ch.  8. 

"  Hearings  before  the  Temporary  National  Economic  Committee,  Part  16,  pp.  9040  ff. 

■'2  F.  A.  L.,  case  331. 

'3  C.  C.  Linnenberg,  Jr.,  The  Price  of  Ice,  N.  R.  A.,  Consumers'  Division,  Report  No.  16 
(mimeo.,  1935),  pp.  76-79. 

"  U.  S.  V.  The  Borden  Co.  et  al.,  op.  cit. 

's  Hostetter  and  Beesley.  op.  cit.,  pp.  130-131. 

'8  F.  A.  L..  cases  289,  392,  393  ;  Federal  Trade  Commission,  Agricultural  Income  Inquiry, 
Part  1,  pp.  609-613   659-662 ;  Part  2,  pp.  531-535,  617-618. 

"  F.  A.  L.,  cases  279,  356,  368,  391. 

"  F.  A.  L.,  cases  389.  397 ;  Hostetter  and  Beesley,  op.  cit.,  ch.  6. 


CONCJETSITEATION  OF  ECONOMIC  POWER  295 

of  5  years.  In  this  way  prices  were  maintained  and  profits  realized 
by  members  of  the  ring.  It  was  estimated  that  these  profits  amounted 
to  as  much  as  $2,000,000  in  a  single  year.  One  of  the  racketeers  was 
said  to  have  drawn  $5,000  weeJily  from  the  monopoly  in  1933.  Twenty 
of  them  were  sent  to  prison  for  short  terms  in  1929,  5  of  them  for 
longer  terms  in  1934.^^ 

Collusive  activities  have  also  characterized  the  markets  for  fruits 
and  vegetables  in  many  cities.  Associations  of  dealers  in  New  York 
and  Chicago  have  established  common  charges  and  raised  prices. 
Forty  receivers  of  potatoes  in  New  York  agreed,  in  1935,  to  increase 
the  net  commission  rate  on  consigned  produce  from  5  to  7  percent. 
Although  the  agreement  was  abandoned  when  some  of  the  dealers 
refused  to  sign,  most  of  them  raised  their  rates  to  7  percent.^''  Re-- 
ceivers  of  potatoes  in  Chicago,  members  of  the  Chicago  Division  of 
the  American  Fruit  and  Vegetable  Shippers'  Association,  agreed  on 
a  minimum  brokerage  charge  of  $15  per  car  in  1928.  This  agree- 
ment was  still  in  "effect  in  1937.^^  Firms  handling  grapes  bound  for 
New  York  City,  operating  in  the  New  Jersey  railroad  yards  during 
the  fall  of  1935,  under  the  leadership  of  a  well-known  New  York 
racketeer,  exacted  from  buyers  a  fee  of  10  cents  per  lug  for  which  no 
necessary  service  was  performed.*-  A  group  of  66  dealers  controlled 
the  sale  of  grapes  at  the  Santa  Fe  tracks  in  Chicago  for  many  years. 
Members  of  this  group  coinbined  in  October  1936  to  form  an  associa- 
tion known  as  the  Santa  Fe  Grape  Dealers  of  Chicago.  During  the 
next  3  months,  they  pooled  their  purchases,  buying  only  through 
agents  designated  by  the  association  and  participatin:g  equally  in  the 
profits  of  the  pool.  Dealers  who  were  unable  or  unwilling  to  con- 
tribute $400  to  the  association's  capital  were  denied  admission ;  mem- 
bers who  violated  any  of  its  rules  were  fined  or  expelled ;  nonmembers 
were  excluded  from,  the  market.*^  Associations  of  truckmen  engaged 
in  the  business  of  hauling  produce  between  rail  and  water  terminals 
and  wholesale  and  retail  markets  in  New  York,  Chicago,  and  Philadel- 
phia have  entered  into  agreements  with  dealers'  associations  and  with 
trade  union  locals  which  have  enabled  them  to  obtain  monopolies  of 
this  service  and  to  establish  high  and  uniform  cartage  rates.  Such 
agreements  were  concluded  between  the  Market  Truckmen's  Asso- 
ciation and  the  Fruit  and  Produce  Trade  Association  of  New  York,^* 
between  the  Chicago  Commission  Team  Owners'  Association  and  the 
Market  Service  Association  in  Chicago,*^  between  the  Perishable  Fruit 
and  Produce  Haulers'  Association^  and  a  Fair  Practices  Committee 
representing  associations  of  dealers  in  Philadelphia,^*'  and  between 

'»  Hearings  before  the  Temporary  National  Economic  Committee,  Part  7,  pp.  2866-2880  ; 
Time,  May  8,  1933  ;  Federal  Antitrust  Laws,  cases  279,  356.  368,  391.  The  Senate  Com- 
mittee on  Commerce  reported  that :  "Dominance  has  been  enforced  by  a  vicious  system  of 
intimidation,  by  violence,  arson,  and  murder.  Places  of  business  have  been  bombed;  thou- 
sands of  chickens  have  been  destroyed  by  gas  bombs,  poison,  or  fire  ;  trucks  have  been 
wrecked.  Gangs  in  high-powered  cars  patrolled  highways  and  intercepted  deliveries  and 
kidnaped  or  killed  the  victims.  Those  who  resisted  or  defied  the  leaders  were  broken  by  the 
ring  and  persecuted  by  the  crooked  politicians  protecting  the  rackets  and  obviously  sharing 
in  the  spoils." — Senate  Committee  on  Commerce,  Crime  and  Criminal  Practices,  75'th  Cong , 
1st  sess.,  S.   Kept.  1189  (1937),  p.  17.  -  si 

*^  Federal  Trade  Commission,  Agricultural  Income  Inquiry  (1937),  Part  I,  p.  613 

»Mbid.,  pp.  610-611. 

82  Ibid.,  Part  II,  p.  617. 

^  Ibid.,  pp.  617-618. 

^  Ibid.,  Part  I,  p.  644. 

«=  Ibid.,  p.  659. 

™  Ibid.,  Part  II,  p.  535. 


295  CONCENTRATION  OF  ECONOMIC  POWER 

the  truckmen's  associations  and  locals  of  the  International  Brother- 
of  Teamsters  in  each  of  these  cities.  Receivers  of  produce  in  New 
York  were  required  to  employ  members  of  the  Truckmen's  Associa- 
tion to  represent  them  at  the  terminals  and  dealers  were  forbidden  to 
drive  onto  docks  and  piers  to  take  delivery  in  their  own  trucks.  As  a 
result,  they  took  delivery  on  the  street  outside,  paying  truckmen 
for  hauls  that  did  not  exceed  a  few  hundred  feet.  Buyers  of  fruit 
at  auction  were  permitted  to  load  it  onto  their  own  trucks,  but  they 
were  requireii  to  pay  an  "owner's  cartage  charge"  to  the  truckman 
representing  the  receiver  to  whom  it  was  consigned.^^  Receivers  in 
Philadelphia  agreed  that  they  would  not  sell  to  buyers  employing 
truckmen  who  did  not  belong  to  the  Haulers'  Association.  The  agree- 
ment also  protected  association  members  against  competition  from 
dealers'  trucks  by  establishing  minimum  units  for  sales,  forbidding 
delivery  to  more  than  one  consignee  at  one  address,  and  imposing  an 
added  charge  for  reconsignment.®^  The  truckmen's  monopolies  have 
been  reinforced  by  the  strong-arm  tactics  employed  by  members  of  the 
union.  In  Chicago,  nonunion  drivers  have  been  threatened  and  beaten 
and  their  trucks  have  been  damaged.  In  Philadelphia,  trucks  op- 
erated by  dealers  have  been  interfered  with  and  trucks  owned  by  chain 
stores  have  been  excluded  from  the  terminals.  In  both  cities  growers 
and  itinerant  truckers  hauling  produce  into  the  markets  have  been 
required  to  join  the  union,  to  pay  a  charge  f6r  the  privilege  of  unload- 
ing, or  to  transfer  their  loads  to  union  trucks  at  a  short  distance  from 
their  destinations.^^  Organized  dealers,  truckmen,  and  laborers  have 
thus  kept  competition  in  the  great  urban  produce  markets  under 
strict  control. 

Terrorism  has  been  among  the  devices  employed  in  the  enforcement 
of  a  succession  of  market-sharing  and  price-fixing  plans  adopted  by 
members  of  the  cleaning  and  dyeing  trade  in  Chicago  at  various  times 
during  the  past  30  years.  Beatings  have  been  inflicted,  trucks  dam- 
aged, plants  bombed,  windows  smashed,  and  clothing  ruined ;  at  least 
two  persons  connected  with  the  trade  have  been  murdered  and  the 
talents  of  such  notorious  gangsters  as  Al  Capone  and  George  ("Bugs") 
Moran  have  been  brought  into  play.  The  Chicago  Master  Cleaners 
and  Dyers  Association  controlled  the  trade  from  1910  to  1930,  its  power 
derived-largely  from  the  economic  strength  of  three  friendly  unions — 
the  Laundry  and  Dye  House  Drivers  and  Chauffeurs  Union,  Local  712 
of  the  International  Brotherhood  of  Teamsters  known  as  the  truck 
drivers'  union ;  the  Cleaners,  Dyers,  and  Pressers  Union,  Federal  Local 
No.  17742  of  the  A.  F.  of  L.,  known  as  the  inside  workers'  union ;  and 
the  Retail  Cleaners  and  Dyers  Union,  Federal  Local  No.  17792  of  the 
A.  F.  of  L.,  known  as  the  tailors'  union.  The  association  fixed  prices 
and  introduced  a  "closed  solicitation  rule"  which  forbade  cleaners  to 
solicit  accounts  from  retailers  who  were  already  being  served  by  other 
plants.  To  enforce  compliance,  it  imposed  fines  on  violators,  persuaded 
the  truckers'  union  to  instruct  its  drivers  not  to  collect  work  from 
certain  of  their  customers,  and  persuaded  the  inside  workers'  union 
to  call  strikes  in  their  plants.     Cleaners  maintaining  retail  outlets  who 

^  Ibid.,  pp.  581-532. 

^  Federal  Trade  Commission,  Report  to  the  President     *      *     *,  pp.  492-504. 

**  Ibid.,  Federal  Trade  Commission,  Agricultural  Income  Inquiry,  Part  II,  p.  534. 


OON'OENTKATION  OF  EIOONOMIC  POWEK  297 

failed  to  adhere  to  association  prices  might  suffer  the  lighter  penalty  of 
having  cut-rate  "whip  stores"  opened  nearby  or  the  more  severe  pun- 
ishment of  bombing.  Construction  of  new  plants  was  checked  by 
restrictive  fire  ordinances  enacted  in  response  to  association  pressure 
and  by  threats  of  violence  which  could  be  silenced  only  by  substantial 
contributions  of  cash.  One  new  concern  which  incurred  the  displea- 
sure of  the  association  sustained  several  explosions  and  had  its  drivers 
beaten  until  it  obtained  protection  by  making  "Bugs"  Moran  a  stock- 
holder. Retail  tailors  were  required  to  adhere  to  the  "hundred  num- 
ber rule"  which  forbade  a  tailor  to  open  a  shop  within  100  street  num- 
bers of  another  shop,  and  were  forced  by  the  refusal  of  cleaners  to 
take  their  work,  by  fines,  by  "whip-stores,"  by  picketing  under  various 
pretexts,  and  by  window-smashing,  to  maintain  the  prices  decreed  by 
the  tailors'  union.  The  association  price  for  cleaning  and  pressing  a 
man's  suit  stood  at  $1.50  from  1921  to  1925  and  at  $1.75  from  1926  to 
1929.  Prices  were  so  far  out  of  line^with  those  prevailing  in  other 
cities  that  many  Chicagoans  found  it  cheaper  to  mail  their  garments 
out  of  town  for  cleaning.^"  The  association  was  succeeded  in  1931  by 
the  Cleaners  and  Dyers  Institute  of  Chicago.  Partly  to  counteract 
public  antagonism  which  had  developed  during  the  twenties,  the  trade 
named  Dr.  B.  M.  Squires,  lecturer  at  the  University  of  Chicago  and  a 
well-known  labor  arbitrator,  to  head  the  institute.  Under  these  aus- 
pices, cleaners  controlling  60  percent  of  the  w^ork  done  in  the  Chicago 
area  entered  into  a  "sales  manager  contract  plan."  Each  cleaner 
signed  a  contract  making  Dr.  Squires  his  sales  manager.  Dr.  Squires, 
in  turn,  appointed  a  submanager  (usually  the  owner)  for  each  plant, 
requiring  him  to  sign  a  letter  of  resignation  which  could  be  made 
effective  at  any  time. 

In  short  ♦  *  *  each  cleaner  surrendered  to  Dr.  Squires  the  control  of  his 
sales  policy,  and  had  this  control  returned  to  him  with  the  provision  that  it  was 
to  revert  to  Dr.  Squires,  if  the  plant  owner  did  not  carry  out  the  instructions  of 
the  sales  manager.^ 

The  institute  retained  the  "closed  solicitation  rule"  and  continued  the 
association's  working  arrangements  with  the  unions.  Strikes  were 
called  against  nonsigners  to  force  them  to  join.  Cash  payments  were 
sometimes  made  to  price  cutters  in  return  for  a  pledge  to  "go  along." 
Fines,  "whip  stores"  and  policing  by  the  unions  were  also  used  to 
keep  the  trade  in  line.^-  Shortly  after  Dr.  Squires  took  over  the  insti- 
tute, Al  Capone  offered  to  enforce  the  contracts  and  to  maintain  prices 
in  return  for  half  of  the  dues,  but  Dr.  Squires  declined.  In  June 
1931,  however,  the  institute  hired  James  P.  Gorman,  head  of  the 
tailors'  union,  to  police  the  trade  and  it  is  believed  that  some  of  the 
money  paid  to  him  found  its  way  to  Capone  and  his  lieutenant,  Mur- 
ray Humphreys,  and  that  the  Capone  influence  stood  behind  the  in- 
stitute's program.^^  Although  there  is  no  evidence  that  Dr.  Squires 
sanctioned  the  use  of  violence,  destruction  of  clothing  and  explosions 
in  the  plants  of  noncooperating  cleaners  did  not  cease  during  the 
period  of  his  administration.  A  few  months  after  the  contract  plan 
went  into  effect,  the  base  price  was  raised  from  $1  to  $1.25.    But,  as 

»"  Handsaker,  op.  cit.,  pp.  121-144. 
siJbid.,  pp.  180-181. 
»2Ibid.,  pp.  202-203. 
M  Ibid.,  pp.  277-278. 


298  OON'OETSTTRATION  OF  EIOQNOMIC  POWER 

one  cleaner  remarked,  the  whole  United  States  Army  could  not  have 
maintained  cleaning  prices  in  Chicago  during  the  depression.  Prices 
broke  and  the  institute  was  abandoned  in  the  summer  of  1932.  The 
Chicago  Association  of  Cleaners  and  Dyers,  which  was  then  organ- 
ized, employed  the  traditional  tactics— cooperation  with  the  unions, 
"whip  stores,"  and  violence — but  was  unable  to  brace  the  sagging 
price  structure.  The  N.  R.  A.,  which  set  a  95-cent  minimum  for  the 
Chicago  area  in  1933,  brought  new  hope  to  the  cleaners,  but  violation 
was  so  widespread  that  the  price  was  suspended  in  May  1934.  The 
trade  then  turned  to  the  courts.  In  October  1934  the  Cleaning  and 
Dyeing  Plant  Owners  Association  of  Chicago  filed  a  bill  of  complaint 
in  the  Circuit  Court  of  Cook  County  against  22  cleaners,  charging 
them  with  destructive  and  ruinous  competition  designed  "to  deprive 
the  plaintiffs  of  their  customers  and  prospective  customers  and  to 
injure  their  goodwill,  business,  and  investments  and  their  thousands 
of  employees."  ^*  Despite  the  fact  that  some  of  the  cut-price  cleaners 
were  making  a  profit  at  50  cents,  the  court  enjoined  the  defendants 
from  selling  for  less  than  90  cents,  with  a  15-cent  reduction  for  cash 
and  carry  business.  The  injunction  was  dissolved  by  the  appellate 
court  in  May  1936,  nearly  a  year  after  it  had  gone  into  effect.''^ 

In  some  cases,  a  racket  merely  exacts  tribute  from  the  members  of 
a  trade.  In  others,  it  establishes  and  maintains  "order"  so  thai  the 
members  of  a  trade  may  exact  tribute  from  the  public.  According 
to  one  of  the  reports  published  by  the  Wickersham  Commission  ^^ — 

In  this  possibility  of  forcible  suppression  of  competition  is  to  be  found  one  im- 
portant reason  why  rackets  tend  to  make  especially  rapid  headway  in  lines  of 
business  having  numerous  small  and  actively  competing  units,  where  it  is  diffi- 
cult to  avoid  so-called  "cut-throat  competition"  which  keeps  all  but  the  most 
efficient  units  at  the  starvation  point.  Open  price-fixing  agreements  are  for- 
bidden by  law,  and  probably  would  not  be  lived  up  to  if  made;  but  the  racket 
may  provide  an  effectively  policed  method  of  bringing  about  noncompetitive 
conditions. 

In  method,  this  sort  of  business  practice  is  universally  condemned,  but 
in  purpose  and  effect  it  differs  little  from  the  forms  of  monopolistic 
behavior  previously  described. 

»*  Ibid.,  p.  309. 
95  Ibid.,  p.  321. 

■^  National  Commission  on  Law  Observance  and  Enforcement,  Reports,  vol.  5,  No.  12, 
Report  on  the  Cost  of  Crime   (1931),  p.  410. 


CHAPTER  VI 
THE  OCCURRENCE  OF  COMPETITION  AND  MONOPOLY 

It  is  impossible  to  estimate  in  precise  quantitative  terms  the  com- 
parative extent  of  competition  and  monopoly  at  any  moment  of  time. 
The  concepts  cannot  be  defined  with  the  precision  required  in  meas- 
urement. The  necessary  data  are  not  available.  The  situation, 
moreover,  is  a  constantly  changing  one.  There  are,  however,  scraps 
of  infoiTnation  which  indicate  obliquely  that  monopolistic  control 
over  prices  and  production  has  been  and  is  characteristic  of  a  large 
share  of  American  business. 

CONCENTRATION  OF  BUSINESS  ACTIVITY 

In  the  first  place,  there  is  evidence  of  great  concentration  of  busi- 
ness activity  in  the  hands  of  a  small  number  of  large  concerns.  Ac- 
cording to  Berle  and  Means,  130  corporations,  each  reporting  assets 
in  excess  of  $100,000,000,  controlled  nearly  82  percent  of  the  assets 
of  a  group  of  573  corporations  whose  shares  were  traded  on  the  New 
York  Stock  Exchange  in  1929.^  Among  some  300,000  nonbanking 
corporations,  on  or  about  January  1,  1930,  the  200  largest,  each  with 
assets  of  more  than  $90,000,000,  controlled  between  45  and  53  percent 
of  the  nonbanking  corporate  wealth,  between  35  and  45  percent  of 
the  nonbanking  business  wealth,  incorporated  and  unincorporated, 
and  between  15  and  35  percent  of  the  total  national  wealth.^  It  was 
estimated  that  the  relative  rate  of  growth  maintained  by  the  larger 
and  smaller  concerns  from  1909  to  1929,  if  continued  for  another  20 
years,  would  place  70  percent  of  the  Nation's  corporate  wealth  in  the 
hands  of  the  200  largest  by  1950;='  According  to  the  Twentieth 
Century  Fund,  the  594  largest  corporations  in  the  country  in  1933, 
each  with  assets  over  $50,000,000,  though  only  0.15  percent  of  the 
total  number,  owned  53.2  percent  of  all  corporate  assets  *  and  pro- 
duced 18.4  percent  of  the  Nation's  income.^  The  273  largest  non- 
banking  corporations,  or  0.09  percent  of  the  number  in  this  group, 
together  with  102  of  their  subsidiaries,  owned  56.2  percent  of  the 
assets  in  the  group.®  Six  or  seven  percent  of  the  corporations  in  the 
country  received  around  80  percent  of  all  corporate  net  income  in 
each  of  the  years  1931,  1932,  and  1933/  while  69  corporations,  only 
0.06  percent  of  the  total  number,  collected  over  30  percent  of  such 
income  in  1933.^    According  to  a  report  published  by  the  National 

1  Adolf  A.  Berle,  Jr.   and  Gardiner  C.  Means,  The  Modern  Corporation  and  Private  Prop- 
erty (New  York,  1933),  p.  27. 

2  Ibid.,  p.  32. 
s  Ibid.,  p.  40. 

*  Twentieth  Century  Fund,  Big  Business:  Its  Growth  and   Its  Place  (New  York,  1937), 

Blbid.,  p.  96. 

« Ibid.,  p.  54 ;  Cf.  National  Resources  Committee,  The  Structure  of  the  American  Econ- 
omy, Part  1,  Basic  Characteristics  (Washington,  1939),  p.  104. 

*  Twentieth  Century  Fund,  op.  cit.,  p.  71. 
» Ibid.,  p.  68. 

299 


300  CONCIENTRATION  OF  ECONOMIC  POWEH 

Kesources  Committee,  the  share  of  the  200  largest  in  the  assets  of 
all  nonfinancial  corporations  grew  from  49.4  percent  in  1929  to  57.0 
percent  in  1939.^  In  the  latter  year,  the  200  concerns  in  this  group 
controlled  approximately  60  percent  of  the  physical  assets  of  all 
nonfinancial  corporations,  between  46  and  51  percent  of  the  Nation's 
industrial  wealth,  and  between  19  and  21  percent  of  its  total  wealth. 
In  transportation,  the  45  largest  corporations  controlled  91.7  percent 
of  the  assets;  in  public  utilities,  the  40  largest  controlled  80.4  percent; 
in  manufacturing,  the  75  largest  controlled  40.2  percent.^"  It  is  esti- 
mated that  1  percent  of  the  corporations  engaged  in  manufacturing 
have  63  percent  of  the  wealth  of  all  such  corporations.^^  And  finally, 
according  to  the  message  which  President  Roosevelt  sent  to  Congress 
on  April  29,  1938,  less  than  5  percent  of  the  corporations  reporting 
to  the  Bureau  of  Internal  Revenue  in  1935  owned  87  percent  of  the 
assets  of  all  corporations  and  less  than  4  percent  of  them  received  84 
percent  of  all  corporate  net  income.  One-tenth  of  1  percent  of  these 
concerns  owned  52  percent  of  the  assets  of  all  those  in  the  group  and 
realized  50  percent  of  all  the  profits.^^ 

Concentration  of  production  among  corporations  engaged  in  man- 
ufacturing may  also  be  measured  in  terms  of  employment  and  out- 
put. In  1929,  ^enterprises  operating  several  plants,  though  only  12.4 
percent  of  the  total  number,  hired  48.4  percent  of  the  wage  earners 
and  produced  '54.3  percent,  by  value,  of  the  total  output  of  manu- 
factured goods.^^  In  82  industries  in  1933,  only  1.6  percent  of  the 
firms  employed  37.5  percent  of  the  workers."  In  46  of  these  indus- 
tries, the  6  largest  concerns  had  more  than  one-half  of  the  employees ; 
in  31  they  had  more  than  two-thirds;  in  24  the  3  largest  had  more 
than  half  of  the  workers  and  in  11  they  had  more  than  two-thirds.^^ 
In  1935,  the  200  largest  manufacturing  corporations  produced  nearly 
38  percent,  by  value,  of  the  total  output  of  such  concerns.^^  Among 
the  21  large  industries,  each  employing  more  than  100,000  workers, 
the  44  medium-sized  industries,  each  employing  between  25,000  and 
100,000  workers,  and  the  210  small  industries,  each  employing  less 
than  25,000  workers,  comprising  the  275  categories  used  by  the  Cen- 
sus of  Manufactures,  there  were  4  large,  10  medium-sized,  and  117 
small  industries  in  which  the  8  largest  concerns  hired  more  than  half 
of  the  workers  and  6  large,  13  medium-sized,  and  117  small  indus- 
tries in  which  they  produced  more  than  half,  by  value,  of  the  total 
output  and  there  were  2  large,  6  medium-sized,  and  67  small  indus- 
tries in  which  the  4  largest  concerns  hired  more  than  half  of  the 
workers  and  3  large,  6  medium-sized,  and  78  small  industries  in 
which  they  produced  more  than  half  of  the  output.  In  all  275  indus- 
trial categories,  there  were  87,  or  approximately  one-third,  in  which 
the  4  largest  concerns  produced  more  than  half ;  45,  or  approximately 
one-sixth,  in  which  they  produced  more  than  two-thirds;  and  29,  or 
approximately  one-ninth,  in  which  they  produced  more  than  three- 
fourths  of  the  output.^^ 

•National  Resources  Committee,  op.  clt.,  p.  107. 
"Ibid.,  pp.  JOo-106. 

"  Corwln  D.  Edwards,  "Can  the  Anti-trust  Laws  Preserve  Competition?",  American  Eco- 
nomic Review,  vol.  30,  No.  1,  supplement,  March  1940,  pp.  164—179,  at  p.  165. 
"  Hearings  Before  the  Temporary  National  Economic  Committee,  Part  1,  p.  185. 
^  Twentieth  Century  Fund,  6p.  cit.,  p.  36. 
^  Ibid.,  p.  45. 
"  Ibid.,  p.  43. 
"  Edwards,  loc.  cit. 
"  National  Resources  Committee,  op.  cit.,  pp.  240-258. 


OONGENTRIATION  OF  ECONOMIC  POWER  301 

Since  an  industry,  as  defined  by  the  Census,  may  manufacture 
many  different  products  and  since  any  one  of  these  products  may  be 
made  by  but  a  few  of  the  concerns  that  are  classified  as  belonging  to 
the  industry,  it  is  obvious  that  concentration  of  control  over  indi- 
vidual products  must  be  even  greater  than  the  foregoing  figures  re- 
veal. When  data  covering  1,807  representative  products,  nearly  half 
by  number  and  more  than  half  by  value  of  those  included  in  the 
Census  of  Manufactures  for  1937,  were  analyzed  by  the  Bureau  of 
Foreign  and  Domestic  Commerce,  it  was  found  that  the  4  largest 
concerns  engaged  in  the  manufacture  of  more  than  three-quarters  of 
these  products  accounted  for  more  than  50  percent  of  the  total  out- 
put; th,at  the  4  largest  making  nearly  half  of  them  accounted  for 
more  than  70  percent;  and  that  the  4  largest  making  more  than  a 
quarter  of  them  accounted  for  over  85  percent.  In  the  cases  of  291 
products,  more  than  one-sixth  of  those  included  in  the  study,  the 
one  leading  manufacturer  controlled  between  50  and  75  percent  of 
the  supply;  the  cases  in  which  a  single  producer  controls  a  larger 
share  are  not  disclosed  by  the  census.^* 

These  figures  reveal  substantial  concentration  of  assets,  income, 
employment,  and  output  in  the  hands  of  a  minority  of  the  producers 
in  a  large  area  of  American  industry.  While  such  concentration 
does  not  invariably  involve  monopolistic  control  over  prices  and  pro- 
duction, the  one  is  frequently  conducive  to  the  other. 

UNIFORMITY  OF  PRICES 

A  second  bit  of  evidence  is  to  be  found  in  the  extent  of  uniformity 
obtaining  in  the  submission  of  bids  on  public  contracts.  When  the 
Denver  office  of  the  Bureau  of  Reclamation  opened  17  bids  for  rein- 
forcement bars,  14  of  them  were  for  $1,144.16.  When  the  United 
States  engineers  at  Los  Angeles  opened  12  bids  of  the  same  product, 
11  of  them  were  for  $194,051.89.  When  the  purchasing  agent  for  the 
Fort  Peck  Dam  opened  10  bids,  each  of  the  10  was  for  $253,633.80.  ^^ 
When  the  Navy  Department  opened  40  bids  for  cement,  each  of  them 
was  for  $17,148.60.  When  it  opened  59  bids  for  steel  pipe,  each  of 
them  was  for  $16,001.83.'°  The  Consumers'  Advisory  Board  of  the 
N.  R.  A.  found  more  than  200  such  cases  affecting  nearly  150  products 
sold  by  more  than  50  industries  in  1934.^^  The  Procurement  Division 
group  of  the  Treasury  Department  subcommittee  of  the  T.  N.  E.  C. 
surveyed  331,851  bid  openings  made  by  45  agencies  of  the  Federal 
Government  in  connection  with  purchases  aggregating  more  than 
$860,000,000  between  December  1937  and  November  1938. "  In  23.1  per- 
cent of  these  openings,  involving  the  expenditure  of  more  than  $87,- 
000,000,  two  or  more  bids  were  identical.  In  4.1  percent  of  the  open- 
ings all  of  the  bids  were  identical.  In  another  5.7  percent,  two  or  more 
of  the  lowest  bids  were  identical.  Thus  9.8  percent  of  the  contracts 
awarded  went  to  bidders  who  had  submitted  identical  bids.  A  sample 
of  25,610  openings,  typical  of  those  in  which  such  bids  were  encoun- 

"  Willard  L.  Thorp  and  Walter  P.  Crowder,  The  Structure  of  Industry,  Temporary 
National  Economic  Committee,  Monograph  No.  2.7,  Part  III. 

>»  New  York  Times,  February  20,  1939. 

20  Annual  Report  of  the  Attorney  General  of  the  United  States,  1937,  pp.  37-38. 

-'  Hearings  before  the  Committee  on  Finance,  U.  S.  Senate,  74th  Cong.,  1st  sess.,  Investi- 
gation of  the  National  Recovery  Administration,  pp.  681-684, 


302  OONCENTElATION  OF  ECOlSPOMrc  POWER 

tered,  revealed  the  existence  of  uniformity  among  the  bids  submitted 
on  se\'eral  hundred  different  commodities  in  more  than  250  groups  of 
products  in  17  major  industrial  classifications.^  The  agencies  in- 
cluded in  this  study  attributed  the  practice  of  identical  bidding  to 
the  following  factors :  -^ 

(a)  The  adoption  of  industrial  standards  relating  chiefly  to  quality,  size,  fin- 
ish, and  performance,  and  the  utilization  of  standardized  manufacturing  machin- 
ery and  materials  have  the  effect  of  reducing  variations  in  production  costs. 

(b)  Legislation  of  whatever  sort,  which  provides  for  market  agreements  or 
for  minimum  resale  prices,  tends  to  result  in  identical  prices.  Illustrative  among 
these  laws  were  mentioned  State  milk  control  laws,  the  Agricultural  Marketing 
Act,  and  the  National  Bituminous  Coal  Act. 

(c)  Fair  practice  agreements  in  industries  tend  to  produce  identical  prices. 
Id)  Price  control  or  leadership  by  a  single  or  by  a  few  leading  manufacturers 

in  any  given  industry  tend  to  cause  identical  prices.  If  in  existence,  outright  price 
agreements  between  producers  would  produce  the  same  result. 

(e)  Trade  associations  are  believed  to  have  a  tendency  to  foster  practices 
which  bring  about  identical  prices.  Among  such  practices  may  be  mentioned : 
(1)  The  adoption  of  price  schedules;  (2)  the  allotment  of  sales  territory  among 
the  members  of  the  association  based  on  production  facilities,  geographical  re- 
strictions, transportation  limitations,  or  other  basis. 

Identity  among  the  bids  submitted  by  several  bidders  on  numerous 
commodities  over  a  period  of  several  months,  running  in  some  cases 
to  the  fourth  decimal  place,  is  scarcely  to  be  attributed  either  to  com- 
petition or  to  coincidence. 

EIGIDITY  OF  PEICES 

There  is  evidence  of  price  control,  finally,  in  the  relative  rigidity 
of  the  prices  of  many  products  over  considerable  periods  of  time. 
Burns  finds  such  rigidity  to  be  characteristic  of  the  prices  of  some  50 
goods,  including  ahiminum,  bananas,  bread,  canned  milk,  cement, 
chemicals,  crackers,  drugs,  fertilizer,  gasoline,  glass,  iron  ore,  lin- 
seed oil,  matches,  nickel,  paper,  rayon,  salt,  sewing  machines,  starch, 
steel,  sugar,  sulfur,  thread,  and  tin  cans.^*  Mills,  who  studied  the 
frequency  of  monthly  changes  in  the  wholesale  prices  of  206  com- 
modities included  in  the  Bureau  of  Labor  Statistics  index  during  4 
consecutive  8-year  periods  between  1890  and  1921,  inclusive,  and  dur- 
ing the  years  1922  through  1925,  found  that  a  substantial  fraction  of 
these  prices  did  not  change  as  often  as  once  in  10  months  during  4  of 
the  5  periods,  the  single  exception  being  the  period  from  1914  through 
1921  which  included  the  years  of  the  First  World  War.  During  1922- 
25,  one-sixth  of  the  prices  changed  less  frequently  than  once  in  10 
months,  one-third  of  them  less  frequently  than  once  in  5  months,  and 
half  of  them  less  frequently  than  once  in  2  months.^^  Means,  who 
made  a  similar  study  covering  the  wholesale  prices  of  747  products 
included  in  the  B.  L.  S.  index  from  1926  through  1933,  found  that  more 
than  half  of  them  changed  less  often  than  3  times  a  year,  nearly  a 
third  of  them  less  often  than  3  times  in  2  years,  nearly  a  quarter  of  them 
less  often  than  9  times  in  8  years,  and  nearly  an  eighth  of  them  less 
often  than  5  times  in  8  years.  Fourteen  products  showed  no  change 
in  price  during  these  4  years  of  great  prosperity  and  4  of  severe  de- 

*^  Procurement  Division  group.  Treasury  Department  subcommittee.  Temporary  National 
Economic  Committee.  Study  of  Government  Purchasing  Activities,  1939,  Part  II. 
»  Ibid.,  pp.   108-109. 
2*  Burns,  op.  cit.,  pp.  198-240. 
»  Frederick  C.  Mills,  The  Behavior  pf  Prices  (New  York,  1927),  pp.  379-381. 


ooncbntrl\tion  of  economic  power  303 

pression.  Means  found,  moreover,  that  the  prices  which  changed 
frequently  fell  farthest  and  that  those  which  changed  infrequently 
fell  least  during  the  years  from  1929  to  1933.-"  Thorp,  after  examining' 
the  amplitude  of  changes  in  the  wholesale  prices  of  784  such  commodi- 
ties between  1929  and  1933,  found  that  221  of  them,  28  percent  ot  those 
in  the  group,  fell  less  than  25  percent  while  the  group  as  a  whole  was 
falling  40  percent.  The  prices  of  41  products  did  not  decline  at  all 
during  the  period,  those  of  13  remaining  stationary,  and  those  of  28 
actually  advancing  in  the  face  of  the  depression.^^  In  the  report  pre- 
viously cited,  the  National  Resources  Committee  presents  the  results 
of  another  such  study,  covering  617  products  included  in  the  B.  L.  S. 
index  from  1926  through  1932.  The  prices  'of  193  of  these  products, 
31  percent  of  the  total  number,  changed  less  frequently  than  12  times, 
those  of  135,  or  22  percent  of  the  total,  less  frequently  than  8  times, 
and  those  of  71,  or  12  percent.of  the  total,  less  frequently  than  5  times 
during  the  8  years. ^^  In  1932,  while  the  wholesale  price  index  had 
fallen  33  percent  below  its  1926-29  average,  the  prices  of  the  193 
products  had  dropped  less  than  18  percent,  those  of  the  135  products 
less  than  15  percent,  and  those  of  the  71  products  less  than  7  percent.^^ 
It  was  found,  moreover,  that  the  prices  which  had  fallen  farthest  dur- 
ing the  years  1929-32  were  those  that  rose  farthest  during  the  years 
1933-37  and  that  those  which  had  fallen  least  during  the  depression 
rose  least  during  the  recovery.^" 

The  most  recent  investigation  of  this  character  was  made  by  the 
T.  N.  E.  C.  Studies  Section  of  the  Bureau  of  Labor  Statistics.  The 
frequency,  amplitude,  and  timing  of  changes  in  the  wholesale  price 
series  included  in  the  Bureau's  index  were  measured  according  to 
various  methods  for  14  samples,  each  covering  from  617  to  664  prod- 
ucts during  various  periods  from  1926  through  1938.  In  the  8  years 
from  1926  through  1933,  more  than  half  of  the  prices  examined 
changed  less  than  23  times,  nearly  a  third  of  them  less  than  12  times, 
more  than  a  fifth  of  them  less  than  8  times,  and  nearly  an  eighth  of 
them  less  than  5  times.  In  the  40  prosperity  months  from  January 
1926  through  April  1929,  nearly  linlf  of  the  prices  studied  changed 
less  than  9  times,  nearly  a  third  of  them  less  than  4  times,  and  nearly 
a  sixth  of  them  less  than  2  times;  the  prices  of  75  products,  nearly  an 
eighth  of  those  in  the  sample,  did  not  change  at  all.  During  the  same 
period,  while  one-fifth  of  the  prices  moved,  on  the  average,  more 
than  6.7  index  points  and  a  tenth  of  them  more  than  8.9  points  every 
time  they  changed,  another  fifth  moved  less  than  2.3  points  and  an- 
other tenth  less  than  1.7  points.  In  the  period  from  June  1929  to 
February  1933  while  one-fifth  of  the  prices  fell  51  percent  or  more, 
arother  fifth  fell  less  than  11  percent  and  a  tenth  did  not  fall  at  all. 
While  one-fifth  of  the  prices  reached  their  depression  lows  during 
1932,  nearly  a  tenth  of  them  during  the  first  6  months  of  that  year, 
another  fifth  did  not  touch  bottom  until  1934,  an  eighth  of  them 
until  December  1934.  While  one-tenth  of  the  prices  at  their  depres- 
sion lows  stood  66  percent  or  more  below. the  average  of  their  1929  and 

2«  Industrial  Prices  and  Their  Relative  Inflexibility,  74th  Cong.,  1st  sess.,  S.  Doc.  No.  13 
pp.  2-4. 

"  Willard  L.  Thorp,  Recent  Price  Behavior,  The  Price  Study,  Report  No.  6  (mimeo.) 
(Washington,   1934). 

2s  National  Resources  Committee,  op.  cit.,  pp.  109-110,  200-201. 

2»  Ibid.,  p.  204. 

30  Ibid.,  p.  129. 


304  OONCEQSTTRlATION  OF  ECONOMIC  POWER 

193T  peaks,  another  tenth  showed  declines  of  8.5  percent  or  less,  stood 
still,  or  even  rose.  Again,  while  nearly  a  tenth  of  the  prices  attained 
their  post-depression  peak  during  1936,  a  quarter  of  them  did  not 
reach  it  until  December  1938.  From  their  depression  lows  to  their 
1937  peaks,  one,-fifth  of  the  prices  more  than  doubled,  another  fifth 
advanced  12  percent  or  less,  and  a  tenth  advanced  less  than  4.5  percent, 
stood  still,  or  actually  declined.^^  For  all  of  the  prices  examined,  there 
was  a  marked  relationship  between  the  extent  of  the  decline  experi- 
enced from  1929  to  1933  and  the  extent  of  the  recovery  attained  from 
1933  to  1937.  When  the  frequency  and  the  amplitude  of  the  changes 
registered  by  the  several  prices  were  compared,  a  fairly  high  degree  of 
correlation  was  observed,  a  finding  which  confirmed  the  conclusions 
of  earlier  investigators  in  the  field.^^  Moreover,  when  the  frequency 
and  the  amplitude  were  each  compared  with  the  timing  of  changes  in 
price,  similar  relationships  were  found  to  exist.^- 

It  may  be  questioned  whether  these  studies  afford  accurate  measure- 
ments of  the  extent  of  relative  inflexibility  in  the  universe  of  prices. 
Each  of  them  has  employed  the  wholesale  price  series  represented  in 
the  indexes  prepared  by  the  B.  L.  S.  These  series,  of  course,  do  not  in- 
clude such  important  items  as  wages,  rents,  interest  rates,  the  prices  of 
securities,  and  those  of  goods  sold  at  retail.  The  reports  upon  which 
they  are  based  may  not  be  truly  representative  of  the  various  grades, 
qualities,  and  sizes  of  every  one  of  the  commodities  covered  or  of  the 
prices  prevailing  in  each  of  the  several  geographic  areas  in  which 
they  are  sold.  The  prices  that  are  reported  may  sometimes  differ  from 
those  at  which  goods  are  actually  exchanged.  They  may  be  openly 
modified  by  discounts,  allowances,  rebates,  premiums,  guarantees,  and 
the  provision  of  supplementary  services.  .  They  may  be  secretly  shaded 
by  concessions  granted  to  individual  buyers.  Some  of  these  prices, 
moreover,  may  fail  to  reflect  changes  occurring  over  periods  of  time. 
The  commodities  to  which  they  apply  cannot  always  be  defined  with 
precision..  Products  may  differ,  from  year  to  year,  in  quality,  size, 
and  style.  A  rigid  price  may  conceal  the  fact  that  consumers  are 
getting  more  for  their  money  as  time  goes  by;  it  may  actually  be 
a  falling  price  when  measured  on  tliQ  basis  of  value  received.  Com- 
parisort  of  prices  over  time  may  also  be  rendered  difficult  by  modi- 
fications in  the  collateral  terms  of  sale.  All  of  these  shortcomings  of 
the  basic  data  have  been  recognized  by  the  investigators  in  the  field.^* 
But,  in  general,  they  are  not  believed  to  be  so  serious  as  to  invalidate 
the  results  that  have  been  obtained.  It  is  clear  that  precise  measure- 
ment of  the  area  of  price  rigidity  is  not  to  be  expected.  But  it  seems 
probable  that  the  approximate  boundaries  of  this  area,  within  the 
field  of  wholesale  prices,  are  indicated  by  the  studies  which  have  been 
described. 


31  Saul  Nelson  and  Walter  G.  Keim,  Price  Behavior  and  Business  Policy,  Temporary 
National  Economic  Committee,  Monograph  No.  1,  Part  I,  pp.  208—209. 

"  Cf.  Industrial  Prices  and  their  Relative  Inflexibility,  loc.  cit.,  National  Resources  Com- 
mittee, op.  cit.,  pp.  146-147  ;  Edward  S.  Mason,  "Price  Inflexibility,"  Review  of  Economic 
Statistics,  vol.  20   pp.  53-64  (May  1938). 

^  Nelson  and  Keim.  op.  cit..  pip.  169-171. 

*♦  Cf.  Gardiner  C.  Means,  "Notes  on  Inflexible  Prices",  American  Economic  Review,  vol. 
26,  Supplement,  March  1936,  pp.  23-35  ;  Mason,  loc.  cit. ;  National  Resources  Committee, 
op.  cit.,  pp.  173-185  ;  Jules  Backman,  Price  Flexibility  and  Inflexibility,  Contemporary  Law 
Pamphlets^^  Series  4,  No.  3  (New  York  University,  1940),  pp.  11-13,  40--i9.  Temporary 
National  Economic  Committee  Monograph  No.  1,  Price  Behavior  and  Business  I'olicy,  op. 
cit,  pp.  30,  31. 


OONCHNTEIATION  OF  ECONOMIC  POWER  305 

The  fact  of  price  rigidity  is  established ;  its  causation  is. in  dispute. 
Many  students  of  the  phenomenon  have  attributed  it  primarily  to  the 
concentration  of  production  in  the  hands  of  a  small  number  of  large 
concerns.^^  Others  have  criticized  this  conclusion,  advancing  four 
principal  arguments  in  support  of  their  position :  First,  rigid  prices 
characterized  a  substantial  sector  of  the  economy  during  the  nine- 
teenth century,  long  before  the  present  degree  of  concentration  was 
attained.  Second,  it  has  not  been  demonstrated  that  this  sector  is 
relatively  larger  today  than  it  was  a  generation  or  more  ago.  Third, 
rigidity  of  prices  may  be  attributed  to  other  causes  than  concentration 
of  control :  to  inelasticity  of  demand,  to  rigidity  of  costs,  to  the  struc- 
ture of  markets,  to  contractual  arrangements,  to  marketing  techniques, 
to  custom  and  habit,  and  to  the  public  regulation  of  business  activity. 
Fourth,  there  are  industries  in  which  production  is  concentrated  and 
prices  are  flexible,  other  industries  in  which  production  is  dispersed 
and  prices  are  rigid.^^  To  these  arguments  the  following  replied  have 
been  made:  First,  the  fact  that  price  rigidity  existed  during  earlier 
periods  does  not  negate  the  possibility  that  it  may  characterize  a  larger 
share  of  the  Nation's  markets  today.  Second,  the  fact  that  no  increase 
in  its  relative  extent  has  been  demonstrated  does  not  establish  the 
proposition  that  no  such  increase  has  occurred.  Indeed,  it  is  a  matter 
of  common  observation  that  the  industries  in  which  prices  are  most 
rigid  constitute  a  larger  segment  of  our  economy  today  than  they  did 
a  few  decades  ago.  Third,  if  rigidity  cannot  be  explained  in  terms  of 
concentration  alone,  neither  can  it  be  explained  in  terms  of  other 
causes  when  this  factor  is  not  taken  into  account.  Fourth,  the  occa- 
sional coincidence  of  concentration  of  production  and  flexibility  of 
prices  may  be  attributed  to  special  causes:  to  technological  progress, 
to  falling  costs,  to  the  growth  of  small  competitors,  to  the  competition 
of  substitutes.  So,  too,  with  the  coincidence  of  dispersion  and  rigid- 
ity; here  the  phenomenon  may  be  attributed  to  custom,  convenience, 
collusion,  or  the  conventions  of  the  trade.  Moreover,  in  industries 
where  national  output  is  not  concentrated  and  prices  are  rigid,  it  may 
be  found  that  goods  are  sold  in  regional  or  local  markets  where 
substantial  concentration  does  obtain.^^ 

The  only  statistical  analysis  of  the  relationship  between  concentra- 
tion and  rigidity  is  that  included  in  the  study  reported  by  the  National 
Resources  Committee.  Data  were  examined  for  37  census  industries 
in  each  of  which  a  homogeneous  product,  deriving  at  least  a  third 
of  its  value  from  the  processes  of  manufacture,  was  sold  on  a  national 
or  international  market.  "When  the  depression  drop  of  prices  in 
these  industries  is  compared  with  the  proportion  of  value  product  in 
each  which  was  produced  by  the  four  largest  enterprises,"  says  the 
report,  "a  rough  relation  is  apparent  between  concentration  and  price 

SB  Of.  Industrial  Prices  and  their  Relative  Inflexibility,  pp.  9-12 ;  Means,  loc.  cit. ;  J.  K. 
Galbraith  "Monopoly  Power  and  Price  Rigidities."  Quarterly  Journal  of  Economics,  vol. 
50,  pp.  456-475  (May  1936)  ;  Ral'ph  C.  Wood,  "Dr.  Tucker's  'Reasons'  for  Price  Rigidity." 
American  Economic  Review,  vol.  28,  pp.  661-673  (December  1938)  ;  National  Resources 
Committee,  op.  cit.,  pp.  142-145. 

3«  Cf.  Don  D.  Humphrey,  "The  Nature  and  Meaning  of  Rigid  Prices,  1890-1933,"  Journal 
of  Political  Economy,  vol.  45,  pp.  651-661  (October  1937)  ;  Rufus  S.  Tucker,  "The  Essen- 
tial Historical  Facts  About  'Sensitive'  and  'Administered'  Prices,"  Annalist,  Febrnary-  4, 
1938,  pp.  195-196  ;  Rufus  S.  Tucker,  "The  Reasons  for  Price  Rigidity,"  American  Economic 
Review,  vol.  28,  pp.  41-54  (March  1938)  ;  Mason,  loc.  cit. ;  Backman,  op.  cit..  pp.  5-9, 
17-40 ;  Jules  Backman,  "The  Causes  of  Price  Inflexibility,"  Quarterly  Journal  of  Economies, 
vol.  54,  pp.  474-489  (May  1940). 

"  Galbraith,  loc.  cit. ;  Mason,  loc.  cit. ;  Wood,  loc.   cit. ;  Nelson  and  Keim,  op.  cit..  dd. 

18-19.  .       r  .    Kt- 


306  OONCENTKL\TION  OF  ECONOMIC  POWER 

insensitivity."  ^^  After  a  further  consideration  of  the  factors  that 
influence  the  frequency  and  amplitude  of  price  changes,  the  authors 
conclude  that  "the  dominant  factor  in  making  for  depression  insensi- 
tivity of  prices  is  the  administrative  control  over  prices  which  results 
from  the  relatively  small  number  of  concerns  dominating  particular 
markets."  ^^ 

Many  of  the  investigators  who  attribute  price  rigidity  to  concentra- 
tion of  production  have  distinguished  between  concentration  and  mo- 
nopoly, insisting  that  rigid  prices  are  not  to  be  explained  in  terms  of 
monopoly  power.  On  the  one  hand,  they  have  pointed  to  the  fact  that 
prices  are  rigid  in  many  industries  where  there  is  no  evidence  of 
collusion,  coercion,  or  control  by  a  single  firm,  where  none  of  the 
producers  is  realizing  a  monopoly  profit,  and  where  some  of  them  are 
even  operating  at  d  loss.  On  the  other  hand,  they  have  argued  that 
monopolists,  though  they  may  not  choose  to  do  so,  have  the  power  to 
change  their  prices  frequently  in  response  to  changes  in  demand.*" 
It  is  true,  of  course,  that  price  rigidity  and  monopoly  power  are  not 
coterminous.  But  monopoly  may  be  present  in  many  markets  where 
rigidity  and  competition  appear  to  coincide.  The  existence  of  monopo- 
listic behavior  is  not  always  disclosed  and  when  it  is  disclo'  ed  is^  not 
always  held  to  be  in  violation  of  the  law.  The  presence  of  many  pro- 
ducers in  a  trade  where  prices  are  rigid  does  not  prove  that  such  rigid- 
ity has  been  attained  in  the  absence  of  monopolistic  control.  Price 
leadership,  collusive  agreements,  basing  point  systems,  market  sharing 
arrangements,  many  of  the  activities  of  trade  associations,  and  many  of 
the  limitations  on  competition  which  have  been  authorized  by  law  are 
monopolistic  in  purpose  and  effect.  The  area  of  noncompetitive  pric- 
ing is  wider  than  the  area  of  concentration  of  control.  So,  too,  the 
fact  that  rigid  prices  do  not  always  yield  monopoly  profits  does  not 
disprove  the  existence  of  monopolistic  behavior  in  the  fields  where  they 
obtain.  The  monopolist  may  not  have  adopted  the  policy  that  would 
have  produced  the  largest  returns;  he  may  merely  have  succeeded  in 
minimizing  his  losses;  in  '^"°r  case  he  may  still  possess  monopoly 
power.  It  must  be  noted,  mureover,  that  prices  display  the  greatest 
flexibility  in  those  areas  where  competitive  conditions  are  known  to 
obtain  and  the  irreatest  rigidity  in  those  areas  where  monopolistic 
activity  is  most  frequently  to  be  observed.  The  prices  of  agricultural 
products  and  most  raw  materials  are  highly  flexible;  the  prices  of 
many  manufactured  goods  are  notoriously  rigid. 

When  producers  maintain  prices,  it  is  evident  that  the>  possess  both 
the  desire  and  the  power  to  do  so.  The  producers  of  foodstuffs  and 
raw  materials  may  have  desired  to  maintain  prices  from  1929  to  1933, 
but  they  lacked  the  power.  The  producers  of  manufactured  goods 
might  have  chosen  to  cut  prices  and  maintain  output  during  these 
years,  but  many  of  tliem  took  the  opposite  course.  They  may  have 
doubted  that  lower  prices  would  stimulate  sales.  They  may  have  be- 
lieved that  prices  should  be  maintained  at  levels  which  would  cover 
"costs."  They  may  have  hesitated  to  disturb  a  stable  system  of  price 
control.     They  may  have  failed  to  act  through  sheer  inertia.     What- 

**  National  Resources  Committee,  op.  cit.,  p.  142. 

»  Ibid.,  p.  143. 

♦"  Cf.  Industrial  Prices  and  Tl'eir  Relative  Inflexibility.  Dp>  1-2 ;  Means,  loc.  cit.  :  .Tohn 
T.  Dunlop,  "Price  Flexibility  and  the  'Degree  of  Monopoly',"  Quarterly  Journal  of  Eco- 
nomics, vol.  53,  pp.  522-53.3  (August  1939)  ;  National  Resources  Committee,  op.  cit.,  pp. 
13&-140;  Nelson  and  Keim,  op.  rit.,   pp.  11,  32-33. 


CONCENTRlATION  OF  ECONOMIC  POWER  307 

ever  the  reasons  for  their  choice,  the  members  of  many  manufacturing 
industries  maintained  prices  and  curtailed  output  in  the  face  of  the 
depression.  Such  a  response  to  contracting  markets  makes  it  clear 
that  these  firms  had  not  only  the  desire  but  also  the  power  to  exert 
control.  An  industry  which  is  simultaneously  characterized  by  de- 
clining demand,  increasing  unemployment,  and  rigid  prices  cannot  be 
described  as  effectively  competitive."  It  may  be  concluded,  then,  that 
the  prevalence  of  price  rigidity  reveals  the  existence  of  monopolistic 
behavior  in  a  substantial  segment  of  the  American  economy. 

AREAS  OF  COMPETITION  AND  MONOPOLY 

In  the  late  thirties,  there  were  nearly  11,000,000  entrepreneurs  in 
the  United  States.  Of  these,  nearly  7,000,000  were  in  agriculture, 
nearly  1,500,000  in  wholesale  and  retail  distribution,  and  another 
1,500,000  in  the  service  trades.*-  There  were  nearly  2,000,000  employers 
who  were  subject  to  the  pay-roll  tax  imposed  under  the  Social  Security 
Act.  But  among  these,  half  had  fewer  than  4  employees,  two-thirds 
had  fewer  than  7,  three-fourths  had  fewer  than  10,  nine-tenths  had 
fewer  than  30,  and  99  percent  had  fewer  than  300.  There  were  more 
than  2,000,000  business  concerns  in  fields  other  than  farming,  finance, 
railway  transportation,  and  the  professions.  But  there  were  only 
530,000  corporations,  and  among  these  more  than  half  had  assets  of 
less  than  $50,000,  more  than  two-thirds  had  assets  of  less  than  $100,000, 
nearly  nine-tenths  had  assets  of  less  than  $500,000,  94  percent  had 
assets  of  less  than  $1,000,000,  and  98.5  percent  had  assets  of  less  than 
$5,000,000.*^  While  big  business  may  dominate  many  important  in- 
dustries, it  is  clear  that  little  business  has  not  disappeared  from  the 
American  scene. 

It  would  be  a  mistake,  however,  to  identify  big  business  with 
monopoly,  little  business  with  competition.  It  is  not  the  absolute  size 
of  the  business  unit  that  is  significant,  but  its  size  in  relation  to  the 
size  of  the  market.  Large  firms  may  be  forced  to  compete  with  other 
large  firms  in  large  markets;  competition  among  giants  may  be  quite 
as  effective  as  competition  among  pygmies.  A  small  firm,  on  the  other 
hand,  may  enjoy  a  complete  monopoly  of  a  small  market  or  may  con- 
spire with  other  small  firms  to  obtain  such  a  monopoly.  Solicitude  for 
little  business  does  not  always  spring  from  the  desire  to  protect  the 
consumer  against  a  monopoly  price.  Where  large  establishments  com- 
pete with  small  ones,  competition  may  shortly  be  destroyed.  It  has 
long  been  recognized,  for  instance,  that  big  business  may  seek,  by  fair 
means  or  foul,  to  drive  little  business  from  the  market.  Tt  is  less 
frequently  acknowledged  that  little  business  may  procure  the  enact- 
ment of  legislation  which  makes  it  difficult,  if  not  impossible,  for  big 
business  to  compete  on  the  basis  of  comparative  efficiency. 

The  major  categories  of  business  activity  may  be  divided  roughly 
into  two  groups.  The  first  of  these  groups  includes  agriculture,  whole- 
sale and  retail  distribution,  personal  service,  building  construction, 
and  a  miscellany  of  smaller  trades.  The  second  includes  transporta- 
tion, public  utilities,  manufacturing,  mining,  and  finance.     In  the  fij"st 

*i  Cf.  Oalbraith,  l^c.  cit.  ;  Wood,  loc.  cit. 

*2  Bureau  of  Foreign  and  Domestic  Commerce,  Income  in  the  United  States,  1929-37, 
table  21. 

**  Hearings  before  the  Temporary  National  Economic  Committee,  Part  1,  pp.  227-229. 


3Q8  OONCBNTRlATION  OF  ECONOMIC  POWER 

group  business  enterprises  are  numerous,  the  typical  enterprise  is 
small,  the  degree  of  concentration  is  low,  and  prices  are  relatively 
flexible.  In  the  second,  enterprises  are  less  numerous,  the  typical  enter- 
prise is  larger,  the  degree  of  concentration  is  higher,  and  prices  are 
relatively  rigid.  Among  the  industries  in  the  first  group,  it  is  prob- 
able that  competition  is  more  usual  than  monopoly.  Among  those  in 
the  second,  it  is  possible  that  monopoly  is  as  usual  as  competition.  The 
first  group  contains  about  10,500,000  business  units ;  the  second  contains 
less  than  500,000.  The  first  group  employs  more  than  55  percent  of 
the  persons  who  are  engaged  in  public  and  private  enterprise ;  the  sec- 
ond employs  more  than  35  percent.  The  first  group  includes  less  than 
three-fifths  of  those  who  are  privately  employed ;  the  second  includes 
more  than  two-fifths.  The  first  group  produces  nearly  40  percent  of 
the  national  income ;  the  second  produces  more  than  45  percent.  The 
first  group  accounts  for  less  than  half  of  the  income  produced  by 
private  enterprise ;  the  second  accounts  for  more  than  half.**  But  it 
cannot  be  said  that  business  activity  is  divided  between  competition 
and  monopoly  in  the  proportions  which  these  figures  would  suggest. 
For  the  first  of  these  groups  includes  industries  such  as  building  con- 
struction in  which  numerous  illegal  restraints  have  been  found  to 
obtain  and  others  such  as  agriculture  and  retail  distribution  in  which 
similar  restraints  have  been  authorized  by  law,  while  the  second  in- 
cludes industries  such  as  textile  manufacturing  and  the  garment  trades 
which  have  long  been  highly  competitive,  others  such  as  anthracite 
coal  mining  and  railway  transportation  which  are  meeting  with  the 
competition  of  substitutes,  and  still  others  such  as  bituminous  coal 
mining  and  highway  transportation  in  which  competition  has  but 
recently  been  subjected  to  public  control. 

No  sort  of  an  estimate  concerning  the  comparative  extent  of  com- 
petition and  monopoly  in  American  markets  is  justified  by  the  avail- 
able evidence.  Such  an  estimate  must  wait  upon  the  articulation  of 
usable  definitions,  the  development  of  tecliniques  of  measurement, 
and  the  collection  of  a  body  of  data  much  larger  than  anything  that 
is  now  at  hand.  Indeed,  it  may  be  doubted  if  such  an  estimate  can 
ever  be  made  with  any  assurance.  Competitive  industries  have  their 
monopolistic  aspects;  monopolized  industries  have  their  competitive 
aspects.  The  situation  in  both  fields  is  constantly  in  a  state  of  flux. 
The  most  that  can  be  said  today  is  that  competition  is  far  too  common 
to  justify  the  thesis  that  the  competitive  system  is  approaching  ex- 
tinction, and  that  monopoly  is  far  too  common  to  justify  its  treat- 
ment as  an  occasional  exception  to  the  general  rule. 

THE  INSTABILITY  OF  COMPETITION  AND  MONOPOLY 

In  those  industries  which  appear  normally  to  be  competitive,  com- 
petition is  constantly  breaking  down.  Competitors  continually  seek 
to  limit  competition  and  to  obtain  for  themselves  some  measure  of 
monopoly  power.  They  enter  into  agreements  governing  prices  and 
production.  They  set  up  associations  to  enforce  such  agreements. 
They  procure  the  enactment  of  restrictive  legislation.  For  a  time 
they  may  succeed  in  bringing  competition  under  control.     But  these 

*•  Bureau  of  Foreign  and  Domestic  Commerce,  op.  clt.,  tables  2,  13,  21. 


concentrl^tion  of  economic  power  309 

arrangements,  too,  are  constantly  breaking  down.  Competitors  vio- 
late the  agreements.  Associations  lack  the  power  to  enforce  them. 
New  enterprises  come  into  the  field.  Restrictive  statutes  are  invali- 
dated by  the  courts  or  repealed  by  the  legislatures.  The  lines  of 
control  are  repeatedly  broken  and  reformed.  The  facts  that  describe 
the  situation  existing  in  such  an  industry  today  may  not  apply  to 
the  one  in  which  it  will  find  itself  tomorrow. 

In  those  industries  that  appear  at  any  time  to  be  monopolized, 
likewise,  monopoly  is  constantly  tending  to  break  down.  Human 
wants  may  be  satisfied  in  many  different  ways.  Shifts  in  consumer 
demand  may  rob  the  monopolist  of  his  market.  Invention  may  de- 
velop numerous  substitutes  for  his  product.  In  the  words  of  Nourse 
and  Drury :  *^ 

The  man  who  today  tries  to  fence  in  an  industrial  highway  and  exact  an 
exorbitant  toll  from  those  who  would  travel  this  road  to  consumer  satisfaction 
is  in  danger  of  defeating  himself.  Under  modem  conditions  of  technology, 
applied  science  is  likely  to  find  other  means  of  progress.  The  chemist  will 
build  a  detour  around  him,  the  physicist  will  drive  a  tunnel  under  him,  or  a 
biological  overpass  will  be  devised. 

The  monopolist  may  suffer,  too,  from  the  lack  of  the  stimulus  to 
efficiency  which  is  afforded  by  active  competition.  His  originality 
may  give  way  to  inertia,  his  energy  to  lethargy.  He  may  be  inclined 
to  play  safe  and  let  well  enough  alone.  He  is  likely  to  devote  more 
attention  to  the  conservation  of  investment  values  than  he  does  to 
the  improvement  of  materials,  machines,  processes,  and  products. 
In  such  a  situation  vigorous  competitors  may  arise  to  dispute  his 
exclusive  occupancy  of  the  field.  Government,  finally,  may  inter- 
vene. Legislation  may  forbid  practices  that  were  once  allowed.  En- 
forcement may  catch  up  with  violations  of  the  law.  For  one  or 
another  of  these  reasons,  few  of  the  great  trusts  that  were  formed 
near  the  turn  of  the  century  now  possess  uay thing  approaching 
absolute  monopoly  power.  But  few  of  the  fields  that  were  then 
monopolized  have  become  effectively  competitive.  Combinations 
have  been  dissolved,  new  competitors  have  arisen,  and  competition 
has  been  restored,  only  to  give  way  to  a  succession  of  devices  designed 
for  the  purpose  of  dividing  markets  and  maintaining  prices.  Here, 
again,  the  lines  of  control  are  repeatedly  broken  and  repeatedly 
reformed. 

IS  MONOPOLY  INEVITABLE? 

It  is  sometimes  asserted,  or  assumed,  that  large-scale  production, 
under  the  conditions  of  modern  technology,  is  so  much  more  efficient 
than  small-scale  production  that  competition  must  inevitably  give 
way  to  monopoly  as  large  establishments  drive  their  smaller  rivals 
from  the  field.  But  such  a  generalization  finds  scant  support  in  any 
evidence  that  is  now  at  hand. 

It  is  true  that  there  are  advantages  in  size.  The  large  plant  can 
install  big,  expensive,  and  highly  specialized  machines,  it  can  pro- 
vide them  in  great  numbers-,  and  it  can  arrange  them  in  the  propor- 
tions and  in  the  sequences  that  are  most  conducive  to  continuous 
processes  and  low  costs.    It  can  realize  the  economies  that  are  to  be 

*5  Nourse  and  Drury,  op.  cit.,  p.  221. 
271817—40 — No.  21 21 


gj^Q  OONCEJNTEIATION  OF  ECONOMIC  POWER 

obtained  through  a  minute  division  of  labor.  It  can  utili/e  by- 
products, purchase  in  quantity,  and  secure  credit  on  favorable  terms. 
It  can  employ  skilled  managers  and  technical  experts  and  spend  large 
sums  on  experimentation  and  research.  Superiority  in  these  respects, 
however,  pertains  to  the  size  of  the  operating  unit;  it  does  not 
necessitate  the  combination  of  several  units  under  a  common  man- 
agement. But  even  here  certain  advantages  may  be  obtained.  Ver- 
tical integration  may  insure  a  steady  flow  of  materials  and  continu- 
ous access  to  markets.  Horizontal  combination  may  enable  manage- 
ments to  specialize  individual  plants,  to  eliminate  cross  freights,  to 
cut  the  cost  of  capital,  to  buy  materials  in  even  larger  quantities,  to 
advertise  more  widely,  and  to  reduce  the  expense  involved  in  making 
sales. 

But  size,  both  in  the  unit  of  operation  and  in  the  unit  of  control, 
has  its  disadvantages.  A  business  may  become  so  big  that  no  .man 
can  manage  it  efficiently.  It  may  present  so  many  changing  prob- 
lems that  no  single  mind  can  hope  to  comprehend  them.  It  may  be 
so  vast,  so  scattered,  and  so  diversified  that  no  one  can  really  know 
what  is  going  on.  Under  these  circumstances,  the  manager  is  forced 
to  obtain  his  information  from  accounts  and  statistics,  to  issue  orders 
from  a  distance,  and  to  rely  upon  paper  controls.  He  may  be  bogged 
down  with  memoranda,  reports,  and  routine.  He  may  hesitate  to 
make  decisions  and  waste  time  in  interminable  delays.  His  sub- 
ordinates may  be  more  concerned  with  their  own  advancement  than 
with  the  welfare  of  the  enterprise.  They  may  be  entangled  in  red 
tape.  They  may  fail  to  act  decisively  because  they  fear  to  be  reversed. 
They  may  shift  responsibility  to  others  and  waste  further  time  in 
lost  motion  and  internal  conflict.  The  whole  organization  may  be 
beset  with  nepotism,  political  maneuvering,  factional  warfare,  and 
petty  jealousies.  So  efficiency  may  be  sacrified  to  size  and  manage- 
ments may  grow  lax  or  take  refuge  in  inflexibility,  resisting  adjust- 
ment to  changing  conditions  and  refusing  opportunity  to  new  blood 
and  new  ideas.*^ 

A  business  may  be  too  small  to  realize  the  economies  that  are  im- 
plicit in  modern  technology;  it  may  be  too  large  to  be  administered 
with  competence.  Between  these  extremes  there  may  be  a  size  of 
optimum  efficiency.  But  this  size  will  differ  from  industry  to  in- 
dustry. It  may  change  overnight  with  the  development  of  new  ma- 
chinery, new  processes,  and  new  techniques  of  management.  And  no 
one  can  locate  the  optimum  in  any  industry  at  any  time  with  any 
certainty.     It  may  even  be  that  any  one  of  several  sizes  will  display 

*«  Alfred  P.  Sloan,  Jr.,  then  president  of  Greneral  Motors,  addressed  a  meeting  of  the  com- 
pany's sales  committee  on  July  29,  1925,  as  follows  : 

"General  Motors  should  be  more  progressive  in  this  and  other  directions.  In  practically 
all  our  activities  we  seem  to  suffer  from  the  inertia  resulting  from  our  great  size.  It  seems 
to  be  hard  for  us  to  get  action  when  it  comes  to  a  matter  of  putting  our  ideas  across. 
There  are  so  many  people  involved  and  it  requires  such  a  tremendous  effort  to  put  some- 
thing new  into  effect  that  a  new  idea  is  likely  to  be  considered  insignificant  in  comparison 
with  the  effort'  it  takes  to  put  it  across. 

"I  can't  help  but  feel  that  General  Motors  has  missed  a  lot  by  reason  of  this  inertia. 
You  have  no  idea  how  many  thing?  come  up  for  consideration  in  the  technical,  committee 
and  elsewhere  that  are  discussed  and  agreed  upon  as  to  principle  well  in  advance,  but  too 
frequently  we  fail  to  put  the  ideas  into  effect  until  competition  forces  us  to  do  so.  Some- 
times I  am  almost  forced  to  the  conclusion  that  General  Motors  is  so  large  and  its  inertia 
80  great  that  it  is  impossible  for  us  to  really  be  leaders. 

'VPerhaps  it  would  be  safest  for  us  to  let  the  other  fellow  take  the  initiative  and  then  be 
satisfied  to  follow  him  as  best  we  can.  It  seems  a  pity,  however,  that  with  our  resources 
and  ability  we  can't  be  a  little  more  aggressive." 

Quoted  in  Federal  Trade  Commission,  Motor  Vehicle  Industry,  p.  34. 


OON'OBNTRlATION  OF  EICX)NOMIC  POWER  311 

the  same  efficiency.  It  cannot  be  said  that  the  largest  concern  in  an 
industry  will  invariably  have  the  lowest  costs  or  produce  the  highest 
profits. 

A  number  of  investigators  have  compared  the  profitability  of  large 
and  small  concerns.  Summers,  who  examined  the  data  for  1,130 
American  and  Canadian  corporations  from  1910  to  1929,  found  that 
profits  fell  as  investment  rose ;  that  they  were  highest  in  the  smallest 
of  7  size  classes  in  5  among  9  industrial  groups,  in  the  intermediate 
classes  in  4  other  groups,  and  in  the  largest  class  in  none  of  the 
groups;  and  that  they  were  higher  below  the  $2,000,000  size  than 
above  it  in  9  groups,  below  the  $5,000,000  size  than  above  it  in  8 
groups,  and  below  the  $25,000,000  size  than  above  it  in  7  groups.*'' 
Bowman,  who  studied  profits  in  8  industries  for  the  years  1914-25, 
found  that  the  largest  companies  seldom  realized  the  highest  returns 
and  that  earnings  could  not  be  correlated  positively  with  size.*^  The 
National  Industrial  Conference  Board,  after  examining  the  profits 
of  more  than  4,000  manufacturing  and  trading  corporations  for  1918- 
25,  found  a  smaller  average  investment  in  the  most  profitable  group 
than  among  the  corporations  as  a  whole.*^  The  Twentieth  Century 
Fund,  after  analyzing  corporate  income  tax  statistics  for  1919,  found 
that  the  larger  corporations  earned  less  than  the  average  of  all  cor- 
porations; that  those  with  an  investment  of  more  than  $50,000,000 
earned  the  least,  while  those  with  an  investment  of  less  than  $50,000 
earned  the  most ;  and  that  earnings  declined,  almost  uninterruptedly, 
with  increasing  size.^°  The  Federal  Trade  Commission,  in  its  study 
of  90  flour  milling  companies  from  1919  to  1924,  found  the  highest 
rate  of  return  among  concerns  of  medium  size.^^  In  another  study 
covering  90  producers  and  63  refiners  of  petroleum  frorn  1922  to  1926, 
the  Commission  found  the  lowest  profits  among  the  largest  firms  and 
the  highest  among  the  next  largest  firms  in  the  producing  group,  and 
lower  profits  among  the  largest  than  among  the  smaller  firms  in  the 
refining  group.^^  Crum,  after  examining  corporate  income  statistics 
for  1926,  found  that  the  ratio  of  net  income  to  total  assets  rose  until 
profits  reached  $100,000,  but  did  not  increase  significantly  beyond 
that  point.^^  Epstein,  who  studied  the  data  for  2,046  manufacturing 
corporations  from  1919  to  1928,  found  that  those  with  an  investment 
under  $500,000  enjoyed  a  higher  return  than  those  with  more  than 
$5,000,000  and  twice  as  high  a  return  as  those  with  more  than 
$50,000,000.^*  Paton,  whose  inquiry  covered  714  small  and  medium- 
sized  manufacturing  and  trading  corporations  from  1927  to  1929, 
found  the  $50,000  to  $200,000  asset  class  more  profitable  than  the 
larger  or  smaller  classes  in  manufacturing,  the  larger  size  classes 
more  profitable  than  the  smaller  ones  in  4  industrial  groups  and  in 
28  individual  industries,  and  the  smaller  classes  more  profitable  than 

*'  H.  B.  Summers,  "A  Comparison  of  the  Rates  of  Earnings  of  Large-Scale  and  Small- 
Scale  Industi'ies,"  Quarterly  Journal  of  Economics,  vol.  46,  pp.  465-479  (May  1932). 

«  Raymond  T.  Bowman,  A  Statistical  Study  of  Profits  (Philadelphia.  1934),  p.  102-122. 

«» National  Industrial  Conference  Board,  Shifting  and  Eflfects  of  Federal  Corporation 
Income  Tax,  vol.  1    (New  York,  1928),  pp.  36-42,  222-224. 

»» Twentieth  Century  Fund,  How  Profitable  Is  Big  Business?  (New  York,  1937),  pp. 
36—37. 

"Federal  Trade  Commission,  Competition  and  Profits  in  Bread  and  Flour  (1928),  pp. 
430-432.  443-447. 

*=!  Federal  Trade  Commission,  Petroleum  Industry :  Prices,  Profits,  and  Competition 
(1928),  pp.  296-297. 

"William  L.  Crura,  Corporate  Earning  Power   (Stanford  University,  1929),  pp.  310-311. 

»♦  Ralph  C.  Epstein,  Industrial  Profits  in  the  United  States  (New  York,  1934),  pp.  50-57. 
131-138. 


312  OONCENTR(ATION  OF  ECONOMIC  POWER 

the  larger  ones  in  2  groups  and  26  industries.^^  Crum,  in  his  analysis 
of  corporate  earnings  for  1931,  found  that  the  highest  return  among 
profit-making  concerns,  in  6  out  of  7  industrial  groups  and  in  4  out 
of  5  manufacturing  subgroups,  was  enjoyed  by  those  with  assets  be- 
low $50,000.'^«  The  Twentieth  Century  Fund,  after  examining  the 
statistics  of  corporate  income  for  1931-33,  found  that  the  largest 
a,mong  9  size  classes  was  the  only  one  to  show  a  profit  and  that  the 
smallest  suffered  the  heaviest  loss.  But  among  those  concerns  that 
did  make  profits,  the  smallest  size  class  earned  the  highest  rate  and 
the  largest  earned  the  lowest  rate.  Among  such  concerns  in  1932,  the 
highest  rate  was  earned  by  the  smallest  size  class  in  the  food,  tobacco, 
rubber,  printing,  chemical,  metal,  transportation  and  public  utility, 
and  service  industries,  by  the  next  smallest  size  classes  m  the  mining, 
textile,  leather,  forest  products,  paper,  and  stone  industries,  and  by 
the  largest  size  classes  only  in  construction,  trade,  and  finance.  The 
lowest  rate  was  earned  by  the  largest  size  class  in  the  mining,  food, 
textile,  rubber,  paper,  printing,  chemical,  stone,  metal,  and  transporta- 
tion and  public  utility  industries,  by  intermediate  size  classes  in  the 
tobacco,  leather,  forest  products,  construction,  and  service  industries, 
and  by  the  smallest  size  classes  only  in  trade  and  finance.^^  Crum,  in 
his  latest  study,  covering  the  statistics  for  1931-36,  found  that  the 
profits  of  corporations  as  a  whole  improved  with  size,  rising  sharply 
until  investment  exceeded  $1,000,000  and  gradually  thereafter.  Prof- 
its in  agriculture,  trade,  and  finance,  and  in  8  among  13  manufactur- 
ing industries  followed  this  pattern;  but  those  in  mining,  construc- 
tion, service,  and  public  utilities,  and  in  5  manufacturing  industries 
failed  to  advance  or  actually  declined  after  an  intermediate  size 
was  reached.  Among  profitable  corporations,  moreover,  earnings  de- 
clined as  size  increased,  showing  the  highest  rate  in  the  smallest  size 
class  and  the  lowest  rate  in  the  largest  size  class  in  each  of  the  years 
from  1932  through  1936.^^  The  Federal  Trade  Commission,  in  an 
investigation  which  covered  64  producers  of  agricultural  implements 
from  1927  to  1936,  found  that  the  large  manufacturers  of  many  lines 
earned  far  higher  profits  than  the  small  manufacturers  of  a  few  lines, 
but  that  the  second-largest  of  the  long-line  companies  made  higher 
profits  than  the  largest  one,  while  the  medium-sized  short-line  com- 
panies made  a  better  showing  than  their  smaller  or  larger  compet- 
itors.^® The  Women's  Bureau  of  the  Department  of  Labor,  after 
obtaining  information  from  458  producers  of  millinery  for  1937,  found 
that  the  rate  of  profit  on  sales  declined  as  the  volume  of  sales  in- 
creased, being  only  a  third  as  high  for  firms  with  sales  over  $50p,000 
as  it  was  for  those  with  sales  under  $50,000.^°  The  Wage  and  Hour 
Division  of  the  same  Department,  on  the  basis  of  replies  received 
from  120  manufacturers  of  knitted  outerwear  for  1938,  found  that  in 
this  industry  also  the  ratio  of  earnings  to  sales  fell  as  the  volume  of 
sales  rose,  being  only  a  fourth  as  high  on  sales  over  $1,000,000  as  it 

K  William  A.  Paton,  Corporate  Profits  As  Shown  By  Audit  Reports  (New  York,  1935), 
pp.  4-5,  20-34,  42-43,  57,  73-76. 

■•William  L.  Crum,  The  Effect  of  Size  on  Corporate  Earnings  and  Condition  (Boston. 
1935),  pp.  15-16. 

*'  Twentieth  Century  Fund,  op.  cit.,  eh.  5,  6. 

=«  William  L.  Crum,  Corporate  Size  and  Earning  Power  (Cambridge,  Mass^  1939),  cL. 
2-19,  inclusive. 

"•  Federal  Trade  Commission,  Report  on  the  Agricultural  Implement  and  Machinery  In- 
du.stry  (1938).  pp.  593,  605-610. 

90  Women's  Bureau,  Conditions  in  the  Millinery  Industry  in  the  United  States,  Bulletin 
No.  169  (1939),  p.  113. 


oonceintrl\tion  of  economic  power  313 

was  on  sales  under  $20,000."^  These  studies,  of  course,  pertain  only 
to  the  relationship  between  the  size  and  the  profitability  of  business 
entities.  They  throw  little  or  no  light  on  the  relationship  between 
size  and  efficiency,  since  profits  may  be  derived  from  acquisitive  ad- 
vantage as  well  as  from  the  reduction  of  costs.  They  provide  no 
information  on  the  comparative  earnings  or  economies  of  combina- 
tions and  indepeiident  establishments.  They  afford  no  basis  for  con- 
clusions as  to  the  relative  profitability  or  efficiency  of  large  and  small 
plants.  But  they  do  make  it  abundantly  clear  that  success,  however 
achieved,  is  not  always  proportionate  to  the  size  of  the  business  unit. 
Other  inquiries  have  dealt  with  the  profit  records  of  industrial 
combinations.  Dewing,  who  studied  35  such  combinations  formed 
before  1914,  found  that  22  of  them  earned  less  in  their  first  year  than 
the  companies  composing  them  had  earned  in  the  year  before  they  were 
combined;  that  they  earned  no  more  in  their  tenth  year  than  they 
had  in  their  first ;  and  that  the  first-year  and  the  tenth-year  profits  of 
the  whole  group  were  only  four-fifths  as  large  as  those  earned  in  the 
year  before  the  consolidation  of  the  constituent  concerns.®^  The  Na- 
tional Industrial  Conference  Board,  after  examining  the  record  of  48 
trusts  between  1900  and  1913,  found  that  none  of  them  had  produced 
substantial  profits.^^  Livermore,  who  studied  328  mergers  originating 
between  1888  and  1905,  found  that  nearly  half  of  them  had  proved 
to  be  successful  during  the  following  30  years,  while  more  than  half 
had  incurred  losses  or  ended  in  failure.^*  The  Twentieth  Century 
Fund,  taking  a  group  of  109  large  combinations  over  the  years  from 
1900  to  1914,  found  that  16  of  them  had  failed,  that  24  of  them  had 
paid  no  dividends,  and  that  47  of  them  had  paid  less  than  5  percent  on 
the  par  value  of  their  stock.  Among  34  of  these  concerns  for  which 
the  information  was  available,  25  had  earned  less  than  6  percent  on 
their  stated  capital.*®  These  studies  demonstrate  that  the  attainment 
of  size  through  mergers  does  not  always  produce  higher  profits.  But, 
like  those  previously  described,  they  afford  little  information  on  the 
relation  of  size  to  efficiency.  In  many  cases,  combinations  have  been 
formed  less  with  a  view  to  realizing  economies  in  production  than  for 
the  purpose  of  acquiring  the  immediate  profits  of  promotion  or  the 
long-run  profits  of  monopoly.  One  such  concern  may  succeed  in  cut- 
ting costs  and  fail  to  make  money  because  it  has  been  overcapitalized 
or  saddled  with  excess  capacity.  Another  may  fail  to  cut  costs  and 
succeed  in  making  money  because  it  enjoys  advantages  in  bargaining 
or  possesses  monopoly  power.  Consolidation  may  enhance  efficiency, 
but  there  is  no  evidence  to  support  the  view  that  it  has  usually  done  so. 
As  Corwin  Edwards  has  observed,  "there  is  little  reason  to  think  that 
the  union  of  two  established  plants  will  often  make  possible  so  close  a 
dovetailing  of  processes  or  such  a  nice  adjustment  of  facilities  to 

•1  Economic  Section,  Wage  and  Hour  Division,  2eport  on  the  Knitted  Outerwear  Industry 
(mimec,  1939),  pt.  II,  p.  62.  A  similar  situation  was  found  to  obtain  in  several  other 
apparel  trades.  For  the  latest  study  in  this  field  see:  Federal  Trade  Commission,  Relative 
Emciency  of  Large,  Medium-Sized,  and  Small  Business,  Temporary  National  Economic 
Committee,  Monograph  No.  13. 

^  Arthur  S.  Dewing,  "A  Statistical  Test  of  the  Success  of  Consolidations,"  Quarterly 
Journal  of  Economics,  vol.  36,  pp.  84—101  (November  1921). 

•*  National  Industrial  Conference  Board,  Mergers  in  Industry  (New  York,  1929),  pp. 
30-31,  36-41. 

»*  Shaw  Livermore,  "The  Success  of  Industrial  Mergers,"  Quarterly  Journal  of  Economics, 
vol.  50,  pp.  68-96  (November  1935)  ;  "Have  Mergers  Been  Successful?",  Dun's  Review, 
February  1937,  pp.  16  £f. 

«*  Twentieth  Century  Fund,  op.  cit.,  pp.  105-109. 


314  OONCBNTRiATION  OF  ECONOMIC  POWER 

markets  as  to  lower  costs  of  production"  or  that  the  creation  of  a  com- 
mon selling  organization  will  prove  to  be  "more  economical  in  the 
social  sense  than  specialized  distribution  through  middlemen."  ^^ 

Little  is  known  concerning  the  relationship  that  may  exist  between 
the  size  and  the  efficiency  of  separate  plants.  The  few  studies  that 
have  been  made  in  this  field  apply  to  minor  industries  where  the  typi- 
cal scale  of  production  is  small.  They  do  not  afford  an  adequate  basis 
for  generalization. 

The  superior  efficiency  of  large  establishments  has  not  been  demon- 
strated ;  the  advantages  that  are  supposed  to  destroy  competition  have 
failed  to  manifest  themselves  in  many  fields.  Nor  do  the  economies  of 
size,  where  they  exist,  invariably  necessitate  monopoly.  These  econo- 
mies have  to  do  with  technology  in  production,  powder  in  bargaining, 
and  competence  in  administration.  Monopoly,  on  the  other  hand,  has 
to  do  with  the  extent  to  which  a  single  firm,  or  a  group  of  firms  acting 
in  unison,  controls  the  supply  of  a  good  or  a  service  in  a  particular 
market.  The  size  or  the  sizes  of  optimum  efficiency  may  be  reached 
long  before  the  major  part  of  a  supply  is  subjected  to  such  control. 
The  conclusion  that  the  advantages  of  large-scale  production  must  lead 
inevitably  to  the  abolition  of  competition  cannot  be  accepted.  It 
should  be  noted,  moreover,  that  monopoly  is  frequently  the  product 
of  factors  other  than  the  lower  costs  of  greater  size.  It  is  attained 
through  collusive  agreements  and  promoted  by  public  policies.  When 
these  agreements  are  invalidated  and  when  these  policies  are  reversed, 
competitive  conditions  can  be  restored. 

THE  PERSISTENCE  OF  COMPETITION  AND  MONOPOLY 

In  those  industries  where  the  nature  of  the  product,  the  market, 
the  supply  of  materials,  and  the  technology  of  production  is  such  as 
to  encourage  it,  competition  reasserts  itself  in  the  face  of  collusive 
agreements  and  restrictive  legislation.  Commodities  that  cannot  be 
identified  with  their  producers  may  be  provided  by  many  firms. 
Goods  whose  sale  depends  upon  their  style,  articles  of  distinctive 
design,  products  that  are  made  to  order,  and  services  that  must  be 
rendered  in  person,  since  they  do  not  lend  themselves  to  standard- 
ization, mechanization,  or  mass  production,  are  likely  to  be  sold  by 
several  establishments  no  one  of  which  controls  a  major  part  of  the 
supply.  Markets  that  are  laige  and  those  that  are  growing  invite 
the  entrance  of  numerous  concerns.  Markets  so  limited  that  a  small 
scale  of  operations  holds  down  the  capital  required  for  admission 
may  also  prove  to  be  hospitable  to  newcomers.  An  abundance  of 
materials  and  a  wide  dispersion  of  the  sources  of  supply  facilitate 
the  erection  of  many  plants.  A  technology  that  is  simple  presents 
no  obstacle  to  new  enterprises.  Processes  that  depend  upon  highly 
skilled  labor,  those  that  resist  mechanization,  and  those  that  permit 
a  small  establishment  to  produce  at  a  low  cost,  since  they  do  not 
necessitate  a  large  investment  in  a  single  plant,  favor  the  formation 
of  a  multitude  of  small  concerns.  Each  of  these  factors  contributes 
to  the  preservation  of  competitive  conditions  in  a  trade. 

In  other  fields  the  characteristics  of  the  product,  the  market,  the 
supply  of  materials,  and  the  technology  of  production  are  conducive 

"Edwards,  op.  cit.,  p.  178. 


CONCENTRATION  OF  DOONOMIC  POWER  315 

to  monopoly.  A  service  whose  adequate  performance  requires  unified 
operation  is  better  rendei-ed.  by  a  single  concern.  Goods  that  can  be 
standardized  and  manufactured  in  quantity  lend  themselves  to  mass 
production  which,  in  turn,  may  sometimes  lead  to  concentration  of 
control.  Products  that  can  be  associated  with  brand  names  may  be 
removed,  in  some  degree,  from  competition.  The  great  width  of 
markets  for  standardized,  machine-made  goods  may  enlarge  the  scale 
of  production  and  thus  increase  the  possibility  of  concentration.  The 
narrowness  of  markets  for  the  products  of  difficult  and  costly  proc- 
esses may  deliver  them  into  the  hands  of  a  few  firms.  Scarcity  of 
materials  and  paucity  of  the  sources  of  supply  facilitate  unified 
ownership.  A  technology  which  necessitates  the  acquisition  of  ex- 
tensive properties,  the  construction  of  huge  plants,  and  the  installa- 
tion of  expensive  equipment  may  prevent  the  establishment  of  new 
concerns.  Ability  to  cut  units  costs  by  increasing  the  scale  of  pro- 
duction may  reduce  the  number  of  competitors.  Heavy  fixed  charges 
and  fear  of  the  consequences  of  competitive  warfare  may  inhibit 
competition  on  the  basis  of  price. 

But  monopoly  cannot  be  attributed  to  natural  factors  alone.  It  is 
the  product  of  formal  agreements  and  secret  understandings ;  of  com- 
binations, intercorporate  stockholdings,  and  interlocking  directorates ; 
of  the  ruthless  employment  of  superior  financial  resources  and  Vjar- 
gaining  power;  of  unequal  representation  before  legislatures,  courts, 
and  administrative  agencies;  of  the  exclusion  of  competitors  from 
markets,  materials,  and  sources  of  investment  funds;  of  restrictive 
contracts  and  discriminatory  prices;  of  coercion,  intimidation,  and 
violence.  It  is  the  product,  too,  of  institutions  of  property  which 
permit  private  enterprises  to  take  exclusive  title  to  scarce  resources; 
of  franchises,  permits,  and  licenses  which  confer  upon  their  holders 
exclusive  privileges  in  the  employment  of  limited  facilities  and  the 
performance  of  important  services;  of  patents  which  grant  to  their 
owners  the  exclusive  right  to  control  the  use  of  certain  machines 
and  processes  and  the  manufacture  and  sale  of  certain  goods;  of 
tariffs  which  exclude  foreign  producers  from  domestic  markets;  of 
statutes  which  exclude  out-of-State  producers  and  ordinances  which 
exclude  out-of-town  producers  from  local  markets;  of  legislation 
which  limits  output,  fixes  minimum  prices,  and  handicaps  strong  com- 
petitors; and  of  inadequate  enforcement,  over  many  years,  of  the 
laws  that  are  designed  to  preserve  competition.  In  nearly  every 
case  in  which  monopoly  persists,  it  ^vill  be  found  that  artificial  factors 
are  involved. 


INDEX 

Page 
ABRAHAMSON,  ALBERT:  The  automobile  tire,  forms  of  marketing  in 

combat    (1938);  cited    (n.) 49 

ABRAMSON,  VICTOR,  joint  author:  {See  Lyon,  Leverett  S.) 
ACCOUNTING    MACHINE    INDUSTRY:    Duopoly    control    exercised    by 

International  Business  Machines  Corpoi'ation  and  Remington  Rand,  Inc_      106 
AGRICULTURAL  IMPLEMENT  INDUSTRY : 

Marketing  strategy —  168-170 

Price   leadership  taken   by   International  Harvester   Co.   and   Deere 

&  Co 126-127 

AGRICULTURE :  Competition,  legalized  restraint,  Federal  and  State___  269-273 

Competitive  markets  for  agricultural  produce 20-22 

AIR  BRAKES  INDUSTRY:  Duopoly  control  exercised  by  Westinghouse 

Air  Brake  Co.  and  New  York  Air  Brake  Co 107 

AIR  REDUCTION  CO.:  Duopoly  control  of  oxyacetylene  industry  shared 

with  Union  Carbide  &  Carbon  Corporation 108 

ALASKA    PACKERS   ASSOCIATION:    Price   leader   in   sale   of   canned 

salmon  prior  to  1920 :_„_.. 123 

ALLIED  CHEMICAL  &  DYE  CORPORATION :  Agreement  with  Chilean 
Nitrate  Sales  Corporation  in  matters  of  sodium  nitrate  sales  control  in 

United  States 137 

ALSPAUGH,  HAROLD  P. :  Marketing  of  meat  and  meat  products  (1936)  ; 

cited    (n.) 183 

ALUMINUM  CO.  OF  AMERICA :  Control  of  aluminum  industry  exercised 

by   Company,   1888-1939 69-72 

ALUMINUM  INDUSTRY:  Cartels,  1908,  1912,  1931 71 

AMERICAN  AGRICULTURAL  CHEMICAL  CO. :  Price  leader  in  sale  of  . 

fertilizer  with  Virginia-Carolina  Chemical  Co.  prior  to  1920 123 

ALUMINUM  GOODS  MANUFACTURING  CO.:  Corporate  relations  with 

Aluminum   Co.    of  America 69 

AMERICAN  CAN  CO. :  Controlling  power  in  its  field  of  industry 65,  67,  69 

Litigation : 

U.  S.  V.  American  Can  Co.  et  al,  230  Federal  Reporter  859;  cited 

(n.) 68 

Price  leader  for  packer  cans,  prior  to  1920 - 123 

Production  leader  in  its  field 113 

Tin  plate  price  leadership,  part  of  company  in  establishing  price lz5 

AMERICAN  CAR  &  FOUNDRY  CO. :  Production  leader  in  its  field 113 

AMERICAN  OPTICAL  CO. : 
Litigation : 

U.  8:  V.  American  Optical  Co.  et  al.,  Department  of  Justice  indict- 
ment, (D.  C.  U.  S.  S.  D.  N.  Y.),  May  28,1940;  cited  (n.) 141 

AMERICAN  POTASH  &  CHEMICAL  CORPORATION : 

Corporate  relation  with  Consolidated  Gold  Fields  of  South  Africa, 

Ltd 139 

Duopoly  control  of  borates  shared  with  Pacific  Coast  Borax  Co 110 

Litigation : 

U.  8.  V.  Amef'ican  Potaah  and  Chemical  Corp.  et  al.  (D.  C.  U.  S. 
S.  D.  N.  Y.),  indictment  May  26,  1939;  cited  (n.)  ;  consent  decree 

May  21,  1940;  cited   (n.) 116,  139,  140 

AMERICAN  POTASH  INSTITUTE,   INC.:   Trade  association  for  three 

named  American  companies 140 

AMERICAN  SMELTING  &  REFINING  CO. : 

Price  leader  in  sale  of  copper  and  lead 129 

Production  leader  in  its  field 113 

317 


318 


INDEX 


AMERICAN  SUGAR  REFINING  CO. :  Page 

Controlling  power  in  its  field  of  industry 65,67,69 

Production  leader  in  its  field 113 

AMERICAN  TELEPHONE  &  TELEGRAPH  CO. : 

Control  exercised  by  company  in  telephone,  teletypewriter,  and  radio 

service  operations 83-88 

Research  activities 84 

Security  issues,  participation  arrangemejits 177 

AMERICAN  TOBACCO  CO. :  Controlling  powei  in  its  field  of  industry.-  65-66 
AMERICAN  TRONA  CORPORATION: 

Absorbed  by  American  Potash  &  Chemical  Corporation  in  1926 139 

Only  producer  of  potash  from  domestic  dejwsits,  from  1923  to  1932 138 

AMERICAN  VISCOSE  CO. :  Profits,  average  annual,  1915-38,  percentage—      205 
AMERICAN  WOOLEN  CO. :   Sales,  percentage  of  total   of  woolen  and 

worsted-goods  industry,  1935 34 

ANTHRACITE  COAL.   (See  Coal  Industry.) 

ANTITRUST  LAWS— FEDERAL :  Trades  exempt  from ^ 275 

ANTITRUST  LAWS— STATE :  Trades  exempt  from 275-277 

ARMOUR  &  CO. : 

Domestic  cheese  output  sold  by , 141 

Integration  with  leather  business 47 

ARNOLD,  JOHN  R. :  The  fishery  industry  and  the  fishery  codes  (1936)  ; 

cited  (n. ) 28 

ASPHALT  SHINGLE  AND  ROOFING:  Price  control  exercised  by  trade 

association:  Asphalt  Shingle  and  Roofing  Institute 246* 

ASSOCIATION  OF  COTTON  TEXTILE  MERCHANTS :  Ten  years  of  cot- 
ton textiles  (1940);  cited  (n.) 32 

AUTOMOTIVE  INDUSTRY: 

Credit  financing 172 

Market   dominance   in   automobile   business ;   Ford,   General   Motors, 

Chrysler 194-198 

Marketing  strategy ;  manufacturer-dealer  relationships 170-172 

Profits  in  automobile  business  as  percentages  of  investment,  1927-37 ; 

Ford,  General  Motors,  and  Chrysler  ;  table 197 

AVIATION :  Trans-oceanic  commercial  aviation  monopoly  of  Pan  Ameri- 
can Airways   System :_        93 

BACKMAN,  JULES : 

Causes  of  price  fiexibility   (1940)  ;  cited   (n.) 304 

Price  fiexibility  and  inflexibility  (1940)  ;  cited  (n.) 304 

BAIRD,  ENID:  Price  filing  under  N.  R.  A.  codes;  cited  (n.) 246 

BANANA  INDUSTRY :  Duopoly  control  exercised  by  United  Fruit  Co.  and 

Standard  Fruit  &  Steamship  Co 101-102 

BANKING : 

Commercial  banking,  local  markets . 206-208 

Investment  banking,  market  sharing  practice 176-179 

Regional  concentration 120 

BARRETT  CO. : 

Duopoly  control  of  sodium  nitrate  in  the  United  States  shared  with 

Barrett    Co 111 

Federal  Trade  Commission  Docket  3764.     Complaint  against  Barrett 
Co.   and  Chilean  Sales  Nitrate  Corporation;   sodium  nitrate  price 

fixing    (1939) 138 

BASING  POINT  PRICING  : 

Cast  iron  soil  pipe . 157* 

Causation  of,  opinions  of  economists  and  steel  officials 150-152 

Cement   industry 153-157 

Defined 147 

Steel  industry  "Pittsburgh  Plus" : 

Origin,    operation,    and   present    status 148-153 

BAUSCH  &  LOMB  OPTICAL  CO. : 

Control  of  optical-glass  industry  exercised  by  company 78* 

Supply  of  ophthalmic  lenses,  etc.,  controlled  by;  party  in  price  agree- 
ment indictment  May  28,  1940 141 

BECKERATH,  HERBERT  VON :  Modern  industrial  organization ;  cited 

(n.) , 215 

BENNETT,  JOHN'  J. :  Report  on  the  milk  industry  of  the  State  of  New 
York  (1938)  ;  cited   (n.) 209 


INDEX  319 

BERLE,  A.  A.,  Jr.  :  Investigation  of  business  organization  and  practices     Page 
(1938);  cited    (n.) 112 

BERLE,  ADOLF  A.,  JR.,  AND   GARDINER   C.   MEANS:   The   modem 

corporlation  and  private  property  (1933);  cited  (n.) 299 

BERQUIST,  FRED  E.,  AND  ASSOCIATES :  Economic  survey  of  the  bitu- 
minous   coal    industrv    under   free    competition    and    code    regulation 

(1936)  ;  cited   (n.) 25 

BERYLLIUM:   Control  exercised  by   Siemens  &  Halske  and  Beryllium 

Corporation 95-98 

BISCUIT  AND  CRACKERS  INDUSTRY :  Price  leadership 131 

BLACK,  JOHN  D. :  The  dairy  industry  and  the  Agricultural  Adjustment 

Administration    (1935);    cited    (n.) 210 

BOER,  A.  E. :  Mortality  in  retail  trade  (1937)  ;  cited  (n.) 59 

BOOT  AND  SHOE  MANUFACTURERS: 

Capital  investment  returns;  profits 46 

Competitive  marketing  factors-^., . 45-46 

International  Shoe  Co.,  size  leadership  in  industry.! 45 

Life  expectancy  of  firms -1. ^^— , 46 

Machinery  leases  controlled  by  United  Shoe  Machinery  Corporation.        46 

Mortality  of  business  in  industry 46 

Price  flexibility  of  product 46 

Production    concentration 45 

BORATES :  Duopoly  control  exercised  by  Pacific  Coast  Borax  Co.  and 

American  Potash  &  Chemical  Corporation 110 

BORDEN  CO. :  Extent  of  business  of  1928-30 210 

BOWMAN,  RAYMOND  T. :  A  statistical  study  of  profits   (1934);  cited 

(n. ) 311 

BOYCOTTS  :  Trade  association 257-258 

BREAD :  Price  control  exercised  by  trade  association ;  American  Bakers' 

Association : 242-243 

BRICK  INDUSTRY:  Regional  concentration  of  production 120 

BUILDING  CONSTRUCTION :  Competition  restraints ;  trade  union  prac- 
tices, subcontractors  rings,  etc 287-293 

BUILDING  MATERIALS  (see  also  Asphalt  Shingle  and  Roofing;  Brick 
Industry ;  Cement  Industry ;  Gy*psum  Board ;  Hardboard ;  Mineral 
Wool;  Steel  Window  Products;  Window  Glass)  : 

Interlocking  relationships.     (See  Interlocking  Relationships.) 
Market  sharing  scheme  of  trade  association :  National  Federation  of 

Builders   Supply   Associations 249 

BUREAU  OF  AGRICULTURAL  ECONOMICS:   Large-scale  farming  in 

the  United  States  (1929);  cited   (n.) 20 

BUREAU    OF    FISHERIES:    Fishery    industry    of    the    United    States 

(1938);  cited  (n.) 27 

BUREAU  OF  FOREIGN  AND  DOMESTIC  COMMERCE  :  National  income 

in  the  United  States,  1929-35;  cited   (n.) 55 

BUREAU  OF  LABOR  STATISTICS :  Index  numbers  of  wholesale  prices 

of  Portland  cement  (1939)  ;  cited  (n.) 156 

BURNS,  ARTHUR  F. :  Decline  of  competition  (1936)  ;  cited  (n.) 68, 

113, 226 
CABLE   SERVICE:  Control  of  trans-Pacific   cable  service  exercised  by 

Commercial"  Pacific  Cable  Co . . _  88 

CA.LIFOHNIA    PACKING    CORPORATION     ("CALPACK")  :   Marketing 

strategy  ;   instance 166 

Rank  in  industry 53 

CANNED  MILK  BUSINESS :  Intercorporate  relations ;  stock  ownership ; 

■instance . 191 

CANNING  AND  PRESERVING  INDUSTRY :  Production  concentration..        53 

CARNEGIE-ILLINOIS  STEEL  CO. :  Price  leader  in  sale  of  tin  plate 125 

CARTELS : 

Classification  of , 215-217 

Defined 215 

European:  Germany,  France,  Great  Britain 217-218' 

Pacific  Coast  oil  cartel 251,  258 

Pools '  225 

Trade  association  activities  and  cartels.. „_^ ^ ^ ^^ ^  258-259 


320  INDEX 

CAKTELS— INTERNATIONAL :  Page 

Aluminum,  1908,  1912,  1931 71 

Copper  cartels 222-224 

Defined ^ 218 

Incandescent  lamps 105 

Molybdenum  ;  participation  of  Climax  Molybdenum  Co 81 

Potasb,  pirice  agreement  1924  and  cartel  of  1926 138 

Rayon;  international  combines 204-205 

Sulfur  agreement 100 

CAST-IRON  SOIL  PIPE:  Basing  point  pricing 157 

CELANESE   CORPORATION    OF   AMERICA:  Profits,    average   annual, 

1925-38,  percentage 205 

CELOTEX  CORPORATION :  Hardboard  patent  infringement  suit 164 

CEMENT  INDUSTRY : 

Basing  point  system 153-157 

Concentration  of  production 118 

Price  leadership 126 

CENSUS  BUREAU :  Production  concentration  index,  limitation  of  data  on_      111 
CHANDLER,  LESTER  V. :  Monopolistic  elements  in  commercial  banking 

(1938)  ;  cited  (n.) 120 

DE  CHAZEAU,  M.  G.,  joint  author     (See  Daugherty,  C.  R.) 
CHEESE  INDUSTRY : 

Competitive  marketing  factors,  price  agreements 141-143 

Wisconsin  Cheese  Exchange,  cheese  price  operations 142 

CHEMICAL  INDUSTRY : 

Concentration  of  production 201 

Intercorporate  relations;  stock  ownership;  instances '. 191 

Interlocking  relations.     ( See  Interlocking  Relationships. ) 

Market  dominance 201 

Price  stability : 202 

Profits,  1934-38 ;  average  annual  return,  percentages,  on  net  worth ; 

Du  Pont,  Union  Carbide,  Allied  Chemical,  Monsanto  and  Dow 202 

CHEMICAL  NITROGEN.     (See  Nitrogen.) 

CHILEAN  NITRATE   SALES  CORPORATION:  Duopoly  control  of  so- 
dium nitrate  in  the  United  States  shared  witb  Barrett  Co 111 

CHRYSLER  CORPORATION:  Marketing  policy 195-198 

Profits  as  percentages  of  investment,  1927-37 ;  table 197 

CIGARETTE  MANUFACTURE: 

"Big  Three"  and  "Big  Four"  constituents,  brands ;  combined  output 

percent  1934  and  1937;  combined  assets  and  sales  1938 186 

Competitive  marketing  factors  confined  to  advertising;  market  shar- 
ing  nonexistent 186 

Price  leaderships,  192^-34 186 

CLAYTON  ACT:  Sections  7-8  summary—^ 189-90 

CLIMAX  MOLYBDENUM  CO. :  Control  of  molybdenum  production  exer- 
cised by  company 81-82 

Participation  in  international  molybdenum  cartel 81 

CLOTHING  MANUFACTURE: 
Men's  clothing: 

Capital  investment,  price  flexibility,  profits 39-41 

Competitive  marking  factors 39-41 

Hats,  caps,  and  materials,  competitive  marketing  factors 41 

Life  expectancy  of  typical  unit 40 

Production  concentration 39 

Women's  apparel: 

Competitive  marketing  factors 41-45 

Life  expectancy  of  a  manufacturing  establishment 43 

Millinery.     (See  Millinery  Trade.) 

Mortality  of  Manhattan  firms,  1927-35  and  1932-33  percentages-        43 

Production  concentration 42 

COAL  INDUSTRY : 

Anthracite  carriers: 

Market-sharing  practices  and  program 179-182 

Anthracite  producers : 

Market-sharing  programs  of  1939  and  1940_ 181-182 

Bituminous  coal : 

Competitive  markets 24-26 

Legalized  restraint  of  competition:  Federal,  1933-41 267 


INBEX  321 

Page 

COLORADO:  Molybdenum  deposits  in  Bartlett  Mountain 81 

COLUMBIA  BROADCASTING  SYSTEM : 

Dominating  position  in  industry 173 

Marketing  practices  ;  exclusive  contract  device 166 

COLUMBIA  BROADCASTING  CO. :  Profits,  1938,  percentages 176 

COMMERCIAL  BANKING.     (See  Banking.) 

COMMERCIAL  CREDIT  CO. :  Chrysler  relationship 172 

COMMERCIAL  INVESTMENT  TRUST  CORPORATION :  Ford  Motor  Co. 

relationship 172 

COMMERCIAL  PACIFIC  CABLE  CO. :  Control  of  trans-Pacific  cable  serv- 
ice exercised  by  company __        88 

COMPETITION : 

Advantages  of  competition 12 

Agriculture,  legalized  restraint;  Federal  and  State 269-273 

Bituminous  coal  industry ;  legalized  restraint ;  Federal,  1933-il 267 

Building  construction,  restraints ;  trade-union  practices ;  subcontrac- 
tors  rings,  etc . 287-293 

Definition  of  the  nature  of  competition 1-9 

Disadvantages  of  competition 12 

Distributive  trades,  legalized  restraint;  Federal  and  State 273-275 

Legalized  restraint 267-279 

Limitation  of  by  trade  associations,  industrial  institutes,  etc.,  1920-40 ; 

list  of  instances  in  which  control  veas  exercised 234-240 

Petroleum  industry;  legalized  restraint;  Federal  and  State 267-268 

Rackets,  retail  trade 293-298 

Retail  trades 286-298 

Trucking  business,  legalized  restraint ;  Federal  and  State 268 

COMPETITION  AND  MONOPOLY : 

Areas  of 307-308 

Instability   of , 308-309 

Occurrence  of 29&-315 

Persistency    of 314-315 

COMPETITIVE  MARKETS :  Extractive  industries 19-^28 

COMPETITIVE  PRACTICES  OF  DOMINANT  FIRMS 165-176 

CONCENTRATION  OF  BANKS  :  Regional  concentration 120 

CONCENTRATION  OF  BUSINESS  ACTIVITY 299-301 

CONCENTRATION  OF  DISTRIBUTION : 

Milk;  comment  and  table 120-121 

Milk  and  milk  products  industry 210 

CONCENTRATION  OF  PRODUCTION : 

Census  Bureau  limitation  of  data  on 111 

Census  of  Manufactures,  1937,  record 113 

One-company  leadership  in  various  named  industrial  fields 113 

Three-company  leadership  in  various  named  industrial  fields 114 

Two-company  leadership  in  various  named  industrial  fields 114 

CONCENTRATION  OF  PRODUCTION— COMPANIES  : 

Allied  Chemical  &  Dye  Corporation,  synthetic  nitrogen,  sodium  ni- 
trate production  leader 137 

American   Can   Co ^ 113 

American  Car  &  Foundry  Co 113 

American  Smelting  &  Refining  Co 113 

American  Sugar  Refining  Co 113 

International  Match  Co 113 

Koppers   Co 113 

National  Biscuit  Co 113 

National  Lead  Co 113 

Procter  &  Gamble  Co 113 

Singer    Manufacturing    Co 113 

Union  Carbide  &  Carbon  Co 113 

CONCENTRATION  OF   PRODUCTION— INDUSTRIES  : 

Brick   industry 120 

Canned  soup,  output  percentage  of  production  leader 113 

Chemical    industry 201 

Cinema  film,  output  percentage  of  production  leader 113 

Corn  products,  output  percentage  of  production  leader 113 

Electrical  equipment  industry _ 1^ 

Farm  machinery,  output  percentage  of  production  leader ^ 113 


322  INDEX 

CONCENTRATION  OF  PRODUCTION— Continued.  Page 

Fire-extinguishing  apparatus,  output  percentage  of  production  leader.      113 
Four  company  leadership  in  various  named  industries,  1935,  comment 

and   tables 115-118 

Fruit  jars,  output  percentage  of  production  leader 113 

Gypsum  board  industry,   1928-39 161-162 

Hard  board,  position  of  Masonite  Corporation 164 

Industrial  alcohol,  output  percentage  of  production  leader 113 

Millwork 120 

Motion-picture   industry 172-173 

Oil    industry 119 

Potash  ;  three  American  companies  controlling  output 139 

Rayon 203 

Sodium  nitrates    Allied  Chemical  &  Dye  Corporation,  only  domestic 

producer,  1937  output 137 

Steel  industry 119 

Synthetic  nitrogen.  Allied  Chemical  &  Dye   Corporation,  estimated 

domestic  output 137 

Tobacco,  smoking,  chewing,  and  snuff,  cigars  and  cigarettes,  percent- 
ages of  output,  1937-38 186 

Towels,  output  percentage  of  production  leader 113 

CONSUMER  CREDIT  REPORTING :  National  Retail  Credit  Association 
activity 248-249 

CONTAINERS,  WOODEN.     (See  Wooden  Containers.) 

COPBLAND,  MELVIN  T.,  and  W.  TURNER :  Production  and  distribution 
of  silk  and  rayon  broad  goods;  cited  (n.) 35 

COPELAND,  MORRIS  A. :  The  national  income  and  its  distribution  (1929)  ; 
cited    (n.) ^ 22 

COPPER  EXPORT  ASSOCIATION :  Origin,  purpose,  and  operation 222-223 

COPPER  EXPORTERS,  INC. :  Origin,  purpose,  and  operation 222-223 

COPPER  INDUSTRY : 

Cartels 222-224 

Price  leadership  held  by  American  Smelting  &  Refining  Co 129 

Production  allocation  scheme  of  trade  association ;  Copper  Institute 250 

COPPER  INSTITUTE  :  Meetings  of  1930-32,  production  control 224 

CORN  PRODUCTS  REFINING  CO. : 

Controlling  iwwer  in  its  field  of  industry =. 65,67,  69 

Price  leader  in  j^ale  of  corn  products  prior  to  1920 123 

CORNING  GLASS  WORKS : 
Litigation : 

U.  8.  V.  Corning  Olass  Works  et  al.,  indictment  Aug.  28, 1940  ( D.  C. 

U.  S.  S.  D.  N.  Y.)  ;  cited  (n.)  and  sunamary 200 

Percentage  control  of  heat-resisting  glassware  industry 110 

Position  in  electric-lamp  industry 104 

CORPORATIONS  COMMISSION : 

Report  on  transportation  of  petroleum  (1906)  ;  cited  (n.) 90 

Report  on  petroleum  industry.     Pt.  1  (1907)  ;  cited  (n.) 90 

COTTON  TEXTILES  INDUSTRY : 

Competitive  markets 31-33 

Production-allocation  scheme  of  trade  association ;  Cotton  Textile  Tn- 

stitute;  "print  cloth  curtailment  program" 250-251 

COTTON  YARN :  Production-allocation  scheme  of  trade  association  ;  Cotton 
Yarn  Spinners  Association 250 

COTTONSEED  OIL:  Price  control  exercise  by  trade  associations 244-246 

CREDIT  FINANCING.     (iSfee  Financing  Companies.) 

CREDIT-RISK  REPORTING : 

National  Retail  Credit  Association 248-249 

Trade  association  activity '. 231 

CROWDER,  WALTER  F.,  joint  author.     (See  Thorp,  Willard  L.) 

CRUDE  OIL  TRANSPORT.     (See  Pipe  Lines.) 

CRUM,  WILLIAM  L. : 

The  effect  of  size  on  corporate  earnings  and  condition  (1935)  (n.) 312 

Corporate  earning  power  (1929)    (n) 311 

Corporate  size  and  earning  power  (1939)   (n.) 312 

CURTIS,  ROY  E. :  Trusts  and  economic  control  (1937)  ;  cited  (n.) 67,215 

DANIELIAN,  N.  R. :  Story  of  industrial  conquest  (1939)  ;  cited  (n.) 83 


INDEX  323 

DAUGHERTY,  C.  R.,  M.  G.  DECHAZEAU  AND  S.  S.  STRATTON :  Eco-     I'age 

nomics  of  the  iron  and  steel  industry  (1937)  ;  cited   (n.) 150 

DAVIS,   H.    B. :   Business   mortality ;   the   shoe   manufacturing   industry 

(1939)  ;   cited    (n.) 45 

DAVIS,  JOSEPH  S. :  Wheat  and  the  A.  A.  A.  (1935)  ;  cited  (n.) 22 

DEERE  &  CO. : 

Marlieting  strategy  ;  instance ^ : 16  > 

Price  leader  with  the  International  Harvester  Co.  in  sale  of  farm 

machinery . — , . 12&-12'7 

DEPARTMENT  OF  JUSTICE : 
Complaints : 

1940   March  13.     U.  8.  v.  Masonite  Corp.,  et  al.  (D.  C.  U.  S.  S.  D. 

N.*Y.);  cited  (n.)__ 164 

1940,  June  24.     U.  8.  v.  Johns  Manville,  et  al.  (D.  C.  U.  S.  N.  D. 

111.  E.  Div.)  ;  cited   (n.) 165 

1940,  Aug.  15.     U.  8.  V.  U.  8.  Gypsum  Co.  et  al.  (D.  C.  U.  S.  Dist. 

Col.)  ;  cited   (n.) 163 

Indictments: 

1C39,  Mav  26  U.  S.  v.  American  Potash  &  Chemical  Corp.  et  al., 
(D.  C.  U.  S.  S.  D.  N.  Y.),  May  26,  1939;  consent  decree  Mav  *>! 
1940;   cited    (n.) 116,139,140 

1939,  July  28.     U.  8.  v.  Underwood  Elliott  Fisher  et  al.    (D.  C. 

U.  S.  S.  D.  N.  Y.)  ;  cited  (n.) 140 

1940,  May  20.     V.  8.  v.  American  Optical  Co.  et  al.  (D.  C.  U.  S. 

S.  D.  N.  Y.)  ;  cited  (n.) 141 

1940,  May  20      U.  8.  v.  Optical  Wholesalers  National  Association 

et  al.    (D.  C.  U.  S.  S.  D.  N.  Y.)  ;  cited  (n.) 141 

1940,  June  28.     U.  8.  v.  Certain-teed  Products  Corp.  et  al.   (D.  C 

U.  S.  D.  C.)  ;  cited  (n.) 163 

1940,  June  28.    U.  8.  v.  U.  8.  Gypsum  Co.  et  al.  (D.  C.  U.  S.  D.  C.)  ; 

cited    (n.) ^ 163 

1940,  Aug.  28.    V.  8.  v.  Corning  Glass  Works  et  al.  (D.  C.  U.  S.  S.  D. 

N.  Y.)  ;  cited  (n.)  and  summary 200 

1940,  Aug.  30,     U.  8.  v.  General  Electric  Co.,  Fried-Krupp  A.  O. 

et.  al.   (D.  C.  U.  S.  S.  D.  N.  Y.)  ;  cited  (n.)  and  summary 200 

Information : 

1940,  July  24.     U.  8.  v.  American  Tobacco  Co.  et  al.  (D.  C.  E.  D. 

Ky.)  ;    extract 188-189 

DEWING,  ARTHUR  S. :  A  statistical  test  of  the  success  of  consolidations 

(1921).      (n.) 313 

DISTRIBUTIVE  TRADES:  Competition,  legalized  restraint ;  Federal  and 

State 273-275 

Invested  capital  returns  "No  data  available  on  rate  of  earnings  for 

trading  enterprises  as  a  whole" 58 

Mass  distributor  rank  by  asset  and  sales  size .56 

Wholesale  and  retail 54-59 

DORIOT,  G.  F.,  joint  author.     (See  Eraser,  C.  E.) 

DOW  CHEMICAL  CO. :  Control  of  production  of  magnesium  exercised  by 

company 82 

DRURY,  HORACE  B.,  joint  author.     (See  Nourse,  Edwin  G.) 

DUN  &  BRADSTREET :  Wholesale  Survey,  1937.    Reports  1,  3,  4,  and  7 ; 

cited    (n.) 57 

DUOPOLY : 

Air  brakes  industry , 107 

Banana   industry 101-102 

Borates , iio 

Defined 10 

Domestic  telegraph  service 98-100 

Electric  accounting  machine  industry 106 

Electric  lamp  industry 104 

International  communications  service lOO-lDl 

<  )xyacetylene  industry 108 

Plate-glass  industry 103 

Sulphur 108 

DUOPSONY  :  Defined '_         10 

DU  PONT — Rayon  department :  Profits,  average  annual,  1921-38,  percent- 
age   _ ^_^ 205 


324  INDEX 

Page 
EASTMAN  KODAK  CO. :  Marketing  practice  ;  exclusive  contract  device —  166 
EDITOR  AND  PUBLISHER :  International  Yearbook  Number,  1938,  cited 

(n.) 61 

EDMINSTER,  LYNN  R.,  joint  author.     (See  Wallace,  Benjamin  F.) 
EDWARDS,  CORWIN  D. :  Can  the  antitrust  laws  preserve  competition? 

(1940);  cited  (n.) 300 

ELECTRIC  LAMP  INDUSTRY : 

Oairtels 105 

Corporate  relationships  resulting  in  a  complex  practice  of  duopoly, 

monopoly  and  single  firm  control 104-106 

ELECTRICAL  EQUIPMENT  MANUFACTURING : 

Concentration  of  production 198 

Market  dominance 198 

ELEVATOR  BUSINESS :  Production  allocation  quota  scheme  of  trade  as- 
sociation;  National  Elevator  Manufacturing  Industry 252 

EPSTEIN,  RALPH  C. :  Industrial  profits  in  the  United  States   (1934), 

(n.) 311 

ETHYL  GASOLINE  CORPORATION :  Licensing  contracts  for  use  of  tetra- 

ethyl ;   litigation 160-161 

EXTRACTIVE  INDUSTRIES  (see  also  Agriculture,  Coal  Industry,  Fish- 
eries Industry,  Lumber  Industry,  Petroleum  Production)  : 

Competitive  markets 19-28 

EXPORT  ASSOCIATIONS :  Origin,  purpose,  and  operation 219-2^ 

EYEGLASS  INDUSTRY : 

Competitive  marketing  factors,  price  agreements 141 

Litigation.     ( See  American  Optical  Co. ;  Optical  Wholesalers  National 
Association. ) 
FARM  MACHINERY.     ( See  Agricultural  Implement  Industry. ) 
FEDERAL  COMMUNICATIONS  COMMISSION :  Investigation  of  the  tele- 
phone industry  in  the  United  States  (1939)  ;  cited  (n.) 83 

FEDERAL  COORDINATOR  OF  TRANSPORTATION :  Hours,  wages,  and 
working  conditions  in  the  intercity  motor  transport  industries ;  Part  2, 

motortruck  transportation  (1936)  ;  cited  (n.) 61 

FEDERAL  POWER  COMMISSION : 

Electric  rate  survey.    Rate  series,  1935-39;  cited   (n.) _ 94 

Natural  gas  interstate  pipe  lines  under  jurisdiction  of  Commission —       110 
FEDERAL  TRADE  COMMISSION  : 

Advance  in  prices  of  petroleum  products  (1920)  ;  cited  (n.) 128 

Agricultural  implement  and  machinery  industry  (1938)  ;  cited  (n.)__  69,  113 

Agricultural  income  inquiry,  pt.  1  (1937)  ;  cited  (n.) 32,  45,  47,  113 

Agricultural  income  inquiry,  pt.  3  (1937)  ;  cited  (n. ) 53 

Analysis  of  the  basing  system  of  delivered  prices  (1940)  ;  cited  (n.)_  133, 149 

Competition  and  profits  in  bread  and  flour;  cited  (n.)— • 242 

Conditions  in  the  flour-milling  business  (1932)  ;  cited  (h.) 242 

Digest  of  studies  of  long-term  profits;  cited  (n.) 189 

Distribution  methods  in  the  millinery  industry  (1939)  ;  cited  (n.) 44 

Docket  3764.  Price  fixing  complaint  against  Barrett  Co.  and  Chilean 

Sales  Nitrate  Corporation;  sodium  nitrate  (1939) 138 

Investigation  of  the  cottonseed  industry  (1933)  ;  cited  (n.) 244 

Litigation : 

Arrow-Hart  &  Hegeman  Electric  Co.  v.  F.  T.  C.  (1934  291  U.  S. 

587) 190 

Thatcher  Manufacturing  Co.  v.  F.  T.  C.  and  Sioift  d  Co.  v.  F.  T.  C. 

(1926,  272  U.  S.  554) 190 

Meatpacking  industry  (1918);  cited   (n.) 183 

Newsprint  paper  industry  (1939)  ;  cited  (n.) :. 130 

Open-price  trade  associations  (1929);  cited  (n.) 132,227 

Pacific  coast  petroleum  industry  (1922)  ;  cited  (n.) 128 

Packer  consent  decree   (1927)  ;  cited  (n.) 183 

Petroleum    industry;    prices,   profit,    and   competition    (1928);    cited 

(n.) 90,  128 

Practice  and  procedure  under  the  Export  Trade  Act  (1935)  ;  cited  (n.)-      220 

Premium  prices  of  anthracite  (1925)  ;  cited  (n.) 180 

Report  on  house-furnishings  industries,  volume  I.     Household  furni- 
ture (1923)  ;  cited  (n.) 244 

Report  on  the  sale  and  distribution  of  milk  and  milk  products,  Bos- 
ton, Baltimore,  Cincinnati,  and  St.  Louis  areas  (1936)  ;  cited  (n.)_      213 


inde:x  325 

FEDERAL  TRADE  COMMISSION— Continued.  Page 
Report  on  the  sale  and  distribution  of  milt  and  milk  products,  Chi- 
cago sales  area  (1936);  cited  (n.) 121,142,211 

Report  on  the  sale  and  distribution  of  milk  and  milk  products,  Con- 
necticut and  Philadelphia  milk  sheds  (1936)  ;  cited  (n.) 214 

Report  on  the  sale  and  distribution  of  milk  and  milk  products,  New 

York  sales  area   (1937);  cited   (n.) 121,143,208 

Report  on  the  sale  and  distribution  of  milk  and  milk  products,  Twin 

City  sales  area  (1937)  ;  cited  (n.) 121 

Report  on  motor-vehicle  industry  (1939)  ;  cited  (n.) 170 

Report  on  pipe-line  transportation  of  petroleum  (1916)  ;  cited   (n.)__        90 
Report  to  the  President  on  monopolistic  practices  and  other  unwhole- 
some methods  of  competition  (1939)  ;  cited  (n.) 114 

Summary  report  on  conditions  with  the  respect  to  the  sale  and  dis- 
tribution of  milk  and  dairy  products  (1937)  ;  cited  (n.) 121 

Supply  of  electrical  equipment  and  competitive  conditions    (1928)  ; 

cited    (n.) 114 

Textile  industries  in  the  first  half  of  1936,  part  I.     Cotton-textile 

industry   (1937);  cited    (n.) 33 

Textile  industries  in  the  first  half  of  1936,  part  2.    Woolen  and  worsted 

textile  industry  (1937)  ;  cited  (n.) 35 

Tobacco  industry  (1922)  ;  cited  (n.) 186 

Utility  corporations;  cited  (n.) 94 

FENCES,  SNOW.     (See  Snow  Fence.) 

FETTER,  FRANK  A.:  Masquerade  of  monopoly  (1931)  ;  cited   (n.) 19,150 

FEUER,    M. :    The    patent    monopoly    and    the   antitrust    laws    (1938); 

cited   (n.) 158 

FINANCING  COMPANIES :  Automobile  manufacturers'  associated  compa- 
nies; dealer  coercion 172 

FIRESTONE,  HARVEY  S. :  Competitive  character  of  tires  and  tubes  indus- 
try and  Firestone  policy 49 

FISHERIES  INDUSTRY :  Competitive  markets 27-28 

FLOUR :  Price  control  exercised  by  trade  association ;  Millers  National 

Federation 240-242 

FOOD  PRODUCTS  INDUSTRY  :  Competitive  marketing  factors 52-53 

FORD  MOTOR  CO. : 
Litigation : 

La  Porte  Beinekamp  Motor  Co.  v.  Ford  Motor  Co.  (24  Fed.  2d  861)  ; 

cited    (n.) 170 

Marketing  policy 194-198 

Mass  production  leader  in  automotive  industry 195 

Profits  as  percentages  of  investment,  1927-37 ;  table 197 

Universal  Credit  Co.,  relationship 172 

FORTUNE  EDITORS:  Understanding  the  big  corporations  (1934)  ;  cited 

(n.) _ _ 108 

FOTH,  JOSEPH  H. :  Trade  associations  (1930)  ;  cited  (n.)^__  1 228 

FOULKE,  ROY  A. : 

Behind  the  scenes  of  business  (1937)  ;  cited  (n.) 39 

Relativity  of  the  moral  hazard  (1940)  ;<;ited  (n.) 44 

Signs  of  the  times  (1938)  ;  cited  (n.) 39 

They  said  it  with  inventories  (1939)  ;  cited  (n.) 39 

FOURNIER,  LESLIE  T. :  Purposes  and  results  of  the  Webb-Pomerene 

Law  (1932);  cited   (n.) 221 

ERASER,  C.  E.,  and  G.  F.  DORIOT:  Analyzing  our  industries   (1932)  ; 

cited  (n.) 32,180 

FREEPORT  SULPHUR  CO. :  Duopoly  control  of  sulphur  industry  shared 

with  Texas  Gulf  Sulphur  Co 108 

FREIGHT  EQUALIZATION  PLAN  :  Defined __'_ 147 

FROKER,  COLEBANK  AND  HOFFMAN :  Large-scale  organization  in  the 

dairy  industry  (1939)  ;  cited  (n.) _  __       121 

FUR  GOODS  INDUSTRY : 

Competitive  marketing:   factors 44-45 

Production  concentration , ~ ~ 44 

Turn-over ^ , II_"_II        44 

GALBRAITH,  J.  K. :  Monopoly  power  and  price  rigidities   (1936)  ;  cited 

(n.)^ , ^ 3(j4 

271817 — 41 — No.  21 22 


326  ^NDEX 

GASOLINE  BUSINESS :  I'age 
Marketing  strategy ;   integrated  versus  independent  refiners ;   "refin- 
ery squeeze,"  ''Iowa  plan,"  etc 167-168 

Price  agreement 135-136 

Price  leadership _. 128 

GAUMITZ,  E.  W.,  and  O.  M.  REED:  Some  problems  involved  in  estab- 
lishing milk  prices  (1937)  ;  cited  (n.) 121,211 

GENER^AJy  ELECTRIC  CO. : 

Dominant  factor  in  electric-lamp  industry 104 

Litigation : 

V.  8.  V.  General  Electric  Co.,  Fried  Krupp  A.  O.  et  al.  (D.  C 
U.  S.,  S.  D.  N.  Y.),  indictment,  Aug.  30,  1940;  cited   (n.)  and 

eunimary , 200 

GENERAL  MOTORS  ACCEPTANCE  CORPORATION:   General    Motors 

relationship , 172 

GENERAL  MOTORS  CORPORATION : 

Marketing   policy 195-198 

Profits  as  percentages  of  investment,  1927-37;  table 197 

GILL,  W.  A.,  and  others:  The  Knitting  industries;  cited  (n.) 37 

GLASS  INDUSTRY.     (-See  Windovp  glass.) 
GLASS  CONTAINER  INDUSTRY : 

Control  of  industry  exercised  by  Hartford-Empire  Co — - 73-78 

Price  leadership  held  by  Hazel-Atlas  Glass  Co 131 

GLOSSARY : 

Basing-point  pricing 147 

Cartels 215 

Competition 1-9 

Duopoly 10 

Duopsony 10 

Freight  equalization , 147 

Iowa  Plan ^ 168 

Monopolized  markets 65 

Monopoly 9-10 

Monopsony 10 

Oligopoly 5 

Zone  price : —       147 

GORDON,  KERMIT:  Rayon 202-205 

GREAT  NORTHERN  PAPER  CO.:  Price  leadership  in  sale  of  nev?sprint 

paper,  successor  to  International  Paper  Co ^- 130 

GULICK,  CHARLES  A.,  JR.,  jaint  author.     {See  Seager,  Henry  R.) 
GYPSUM  BOARD  INDUSTRY :  Patent  acquisition  and  licensing  operations 

of  United  States  Gypsum  Co.,  1912-35 162 

HADDOCK,  GEORGE  E. : 

Report  on  certain  economic  aspects  of  the  gypsum  wallboard  and  plas- 
terboard industry   (1939)  ;  cited  (n.) 163 

Report  on  gypsum  calcining  industry  (1939)  ;  cited  (n.) 163 

HADLEY,    F.    T. :  Motortruck    transportation   in   western    South   Dakota 

(1933);  cited  (n.) 61 

HAMILTON,  WALTON  H:  Price  and  price  policies  (1938)  ;  cited  (n.) 246 

HANEY,    LEWIS    H. :  Business    organization    and    combination     (1913); 

cited  (n. ) 225 

HARD  BOARD :  Patent  litigation,  Celotex  Corporation,  licensee ;  and  Ma- 

sonite  Corporation,  licensor 164 

HARTFORD-EMPIRE  CO. :  Control  of  glass  container  machinery  industry 

exercised  by  company 73-78 

HATHCOCK,  J.  W.,  and  others:  The  men's  clothing  industry  (1936(?))  ; 

cited  (n.) 39 

HATS  AND  CAPS  MANUFACTURE  :  Men's.   (See  Clothing  Manufacture.) 
HAZEL-ATLAS  GLASS  CO:  Price  leadership  in  sale  of  glass  containers 

held  by  company : 131 

HEAT-RESISTING  GLASSWARE :  Corning  Glass  Works  percentage  con- 
trol        110 

HEMPEL,  EDWARD  H. :  Economics  of  the  chemical  industries    (1939); 

cited   (n.) •_ 201 

HOUSEHOLD  APPLIANCES  INDUSTRY  :  Competitive  marketing  factors,  51-52 


INDEX  327 

HOUSEHOLD  FURNITURE:  Price  control  exercised  by  trade  associa-     Page 

tions 243-244 

HUMPHREY,  DON  D. :  The  nature  and  meaning  of  rigid  prices,  1890-1933, 

(1937)  ;   cited    (n.) 30i 

HUNT,  E.  E.,  F.  G.  TRYON,  and  J.  H.  WILLITS :  What  the  Coal  Commis- 
sion found    (1925)  ;  cited    (n.) 181 

HUTCHINSON,  R.  G.,  A.  R.,  and  M.  NEWCOMER :  Study  in  business  mor- 
tality (1938)  ;  cited  (n.) 57_58 

INCANDESCENT. LAMPS.   (See  Electric  Lamp  Industry.) 
INSTALLMENT  BUYING.   (See  Financing  Companies.) 
INSULATING  MATERIALS.   (See  Mineral  Wool.) 

INTEGRATION:  Competitive  marketing  advantages 166 

Motion-picture   industry 173 

INTERLOCKING  RELATIONSHIPS I I__  189-194 

Building  materials : 

Celotex  Corporation,  licensee  of  Masonite  Corporation :  hardboard 

patents lg4 

Certain-teed  Products  Corporation,  licensee  of  Masonite  Corpora- 
tion ;  hardboard  patents 164 

National  Gypsum  Co.,  licensee  of  Masonite  Corporation;  hard- 
board  patents Ig^ 

Chemical  Industry : 

Allied  Chemical  &  Dye  Corporation  corporate  relation  with  Bar- 
rett Co.  and  Solvay  Process  Co ^ 137 

American  Potash  &  Chemical  Corporation,  percentage  of  stock 

owned  by  Consolidated  Gold  Fields  of  South  Africa,  Ltd 139 

United  States  Potash  Co.,  percentage  of  stock  owned  by  Pacific 
Coast  Borax  Co.   in   turn  controlled  by   Borax  Consolidated 

Ltd.,  of  England _        _'       135 

Interest  groupings  ;  examples I ~_II~I  193-194 

Interlocking  directorates;  types  and  instances Z_  i9^-'-i93 

Litigation : 

{Arrow-Hart  &  Hegeman  Electric  Co.  v.  Federal  Trade  Commis- 
sion  (1934,  291  U.  S.  587) 190 

Thatcher  Manufacturing  Co.  v.  Federal  Trade  Commission  and 
Swift  &  Co.  V.  Federal  Trade  Commission  (1926,  272  U  S  554 )_      190 
Milk  and  milk  products : 

Kraft-Phenix  Cheese  Corporation,  corporate  relation  to  National 

Dairy   Products   Co ^^^ 

Lakeshire  Cheese  Co.,  corporate  relation  to  BordenCo."     _  I  _"      141 

Stock   ownership _ ~  "  -iqA-iqo 

INTERNATIONAL   BUSINESS    MACHINES~~cbRPORATIONT"Blectric 
aecountmg  machines  duopoly  control  shared  with  Remington  Rand 

Ine '       -Qg 

Marketing  strategy:  tying  contract  device __!___!_     ~        ~^      irt 

INTERNATIONAL  CARTELS.     (See  Cartels  ) 
INTERNATIONAL   COMMUNICATIONS : 

Cable,    radiotelegraphy,    and    radiotelephony,    companies    exercisine 

monopoly   control gg 

Cable    and     radiotelegraphy,     companies     exercising     duopoly"   con- 

troi 100—1(11 

INTERNATIONAL  HARVESTER  CO. :  -  —     —  xyjv-±vx 

Controlling  power  in  its  field  of  industry 65  68  69 

Marketing    strategy;    instance _~_ '     {qq 

Price  leader  with  Deere  &  Co.  in  sale  of  farm  machinerv-  126-127 

INTERNATIONAL  MATCH  CO. :  Production  leader  in  its  field  113 

INTERNATIONAL  NICKEL  CO.  OF  CANADA,  LTD. :  American'TnTer- 
ests  in  Co _ __  -^ 

INTERNATIONAL  PAPER  CO. :  Price"l7a"der7hiVTn  ~s"aTe"  o7 "newiprint 

paper,  succeeded  by  Great  Northern  Paper  Co Iqo 

INTERNATIONAL  SHOE  CO. :  Size  leadership  in  industry  "  at, 

INTERSTATE  TRADE  BARRIERS ?7S^27Q 

INVESTMENT  BANKING:  Market  sharing  practice-  "  17bIi7Q 

IOWA   PLAN:   Defined ~_~l  irs 

IRON  ORE:   Base  price  system I— IZZ'irZZri      134 

JAMES,   CLIFFORD  L. :   Industrial  concentration   and  tariffs    (1940)- 
cited    (n.) , _  ''■     -^.. 


328  INDEX 

JOllNS  MANVILLE  CORPORATION : 
Litigation : 

U.  S.  V.  Johns  Manville  et  al.   (D.  C.  U.   S.  N.  D.  111.  B.  Div.)      Pase 

Dept.  Justice  complaint,  June  24,  1940;  cited  (n.)__. 165 

JONES,    ELIOT:    Trust  problems  In    the   United    States    (1926);    cited 

(n. ) V- -: 66 

KAHN,  ALFRED  E. :  Fundamental  deficiencies  of  the  American  patent 

law  (1940)  ;  cited  (n.) 158 

KENNEDY,  S.  J.:  Profits  and  losses  in  textiles  (1936)  ;  cited  (n.) 32 

KEPNER,  CHARLES  D.,  AND  JAl  H.  SOOTHILL:  The  banana  empire 

(1935);  cited  (n.) —       101 

KIRSH,  BENJAMIN  S. :  Trade  associations  in  law  and  business  (1938)  ; 

cited    (ni.) 228 

KNIT  GOODS  INDUSTRY: 

Competitive  marketing  factors 36-^9 

Production  concentration 37 

Price  flexibility :_—         38 

KOPPERS  CO. :  Production  leader  in  its  field 113 

KRAFT  PHENIX  CHEESE  CORPORATION :  Corporate  relation  to  Na- 
tional Dairy  Products  Co 141 

KREPS,  THEODORE  J.:  The  chemical  industry   (1935)  ;  cited  (n.) 202 

L.  C.  SMITH  AND  CORONA  TYPEWRITERS,  INC. :  Invested  capital  re- 
turn,  1937-39 ■- 141 

LABOR  DEPARTMENT: 

Wage  and  Hour  Division : 

Report  on  the  full-fashioned  hosiery  industry  (1939)  ;  cited  (n.)__         39 

Report  on  knitted  outerwear  industry    (1939)  ;  cited    (n.) 37,39 

Report  on  knitted  underwear  and  commercial  knitting  industry 

(1939)  ;  cited  (n.) 37 

Report  on  the  leather  industry  (1940)  ;  cited  (n.) 46 

Report  on  the  seamless  hosiery  industry  (1939)  ;  cited  (n.) 39 

Report  on  the  shoe,  manufacturing  and  allied  industries  (1939)  ; 

cited    (n.) 45 

Women's  Bureau : 

Bulletin  169.    Conditions  in  the  millinery  industry  (1939)  ;  cited 

(n.) . 44 

LAKESHIRB  CHEESE  CO. :  Corporate  relation  to  Borden  Co 141 

LARGE  VERSUS  SMALL  BUSINESS 299-301 

Manufacturing : 

Percentage  production,  1935,  of  four  largest  less  than  one-fourth 

and  of  eight  largest  less  than  one-third  combined ;  table 29 

Marketing  strategy  devices  of  large  concerns 166 

Woolen  and  worsted  goods  industry,  advantage  of  small  concerns 34 

LEAD  :  Price  leadership  held  by  American  Smelting  &  Refining  Co 129 

LEATHER  INDUSTRY:  Competitive  marketing  factors ^ 46-^8 

Demand    decline  ;    causes 47 

Invested  capital  return 48 

Packers'  advantage  in  the  leather  trade 47 

Price    flexibility 47 

Production    concentration 46 

Li^VEN,  MAURICE,  H.  G.  MOULTON  and  CLARK  WARBURTON: 

America's  capacity  to  consume   (1934)  ;  cited   (n.) 22 

LEWIS,  BEN  W. :  Price  and  production  control  in  British  industry  (1937) ; 

cited    (n.) 217 

LIBBY,  McNeill  &  LIBBY :  Rank  in  canning  and  preserving  industry__        53 
LIBBEY-OWENS-FORD  GLASS  CO. :  Duopoly  control  of  plate-glass  indus- 
try shared  with  Pittsburgh  Plate  Glass  Co 103 

LIFE  INSURANCE:  Competitive  sales  factors,  price  agreements 143-146 

LIVERMORE,  SHAW:  The  success  of  industrial  mergers   (1985);  cited 

(n.) 313 

LOCAL    MARKETS ^ 206-214 

Commercial    banking 206-208 

List  of  trade  associations,  trade  unions,  and  other  groups  exercisinf 
some  form  of  control  over  production,  price  and  terms  of  sale,  and 

organizing  boycotts  in  local  markets,  1920-40 280-285 

LOCKLIN,  PHILIP:  Economics  of  transportation   (1938);  cited   (n.) 61 

LONG,  CLARENCE  D.,  JR. :  Newsprint  costs  and  competition  (1940)  ;  cited 

(n.) . ._ 61 


INDEX  329 

LOOSE-WILES  BISCUIT  CO.:  Price  leadership  in  sale  of  biscuits  and     Page 

crackers  held  by  Loose-Wiles  and  National  Biscuit  Co 131 

LYON,  LEVERETT  S.  and  ABRAMSON,  VICTOR :  The  economics  of  open 

price  systems  (1936)  ;  cited  (n.) 230 

LUMBER :  Competitive  markets  for  lumber  and  timber  products 22-24 

MAGNESIUM  :  Control  of  production  exercised  by  Dow  Chemical  Co 82 

MALOTT,  D.  W.,  and  B.  F.  MARTIN:  The  agricultural  industries  (1939)  ; 

cited  (n) • 34,  187 

MANAGEMENT  ENGINEERING  COMPANIES:  Trade-association  busi-  . 

jjggg _  252—256 

manufacturing"  INDUSTRIES  "competitive  m"arkets___l_' ~-Zi—  28-54 

Producer  distribution  sample : 

List  of  48  products  valued  at  more  than  $10,000,000  each,  in  whose 
manufacture  the  four  largest  producers  controlled  less  than  one- 

.  fourth  of  total  output,  1937,  table 30 

List  of  49  industries  selling  products  on  a  national  market,  1935, 

percentage  production  of  4  and  8  largest,  respectively ;  table 29 

MARKET  DOMINANCE 194-205 

MARKET  SHARING 176-189 

N.  R.  A.  Code  provisions 263* 

Trade-association  schemes : 

Building  materials ;  National  Federation  of  Builders'  Supply  As- 
sociations   j.__      249 

Consumer-credit  reporting :  National  Retail  Credit  Association.  248-250 

Textile  reflnishing:  Textile  Refinishers  Association 249 

Window  glass :  Window  G9ass  Manufacturers'   Association   and 

National    Glass   Distributors'    Association 249 

MARKETING  STRATEGY : 

American  Can  Co.  practice;  instance 166 

Armour  &  Co.  practice;  instance 166 

Automobile  sales;  manufacturer-dealer  relationships 170-172 

Bargaining  power  of  dominant  firms 165-176 

California  Packing  Corporation  practice ;  instance 166 

Columbia  Broadcasting  System,  exclusive-contract  device 166 

Competitive  practices  of  dominant  firms 165-176 

Compulsory  contracts  imposed  by  large  concerns  for  exclusive  handling 

of  goods 166 

Deere  &  Co.  practice  ;  instance 169 

Eastman  Kodak  Co. ;  exclusive  contract  device 166 

Full-line  forcing  device,  agricultural  implement  sales 168-170 

Gasoline  marketing  practices ;  "refinery  squeeze,"  "Iowa  plan,"  etc 167-168 

International  Business  Machines  Corporation ;  tying  contract  device 167 

International  Harvester  Co.  practice ;  instance 169 

Manufacturer-dealer  relationships ■ 171 

Motion-picture  industry,  tying  contracts,  block  booking,  coercive  prac- 
tices, integrated  v.  independents,  etc 172-173 

National  Biscuit  Co. ;  exclusive  contract  device 166 

National  Broadcasting  Co. ;  exclusive  contract  device 166 

Radio  broadcasting ;  major  network  and  station  outlets  contractual 

relationship ^ 173-176 

Remin^on-Rand,  Inc. ;  tying  contract  device , 167 

Swift  &  Co.  practice;  instance 166 

Tying  contracts : 167 

United  Shoe  Machinery  Co. ;  tying  contract  device 167 

MARKETS: 

Classification   of 12 

Local.     (See  Local  Markets.) 

Monopolized  ;  defined 65 

MARSHALL,  GEORGE :  Cottonseed,  joint  products  and  pyramidal  control 

(1938)  ;  cited  (n.) 246 

MARTIN,  B.  F.,  joint  author.     (See  Maiott,  D.  W.) 

MARTIN,    ROBERT    F. :    International    raw   commodity    price    control 

(1937);   cited    (n.) 219 

MASON,  EDWARD  S. :  Price  inflexibility   (1938);  cited   (n.) 304 

MASONITE  CORPORATION : 
Litigation : 

U.  S.  V.  Masonite  Corp.,  et  al.  ,(D.  C,  U.  S.,  S.  D.  N,  Y.),  com- 
plaint, Department  of  Justice,  March  13,  1940;  cited  (n.) 164 


330  INDEX 

Page 

MATCH  INDUSTRY:  Intercorporate  relations;  stock  ownership.-^ 191 

McGABRY,  E.  D. :  Mortality  in  retail  trade  (1939)  ;  cited  (n.) 58 

MEANS,  GARDINER  C. : 

Rates  on  inflexible  prices  (1936)  ;  cited  (n.) 304 

joint  author.     (See  Berle,  Adolf  A.,  Jr.) 

MEAT  PACKING  INDUSTRY.     {See  Packing  Industry.) 

MEN'S  CLOTHING  INDUSTRY.     (See  Clothing  Industry.) 

MICHIGAN :  Magnesium  chloride,  only  considerable  deposit  of  compound 
for  economic  extraction  of  magnesium,  found  in  brine  wells  of  Mid- 
land,   Mich 82 

MICHL,  H.  E. :  The  textile  industries   (1938)  ;  cited  (n.) 31 

MILK-  BOTTLES  :  Price  leadership,  Thatcher  Manufacturing  Co 131 

MILK  DISTRIBUTION: 

Concentration  in  representative  cities;  comment  and  table 120-121 

Local   markets 208-214 

MILLINERY  TRADE : 

Competitive   marketing   factors 43-44 

Life  expectancy  in  the  industry 44 

MILLS,  FREDERICK  C. :  Behavior  of  prices  (1927)  ;  cited  (n.) 302 

MILLWORK :  Regional  concentration  of  production 120 

MINERAL  WOOL:  Slayter  patent  monopoly;  litigation 164^165 

MOLYBDENUM : 

Cartel,  participation  of  Climax  Molybdenum  Co.  in  international  cartel-        81 
Control  of  production  exercised  bv  Climax  Molybdenum  Co 81-82 

MONOPOLIZED  MARKETS:   Defined 65 

MONOPOLY : 

Advantages  of  monopoly 15 

Definition  of  the  different  meanings 9-10 

Disadvantages  of  monopoly 16 

Is  monopoly  inevitable? 309-314 

MONOPOLY  AND  COMPETITION : 

Areas  of 307-308 

Instability   of 308-309 

Occurrence  of 299-315 

Persistency  of 314-315 

MONOPSONY :  Defined 10 

MONTGOMERY,  R.  H. :  The  brimstone  game  (1940)  ;  cited  (n.) 109 

MOODY,  JOHN:  Truth  about  the  trusts  (1904)  ;  cited  (n.) 65 

MOSHER,   WILLIAM  E.,   and  others:  Electrical  utilities    (1929)  ;   cited 

(n.) 94 

MOTION-PICTURE  INDUSTRY: 

Concentration  of  production 172-173 

Litigation:  U.  S.  v.  Paramount  Pictures,  Inc.,  et  al.     (D.  C.  U.  S. 

S.  D.  N.  Y.).    Petition  in  equity.     July  20,  1938;  cited   (n.) 173 

Sound  recording,  conflict  of  interest  between  American  Telephone 
&  Telegraph  Co.,  Electrical  Research  Products,  Inc.,  and  Radio 
Corporation  of  America 84-85 

MOTOR-TRUCKING  BUSINESS : 

Competition,  legalized  restraint ;  Federal  and  State 268 

Competitive  marketing  factors 60-61 

MOULTON,  HAROLD  G.,  joint  author.     (See  Leven,  Maurice.) 

MYERS,  ROBERT  J. :  Economic  aspects  of  the  production  of  men's  cloth- 
ing  (1937);  cited   (n.) 40 

NATIONAL  BISCUIT  CO. :  Marketing  practice  ;  exclusive  contract  device.      166 
Price  leadership  in  sale  of  biscuits  and  crackers  held  by  National 

Biscuit  Co.  and  Loose-Wiles  Biscuit  Co 131 

Production  leader  in  its  fleld 113 

NATIONAL  BROADCASTING  CO. : 

Dominating  position  in  industry 173 

Marketing  practices;  exclusive  contract  device 166 

Profits,  1938,  percentages 176 

Radio  Corxwration  of  America  relationship 174-175 

NATIONAL  BUREAU  OF  ECONOMIC  RESEARCH.  Committee  on  prices 

in  the  bituminous  coal  industry.     Report  (1939)  ;  cited  (n.) 24 

NATIONAL  CASH  REGISTER  CO. :  Controlling  power  in  its  field  of  in- 
dustry   ^ ^ . 65,  68 


INDEX  331 

NATIONAL  DAIRY  PRODUCTS   CORPORATION.:  Extent  of  business     Page 
of,    1937-38 210 

NATIONAL  INDUSTRIAL  CONFERENCE  BOARD :  Trade  associations ; 

their  economic  significance  and  legal  status  (1925)  ;  cited  (n.) 230 

NATIONAL  LEAD  CO. :  Production  leader  in  its  field 113 

NATIONAL  RECOVERY  ADMINISTRATION : 
Codes : 

Nature  and  scope  of 259^267 

Division  of  Review : 

Evidence  study  No.  8.     The  cotton-garment  industry    (1936(?)); 

cited    (n.) 40 

Evidence  study  No.  21.     The  leather  industry    (1936(?));  cited 

(n.) 47 

Evidence  study   No.    22.     The  lumber-  and   timber-products   in- 
dustry (1935);  cited  (n.) 23 

Work  materials.     No.  31.     Arnold,  J.   R.     Fishery  industry  and 

fishery  codes  (1936)  ;  cited  (n.) 28 

Work  materials.     No.  58.     The  men's  clothing  industry.     J.  W. 

Hathcock  and  others   (1936  (?));  cited   (n;) 39 

Work  materials.    No.  69.    Economic  survey  of  the  bituminous  coal 
industry  under  free  competition  and  code  regulation.    Fred  E. 

Berquist  and  associates  (1936)  ;  cited  (n.) 25 

Work  materials.     No.  70.     Peter  A.  Stone  and  others.     Economic 
problems  of  the  lumber  and  timber  products  industry  (1936)  ; 

cited    (n.) 23 

Work  materials.    No.  76.    Price  filing  under  N.  R.  A.  codes.    Enid 

Baird;  cited   (n.) 246 

Work  materials.     No.  80.     The  knitting  industries.     W.  A.   Gill 

and  others  (1936  (?));  cited  (n.) ^ 37 

Research  and  Planning  Division  : 

Report  and  recommendation  on  wages  and  hours  in  fur  manufac- 
turing (1935);  cited   (n) : 44 

NATIONAL    RESOURCES    COMMITTEE.      Consumer    incomes    in    the 

United  States  (1938)  ;  cited  (n.) .  22 

Energy  resources  and  national  policy    (1939)  ;  cited   (n.) _ 24,181 

Structure  of  the  American  economy   (1939)  ;  cited   (n.) 21,29,34,111 

NATURAL  GAS  PIPE  LINES :  Intrastate  and  interstate  regulation 110 

NELSON,  SAUL  AND  WALTER  S.  KEIM :  Price  behavior  and  business 

policy  (1940);  cited  (n.) 21,27,33 

NEW  YORK  AIR  BRAKE  CO. :  Air  brakes  duopoly  control  shared  with 

Westinghouse  Vir  Brake  Co r 107 

NEW  YORK  STATE :  Commission  on  revision  of  public  service  commis- 
sions law  (1930)  ;  cited  (n.) 95 

NEWCOMER,  MABEL,  joint  author.     {See  Hutchinson,  R.  G.) 
NEWSPRINT  PAPER :  Price  leader,  International  Paper  Co.  succeeded  by 

Great  Northern  Paper  Co 130 

NICHOLLS,  WILLIAM  H. : 

Market-sharing  in  the  meat-packing  industry  (1940)  ;  cited   (n.)  and 

summary - 183, 184 

Post-war  construction  in  the  cheese  industry  (1939)  ;  cited  (n.) 142 

NICKEL; 

Canadian  deposits . 79 

Control  of  production  exercised  by  International  Nickel  Co.  of  Canada, 

Ltd 70-81 

Falconbridge  Nickel  Mines,  Ltd.,  Canadian  producer 79 

Finnish   deposits 79 

New  Caledonia  principal  source  outside  of  Canada 79 

NITROGEN :  Chemical  nitrogen,  uses,  production,  prices,  and  market—  137-138 
NOURSE,   EDWIN   G.,   and   associates:  America's   capacity  to   produce 

(1934);    cited    (n) 26 

NOURSE,  EDWIN  G.  AND  HORACE  B.  DRURY :  Industrial  price  policies 

and  economic  progress  (1938)  ;  cited  (n.) 113 

OIL  TRANSPORT.     (See  Pipe  Lines.) 

OLIGOPOLY :  Defined—^ 5 

PTICAL  GLASS  INDUSTRY :  Control  of  industry  exercised  by  Bausch 

&  Lomb  Optical  Co 78 


332  INDEX 

OPTICAL  WHOLESALERS  NATIONAL  ASSOCIATION : 

Litigation :  Page 

Department  of  Justice  indictment  March  28,  1940.     (D.  C.  U.  S. 

.  S.  D.  N.  Y.)  ;  cited  (n.) 141 

OSTROLENK,    BERNHARD :  Electricity :    for    use    or    profit?     (1936); 

cited    (n.) 94 

OUTBOARD  BOAT  MOTOR  INDUSTRY :  Intercorporate  relations ;  stock 

ownership ;    instance i 191 

OXYACETYLENE  INDUSTRY :  Duopoly  control  exercised  by  Union  Car- 
bide &  Carbon  Corporation  and  Air  Reduction  Co 108 

PABST,  WILLIAM  R.,  JR. :  Monopolistic  expectations  and  shifting  control 

in  the  anthracite  industry  (1940)  ;  cited  (n.) 180 

PACIFIC  COAST  BORAX  CO. :  Duopoly  control  of  borates  shared  with 

American  Potash  and  Chemical  Coriwration 110 

PACKING  INDUSTRY : 

Advantage  of  packers  in  leather  industry '41 

"Big  Four"  constituents,  percentage  domination  of  slaughtering  1920 

and    1937 183 

Litigation,  1905^28;    summary 182-183 

Market  sharing  practices 182-185 

Packing  houses.     (See  Armour  &  Co. ;  California  Packing  Corporation  ; 
Swift  &  Co.) 
PAN-AMERICAN   AIRWAYS    SYSTEM:    Control    exercised    OYer    trans- 
oceanic commercial  aviation 93 

PAN  AMERICAN  UNION:  The  story  of  the  banana;  cited   (n.) 101 

PARAMOUNT  PICTURES,  INC.: 
Litigation : 

U.  8.  V.  Paramount  Pictures,  Inc..  et  al.  (D.  C.  U.  S.,  S.  D.  N.  Y.) 

Petition  in  equity.      July  20,  1S38;  cited  (n.) 173 

PATENT  MONOPOLY___:- 158-160 

Ethyl  gasoline  (tetra-ethyl)  licensing  contract 160-161 

Gypsum  board,  domination  of  United  States  Gypsum  Co 162 

Hardboard,  domination  of  Masonite  Corporation,  litigation 163-164 

Mineral  wool 164-165 

Radio  patent  pool 160 

PATENT  POOLS  :  Trade  association  activity 231 

PATON,   WILLIAM   A. :  Corporate   profits   as   shown   by   audit   reports 

(1935).      (n.) 312 

PEA  CANNING :  Production  allocation  by  trade  association :  Wisconsin 

Canners'   Association 250 

PEARCE,  C.  A. :  Trade  association  survey  (1940)  ;  cited  (n.) 233 

PENNSYLVANIA  : 

Anthracite  Coal  Industry  Commission: 

Chart  and  ad  interim  report  (1937) ,;  extract  and  cited  (n.) 180-181 

Report  of  Commissioner  Morris  L.  Ernst  (1937)  ;  cited   (n.) 181 

Bureau  of  Workmen's  Compensation  : 

Study  of  the  anthracite  industry  (1938)  ;  cited   (n.) 180 

House  Committee  examining  gas  and  electric  companies  in  Pennsyl- 
vania:  proceedings  (1929)  ;  cited  (n.) ^ 95 

PETROLEUM  INDUSTRY  (see  also  Gasoline  Business;  Pipe  Lines)  : 

Comi)etition,  legalized  restraint;  Federal  and  State 267-268 

Competitive  markets 26-27 

Concentration  of  production 119 

Price  leadership 127 

PETROLEUM  REFINING: 

Marketing   strategy ;    handicaps   of   indei)endents   versus    integrated 

companies ;  "refinery  squeeze,"  "Iowa  plan,"  etc 167-168 

Production  allocation  quota  scheme  of  trade  association :  majors  and 

independents  cooperate 251-252 

Production   allocation    quota    scheme   of    trade   association :    Pacific 

Coast  Oil  Cartel 251 

PETROLEUM  TRANSPOl  T.     (See  Pipe  Lines.) 

PHILADELPHIA   &  READING    CO.:    Price  leader   for    anthracite  coal 

prior  to  1920 123 

PIPE  LINES : 

Natural  gas,  intrastate  and  interstate  regulation 110 

Oil,  control  exercised  by  operating  companies 88-90 


INDEX  333 

I'lTTSBURGH  PLATE  GLu\SS  CO. :  Duopoly  control  of  industry  shared     Page 

with  Libbey-Oweus-Ford  Glass  Co 103 

"PITTSBURGH  PLUS":  Steel  industry  basing  point  price  system.     {See 

Steel  Industry.) 
PLATE  GLASS   INDUSTRY:   Duopoly  control   exercised  by   Pittsburgh 

Plate  Glass  Co.  and  Libbey-Owens-Ford  Glass  Co 103 

PLUMMER,  ALFRED :  International  combines  in  modern  industry,  ed.  2 

(1938);  cited    (n.) ^ 138 

POOLS : 

Defined 225 

Patent  pooling  by  trade  associations 231 

POSTAL    TELEGRAPH    CO.:   Duopoly    control    over    domestic    service 

exercised  jointly  with  Western  Union  Telegraph  Co 98-100 

POTASH  INDUSTRY : 

American  and  European  reserves  compared 138 

Cartels   and   price   agreement,   1924-27 138 

Companies   and   agencies.      (See   American   Potash    Institute,    Inc.; 
American  Potash  &  Chemical  Corporation ;  American  Trona  Cor- 
poration ;  Potash  Co.  of  America ;  Potash  Export  Association ;  Pot- 
ash Export  Maatschappij,  N.  V. ;  United  States  Potash  Co. 
Concentration  of  production ;  three  American  companies  controlling 

output 139 

Litigation : 

U.  8.  V.  Americati  Potash  and  Chemical  Corp.,  et  al.  (D.  C, 
U.  S.,  S.  D.,  N.  Y.).  Indictment  May  26,  1939;  cited  (n.)  ;  con- 
sent decree,  May  21,  1940;  cited  (n.) 116,  139,  140 

Prices,  delivered  price  system 139 

POTASH  CO.  OF  AMERICA  (1934)  :  Income  of  company  each  fiscal  year 

ended  June  30,  1937-39;  percent  net  income  on  net  book  worth 140 

POTASH    EXPORT   ASSOCIATION:    Formulation    in    November    1938; 

purposes 139 

POTASH  EXPORT  MAATSCHAPPIJ,  N.  V.  (1927)  :  Sales  agency  of  for- 
eign producers  of  potash 138-139 

POWER  CABLE  AND  WIRE :  Price  control  exercised  by  National  Elec- 
trical Manufacturers'  Association 1 247 

PRIBRAM,  KARL:  Cartel  problems  (1935)  ;  cited  (n.) 216 

PRICE  AGREEMENTS : 

Cheese  industry,  firms  controlling  supply 141-143 

Department  of  Justice  action 132 

Eyeglass  industry,  three  firms  controlling  supply 141 

Federal  Trade  Commission  action 132* 

Gasoline 135-136 

Iron  ore,  basing  system 134 

Life  insurance 143-146 

Potash  industry ^ 138-141 

Steel  industry  basing  system 133- 

Typewriters ;    four   companies   controlling   production ;    price    agree- 
ment   140-141 

PRICE   CHARACTERISTICS:  Rigidity-, 302-3b7 

Uniformity 301^02 

PRICE  CONTROL : 

N.  R.  A.  codes;  analysis 261-263 

Trade  association  price  reporting  sy.stems 229-230 

Trade   associations,    industrial    institutes,    etc.,    1920-40,    iist    of    in- 
stances  234r-24)0 

Asphalt  shingle  and  roofing:  Asphalt  Shingle  and  Roofing  Insti- 
tute        246 

Bread :  American  Bakers'  Association 242-243 

Cottmiseed  oil - 244r-246 

Flour:  Millers  National  Federation 240-242 

Household  furniture - 243-244 

Power  cable  and  wire :  National  Electrical  Manufacturers'  Asso- 
ciation         2^7 

Snow  fence  :  United  Fence  Manufacturers  Association 247 

Steel-window  products:  Metal  Window  Institute 247 

PRICE  LEADERSHIP:  Procedure  and  effect  on  prices 121-123 


334 


INDEX 


PRICE  LEADERSHIP— COMPANIES  :  Page 
Alaska  Packers  Association,  leader  in  sale  of  canned  salmon,  prior  to 

1920 123 

American  Agricultural  Chemical  Co.  and  Virginia-Carolina  Chemical 

Co.,  leaders  in  sale  of  fertilizer  prior  to  1920 123 

American  Brass  Co 122 

American  Can  Co.,  price  leader  for  packer  cans  prior  to  1920 ^ 123 

American  Smelting  &  Refining  Co.,  leader  in  sale  of  copper  and  lead —  129 

Carnegie-Illinois  Steel  Co.,  leader  in  sale  of  tin  plate 125 

Corn  Products  Refining  Co.,  price  leader  in  sale  of  corn  products  prior 

to  1920 - 123 

Great  Northern  Paper  Co.,  price  leadership  in  sale  of  newsprint  held 

by 130 

Hazel-Atlas  Co.,  in  sale  of  glass  containers 131 

International  Harvester  Co.  and  Deere  &  Co.,  price  leaders  in  sale  of 

farm  machinery 126-127 

International  Paper  Co.,  leadership  in  sale  of  newsprint  formerly  held 

by 130 

LoQSe-Wiles  Biscuit  Co.,  biscuits  and  crackers 131 

National  Biscuit  Co.,  biscuits  and  crackers 131 

Philadelphia  &  Reading  Co.,  anthracite  coal  prior  to  1920 123 

Thatcher  Manufacturing  Co.,  milk  bottles 131 

United  States  Industrial  Alcohol  Co.  to  price  leadership  in  sale  of  in- 
dustrial alcohol  during  1928  and  1929 123 

PRICE  LEADERSHIP— INDUSTRIES : 

Anthracite  coal,  leader  prior  to  1920 \ 123 

Biscuits  and  crackers ^^  131 

Canned  salmon,  Alaska  Packers  Association,  leader  prior  to  1920 123 

Cement  industry 126 

Cigarette  manufacture,  leadership  changes,  1928-34 186 

Copper  and  lead 129 

Corn  products.  Corn  Products  Refining  Co.  price  leader  prior  to  1920 123 

Fertilizer,  American  Agricultural  Chemical  Co.  and  Virginia-Carolina 

Chemical  Co.,  leaders  prior  to  1920 123 

Gasoline :., 128 

Glass  containers,  Hazel-Atlas  Co 131 

Industrial  alcohol.  United  States  Industrial  Alcohol  Co.  took  lead  dur- 
ing 1928  and  1929 123 

Milk  bottles,  Thatcher  Manufacturing  Co 131 

Newsprint  paper.  International  Paper  Co.  succeeded  by  Great  Northern 

Paper  Co . 130 

Nonferrous  alloys 122 

Packer  cans,  American  Can  Co.,  prior  to  1920 123 

Petroleum : 127 

Steel    industry ^ 123-126 

Tin  plate,  Carnegie-Illinois  Steel  Co 125 

PRICE  SYSTEMS: 

Basing  point.     {See  Basing  Point  Pricing.) 

Delivered-price  systems 146-165 

Potash 139 

Freight  equalization.     (See  Freight  Equalization  Plan.) 

Zone  price  defined 147 

PROCTER  &  GAMBLE  CO. :  Production  leader  in  its  field 113 

PRODUCTION  ALLOCATION : 

N.  R.  A.  Codes  provision;  analysis 264-265 

Trade  association  quota  schemes: 

Elevators:  National  Elevator  Manufacturing  Industry 252 

Oil  refining  in  California;  cooperation  of  majors  and  independ- 
ents    251-252 

Trade  association  restriction  schemes: 

Copper:  Copper  Institute 250 

Cotton  textiles:  Cotton  Textile  Institute;  "Print  Cloth  Curtail- 
ment   Program" 2.^0-251 

Cotton  yarn  :  Southern  Yarn  Spinners  Association 250 

Pea  canners:  Wisconsin  Canners'  Association 250 

Window  glass :  National  Window  Glass  Manufacturers'  Associa- 
tion  u 250 

Wooden   containers:    Standard   Container   Manufacturers'   Asso- 
ciation   251 


INDEX  335 

PRODUCTION  CONTROL:  Control  exercised  by  trade  associations,  in-     Page 

dustrial  institutes,  etc.,  1920^0,  list  of  instances 234r-240 

PUBLIC  UTILITY  CORPORATIONS  :  Local  market  monopoly 93-95 

PUBLISHING  BUSINESS  :  Competitive  factors 61 

PULLMAN  CO. :  Monopoly  of  business  of  operating  sleeping  ears,  parlor 

ears,  and  combination  cars  on  railroads  of  United  States 91-93 

PUTNAM,  GEORGE  E. :  Supplying  Britain's  meat  (1923)  ;  cited  (n.)  and 

extract 185 

RACKETS,  RETAIL  TRADE 293-298 

RADIO    BROADCASTING:  Marketing   strategy,    two   dominating   com- 
panies    173-176 

RADIO  BUSINESS : 

Agreements  between  American  Telephone  &  Telegraph  Co.,  General 

Electric  Co.,  and  Radio  Corporation  of  America 84 

Intercorporate  relations:  stock  ownership;  instance 191 

Marketing  strategy;  exclusive  contract  device 166 

Patent  pool 160 

RADIO  CORPORATION  OF  AMERICA : 

National  Broadcasting  Co.,  relationship 174-175 

Radio-patent  pool  controlled  by 160 

RADIO  RECEIVING  SETS  :  Production  concentration 52 

RADIOTELEGRAPHY :  Companies  exercising  control  over  parts  of  field 

of  international  radiotelegraphy 88 

RADIOTELEPHONY :  International  service  controlled  by  American  Tele- 
phone &  Telegraph  Co 88 

RAILROADS : 

Anthracite  carriers,  market-sharing  practices  and  program 179-182 

Litigation : 

V.  8.  V.  Reading  Co.   "Reudmg  case"    (1920)    (253  U.   S.   26)  ; 

comment 180 

Monopolist  position  of 90-91 

RAUSHENBUSH,  STEPHEN:  The  power  fight  (1928)  ;  cited  (n.) 94 

RAYON-GOODS  INDUSTRY  (see  also  Silk-  and  Rayon-Goods  Industry)  : 

Concentration  of  production 203 

International  combines . 204—206 

Market  dominance 202-205 

Profits,  average  annual  percentages,  American  Viscose,  1915-38,  du 

Pont,  rayon  department;  1921-38,  Celanese,  1925-38 205 

Profits,  percentages,  1915-20,  1921-29,  1930-38,  average  annual 205 

READING  CO. : 
Litigation : 

U.   8.   v.   Reading   Co.   "Reading   Case"    (1920,   253   U.    S.   26)  ; 

comiuent 180 

REED,  O.  M.,  joint  author.     (See  Gaumitz,  E.  W.) 
REFERENCES  TO  LITERATURE : 

Abrahamson,  Albert.    The  automobile  tire,  forms  of  marketing  in  com- 
bat  (1938);  cited   (n.) 1 49 

Alspaugh,  Harold  P.,  marketing  of  meat  and  meat  products  (1936)  ; 

cited    (n.) 183 

Arnold,  John  R. :  The  fishery  industry  and  the  fishery  codes  (1936)  ; 

cited    (n.) 28 

Association  of  Cotton  Textile  Merchants.    Ten  years  of  cotton  textiles 

(1940);  cited   (n.) 32 

Backman,  Jules:  Causes  of  price  fiexibility  (1940)  ;  cited  (n.) 304 

Price  flexibility  and  inflexibility    (1940)  ;   cited    (n.) 304 

Baird,  Enid.     Price  filing  under  N.  R.  A.  codes;  cited  (n.) . 246 

Beckerath,  Herbert  von.    Modern  industrial  organization;  cited  (n.)_      215 
Bennett,  John  J.     Report  on  the  milk  industry  of  the  State  of  New 

York    (1938);    cited    (n.) 209 

Berle,  A.  A.,  Jr.    Investigation  of  business  organization  and  practices 

(1938);  cited  (n.) 112 

Berle,  Adolf  A.,  Jr.,  and  Gardiner  C.  Means.    The  modern  corporation 

and  private  property  (1933) ;  cited  (n) 299 

Berquist,  Fred  E.,  and  associates.    Economics  survey  of  the  bituminous 
coal  industry  under  free  competition  and  code  regulation   (1936)  ; 

cited   (n.) 25 

Black,  John  D.    The  dairy  industry  and  the  A.  A.  A.  (1935)  ;  cited  (n.)  _      210 
Boer,  A.  E.    Mortality  in  retail  trade  (1937)  ;  cited  (n.) 59 


336  INDEX 

REFERENCES  TO  LITERATURE— Continued.  Page 

Bowman,  Raymond  T.    A  statistical  study  of  profits  (1934)  ;  cited 

(n. ) 311 

Bureau  of  Agricultural  Economics.     Large-scale  farming  in  the  United 

States    (1929);    cited    (n.) 20 

Bureau  of  Fisheries.     Fishery  industry  of  the  United  States  (1938)  ; 

cited    (n.) ^ 27 

Bureau  of  Foreign  and  Domestic  Commerce.     National  income  in  the 

United  States,  1929-35;  cited   (n.) 55 

Bureau  of  Labor  Statistics.     Index  numbers  of  wholesale  prices  of 

Portland  cement  (1939);  cited  (n.) . 156 

Burns,  Arthur  F.     Decline  of  competition  (1936)  ;  cited  (n.) 68,113,226 

Chandler,  Lester  V.     Monopolistic  elements  in  commercial  banking 

(1938);  cited   (n.) 120 

Copeland,  Melvin  T.  and  W.  Turner.     Production  and  distribution  of 

silk  and  rayon  broad  goods;  cited  (n.) 35 

Copeland,    Morris    A.     The    national    income    and    its    distribution 

(1929);  cited   (n.) 22 

Coirporations  Commission: 

Report  on  petroleum  industry.     Pt.  1.     (1907)  ;  cited  (n.) 90 

Report  on  transportation  of  petroleum  (1906)  ;  cited  (n.) 90 

Crum,  William  L.     Corporate  earning  power  (1929)   (n.) 311 

Corporate  size  and  earning  power  (1939);  (n.) 312 

The  effect  of  size  on  corporate  earnings  and  condition  (1935)  ;  (n.)_      312 

Curtis,  Roy  E.     Trust  and  economic  control  (1937)  ;  cited  (n.) 67,215' 

Danielian,  N.  R..    Story  of  industrial  conquest  (1939)  ;  cited   (n.) —        83 
Daugherty,  C.  R.,  M.  G.  deChazeau,  and  S.  S.  Stratton.    Economics 

of  the  iron  and-steel  industry  (1937)  ;  cited  (n.) 150 

Davis,  H.  B.     Business  mortality :  the  shoe  manufacturing  industry 

(1939);  cited   (n.) 45 

Davis,  Joseph  S.     Wheat  and  the  A.  A.  A.  (1935)  ;  cited  (n.) 22 

Dewing,  Arthur  S.    A  statistical  test  of  the  success  of  consolidations 

(1921)  ;   (n.) 313 

Dun  &  Bradstreet.     Wholesale  survey,  1937,  Reports  1,  3,  and  4 ;  cited 

(n.) 57 

Editor  and  Publisher.     International  Yearbook  Number,  1938;  cited 

(n.) 61 

Edwards,  Corwin  D.     Can  the  antitrust  laws  preserve  competition? 

(1940);  cited  (n.) 300 

Epstein,  Ralph.     Industrial  profits  in  the  United  States  (1934)  ;  (n.)__      311 
Federal  Communications  Commission.     Investigation  of  the  telephone 

industry  in  the  United  States  (1939)  ;  cited  (n.) 83 

Federal  Coordinator  of  Transportation.     Hours,  wages,  and  working 

conditions  in  the  intercity  motor  transport  industries.     Pt.  2.      Motor- 
truck transportation  (1936)  ;  cited  (n.) 61 

Federal  Power  Commission.     Electric-rate  survey.     Rate  series,  1935- 

39;  cited  (n.) 94 

Federal  Trade  Commission  {see  above  Federal  Trade  Commission). 

Fetter,  Frank  A.     Masquerade  of  monopoly  (1931 )  ;  cited  (n. ) 129, 150 

Feuer,  M.     The  patent  monopoly  and  the  antitrust  laws  (1938)  ;  cited 

(n. ) 158 

Fortune  Editors.     Understanding  the  big  corporations  (1934)  ;  cited 

.      (n.) ■ 108 

Fortune  Magazine,  1936-39;  cited  throughout 

Foth,  Joseph  H.     Trade  associations  (1980)  ;  cited  (n.) 228 

Foulke,  Roy  A. : 

Behind  the  scenes  of  business  (1937)  ;  cited  (n.) 39 

Relativity  of  the  moral  hazard  (1940)  ;  cited  (n.) 44 

We  said  it  with  inventories  (1939)  ;  cited  (n.) 39 

Signs  of  the  times  (1938)  ;  cited  (n.) 39 

Fournier,  Leslie  T.    Purposes  and  results  of  the  Webb-Pimerene  Law 

(1932)  ;  cited  (n.) 221 

Eraser,  C.  E.,  and  G.  F.  Doriot.    Analyzing  our  industries   (1932)  ; 

cited  (n.) 32,180 

Froker,  Colebank,  and  Hoffman.    Large-scale  organization  in  the  dairy 

industry  (1939)  ;  cited  (n.) 121 

Galbraith,  J.  K.     Monopoly  power  and  price  rigidities  (1936) ;  cited 

(n.) _ 1 304 


INDEX  337 

REFERENCES  TO  LITERATURE— Continued.  Page 
Gaumitz,  E.  W.,  and  O.  M.  Reed.    Some  problems  involved  in  establish- 
ing milk  prices  (1987)  ;  cited  (n.) 121,211 

Gill,  W.  A.,  and  others.    The  knitting  industries;  cited  (n.) 37 

Haddock,  George  E. : 

Report  on  certain  economic  aspects  of  the  gypsum  wallboard  and 

plasterboard  industry  (1939)  ;  cited  (n.) 163 

Report  on  gypsum  calcining  industry  (1939)  ;  cited  (n. ) 163 

Hadley,  B.  T.     Motortruck  transjwrtation  in  western  South  Dakota 

(1933)  ;  cited    (n.) 61 

Hamilton,  Walton  H.    Price  and  price  policies  (1938)  ;  cited  (n. ) 246 

Haney,  Lewis  H.    Business  organization  and  combination  (1913)  ;  cited 

(n. ) 225 

Hathcock,  J.  W.,  and  others.    The  men's  clothing  industry 39 

Humphrey,  Don  D.     The  nature  and  meaning  of  rigid  prices,  1890- 

1933  (1937)  ;  cited  (n.) 304 

Hunt,  E.  E.,  F.  G.  Tryon,  and  J.  H.  Willits.    What  the  Coal  Commission 

found  (1925)  ;  cited  (n.) 181 

Hutchinson,  R.  G.,  A.  R.  and  M.    Newcomer.    Study  in  business  mor- 
tality (1938);  cited  (n.) 57,58 

James,  Clifford  L.    Industrial  concentration  and  tariffs  (1940)  ;  cited 

(n.) 111 

Jones,  Eliot.    Trust  problems  in  the  United  States  (1926)  ;  cited  (n.)__        66 
Kahn,  Alfred  E.    Fundamental  deficiencies  of  the  American  patent  law 

(1940);  cited    (n.) 158 

Kennedy,  S.  J.    Profits  and  losses  in  textiles  (1936)  ;  cited  (n.) 32 

Kepner,  Charles  D.,  and  Jay  H.  Soothill.    The  banana  empire  (1935)  ; 

cited  (n.) 101 

Kirsh,  Benjamin  S.    Trade  associations  in  law  and  business  (1938)  ; 

cited  (n.) 228 

Labor  Department : 

Wage  and  Hour  Division  : 

Report  on  the  full-fashioned  hosiery  industry   (1939)  ;  cited 

(n.) 39 

Report  on  knitted  outerwear  industry   (1939)  ;  cited   (n.) 37,39 

Report  on  knitted  underwear  and  commercial  knitting  in- 
dustry (1939);  cited   (n.) 37 

Report  on  the  leather  industry  (1940)  ;  cited   (n.) 46 

Report  on  the  seamless  hosiery  industry  (1989)  ;  cited  (n.)__        39 
Report   on    the    shoe    manufacturing   and    allied    industries 

(1939)  ;    cited    (n.) ^ 45 

Women's  Bureau  Bulletin  169.     Conditions  in  the  millinery  in- 
dustry   (1989);    cited    (n.) 44 

Leven,   Maurice,  H.  G.   Moulton,  and  Clark  Warburton.     America's 

capacity  to  consume  (1934)  ;  cited  (n.) 22 

Lewis,   Ben  W.     Price  and   production  control  in   British   industry 

(1937);  cited  (n.) 217 

Livermore,  Shaw.     The  success  of  industrial  mergers   (1935)  ;  cited 

(n.) ^ 313 

Locklin,  Philip.    Economics  of  transportation  (1938)  ;  cited  (n.) 61 

Long,   Clarence  D.,  Jr.     Newsprint  costs   and   competition    (1940)  ; 

cited    (n.) . 61 

Lyon.  Leverett  S.,  and  Victor  Abrahamson.     The  economics  of  open 

price  systems  (1936)  ;  cited  (n.) 230 

Malott,  D.  W.,  and  B.  F.  Martin.    The  agricultural  industries  (1939)  ; 

cited    (n.) 34,  I87 

Marshall,  George.    Cottonseed,  joint  products  and  pyramidal  control 

(1938);  cited   (n.) 246 

Martin,  Robert  F.    International  raw  commodity  price  control  (1937)  ; 

cited   (n.) 219 

Mason,  Edward  S.    Price  inflexibility  (1938)  ;  cited  (n.) 304 

McGarry,  E.  D.    Mortality  in  retail  trade  (1939)  ;  cited   (n.) 58 

Means,  Gardiner  C.    Notes  on  inflexible  prices  (1936)  ;  cited  (n.) 304 

Michl,  H.  E.    The  textile  industries  (1938)  ;  cited  (n.) 31 

Mills,  Frederick  C.    Behavior  of  prices  (1927)  ;  cited  (n.) 302 

Montgomery,  R.  H.    The  brimstone  game  (1940)  ;  cited  (n.)__ 109 


338  INDEX 

REFERENCES  TO  LITERATURE— Continued.  Page 

Moody,  John.    Truth  about  the  trusts  (1904)  ;  cited  (n.) 65 

Mosher,   William  E.,   and  others.     Electrical   utilities    (1929)  ;   cited 

(n.)    94 

Myers,  Robert  J.    Economic  aspects  of  the  production  of  men's  cloth- 
ing (1937);  cited   (n.) 40 

National  Bureau  of  Economic  Research.     Committee  on  prices  in  the 

bituminous  coal  industry.     Report  (1939)  ;  cited  (n.) 24 

National  Recovery  Administration: 
Division  of  Review : 

Evidence  '  study     No.     8.       The     cotton-garment     industry 

(1936)  ;  cited   (n.) 40 

Evidence  study  No.  21.     The  leather  industry 47 

Evidence  study  No.   22.     The  lumber  and   timber  products 

industry  (1935);  cited  (n.) 23 

Work    materials    No.     31.       Fishery    industry    and    fishery 

codes    (1936);    cited    (n.) 28 

Work    materials    No.    58.      The    men's    clothing    industry. 

J.  W.  Hathcock,  and  others;  cited   (n.) 39 

Work  materials  No.  69.  Economic  survey  of  the  bitumi- 
nous coal  industry  under  free  competition  and  code  reg- 
ulation.    Fred  E.  Berquist,  and  associates.     (1936)   cited 

(n.)    25 

Work  materials  No.  70.  Economic  problems  of  the  lumber 
and  timber  products  industry.    Peter  A.  Stone,  and  others. 

(1936);    cited  '(n.) 23 

Work  materials  No.  76.     Price  filing  under  N.  R.  A.  codes. 

Enid   Baird;    cited    (n.) 246 

Work   materials   No.   80.     The   Knitting   industries.     W.   A. 

Gill,  and  others;  cited   (n.) 37 

Research  and  Planning  Division : 

Report  and  recommendation  on  wages  and  hours  in  fur  manu- 
facturing (1935)  ;  cited  (n.) 44 

National  Resources  Committee: 

Consumer  incomes  in  the  United  States  (1938)  ;  cited  (n.) 22 

Energy  resources  and  national  policy  (1939)  ;  cited  (n.) 24, 181 

Structure  of  the  American  economy  (1939)  ;  cited  (n.)__  21,29,34,111 
Nelson,    Saul,   and   Walter   G.   Keim.     Price   behavior   and   business 

policy   (1940);  cited   (n.) 21,27,33 

New    York    State,    Commission    on    revision    of   public    service   com- 
missions law   (1930)  ;  cited   (n.) 95 

Nicholls,  William  H. : 

Market-sharing  in  the  meat-packing  industry   (1940)  ;  cited   (n.) 

and  summary 183,184 

Post-war  construction  in  the  cheese  industry  (1939)  :  cited  (n.) —       142 
Nourse,   Edwin    G.,   and   associates,   America's   capacity   to    produce 

(1934):  cited   (n.) 26 

Nourse,  Edwin  G.,  and  Horace  B.  Drury.     Industrial  price  policies 

and  economic  progress   (1938)  ;  cited   (n.) 113 

Ostrolenk,  Bernhard,  Electricity:  for  use  or  profit?  (1936)  ;  cited  (n.)_         94 
Pabst,  William  R.,  Jf.     Monopolistic  expectations  and  shifting  control 

in  the  anthracite  industry  (1940)  :  cited  (n.) 180 

Pan  American  Union.     The  story  of  the  banana  ;  cited  (n.) 101 

Pa  ton,  William  A.     Corporate  profits  as  shown  by  audit  reports  (1935) 

(n.) - 312 

Pearce,  C.  A.     Trade  association  survey  (1940)  :  cited  (n.) 233 

Pennsylvania : 

Anthracite  Coal   Industry  Commission : 

Chart  and  ad  interim  report  (1937)  ;  extract  and  cited  (n.)_  180^181 
Report  of  Commissioner  Morris  L.  Ernst  (1937)  ;  cited  (n.)-       181 
Bureau   of  Workmen's  Compensation.     Study   of  the  anthracite 

industry  (1988)  ;  cited  (n.) 180 

House  committee  examining  gas  and  electric  companies  in  Penn- 
sylvania;  proceedings  (1929);  cited  (n.) 95 

Plummer,  Alfred.     International  combines  in  modern  industry,  ed.  2 

(1938):  cited    (n.) 138 


INDEX  339 

REFERENCES  TO  LITERATURE— Continued.  Page 

Pribram,  Karl.     Cartel  problems  (1935)  ;  cited  (n.) 216 

Putnam,   George   E.     Supplying   Britain's   meat    (1923)  ;    cited    (n.) 

and   extract 185 

Raushenbush,  Stephen.     The  power  fight  (1938)  ;  cited  (n.) 94 

Reynolds,  Lloyd  G.    Competition  in  the  rubber-tire  industry   (1938)  ; 

cited    (n.) 49 

Seager,  Henry  R.,  and  Charles  A.  Gulick,  Jr.    Trust  and  corporation 

problems  (1929)  ;  cited   (n.) 65 

Securities  and  Exchange  Commission.     Survey  of  American,  listed  cor- 
porations : 

Vol.  1,  3:  cited   (n.) 51,54 

Vol.  2    (n.) 58 

Shurick,  A.  T.     Technological  changes  and  price  cutting  drying  up 

anthracite  revenues.     (1987)  ;  cited   (n.) 180 

Southworth,  Constant.    The  lumber  industry  and  the  N.  R.  A.  (1934)  ; 

cited    (n.) : 23 

Stone,  Peter  A.,  and  others.     Economic  problems  of  the  lumber  and 

timber-products  industry.     (1936)  ;  cited    (n.) 23 

Summers,  H.  R.     Comparison  of  rates  of  earnings  of  large-scale  and 

small-scale  business.     (1932)  ;  cited  (n.!* 311 

Tariff  Commission.    Chemical  nitrogen.    Report  114,  series  2.     (1937)  ; 

cited    (n.) 114 

Chemical  nitrogen.    Report  114,  series  2.     (1937)  ;  cited  (n.) 137 

Cotton-sewing  thread  and  cotton  for  handwork.    (1927)  ;  cited  (n.)_      114 
Flat   glass   and    related   glass   products.     Report   123,    series    2. 

-   (1937)  ;  cited  (n.) 1 103 

Incandescent  electric  lamps.    Report  133,  series  2.     (1939)  ;  cited 

(n.) 104 

Synthetic  organic  chemicals :  United  States  production  and  sales. 

Report  136,  series  2.     (1938)  ;  cited  (n.) 111 

Teper,  Lazare.    An  economic  analysis  of  the  women's  garment  industrv. 

(1937);  cited   (n.) 43 

Thompson,  Carl  D.    Confessions  of  the  power  trust.    (1932)  ;  cited  (n.)-        94 
Thorp,  Willard  L. : 

Recent  price  behavior.     (1934)  ;  cited  (n.) 303 

— ■ and  Walte"  F.  Crowder.    Structure  of  industry.     (1940)  ;  cited 

(n.) 80,  32,  34,  301 

and  Ernest  A.  Tupper.    The  potash  industry ;  report  submitted 

to  the  Department  of  Justice    (1940)  ;  cited  (n.) 139 

Toulmii    Harry  A.    Trade  agreements  and  the  antitrust  laws.     (1937)  ; 

cited    (n.) 281 

Tucker,  Rufus  S. : 

The  essential  historical  facts  about  sensitive  and  administered 

prices.     (1938)  ;  cited   (n.) 304 

Reasons  for  price  rigidity.     (1938)  ;  cited  (n.) 304 

Twentieth  Century  Fund : 

Big  business  :  its  growth  and  place.     (1937)  ;  cited  (n.) 55,  299 

Does  distribution  cost  too  much?     (1939)  ;  cited  (n.) 57 

How  profitable  is  big  business?     (1937);    (n.) 311 

Wallace.  Benjamin  F.,  and  Edminster,  Lynn  R.     International  con- 
trol of  raw  materials  (1930)  ;  cited  (n.) 219 

Watkins,    Myron    W.      Industrial    combinations    and    public    i)olicy 

(1927);   cited    (n.) 67 

Whitney,  Caroline.     What  price  milk?  (1939)  ;  cited  (n.)___i 209 

Whitney.  Simon  N.     Trade  associations  and  industrial  control  (1934)  ; 

cited    (n.) ^ 227 

Wood,  Ralph  C.     Dr.  Tucker's  Reasons  for  price  rigidity!    (1938); 

cited    (n.) 304 

REFRIGERATOR  INDUSTRY:  Competitive  marketing  factors ___  51-52 

REMINGTON  RAND,  INC. : 

Electric  accounting  machines  monopoly   control  shared  with  Inter- 
national Business  Machines  XI!orporation 106 

Invested  capital  return,  1935,  1988— 141 

Marketing  strategy;   tying  contract  device 167 

REPUBLIC  CARBON  CO. :  Entry  into  aluminum  business  attempted 70 


340 


INDEX 


RETAIL  TRADES  :  ^^ge 

Competition 286-298 

Competition  more  active  because  of  mass  distributor  policy 57 

Profitability , i ^ 57-58 

RETAIL  AND  WHOLESALE  DISTRIBUTION 54-59 

REYNOLDS,  LLOYD  G. :  Competition  in  the  rubber-tire  industry  (1938)  ; 

cited    (n.) 49 

ROOFING,  ASPHALT.     {See  Asphalt  Shingle  and  Roofing.) 

ROYAL  TYPEWRITER  CO. :  Invested-capital  return,  1935-36 141 

SALES : 

Control  of  terms  exercised  by  trade  associations,  industrial  institutes, 

etc.,  1920-40,  list  of  instances 234-240 

N.  R.  A.  codes ;  control  of  terms  of  sale ;  analysis 260-261 

SEAGER,  HENRY  R.,  and  CHARLES  A.  GULICK,  Jr. :  Trust  and  cor- 

.    poration  problems  (1929)  ;  cited  (n.) 65 

SECURITIES   AND    EXCHANGE    COMMISSION:  Survey    of    American 
listed  corporations: 

Volumes  1,  3  (1939)  ;  cited  (n.) 51,54 

Volume  2  (1939);  cited   (u.) ■     .".S 

SECURITIES   MARKET:  Participation  allocation   aiTangements 176-179 

SERVICE  TRADES:  Competitive  marketing  factors 59-62 

SHINGLES,  ASPHALT.     (See  Asphalt  Shingle  and  Roofing.) 

SHOE    MACHINERY    INDUSTRY:    Control    of    industry    exercised    by 

United  Shoe  Machinery  Co '. 72-73 

SHURICK,   A.   T. :   Technological  changes  and  price  cutting   drying  up 

anthracite  revenues  (1937)  ;  cited  (n.) 180 

SHURON  OPTICAL  CO.:   Supply  of  ophthalmic  lenses,  etc.,  controlled 

by ;  party  in  price  agreement  indictment,  May  28,  1940 141 

SILK  AND  RAYON  GOODS  INDUSTRY.      (See  also  Rayon  Goods  In- 
dustry.) 

Competitive   markets ' j- 35-36 

Size  of  typical  units  ;  geographical  concentration  of  units 35 

SINGER  MANUFACTURINQ  CO. :  Production  leader  in  its  field 113 

SLAYTER,  GAMES:  Mineral  wool  servicing  patent 165 

SLOAN,  ALFRED  P.,  JR. :  Address  at  meeting  of  General  Motors  sales 

committee,  July  29,  1925;  extract  (n.) 310 

SMALL  BUSINESS.     (See  Large  versus  Small  Business.) 

SMALL  TOWN  MARKETS 112 

SNOW  FENCE :  Price  control  by  trade  association ;  United  Fence  Manu- 
facturers' Association 247 

SODIUM  NITRATE : 

Agreement  between  Allied  Chemical  &  Dye  Corporation  and  Chilean 
Nitrate   Sales  Corporation   in   matter  of  sodium   nitrate   sales   in 

United  States ■_ 137 

Allied  Chemical  &  Dye  Corporation,   1937  output  of  only  domestic 

producer 137 

Duopoly  control  in  the  United  States  shared  by  Chilean  Nitrate  Sales 

Corporation  and  Barrett  Co 111 

Federal    Trade    Commission,    Docket    3764;    price-fixing    complaint 
against  Barrett  Co.  and  Chilean  Sales  Nitrate  Corporation  (1939)  __      138 
SOOTHILL,  JAY  H.,  joint  author.     (See  Kepner,  Charles  D.) 
SOUTHWORTH,   CONSTANT.     The  lumber  industry  and   the  N.  R.  A. 

(1934)  ;   Cited    (n.) 23 

STANDARD  FRUIT  &  STEAMSHIP  CO.:  Duopoly  position  in  banana 

industry  shared  with  United  Fruit  Co 101-102 

STANDARD  OIL :  Controlling  power  in  refinery  business 65-66 

STANDARDIZATION:  Trade  association  activities 230-231 

STEEL  INDUSTRY: 

Base  prices,  extras,  and  deductions 133 

Rasing  point  system  ("Pittsburgh  plus"),  origin,  operation,  and  present 

status 1)48-153 

Concentration  of  production 119 

Invested  capital  returns,  10  leading  producers,  1937-39 . —      153 

Price  leadership 123-126 

STEEL  WINDOW  PRODUCTS :  Price  control  exercised  by  trade  associa- 
tion :  Metal  Window  Institute 247 

STEVENSON,  JORDAN,  AND  HARRISON:  Trade  association  manage- 
ment businesa 253-256 


INDEX  341 

STONE,  PETER  A.,  and  others:  Economic  problems  of  the  lumber  aud     Page 

timber  products  industry    (1936);  cited    (n.) 23 

STRATTON,  S.  S.,  joint  author.     {See  Daugherty,  C.  R.) 
SULFUR : 

Cartel    agreements 100 

Duopoly  control  of  sulfur  industry  shared  by  Texas  Gulf  Sulphur 

Co.  and  Freeport  Sulfur  Co 108 

SUMMERS,  H.  R. :  Comparison  of  rates  of  earnings  of  large-scale  and 

small-scale  business  (1932)  ;  cited  (n.) 311 

SWIFT  &  CO.: 

Domestic  cheese  output  sold  by 141 

Integration  with  leather  business 47 

Litigation : 

U.  8.  V.  Swift  d  Co.  ct  al.  (196  U.  S.  375)  ;  cited  (n.) 184 

SYNTHETIC  NITROGEN.     (See  Chemical  Nitrogen.) 
TARIFF  COMMISSION : 

Chemical  nitrogen.     Report  114,  series  2  (1937)  ;  cited  (n.) 137 

Chemical  nitrogen.     Report  114,  series  2  (1937)  ;  cited  (n.) 114 

Cotton  sewing  thread  and  cotton  for  handwork.     (1927)  ;  cited  (n. ) —       114 
Flat  glass  and  related  glass  products.     Report  123,  series  2   (1937)  ; 

cited   (n.) 103 

Incandescent  electric  lamps.     Report  133,  series  2  (1939)  ;  cited  (n.)_       104 
Synthetic  organic  chemicals :  United  States  production  and  sales.    Re- 
port 136,  series  2.  (1938)  ;  cited  (n.) 111 

TELEGRAPH  SERVICE— DOMESTIC : 

Duopoly  control,  companies  exercising 98-100 

Control  exercised  by  American  Telephone  &  Telegraph  Co 83-88 

TEPER,  LAZARE :  An  economic  analysis  of  the  women's  garment  indus- 
try (1937)  ;  cited  (n.) 43 

TETRA-ETHYL  LICENSES.     (See  Ethyl  Gasoline  Corporation.) 
TEXAS   GULF   SULPHUR   CO.:  Duopoly   control   of   sulphur   industry 

shared  with  Freeport  Sulphur  Co 108 

TEXTILE  INDUSTRY.     {See  Cotton  Textiles.) 

TEXTILE  REFINISHING  INDUSTRY :  Market  sharing  scheme  of  trade 

association  :  Textile  Refinishers  Association 249 

THATCHER  MANUFACTURING  CO. :  Price  leadership  in  sale  of  milk 

bottles 131 

THEATRICAL  PRODUCTION :  Competitive  factors  in  the  legitimate  the- 
ater          62 

THOMPSON,  CARL  D. :  Confessions  of  the  power  trust    (1932);   cited 

(n.) 94 

THORP,  WILLARD  L. :  Recent  price  behavior  (1934)  ;  cited  (n.) 303 

THORP,  WILLARD  L.  AND  WALTER  F.  CROWDER :  Structure  of  in- 
dustry (1940);  cited  (n.) 30,32,34,301 

THORP,  WILLARD  L.  AND  ERNEST  A.  TUPPER :  The  potash  industry  ; 

report  submitted  to  Department  of  Justice  (1940)  ;  cited  (n.) 130 

TIN  PLATE :  Price  leadership  taken  by  Carnegie-Illinois  Steel  Corpora- 
tion        125 

TIRES  AND  TUBES  INDUSTRY : 

Competitive  marketing  factors 1 48 

Concentration,  production  and  geographic 48 

Litigation :  ' 

Federal  Trade  Commission  Docket  2116  (1936)  ;  cited  (n.) ■     49 

Suit  filed  by  U.  S.  Government,  1939,  alleging  participation  in  a 

bidding  ring;  status  of  case 50 

Market  rivalry  and  price  warfare,  1926-35 40 

Profit  abilitv  of  industry 50 

TOBACCO : 

Leaf  tobacco : 

Crop  and  marketing  practice 187 

Market   sharing 188 

Litigation : 

U.  8.  v.  American  Tobacco  Co.  et  al.  CD.  C.  E.  D.  Ky. ),  information, 

July  24,  1940;  extract 188-189 

Profit  record,  average  annual  percentage  returns  on  total  and  stock- 
holders' investments,  1917-37 ^^__       189 

271817 — 41— No.  21^—23 


342  INDEX 

TOULMIN,  HARRY  A.:  Trade  agreements  and  the  antitrust  laws  (1037)  :      Page 
cited    (n.) 231 

TRADE  ASSOCIATIONS : 

Allocation  of  markets  and  customers : 

Consumer  credit  reporting;  National  Retail  Credit  Association.  248-249 
Boycotts 257-258 

Cartels  and  trade  association  activities  identical 258-259 

Cost  accounting,  educational  work  carried  on  by  trade  associations 226-228 

Credit  bureaus. 231 

List  of  instances  in  which  a  trade  association,  industrial  institute,  or 
other  common  agency  had  exercised  some  form  of  control  over  pro- 
duction, price,  and  terms  of  sale  in  national  or  regional  markets, 

1920-40;  trade,  agency,  and  reference 234-240 

List  of  trade  associations,  trade-unions,  and  other  groups  exercising 
some  form  of  control  over  production,  price,  and  terms  of  sale,  and 

organizing  boycotts  in  local  markets,  1920-40 280-285 

Management  engineering  company  administration 252-256 

Market-sharing  schemes : 

Building  materials  :  National  Federation  of  Builders'  Supply  Asso- 
ciations       249 

Textile  reflnishing:  Textile  Refinishers  Association 249 

Window  glass :  Window  Glass  Manufacturers'  Association  and  Na- 
tional Glass  Distributors'  Association 249 

Origin,  growth,  and  activities: 225-234 

N.  R.  A.  and  trade  associations 260 

Patent-pooling   activty 231 

Price  control  exercised  by : 

Asphalt  shingle  and  roofing :  Asphalt  Shingle  and  Roofing  Insti- 
tute       246 

Bread :  American  Bakers'  Association 242-243 

Cottonseed  oil 244-246 

Flour:  Millers  National  Federation 240-242 

Household  furniture 243-244 

Power  cable  and  wire:  National  Electi-ical  Manufacturers'  Asso- 
ciation         247 

Snow  fence:  United  Fence  Manufacturers  Association 247 

Steel  vpindow  products:  Metal  Window  Institute 247 

Price-reporting  activities 229-230 

Production  allocation  quota  schemes  : 

Elevators:  National  Elevator  Manufacturing  Industry 252 

Oil  refining  in  California :  cooperation  of  majors  and  independ- 
ents—,  , '>r)l-252 

Production  allocation  restriction  schemes : 

Copper  :  Copper  Institute 250 

Cotton  textiles:  Cotton  Textile  Institute;  "Print  Cloth  Curtail- 
ment Program" 250-251 

Cotton  yarn  :  Southern  Yarn  Spinners  Association 250 

Pea  canners  :  Wisconsin  Canners'  Association 250 

Window  glass :  National  Window  Glass  Manufacturers  Associa- 
tion—.        250 

Wooden  containers :  Standard  Container  Manufacturers'  Associa- 
tion       251 

Quota  and  penalty  systems 256 

Standardization  activities 230-231 

Statistical    activities 228-229 

TRADE  BARRIERS,   INTERSTATE 27S  279 

TRUCKING  BUSINESS.     (See  Motor  Trucking  Business.) 
TRYON,  FREDERICK  G.,  joint  author  (sec  Hunt,  E.  E.)  : 

Quoted 26 

TUCKER,  RUFUS  S. : 

The  essential  historical  facts  about  sensitive  and  administered  prices 

(1938)  ;  cited  (n.) ..       304 

Reasons  for  price  rigidity  (1938)  ;  cited  (n.) 804 

TUPPER,  ERNEST  A.,  jomt  author,     (see  Thorp,  Willard  L.) 
TURNER,  W.,  joint  author.     (See  Copeland,  Melvin  T.) 


INDEX  343 

TWENTIETH  CENTURY  FUND:  Page 

Big  business;  its  growth  and  its  place  (1937)  ;  cited  (n.) 55,299 

Does  distribution  cost  too  much?  (1939)  ;  cited  (n.) 57 

How  profitable  is  big  business?   (1937);   (n.) 311 

TYPEWRITER  BUSINESS : 

Companies.     (See  L.  C.  Smith  and  Corona  Typewriters,  Inc. ;  Reming- 
ton Rand,  Inc. ;  Royal  Typewriter  Co. ;  Underwood  Elliott,  Fisher  Co. ) 
Concentration  of  production ;  price  agreements ;  return  on  investment 

(profits) ,  1935-39 .. . 140-141 

Litigation.     (See  U.  S.  v.  Underwood  Elliott,  Fisher  Co.) 
UNDERWOOD  ELLIOTT,  FISHER  CO. : 

Invested  capital  return,  1937-38 141 

Litigation : 

U.  S.  V.  Underwood  Elliott,  Fisher  Co.  et  al.  (D.  C.  U.  S.  S.  D. 

N.  Y.)  Dept.  Justice  indictment  July  28,  1939;  cited  (n.) 140 

UNION  CARBIDE  &  CARBON  CORPORATION : 

Duopoly  control  of  oxyacetylene  industry  shared  with  Air  Reduction 

Co 108 

Production  leader  in  its  field 113 

UNITED  FRUIT  CO. :  Duopoly  position  in  banana  industry  shared  with 

Standard  Fruit  &  Steamship  Co 101-102 

UNITED  SHOE  MACHINERY  CO. : 

Control  of  shoe-machinery  industry  exercised  by  company,  1899-1939 72-73 

Controlling  power  in  its  field  of  industry 65,  68 

Leasing  of  shoe-manufacturing  machinery  controlled  by ;  services  pro- 
vided by -^        46 

Marketing  strategy  ;  tying  contract  device 167 

UNITED  STATES  GYPSUM  CO. : 

Patent  licensing  operations ;  litigation 162-163 

Patents  acquired,  1912-35 162 

UNITED  STATES  INDUSTRIAL  ALCOHOL  CO. :  Price  leader  in  sale  of 

industrial  alcohol 123 

UNITED  STATES  POTASH  CO. : 

Corporate  relation  with  Pacific  Coast  Borax  Co.  in  turn  controlled  by 

Borax  Consolidated,  Ltd.,  of  England .139 

Percent  realization  before  depletion  on  net  worth,  1936-38 140 

UNITED  STATES  STEEL  CORPORATION : 

Integration,  extent  of 120 

Invested  capital  returns,  1935-39  percentages  each  year,  1901-10  aver- 
age annual 153 

UNIVERSAL  CREDIT  CO. :  Ford  Motor  Co.  relationship 172 

WALLACE,  BENJAMIN  F.,  AND  EDMINSTER,  LYNN  R. :  International 

control  of  raw  materials  (1930)  ;  cited  (n.) 219 

WARBURTON,  CLARK,  joint  author.     (See  Leven,  Maurice.) 
WATKINS,    MYRON    W. :  Industrial    combinations    and    public    policy 

(1927)  :  cited  (n.) 67 

WEBB-POMERENE  EXPORT  TRADE  ACT  (1918)  :  Associations  formed 

under   act 219-222 

WESTERN  ELECTRIC    CO. :  Corporate   relations  with    American    Tele- 
phone &  Telegraph  Co 2 83-85 

WESTERN  UNION  TELEGRAPH  CO.:  Duopoly  control   over  domestic 

service  exercised  jointly  with  Postal  Telegraph,  Inc 98-100 

WESTINGHOUSE  AIR  BRAKE  CO. :  Air  brakes  duopoly  control  of  com- 
pany shared  with  New  York  Air  Brake  Co _ 107 

WESTINGHOUSE  ELECTRIC   &  MANUFACTURING  CO.:   Position  in 

electric-lamp   industrv 104 

WHITNEY,  CAROLINE:  What  price  milk?     (1939)  ;  cited  (n.) 209 

WHITNEY,  SIMON  N. :  Trade  associations  and  industrial  control  (1934)  ; 

cited    (n.) 227 

WHOLESALE  AND  RETAIL  DISTRIBUTION 54-59 

WILCOX,  DR.  CLAIR :  Competition  and  monopoly  in  American  industry. 

T.  N.  E.  C.  Monograph  No.  21 

WILLITS.  J.  H.,  joint  author.     {See  Hunt,  E.  E.) 
WINDOW   GLASS: 

Market  sharing  scheme  of  trade  association :  Window  Glass  Manufac- 
turers' Association  and  National  Glass  Distributors'  Association —      249 
Production  allocation  restriction  scheme  of  trade  association :   Na- 
tional Window  Glass  Manufacturers  Association ^      250 


344  INDEX 

WIRELESS.     (See  Radiotelegraphy. )  ^*b» 

WISCONSIN : 

Cheese  produced  in : 142 

Pea  canners  production  allocation 250 

WISCONSIN  CHEESE  EXCHANGE:  Operations 142 

WOMEN'S  APPAREL.     (See  Clothing  Manufacture.) 

WOOD,  RALPH  C. :  Dr.  Tucker's  "Reasons  for  price  rigidity."     (1938)  ; 

cited    (n.) 304 

WOOLEN  AND  WORSTED  GOODS  INDUSTRY  :  Competitive  markets—  33-35 

Invested  capital  returns;  profit  percentages 34 

Price  flexibility  of  the  industry's  products  compared  with  other  tex- 
tiles  34 

Production  concentration 34 

Size  of  concern  advantages  and  disadvantages 34 

ZONE    PRICE:  Defined 147 

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