"^^o^ P°_^FJ"f ^^1 SENATE COMMITTEE PRINT 3d Session INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER TEMPORARY 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 CONCENTRATION OF ECONOMIC POWER IN, AND FINANCIAL CONTROL OVER, PRODUCTION AND DISTRIBUTION OF GOODS AND SERVICES MONOGRAPH No. 41 PRICE DISCRIMINATION IN STEEL Printed for the use of the Temporary National Economic Committee UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1941 TEMPORARY NATIONAL ECONOMIC COMMITTEE (Created piusuant to Public Res. 113, 75th Cong.) JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman HATTON W. SUMNERS, Representative from Texas, Vice Chairman WILLIAM H. KINO, Senator from Utah WALLACE H. WHITE, Jr., Senator from Maine CLYDE WILLIAMS, Representative from Missouri B. CARROLL REECE, Representative from Tennessee THURMAN W. ARNOLD, Assistant Attorney General ♦WENDELL BERQE, 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 General Counsel •CHARLES L. KADES, Special Assistant to the General Counsel Representing the Department of the Treasury Representing the Department of Commerce • • • LEON HENDERSON, Economic Coordinator DEWEY ANDERSON, Executive Secretary THEODORE J. KREP8, Economic Adviser •Alternates Monograph No. 41 PRICE DISCRIMINATION IN STEEL JOHN M. BLAIR and ARTHUR REESIDE U ACKNOWLEDGMENT This monograph was written by JOHN M. BLAIR and ARTHUR REESIDE The Temporary National Economic Committee if greatly indebted to these authors for this contribution to the literature of the subject under review. The status 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 be, the publication of his testimony, report, or monograph by the Committee in no way signifies nor implies assent to, or approval of, any of the facts, opinions or recommenda- tions, nor acceptance thereof in whole or in part by the members of the Temporary National Economic Committee, individually or collectively. Sole and undivided responsibility for every statement in such testimony, reports, or monographs rests entirely upon the respective authors. (Signed) Joseph C. O'Mahoney, Chairman, Temporary National Economic Committee. m TABLE OF CONTENTS . Page Letter of transmittal '^ Preface ^' PART I The data and the analytical techniques 1 Source, nature, and limitations of the data 1 Statistical and graphic techniques 2 PART II Graphic presentiation of the data ^ PART III Significance of the data *^ The significance to the concentration of economic power -co The significance to the Government 28 The significance to the economic arguments of the steel industry 30 Appendix '*" V SCHEDULE OF TABLES AND CHARTS PART n CHARTS Ptga I. Variations in average price per ton by size of shipment, United States, February 1939, plates 8 II. Variations in average price per ton by size of shipment, United States, February 1939, heavy structural shapes 10 III. Variations in average price per ton by size of shipment, United States, February 1939, wire rods 12 IV. Variations in average price per ton by size of shipment, United States, February 1939, plain drawn wire 14 V. Variations in average price per ton by size of shipment. United States, February 1939, hot rolled sheets 16 VI. Variations in average price per ton by size of shipment. United States, February 1939, cold rolled sheets. 18 VII. Variations in average price per ton by size of shipment, United States, February 1939, hot rolled strip 20 VIII. Variations in average price per ton by size of shipment. United States, February 1939, cold rolled strip 22 PART IlJ IX. Effect of variations in capacity utilization upon man-hours required per unit of output 32 X. Variations in average freight absorbed per ton by size of shipment, United States, February 1939 . 34 APPENDIX TABLES 1. Steel shipments by size of shipment, all reported items by products, aggregate tonnage and sales, United States, February 1939 37 2. Steel shipments by size of shipment, all reported items, by products, average price per ton. United States, February 1939 40 3. Steel shipments by size of shipments, normal base point shipments, by products, aggregate tonnage and sales. United States, February 1939- 43 4. Steel shipments by size of shipment, normal base point shipments, by products, average price per ton. United States, February 1939 46 5. Published base prices of selected steel products, February 1939 49 6. Effect of variations in capacity utilization upon man-hours required 49 vn LETTER OF TRANSMITTAL Hon. Joseph C. O'Mahoney, Chairman, Temporary National Economic Committee, Washington, D. C. My Dear Senator: Steel is the basic durable good of our economy. It enters into so much of production as to characterize this period as " the Age of Steel." Not only is private industry influenced directly by steel prices but the Government's efforts to develop the materials of defense depend directly upon the purchase and use of enormous quan- tities of steel. For these reasons this brief study of price discrunina- tion in steel has great value and unusual timeliness. i The Temporary National Economic Committee has conducted pro- longed hearings on the concentration of control in steel production. In these hearings the steel industry testified at length and summarized its testimony in a three volume work which has had wide circulation. It is not the purpose of this monograph to attempt a duplication of either the findings of the hearings or the report of the steel corpora- tions. Instead, it goes directly to the crucial problem of prices, seek- ing an answer to the question of the existence of discriminations which favor large users of steel in comparison with smaller users, thus pro- viding a margin which effectively limits competition and increases rtionopoly. The data used in this monograph were collected by Government agencies under authority of the Temporary National Economic Com- mittee. The authors have treated them by approved methods of sta- tistics. They have interpreted the figures carefully and confined their analyses and comments strictly to what these figures signify. In doing so they have opened avenues of thought and suggested areas of needed research which should stimulate other students to explore further. But the limits of time and material facilities have prevented a more extended treatment of the problems raised in this study. John Blair has brought to this study a diligence and apperception characterizing the work of a competent researcher in a difficult field. He has organized the material and written the report. Arthur Reeside is responsible for collecting much of the original data, for continuing an interest in the study through all its trying vicissitudes, and for developing the statistical methods used in presenting the data. Dr. Dewey Anderson, executive secretary of the Temporary National Eco- nomic Committee, is to be commended for his supervision of the study. This monograph is offered the committee for use in its deliberations in the hope that it throws some light on a very much involved problem of our modern economy. Respectfully submitted. Theodore J. Kreps, Economic Adviser. October 18, 1940. IX 271^68 — 41— No 41 PREFACE This is a study designed to explore statistically a relatively unknown field ; that is, the actual extent to which prices on particular items vary according to the size of the shipment. The data on which this study rests were not gathered originally for the purpose to which they have here been put. Consequently, cer- tain assumptions had to be made; certain irregularities were found to exist in the graphic curves; and therefore no claim is made to statis- tical perfection. Nevertheless, the assumptions appear reasonable, the irregularities minor, and the general relationship clear between price concessions, size of shipinent, and concentration of buying power. The economic implications of the relationships are by no means fully explored. This report does not go beyond presenting the data and pointing out certain types of significance which they may have. With the available resources and time at the disposal of the authors severely limited, the study could be carried no further. It is hoped, however, that the results presented will stimulate the undertaking of more complete analyses into such suggested subjects as (a) the precise relationship between price concessions to large buyers, the resultant competitive disadvantage of small buyers, and the growth of economic concentration; (6) the standards by which price concessions are or should be determined; and (c) the effect of these concessions upon existent analyses of the basing point system. There are many to whom the authors are grateful for counsel and assistance, but particular acknowledgment is made to Ward S. Bow- man, upon whose knowledge of the steel industry the authors have relied so heavily. John M. Blair. Arthur Reeside. PAKTI THE DATA AND THE ANALYTICAL TECHNIQUES SOURCE, NATURE, AND LIMITATIONS OF THE DATA A broad survey of the steel industry was undertaken by the Depart- ment of Justice for the Temporary National Economic Committee during 1938 and 1939. The data obtained by the Department of Justice were voluminous, extensive, and comprehensive. The rela- tionship of those data to the study presented herewith is, first, that they serve as a background and, second, that the statistical materials in this study are derived from the Justice Department's questionnaire known as Form B. (For Form B questionnaire, see appendix.) The Form B questionnaire was designed to produce data which were for the most part. geographical in nature. Its coverage for the period studied ranged, by products, from 50 to 90 percent of all shipments of the industry. Because members of the industry foimd it a con- siderable burden to supply information of this kind, the coverage was limited to the single month of February 1939. The danger of generalizing from a single month is appreciated. Other periods were originally to have been included by the Depart- ment of Justice, but because of the time and the expense involved for reporting companies, such additional data were not obtained. How- ever, the month chosen was not one of extremely depressed conditions nor one which was characterized by the trade magazines as a period of price weakness. On the other hand, business was not booming from the point of view of the steel companies. The worst of the 1938 upset was over, and the real upswing in 1939 had not as yet taken place. The rate of utilization (ingots produced to capacity for production) for the industry was nearly 55 percent (54.7 percent) during the month. No changes in published prices took place during the month studied. The period covered was so short and the break-down of the data so extensive that the figures were spread to a point where the items reported by districts may be practically used as individual shipments. The break-down was by plants, by products, by basing points, and by consuming districts. The questionnaire did not ask specifically for a list of individual shipments. The data requested were totals for consuming districts, of which there were 64. Data for each of these 64 consuming districts were in effect reported separately for each basing point upon which the shipments were priced. (More than 20 basing pomts were reported but of course not 20 for each consuming district or on each product.) The data were further segregated into 10 product groupings. The plant from which the shipment was made was also one of the controls utilized. (The United States Steel Corporation and other corporate groups reported separately for each operating plant sampled.) In addition to the extensiveness of the break-down, the narrowness of time, and the specific definition of the j)ro(lucts, there is yet another 2 OONCENTRATION OF ECONOMIC POWER factor which tended to spread the items; that is, the geographical dispersion inherent in the basing point system. Steel mills sell to the Nation rather than to their own particular locality. It is then at least reasonable to believe that the totals reported were so composed that the data reflect single shipments with sufficient accuracy for the purpose of this study. This basic asgomption requires explanation in order that the limita- tions of the data may be understood. Despite the break-downs, the data represent to a limited extent combinations of shipments rather than individual shipments. At all events, however, accumulation could only rnake the inclination of the curves less abrupt and would thus result in an understatement rather than an overstatement of the extent of price concessions. A further assumption to this study is that large buyers buy in large quantities ; that large shipments are usually destined for large buyers, while small shipments generally go to small buyers. Obviously, considering the price concessions to be gained from sizeable purchases, any large buyer who purchased in small quantities would be needlessly increasing liis costs and acting against his own economic interests. STATISTICAL AND GRAPHIC TECHNIQUES The statistical methods used are simple and conventional. Each product was sorted as to the tonnage of its items. The items were grouped into tonnage classes and tabulated to give the aggregate of tonnage and aggregate of dollar figures for each class. The dollar figures were then divided through by the tonnage figures to obtain the averages or dollar-per-ton figures. Published prices were uniform for most basing points during February 1939. Shipments based on points where prices were uniform have been designated as "Normal base point shipments." Shipments based on Worcester, Granite City, Gulf or Pacific ports, and Detroit have been designated as "abnormal." Shipments of cold rolled strip on the Chicago basing point were also abnormal in this respect. The Feason for this distinction is perhaps best explained in that shipments based on Granite City were quoted during February 1939 at $2 above those at most other points. Shipments based on Pacific ports were $10 higher. Detroit was classified as abnormal because, strictly speaking, it was not a basing point. Detroit shipments generally carried no freight charges against the customers, freight being included in the base delivered price. (Table 5 of the appendix lists and classifies published prices for the period studied.) An analysis was made of all reported items and a separate analysis was made of normal base point shipments. The chief difference between the two is that the former contains 2,929 items and the latter 2,555; that is, 374 items were eliminated. For purposes of statistical convenience, the text, tables, and charts refer only to normal base point shipments. The tables which include all reported items are presented in the appendix to indicate that the fairness of the original sample has in no way been significantly impaired by this selection. A number of considerations influenced the choice of class intervals. It will be noticed that they follow the conventional pattern of such statistical break-downs as classes of income distribution or business by size in that they are narrow on the small end of the distribution CONCENTRATION OF ElCONOMIC POWER 3 and wide on the large end. They are approximately, though not exacily, logarithmic. The class marks 1, 10, 100, 1,000, and 10,000 represent an exact logarithmic series. In order to give a more compre- hensive view of the distributions, this series was split at 3, which is the approximate geometric mean (exact figure 3.1624-)- The resulting classes meet the following requirements: (1) The names of the classes are round numbers. (2) They are sufficient in number to give an adequate view of the distributions. (3) They maintain a fairly even frequency for each class. The purpose of keeping the frequencies even is not only to increase the reliability of the results but also to make possible the presentation of a pattern which tends to distribute the reader's attention in proportion to the frequency. The small end of the distribution is magnified because of the relatively high frequency therein. Most of the companies reported their tonnage figures accurate only to 1 ton. For this reason all reports were rounded to even tons. In the process of rounding, items of less than one-half ton were ignored, and thus a few items were discarded. The matter is of no practical consequence here. It is merely noted along with the fact that the tonnage scales contain no zero. The vertical scales labeled "Dollars per ton" do not always contain a zero. The need of a zero in this case is supplied by the scale of per- cent decline. The left, or "Dollars per ton" scale, in each case is fitted to the right scale of "Percent decline." The scales of percent decline are the same for all charts of the set. A decline of 20 percent (or 21 or 22 percent, etc.) is thus represented by the same vertical distance on all charts of the set. The percent decline is, of course, the decline from the maximum ordinate. No per- centage figures are given in the tables; they are evident in the charts. The percentage scales for the charts of net extras are labeled "Con- tributed percent decline" because the declines represented are a com- ponent of the mill net. Specifically what has been done is simply to use the same scales for mill net and net extras. The declines in net extras are thus not expressed as a percentage of the maximum ordinate for net extras but as a percentage of the maximum ordinate for mill net. A "Contributed percent decline" of 20 percent (or 21, or 22 percent, etc.) thus means that the decline of net extras accounts for 20 percent out of perhaps a total of 30 percent decline shown for mill net. It is to be remembered that net extras are quality and quantity premiums less quality and quantity discounts. Premiums and dis- counts are components of a price. To be more specific, it is impossible to buy a ton of extras. PART II GRAPHIC PRESENTATION OF THE DATA Before examining the charts presented in this section, it may be convenient to describe briefly the various components of the steel price structure. Consequently definitions of the elements of the steel pricing system are presented below. Base Price. In such commodities as steel, there are, even under one product classification, innumerable different sizes and specifications. To pub- lish prices for each of these various possible combinations would be impracticable and confusing. Consequently a more or less standard specification with respect to gage, thickness, length, quantity ordered, chemical specification, and tolerance is quoted as "base." This price is also restricted to a particular location, which is usually, but not necessarily, one of the points of production of the product. This point is known as a basing point. Thus the base price is the price of a selected quantity and specification of a particular product at a par- ticular point. In this study actual base prices were calculated by deducting from the invoiced delivered price the freight added from the governing base point to the point of delivery and the extras charged. (That basing point which makes for the lowest combina- tion of base price plus freight at any particular delivery point is known as the governing basing point.') ** Extras and Deductions. These are the prices which are added to or deducted from the base price to arrive at the price of a particular specification of the product— which does not fall in the classification described above as base. Wet extras are thus quality and quantity premiums less quality and quantity deductions. Delivered Price. The delivered price is the price actually paid by a steel buyer at the point of delivery. (Theoretically, delivered prices may be calcu- lated uniformly by all steel sellers because basing point prices are uniformly published, extras and deductions are uniform and published, and the freight rate which applies from the basing points to consuming points are published. Adding these various charges in such a manner as to utilize the basing point which is nearest pricewise to the consumer makes possible what amounts to uniform published delivered prices.) Freight Absorption and Phantom Freight. Freight absorption or phantom freight arises when shipments are made from a mill not located at the basing point upon which the ship- ment was priced. If the shipment is made from a mill from which the freight rate to the point of deliver}^ is greater than the freight rate from the governing l)asing point, the dift'erence in these freight rates is called freight absorption. Wlien ike freight from the point of de- liv(>rv is l(>ss than the rate from the ":o'verning basing point, the dift'er- ence is colled phnntom fr(>ight. ■ , 5 •JTl'.tOS — 41 — No. 41 ;] g CONCENTRATION OF EiOONOMIC POWER Mill Net. Mill net is the price received at the mill after the payment or allow- ance for the actual transportation from mill to destination has been deducted from the invoiced dehvered price. On the following charts variations by size of shipment in the mill net, net extras, and the base price are plotted for these steel products: Plates, heavy structural shapes, wire rods, plain drawn wire, hot rolled sheets, cold rolled sheets, hot rolled strip, and cold rolled strip. Data are also available and presented in the tables of the appendix, though not charted, for sheet and tin plate bars and for tin plate. Unfor- tunately, the data for the first of these items are not sufficiently com- plete for purposes of charting. And, since tin plate, unlike most other steel products, is usually sold on the basis of long-term contracts, it was omitted because the various shipments made within the term of the contract are only components of the contract and therefore do not indicate at all the size of the buyer. Although data are r„vailable and are presented in the tables for delivered value, freight charged, net extras, base price, freight paid, freight absorbed, and mill net, they are plotted here only for mill net, net extras, and base price. These items are the most significant in the steel price structure, and variations in them cannot be ascribed to variations in freight, a factor determined by geographic location. GRAPHIC PRESENTATION VARIATION IN AVERAGE PRICE BY SIZE OF SHIPMENT 8 CONCENTRATION OF ECONOMIC POWER < n o UJ X iO Ll. O M <r> > CD 5J 0> 2 O >- h- < U cr: m ijj LlI CL U- UJ C/) UJ O ^ a: 1- a. 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UJ - CO J < ^-^ - CD 1 c. 1 1 1 1 - NOi d3d suviioa CONTRIBUTED PERCENT DECLINE S/ 2 8 S 8 " UJ UJ }= O z < =3 a: ui z g NOl M3d SMWmOO PERCENT DECLINE OOtfOfi OOtfOI ooofe OOO'I ooc 001 0£ o « O M 2 8 ! 3 8 S ? * 8 - 1- UJ z \ - 1 c - -" 1 1 1 1 - dS ?" ^ii 000'0£ z at OOO'OI ^g S" <s OOO'S S£ OOO'I 5 3 ll 00£ |3 NOi ti3d stivinoo =1 a CONCENTRATION OF ECONOMIC POWER 15 ffl Pi eooi ^^ "^ f^ c^ r-l 00 T}< t^ CO TP ) lO lO »5 io So »o 00 r^ OS 00 t~>.0 "^ 00 t^Tp(D«d WW t^oooor^os 0> <D 1-H t^ t>. 00 Tfi IC Q ^ o •-< Cp <0 O lO "ft UO I I— ' CC 1-1 M rH e<3 rH M ^ _L C3 d ■* <3i O) .a^ o3 "-' w Tt n-< I— I 3^3 ^( '" d'cc 4) O d O CC 0^ d d g-d o Oh ft £•(» d ^•d d*^ ,0 ft ^H ui o 0) m a) o CO <u '^ O-^ ^ -d d ,, rr! C3 d CO rd d so t" s d -^^ -^ ® *J CD O ^» O CB ^3 ^fql-^^ ft I ^04:3 9 d • d o be 4) o3 0) (-1 d 03 o3 « CO O) S d O^ t^ 3^ Td S^' tJD pH' i^.Sss^od^-io ft S ^ o ft d ^^ 16 OONCENTRATION OF ECONOMIC POWER H Z LiJ X CO UJ NJ <0 PERCENT DECLINE o I- > s I ^ W LiJ O q: Q. IxJ a: LU CO g a: Nox tiad Sdviioa CONTRIBUTED PERCENT DECLINE^ m o « g jg NOi u3d suvinoa PERCENT DECLINE o ^ o 2 S S 8 S ? « s s ^ 1 1 l- \ - llJ } z / / - _J ' _l - z 1 1 ^ — 1 _ s s s ■s § « s 000V3C OOO'OI OOO't 000' I , 00£ ; 001 I (X I is H *2 iSS NOi U3d savnnoQ CONCENTRATION OF ECONOMIC POWER 17 ■w s§ or<M oooo r-c IN rt — . tc t» 6^ ID -H Q 00 00* o r^ o »o ss ooosoiooaoooo^'*' »Q'^^»'3"^*^'st*'^'<J* 'CO^CCr- iCC--'CO--i t>ifl 4) 23 ^ '^ rn^ © Fh rj f75 CO t^ C5 :7d o3 d (U r! cu o e3 -u O • a _o ,„• ^ CO ^ .S O ^ S3 ^ >-^ r- CO c o CO cj 0^ c5 o Oj rill " ri S 5 (-' ^ -^ fc^ '■^-' "-I ^ o X5 as pi CO ' P o ^ „ f-! a ^ p; g di o 2 ^ ^Z ^ ^^ P3 -, CO S-^ 5^ PX fl p^ -, a a o _^ s .^ -s ^ CO , 2 tPr::? ^ a- -^^ '^ CO P^-k-> i3 S c ^ S-E3 f- -C^ I T! bXj tH ^^ o in o o _>-i Ct^ O t^2 a; o !=; pj o a; o OXJ Pi '-2 1=1 '^ ^ Oi C >. ^ -, Th CO •-' '^, T3 'I ^ b ^ri !^ bfi c ■♦^^ 2'5 0^^ «-Q S S S o o-^ oT to C j_ .-; ._, ^ ^ PIh o K.S Si:- b = « t5 §^^0 "" ^3 ? p ^ O 14_| ^ ^ .3 .— rJ:5 O -t-3 -f^ CS ' ^^§ -— 1 ;h p; i! 3 C 45 OJ o ^ 1^ Oi 18 (CONCENTRATION OF ECONOMIC POWER PERCENT DECLINE w o LJ X CO u. o UJ N CO Z - o^ t— < (ri UJ UJ Q_ ^ LUS a: fe LlI t CD z < ^ 111 c/5 o q: LU UJ X CO 05 < UJ t o q: o o NOi b3d Sdwmoo CONTRIBUTED PERCENT DECLINE ^ r -■•■■! 1 1 1 1 1 , 1 1 ootfoi / ootft 1 COtfl / oot \ 001 y ot y^ 01 ^ c NOi d3d Sbvnoc nI O •a o ^ PERCENT DECLINE sags s * s UJ z f. / y - -J -1 2 k y / 1 1 1 I 1 - 0000« OOtfOI OOO'S OOtfl t oot I 001 u c oc i^j 11 NOI U3d SMWmOO CONCENTRATION OF ECONOMIC POWEH 11) • wO « -H O O C3 .OT3 -S ^ o Isssisssj ' CO ^« -< M i=i,ia ® §2^ o -t-H o o t-l Ph •S-d S "^ l! s "^ 2"^;=: o ii eS Ci Oi § g s « tuS-C C 2 o . <o 2 °-^ cc o 5 O) .-Eh OJ 53 r- . P (Dm" o O 2'^ ^3 2'^-^-^ 3 S ;3 O 'TS .-S ^ fe bc ^ -^ § ^ ^ O ^^ ^-. .^K m .^ 'to a 00 CO -1-3 -ti^ o s o a; o s o 3 O (a C3 O S >^^ ""-^ g_ o3 s ci ."!i; t5 5t3 03 Qi gj ^ ^ CO ii T^ -ti -u3 -^ X o.S.o © a;) s bX) o m^ Oh Jii C s^Z, &f ■ CO o "^ r5 ?3 «? ii CO Q O o o CO -Tj O r-l C3 o. ^ . 5 21< a '-'-c '^ o ^ tH o t_ P- -- af c3 '-^ cS j« O O Oi -' Ci " 2 ^ a ^ O) be .3 O £1. Ph Ph PhH i3'^'3,rj'5-:^ PhOX! 0^0 20 CONCENTRATION OF ECONOMIC POWER X C/) N PERCENT DECLINE a: LU < UJ z g q: CD ^ 0^ z - P^ n LlI UJ n CL Li- UJ 1 ujJIj^ _i o o b cc NOi uad stivinoa CONTRIBUTED PERCENT DECLINE?/ « O «j g n NOI id3d Sdvinoa PFRCENT DECLINE O u , o « , O II 3 9. S o 8 1- UJ z - MILL / ■^ - sx ooo'oc !?.> OOO'OI ?i ooo'c ooo'i Ss i^ 2S a< SHIP i^ 001 U;g si NOi ii3d suvnioo ¥51 CX)NCENTRATION OF ECONOMIC POWER 21 PQ P. .^ IQ to O ^ ^ "^ "^ ^ J8 !-0« -H CCH O Q <» 22 = 18 <B cupTS .L.-C3 i._s^ 5n 5fi !=! S 2 43 . rt (=1 2 2 5 "'-^ |siiiil^'i:-s|^ 03 4) ^ w o ® «2 "3 S ^ :- . 03 -^ O' 03 ^ ^-^-^-^-^ ® g 2 c 03 O - tn G > f^ 03 0-— -^^ 1^003^* ^ o ^ c a _i^ y w oj O CD C t-i „ . . ^ 0'T2 ^ w w M 03 oS O rt 03 -k^ "^ 5 03 fc^ ^ 03 03 o3 Oh 03 T-i ^ bc?/^ cc 1-1 _D .^" :5^ w 03 271968 — 41 — No. 41- 22 OONCENTRATION OF ECONOMIC POWER IxJ X CO U- o UJ M CO UJ UJ Q_ ^ . <^ Ld UJ q: ^ ^ Q UJ UJ t CD 2 < => UJ CO z o PERCENT DECLINE o « 9 2 8 8 8 S ? 5 S IS UJ o a: a. ) - BASE J - NOi H3d S«V-|-|O0 CONTRIBUTED PERCENT DECLINE^ S 8 S 8 S ? 8 ? 8 NOi a3d SM»inoo OOOVK ootfoi ootfe ooo'i i 3 ooc \ u 001 ^ oc !: PERCENT OECLINE o « 9 8 S S^ s ? * 8 z - MILL ^ 1 1 1 ^ - ft* 000\X oocoi i^% ooot ^ K <^ OOO'I 52 oot |5 Jr NOi H3d SM»niOO C30NCENTRATION OF EOONOMIC POWEI 23 «o »0 CO N t^ »o «^ CO OJ TJ Csi tc' rt r^ t^ ^' CO CO <— I S*-< Tt" t^ CO GO 00 >o ■<il< N ci o CO -^ O OSOi 1^ 5 5r! « f3 -^-z c; S S O ci o PART Hi SIGNIFICANCE OF THE DATA THE SIGNIFICANCE TO THE CONCENTRATION OF ECONOMIC POWER One of the functions of the Temporary National Economic Com- mittee is to determine the causes of the concentration of economic power; therefore a first concern of this study is the relationship be- tween the granting of price concessions to large buyers and the develop- ment of economic concentration. Steel is the basic durable good of the economy. It is essential to building and construction, railroads, automobiles, contamers, ship- building, machinery and tools, highways, oil, gas, water, mining, and many other vast fields of enterprise. Although it is held by some that steel may presently be replaced by plastics in much the same way that wood has been replaced by steel,- the economy for many years to come will undoubtedly be founded upon steel and will consequently be affected immediately by the policies and practices of the steel industry. Of most interest to this study is the industry polic;f which brings about these marked declines in the various elements of the steel price structure as the size of the shipment increases. ^ On the charts it was shown that these reductions are sufficient to cause the yield to the mill^the mill net — to drop steadily with larger and larger orders.^ The percent 'change in the mill net attributable to the actual variation in extras was also charted; and it was found that a sub- stantial proportion of the decline in the mill nets was due to very extensive decreases in extras. Since extras are determined by quality and quantity factors, it is evident that the advantages of large quan- tity generally outweigh the exacting quality specifications frequently demanded on large orders. What perhaps was even more significant was the discovery that the steel companies, to obtain large orders, cut even their base prices, that is their "policy" prices. The act of lowering the base price is espe- cially significant, because it reflects a reduction in that element of the price structure which theoretically is immune, first, from any varia- tions due to quality and quantity considerations and, second, from differences in freight charges. Reductions in the base price to large buyers are thus purely discriminatory, theoretically explainable neither on technological nor geographic grounds. ' Before the Temporary Nstipnal Economic Committee, this interchange took place between Oommis- sioner Leon Henderson and Benjamin F. Fairless, President, United States Steel Corporation: "Mr. Henderson. Were there any of your buyers paying the base price plus the standard extras?" (Fourth quarter 1937 to second quarter 1938). "Mr. JFairless. Yes: there would be some. "Mr. Henderson. But there would be other buyers who were getting substantial oonoessions on price in order for you to meet competition? "Mr. Fairless. That is correct."— (Hearings before the T. N. E. C, Part 19, p. 10534.) ' Also before the Temporary National Economic Committee, l>r. Theodore Kreps, economic consultant to the committee, asked this question of Dr. Theodore Yntema, statistician for the U. 8. Steel Corporation: "Dr. Kreps. • * * As I under.'^tand it, mill-net prices reflect pretty well what the consumer pays to the industry— at least that is in substance your contention. Is that correct? "Dr. Yntema. I think that is a fair statement."— (Hearings before the T. N. E. C, Part 26.) 25 2g OONCENTRATION OF ECONOMIC POWER That concessions might be made to large buyers is to be expected for certain steel products from the informed nature of much steel buying. This has been described by spokesmen for the United States Steel Corporation as follows: This readiness of a buyer to shift from one producer to another because of a lower price is due to the informed character of. the buying of steel. Technical knowledge of the product to be purchased is available through laboratories of individual purchasers, trade associations, and independent research agencies; exactly the same steel may, for the most part, be obtained from any one of a number of producers. Furthermore, the large size of individual purchases makes it worth while for buyers to seek the lowest possible price. This propensity to shop is enhanced by knowledge of latest price quotations, by familiarity with psychological and other factors resulting in a "buyers" or a "sellers" market for all or particular products, and by a general understanding of approximate costs of steel production; indeed, a few purchasers of steel operate completely integrated steel works to supply a portion of their requirements, and others have semi- integrated and non-integrated capacity.' Wliatever the cause, the obvious effect of these concessions to large buyers is that small purchasers are placed at a competitive disad- vantage. No elaboration is needed in describing the position of a small manufacturer who in February 1939 was forced to pay for a ton of cold rolled strip a delivered value of $154.69, netting the mill $145.41, as against a large competitor who, for this product, paid a delivered value of only $76.19— a mill net of but $70.88." It is noteworthy that those steel products marked by the most extensive declines in price to large buyers are products which are consumed principally by highly concentrated industries. Of the eight products examined, the largest concessions were made on hot and cold rolled strip. By far the largest consuming channel of strip steel is the highly concentrated automotive industry. Out of a distribution of strip steel in 1939, amounting to 2,200,700 net tons, the automotive industry consumed 1,129,800 tons,^ and it is obvious that a few members of that highly concentrated industry- are capable of exerting tremendous buying power. * * * in the automotive, container, agricultural implements, household durable goods, and shipbuilding industries, a relatively few large companies comprise a substantial percentage of the total production of their respective indus- tries. In purchasing their steel requirements these large companies usually come into the market with orders of considerable magnitude. ^ At the other extreme, however, those steel products marked by the least extensive declines in price to large buyers are consumed prin- cipally by a large number of small buyers. The two products for which the price concessions were smallest are steel plates and heavy structural shapes. The largest consuming channel of both shapes and plates consists of contractors and fabricators for the construction industries. Out of a distribution of steel shapes, amounting in 1939 to 2,803,600 net tons, 1,687,600 were consumed by construction contractors and fabricators; and of a distribution of 2,677,500 net tons of plates, 543,000 were taken by this group of relatively small buyers, while, in addition, 237,200 tons were consumed by the equally » United States Steel Corporation— Some Factors in the Pricing of Steel.— Hearings before the T. N. E. C, Part 2f^, Exhibit UIO.) ♦ Frequently because of the exacting specifications demanded by large steel buyers, the steel sold to the large buyer is of even better quality than that on which the small purchaser has to pay a much higher price. • Iron Age, March 21. 1940. » United States Steel Corporation op. cit. CONCENTRATION OF ECONOMIC POWER 27 atomistic channel of jobbers, dealers, and distributors, 299,000 by exports, and 198,500 by miscellaneous industries." The construction industry is among the least concentrated of the Nation's industrial fields. There is no great company within it which is able to exert buying pressure at all commensurate with that which can be applied by any one of the three large automobile producers. This, then, w^ould certainly tend to substantiate the position that the extent of the price concessions generally varies directly with the degree of economic concentration in the consuming industries. There is perhaps a further reason which explains why price con- cessions on steel plates and shapes are relatively small. A considerable amount of these items is purchased directly or indirectly by the Federal Government. A calculation made from data in the Division of Construction and Public Employment of the Bureau of Labor Sta- tistics reveals that of the total production of structural and rein- forcing steel a large percentage — 55.5 percent in 1936, 33.3 percent in 1937, and 47.9 percent in 1938— was purchased for use on projects financed by Federal funds. The fact that in 1938 almost half of the total production of structural and reinforcing steel was bought with Federal funds for use on projects, primarily those of the P. W. A. — to say nothing of additional purchases by other governmental agencies — makes it evident that the Government is the leading buyer for this type of steel products. But, as will be developed later in this study, the Government, despite its large purchases, does not exert the effective buying pressure customarily applied by large private purchasers. It is obviously impossible to determine the exact extent to which the granting of material price concessions has contributed to the growth of economic concentration. In making any such determination it would be necessary to devise proper adjustments for all the other factors which may induce concentration, such as greater financial strength, technological advantages in operating efficiency, etc.; and existent data are not adequate for this purpose. Nevertheless it is self-evident that the practice of granting concessions is of not inconsiderable importance in perpetuating highly concentrated economic control, once it has become established. The necessity faced by small producers of paying, in some cases, over twice as much for steel as their large competitors not only serves to limit their ability to compete but also operates to keep numbers of them out of the field altogether. Once the ability to purchase in very large quantities is established, substantial price concessions may be expected to result, and the effect of these concessions is to per- petuate and intensify the concentration existing. In this way, economic concentration tends to feed on itself. A less obvious, but nonetheless equally significant, aspect of these price concessions is their relationship to the type of pricing system practiced by the steel industiy — the basing point system. A characteristic of the basing point system is the widespread dissem- ination of published base prices, freight rates, extras, and other ele- ments of the price structure. It has been contended that when the published prices are well above actual prices to large buyers, the very pubhcation of these prices may mislead the small buyer who possesses ' Iron Age, March 21, 1910. 28 CONCENTRATION OF ECONOMIC POWER inadequate market information and relies upon the published data as the source of his market information. In testimony before the Temporary National Economic Committee, Mr. A. H. Feller, Special Assistant to the Attornej^ General, asked this question of Eugene G. Grace, president of Bethlehem Steel Co.:^ Mr. Grace, I think we have come to a somewhat important point here. The base price remaindti at the high level. So far as the operation of your company and the United States Steel Corporation were concerned, you weren't getting that price. Your realization was substantially lower, and yet some purchasers were paying that price and they included certain types of consumption and also small buyers. Now by keeping that base price at that fictitious level, to use your own words, weren't the small buyers in effect being penalized? And further — Didn't the base price, although not adhered to over the average because of the conditions of the market, didn't the base price have this significance: That it resulted in some purchasers who perhaps because of inferior knowledge with respect to market conditions or perhaps because of insufficient buying power, didn't it result in a discrimination between purchasers so placed and purchasers who knew more about the market and who could buy more? Although Mr. Grace did not think that the publication of fictitious prices penalizes the small buyer, this idea advanced by Mr. Feller is extremely suggestive. Unfortunately it is impossible with present information to determine the extent to which small buyers actually are misled by the published prices. If they do accept them as bona fide, or at least as close approximations of the prices paid by their large competitors, the publication of these prices, as a characteristic of the basing point system, is undoubtedly one of the reasons that the price concessions are as large»as, in fact, they prove to be. THE SIGNIFICANCE TO THE GOVERNMENT Earlier in this study it was pointed out that the Federal Govern- ment buys very large quantities of certain types of steel products. Are, then, the substantial price concessions made to large private buyers offered also to the Government? Such does not appear to be the case. From testimony of leading steel producers before the Tem- porary National Economic Committee and from other sources it has been learned that the Federal Government, even on extremely large orders, usually pays the published price. In testifying before the Temporary National Economic Committee, Mr. Eugene Grace, president of the Bethlehem Steel Corporation, stated that, while price concessions are frequently made to private buyers, his company nearly always bids the published prices on orders from the Government. Mr. A. H. Feller, Special Assistant to the Attorney General, interrogated Mr. Grace as follows: Mr. Feller. Is it correct, then, Mr. Grace, to say that, during this period when the base price was fictitious as far as the trade was concerned, it was not fictitious as far as the United States Government was concerned? Mr. Grace. I have told you what our policy was in quoting to the United States Government. That is as far as I can go. Mr. Feller. Your policy was that the published base price was a real price? Mr. Grace. That is the basis upon which we quoted and undertook to get Government business * * *. Our policy has been as I have said to quote the United States Government official published prices.^ 8 Hearings before the T. N. E. C, Part 19, pp. 10593. 1059.5. « Hearings before the T. N. E. C. Part 19, pp. 10596, 10597. CONCENTRATION OF ECONOMIC POWER 29 There can be little doubt that the Government is in the role of the ^'least favored buyer," and that its inability to obtain the price con- cessions regularly given to large private buyers is indeed costly to the Nation's taxpayers. A number of reasons lie behind this failure of the Federal Govern- ment to obtain price concessions. Among them are certain purchasing policies pursued by the Procurement Division of the Treasury De- partment. i° An additional reason is that producers of products such as steel necessarily realize that, in order to operate in terms of the legis- lation passed by Congress, the administrative agencies of the Govern- ment are compelled to purchase, almost regardless of price, the items required. Perhaps an even more pointed explanation is that, unlike a number of large private buyers, the Government has apparently not seen fit for some years to erect and operate its own steel works. Two large private buyers of steel — Ford Motor Co. and International Harvester Co. — now operate completely integrated steel works to supply a portion of their requirements. And half a dozen others — American Car & Foundry Co., American Locomotive Co., Atchison, Topeka & Santa Fe Railroad Co., Continental Can Co., Simonds Saw & Steel Co., and Timken Roller Bearing Co., Inc. — have semi-integrated and non-integrated steel-maldng capacity. ^^ This apparent inability of the Government to threaten the produc- tion of its own steel requirements has undoubtedly been of considera- ble importance in causing the Government to pay prices for steel usually acceptable only to the smallest and least effective private buyers. The existence of these price concessions to large buyers is of further significance to the Federal Government. Analyses of price move- ments, particularly in times of national emergency, are often of great- est importance in the formulation of policy. Much of this price in- formation can be obtained regularly under present circumstances only from published sources. The possible failure of these published prices to reflect accurately the movement of prices actually paid can obviously become a serious problem to the Government. It is very evident that in the case of steel the published prices are quite different from the actual prices paid by large buyers.'^ The Government is thus unable to discover on the basis of available price information the actual prices paid for the Nation's basic durable good. In this time of national emergency increases in the actual prices of steel may well be taking place through reductions in the concessions allowed to large buyers; but such increases can in no way be discerned through analyses of existent steel price information. The very presence of these great concessions from the known prices thus calls for more accurate price information, at least for steel products, than is today available. '" For an analysis of these policies, see M. A. Copeland, D. M. Barbour, and C. C. Linnenberg, Jr., Gov- ernment Purchasins;— An Economic Commentary, T. N. E. C. Monograph No. 19. " United States Steel Corporation, op. cit. ■2 Said Mr. Eugene G. Grace, president, Bethlehem Steel Co., in testimony before the Temporary National Economic Committee: "Our established prices were not prevailing nor obtainable nor controlling. In speaking of the price situation that existed at that time (1938), I naturally would have in mind the prices currently which we were obtaining for our product. They didn't tie into the published prices which you call official prices in any sense of the word."— (Hearings before the T. N. E. C., Part 19.) 30 OONCENTRATION OF BCONOMIC POWER THE SIGNIFICANCE TO THE ECONOMIC ARGUMENTS OF THE STEEL INDUSTRY An incidental, though none the less interesting, aspect of these price concessions is their relation to the economic arguments advanced by spokesmen of the steel industry. The United States Steel Corporation submitted to the Temporary National Economic Committee a series of exhibits in the form of pamphlets. These exhibits were prepared by a special staff under the direction of Dr. Theodore Yntema, of the University of Chicago. In- asmuch as no refutation of the basic economic theses advanced therein has as yet been offered by other steel producers, it is assumed that the arguments expressed represent the opinion of the steel industry. One of the principal arguments advanced is that the industry, inso- far as variable costs are concerned, is one of constant costs. In every industry costs are divided between those which are fixed and those which are variable. As is stated by spokesmen of the United States Steel Corporation: Costs must of necessity fall into one of two categories. Some items of cost are the ^a,me regardless of the amount of steel and other products produced provid- ing there is not a complete shut-down. These costs are known as "fixed costs"' or "overhead costs." There are other items of cost termed "variable costs" or "incremental costs" or "additional costs" which are not the same regardless of volume but increase with increases in the volume of steel produced and sold. These costs can be diminished by cutting down the production of steel. The fixed costs, on the other hand, cannot be diminished except by complete shut- down, but they can be spread over a greater number of units of products by increasing production." After examining cost data of the United States Steel Coiporation and making numerous adjustments — the propriety of which need not be examined here-— the statisticians of the United States Steel Corpo- ration concluded that variable costs are constant. Taking the costs shown by the profit and loss statements of the corporation from 1927 to 1938 and adjusting to 1938 wage, interest, and tax rates and to 1938 prices and other operatmg conditions, this study shows that under 1938 condi- tions the costs of the first or fixed type amount to $182,100,000 per year while those of the second type, the additional costs, are approximately $55.73 per weighted ton of product shipped * * * Within the range of actual experience the additional costs, at 1938 wage and tax rates and 1938 material prices, arising with the shipment of each additional ton remained constant at $55.73. ■ This is true when production averages as high as 90.4 percent and as low as 17.7 percent of capacity for the entire yesLT.^* Except when production is at very low rates of capacity, variable costs were found to bulk much larger than fixed costs. Thus in February 1939, when production was at approximately 55 percent of capacity, the percentage of fixed cost to total cost, according to the stud}" of the steel corporation, would be between 26.0 and 22.9 per- cent.'^ In other words, at the time the statistical data in this study were collected, variable costs were over 75 percent of total costs. While it is not the purpose of this report to inquire into the con- tention of the steel spokesmen that variable costs are constant,'^ the data on price concessions present this interesting situation. 13 United States Steel Corporation, Steel Prices, Volume, and Costs.— (Hearings before the T. N. E. C, Part 2fi. Exhibits 1416, 1417.) '< Ibid. "5 Ibid., table 2S. " For an analysis of the cost data submitted by the Steel Corporation, see hearings before the T. N. E. C.^ Part 26 (testimony of Martin Taitel, Senior Consulting Economist of the Work Projects Administration). OONCENTBATION OF ECONOMIC POWER 31 On one hand spokesmen for the steel industry state that variable costs in their industry are constant and that an increase in the volume of business would not result in a reduction of these unit variable costs, which, as noted, comprised in February 1939 over 75 percent of total costs. On the other hand, it is found that during that same month steel producers were granting very sizable price concessions for the apparent purpose of obtaining large orders. This inconsistency might be explained on the grounds that a differ- ence exists between the economic conclusions to be deduced from these data and the actual day-to-day operating behavior of a large' corporation. Thus, in the words of Dr. Yntema testifying before the Temporary National Economic Committee — Again Dr. deChazeau said, "If other things cannot be assumed equal, Dr. Yntema's analysis of price elasticity of demand canno.t be considered a criterion of desirable pricing policy even for the United States Steel Corporation." With this I should agree but I should point out that we never thought that it should be regarded a criterion of desirable pricing policy by the United States Steel Corporation. i^ Nevertheless, the granting of the price concessions, substantial as they are, would be much more understandable were the industry one of decreasing costs. On the basis of the assumption that variable costs are constant, the month of February 1939 saw large price con- cessions being made for the sole purpose of spreading fixed costs, amounting during that month to less than 25 percent of total costs, over a larger number of units. It seems at least questionable whether this greater diffusion of the distinctly minor element of fixed costs would constitute sufficient justification for the granting of price con- cessions so large that mill nets were reduced by amounts up to and over 50 percent. Actually there is some factual basis for assuming that in iron and steel variable costs per unit do decline as output is increased. In 1935 the Bureau of Labor Statistics conducted a study of the effect of varying rates of capacity utilization in steel upon the number of man-hours required per unit of output. It was found that as the percent of capacity utilized rose from 20 to 25 percent to 55 to 60 percent, the man-hours required per unit declined noticeably. That this behavior is not exceptional to the iron and steel industry is to be seen from a comparison with two other industries for which data of this nature are available — the cement industry and the brick and tile industry. The effect of increasing capacity utilization upon unit man-hour requirements in these three industries is shown in the following chart.^^ The behavior for the steel industry, as shown on the chart, may understate the decline which under present conditions actually takes place. That study was based upon data collected in 1935, a period .prior to the widespread adoption of the continuous process rolling mill. It is more than likely that the introduction of this new process has resulted in even greater reductions in unit man-hour requirements. Also, as ma^ be noted from the chart, the data extend only to 55 to 60 percent of capacity; if data were available for higher rates of capacity utilization, they might well show, up to almost the very highest rates, a still more substantial decline. " Hearings before the T. N. E. C, Part 10. ■' It was not a purpose of these studies to separate man-hours worked into "fixed" and "variable" cate- gories. Arbitrary differentiations of that type, while attempted by spokesmen of the steel industry, are rarely to be found in statistical studies of the relationship between the quantity of labor and the rate of production. 32 CONCENTRATION OF EiOONOMIC POWER Chabt IX EFFECT OF VARIATIONS IN CAPACITY UTILIZATION UPON MAN-HOURS REQUIRED PER UNIT OF OUTPUT INDEX OF MAN-HOURS REQUIRED PER UNIT OF OUTPUT IRON AND STEEL ^ (55-60% CAPACITY UTILIZED- 100) 130 120 110 inn ^■^ ^^^1^^' 30-35 35-40 40-45 45-50 PERCENT OF CAPACITY UTILIZED « INDEX OF MAN-HOURS REQUIRED PER UNIT OF OUTPUT 140 130 120 110 INDEX OF WAN-HOURS REQUIRED PER UMIT OF OUTPUT 190 180 170 I60 ISO 140 130 120 110 CEMENT^ (100% CAPACITY UTILIZED-IOO) INDEX OF MAN-HOURS REQUIRED PER UNIT OF OUTPUT 190 180 170 160 150 140 130 120 110 40 60 80 PERCENT OF CAPACITY UTILIZED HiDEX OF MAN HOURS REQUIRED PER UNIT OF OUTPUT ISO BRICK AND TILE^ (70% CAPACITY UTILIZED" 100) INDEX OF MAN-HOURS REQUIRED PER UNIT OF OUTPUT ISO 120 no 30-40 40-50 50-60 PERCENT" OF CAPACITY UTILIZED ' Bureau of labor Statistatics, Monthly Labor Review, vol. 40, May 1935, p. IIGI. ' National Research Prgject, Mechanization in the Cement Industry, 1939, p. 23. ' National Research Project, Productivity and Employment in Selected Industries, Brick and Tile, 1939, p. 117. CONCENTRATION OF ECONOMIC POWER 33 A second economic argument advanced by spokesmen for the steel industry is that the existence of competition within the basing point system is indicated by the presence of freight absorption.'^ The reasoning beliind this contention is that the very act, by producers, of bearing part of the freight charges themselves indicates a sacrifice on their part which could be demanded only by competition. Thus, presumably, the greater the competition among producers, the greater the freight absorption. Reference is frequently made to this idea in testimony and exhibits offered by spokesmen for the steel industry. In concise form the argument even appears regularly in a caption introducing steel price information published by the trade journal, Iron Age. Steel prices on these pages are f. o. b. basing points (in cents per pound) unless otherwise indicated. On some products either quantity deductions or quantity extras apply. In many cases gage, width, cutting, physical, chemical extras, etc., apply to the base price. Actual realized prices to the mill, therefore, are affected by extras, deductions, and in most cases freight absorbed to meet com- petition.-'' Actually the data collected in tphis study indicate that the very, converse of this contention holds true. It is on small shipments with their limited price concessions that the amount of freight absorption is generally greatest; and, as the size of the shipment and the price concessions increase, the amount of freight absorption generally declines. This behavior is shown in chart X. What appears to happen in most cases is that lar^e buyers are successful in getting substantial price concessions from mills located nearby and, further, that as the distance from the mills to buj^ers increases producers are less able to reduce their mill nets to such an extent that the delivered price, including the greater freight, can meet the delivered price of the mills near to the buyer. On the other hand, small buyers, being unable to obtain these substantial price concessions, are more inclined to "shop around" in the hope of obtain- ing slightly better prices. A concession of almost any kind would frequently obtain the order of the small buyer. On these small orders the more distant mills are not faced with the competitive necessity of making substantial price concessions; this obviously gives them a greater margin in which they can include t\\e absorption of freight. If such is actually true, the contention that the degree of competi- tion varies with the amount of freight absorption must be discarded as untenable; otherwise, on the basis of the data presented in the following chart, it would follow that competition would generally be least intense in the case of the largest orders on which price concessions are greatest, whereas competition would be most intense on the smallest orders which bear only limited price concessions. " If a shipment is made from a mil! from which the freight rate to the point of delivery is greater than the freight rate from the governing basing point, the difference in these freight rates is called freight absorption. 2i> Recent issues of Iron Age, e. g. that of August 22, 1940. (Source not italicized.) 34 CONCENTRATION OP BOONOMIC POWER SI. Z o »- <r iij o UJ CD (T O CO CD < I- X g UJ cr U- UJ UJ UJ g> >- a: < U- o UJ N (f) >- CD i^ - 111 oc - «> / 2| s - (C J o <. - ooo^ot ootfoi ooci^ OOO'l oot - o - CO z o q:: — w rt * <« / - H \ . UJ ^^ UJ ^^^ - T fe*" 1 - ?o 1 _ til _l / - _l o / • a ( SS ,^ , . ooo'ot - OOO'OI ooo't OOO'l APPENDIX For further information as to these data please see Hearings before the Temporary National Economic Committee, Part 27. Form B. — Distribution and pricing of selected steel products •Company. 'Month i^Year Name and location of works Basing point on which delivered price Product wa^s computed Period^ ^ Domestic shipments to con- suming districts > (1) Tonnage shipped, net or gross tons (state which) (2) Total in- voiced de- livered value (3) Freight charges added to base prices to arrive at in- voiced value per column (3) (4) Actual freight paid or al- lowed on shipments from mill to destination (5) Total extras included in invoice delivered value per column (S) (6) DISTRICT Tons Amount in dollars Amount in dollars Amount in dollars Amount in dollars •Connecticut (except Fairfield "^ Maryland— all other pxcept 2 ■Georgia • Distribution of selected steel products by consuming districts is requested for all shipments direct to consumers excluding exports, f. o. b. inili sales, shipments to other plants or warehouses of the same or affiliated companies, and shipments to jobbers' warehouses. Consuming districts are defined in schedule enclosed with this form. . 35 36 aONCENTRATION OF ECONOMIC POWER Form B. — Distribution and pricing of selected steel products — Continued Domestic shipments to con- suming districts (1) Tonnage shipped, net or gross tons (state which) (2) Total in- voiced de- livered value (3) Freight charges added to base prices to arrive at in- voiced value per column (5) (4) Actual freight paid or al- lowed on shipments from mill to destination (5) Total extras included in invoice delivered value per column (S) (6) Florida Tons Amount in dollars Amount in dollars Amount in dollars Amount in dollars Louisiana Oklahoma Texas Idaho Colorado . . . -. Arizona. ., .. Utah. Nevada. Washington Oregon California: Southern Northern ^ Total of above items .. Other shipments: ' Exports .. F-o. b. mill sales' ... Shipments to plants or ware- houses of same or affiliated companies * Shipments to jobbers' ware- houses - . - ' These items need not be repeated on reports for each basing point. It is understood that they are not to be included in the distribution of shipments by consuming districts within the United States. 3 *'F. 0. b. mill sale" means a sale priced at the mill and delivered to the customer at the mill without freight allowance. « "Afliliated company" means any company described as a parent, subsidiary, or affiliated company in the reporting company's annual reports or in any registration statement filed by it with the Securities and Exchange Commission. 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Ic 2pco2 CO — S88<_ CO'-<COrHCO» = Eh 48 OONCENTRATION OF ECONOMIC POWER Ui en CO .-H Tj^ I>- S538 OO lO "* IM C^ O CO '"J^ O Oi OS t-* 03 I-- OO »0 iO Oi O <-H w t^ iO 1-1 O Cq to Tt< CO CO o 05 r^ooo lO CO N t-» O W5 O -^ O O 00 OJ CO t-» O CO *o to Oi GO OS -H ados OOlO'^C^'OCO— I lOQor^oi-^O'ooo COt^COtNr^CltOGO CSlTfC^OiOi-HCDCO ior-c*itco3CDcor^ I>"«'COC0010itO«— ( (OtOoOOOOOtOTfic^ iOOCDfOl:^'«J*<-Hi-H cs<C'«rocoo'^(N coor^t^i-ic^t^-H C00050SOOOO II c^ c<i »o ci Tf5 t-i I I I I I I I 00^ «)C^ >oo 00 00 CD »0 »0 lO OC^iOcO-^-^-^fOO »OOC0t^O00^05 cDiot^^od*o^u6 •3> p ooiOTt< coos t^ :0 ■«**•-• »0 ^ CXi '^ Ci OS GO CO -*< "5 -H 0> OS t>» lO CO -^ -h'osO CO WCO tOCOC^Ol'-H^OSOO CMCOCOtO-^OOO CO CO CN ^ CD lO OS OOO OO sg OO o 0"-0-T3 OCO r- O O C9 — ' " *^o OOO OOO 008*:="°- >8> §aS°°oogS°- +jii-,0000-i*-lo GQ ooM'-'ooce "^ CO rHCoS .Sa CONCENTRATION OF ECONOMIC POWER Table 5. — Published base prices of selected steel products, February 1939 [Dollars per ton] 49 Base points 3 -S 2 a — o i2 1 "o "o O Q -a 1 1 a 1 2 2 o u .a ■a as ■So, O. Normal points: Bethlehem Pa 42 42 42 42 43 ■ 62 43 43 """64" 43 Buffalo N Y 34 34 34 Canton Ohio Chicago, 111 42 42 42 42 42 42 43 52 43 64 43 100 Claymont, Del Cleveland, Ohio - 43 52 43 64 43 59 34 Coatsville, Pa 42 43 43 43 43 43 64 64 64 43 43 43 ioo Pittsburgh, Pa Sparrows Point, Md 42 42 42 42 43 52 59 34 34 34 100 Youngstown, Ohio 64 43 59 61 61 Abnormal points: 45 45 66 66 45 Granite City, 111 102 Gulf ports 49 52 49 54 53 76 52 45 63 Note.— Wire rods and sheet and tin plate bars in gross tons; all others in net tons; tin plate is 100-pound quality. Source: The Iron Age, Feb. 2. 9, 16, 23, 1939. Table 6. — Effect of variations in capacity utilization upon man-hours required Man-hours T , , . .,• , required per Industry and percent of capacity utilized: unit of Iron and steel: " output 55 to 60 100. 60 to 55 105. 45 to 50 111. 40 to 45 118. 35 to 40 123. 30 to 35 127.0 25 to 30 131. 20 to 25 135. Cement: 100 100. 80 108. 6 60 120. 8 40 140.4 20 181.4 Brick and tile: 70 and over 100. 60 to 69.99^- 50 to 59.99 101. 5 40 to 49.99 . 109. 2 30 to 39.99 115. 4 20 to 29.99 130. 9 Less than 20 145. 5 Sources : Iron and steel. — Bureau of Labor Statistics, Monthly Labor Review, vol. 40, May 1935, p. 1161. Cement. — National Research Project, Mechanization in the Cement Industry, 1949, p. 23. Brick and tile. — National Research Project, Productivity and Employment in Selected Industries, Brick and Tile, 1939, p. 117. INDEX Fsg« AUTOMOTIVE INDUSTRY: Strip consumption, 1939, tonnage 26 BASE PRICE: Cutting of by steel companies, significance of 25 Defined 5 Published prices, discrimination in favor of large buyer 27-28 BUYING POWER PRESSURE: Relationship to development of eco- nomic concentration 27 CAPACITY UTILIZATION: Effect of variations upon man-hours re- quired per unit of output, iron and steel, cement and brick, and tile in- dustries ; comment, chart 9 and table 6 31-32, 49 CONCENTRATION OF ECONOMIC POWER: Causes: price con- cessions granted to large buyers 25 CONSTRUCTION INDUSTRY: Consumption of shapes and plates, 1939, tonnage 26 Least concentrated of Nation's industrial fields, absence of buying pressure 27 COSTS: Steel industry, fixed, v. variable-costs argument submitted to T. N. E. C, summary 30-31 DELIVERED PRICE: Defined 5 DEPARTMENT OF JUSTICE: Questionnaire Form B; reduced fac- simile 35-36 EXTRAPRICE: Defined 6 FORD MOTOR CO. : Integrated steel works operated by 29 FREIGHT ABSORPTION: Defined 5 Indicator of competition . 33 Variations in average freight absorbed per ton by size of shipment, February 1939; comment and chart 10 33-34 GOVERNMENT PURCHASES: Price concessions to large buyers not off'ered to the Federal Government 28 Structural and reinforcing steel, Federal Government leading buyer. _ 27 INTERNATIONAL HARVESTER CO.: Integrated steel works op- erated by 29 MILL NET PRICE: Defined 6 PHANTOM FREIGHT: Defined 5 PLASTICS : Steel replacement anticipated 25 PLATES: Freight absorption: Variations, by size of shipment, February 1939; chart 10 34 Price : Variations in average price per ton by size of shipment, Febru- ary 1938; chart 1 and table 8-9 Variations in components, normal base point shipments, by size of shipment, Februaryj 1939; table 4 46 Variations in price components by size of shipment, February 1939; table 2 40 Shipments : Tonnage and sales by size of shipment, February, 1939; table l.. 37 Tonnage and sales, normal base point by size of shipment, February 1939; table 3 43 PLATES AND SHAPES: Percentage purchased for use on projects financed by Federal funds 27 PRICE CONCESSIONS: Large versus small buyer grants, relation- ship to development of economic concentration 25-28 Relation to economic arguments of steel industry 30-31 51 52 INDEX PRICES: Pa&« Published prices: Selected products, February 1939, by base point normal and abnormal; table 5 1 49 Variations in components of price, by size of shipment and product, February 1939; table 2 40-42 Variations in components of price, normal base point shipments, by products and size of shipment, February 1939; table 4 46-48 PROCUREMENT DIVISION, TREASURY DEPARTMENT: Pur- chasing policy and steel price concessions to Federal Government 29 SHAPES, HEAVY STRUCTURAL: Freight absorption: Variations, by size of shipment, February 1939; chart 10 34 Price : Variations in average price per ton by size of shipment, February 1939; chart 2 and table 10-11 Variations in price components by size of shipment, February 1939;table2 . 40 Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 46 Shipments: Tonnage and sales by size of shipments, February 1939; table 1__ 37 Tonnage and sales, normal base point, by- size of shipment, Februarv 1939; table 3 43 SHEET AND TIN PLATE BARS: Price : Variations in price components, by size of shipment, February 1939; table 2 - 42 Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 ^ 48 Shipments : Tonnage and sales by size of shipment, February 1939; table l-_ 39- Tonnage and sales, normal base point, by size of shipment, February 1939; table 3 - 45 SHEETS, COLD ROLLED: Freight absorption : Variations, by size of shipment, February 1939; chart 10 34 Price : Variations in average price per ton by size of shipment, February 1939; chart 6 and table 18-19 Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 47 Variations in price components, by size of shipment, February 1939; table 2 41 Shipments : Tonnage and sales, by size of shipment, February 1939; table l.. 38 Tonnage and sales, normal base point, by size of shipment, Feb- ruarv 1939; table 3 44 SHEETS, HOT ROLLED: Freight absorption: Variations, by size of shipment, February 1939; chart 10 34 Price : Variations in average price per ton by size of shipment, February 1939; chart 5 and table 16-17 Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 47 Variations in price components, by size of shipment, February 1939; table 2 41 Shipments : Tonnage and sales, by size of shipment, February 1939; table 1_- 38 Tonnage and sales, normal base point, by size of shipment, February 1939; table 3 44 INDEX 53 :SHIPMENTS, STEEL: , . ^ ^ ^ . ^*^ Aggregate tonnage and sales, by size of shipment and products, February 1939; table 1 37-39 Aggregate tonnage and sales, normal base pomt shipments, by prod- ucts and size of shipment, February 1939; table 3 43-45 Price average per ton, by size of shipment and products, February 1939; table 2 40-42 STEEL COMPANIES: Base price qutting, significance of /o STRIP: Automotive industry, largest consuming channel, tonnage con- sumed 1939 26 STRIP, COLD ROLLED: Freight absorption : , ,« oa Variations, by size of shipment, February 1939; chart 10 34 Price • Variations in average price per ton, by size of shipment, February 1939; chart 8 and table C"'-~~ ^2-23 Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 48 Variations in price components, by size of shipment, February 1939; table 2 41 Shipments: ^ ,, -, on Tonnage and sales, by size of shipment, February 1939; table l._ 39 Tonnage and sales, normal base point, by size of shipment, Feb- ruarv 1939; table 3 45 STRIP, HOT ROLLED: Freight absorption: , ,rv oa Variations, by size of shipment, February 1939; chart 10 34 Price: . x . • Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 47 Variations in price components, by size of shipment, February 1939; table 2 41 Variations in average price per ton by size of shipment, February 1939; chart 7 and table 20-21 Shipments: n 1.1 i 00 Tonnage and sales, by size of shipment, February 1939; table 1-- 38 Tonnage and sales, normal base point, by size of shipment, Febru- ary 1939; table 3 44 STRUCTURAL AND REINFORCING STEEL. -See Plates and Shapes. TIN PLATE: Price I Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 48 Variations in price components, by size of shipment, February 1939; table 2 42 Shipment: Tonnage and sales, normal base point, by size of shipment, l^ebru- ary 1939; table 3 45 Tonnage and sales, by size of shipment, Feb. 1939; table 1 39 UNITED STATES STEEL CORPORATION: Exhibits submitted to T. N. E. C, cost argument summary 30-31 WIRE, PLAIN DRAWN: Freight absorption: Variations, by size of shipment, February 1939; chart 10 34 Price: Variations in average price per ton by size of shipments, February 1939; chart 4 and table 14-15 Variations in price components, by size of shipment, February 1939; table 2 .-- ^ ^^ Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 46 Shipments: , , 1 0-7 Tonnage and sales, by size of shipment, February 1939; table 1.- 37 Tonnage and sales, normal base point, by size of shipment, Feb- ruary 1939; table 3 43 54 INDEX WIRE RODS: Pa^e- Freight absorption: Variations, by size of shipment, February 1939; chart 10 34- Price : Variations in average price per ton by size of shipment, February 1939; chart 3 and table 12-13 Variations in price components, by size of shipment, February 1939; table 2 , 40' Variations in components, normal base point shipments, by size of shipment, February 1939; table 4 46 Shipments : Aggregate tonnage and sales by size of shipment, February 1939; table 1 37 Tonnage and sales, normal base point, by size of shipment, Feb- ruary 1939, table 3 43 YNTEMA, DR. THEODORE: United States Steel Corporation exhibits submitted to T. N. E. C, prepared by 30> ...iSiSi,. , 3 9999 06351 930 8 mm.