"^3d Sessfon^^l SENATE COMMITTEE PRINT
INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER
TEMPORARY NATIONAL ECONOMIC
COMMITTEE
A STUDY MADE UNDER THE AUSPICES OF THE BUREAU
OF LABOR STATISTICS 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. 1-3
PRICE BEHAVIOR AND BUSINESS POLICY
Printed for the use of the
Temporary National Economic Committee
U
UNITED STATES CA,
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1941
northeaster;^ UNiVEKoiTV SCHOOL of LAW OBi??^
TEMPORARY NATIONAL ECONOMIC COMMITTEE
(Created pursuant to Public Res. 113, 75th Cong.)
JOSEPH C. O'MAIIONEY, 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 O^^ \.
Representing the Federal Trade Commission f f^\
ISADOR LUBIN, Commissioner of Labor Statistics CT>'
•A. FORD HINRICHS, Chief EconomLst, 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 f "t
ijj
Representing the Department of Commerce f—^
LEON HENDERSON, Economic Coordinator
DEWEY ANDERSON, Executive Secretary
THEODORE J. KREPS, Economic Adviser
♦Alternates.
Monograph No. 1
PRICE BEHAVIOR AND BUSINESS POLICY
BY
SAUL NELSON AND WALTER Q. KEIM
ASSISTED BY
LAURA MAE BROWN, JOHN M. BLAIR, AND WILLIAM C. FRENCH, JR., UNDER THE
GENERAL SUPERVISION OF ARYNESS JOY AND EDWARD S. MASON
REPRINTED
BY
WILLIAM S HEIN & CO , INC
BUFFALO. N. Y.
1968
ACKNOWLEDGMENT
This monograph was written by
SAtJL NELSON
Senior Industrial Economist,
Bureau of Labor Statistics
AND
WALTER G. KEIM
Statistician,
Bureau of Labor Statistics
under the supervision of
EDWARD S. MASON
Professor oj Economics,
Harvard University
The Temporary National Economic Committee is 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 recom-
mendations, 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
Pas*
Letter of transmittal _ xv
Summary . xix
PART I
Preface 3
CHAPTER 1
Price Behavior and Business Policy __ 4
CHAPTER II
Price Flexibil ity 11
Summary . 11
The nature of the problem 14
The meaning of flexibility 20
The measurement of price flexijjility 27
The distinction between measures of behavior and of responsive-
ness - 27
The specific measures utilized 29
Measures of flexibility compared 31
Factors affecting price behavior 32
Prices and production.. ^ 37
Price relationships 43
Cost-price relationships 60
Conclusions 51
CHAPTER III
Nonprice Competition . _ 64
Summary 64
Price versus nonprice competition — the setting of the problem 68
The changing focus of competition 68
Prices related to nonprice elements of the transaction 63
Aspects of nonprice competition 63
Quality and performance 63
Guarantees - 69
Price lines 70
Advertising, brands, and trade-marks 76
Other forms of nonprice competition — escape devices 90
Conclusions 101
CHAPTER IV
The Electrical Equipment Industries — An Illustrative Case 109
Summary . 109
Price and production trends 111
Market saturation 117
Saturation by income groups.. 120
Expenditures by families 130
Income residuals 130
Competition and sales strategy 131
Price uniformity 131
Concentrat ion 134
Emphasis upon quality .--»-. 135
The turning point — the 1937-38 recession 137
Problems of sales policy determination 138
VI TABLE OF CONTENTS
Page
The Electrical Equipment Industries — An Illustrative Case — Continued.
Expanding the original sales market -- 138
Quality emphasis and advertising 138
Credit terms --- 141
Price reductions 141
Reductions in the cost of manufacturing. — 143
Distribution costs 143
The replacement market 148
Need for considering the replacement market •- 148
Extent of replacement sales 148
Factors influencing replacement sales 149
Durability 149
Obsolescence 149
Cost of replacement — the trade-in allowance 150
Facilities for reconditioning equipilnent — -the Crosley plan 152
The Philadelphia plan 153
Reconditioning exchange system in vacuum cleaners 153
Summary 153
Current trends in the electrical refrigerator industry _ 154
The role of Government- 158
Conclusions 161
APPENDIX I
Measures of Price Flexibility 165
Purpose 165
The criteria utilized 166
Presentation of the data 168
Relationships between the measures presented 169
Depression decline compared with extent of recovery 170
Relationships between various aspects of timing 170
Frequency of change and amplitude of cyclical movement 170
Frequency and timing.. 171
Amplitude of cyclical movement and timing of change 171
Change per change compared with frequency, cyclical flexibility,
and timing 171
Aggregate change less net change 171
APPENDIX n
Conventional Price Lines 242
Introduction -.1 : 242
Wearing apparel 242
Corsets and bratsieres 242
Dresses 244
Girls' cotton dresses 246
Coats _• 247
Women's hose 247
Girls' anklets , ,. 247
Men's work shirts -_«_. 248
Yard goods 248
Consumers' durable goods 249
Washing machines and vacuum cleaners 249
Radios 249
Refrigerators 249
The cash di^ount in the apparel market : 250
APPENDIX III
Statistical Data Supporting Charts ._ 252-265
TABLE OF CONTENTS VII
PART II Page
Preface 269
CHAPTER I
Types of Geographic Price Structure 271
Introduction 271
The importance of transportation costs. 271
Factors affecting freight costs 272
Economic significance 272
Types of structure summarized 273
Common forms of structure — development and characteristics 275
. F. 0. b. plant prices 275
Freight equalization 276
Basing point systems 279
Postage stamp and zone systems .--."" ^^^
Buyer-dominated structures — equalization at the point of origin. 284
Unsystematic price variation 285
CHAPTER II
Geographic Practices in American Markets 286
Methods of analysis - 286
Agricultural commodities '.- 287
Wheat - 289
Milk 290
Cattle : 290
Potatoes 290
Fresh fruits and vegetables 292
Cottonseed 292
Food and kindred products 293
Meats 294
Vegetable oils 294
Vegetable shortening 295
Bread 295
Sugar ..... 295
Salt 296
Coffee 298
Rice 298
Other food products 299
Textiles and textile products 300
Yarns-.-. . 300
Gray goods - 301
Finished cloth 301
Finished apparel - 301
Binder twine 302
Manila rope 303
Leather and its major products 303
leather 303
Leather boots and shoes 303
Leather transmission belting 304
Tobacco products 304
Cigarettes and tobacco 304
Cigars 305
Snuff 305
Steel- and steel products 305
Other iron and steel products 308
Ferro-alloys 308
Hardware, tools and other light fabricated steel 308
Lumber and its products 308
Lumber:
Douglas fir 308
Ponderosa pine 308
Southern pine 309
Maple flooring. 309
Oak flooring 309
VIII TABLE OF CONTENTS
Geographic Practices in American Markets — Continued,
Lumber and its products — Continued. Pago
Philippine mahogany 30&
Mahogany — Honduran, African, and Cuban 309*
Doors — Douglas fir and Ponderosa pine 309
Windows and window frames 309
Wooden boxes --^ 309
Wooden caskets and coffins 309
Axe handles 309
Ladders 309
Plywood 310
Summary 310
Turpentine 310
Building materials other than steel and lumber 310
Lime 311
Cement 311
Brick 312
Sand and gravel 312
Building tile 312
Floor tile 312
Sewer pipe 312
Gypsum plaster 312
Insulation board 313
Prepared roofing 313
Heating boilers and radiation 313
Plumbing fixtures, closets, lavatories, sinks, and bathtubs 314
Paint materials:
Linseed oil 314
White lead 314
Prepared paints 314
Window glass 315
Summary 315
Furn i tu re industry 315
Household furniture _. 3 15
Busi ness furniture 316
Chemicals 316
Simple f. o. b. plant systems 318
Freight equalization systems , 318
Postage stamp and zone pricing 319
Zone differentials and changes in zone systems _- 320
Basing-point systems 320
Summar}' 321
Drugs, cosmetics and toiletries 323
Fertilizer and fertilizer materials 324
Fert ilizer materials 324
Mixed fertilizer 326
Paper and pulp industries 328
Pulp 328
Paper 328
Newsprint 328
Wrapping paper, tissue paper, and paper towels 329
Paper board 329
Fine paper 329
Paper products 330
Passenger automobiles 330
Agricultural implements and machinery 331
Machinery and related products 331
Electrical machinery and apparatus 332
Milling machines, grinding machines, screw machines, etc 335
Engines, turbines, water wheels, and windmills 335
Pumps . 335
Excavating and road machinery 336
Business and trade equipment 336
Electrical household equipment 336
Electric refrigerators .• . 336
Electric washing machines and ranges 337
Vacuum cleaners and fans 338
TABLE OF CONTENTS IK
Geographic Practices in American Markets — Continued. Pag«
Nonf errous metals 338
Aluminum 338
Zinc _- 338
Lead . 339
Copper 1 .- - 339
Lake copper 340
Scrap metal 340
Petroleum and its products 341
Crude oil 341
Gasoline 341
Bituminous coal 342
Summary — Extent of major types of geographic price structure 343
Uniform f. o. b. plant pricing 343
Uniform delivered prices _ 343
Zone delivered prices 344
Freight equalization 344
Basing-point industries 345
Local markets 345
Unsystematic variation 345
PART III
CHAPTER I
Preface - 349
General Characteristics of the Market 351
Resale price controls 352
CHAPTER 11
Retail Markets 355
Retail price trends, 1929-39 355
Analgesic tablets 356
A drug sundry 357
A shaving article 358
A dentifrice _ 360
A nationally advertised liquid laxative 360
A standard, unbranded, liquid laxative 360
Price trends — chains compared with independents 361
Retail prices as reported by the marketing laws survey 365
Advertised and substitute brands 368
Substitute brands and resale price maintenance 379
Price lines 382
CHAPTER in
Distributive Margins 386
Methods of distribution 386
Wholesale and retail margins 388
The range of margins 388
Pharmaceutical:
"A" 388
"B"_. , 390
Drug sundry ^ , 392
Toiletries:
"A" 393
"B" .- 395
"C" _ - 396
Cosmetic:
"A" 397
"B" .___ --_ 398
"C" 399
Summary for eight products 400
Margins allowed by a large drug manufacturer 402
Mark-ups for cosmetics 403
Mark-ups in California 404
Summary , 404
X TABLE OF CX)NTENTS
SCHEDULE OF TABLES AND CHARTS
PART I
TABLES
Page
1. Median change in price and quantity available for consumption
1929-32, for 111 commodities, classified according to durability 38
2. Selected indexes of prices, wages, costs of distribution, farm taxes,
and mortgage interest, 1913-38 49
3. Changes in size of chocolate bars 73
4. Prices and quality grades for specified brands of canned foods 77
5. Extent of consumer brand preference for prepared foods _ 79
6. Comparison of wholesale prices of identical substances sold under
proprietary and nonproprietary names 81
7. Comparison of retail prices of drugs, cosmetics, and foods with the
costs of their ingredients 82
8. Relation of price flexibility to importance of brand preference 86
9. Comparison of quoted prices for sulphuric acid with prices actually
paid by a large buyer 99
10. Average retail value and sales of selected electrical appliances 112
11. Saturation of the market 118
12. Market saturation and sales i 118
13. Average expenditures by families • of employed wage earners and
clerical workers, by economic level 130
14. Distributive margin of electric refrigerators 144
15. Distributive margin of electric washing machines •__ __ 144
16. Distribution of sales and average value of electric washing machines
by price lines — 1938 -. 144
17. Distributive margins 145
18. Replacement sales as a percent of total sales of electric refrigerators. _ 148
19. Estimated durability of electric refrigerators 149
20. Retail published list prices of electrical refrigerators — 1939 and 1940. 155-156
21. List prices of electric refrigerators, 1938 — principal companies 162
22. Percent of concentration, 1937 163
23. Cash value on trade-ins 163
24. Average expenditures by families of employed wage earners and
clerical workers by economic level 164
25. Flexibility of commodity prices measured by various criteria^ 172-189*
26. Flexibility of commodity prices measured by various criteria ranked in
ten groups for each criterion in order of increasing flexibility 190-210
27-44. Correlation tables of commodities distributed according to their
ranks by two criteria of wholesale price flexibility 211-228
27. Percent of decline, 1929 to 1933, compared with percent of recovery,
1933 to 1937 211
28. Timing of predepression peak, 1929 to 1931, compared with timing of
depression low, 1932 to 1934 212
29. Timing of predepression peak, 1929 to 1931, compared with post-
depression peak, 1936 to 1938 213
30. Timing of depression low, 1932 to 1934, compared with post depression
peak, 1936 to 1938 214
31-34. Frequency of change compared with amplitude of cyclical move-
ment 215-218
35. Frequency of change compared with timing of predepression peak,
1929to 1931 219
36. Frequency of change compared with timing of depression low, 1932 to
1934 220
37. Frequencv of change compared with timing of postdepression peak,
1936 to 1938 221
38. Amplitude of cyclical movement compared with timing of predepres-
sion peak 222
39. Amplitude of cyclical movement compared with timing of depregpion
low, 1932 to 1934 223
40. Frequency of change compared with change per change 224
41. Amplitude of cyclical movement compared with change per change,.. 225
TABLE OF CONTENTS XI
Page
42. Peak month, 1929 to 1931, compared with average change (index
points) per change, January 1926 to April 1929 226
43. Frequency of change compared with aggregate change less net change. _ 227
44. Amplitude of cyclical movement compared with aggregate change less
net change 228
45. Distribution of commodities according to differences in rank under
various criteria of wholesale price fl exibility 228
46-68. Correlation tables of commodities distributed according to their
ranks by two criteria of wholesale price flexibility 229-241
46. Frequency of change, 1926 to 1929, compared with frequency of change,
1926 to 1933_._. 229
47-48. Two measures of amplitude of cyclical movement compared 230-231
49. Amplitude of cyclical movement compared with change per change 232
50-51. Two measures of amplitude of cyclical movement compared 233-234
52-53. Frequency of change compared with amplitude of cyclical move-
ment 235-236
54. Frequency of change compared with timing of predepression peak,
1929to 1931 237
55. Frequency of change compared with change per change 238
56. Frequency of change compared with aggregate change less net change. 239
57. Amplitude of cyclical movement compared with aggregate change less
net change 240
58. Change per change compared with aggregate change less net change. _ 241
59. Distribution of retail prices of girdles, foundation garments, and bras-
sieres 244
60. Distribution of retail prices for wash frocks 245
61. Distribution of retail prices for women's medium-quality dresses 246
62. Distribution of retail prices for women's cheap dresses 246
63. Distribution of retail prices for girls' cotton dresses 247
64. Distribution of retail prices for women's hose .. 247
65. Distribution of retail prices for girls' anklets 247
66. Distribution of retail prices for men's work shirts 248
67. Distribution of retail prices for printed percales 249
PART II
TABLES
1. Geographic price structures for selected chemicals, summarized 321
2. Zone prices and zone differentials — selected chemicals 322
3. Prices of electric refrigerators 337
PART III
TABLES
1. Retail prices of nationally advertised analgesic tablets, June 1929 to
June 1939 356
2. Retail prices of nationally advertised drug sundry, March 1935 to
March 1939 358
3. Retail prices of nationally advertised shaving article, March 1935 to
March 1939 359
4. Retail prices of nationally advertised dentifrice, March 1935 to
March 1939 359
5. Retail prices of nationally advertised liquid laxative, March 1935 to
March 1939 359
6. Retail prices of standard liquid liaxative, July 1936 to March 1939 360
7. Retail prices of nationally advertised analgesic tablet, June 1929 to
March 1939 362
8. Retail prices of nationally advertised drug sundry, March 1935 to
March 1939 362
9. Retail prices of nationally advertised shaving article, March 1935 to
March 1939 363
10. Retail prices of nationally advertised dentifrice, March 1935 to
March 1939 363
11. Retail prices of nationally advertised liquid laxative, March 1935 to
March 1939 _ 364
XII TABLE OF CONTENTS
Pago
12. Retail prices of standard liquid laxative, July 1936 to March 1939 365
13. Retail prices of nationally advertised analgesic tablets 366
14. Retail prices of a drug sundry 366
15. Retail prices of nationally advertised shaving article 367
16. Retail prices of nationally advertised dentifrice 367
17. Retail prices of nationally advertised liquid laxative 367
18. Retail prices of nationally advertised cold remedy 368
19. Retail prices of analgesic tablets, nationally advertised brand and
substitute brands, in chain and independent stores — June 1939 371
Retail prices of drug sundry, nationally advertised brand and substi-
tute brands, in chain and independent stores — June 1939 372
Retail prices of shaving article, nationally advertised brand and substi-
tute brands, in chain and independent stores — June 1939 372
Retail prices of liquid laxative "A," nationally advertised brand and
substitute brands, in chain and independent stores — June 1939 373
Retail prices of cold remedy, nationally advertised brand and substi-
tute brands, in chain and independent stores — June 1939 373
Retail prices of vitamin product, nationally advertised brand and sub-
stitute brands, in chain and independent stores — June 1939 374
Retail prices of liquid laxative "B," nationally advertised brand and
substitute brands, in chain and independent stores — June 1939 374
Retail prices of oral antiseptic, nationally advertised brand and sub-
stitute brands, in chain and independent stores, June 1939 375
Retail prices of ahalgesic tablets, nationally advertised brand and
distributors' brands charged by two mail order houses 376
Retail prices of a drug sundry, nationally advertised brand and
distributors' brands, charged by two mail order houses 377
Retail prices of liquid laxative "A," nationally advertised brand and
distributors' brands, charged by two mail order houses 377
Retail prices of liquid laxative "B," nationally advertised brand and
distributors' brands, charged by two mail order houses 378
Retail prices of liquid laxative "A," nationally advertised and substi-
tute brands, in chain and independent stores — June 1939 379
32. Comparison of full list prices with contractual minimum prices 383
33. Distribution of retail prices quoted by drug stores for 13 items selling
between 10 and 50 pents 385
34. Wholesale and retail margins for nationallv advertised pharmaceutical
"A" - --- 390
35. Wholesale and retail margins for nationally advertised pharmaceutical
"B" 392
36. Wholesale and retail margins for nationally advertised drug sundry 393
37. Wholesale and retail margins for nationally advertised toiletry "A" 395
38. Wliolesale and retail margins for nationally advertised toiletry "B" 396
39. Wholesale and retail margins for a nationally advertised toiletry "C".. 397
40. Wholesale and retail margins for rationally advertised cosmetic "A".. 398
41. Wholesale and retail margins for nationallv advertised cosmetic "B"._ 399
42. Terms of sale for cosmetic "C" . 400
43. Wholesale and retail mark-ups for 8 nationally advertised products. 401
44. Maximum and minimum retail mark-ups for 132 products sold by a
large drug manufacturer — group I 403
45. Maximum and minimum retail mark-ups for 28 products sold by a
large drug manufacturer — group II ^ 403
46. Maximum and minimum retail mark-ups allowed by 12 cosmetic
manufacturers on their varicus price lines 404
47. Retail margins on products in the drug trade in California under the
California fair trade law, July 1936 ^ 405
48. Minimum retail margins on selected well-known advertised drug
products in California under the California fair trade law, July 1936. 406
TABLE OF CONTENTS
XIII
PART I
CHARTS
Page
I. sensitive and insensitive prices. Supported by statistical data on
p. 2')2 in appendix III . 24
II. Wholesale prices of selected commodities: Eggs, cotton goods, and
rayon. Supported by statistical data on p. 253 in appendix III. 25
III. Wholesale prices of selected commodities: Phosphate rock, anthra-
cite, potatoes, potash salts, and electric refrigerators. Sup-
ported by statistical data on pp. 254-255 in appendix III 26
IV. Change in average wholesale price and quantity available for con-
sumption, 111 commodities — 1929 to 1933. Supported by
statistical data on pp. 255-256 in appendix III 39
V. Farm products: Prices and production. Supported by statistical
data on p. 256 in appendix III 41
VI. Wholesale prices of 30 basic commodities, industrial production and
reciprocals of price dispersion. Supported by statistical data on
p. 257 in appendix III 44
VII. Indexes of wholesale price dispersion and industrial production.
Supported by statistical data on p. 258 in appendix III 46
VIII. Automobile tires: Wholesale price and average life of automobile
tires. Supported by statistical data on p. 258 in appendix III_ 65
IX. Retail prices of men's dress shirts. Supported by statistical data
on p. 259 in appendix III . 84
X. Breakfast cereals: Prices and margins. Supported by statistical
data on p. 259 in appendix III 85
XI. Wholesale prices of selected foods (products classified into quartiles
according to consumer buying habits). Supported by statistical
data on pp. 259-260 in appendix III 87
XII. Electric refrigerators: Number sold and retail value; average reali-
zation at retail and wholesale price index. Supported by statis-
tical data on p. 261 in appendix III 113
XIII. Electric washing machines : Number sold and retail value ; average
realization at retail and wholesale price index. Supported by
statistical data on p. 261 in appendix III 114
XIV, Vacuum cleaners: Number sold and retail value; average realiza-
tion at retail and wholesale price index. Supported by statistical
data on p. 261 in appendix III 115
XV. Electric ranges: Number sold and retail value; average realization
at retail and wholesale price index. Supported by statistical
data on p. 262 in appendix III ■ 116
XVI. Sales and saturation: Electric refrigerators, vacuum cleaners,
power washing machines, and electric ranges. Supported by
statistical data on p. 262 in appendix III 119
XVII. Household equipment ownership by income groups, electric refrig-
erators, 1935-36. Supported by statistical data on p. 263 in
appendix III 122-123
XVIII. Household equipment ownership by income groups, power washing
machines, 1935-36. Supported by statistical data on p. 263 in
appendix III 124-125
XIIX. Household equipment ownership by income groups, vacuum
cleaners, 1935-36. Supported by statistical data on p. 263 in
appendix III 126-127
XX. Household equipment ownership by income groups, radios, 1935-
36. Supported by statistical data on p. 264 in appendix III. . 128-129
XXI. Income residuals after primary expenditures by income groups,
1935-36. Supported by statistical data on p. 265 in appendix
III 132-133
LETTER OF TRANSMITTAL
U. S. Department of Labor,
Bureau of Labor Statistics,
Washington, June 20, 1940.
Hon. Joseph C. O'Mahoney,
Chairman, Temporary National Economic Committee,
United States Senate, Washington, D. C.
My Dear Senator: I wish to submit for the record this study of
Price Behavior and Business Policy, which has been prepared by the
staff of the Bureau of Labor Statistics for the Temporary_ National
Economic Committee. It is intended primarily as a background for
the deliberations of the Committee on matters where prices are in-
volved. Most of the report was written when our attention was
focused on peacetime conditions. Although it considers price prob-
lems in a peacetime economy, it provides several guideposts for legis-
lative policy — guideposts which, it should be noted, are equally ap-
plicable in the midst of mobilizing our resources for a great defense
program or even in wartime.
It is a major objective of our national policy to keep the American
economy on as even a keel as possible in order to sustain production
and employment. In attaining this objective, whecher in peacetime
or in wartime, prices play an all-important role as a kind of economic
governor, like the governor on an engine. If any change is made in
the governor, it affects the operation of the engine — it may speed it
up, slow it down, or interfere in a variety of ways with its efficient
operation.
This report illustrates, first, the variety of outside forces which
affect this governor of the economic system, because of the great
variety of market situations which confront American business and
the many different ways in which changes in prices affect the internal
operations of industry — in particular, production and employment.
This analysis suggests the following guides to policy:
If any action is taken to influence or, more important, to regulate
prices, any such action, to be successful, must allow a wide degree of
flexibility and permit variation between industries and between
products. It is dangerous to assume that a single price policy can
have universal application. It clearly cannot.
Further, any agency charged with influencing or regulating prices
cannot confine its attention to prices alone, since prices are an integral
part of the industrial mechanism. Responsibility for marketing, for
production, and for employment is implied in responsibility for prices.
This study also suggests that industry can accomplish a great deal
toward conscious improvemont of its operations by d^irect and un-
biased analysis of its price and marketing problems. Some of the
:broad pricing problems confronting business are illustrated by the
XVI LETTER OP TRANSMITTAL
recent history of a number of industries manufacturing electrical
household equipment which, after a phenomenal expansion during the
last 15 years, appeared in 1939 to have reached a point of near-
saturation of their markets in the upper and middle income groups.
They may follow one of two courses: Reduce prices and thus enlarge
their markets in the lower income groups, or gear production largely
for replacement and assume that families with low incomes will rely
on the used-model market. Recent (1940) developments in the elec-
trical refrigerator industry suggest that if less expensive models are
introduced and sales of those models are pushed, the market will
broaden and the volume of production and employment can be main-
tained or increased.
Another major objective of our national policy is to maintain and
increase America's standard of living. To do this requires not only
the smooth functioning of production but also the steady flow of
goods to the ultimate consumer, at prices at which they can be sold
m volume. Here, again, the level of retail prices is the key to the
situation. Prices, in their turn, are influenced by the nature of retail
markets and the margin which distributors require. Attention in the
field of prices has hitherto been limited largely to wholesale prices.
In our opinion, msufficient attention has been given to retail prices
paid by the ultimate consumer.
This report indicates that there are certain important rigidities in
retail prices, which prevent them from being reduced freely, and to
which this Committee may well direct its attention. I refer to the
so-called fair-trade laws which have been enacted by 44 States and
to the Miller-Tydings Enabling Act which legalizes resfile price main-
tenance contracts in interstate commerce. I refer also to the Unfair
Practices Acts which are on the statute books of about half the States
and which, while purporting merely to prohibit sales below cost, seem
to lend themselves to highly restrictive activities. Further, in some
lines of trade, particularly certain drugs, there appear to be unduly
wide margins between the cost of ingredients, the sale price at whole-
sale, and the price to the consumer.
This report shows that in recent years, both in wholesale and retail
markets, businessmen have more and more preferred to base sales
appeal on factors other than price, such as quality, style, appearance,
advertising, brand names, and trade-marks. This trend limits still
further the effectiveness of any form of regulation dealing with prices
directly. At the same time, it makes it imperative that the consumer
should be given every opportunity to know exactly what it is that he
is buying; that ho should be afforded every facility to learn wiiat a
can of food contains or what fabric has gone into a garment. Con-
sumer education and clearer standards for consumers' goods are im-
portant in order that the American public may be put in a position
to expend its purchasing power wisely, an end whicii is desirable both
from the point of view of the standard of living of the people and
the maximum employment of men and materials
This report consists of three parts. Part I is a general description
of various aspects of business price policy and of their consequences
to the economy. Part 11 is a detailed description of one phase of
business price policy; namely, geographic price structures, such as
basing point systems, zoning systems, and the like. Part III is a
LETTER OF TRANSMITTAL XVII
discussion of retail prices with concrete analysis of distributive margins
in the drug industry.
Much of the information upon which this report is based was com-
piled from published and unpublished data in the files of the Bureau
of Labor Statistics. In addition, extensive information was available
in various publications, including those prepared by other Govern-
ment agencies. The study of the electrical equipment industries is
based largely on a field survey by representatives of the Bureau and
was made possible by the cooperation of leading manufacturers and
distributors.
These studies of prices were prepared under the general direction
of Aryness Joy, assistant to the Commissioner of Labor Statistics and
director of Temporary National Economic Committee Studies for the
Bureau, Edward S. Mason, professor of economics at Harvard Uni-
vei*sity, has served as economic consultant iiT their planning. This
monograph was written by Saul Nelson and Walter G. Keim, with
the assistance of Laura Mae Brown, John M. Blair, and William C.
French, Jr.
There follows, for the convenience of the Committee, three brief
but somewhat more extensive summaries describing the matters dealt
with in parts I, IF, and III, respectively.
Respectfully submitted.
ISADOR LUBIN,
Commissioner of Labor Statistics
247149—41 — No. 1-
SUMMARY
Part I — Price Behavior and Business Policy
Part I of this report on Price Behavior and Business Policy is con-
cerned broadly with the way in which the poHcy decisions of business-
men in the field of price affect the functioning of the economy. It was
not primarily designed to present specific legislative recommendations
but rather to present factual background and to serve as a guide to
policy. .It is evident from the analysis that no simple single approach
to prices as such will solve the problem of increasing and maintaining
industrial activity. The problem is far too complex.
Part I is concerned with two fundamental issues. The first is the
problem of price flexibility, which arises from the tendency of the
prices of some commodities, notably farm products, to fluctuate far
more freely and frequently than the prices of others. The effect of
these discrepancies upon the course of business activity and employ-
ment has been a subject of much controversy. The second concerns
the efforts of businessmen to direct competitive effort into channels
other than price, a trend which has had important effects upon the
economy. Following the general discussion of these issues, market
trends in some of the electrical household equipment industries are
appraised as affording concrete illustrations of many of the policy
problems confronting business concerns and the economic implications
of their decisions. Part I also includes three appendices, largely
statistical in content, bearing upon the same issues.
The body of the report consists of the following four chapters:
Chapter I. Price Behavior and Business Policy. — In the everyday
conduct of their affairs, businessmen are constantly required to make
decisions regarding their sales policies; that is to determine the
character and variety of the goods which they are to produce, the
price and other terms and conditions under which the goods are to be
offered for sale, and the type of sales appeal which can most effectively
be used in finding a market. These decisions in the aggregate have a
far-reaching effect upon the national economy.
Commodity prices are to varying degrees influenced by day-to-day
decisions of this kind. The prices of most farm products and of some
industrial commodities are arrived at in markets where so manj^
buyers and sellers operate that no one buyer or seller has any appreci-
able influence on the resulting price. In the case of most manufactured
goods and some raw materials, the situation is quite different. The
manuf6,cturer of steel, of automobiles, of corn flakes or of proprietary
drugs, for example, has a very real voice in deciding the price at which
he will sell. No concern has unlimited latitude in determining price
poHcy; even a monopolist must reckon with the competition of sub-
stitute products. In general, the amount of discretion available to
any business concern in setting prices depends upon many factors,
fiuch as the nature of its product, the availability of satisfactory
XIX
XX SUMMARY
substitutes, the number and size of its compeUtors_ and its relations
with them, and the impact of law and administrative governmental
action.
In this respect, concerns selling articles which are in fact different
or which consumers believe to be different from those sold by their
competitors are at a distinct advantage over those whose products are
in all respects standard. For example, it is obviously impossible for
a single seller of such commodities as iron ore, copper ingot, or sulfuric
acid to maintain for any appreciable period of time a price substan-
tially different from that quoted by all other sellers in the same market.
On the other hand, where buyei"s for any reason prefer the products of
one seller to those of another, they will be willing to pay some premium.
It is not essential that such differences represent intrinsic physical dif-
ferences of utilities; the important point is the buyer's psychological
appraisal, the beliej that a difference exists which makes one product
more desirable than another. If a product has acquired outstanding
prestige, it is unnecessary for its producer to follow all the ups and
downs of the general market. In such fields as packaged medicines,
where it is particularly difficult for the average buyer intelligently to
compare the merits of similar products, wide differences in price are
maintained for long periods of time between merchandise which is
virtually identical in all but name.
Because of the close relationship between prices and profits, busi-
nessmen are traditionally eager to exercise a substantial degree of con-
trol over the prices of their products. In addition they usually favor
price stability as a means of facilitating business planning. Price
stability may be achieved in many ways. Within limits and for cer-
tain products it may be attained by emphasizing quality, services,
brand names, advertising, etc. But the accentuation of product dif-
ferences cannot of itself shield any concern completely from price com-
petition and there are many markets in which it is not applicable.
Consequently, more direct schemes to achieve control over prices re-
main common. These devices includ(; price leadership, conventional
arrangements within an industry such as basing-point systems, uniform
cost-accounting systems, patent pools, restrictive patent licensing, and
outright collusion.
Chapter II. Price Flexibility. — The techniques described above have
made the prices of many products relatively stable. On the other
hand, there are many business concerns which make no effort to avoid
price competition and there are many markets which cannot be effec-
tively controlled. Partly as a result of this situation, there are wide
differences between the price behavior of different commodities; some
change infrequently and narrowly, others move more freely and widely.
These discrepancies are particularly evident during periods of economic
upheaval. During the 1929-33 depression, for example, while the
prices of such products as copper and hides showed extreme declines
of over 70 percent, the prices of other items such as agricultural imple-
ments and anthracite coal scarcely fell at all. This tendency of some
prices to be flexible and others to be relatively "rigid" raises the first
basic issue with which the report is concerned. Although flexibility
relates to periods of upturn as well as those of do^^•ntu^n, it is the latter
aspect which has received most attention in recent years and which is
accordingly empha.sized in this report.
SUMMAR1 XXI
While these differences in price behavior are in no sense new, there
is evidence that the far-reaching teciinological and other changes of
recent years combined have materially altered the structure of many
markets and that as a result inflexible prices play a somewhat more
important role in the economy today than was true too, generations ago.
It has been argued that the decline of production and employment
in many lines during the downturn of 1929-33 would have been less
drastic if price readjustments had been greater. Although this is no
doubt true in certain cases, the relationship existing between price
and production for any specific commodity is extremely complex and
it is unlikely that uniform flexibility of prices, even if it were attain-
able, would itself turn the tide of depression and bring about recovery.
Prompter readjustments during the initial phases of a business de-
cline might retard the downturn, but the effect of practicable price
reductions after the recession has become pronounced is clearly
limited.
It is particularly important to recognize that any appraisal of this
issue of price sensitivity must consider the economy as an interde-
pendent whole. The effects of price changes must be considered in
combination with each other and with the behavior of noncommodity
prices such as services, rents, wages, interest rates, and taxes, as
well.
Moreover, wholesale commodity prices are only part of the picture.
Prices paid by ultimate consumers are often the key to whether sales
and hence production and employment increase. It is well known
that price movements on retail markets are usually narrower than at
the wholesale level. Moreover, any policy looking toward increasing
the flexibility of wholesale prices as a means of achieving recovery
would be of very limited value if at the same time the rigidity of
retail prices is increased by the enactment of such legislation as the
so-called Fair Trade Acts.
It is apparent that the problem of price flexibihty will not yield to
any simple solution. No common remedy to induce gTeater flexi-
bility in price — were that clearly desirable — can be devised. How-
ever, there is little doubt that rigid prices which are maintained at
unduly high levels through collusive restraints of trade impair the
functioning of the economy, and that insistence upon certain broad
standards of business conduct such as those prescribed in the anti-
trust laws may constitute a distinct step toward the achievement of
the goal of sustained employment and production.
Chapter III. Nori'price Competition. — Since differences in consumer
acceptance yield individual concerns a distinct degree of freedom in
determining the price of their products, it is not surprising that there
should be constant efforts to create or accentuate such differences
through emphasis upon such elements as quality, performance, and
style, supplemented by the use of trade-marks, brands, and adver-
tising. There is today a widespread belief in business circles that
competitive efforts should be directed toward these nonprice aspects
of competition almost to the exclusion of price, that sales campaigns
should emphasize quality, service, and performance and should avoid
price cutting as a competitive technique. This raises the second
basic issue treated in the report.
It seems reasonably clear that the change in competitive emphasis
has not been entirely undesirable. Thus it is probably true that the
XXII SUMMARY
increased attention paid to quality and performance has served to
stimulate technical research. Certainly the automobile, the refrig-
erator, and the tractor are more satisfactory products today than
they were some years ago. Undoubtedly technical advances would
have occurred even if competition focused upon price, but it is at
least arguable that centering attention upon quality stimulated its
improvement. Conversely, there is some, evidence that excessive
emphasis upon price may lead at times to undesirable degradation of
quality.
On the other hand it must be recognized that emphasis upon
quality has often served to divert eflFort from programs designed to
produce cheap but satisfactory merchandise to meet the needs of
lower income groups. It has been argued, for example, that the pro-
duction of cheaper automobiles or refrigerators, stripped of all luxury
features, could serve a useful purpose in expanding the potential mar-
ket for these products.
One of the most serious objections to many forms of nonprice com-
petition is the manner in which they complicate the buyer's problems
of selection. Price is a universal measure and the significance of a
price difference is readily imderstood by any buyer. The appraisal of
differences in content or quality, or the translation of collateral terms
of sale into price equivalents, is much more diflficult, particularly for
the average untrained consumer. Consequently, when the policy of
distinguishing one's product from a competitor's is revealed not in
any real betterment of quality but in the multiplication of unneeded
gadgets and superficial eyecatchiug features, there may be a distinct
loss of competitive efficiency.
When price competition is suppressed through collusive or coercive
tactics it seems particularly pernicious, judged by any social or eco-
nomic standards. All these schemes have the disadvantage of sub-
stituting for a direct price cut, which the consumer wants and can
measure, some substitute of uncertain value which he may well forego.
If but a small fraction of these economically useless expenditures were
translated into reductions in the price level, the gain in public pur-
chasing power and the resulting stimulus to production and employ-
ment might be material.
Chapter IV. The Electrical Equipment Industries — An Illustrative
Case. — The recent history of a number of industries manufacturing
electrical household equipment such as refrigerators, washing ma-
chines, and vacuum cleaners presents a number of these policy issues
in concrete terms. These are all relatively new industries which have
experienced their major growth during the past two decades. Until
recently their sales problems have been simple. Their sales were
constantly expanding under the influence of improved technology
and lower prices. By 1939, however, the market for original equip-
ment among the upper and middle income groups had become largely
saturated while prices had not yet been reduced to a level at which
members of the lower income groups could participate actively in the
market for new equipment. The consequences of this situation were
illustrated by an abrupt fall in the sales of electric refrigerators dur-
ing the 1937-38 recession in contrast to the relative stability of sales
between 1929 and 1933.
SUMMAKY KXIII
During 1939, therefore, manufacturers of these products were faced
with the need for reorienting sales policies to meet these changing con-
ditions. Two avenues of sales expansion were possible; development
of the replacement market among consumers who had already pur-
chased equipment together with improved facilities for the resale of
used equipment taken in trade, and expansion of the market among
those consumers who had previously been unable to afford to buy.
At the time this report was being prepared (in the autumn of 1939),
it was suggested that these ends might be achieved by price reductions
based partly upon economies of manufacture, but more importantly,
upon a less costly system of distribution and also by the development
of a coordinated policy for handling trade-in equipment on replace-
ment sales.
Since the beginning of 1940, the refrigerator manufacturers, at
least, have begun to adjust their policies along th-se lines. Prices,
which were changed but little between 1933 and 1937, have been
sharply reduced for certain models of medium size; economies have
been sought in both manufacture and distribution and, it is reported,
sales are running above those of last year. These developments
clearly indicate the possibility of expansion in production and em-
ployment through the reconsideration of business sales policies, and
emphasize the need for common consideration of problems of this
character by business and government.
Appendix I presents a number of different measures of price flexi-
bility which have been developed to assist research in that field.
Appendix II is a detailed treatment of one phase of nonprice compe-
tition ; the observance of so-called price lines in the markets for many
consumer goods.
Appendix III includes the statistical tables supporting the several
charts presented in part I.
Part II — Geographic Price Structures
Part II of the report on Price Behavior and Business Policy treats
one specific aspect of business price policy. It consists of a descrip-
tion of geographic price structures for a wide variety of commodities;
that is, of the way in which the delivered prices of these commodities
vary from point to point in relation to differences in the costs of ship-
ping the product from its origin to its destination.
In the sale of most commodities, conventional practices have devel-
oped with regard to the manner in which freight charges are related to
the delivered price. Some sellers maintain a uniform price at their
plants to all buyers regardless of their location. Others quote uni-
form delivered prices in all markets or within defined geographic zones.
Still others vary their prices systematically or unsystematically in
order to meet or undersell their rivals in all markets in which they wish
to do business. Some of these practices, notably basing-point systems
and zone systems, may result in greatly limiting or eliminating price
competition in the markets for the commodities affected.
These types of geographic price structure, particularly the basing-
point system, have consequently been the subject of much controversy
in discussions of the problems of monopoly and competition in indus-
XXIV SUMMABY
trial markets. Legislation has been proposed to the Congress which
would have the effect of prohibiting the use of basing-point systems.
There has not been, however, any general survey of the extent to
which different types of geographic price structures are actually en-
countered in the American economy, nor of the considerations which
favor the development of one or another type of practice. Such
information seems needed for an adequate general appraisal of the
relationship of basing-point systems, zone systems, aijd other schemes
of freight equalization, to the pattern of competition within an
industry.
Among the problems with which the Temporary National Economic
Committee is immediately confronted is whether the existing anti-
trust legislation is adequate to cope with geographic pricing practices
which may seem to impair the efficacy of price competition. This
volume is designed to yield a sunamary of the facts needed for a general
appraisal of these practices and to serve as background for any legis-
lative proposals which may be made. It describes pricing structures
of a wide variety of commodities, industrial, agricultural, and extrac-
tive. It does not present conclusions or recommendations.
Pa-et III — Prices and Price Margins in the Drug Trade
Retail prices — the prices paid by the ultimate consiuner — are of
primary importance in determining the standard of living, the
demand for goods and services, and the amount of work provided
and material resources used in their production. Retail prices
are in turn closely dependent upon distributive margins; that is upon
the spread between prices in wholesale and in retail markets. Part
III deals with retail prices and price margins for products handled by
the drug trade, such as drugs, toiletries, and drug sundries.
Because of the difficulty encountered by the average consumer
in comparing the merits of rival drugs and toiletries, competition
between manufacturers has centered largely upon advertising, trade-
marks, and attractive packaging. At the same time, it is to the
manufacturer's advantage to do all that he can to enlist the active
sales cooperation of the retailer in pushing his particular product.
As a result many manufacturers have adopted the policy of guarantee-
ing attractive margins to wholesalers and to retailers by fixing mini-
mum resale prices for their products under the provisions of state
resale price-mauitenance statutes (the so-called fair-trade laws).
Where resale prices have not been fixed in this manner, there is
usually a very wide variation between the prices charged the con-
sumer by different druggists for the same product. Aggressive
price cutting by some retailers apparently has had a tendency to
cause retail and wholesale prices to decline over a period of years.
The wide spread between the prices charged by the manufacturer of
these products and the cost of their ingredients makes such progres-
sive reductions possible.
Where minimum resale prices have been legallj^ established, the
prices charged by different retailers fall into a much narrower range
and in some cases may approach complete uniformity. TJie absence
of aggressive price cutting may also make it unnecessary for the
manufacturer to readjust his prices to progressively lower levels.
SUMMARY XXV
The data indicate that the prices of nationally advertised brands
of drugs and toiletries are usually materially higher than those of
virtually identical merchandise which is tmbranded or which bears a
distributor's private label.
The terms under which manufacturers sell these products to whole-
salers and under which drug wholesalers resell to retailers are often
very complex, involving various forms of quantity and cash dis-
counts, free deals, and advertising allowances which are illustrated
here. Consequently, the gross margin or mark-up of the wholesaler
and retailer will vary not only for different kinds of products, but for
the same product depending both upon the conditions under which
he purchases and the price at which he sells.
In general, however, . the wholesaler's gross margin or mark-up
on the sale of most drugs, toiletries, and drug sundries approximates
15 percent, while that of the retail drug^st approximates 33 percent
of their respective selling prices. Margins are usually narrower for
popular nationally advertised articles which are often used as price
leaders, and somewhat wider for slower-moving merchandise for which
prices are rarely featured.
PART I
PRICE BEHAVIOR AND BUSINESS POLICY
BY
SAUL NELSON and WALTER G. KEIM
ASSISTED BY
LAURA MAE BROWN and JOHN M. BLAIR
PART I
PREFACE
The behavior of commodity prices is of central importance to the
fimctioning of the economy and is the key to many of the problems
wdth which the Temporary National Economic Committee is primarily
concerned. Part I of this study of Price Behavior and Business
Policy comprises a general analysis of the relation between commodity
price behavior and the policy decisions of businessmen. The four
chapters consider in order:
1. Price behavior and business policy. — The manner in which the
policy decisions of businessmen affect the behavior of commodity
prices and the character and variety of goods produced for con-
sumption.
2. Price flexibility. — The relationship between the behavior of prices
and the cyclical upswings and downswings of business activity, with
emphasis on the influence of the flexibility or rigidity of commodity
prices upon the level of employment and the utilization of material
resources.
3. Nonprice competition. — The extent to which businessmen, by
their sales policy decisions, have- directed competitive effort into
channels other than price, and the significance of various aspects of
nonprice competition in determining the general standard of living.
4. The electrical equipment industries — An illustrative case. — An
analysis of the conditions influencing the markets for certain kinds of
electrical household equipment, as a specific illustration of the factors
considered by businessmen in their price policy decisions, and the
consequences of such decisions to the economy.
There are also three appendices, including:
Appendix 1. A detailed presentation of various measures of price
flexibility and an analysis of their significance and relationships.
Appendix 2. A description of the practice of selling by "price lines."
Appendix 3. Statistical tables supporting the charts in part I of
the report.
Part I was prepared by Saul Nelson and Walter G. Keim, with
the assistance of Laura Mae Brown, John M. Blair, and Wilham C.
T'rench, Jr. Joseph W. Lethco was in charge of the clerical staff and
Sybil Archer of the editorial and stenographic staff for these studies.
Jesse M. Cutts of the Wholesale Price Division provided much of the
basic material and consulted with the Staff. ^
Chapter IV, dealing with the electrical appliance industries, could
not have been written were it not for the helpful information and
advice given by many members of these industries and the materials
provided by the Bureau's Retail Price Division; the buyers of various
department stores located in Washington, D. C made available
much of the material relating to "price lines."
> The Bureau of Labor Statistics has prepared for the use of the Temporary National Economic Com-
mittee a series of mimeographed volumes on specifications for wholesale price m which list and describe all
•Of the wholesale price data collected by the Bureau. These volumes proved particularly useful la the
preparation of this report.
3
CHAPTER I '
PRICE BEHAVIOR AND BUSINESS POLICY
During recent years, attention has been focused upon the behavior
of commodity prices as constituting at least one of the factors which
contributed to the unprecedented severity and duration of the de-
pression which began in 1929, and of the persistent failure to utilize
the Nation's economic resources effectively during the past decade.
Specifically/ it has been contended that some of the price policies
followed by businessmen have been undesirable from the point of
view of the national economy; that these policies materially aggravated
the severity of the downturn between 1929 and 1933; that they re-
tarded the pace of recovery between 1933 and 1937, and that they
again were a factor in the recession of 1937-38.
The joint resolution of the Senate and the House of Representatives
creating a Temporary National Economic Committee enjoined the
Committee with the duty of investigating "the matters referred to in
the President's message of April 29, 1938" including, among others,
"the effect of the existing price system and the price policies of in-
dustry upon the general level of trade, upon employment, upon long-
term profits, and upon consumption."
Much of the problem is implicit in the very phrase "price policy."
To say that a businessman has a price policy necessarily means that
he has some degree of latitude in determining the prices of the com-
modities he has to sell (or perhaps of those he wants to buy). In
many sections of the economy, of course, no such latitude exists. The
farmer, as an individual, for example, can have no price policy with
regard to the wheat or cotton he produces. He is so insignificant a
factor in the total market that he must simply accept the price as
he finds it. The prices of most farm products and of some industrial
commodities, (e. g., cotton goods) are arrived at by the interaction
of so many buyers and sellers that no one buyer or seller has any
appreciable influence upon the result.
In the case of most manufactured products and some raw materials,
on the other hand, the individual businessman can exercise some
discretion in determming the price of his wares. The manufacturer
of steel, of automobiles, of corn flakes, or of proprietaiy drugs has a
very real voice in deciding the price at which he will sell. The extent
of this discretion varies widely; it is generafly, though not necessarily,
greater where competing sellers are few than where they are many.
Thus, a manufacturer of milk bottles probably has substantially
greater control over the price of his product than does a producer of
furniture. There are often important differences within any given
industry; the leading producer of gypsum plaster may to a large
extent control its price merely by virtue of its dominant size, while
smaller competitors must take the market as they find it. No con-
' Ch. I was prepared by Saul Nelson.
, 4
CONCENTRATION OF ECONOMIC POWER 5
cern has unlimited latitude in determining price policy; even a "mo-
nopolist" must reckon with the competition of substitute products.
For obvious reasons most business concerns seek in many ways to
increase their degree of control over prices, sometimes by methods
which constitute restraint of trade in the old-fashioned "trust-busting"
sense. However, control may also be extended in many other ways
which violate neither the letter nor the spirit of the Sherman or
Clayton Acts. Far-reaching changes in technology and in market
structure during the past generation have materially widened the
area of discretion available to individual firms. The increasing differ-
entiation and complexity of manufactured goods offered for sale,
together with the widely expanded influence of national advertising
have contributed to this effect. In many industries, moreover, the
nature of the manufacturing process automatically restricts the field
to huge aggregations of capital and discourages the entry of new
concerns. The effect of these changes, together with some of the
tactics used by business concerns in their efforts to influence the
movement of prices, will be considered below.
However, before proceeding to such an analysis, it should be
emphasized that the formulation of price policies (with the term
"price" used in its narrow sense) is only one phase of a much broader
area in which the discretion of individual business concerns may be
exercised. To look at price alone is to oversimplify the problem.
The character of the commodity which is offered for sale and all the
surrounding terms of the transaction must also be considered. Price
is merely a focus for all the complex questions involved in industrial
management and industrial markets.
In the automobile industry, for example, before the individual
manufacturer can set a price for his product, decisions must be reached
on many other points. One of the most important is the selection of
the income group to which the car is designed to appeal. There may
be an alternative between improving the quality of an automobile
whose retail price will approximate $700 or $800, or producing a
much cheaper model to sell for $400 or $500. Quality improvement,
in turn, may emphasize performance, or riding comfort, or appearance,
or possibly the multiplication of minor eye-catching features. The
practice of introducing annual model changes represents an important
polic}'- decision, based presumably upor the desire to stimulate fre-
quent replacement; it has been argued that less frequent model changes
would yield manufacturing economies and lower new car prices,
thereby increasing original sales at the possible expense of retarding
replacements. Such decisions as these are factors in setting the
practical limits within which prices may be fixed.
In planning their general sales strategy, many concerns face a
broad choice between emphasis upon price appeal and the expenditure
of large funds for advertising. In the field of drugs and cosmetics,
particularly, there are wide differences between the prices of virtually
identical products. Some of these depend upon extensive advertising
for their popularity, others are pushed by dealers because they yield
high distributive margins, still others are offered to the consumer
at low prices. These techniques may not be of equal social and
economic desirability; yet from a purely business point of view each
has been rewarded with a degree of success. If the decision is to
5 CONCENTRATION OF ECONOMIC POWER
stress advertising, other questions arise. Effort may be concentrated
upon giving the consumer accurate information as to the nature and
use of the product, or the appeal may be primarily emotional, with
little or no attempt to present reliable information. In any event
price, as such, is in part the result of a decision on advertising policy.
These are but a few of the choices which business men must make
in planning their sales policies. As in the case of price policy narrowly
understood, the degree of discretion varies but it is never unlimited.
The tactics of rival concerns and the preferences and prejudices of
consumers must always be considered. Such limits of discretion
establish the framework within which business sales strategy must
be planned. The broad objectives of this strategy may now be
considered.
In a competitive economy, it is axiomatic that the policy decisions
of individual business concerns are primarily directed toward in-
creasing profits. It is much more difficult to generalize with respect
to the strategy selected to achieve this end.^ Nevertheless, the
evidence seems to warrant several observations.
Because of the intimate relationship between prices and profits,
businessmen are traditionally eager to increase the degree of dis-
cretion which they can exercise with regard to the price structure.
They are understandably reluctant to permit the course of prices to
be determined entirely by the impersonal forces of the market. Often,
though not necessarily, this implies a striving toward price stability;
toward relatively infrequent changes in price as a means of facilitating
business planning.
The tactics by which control over price can be achieved are pro-
foundly affected by the nature of the commodity mvolved. In the
case of some products, such as wheat or ingot copper, buyors do not
generally recognize any difference between the wares of rival sellers.
These will be referred to for convenience as "standard" commodities.
The absence of any form of buyer preference means that no individual
seller can, for any appreciable period, charge a significantly higher
price for his product than is being quoted by his rivals. There may
be exceptional cases in which a concern controls so large a share of
the total supply of the product that buyers cannot satisfy their re-
quirements without patronizing it; under such circumstances it is
conceivable that price differentials can be maintained. In general,
however, it is clear that individual sellers of standardized products
cannot effectively maintain independent price policies. The formula-
tion of price policies and the achievement of price stability for goods
of this kind requires, in one form or another, the participation of all
or most competing producers.
However, for many, perhaps most, manufactured goods a different
situation prevails. Buyers of such items as automobiles, or dresses,
or aspirin, for example, do not generally consider the merchandise
offered by competing sellers to be equally desirable in all respects.
The difference between rival merchandise may relate to inherent physi-
cal characteristics involving such factors as quality, performance,
style, or taste. However, buyer preference may exist without such
' One of the many considerations Involved may be the relative emphasis placed by business coneerrn
upon Immediate profits from quick turnover, profits over the Intermediate term, and profits over a long
term of years.
CONCENTRATION OF ECONOMIC POWER 7
physical differences; trade-marks, brand names, or the prestige of the
manufacturer or distributor may be the significant elements. The
important point is the buyer's psychological appraisal; the heliej that
a difference exists which makes one product more desirable than
another at the same price, or that the payment of a premium for one
as compared with another is warranted. Commodities of this kind
may be termed "differentiated."
There is, of course, no sharp line of demarcation between "stand-
ard" and "differentiated" products, but rather an insensible gradation.
The difference between two makes of automobiles is probably more
apparent to the buyer than that between two makes of tires, yet it is
clear that in the latter case, too, such differences are by no means a
negligible factor in the market. Brand prestige- is more important
for aspirin than it is for canned vegetables and, in turn, more for canned
vegetables than for sugar; yet even in the case of sugar, brands play a
definite role in differentiating the product of one seller from that of
another. Moreover, in the case of products apparently "standard,"
such as steel rails, there may be such differences in promptness of
deliveiy or perhaps in incidental services rendered as would result in
the creation of buyer preferences.
For the purpose of the present discussion, however, this distinction
between markets in which buyer preference is imimportant and those
in which it plays a significant role is useful; although the lack of any
sharp dividing line should be constantly borne in mind. The existence
of buyer preferences, however achieved, yields to the individual seller
an important degree of latitude in formulating his price policy without
constant reference to the actions of his rivals. It is not necessary for
n manufacturer whose product has acquired outstanding prestige to
follow all the ups aiul downs of the general market for similar commod-
ities. A number of illustrations of this situation are assembled in
chapter III of this report (pp. 75-90) . For example, the retail price for
a nationally advertised brand of men's business shirts showed prac-
tically no change between 1929 and the present, while the prices of
less known brands meeting similar specifications declined materially.
In such fields as packaged medicines, v/here it is particularly difficult
for the average buyer intelligently to compare the merits of similar
products, wide differences in price can be maintained for long periods
between merchandise which is virtually identical in all but name.
Since product differentiation increases the area of price discretion,
it is not surprising that business concerns should strive to create or
accentuate differences — intrinsic or apparent — between their products
and those of their rivals. During recent years there has, in fnct,
been a distinct tendency for competitive strategy to emphasize
elements other than price.
In addition to the greater latitude in formulating price policy
which this teclmiquc yields, it often seems expedient for other reasons
to base sales appeal upon nonprice factors. As a competitive w(>apon.
price reductions are double-edged. A company which reduces prices
in order to obtain business must anticipate the likelihood that its
competitors will follow its lead; that any aiivantage it gains mny be
no more than momentary. Most price reductions can be duplicated
exactly; if one concern reduces its prices by five pcrccnl and its rivwls
follow the same course their relative position in the market may be
24714y— 41 -No 1-
g CONCENTRATION OF ECONOMIC POWER
unaltered. Changes in quality features are more difficult to duplicate
quickly or precisely, and the competitive advantage they yield may
Avell be more lasting.
In addition, producers of rival commodities are far less likely to
i-esent improvements in quality than direct reductions in price. The
latter often lead to price wars, the former rarely. During the last
20 or 30 years there has been intensive and very effective propaganda
conducted by trade associations and by some business concerns de-
signed to convince businessmen generally that price competition is
somehow sordid and should be eliminated. There is today a wide-
spread belief in business circles that cempetitive effort should be di-
rected toward the nonprice aspects of competition almost to the exclu-
sion of price ; that sales campaigns should emphasize quality, service,,
and performance and should avoid price cutting ^ as a competitive
technique.
The accentuation of product differences cannot of itself shield any
concern completely from the impact of price competition. The
degree of protection afforded is greater for some products than for
others, but it is never absolute. Moreover, wherever buyers are
equipped to compare the merits of rival products intelligently, price
differences cannot be ignored. This is particularly true in industrial
markets; institutional buyers are usually more skilled than domestic
consumers in comparing merchandise and price retains major force
as a sales weapon. In the case of raw materials and semimanufac-
tured goods it is often difficult to create any convincing appearance
of product differentiation.
Consequently, the effort of businessmen to cushion the force of
price competition cannot rest with the attempt to shift emphasis to
nonprice channels. More direct schemes to achieve control of price
behavior remain conmion. It is not within the scope of the present
discussion to describe these devices in detail, but a few illustrations
are pertinent.
The extreme case, of course, is that of the outright monopoly whose
latitude in price policy formulation is limited only by the possibility
that expenditures will be diverted to other products. However,
such situations are extremely rare in the United States. Almost as
complete a degree of control may be achieved through such devices
as patent ])ools or rigid licensing agreements, such as apparently
prevail in the glass container * and plasterboard industries.
In the absence of such conditions, concerns in various industries
have at times resorted to collusive agi-eements for maintaining prices
or sharing markets. The technique known as price leadership may
represent an effort to achieve similar results without overt violation
of the antitrust laws. This means that some one concern in an indus-
try, usually outstanding in size or prestige, regularly initiates all
changes in price and that its competitors consistently follow its lead."
Conventional arrangements within an industry such as basing point
> The term "price cutting" is here used in the sense commonly used by businessmen; i.e. price reductions
for the purpose of gaining direct competitive advantage. Price reductions reflecting actual manufacturing
economies are not in equal d sfavor.
« See Temporary National Economic Committee Hearings, Part 2, pp. 377-834.
« It should be pointed out that market situations which have the outward appearance of "price leadership"
may also be accompanied by activities whose .«tatus under the antitrust laws is more (luestionable. For
example, the followingletter written by H. A. Dorenbusch, general sales manager of the Newport Rolling
CONCENTRATION OF ECONOMIC POWER 9
systems, by reducing the importance of plant location as a competi-
tive element, presumably facilitate the maintenance of such price
understandings.' The same principle applies to what are laiown as
base-price systems, under which the prices of many different products
are determined by the application of a generally accepted schedule of
extras and deductions to a nominal base price. Both of these practices
are observed in the steel industry. By reducing the points at which
variation may occur, the formulation of price policy is simplified and
the maintenance of price uniformity between rival producers facili-
tated. Other practices designed to achieve similar ends which may be
used separately or in conjunction are open-price systems which permit
each concern to know what its competitors are charging and uniform
cost-accounting systems whereby all concerns base their pricing policies
upon identical or similar methods of calculation.
Naturally all of these devices work more smoothly where competing
sellers are few than where they are many.^ For example, in an indus-
tr}^ consisting of only five concerns it is usually simpler to obtain
general observance of the prices set by the "leader" than if there were
a hundred concerns. Even a single company of relatively small size
which elects to cut prices rather than to conform with the level quoted
by most of its rivals may prove to be a serious disrupting influence.
Although there are many ways in which more or less direct coercion
can be applied to prevent such defections, these are not always satis-
factory or free of danger. Consequently control is easier to exercise
in industries in which technological requirements make huge amounts
of capital necessary for successful operation. The number of concerns
in such industries is necessarily limited and the entry of new enter-
prise difficult. Price stability is also promoted because established
concerns are less likely, to resort to aggressive price cutting as a means
of expanding their share of the market than new companies which are
seeking to win a place for themselves.
In summary, there is evidence that business today, as in the past,
seeks to avoid the full impact of price competition. Frequent price
fluctuations are commonly regarded as inexpedient; some degree of
price stabihty is preferred. Such stability may be achieved by various
forms of agreement or understanding within industries such as patent
Mill Co , to the president of that company, on August 17, 1935, suggests that price leadership is occasionally
implemented by more positive methods:
"Mr. A. K. ANDREWS,
Footes Bay, Ontario, Canada.
"Dear Mr. A. K.: It was not definitely decided until late last evening to put into effect for fourth quarter
a one-price policy allowing the galvanized sheet price to remain at $3.10 per 100 pounds for No. 24 gauge base
f. o. b. Pittsburgh. A few of the larger interests such as Weirton and Inland were in favor of reducing the
price to $3 base for No. 24 gauge f. o. b. Pittsburgh but this was finally defeated and.it was agreed.to>llow all
prices to remain the same as now in effect.
"The announcement of no further jobber allowance after October 1 will be made by Continental on Tues-
day of next week after which all mills can announce likewise. We, of course, in the meantime will notify
our people which no doubt will be conducive of causing an influx of jobber business for shipmont prior to
October l.
"It is my intention to discuss this with Mr. Little this morning so that we will be prepared to take care of ■
the rush that we like others will no doubt have during the month of September.
"I discussed the automotive situation with Noll Flora, secretary of the National Association of 'Fl-it
Rolled Steel Manufacturers, last evening and he informed me that while some little tonnage wa= pT'.ced
several weeks ago, nothing more has been done and that all the mills are holding firmly to their prices s'ld are
expecting that additional tonnages will have to be placed soon." (Temporf'-y National Econoinc Com-
mittee, Hearings, Part 27, morning session, January,.30, 1940.)
• See I art II of this volume.
' But the mere force of business custom may be responsible for generalinaint^^nance of pricia [sracticos in
otherwise highly competitive industries, such as the garment trades, whpre cc.^ip^tition is on sf yle and other
nonprice factors.
IQ CONCENTRATION OF ECONOISIIC POWER
controls, collusive aiTangemcnts or perhaps by the price leadership
technique. The multiplication and accentuation of differences
between rival products, by diverting competition from price channels,
has also yielded individual concerns greater latitude in determining the
prices of their wares.
These trends are specific examples of the manner in which sales
policy decisions of business concerns affect the structure of the market.
More generally, it is clear that the orientation of business policy has
important consequences for the functioning of the economy. It
influences the pattern and behavior of prices, the amount and variety of
goods produced, the level of employment and the standard of living of
the population. It is in the light of these effects upon the general
well-being that basic issues of public concern arise.
Two of these basic issues have been selected for analysis in this
report. The first relates to the effects of business price policy deci-
sions, as reflected in the behavior of commodity prices, upon recession
and recovery. The second concerns the economic implications flov/ing
from broad choices of competitive strategy, particularly as expressed
in the trend toward nonprice competition, upon the manner in which
economic resources are used, and upon the general standard of living.
These issues necessarily overlap, since the behavior of prices is
importantly affected by the direction which competition takes. Con-
versely, prices and price movements in the abstract have little signifi-
cance. It is idle to inquire merely whether a particular price is high
or low, whether it fluctuates freely or infrequently, whether its long-
term trend is up or down, or even whether it reflects impersonal market
forces, price policy decisions, or perhaps monopoly control. The
behavior of the prices of any commodity is significant only when it is
related to its broad economic setting.
Nevertheless, it is useful to examine these two problems separately,
though their related character must be borne in mind constantly.
This is done in the two chapters immediately following. In the final
chapter the issues are once more brought together; the character and
implications of the policy decisions confronting the members of a group
of industries are examined in some detail.
CHAPTER IP
PRICE FLEXIBILITY
SUMMA.RY
Prices of difTcrent commodities respond quite differently to changes
in market conditions. Tliis is particularly apparent during periods of
violent economic upheaval, when the entire price structure is being sub-
jected to powerful unsettling influences. During the 1929-33 depres-
sion, for example, while the prices ^ of such commodities as copper or
hides showed extreme declines of over 70 percent, the prices of other
items such as agricultural implements and anthracite coal scarcely
fell at all. Prices in the (irst category are called flexible, or sensitive;
those in the second rigid, inflexible, or insensitive.
These difl'erences in price behavior have man}' causes. Some are
peculiar to the commodities in question; for example, the extreme
decline in the price of rubber during the depression was at least
partly due to the devaluation of the pound sterling, while the increase
in the price of hops between 1929 and 1933 may bo traced to the
legnlization of beer. In addition, however, more general considera-
tions, such as intrinsic differences in market structure, play an
im])ortant role. It was pointed out in the preceding chapter that the
prices of different com.moditJes are influenced in varying degrees by
the price policy decisions of business concerns. It is probably true
that prices are most flexible v/here individual producers enjoy little or
no discretion in determining their price policies and that outstand-
ingly rigid prices usually occur whore a high degree of latitude in
price policy formulation is available. Presumably this reflects the
general preference of business concerns for relatively stable prices
and the fact that business price policy is directed accordmgly.
^\^lether or not such policy decisions necessarily denote the presence
of "inonopoly" in the sense implied in the antitrust laws, there is
little doubt that the development of restrictive trade practices of
many kinds aimed directly or incidentally at achieving price stabiliza-
tion have decreased the fluctuations of prices of certain commodities.
These difl'erences in price behavior between different t3'pes of
commodities are in no sense new phenomena. It has long been ob-
served, for example, that the price movements of manufactured goods
are in general narrower than those of agricultural products. Never-
theless, there is evidence that the far-reaching technological changes
of recent years have materially altered the structure of man}' markets
' Ch. n was prepared by Raul Nelson. Walter O. Keim devised the Index of price dispersion and con-
tributed to tbe sections on Price Relationships and Prices and Production. Joseph W. Lethco assisted In
preparinf; the statistical data.
> In this discussion the term "price", unless otherwise noted, Is used to signify wholesale price and par-
ticularly wholesale price as reported by the Bureau of Labor Statistics. The Bureau's wholesale prices
are generally those received by the producer or manufacturer of the item in question; freixht to destination
may or may not bo Included. Wholesale price in this sense docs not mean the price paid by retailers to
wholesalers.
11
12 CONCENTRATION OF ECONOMIC POWEll
and that, as a result, inflexible prices play a somewhat more important
role in the economy today than was true a generation ago.
There has been much controversy regarding the economic accompa-
niments of these differences in price behavior. This controversy has
centered about the effects of price rigidity upon the economy during
periods of general business depression; little or no attention has been
devoted to the problems arising during booms. It has been contended
that, in general, the decline in production and employment during
periods of recession is considerably more marked in those industries
whose price structures are rigid than in those whose prices are flexible.
Especial stress has been placed upon the plight of the farmer; upon the
contrast between the sustained production and falling prices which
characterized the products which he had to sell, and the curtailed
production and sustained prices of those industrial products which he
had to buy.
It has been argued that the decline in production and employment
in many lines during the dowxiturn of 1929-33 would have been less
drastic if price readjustments had been greater. Similarly, decisions
by business concerns to increase the prices of certain products during
the winter of 1936-37 may have played a role in checking recovery,
particularly in the construction industry. Although this is no doubt
true in certain cases, the analysis presented in this chapter emphasizes
the fact that the relationship existing between price and production
for anv specific commodity is extremely complex and that it is im-
possible to conclude that uniform flexibihty of prices even if it were
possible would turn the tide of depression and bring about recovery.
For example, there is a numerous class of products for which isolated
changes in prices are unlikely to be reflected in material changes in
consumption. Thus demand for any building material is determined
largely by the general rate of building activity. A reduction in the
price of building tile taken alone, for example, would probably have
so small an effect upon the total cost of building that its demand would
not be appreciably stimulated thereby. Similar instances of "joint
demand" occur in almost every field. The sale of buttons or of yarn
depends upon that of apparel; the demand for spark plugs in part
upon that for automobiles, etc. Isolated changes in the prices of such
individual commodities can have little or no effect upon the cost or
price of the finished product and consequently upon their own sales,
though in combination with similar changes in the prices of related
products their cumulative effect may be very considerable.
Moreover, there are certain distinct limitations to the extent to
which price reductions might be expected to stimulate the sales of
certain kinds of product during periods of severely curtailed purchasing
f)ower. This is particularly true of those products which are not abso-
ute necessities of life or whose purchase can be postponed, such as
durable goods. For example, sales of agricultural machinery during
1932 had declined to 18 percent of their 1929 level. In all probability,
reduced prices would have stimulated sales somewhat. However, the
decline in sales was largely due to the fact that the income of most
farmers had fallen so low that it was completely earmarked for ex-
penditures that would brook no postponement such as taxes, interest,
food, fuel, seed, and the like. There was nothing left over for pur-
chases which could be delayed a year or two, and machinery generally
CONCENTRATION OF ECONOMIC POWER 13
fell into this latter class. It is possible that prompter price readjust-
ments for those products during the initial phases of a business decline
might retard the do^vntu^n, but the effect of practicable price reduc-
tions after the income of the farmer has already declined materially
is clearly limited. Similar considerations apply to many other pro-
ducts such as automobiles, furniture, jewelry, and, even in a more
limited degree, to clothing.
The structure of the economy imposes another serious limitation
upon the benefits which might be derived from greater declines in
prices which are more or less inflexible during a depression period. It
has been argued that the disturbance of market relationships would be
minimized if all prices rose and fell freely in response to changing
economic conditions. It is contended, for example, that if the prices
of what the farmer had to buy had fallen about as sharply as did the
prices of the things he had to sell, the effects which flowed from the
contraction of his purchasing power could have been largely avo'ted.
However, this would have been completely true only if all prices had
been equally free to move; that is, if wages, interest rates, utility rates,
the prices of services, rents, depreciation, taxes, and so on had all
fallen together.^ Moreover, it assumes the absence of long-term loans
and mortgages which require fixed servicing regardless of price trends.
In other words, increased sensitivity of commodity prices alone can
only have limited (though perhaps significant) effect unless these other
types of noncommodity prices are also flexible.
All these factors must be accorded due weight in orienting public
policy to deal with the problem of recovery insofar as it is related to
prices alone. Thus it remains to define the objectives of public policy
in relation to prices. So far, there has been a notable lack of any
concrete suggestions for a cooi'dinated approach to governmental
action with regard to price policies.^ Although it is no doubt true
that the extreme disparities in price behavior exhibited since 1929
materially aggravated the recession and retarded recovery, there is
no evidence to show that it would be desirable — even if it were pos-
sible— for all prices to be equally sensitive to changing business
conditions.
It may well be that by attacking monopolistic prices which are in
any event objectionable, the flexibility of the prices of the products
affected can be increased. But it is particularly important that the
limited character of the benefits which could be derived from inducing
isolated price changes be recognized.
It is apparent, therefore, that any appraisal of this issue of price
sensitivity must consider the economy as a generally interdependent
whole. Although there are certain broad sectors of the economy —
e. g., the construction industry — which may for some purposes be
considered independently of other sectors, it must be recognized that
a commodity by commodity approach to the problem is of little value.
The effects of price changes must be considered in combination with
each other and with the behavior of noncommodity prices as well.
It must also be recognized that changes in price will themselves
• Of course there is no implication that these declines should be proportional.
« A set of general principles was prepared by an interdepartmental committee and announced by Presi-
dent Roosevelt on February 18, 1939; these dealt with objectives rather than methods.
24 CONCENTRATION OP ECONOMIC POWER
affect the income of producers and thereby alter the aggregate na-
tional purchasing power — as well as its distribution.
Moreover, it should be emphasized that wholesale commodity prices
are only one part of the picture. Price movements on retail markets
are usually narrower than at the wholesale level. In some fields
price rigidities are introduced and aggravated by the present system
of distributing goods from producer to consumer as indicated in
chapter III. Much recent legislation — both State and national —
has had as a major or incidental objective the protection of traditional
channels of distribution against the impact of newer methods of
selling. This is true, for example, of chain-store taxes, resale price
maintenance laws (the so-called Fair Trade Acts), the Unfair Prac-
tices Acts ^ and antidiscrimination laws such as the Robin son-Pa tman
Act. If the effects of price rigidities upon the economy are harmful,
it would seem desirable to avoid the enactment and administration
of legislation of this Idnd.
Finally, it must be observed that the approach to the problem of
sustained employment and production via the study of the flexibiUty
of prices, v/hile it brings to hght certain industrial practices which may
bo in need of correction, emphasizes again that each commodity must
be considered in relation to its market. Although certain broad
standards of business conduct, such as those prescribed in the anti-
trust laws, may be generally required, and although the enforcement
of such standards may materially affect the behavior of certain prices,
yet it is evident that no one common remedy to induce greater flexi-
bility of all prices — were that end clearly desirable — can be devised.
The following analysis coucems that aspect of the problem upon
v.'hich the discussions of recent years have centered — the effect of
price rigidity upon production and employment during periods of
recession or of low business activity. If the rate of industrial activity
should advance rapidly, it may become necessaiy to center attention
upon price 'increases rather than price decreases. There may be sub-
stantial advances, for example, in certain flexible prices which have
been at relatively low levels, and at the same time, there may be also
marked increases in prices of less flexible commodities, particularly
those whose extreme rigiditj'' during the past decade reflected the
presence of some degree of price control. Should this happen, ques-
tions of public policy might well focus upon types of price adjustments
which are conducive to sustained recovery in business, rather than
upon those which might be expected to check a decline in business
activity. In the case of some products, moreover, it may become
necessary to consider prices and price relationships primarily in terms
of the speedy progress of a defense program, regardless of their
broader impact upon the economy.
THE NATURE OF THE PROBLEM
In the preceding chapter it was pointed out that the prices of
different commodities are, to varying degrees, subject to the influence
of policy decisions by businessmen. For some products, such as corn
or cotton, the number of buj'^ers and sellers in the market is so great
that such individual pohcy decisions can exercise no more than an
infinitesimal effect. For other products, including most manufactured
' state laws prohibiting sales by distributors at less than Invoice cost, plus certain specified mark-ups.
CONCENTRATION OF ECONOMIC POWER 15
goods and some raw materials (e. g., sulfur), where the number of
buyers and sellers is smaller, the influence of policy decisions may be
considerable. For convenience in reference, prices in the former group
have often been called market prices and those in the latter group
policy influenced prices.^ Of course policy influenced prices are not
immune to market influences; presumably the seller is guided by his
appraisal of market conditions in fixing his quotation. However,
the adjustment of prices to changing market conditions is less direct
and less immediate.
The connotation of the term "policy influenced" implies that the
individual seller (or buyer) has a degree of leeway in foimulating his
price policy; that he can exercise some control over his segment of the
market. However, it is important to recognize that such control is
not necessarily synonymous with monopoly power in the sense implied
in the antitrust laws. Thus, it has been pointed out (see ch. I, p. 6-8)
that the seUers of differentiated products bearing distinguishing names,
trade-marks or brands may frame their price policy without the need
of constant reference to the prices quoted by rivals. Devices that
have been recognized as collusive or monopolistic may enlarge the
area of price control, but they are not essential to it.
It is important to emphasize that "policy influenced" is a relative
rather than an absolute concept. There is no sharp division, no
•dichotomy, in the universe of prices, but rather a gradation. In the
case of most commodities, there is a constant interplay between price
policy decisions and the influence of immediate market conditions.
The relative importance of these two factors is constantly shifting;
for example, prices which may largely reflect price policy decisions
during a normal market may be largely market determined either
during an extreme seUers' market when buyers are vigorously bidding
against each other for goods, or during a buyers' market when dis-
tress induces sellers to offer wide concessions to obtain business.
Moreover poHcy influenced prices may be, and frequently are, altered
to meet the needs of the individual transaction. Even ia the case of
such commodities as steel, usually considered an extreme example of
price administration, indirect rebates and concessions have been
granted where the pressure from buyers has been sufficiently great.
Despite these reservations, the distinction is not without meaning.
The prices of such commodities as automobiles or steel, on one hand,
and of wheat, on the other, are determined by different processes.
And, although the process of determination implies no necessary type
of price behavior, yet these differences are, in turn, frequently reflected
in the beha\'ior of their respective price quotations.* In general, it
may be said that market prices are constantly adjusting to every
change in market conditions, with no single buyer or seller able to
affect their level appreciably. In contrast, the day-to-day course of
policy influenced prices displays no such constant adjustment. A
common iUustration of this latter kind of price making is the automo-
' Policy influenced prices, denoting those whose behavior is importantly influenced by business policy
decisions, have often ijeen referred to in the past as "administered" prices. However, Mr. Gardiner Means,
who seems to have originated the latter term, uses it in a connotation somewhat different from that here
Imputed to policy influenced prices. According to Mr. Means—
"A price can be classed as an administered price if it has been set and held constant for a period of time
covering successive transactions."
Mr. Means has called attention to this difference in usage. In view of the confusion which may result
from employing the same term to denote two distinct concepts, the phrase "policy influenced" has been
used in this report in place of "administered."
' The term "quotation" Is used advisedly, since these often remain at unchanged levels even though
unreported concessions or rebates are modifying actual prices.
IQ CONCENTRATION OF ECONOMIC POWER
bile industry in which the producer sets the wholesale price for eacli
model at the beginning of the production year and maintains it at
that level for many months or for the entire model year.
These differences in price behavior are particularly noticeable during
periods of severe economic upheaval, when the markets for virtually
all commodities are subject to violent unsettling influences. Thus
during the general downswing of 1929-33 the prices of some com-
modities (e. g., cotton, oats, steel scrap) fell more than 60 percent;
the prices of others (e. g., salt, steel rails, cigarettes) remained rela-
tively stable; some, such as the price of gypsum plaster, actually rose
to higher levels than prevailed at any time between 1926 and 1929.
During the subsequent recovery from 1933 to 1937 the picture was
reversed ; the rise of prices was roughly proportional to their previous
decline.
Some relationsliip, subject to very numerous exceptions, may be
traced between the manner in wliich commodity prices behaved and-
the process dominant in their determination. Although no attempt
was made to classify products directly according to the relative impact
of policy decisions upon their price structures, it seems broadly true
that "market" prices (as defined on p. 15) fell farthest and recovered
most; in other words they were most flexible or sensitive. Prices of
commodities whose market structures make probable some degree of
policy control in general moved less widely; they tended to be rigid,
inflexible, or insensitive, though in some cases at least they apparently
showed less resistance to the rise than to the decline.
This contrast in the behavior of the wholesale prices of different
commodities, reflecting their difTerential responsiveness to changing
market conditions, has received much attention during recent years.^
* A list of some of the princijial recent works'on (he subject follows.
BOOKS AND DOCUMENTS
!Nrenn'5, Gnrdiner C, Industrial Prices and Their Relative Inflexibility (74th Cong., 1st scss., Doc. No.
13, 1935).
Mills, Frederick C, Prices in Recession and Recovery, National Bureau of Economic Research, 1936.
Burns, Arthur R., The Decline of Competition, McGraw-Uill, 1936.
Tintiier, Gerhard, Prices in the Trade Cycle (in United States of America obtainable from G. E. Stechert
& Co., New York City), 1935.
Kreps, Theodore J., Economic Problems in a Changing World, a symposium, chs. VIII-XV, Farrar and
Rhiuehart, 1939.
The Structure of the American Economy, National Resources Committee, June 1939.
ARTICLES
Mason, Edward S., Price Inflexibility, Review of Economic Statistics, May 1938.
Means, Gardiner C, Notes on Inflexible Prices, American Economic Review, Supplement XXVI, No. 1,
March 1930.
Tucker, Riifus, The Nature and Afeaning of Rigid Prices, The Journal of Political Economy, October
1937; The Reasons for Price Rigidity, American Economic Review, March 1938.
Humphrey, Don D., The Nature and Meaning of Rigid Prices, The Journal of Political Economy,
October 1937.
Oalbraith, J. K., Monopoly Power and Price Rigidities, Quarterly Journal of Economics, IN^ay 1936.
Douglas, Paul H., What Shall We Do About Monopoly Prices?, Journal of the Society for the Advance-
ment of Management, March 1937.
Wood, Ralph C, Dr. Tucker's "Reasons" for Price Rigidity, American Economic Review, December
1938.
Stevens, W. H, S., Has Competition Declined?, Journal of Marketing, .Vpril 1939.
J^ederer, Einil, Price Dislocations versus Investments, Social Research, May 1938.
Wallace, Donald H., Monopoly Prices and Depression, Explorations in Economics, Notes and Essays
Contributed in Honor of F. W. Taussig, p. 349, 1936.
Singer, H. W., The Inflexibility of the Price System, paper before the Manchester Statistical Society,
January 11, 1939.
Bachman, Jules, Price Flexibilify and Changes in Production, National Industrial Conference Board
Bulletin, February 20, 1939.
PAPERS
Proceedings of the Academy of Political Sc«ience, January 1939, Monopoly and Competition in Industry
and Labor.
American Economic Association, American Statistical Association, and American Association tor Labor
Legislation, Papers on Price Policy, December 1938.
CONCENTRATION OF ECONOMIC POWER 17
The sharp decline experienced by the prices of certain commodities
during depression has been contrasted with the apparent stabihty or
rigidity of others. It has been suggested repeatedly that the presence
of Wese rigid prices has interfered materially with the process by
which each economic maladjustment might otherwise automatically
induce its own swift cure. The persistent underutilization of our
economic resources since 1929 has been accordingly attributed, at
least in part, to the prevalence of these rigidities,® or to the failure of
Government policy to take account of their existence.
In brief, these arguments may be summarized as follows:
(1) The prices of the commodities on our markets may be divided
into two fairly distinct categories, depending upon the process domi-
nant in their determination. Where immediate market forces are
uppermost, prices tend to be flexible, or highly responsive to changing
economic conditions. Where businessmen have a degree of freedom
in determining price policy, prices are usually more rigid or less sensi-
tive to immediate market forces.'"
(2) These discrepancies in price behavior, while not precisely new
phenomena, have for a variety of reasons been accentuated during
recent years.
(3) Certain consequences have ensued from this development,
including particularly:
(a) The "automatic forces" which classical economists presumed
would regulate the economy have been impair.ed "because the con-
ditions which once promoted the easy and equitable operation of such
forces have ceased to exist." " The failure of "natural" recovery to set
in during the depression has been attributed at least partly thereto.
It has been contended that where prices are inflexible the burden
of adjusting to changing conditions necessarily falls upon production
rather than upon prices and that, as a result, manufacturing activity
and employment are curtailed far more sharply during periods of
' Thus to Prof. Henry C. Simons, "The existence of extreme inflexibility in large areas of the price struc-
ture was one of the primary factors in the phenomenon of severe depression. This inflexibility increases
the economic loss and human misery accompanying a given deflation and causes deflation itself to proceed
much further than it otherwise would." (Prof. Henry C. Simons, A Positive Program for Laissez Faire,
University of Chicago Press, p. 14.)
'0 Thus, according to Gardiner C. Means, "• * • the widespread presence in our economy of inflexible
administered prices" * • • had "produced highly disrupting effects in the functioning of the economy"
• • • and was • • * "largely responsible for the failure of a policy of laissez faire • • * there
are two essentially difTerent types of market in operation — the traditional market in which supply and
demand are equated by a flexible price and the administered market in which production and demand are
equated at an inflexible administered price. In the first type of market economic adjustments are brought
about primarily by fluctuations in price. In the second type of market economic adjustments arc brought
about primarily by changes in volume of production, while price changes are of secondary significance in
producing adjustment.
"The difference between market prices and ndministered prices is clear. A market price is one which
is made in the market as the result of the interaction of buyers and sellers. The prices of wheat and cotton
are market prices as are many other agricultural products. This is the type of price around which tradi-
tional economic theory has been built.
"An administered price is essentially difTerent. It is a price which is set by administrative action and
held constant for a period of time. We have an admini'^tered price when a company maintains a posted
price at which it will make sales or simply has its own prices at which buyers may purchase or not as they
wish. Thus, when the General Motors management sets its wholesale price for a particular model and holds
that price for 6 months or a year the price is an administered price. Many wholesale and most retail prices
are administered rather than market prices. For administered prices the price is rigid, at least for a period
of time, and sales (and usually production) fluctuate with the demand at tlio rigid price." (Mean--. Gardi-
ner C, Industrial Prices and Their Relative Inflexibility (74th Cong., 1st sess., S. Doc. No. 13).)
" Thus, according to an extensive analysis of the Canadian economy, conducted during 19.34 and lOS.'i by
a Royal Commission, "It is, furthermore, a tracjie delusion that the solution for these economic problems
can be left to automatic forces, because i he conditions wtiich once permit led the easy and equitable operation
of such forces have ceased to exist. These conditions presupposed two things, first, an economic system
composed of small Independent units, no one of which counted in that system for more than an element in
a statistical average; second, the free appearance and disappearance of these units and their free entry into
and withdrawal from the market. With the growth of imperfect competition, however, these conditions
no longer exist. Nor can we assume any longer that this monopolistic tendency is a merely incidental in-
trusion into a system predominantly and naturally competitive." (Report of the Royal Commission on
Price Spreads, ch. II, p. B.)
Ig CONCENTRATION OF ECONOMIC POWER
recession than would be true if prices fell more rapidly. "Necessary
(price) readjustments are therefore concentrated, on the flexible sec-
tions of our economy where their effect is intensified by rigidity in
other sections."'^
(6) At the same time the discrepant behavior of different kinds of
prices during periods of recession is alleged to create serious price un-
balances between various sections of the economy, destroying normal
exchange relationships, and thereby causing distress both among buy-
ers whose purchasing power is impaired tind among sellers whoso
markets are narrowed.
(4) Public policy must take cognizance of these effects of price in-
sensitivity and must in one or another manner strive either to reduce
their incidence or else to compensate for their consequences. Such
action forms a necessary part of any program designed to achieve and
maintain a high level of productive activity.
These contentions and inferences have been vigorously debated.
Most of the attacks upon their validity seem to have centered upon
questioning what seems largely a side issue; namely, that the existence
of Inflexible prices is largely a new phenomenon. It is argued that
these conditions have always existed, that they are an essential part
of the structure of our economy and that the basic causes underlying
the unsatisfactory character of current adjustments must be sought
elsewhere. ^^
13 1.« • • all these circumstances unbalance modern economicsociety in thesense thatnotallofitsparts
adjust themeelves at the same speed or in the same degree to any influence that makes itself felt at any one
point. Necessary readjustments are therefore concentrated on the flexible sections of our economy, where
their effect is intensified by the rigidity in other sections. When different parts of a glass tumbler oipand
or contract at different rates, the whole glass may bo cracked. If the economic structure is in part flexible,
and in part rigid, any strain may lead to complete collapse." (Ibid.)
• ••••«•
And, according to a subsequent publication of which Dr. Means was coauthor, "Wherever the new typo
of industrial unit has introduced the factor of administration, it has substituted human judgment for auto-
matic processes. Where administration has a hand in determining price it undermines ihe central mech-
anism of automatic, flexible prices upon which the old economy relied for its adjustments. Where it affects
the character of competition, it modifies the structural framework within which economic activity is carried
on. Whereitaffectsthenaturcorresultsof profit seeking it perverts the old economy's central drive * • *.
"The disastrous effect of this type of price upon the automatic mechanism of the old economy cannot be
overstated. According to laissez faire assumptions, there can be no general oversupply of goods or unem-
ployment of people because prices will adjust until everything which anyone is willing to sell is sold and
until everyone willing to work is employed. But when adjustments are made through volume of production
instead of through price the result is very different. When a drop in demand is met by cutting down pro-
duction, workers are laid off. If this is the general reaction throughout industry, there is no place for these
workers to go for new jobs even if they are willing to take lower wages, since wages like other forms of prices
are commonly administered, particularly in the concentrated industries. Without jobs, they cannot buy,
and their unemployment leads to a further drop in demand for products. If adjustment is aealn made by
dropping production instead of by lowering price, the effect is only to make matters worse by laying off
more people and thereby reducing demand still further. Such a process can go on until industry is virtually
at a standstill and unemployment is widespread. In place of the reactions that were automatically set in
motion to restore a balance under the old conditions of flexible prices, the opposite reactions here tend to
make the situation progressively more grave." (The Modern Economy n Action, by Caroline F. Ware
and Oardiner C. Means, ch. II, pp. 18, 22-23.)
'3 Thus, Don D. Humphrey reaches the conclusion that rigid prices are not a unique characteristic of
current conditions but that they were present also during the entire period between 1890 and today. (The
Nature and Meaning of Rigid Prices, 1890-1933, by Don D. Humphrey, The Journal of Political Economy,
vol. XLV, No. 5, October 1937.)
Similarly, Rufus S. Tucker in a recent article wrote: "It is obvious that the two kinds of prices have
been sharply differentiated for at least a century. In fact, that differentiation was commented on by
Adam Smith in 1776 when he wrote 'that the price of linen and woolen cloth is liable neither to such fre-
quent nor to such great variations as the price of corn, every man's experience will. inform him.' And the
extent of that differentiation was apparently greater in 188t and 1879 than in 1933. In fact, the published
prices do not show the whole of it, for it is a well-known fact that since 1929 some of the 'administered'
products have improved in quality and size to such an extent that the Bureau of Labor Statistics price
quotation is misleading. Their price has in effect gone down more than the quotation would indicate."
(The Essential Historical Facts About tJensitive and Administered Prices, by Rufus S. Tucker, The
Annalist, February 4, 1938, pp. 195-196.)
This last point is criticised by Gardiner O. Means on the ground that it does not take into consideration
the offsetting factor of improvement in the techniques of production which tend to save both macerials
and labor: "Surely the engineering force which has improved goods so greatly has not failed to bring about
improvements in technique in productjon so as to sive both materials and labor. When improvements
in technique of production are offset against improvements in cost of production, is it any reason to think
that the price figures published by the Bureau of Labor Statistics would be altered in a significant manner
by adjustment for both factors? This is a matter which certainly should be investigated, but I doubt if
the ret effect of a full adjustment would significantly alter the relational picture I have presented."
(Gardiner C. Means, Notes on Inflexible Prices, The American Economic Review, Supplement, March
1936,>
CONCENTRATION OF ECONOMIC TOWER 19
That there is some force in these contentions is undeniable. Never-
theless, it does seem probable that the relative importance of insensi-
tive prices in our econom}^ has increased materially during the past
half century. In the first place, the character of the commodities
on our markets has been undergoing a constant change. An ever
larger share of the national income goes for the purchase of manu-
factured products. ^^ Moreover, the degree of processing to which
goods are subjected seems to be continually increasing. Automobiles
replace buggies; packaged and processed foods arc substituted for
the more staple items purchased by the housewife of an earlier day;
clothing is bought ready-made instead of being fabricated at homo
from piece goods or yarn, and so on ad infinitum. Since it is generally
conceded that the price of manufactured goods shows typically less
flexibility than that of raw materials it may well be inferred that
the area of inflexibility is increasing.
At the same time, the intensity of price competition in many lines
has been reduced through the operation of forces described in the pre-
ceding chapter. Increasing differentiation between the products of
rival concerns, changing business mores, and high capital require-
ments for entry into business have all played a role in shiftmg com-
petitive emphasis to nonprice channels. Although statistical evi-
dence is difficult to assemble, it seems probable that this changing
pattern of business relations has reduced the apparent flexibility of
the prices of a great number of commodities.
It may be concluded, therefore, that a materiall}^ larger sector of
the price universe must be classed as insensitive today than was true
in the earlier years of the twentieth century. Consequently, the
undoubted fact that certain prices have always been less flexible than
others does not negate the possibilit,y that recent economic trends
have aggravated the disparity. Nor is it necessarily pertinent that,
as Tucker points out,^^ the degree of divergence in behavior between
those prices which were then flexible and those which were then
inflexible was as great formerly as today. The widening area of price
inflexibility may have transmuted what was once an incidental
phenomenon into a more serious unsettling influence. Moreover, it
is possible that changes in surrounding economic circumstances have
intensified the impact of types of price behavior whose influence was
hitherto obscured. The relevancy of historical comparisons is clearly
limited. Under the circumstances, the contention that price inflexi-
bility has long existed does not eliminate the desirabilit}'- of reapprais-
ing its efl'ects in tlie light of current conditions.
The disagreement as to assumptions is reflected in the discussion
of programs for action. Those who dismiss the entire subject as
unimportant suggest that the efforts of government can more profit-
ably be expended in other directions. Unanimity is lacking even
among those who feel it essential that steps be taken to deal with the
problem presented by inflexible prices. Some contend that inflexible
'* Thus Ralph C. Wood writes, "Neither Gardiner C. Means nor Dr. Tucker • • • has mentioned
that the relative importance of many flexible priced products, notably agricultural products, have greatly
declined. The decline is apparent in all the series which may he deemed most relevant, physical volume
of output, value of oul put, and number of employees. Conversely, the relative impoi tance of many inflexi-
ble priced products has preatly increased. • • • Common ubservntion powerfully suggests that the
expanding area and changing components of the industrial scene lia ve magnified the in.portance of inflexible
prices and hence have increased the rigidity of the prices in some very fundamental ways." (Ralph O.
Wood, Dr. Tucker's Reasons for I'rice Rigidity, American Economic Review, December 1938.)
'• Tucker, op. cit.
20 CONCENTRATION OF ECONOMIC POWER
prices should be made more flexible so as to allow a laissez faire policy
to work;^^ others accept price inflexibility as largely inevitable and
suggest that instead the fluctuations of flexible prices be somehow
minimized, or that other techniques for insuring recovery and main-
taining full employment be devised/^ including perhaps monetary
controls.
Nor does any clear-cut solution seem, as yet, to be available. It is
the purpose of the present chapter to present a brief survey of some
of the aspects of this issue of price flexibility. It is designed as a
preliminary exploration of the field rather than as a thorough analysis
of the problem; it marshals the salient facts and suggests some of the
attendant questions of public policy.
THE MEANING OF FLEXIBILITY
Any appraisal of the significance of price flexibility to the functioning
of the economy must necessarily proceed from a definition of just
what is meant by flexibility. The problem of definition may be
approached in two ways; either by examining the external character-
istics of price behavior only, or by considering such behavior in its
relation to the nature of the economic forces to which prices may be
expected to respond. Up to a certain point both approaches will
lead to a similar separation of issues.
An examination of the behavior of many price series over a period
of time may disclose four difl'erent kinds of movement:
(1) Casual variation. — An irregular, nonpersistent short time varia-
tion, following no clearly recurrent pattern, and unrelated to the
movement of the general price index. For purposes of reference, this
will be called casual variation.
(2) Seasonal variation. — A regularly recurrent ))attern of variation
with an annual periodicity. For example, successive years may show
a fairly predictable fall in the price during the snring and summer,
followed by a rise of similar proportions during the fall and winter.
Such variation may be termed seasonal.
(3) Cyclical variation. — The Dohavior of the specific series in
question will usually reflect, to a greater or less extent, the broad
swings of the general price index. Thus most prices participated in
the general price decline between 1929 and 1933, and in the general
price upswing between 1933 and 1937. Such swings may be con-
veniently called cyclical.'*
(4) Secular variation. — The series may have a specific, persistent
long-term trend of its own, independent of the movement of the gen-
eral price level, and extending over a considerable period of time.
Such a trend is commonly termed "secular."
i« This viewpoint Is advanced by Robbins, "In order that recove -y may be assured and future dislocation
minimize'l. it is necessary not only that flexibility should be restored to the prices of different kinds of labor
but that flexibility should also be restored in other markets." (The Great Depression, MacMillan, 1935,
p. 189.)
" This appears to be the opinion of Means, "Finally, I want to make it clear that in pointing both to the
fact and the importance of inflexible administered prices I am not saying that the inflexible administered
prices are wrong. They seem to me inherent in modern technology. Nor am I saying that inflexible prices
should have come down during the depression. According to the rules of the laissez faire game, they could
not be expected to come dowtu' (Notes on Inflexible Prices, loc. cit.)
!• This terminology does net necessarily imply any postulates regarding the nature of the business cycle.
CONCENTRATION OF ECONOMIC POWER 21
Those kinds of price variation may be considered manifestations of
similarly distinguishable economic forces. Thus casual variations re-
fleojt shoi't-term changes in market conditions. Seasonal price move-
ments grow out of concurrent regular fluctuations in demand or supply.
The cyclical swings of a price series are the more or less direct conse-
quences of, or accompaniments to, broad changes in the rate of general
business activity. Secular trends are the expression of basic long-term
modifications of such factors as production costs, consmner require-
ments, or market structures.
Where business policy decisions are a factor, the nature of the varia-
tion will be affected by the goals of business strategy. For example,
piices may be varied over the short-term in order to obtain some imme-
diate competitive advantage. Regular seasonal changes may be intro-
duced for the purpose of maintaining uniformity of production sched-
ules or shifting the burden of carrying inventory. The extent of
cyclical variation — or its avoidance — may be governed largely by the
effort t© minimize losses duiing periods of severely curtailed demand.
Over the long-term, price policies and the response of prices to changes
in costs and markets may be governed by -such factors as the relative
emphasis upon large volume or unit profits, as well as by the rate at
which it is considered expedient to replace old machinery and obso-
lescent methods by newer or more efficient equipment and techniques.
These four aspects of price behavior necessarily overlap, as do the
forces to which they represent responsiveness. Nevertheless, it is pos-
sible to consider separately the economic consequences and problems
of public policy flowing from each of them.
The precise role of casual price variation— responsiveness to forces
which persist for not more than a few months at a time — is difficult
to appraise. In some cases short-term price changes, particularly if
they are considerable7in extent, may have important consequences
upon the amount and direction of spending and upon the use of pro-
ductive resources. Thus sharp price increases, even though very tem-
porary in character, which occur during the initial stages of recovery
from depressed conditions may have very serious repercussions; this
may have been true, for example, of the short-lived price increases
during the late spring and early summer of 1933. Promptness of
response to important changes in conditions may be important; thus
immediate price reductions during the initial stages of recession may
ward off the need for later and more drastic adjustments. In many
cases, however, whether or not the price of a commodity remains at
a stable level for a day, or a week, or even a month, or whether it
fluctuates to a limited extent about such a level during this period,
seems of minor consequence in its effects upon the orderly functioning
of the economy.
In all probability, seasonal price variability is not a fundamental
issue. Whether the course of any specific price is or is not subject to
regukrly recurring, predictable seasonal fluctuations is likely to have
little ultimate effect either upon the total income of the producers of
the commodity or upon the total amount which consumers must pay
for it. In other words, seasonal price behavior can play no more than
22 CONCENTRATION OF ECONOMIC POWER
a limited role in determining the distribution of purchasing power and
of productive resources between various alternative uses.^®
The significance of responsiveness of commodity prices to long-
term or secular trends next arises. To what extent do the prices of
different commodities reflect, over a period of years, changes in the
costs of production due to technological improvements, to alterations
in the character or availability of raw materials, to modifications in
the nature of the labor supply, and so on? To what extent is the price
of a commodity responsive to fundamental changes affecting its de-
mand, as for example, changes in consuming habits or in standards of
living, or possibly in the technical uses to which it may be put?
These are questions of fundamental importance to the functioning of
an efficient economic s,ystem. Price trends over the long term are
the factors which ultimately determine the allocation of the nation's
resources of men and materials to different uses, and the general stand-
ard of living and well-being of the community .^° However, "sensi-
tivity" or "flexibility" has usually been discussed in relation to short
run and cyclical influences; consequently this question of responsive-
ness of commodity prices to long-term influences, despite its impor-
tance from the point of view of public policy, will not be considered
at this point in the analysis.
Finally, there is the problem central to the present discussion ; that
is the degree to which specific commodity prices reflect the broad up-
swings and downswings of wholesale commodity prices in general.
The problem may be formulated alterDatively as one of price respon-
siveness to what are usually termed cyclical influences, that is, to
major changes in the rate of business activity. It is this aspect of
price sensitivity, particularly in relation to periods of downtiu-n, which
has been the focus of most discussion ai]d analysis in recent years. It
should be noted that economists have generally accorded emphasis to
the behavior of prices during the great depression of the years 1929
to 1933 and also to their action during the recession of 1937 and 1938
and have given less attention to the behavior of prices in periods of
" Qenerally speaking, those prices which show a regular pattern of seasonal variation are affected by one
of two sets of influences. The first of those reflects natural forces over which man has little or no control,
for example, seasonal changes in the production of such commodities as milk, or butter, or fresh vegetables.
The prices of most of these products are liigher in the winter than in the summer because of inevitable differ-
ences in cost, such as storage charges or extra transportation expenses. In such cases, therefore, price varia-
tion merely reflects seasonal variation in supply and in costs.
Another type of seasonal price variation results from the more or less deliberate policy of industry—
frequently representing the crystallization of custom — designed to even fluctuations in demand, and perhaps
to permit the industry to operate more efl3ciently. This is true, for example, in the case of anthracite coal,
where rates are systematically lowered during the summer in order to stimulate purchases during what
would otherwise be a slack period. This custom is designed to reduce the burden of seasonal inventory
which the industry would otherwise have to carry. It seems quite probable that this kind of policy is reason-
ably calculated to improve the genernl functioning of the economy. In some cases, of course, a pattern of
seasonal price variation which was originally well-grounded and economically desirable may become some-
what distorted because of the intrusion of irrational elements. The price of styled apparel, for example,
seems to follow a fairly predictable seasonal pattern. Regardless; of thrir original basis, however, seasonal
changes in style, as they appear in our modern markets, seem to be far less matters of necessity than of cus-
tom. Frequently, the pattern has become quite illogical. The desire to be the first to display a new mode
has been so exploited that seasons are rushed to a very marked extent. S[iring apparel, fcr example, is
regularly purchased in January, February, or March, rather than in Ajjrilor May. As a result, cold weather
in January, instead of stimulating the sale of winter apparel, may actually act as a deterrent to the production
of spring linos.
There may be some industries which do not now reflect any di.stinct pattern of seasonal price variation and
in which such variation might conceivably tend to .stimulate sales during otherwise dull periods, thus per-
mitting the more efhcient use of productive machinery. For example, it is conceivable— though far from
certain — that seasonal variations in the demand for, say, electric refrigerators might be reduced if prices were
slightly lowered during the winter and correspondingly raised during tlie spring.
io Of course, the mere fact th.>it the price movements of a given commodity adequately reflect secular in-
fluences Is only one criterion. Responsiveness to change is no guarantee that the level may not, at all timee
be out of line.
i
CONCENTRATION OF ECONOMIC POWER 23
recovery and boom, such as the years of the last war or the period
1922-29.
Striking differences are apparent in the behavior of, prices of dif-
ferent commodities during these periods. For example, chart I depicts
three distinct kinds of price behavior. The price of sulphur, it will
be seen, proved to be entirely inflexible. It changed not at all from
the year 1926 to the year 1938. In contrast, the price of wheat is
typical of the behavior of most highly flexible prices. It declined
sharply from 1929 to 1932-33, recovered rapidly until the spring of
1937 and then again declined sharply. Intermediate between these
extremes is the price of brick, which may be classed as semisensitive.
It responded to the general broad upswings and downsvyings of business
but its response was far more limited than that of the pries of wheat.
A few examples of the behavior of specific prices may illustrate the
relationship between these four kinds of influences which affect prices,
and indicate that price "flexibility," as such, can have no meaning
unless its specific nature is considered.
Chart II shows monthly variations in the price of eggs in New York
since 1926. Marked swings from month to month reveal sensitivity
to immediate or casual market factors. A distinct seasonal pattern
is also apparent, with lows in the spring and summer, and highs in the
late fall and winter. Responsiveness to cyclical influences is re-
flected by a marked decline in price from 1929 to 1932-33 and again
from 1936 to 1937. Finally, there seems to be a broad downtrend
during the entire period ; the recovery highs were distinctly lower than
the corresponding predepression figures.
The price of cotton goods (chart II) exhibits a different pattern,
though it, too, is usually classed as very flexible. It is highly respon-
sive to cyclical forces and there is some evidence of a persistent long-
term downtrend. On the other hand, casual variations are minor and
there is no apparent seasonal movement.
Rayon (chart II) experienced a major secular doAvntrend between
1926 and 1932; during the latter part of this period the influence of
the genei'al cyclical recession may have been superimposed to aggra-
vate the decline. Secular influences probably persisted to limit the
extent of recovery between 1932 and 1937. A fairly sharp decline (22
percent) between 1937 and 1938 may well have been largely cyclical
in nature concurrent with the general downswing of that period.
In some cases there may be marked secular movement with little
if any sensitivity to the general level of business activity. Electric
refrigerators, phosphate rock and potash salts (chart III) illustrate
this situation. Yet these prices differ among themselves in other
important aspects. Refrigerators had a sustained downtrend in price
extending over many years, reflecting improved technology and
widening markets. In contrast, price reductions for phosphate rock
and potash salts were apparently averted for a long period, until at
last the accumulated force of improved methods and lower costs was
reflected in each case in abrupt price cuts of over 40 percent.^^ None
of these three commodities shows much casual variability, while potash
salts displays a distinct and consistent seasonal pattern.
" For a discns5lou of te^-hnological changes In tlie production of phosphate rock, see rhojspbato Rock
Mining, 1880-1937, Works Progress Administration, National Research Project, and Department of tha
Interior, Bureau of Mines. In the case of potash salt^ne*- scurccs of supply were an important factor.
247149— 41— No. 1-
24
CONCENTRATION OF ECONOMIC POWER
CONCENTRATION OP ECONOMIC POWER
Chabt II
25
INDEX
160
140
120
100
80
60
40
20
140
120
100
80
60
40
20
0
140
120
WHOLESALE PRICES
OF SELECTED COMMODITIES
1926=100
EGGS, FIRSTS, NEW YORK
COTTON GOODS
RAYON
100 1-
80
60
40
20
^
1
1
A
i
1/1
i
%
^^
Wi
^^ *tr i
! 1
1
1
^
"\_
^
^-V^-U/v -V
1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
INDEX
160
140
120
100
80
60
40
20
140
120
100
80
60
40
20
0
140
120
100
80
60
40
20
0
UNireO STATES BUREAU OP LASOP STATISTICS
26
CONCENTRATION OF ECONOMIC POWER
</>
(0
Li.1
b
<
h-
(/)
O
X
(A)
o
^
:e
O
0.
o
o
-
•v.
-
f
-
C,
-
-
V
O 1
9 '
:s
I-
-s c;
S5 r
>
"Si "J
N.
- Ij
^
'
I
ii.
-
-
-
-
)
-
o
J
r
r /
-
-
^
-
o
LU
O
LU
-J
LJ
CO
CO
LU
O
Q::
Gl
LU
-J
<
CO
LU
wOOOOOOOO
-
,. .... J
1 .
i
-
c
^
-
-
s
-
A
.
o
-
i ^
8 O
s <
I a:
-
c
-
o
1
LJ
I
-o
o
'i
3
-
-o
o
(
>
-
T
-2
_
= X
.<J>
J—'
.
Q.
s t-
v^
(0
-
-
" ^
-
f
-
O
s <
i
^
X
•
-
-
2
i
-
f
-
o o
CONCENTRATION OF ECONOMIC POWER 27
The price of anthracite coal (chart III) has remained within a
much narrower range during the period between the summer of 1926
and the present time than any of the other prices shown. However,
it shows many month-to-month clianges and a distinct seasonal swing.
Over the entire period, secular influences are revealed in a steady
downtrend. Yet the depression as such seems to have had but little
influence; the failure of prices to recover since 1933 makes it probable
that the 1929-33 decline was part of a long-term readjustment rather
than a specific response to the contraction of general business activity
during that period.
Finally, the prices of some commodities are subject to such powerful
specific forces that the influence of broader economic trends is com-
pletely overshadowed. This is illustrated by the price of potatoes
(chart III). Between 1930 and 1933, potato prices roughly paralleled
the behavior of other highly sensitive prices, although the downswing
was somewhat delayed and the upswing extremely rapid. However,
this parallelism may have been largely fortuitous; the chart shows at
least three other price swings of approximately equal intensity which
bear little or no relation to the trend of the general price level or to the
rate of business activity.
These few illustrations indicate the need of relating the problem
to a specific market setting. The economic significance of differences
in sensitivity cannot be appraised until the question "sensitivity to
what?" has been answered. Accordingly, it should be emphasized
that the following discussion is concerned chiefly with the "cyclical"
aspects of price behavior, or with the responsiveness of prices to
broad changes in the rate of business activity.
THE MEASUREMENT OF PRICE FLEXIBILITY
The distinction between measures of behavior and oj responsiveness. —
Up to this point it has been possible to treat the problem alternatively
as relating either to the external characteristics of price behavior, or
else to the responsiveness of prices to market forces. Howevej', when
the possibilities of measuring flexibility are examined, it becomes
necessary to distinguish between the two courses.
(1) The behavior of the price of any commodity can be considered
in relation to the specific economic forces affectmg its market.
(2) The movement of the price may be examined on a purely be-
havioristic level, independently of the specific forces aft'ecting its
market, but in relation to the pattern of behavior for other prices.
Of these two approaches the former is in many ways the more mean-
ingful. The behavior of any price cannot be fully appraised except
in the light of a detailed analysis of the factors affecting the market
for that commodity. Although it is true that during major upswings
or downswings of business the prices of almost all commodities are
subject to forces acting in the same direction, the intensity of such
forces varies very materially for different kinds of product. In some
cases the specific forces may even overshadow the more general, caus-
ing anomalies of price behavior which cannot be explained by the
examination of prices alone. Judgment as to what constitutes eco-
nomically desirable behavior for the price of any commodity must,
28 CONCENTRATION OF ECONOMIC POWER
therefore, be conditioned by the forces affecting its particular market,
and cannot depend exclusively upon comparison with the course of
other prices.
There is another important reason for measuring flexibility as a
function of the factors affecting each individual market. Responsive-
ness to changing conditions often takes the form of modifications in
the character of the product rather than in its price as such. A pro-
gressive improvement in quality is in some ways equivalent to a
reduction in price. For example, there has been a marked improve-
ment in the operating efficiency of mechanical refrigerators over a
period of years. This is, in turn, reflected in a material decrease in
current consumption per unit of refrigeration. If the consumer is
interested in purchasing not a refrigerator per se but rather a certain
amount of refrigeration, this improvement in efficiency cannot be-
ignored. In other cases quality betterment or quality degradation
may not be as readily translatable into price terms, but these changes
are nevertheless significant. Consequently it is only part of the
story to say that a price is "rigid" merely because it shows little change
in level, without first examining modifications in the product itself.'^'^
.However, there are very serious practical difficulties in the way of
developing the sort of relational measures of flexibility which are
implied above. An analysis of the relevant market factors, product
by product, for all the items included in the Bureau of Labor Statistics
wholesale index, for example, or even for a properly representative
selection of such items, is a herculean undertaking. Such studies
would have to go far beyond the scope usually assigned to investiga-
tions of sensitivity. Thus chapter IV of this report contains an
extended analysis of the markets for electrical household equipment;
yet much more data would be needed as a basis for appraising the price
responsiveness of the products considered. Moreover, it is not at all
certain that statistical techniques could be devised to express such
analyses in uniform quantitative terms which would permit a com-
parison of the results for different kinds of products.
For the time being, therefore, and because most of the discussion of
the subject has followed similar lines, the alternative procedure has
been adopted in this chapter; that of measuring price flexibility by
examining the behavior of prices without reference to the specific
market forces at work, but in relation to the behavior of other com-
modity prices. The significance of such measures is twofold. Similar-
ities or disparities in price behavior have important economic signifi-
cance and consequences in their own right. For example, they exert
a marked effect upon the exchange relationships between different
groups of producers. Thus diversities in trend between the prices of
farm products and manufactured goods directly influence the effective
purchasing power of fanners. Such effects may be inferred from an
examination of how prices act without reference to why they so act.
Secondly, during broad upswings and down^swings of business the
prices of most commodities are subject to powerful forces acting in
the same direction ; for example, almost all markets experience a cur-
tailment of demand during recession and an expansion of demand
during recovery. To the extent to which there is such similarity
" The relationship between price and quality changes Is discussed at more length In ch. Ill of this report—
Nonprlce Competition.
CONCENTRATION OF ECONOMIC POWER 29
between the forces acting upon the prices of different commodities,
price behavior as such may be considered a guide to price responsive-
ness.
Almost all of the efforts which have been made thus far to prepare
statistical analyses of price flexibility have been content with this
sort of external approach. Measures have been applied to each price
series without relation to the specific market factors affecting its
behavior. Thus the frequency with which different prices changed
and the relative extent of their declines during the depression of
1929-33 have been compared directly without any correction for differ-
ences in basic market characteristics. Because of the importance
attached to them in current analysis the different forms of such
measures are examined in detail below. The lunitations just discussed
apply to all of them and must be constantly borne in mind in their
interpretation.
The specific measures utilized. — There are three general criteria of
flexibility which have been applied to prices. ^^ These are —
(1) The frequency of price movement.
(2) The amplitude of price movement.
(3) The timing of price movement.
All of these have been utilized at various times in previous studies
of price behavior. Before describing these, and other measures
which have been developed in the course of the present study, it is
pertinent to examine the economic significance of each.
The frequency with which any particular price changes (e. g., the
number of monthly quotations which show changes from the imme-
diately preceding monthly quotations during a given period — see
criteria A and B, appendix I) — has restricted usefulness as a measure of
flexibility. Assuming the accuracy of the data, it may serve as some
index of the responsiveness of the price to casual, very short-term
forces. 2^ To an extent it will also reflect seasonal variations. How-
ever, the very fact that this measure reflects both casual and seasonal
variations limits its value as a measure of either separately. Fre-
quency of change is obviously unsuited to measure seasonal flexibility
because of the extent to which it is influenced by casual movements.
Conversely, regular seasonal fluctuations in the price of such commodi-
ties as anthracite coal or potash salts result in a fairly high frequency
of change in their monthly price quotations; yet their sensitivity to
casual market factors is but slight. Conceivably, the use of seasonally
adjusted indexes might compensate for the latter defect.
" The principal statistical measures of price flexibility which have been devised are presented below under
the names of their formulators:
Frederick C. Aii7/4.— Frequency of Change; Amplitude of Movement; Measure of Price Dispersion; Meas-
ure of Displacement; Timing of Cyclical Phases.
Oardiner C. A/eans.— Frequency of Change; Amplitude of Change (Percent change 1929 to 1932); Devia-
tion Measured from Trends (Average 1929-37) to 1932.
Oerhard Tintner— Frequency of Monthly Price Changes; Amplitude of Change; Respo:ise to the Average
Cyclical Movements.
Edtcard S. Mason.— Average Amplitude of Price Change (by 8-ycar periods).
Don I himphre!/.— Frequency of Price Change; Amplitude of Change.
'« Limitations related to the time intervals for which data have been tabulated m.ust not be ignored. Thus,
if frequency is based upon a comparison of successive monthly prices, it will be difliicult or impossible to
distinguish between those prices which change from minute to minute, such as wheat or cotton, and those
whose level usually remains stable for days or perhaps weeks, such as print cloth. Yet these two are in many
ways dififerent kinds of markets.
30 CONCENTRATION OF ECONOMIC POWER
Frequency of change,^' then, measures directly only sensitivity to
short-term influences; not to cyclical or secular forces. It is of value
in analyses of the latter only to the extent to which correlations be-
tween these different aspects of sensitivity may be found to exist.
The measurement of cyclical flexibilitv may be approached directly
by examining the extent to which particular prices changed during
periods of general business upheaval. The percentage by which
prices declined from 1929 to 1932-33, the percentage of recovery
from 1932-33 to 1937, or perhaps a combination of both these move-
ments would fall into this class, (See measures C to I in appendix
I.) Here again there are certain complicating factors other than
those inherent in the character of the data. One of these is the fact
that secular trends may be operating during the particular period
investigated with the result that cyclical movements are exaggerated
or perhaps obscured. Thus, to attribute the sharp decline in the
prices of electric refrigerators or rayon during the depression purely
to the influence of the drop in general business activity would ignore
the influence of powerful technological forces and widening markets
to which the behavior of these prices seems largely attributable.
Nor can the effect of seasonal forces be neglected. For example, in
the case of eggs the difference between the 1929 high and the 1933
low is attributable in good part to normal seasonal variation ; cyclical
factors account for only a part of the movement. Moreover, other
specific market forces are often present; the influence of a drought,
a bumper crop, or a war scare might affect any computation designed
to determine the sensitivity of agricultural products.
Probably seasonal variation could be allowed for,^® but it is difficult
to devise techniques to compensate for secular or short-term forces of
the kind described.
The timing of price movements, e. g., the month during which a
sustained uptrend or downtrend began, is adapted to measuring
certain aspects of cyclical flexibility (see measures J to L, appendix
I). However, the apparent speed of responsemay agam be obscured
by noncyclical factors; secular, seasonal, or even casual."
The reliability of all of these measures of flexibility is of course
conditioned by the accuracy of the data upon which they are based.
The Bureau of Labor Statistics indexes of wholesale prices have been
very generally utilized in computations of this kind. Limitations on
their validity for this purpose have been recognized by the Bureau
and have also been analyzed by the National Resources Committee ^*
in connection with its inquiries into prices. It has been pointed out
that price changes are not always fully or promptly reported. The
" In all this it is assumed that frequency of change is measured for reasonably short time intervals— e. g.,
not exceeding monthly. Obviously frequency computed for, say, yearly intervals would have a quite
different meaning.
'• This might be done by comparing annual average prices only, or by basing the measure upon the same
month of each year, or by introducing a seasonal correction into the price index. Two such measures have
been developed inr"the course of the present study and are presented in appendix I (measures H and I).
" It is also fiossible to devise measures which combine two or more of the above criteria. For example
If all the changes in price experienced by a commodity during a given interval be added together (regardless
of whether any specific movement be up or down) the result is a measure of aggregate mov^ent which
Includes elements of both frequency and anii)litude (measure N, appendix I). Another possibility is the
computation of the average amount by which a price changes, when it does change (measure M, appendix
I). Such measures as these seem most closely related to responsiveness to casual, or seasonal forces. They
are, however, also subject to the same general kind of objection that it is difficult to distinguish between
diverse overlapping movements.
" The Structure of the American Economy, pt. I, National Resources Committee, June 1939, appendix I,
pp. 173-185.
CONCENTRATION OF ECONOMIC POWER 31
frequency of price change for many commodities is materially greater
than would be inferred from an examination of successive nominal
monthly quotations. Measures of amplitude are subject to the
difficulty that price reductions during depressions often take the form
of secret rebates or indirect concessions, rather than of outright cuts
in quoted prices.
It seems apparent, therefore, that measures of flexibility based upon
comparisons of price quotations must not be regarded as mathemat-
ically accurate. The overlapping influences to which prices are sub-
ject and the difficulties in the way of obtaining accurate price quota-
tions constitute serious obstacles to their reliability. Nevertheless,
some of the statistical relationships observed in an analysis of these
measures are so marked and so consistent that they cannot be con-
sidered purely fortuitous.
MEASURES OF FLEXIBIIJTY COMPARED
Currently, a great deal of attention has been devoted to the fre-
quency of price change as a correlative of cyclical flexibility.^^ As
pointed out earlier, frequency of price change is not of itself a direct
measure of responsiveness to cyclical influences. However, there
seems ample evidence that those prices which change most frequently
also tend to decline farthest during a depression, and that those which
change least often, usually remain most stable.
Much of the work in this field has been done by Gardiner C. Means.
In a report prepared for the Secretary of Agriculture and published as
a Senate Document,^ he examined 750 of the Bureau of Labor Statis-
tics indexes of wholesale prices; These items were divided into 10
groups depending upon the frequency with which monthly price
quotations changed. Average monthly prices for each of these groups
were computed and a fairly consistent relationship demonsirated
between frequency of price change and the extent of decline during
the 1929-33 recession.
Subsequently, the analysis was refined and carried further. The
National Resources Committee study of The Structm-e of the American
Economy ^^ depicts the average price trend for five frequency groups
for the period from 1913 to the- present. The correlation between
frequency of change and amplitude of cyclical movement holds for
the upswing from 1933 to 1937 and for the 1937-38 downswing, as
weU as for the initial depression break. It is also apparent, though
to a lesser degree, for price movements during the* war boom of 1915
to 1919 and the subsequent primary deflation of 1919 to 1921.
In the course of the present study exploratory work was also done
in the direction of developing alternative measures of flexibility.
Various criteria were employed; some relating primarily to shorter
term factors and others designed to reflect the impact of cyclical forces.
They included frequency of change, aggregate movement and average
amomit of price change during a period of relatively high business
" An exhaustive statistical study of the relationship of price movements to the business cycle, which in-
cludes data on price movements for the United States, England, Germany, Holland, Austria, and Russia,
is fo he found In the Austrian publication, Prices in the Trade Cycle, 1935, by Gerhard Tintner, translated
and obtainable from G. E. Stechert & Co., New York 3ity.
*" S. Doc. No. 13, 74th Cong., 1st sess., Industrial Prices and Their Relative Inflexibility, January 17, 1935.
»i Op. cit., p. 140.
32 CONCENTRATION OF ECONOMIC POWER
activity (1926-29); several measures of amplitude of swing between
1929-33-37; and timing of price change at three critical turning points.
These are described in detail subsequently. Comparison of the results
derived shows again that all of these measures are distinctly related
(see appendix I). In some cases the correlation is higher than in
others, but the evidence seems sufficient to demonstrate the point.
It may be assumed, therefore, that there are certain underlying influ-
ences whose' effect upon the responsiveness of prices to different kinds
of forces shows a degree of consistency regardless of the measures
applied.
A particularly striking relationship is observed between frequency
of price change and amplitude of cyclical movement. (The Pearsonian
coefficient of correlation between these two measures for 615 price
series is+.77.)^^ It may be inferred, consequently, that sensitivity
to cyclical forces is distinctly related to sensitivity to shorter term,
casual influences.^^ This conclusion holds despite the fact that none
of the measures used can be trusted to portray the effects of either of
these factors exclusively.
FACTORS AFFECTING I RICE BEHAVIOR
The explanation most frequently advanced for this relationship
between frequency and amphtude of price movement draws upon the
distinction between "market" and "policy influenced" prices made
earlier in this chapter.^* It has been pointed out that the behavior of
prices is importantly influenced by the role which policy decisions
play in their determination. Gardiner Means showed that if all
wholesale price series are grouped in accordance with frequency of
price change, a marked U -shape distribution results; that is, on the
basis of this measure they are either highly flexible or quite inflexible.
The great bulk of the series changed either less than 24 times or more
than 80 times during the 96-month period upon which the comparison
was based. In other words, the price quotations of most commodities
change either once or more almost every month or else not oftener
than three times per year.
This tendency of prices to vary either very often or rarely is strik-
ing, even after all due allowance has been made for the inherent in-
accuracies of the data. Two essentially different kinds of price
behavior seem involved. It may be reasonably inferred that most
prices whose quotations change at short intervals are of the "market
dominated" variety and that those whose frequency of change is at
the other extreme are, to some extent, affected by price policy decisions
of individual firms or groups of firms.
In other words, there is a strong presumption that a price which
changes infrequently is a "policy influenced" price. If the rigidity
is extreme, the presence of monopoly or of monopolistic practices may
be suspected. However, there is no necessary relation between price
rigidity and monopoly, if "monopoly" is used to denote collusive or
coercive devices for restraining competition, or the complete domina-
M See appendix I, p. 170. The criterion of frequency is the one developed by the National Rgsources Com-
mittee; that for depression sensitivity was developed by the present study. The former relates to the
number of monthly changes between 1926 and 1933; the latter to amplitude of movement between 1929-33-37.
" This assumes a degree of similarity between the cyclical forces acting upon diHeront products.. During
a movement so broad as that between 1929 ani 1937, however, such an assumption seems warranted.
• »* See pp. 13-15.
CONCENTRATION OF ECONOMIC POWER 33
tion of a market by a single concern. While there is a distinct ten-
dency for prices subject to such monopolistic controls to change infre-
quently, it by no means follows that prices which change infrequently
are necessarily monopoHstic. Moreover, elements of monopolistic
<;ontrol (still used in the sense above specified) may be present even
though the pattern of price behavior is of the kind usually associated
with market domination.
It may clarify the issue to allude briefly again to the Influence of
product standardization upon price behavior.^^ Some commodities —
e. g., electrolytic copper, pig iron of a defined composition, 66° sulfuric
acid — are of such character that the buyer has little or no reason for
preferring the product of one seller to that of another; the same observ-
ation applies to commodities purchased on specifications. Under
such circumstances, appreciable price differences between rival sellers
in the same market cannot long exist. This applies with particular
force to nominal or published price quotations. Secret rebates or
concessions may be overlooked; but any open price cut made by one
seller is almost inevitably met by his competitors ia short order.
In cormnodities of this kind, if price quotations remain stable for
extended periods, it may be reasonably assumed that all competing
producers are avoiding price changes, at least nomiually. This com-
monly reflects the existence of some kind of modus Vivendi in the
industry, whether it be based upon the domination of a single concern
or upon coercion, collusion, or price leadership.
In the case of differentiated products, where the merchandise
offered by competing sellers is not readily interchangeable, buyers are
accustomed to distinguish between the commodities offered by rival
sellers. Whether buyer preference be based upon intrinsic physical
differences or merely upon intangible factors such as brand prestige is
not material to the discussion. The important point is that factors
other than price are involved in the buyers' selection. Under such
•circumstances, each seller is to some extent relieved from the necessity
of meeting immediately eveiy change in the prices quoted by his rivals.
The precise degree of this immunity necessarily varies with a large
number of factors, such as the nature of the commodity, the relative
€ase or difficulty which buyers face in making objective comparisons
.between competing items, the extent to which an advertising cam-
paign has been successful in persuading the public of the unique
qualities of specific brands, and so on. Moreover, the immunity is
never more than partial. If price differences between similar items
become excessive, buyers will ultimately tend to shift their patronage.**
Nevertheless, it is apparent that each seller may, for months or longer,
ignore changes in his competitors' prices. Consequently, infrequent-
price changes for products of this kind do not necessarily carry the
same implications as those suggested for standard commodities. A
modus Vivendi may oxist, but the apparent price behavior is quite
compatible with its absence.
Frequency of price change, th(3n, is not only a direct measure of
sensitivity to casual market influences, but also a symptom of the
relative influence of immediate market conditions and of price policy
'• Although this point has already been considered (See oh. I, pp. 6-8), it is reviewed here for clarity.
" Yet in some fields, the tolerance is very great. Thus widely advertised drug products frequently sell
for three to five times as much as their unadvertised equivalents and sometimes the differential is even
wider. See for example pp. 80-81 and also pp. 308-379, bolow.
34 CONCENTRATION OF ECONOMIC I'OWEU
decisions upon the manner of price determination. This may throw
some light upon the correlation previously referred to between fre-
quency of change and cyclical price sensitivity. In very general terms
it may be assumed that prices with high frequencies of change, whose
movements closely follow the shifting moods of the market, declined
furthest during the depression and rose most during recovery. Prices
whose infrequent changes reflect some degree of latitude in price
policy formulation, declined on the whole less sharply and rose less
abruptly.
However, this generalization is subject to numerous exceptions.
If the Bureau of Labor Statistics wholesale price series be ranged in
order of percentage of decline during the depression, the result is a
continuous distribution. This contrasts with the sharp discontinuity
of distribution observed in the frequency analysis. It is clear that
there are not two distinct classes of price responsiveness to cyclical
influences, but rather an insensible gradation. Specific conditions
may even cause flexible prices to move against the general trend.
Thus, hops ^^ whose price may be classed as "market determined,"
showed material price increases between 1929 and 1933, while the
price of potatoes — also a "market" price — showed only a slight
decrease. In contrast, many prices normally classed as "policy
influenced," e. g., petroleum and carbon black, showed very sharp
declines during the same period.
The tendency of the "administered" groups of prices to decline loss
sharply during the depression than the "market-dominated" prices, to
the extent to which it holds, is due to a wide variety of factors.
These have been the subject of much attention during recent years and
are far too numerous and complex to discuss here in detail. They are
summarized below.
(1) To some extent "market" prices on the one hand, and "adminis-
tered ' prices on the other, relate to dift'erent kinds of commodities.
The former are typical of raw materials and particularly of agricultural
raw materials, while the latter are more commonly associated with
manufactured products. It has long been observed that the price of
raw materials tends to fluctuate somewhat more widely than is true of
manufactured products. Many explanations have been suggested;
some emphasizing dift'erences in cost structures, while others contrast
the large number of farmers selling any specified product with the
more concentrated industrial markets.
Thus, it is frequently contended that the prices of manufactured
goods are relatively rigid because their costs of production contain
a larger proportion of inflexible cost elements (e. g., labor, interest,
depreciation) than is true of agricultural products. Moreover, for
the small-scale farmer the cost of labor may represent to a considerable
extent the cost of his own and his family's efforts rather than actual
money expenditure. However, this explanation does not appear
adequate. The farmer is by no means free of inflexible cost elements;
mortgage payments and taxes are obvious examples. It seem^ much
more significant that the manufacturer is freer to express his costs in
a price policy, whereas the farmer within a given season can do nothing
but harvest his crops, if they will yield anything beyond the cost of
«' The very sharp Increase in the price of hops during 1933 probably reflected the legalization of beer, but
even the 1932 level was higher than that prevailing In 1929.
CONCENTRATION OF ECONOMIC POWER 35
harvesting. It may well be, therefore, that too much stress has been
laid upon the nature of manufacturing costs as an explanation of the
relative inflexibility of the prices of manufactured goods. For any
particular commodity at any given time, the relationship between
costs and prices is far less precise and immediate than such reasoning
would imply. In the first place, it is rarely possible to determine
with accuracy exactly what the cost of producing a given article is.
In most industries there is a large proportion of indirect or overhead
costs, whose computation and allocation to specific products involves
a large number of assumptions. An outstanding problem arises from
the fact that costs vary shar])ly with sales volume. Consequently,
any calculation of costs must start with an estimate of what sales
will be and it is obvious that any estimate of future sales may vary
widely from reality. If sales are larger than expected, the calculated
cost may materially exceed the actual; if sales fall short of the esti-
mate, the calculated cost w411 be too low. Moreover the price charged
will itself affect costs, since a lower price may stimulate sales and
thereby result in cost economies. In short, cost accounting is not an
exact science and cost estimates are only one of the elements which
a concern must consider in framing its pricing policy.'^ Rigid prices
cannot be explained simply by referring to "rigid" cost structures.
(2) Those sellers or groups of sellers who have a degree of freedom
in determining price policies are necessarily guided largely by con-
siderations of individual advantage. Their primaiy concern as
businessmen is with their own profit prospects; they cannot bo ex-
pected to weigh the effect of each of their actions upon the general
economy. Then, too, dictates of immediate expediency often out-
weigh longer term considerations, particularly during periods of acute
stress. Stable prices have many apparent advantages; not only to
sellers but often to-industrial buyers as well. Planning is facilitated.
The mechanical cost of announcing a price change for products having
a wide distribution is often a serious deterrent.^'' Moreover, there is a
fear that prices, once reduced, are difTicult to raise again when con-
ditions alter; buyers may protest less against a stable price than against
a ten percent increase, following a ten percent cut.
(3) In general, the individual seller can expect to benefit from a
price cut only if the volume of his sales is thereby increased by an
amount sufficient to augment his net profits or reduce his loss. This
postulates a very considerable increase in consumption as price
declines — e. g., a high degree of elasticity of demand. There are
many industries in which consumption docs not increase materially
when price declines — i. e., demand is notably inelastic.*" This is
>'Tho difRculty of dctormining iiricc on the basis of cost computations was amply deraonsfrated under
N. R. A. Many codes contained provisions prohibiting sales below cost but the complexities Involved In
measuring costs precisely made it necessary to resort tn highly arbitrary definitions of cost elements In order
to render enforcement practicable. Where such arbitrary definitions were rejected by N. R. A. officials,
the code provisions became virtually meaningless.
'• J. K. Oalbraith quotes an observation made by Means to the effect that the expensc<nvolvcd in making
a price change under modern conditions is an incentive to holding price constant. "A concern with Nation-
wide sales outlets must make certain that dealers are informed of the change; it must distribute new price
schedules and provide safeguards against 'leaks' as well as risk a temporary cessation of business in case
there is such a 'Icnk.' It must also recast its advertising to acquaint the public with the change. All of
the.'e things cost money and all of this expenditure Is avoided if prices arc allowed to stay where they are."
(J. K. Oalbraith, loc. cit.. p. 470.)
<" The drmnnd curve for in'Iivdual concerns may, of course, bo quite elastic in the sense that material
shifts in patronage can be Induced by cutting prices below the level quoted by competitors. Flowevcr,
there is a tendency among businessmen to consider such advantages purely ephemeral, because of the
probability liiat such reductions will almost immediately be met or bettered, with no significant increase in
volume for the industry as a whole. Consequently, for some purposes, elasticity as related to Iha total
market for a product is more significaui than elasticity for the Individual concern.
36 CONCENTRATION OF ECONOMIC POWER
true particularly of those industries whose product is merely a minor
component part of a finished article manufactured by others, of whose
total cost they comprise but a small part. Thus the consumption of
cement depends upon the rate of construction activity, the demand
for spark plugs is dependent upon the sale or use of automobiles, and
so on. Consequently an isolated change in the price of such com-
modities cannot be expected to exercise any appreciable influence
upon their demand. Sometimes price reductions may even cause
buyers to postpone purchases in the hope of further reductions and
reduce the volume of activity until price stability is achieved. It may
be true, however, that businessmen as a group tend to underestimate
the degree of elasticity characterizing their respective markets. In
any event when purchasing power is curtailed during a depression,
businessmen are likely to favor maintaining price as the technique
best adapted to minimize losses. The reduction of prices in an effort
to increase volume often seems to them as, at best, an uncertain
adventure at a time when undue hazards should be avoided.^^
(4) The propaganda conducted by trade associations and others to
convince businessmen of the undesirability of cutting prices has
undoubtedly affected business psychology. ^^ Price cuts are often
shunned as unethical even when material advantages can be antici-
pated from a lower price level. ''^ (This does not relate only to the
ephemeral advantages which a firm might obtain by cutting prices
before its competitors, but also to those which might be retained after
competitors had adjusted their prices to the new level.) Such price
cutting as does take place usually takes the form of more or less secret
«i T.J. Krcps suggests three reasons explaining why "rigid prices are the easiest prices." (1) "By changing
and especially permitting prices to be lowered, producers increase the risi< that someone will try to 'get the
jump' on the! rest and attract; customers by lowering or not raising prices with ensuing damages to the
profits of all far greater than the temporary losses caused by restricted sales at maintained prices." (2) "If
the number of sales outlets is large, the complexities of introducing price changes and of getting them ac-
cepted by the buying publiC; in addition to the distribution of new price schedules, will cost money and
bother so easily saved by 'letting good enough alone.' " (3) "Sound business policy demands that producers,
especially in periods of slack demand, minimize their risks and conserve their working capital. Acceptance
of low sales volume is not only easier but may mean smaller inventory losses due to fluctuating prices."
(Economic Problems in a Changing World, a symposium, Farrar & Rhinehart, 1939, pp. 281-282.)
«» Notice of this propaganda and dissent to it was recorded in a recent issue of the business journal. Ad-
vertising and Soiling. ,
"During the past few months a number of business papers and trade associations , have conducted a cam-
paign against manufacturers and middlemen who practice price cutting.
"It must be admitted, from the immediate point of view, that this campaign may prove profitable. It
may slow down price declines and thus allow sellers an oppnrtpnity for gradual litjuidation of their stocks
at higher prices. Any such campaign, however, is definitely to be condemned from the social point of
view and even from a long-run view point of manufacturers and middlemen.
"In view of increasing unemployment and wage cuts, the maintenance of prices at the present time must
mean a further decrease iti the consumption of goods This in turn w ill lead to a further contraction in
employment— this to a still greater fall in consumption— more unemployment— and so on.
"The present pleading to maintain prices is a clear cut expression of the policy of industry to adjust Itself
to decrease in demand by cutting production rather than by reducing prices. Such a policy leads to a
longer period of economic maladjustment — and hence creates a longer period in which the ba<:inessman may
lose money. If persisted in, it may lead to as complete a break-down as in 1932.
"It needs to be emphasized that it is the price cutter who is paving the way te recovery. He is putting
merchandise on sale at prices the public is willing and able to pay. This not only encourages more con-
sumption but an immediately higher standard of living. It also results in reduced inventories in the
hands of retailers — which, in turn, depletes inventorie;; in the hands of wholesalers and manufacturers • • •
"For a real recovery, purchasing power must arise out of production rather than out of Oovernment
speeding. 'The price policies adopted by manufacturers, wholesalers, and ret.iilers over the next few months
will have much to do with how far the Oovernment will be forced to go with its spending program to stimu-
late buying. Businessmen profess to fear Government spending. If they want to stop it, let them adopt
adequate price policies. At the present time business leaders might clear the stage for such policies by
checking indiscriminate condemnation of the price cutter. Th<'y might even find it to their long-run
advantage to adopt price catting themselves." (Advertising and Selling, June 1938.)
" This attitude relates primarily to price cutting for the purpose of obtaining some immediate competi-
tive advantage, and not to price reductions reflecting cost economies due to such factors as changes in tech-
nology. The latter variety of price reductions are generally considered perfectly ethical.
CONCENTRATION OF ECONOMIC POWER 37
concessions. When price competition cannot be avoided, this form
seems to be considered more desirable than one in which the nominal
quotations are affected. It probably has somewhat the same advan-
tages which the undeclared war has in international politics. It is
simpler to restore normal conditions when the fray has subsided; the
subsequent elimination of miofficial concessions is likely to meet less
buyer resistance than an increase in the nominal quotation.**
PRICES AND PRODUCTION
For such reasons as those just discussed, price reductions during
periods of depressed business activity are likely to be materially smaller
in those industries in. which individual sellers are able to exert some
voice hi vletermining the course of prices, than in those in which imme-
diate market influences are the dominant factor.
In appraising the consequences of this behavior, there is probably
no single phase which has been the subject of more discussion and
controversy than its effect upon production during periods of economic
recession. Basically, the issue is drawn in these terms. When for any
reason purchasing power is severely curtailed, the market must make
some adjustment to the reduced amount of dollars available for expen-
diture. This adjustment will take the form partly of reductions in
price and partly of contraction in sales. These two adjustments may
be considered complementary. If the amount available for expendi-
ture at any time be considered constant, then /or the economy as a whole
it follows that a smaller adjustment in price will require a greater
adjustment in output.
As a very broad generalization, subject to allowance for such factors
as changes in the amount of hoarding, this is undoubtedly true. In
discussions of price flexibility, however, the issue is usually formulated
in much more specific terms. It is argued that rigidities in certain
areas of the economy cause the burden of adjustment in those areas
to fall heavily upon production; that is, that the output of such com-
modities, and employment opportunities in their production, are cur-
tailed much more sharply than would be true if their prices were mo^e
flexible.*^ However, this point of view has been vigorously challenged.
It has been contended that price-production relationships are not as
simple as this, and that during a severe depression the consumption
" This has recently happened, for example, in the steel industry. During the spring and summer of
1939 concessions estimated to average $6 per ton had been widely granted; after the outbreak of war inEurope
these concessions were withdrawn, resulting in an important increase in actual prices paid for steel. Yet
the companies in the industry were able to announce that price quotations were unchanged and thereby
to escape much resistance and criticism.
" Thus, according to Gardiner 0. Means, "One can make the broad generalization, having of course many
exceptions, that for industries in which prices dropped most during the depression production tended to
drop least, while for those in which prices were maintained the drop in production was usually greatest.
Indeed, the whole depression might be described as a general dropping of prices at the flexible end of tho
price scale and a dropping of production at the rigid end with intermediate effects between • • *.
"The adjustment of production instead of price in the inflexible areas aggravates the initial price adjust-
ment in the flexible industries by reducing purchasing power and throws the burden of further price adjust-
ment on the flexibly priced commodities. This situation can be clearly seen in the effect of the depression
upon agricultural prices and the destruction of the price relationship between agricultural and industrial
goods. It is also seen in the fact that during the depression tho total income of all farmers and the total in-
come of all industrial workers dropped in approximately the Fame pro[iortion, but the drop in farm income
reflected a drop in pricrs while the drop of workers' income reflected primarily loss of employment." Indus-
trial Prices and Their Relative Flexibility, op. cit., pp. 9 and 25.)
38
CONCENTRATION OF ECONOMIC POWER
of many commodities would be stimulated little, if at all, by further
price reductions.*®
When the relationship between prices and production declines dur-
ing recession is examined commodity by commodity, no strikingly
consistent trend is revealed. Chart IV illustrates this relationship
for 111 commodities*^ for the 1929-33 downturn. The percentage
change in average annual price for each of these products is plotted
against percentage decline in production, adjusted for imports and
exports. The three sections of the chart distinguish between products
on the basis of durability, showing three categories of goods — durable,
semidurable, and nondurable.
An examination of this chart reveals the following relationships:
(1) Considering all the commodities together, there is some tend-
ency for small declines in price to be connected with large declines in
production and vice versa. (The Pearsonian coefficient of correlation
is —0.32; the standard error of this coefficient is 0.09.)
(2) For nondurable goods alone there is a similar broad tendency.
(The coefficient of correlation is —0.44; standard error 0.12.)
(3) For durable goods and semidurable goods considered separately,
there is little if any evidence of such a relationship. (Coefficients of
correlation are —0.12 and +0.01 respectively; standard error in each
case 0.18.)
(4) There was a marked tendency for increasing durability to be
associated with smaller declines in price and greater curtailments of
production. As shown by the following table, the median price de-
cline for nondurable items was substantially greater than for the
durable. The sLx-percent curtailment in production for the former
group contrasts strikingly with the Gl -percent curtailment for the
latter.
Table 1. — Median change in price and quantity available for consumption 1929-32,
for 111 commodities, classified according to durability
Type of commodity
Number
of items
Price
Produe
tion
Durable --
31
32
48
-21
-27
-33
-61
-16
-6
<' This point of view is expressed in a recent bulletin of the National Industrial Coufereneo Board:
"An analysis of the available data indicates that no simple and clear cut relationship prevails between
speciflc commodity price and production changes. Within very broad limits there is evident some tendency
for inflexible-priced products to be accompanied by greater decreases in production than those which svere
more responsive to the impact of outside forces But the relationship is not so close, nor so surely accounted
for, as to warrant the general conclusion that sharp reductions for particular inflexible prices would have been
effective in maintaining demand, and hence the output, for these products. Certainly it seems unlikely
that this result could have been achieved in connection with capital goods, the demand for which is deter-
mined largely by the outlook for future prefits rather than by the current cost of new capital equipment —
especially during times of depression when the demand schedule for such goods become,s extremely inelastic.
That factors other than price may be of paramount importance is indicated by the t<>ndency for durable
goods to record the larger declines in production and for nondurable goods to show the smaller declines,
regardless of the respective changes in price. The postponablc nature of the demand for durable goods is a
familiar phenomenon which furnished a more logical explanation for the production behavior of many
floods than does the extent of price decline." (Price Flexibility and Changes in Production, Conference
Board Bulletin, vol. XIII, No. 5, February 20, 1039, p. 51.)
*' The following basis was used in selecting these 111 commodities. The throe most heavily weighted
items in each Bureau of Labor Statistics wholesale price subgroup were taken, except for some subgroups
In which (lata were available for only one or two commodities. The purpose of this procedure was to insure
a fairly representative sample covering all the sectors of industry for which wholesale price data were
available.
CONCENTRATION OF ECONOMIC POWER
Chabt IV
39
CHANGE IN AVERAGE WHOLESALE PRICE AND
QUANTITY AVAILABLE FOR CONSUMPTION
111 COMMODITIES- 1929 TO 1933
PERCENTAGE
AVERSE PRICE DURABLE GOODS average reicE
0
•
V
-10
.
-10
-2Q
* • ^ *. .
-20
-30
. •
-30
-40
•
-40
-50
•
-50
-60
.
-60
••70
•
-70
80
,
-fin
<
0 -90 -60 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70
AVERAGE
0
PRICE SEMI-DURABLE GOODS averagemice
■ T
v-*
, •
-10
•
-10
-20
•
•
-20
-30
+
;
-30
-40
• • ,
-40
-50
*
*
-50
-60
•
-60
-7 0
•
■
-70
-80
-80
*^"c
0 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 7
0
AVERAGE
0
-10
'^'^^ NON-DURABLE GOODS ^"^""^
E PRICE
0
-10
' ^
■
-2 0
•
•
-20
-30
• * +.
*•
-30
-40
•
/
-40
-50
• • • .* •
•.
-50
-60
•
*
-60
-70
-
-70
-80
-80
10
0 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 7(
AMOUNT AVAILABLE FOR CONSUMPTION
D
-f INOtCATES THE POSITION OF -THE MEDIAN CHANGE FOR EACH GROUP OF COMMODITIES
SOURCES PERCENTftSES COMPUTED BY THE BUREAU OF LABOR STATISTICS AND THE BUREAU OF AGRICULTURE
US BUREAU OF LABOR STTATISTICS economics from data coulecteo by these and other government agencies . |j
247149—41 — No. 1-
40 CONCENTRATION OF ECONOMIC POWER
Great caution must be used in inferring any causality from these
relationships. The fact that there was a tendency for production to
be curtailed more sharply for those commodities whose price declined
less, does not necessarily imply that production fell because prices
were maintained. Conversely, the fact that for durable goods (or
equally for semidurable goods) taken as a separate group, there was
no appreciable correlation between price and production for individual
commodities, does not necessarily imply that the two were unrelated.
Consider first the very sharp curtailment in the production of
durable goods as contrasted with the well maintained output of non-
durable commodities. It would be clearly erroneous to attribute this
contrast entirely or perhaps even primarily to the correlative differ-
ence in price behavior. Durable goods by definition are purchased to
satisfy future as well as present wants; an automobile is bought to
furnish not only immediate transportation but also transportation for
years to come. But when purchasing power is sharply curtailed, con-
sumers perforce ration their buying and emphasize nondurable com-
modities such as foods required for immediate consumption. Certain
necessities of life must be obtained whether their price be high or low.
Rents and taxes and certain debts must be paid. If anything is left
after thfese expenditures then, and only then, can purchasing power
be utilized for optional or marginal uses, such as luxuries or postponable
replacements of durable goods. This principle applies not only to the
ultimate consumer but also to the industrial buyer, and the unat-
tractiveness of investment further limits expenditures for capital
goods.
Thus, if a product is an absolute necessity, its consumption and pro-
duction may remain stable even though its price fails to reflect the
decline in general business activity. This is true, for example, of
domestic salt; sales remained stable through the depression while
prices, with the exception of one or two short flurries, tended mod-
erately upward instead of downward. On the other hand, the con-
sumption of items whose purchase could be postponed inevitably
declined. Price reductions might cushion but could not prevent a
drop in sales. Production of leather gloves, for example, dropped 58
percent between 1929 and 1933, even though prices fell 35 percent.
Similarly, the price of water closets fell 45 percent during this period;
yet a concurrent 45-percent drop in production occurred nothwith-
standing.**
It happens that the severest price declines during the depression
occurred in precisely those industries which produced the most urgent
necessities of life, while the smallest declines were to be found among
those commodities whose purchase could best be deferred. The prices
of farm products, foods, and textile products all dropped more than 40
percent between June 1929 and February 1933. During the same
period the prices of metals and metal products, house-furnishing goods
and building materials fell about 25 percent. To an appreciable
extent, therefore, the fact that the production of the former group was
curtailed much less severely than that of the latter, reflected differences
not so much in their price behavior as in the needs which they are
designed to satisfy and the way in which they are produced and manu-
factured. The consumption of urgently needed items was maintained
*• Specific forces undoubtedly influen ced the price behavior of these two commodities during this period.
CONCENTRATION OF ECONOMIC POWER
41
primarily because the items were urgently needed and not because their
prices as a rule declined. Conversely, consumption of items designed
to satisfy postponable wants declined because they were postponable
and not merely because their prices were maintained.
Nor is it valid to attribute the maintenance of agricultural produc-
tion wholly to the sharp drop in agricultural prices (see chart V)
merely because the two were concurrent phenomena. In the first
place, most agricultural products entered into finished goods, such as
food or clothing whose purchase cannot be indefinitely deferred *^ so
that a well-sustained level of sales was to be anticipated. Of perhaps
Chart V
FARM PRODUCTS
PRICES AND PRODUCTION
INOE)'
140
1926
1
= 100
NOEX
140
»20
100
1
— *^^^
=\
^'^
PRC
DUCT
ON
^
/~"
•^^
120
100
1
I 80
i
; j
i
\
/
7-
•^
h^
\
80
60
40
1
40
1
! ;
V
^
'\»i
CE
1 20
0
20
1926 IS27 1928 1929 1930 1931 1932 1933 !934 1935 1936 1937 1938 1939
1 SOOBCE - 1
; a s euREAu of labor statistics proouction department of agriculture 1
greater importance, moreover, is the supply side of the equation. The
nature of the agricultural process and of agricultural markets is such
that curtailment of production is difficult to achieve. For the small
farmer, a sharp reduction in output simply means partial disemploy-
ment for himself and his family. It is noteworthy that, for the past
40 years, there has never been more than a 15-percent reduction in
cotton acreage.
It must be recognized then that for each individual commodity, price
is but one of the factors determining its level of production. Post-
ponability of demand must certainly be considered. The nature of
the productive process is important. The effect of price changes upon
*• This refers to entire classes of goods, not to substitution within classes such as the use of one kind of food
In place of another.
42 CONCENTRATION OF ECONOMIC POWER
production is necessarily different, too, for products whose demand is
joint than for those whose demand is independent.
It is apparent, however, that any appraisal of the influence of price
policies upon production must pay due regard to the interrelated
character of the economy. The effect of a change in price for any
single commodity upon its production is influenced by, and in turn
influences, the markets for many other commodities.
Thus, if it be assumed that the demand for some necessity of life is
completely inelastic, its price may still have a material influence upon
the amount of money consumers will have available for more optional
expenditures. The production of these less urgently needed items
would thereby be directly affected. For example, if the price of
cigarettes had declined further during the depression, it is doubtful
whether the consumption of cigarettes would have been materially
increased. On the other hand, the savings realized by the consumer
might have served to stimulate production in other lines. In this
particular case the amount involved might be small, but the principle
is significant.
Considerations of this sort are not confined to the action of com-
modity prices. It is estimated that about one-third of total consumer
expenditures are for services of all kinds.^° Such items as rents,
taxes, interest on mortgages, utilities, professional and business serv-
ices therefore account for a very substantial fraction of the consumer's
budget. Many of these must be classed as necessities, just as surely
as food and clothing. Consequently, their prices, too, exercise a
distinct effect upon the demand for and production of postponable or
nonessential commodities.
In the same way an appraisal of the effect of price changes upon
the consumption of commodities subject to joint demand cannot rest
upon an industry-by-industry approach. It is true that, all other
things being equal, a change in the price of bricks or steel or cement
cannot be expected to exert much influence upon the demand for these
products. However, if the prices of aU buildiQg materials were reduced
simultaneously there might be an appreciable increase in the volmne
of construction and in the demand for each of these commodities.
The effect would be enhanced still further if the costs of building
financing *^ and of construction labor were correspondingly modified.
Although an isolated change in any one factor cannot be of more than
limited significance, a concurrent change in many factors would have
a very far-reaching influence.
It is for this reason that a mere plotting of price and production
data, industry by industry, upon a correlation chart can yield little
of significant value to the discussion. The effect of price changes for
any single item is not spent exclusively in the market for that item.
The economy must be considered as a synthesis and not as a series of
unrelated compartments.
A consideration of the effect of price changes "during the downswing
on output and employment in the whole economy must, finally, take
account of the relation of these price changes to changes in the volume
of income and spending. It is sometimes assumed m the discussion
•0 Simon Kuenets, National Income and Capital Formation, 1919-36, National Bureaa of Economic
Research, p. 86.
" Financing is the only sector of construction in which costs have been effectively reduced during
recent years, oy such programs as the Federal Housing Act.
CONCENTRATION OF ECONOMIC POWER 43
of price and production relationships that the volmne of income and
spending is independent of price changes. It follows on this assump-
tion that any reduction in prices will lead-to an mcrease in output and
probably of employment. But prices not only represent the cost of
acquiring commodities' to those with incomes to spend; they also
determine m part the incomes of those who have commodities or
services to sell. A reduction in prices may lead *o such a reduction
in spending as to leave the volume of output and employment and
the national income in the whole economy substantially unchanged.
Here again the relationship is mutual ; changes in the rate of spending
will have material effects upon prices.
The crux of the problem seems to be the relation of price changes
to spending and investment. Although this relaJ^ion has not been
fully studied, it appears that in some fields at least, pu^ ticularly in the
case of durable goods, properly timed and coordinated price reduc-
tions during periods of downturn would be desirable from the point
of view of the general economy. For example, lower prices for rail-
road equipment might lead to replacement and modernization pro-
grams ; and simultaneous reductions in the various prices determining
the cost of construction might lead to an earlier recovery of invest-
ment in housing. It is no doubt true that reductions in the prices
of construction materials would permit a public-spending program to
make a greater contribution to output and employment, or alter-
natively to make the same contribution with a smaller budgetary
deficit. Consequently, governmental efforts to reduce prices of
strategic commodities, and of such noncommodity items as financing
costs, might be rewarded by an appreciable net stimulus to production
and employment.
PRICE RELATIONSHIPS
In the preceding section the effect of price behavior upon production
was considered in the light of the experience of individual industries
or groups of industries, though the interrelated character of the
economy was stressed. In addition it may be helpful to approach
the problem from another point of view, by looking at the relation-
ships existing among commodity prices generally.
During periods of violent price movement, differences in the be-
havior of individual prices necessarily result in marked changes in the
relationship of prices to each other. This alters the exchange patterns
existing between the different segments of the economy, as weU as the
cost-price structures of individual industries. Changes in these rela-
tionships maj'-, in turn, be expected to exert an important influence
upon the demand for the products of specific industries, as well as
upon the general rate of business activity and upon employment.
It is evident from an examination of chart VI that the behavior
of prices is closely related to the rate of business activity. Tliis
chart shows three curves. One is the Federal Reserve Board Index
of Industrial Production, which is a general indicator of the level of
business activity. The second shows the movement of the average
of 30 basic sensitive commodity prices. The third is a measure of the
way in which commodity prices diverge from their predepression rela-
tions to each other, as explained in more detail below. (See pp. 45-47.)
Thus a decline in this index of price relationships registers a departure
44
CONCENTRATION OF ECONOMIC POWER
o
h-
o
o
o
q:
Q.
<
a:
I-
co
3
Z
cn
o
o
o
o
o
<
CD
>-
I-
oc
X
UJ
O
a:
Q.
UJ
<
CO
UJ
_J
o
I
i!2
o
(/)
a:
lij
Q.
en
o
iij
o
CL 9
cn -
_J
<
o
o
q:
o
z
<
^^
r
y
=^^
4
>
f»
\
I- Z -
o
c;
"^•^
^<
^^^^_| v^
cr
^^*^
a.
Vt
^^'''^^>
o
^
^^
i-
["^N^i
o
1 ^^3*^»»^,
3
x,^^* vVl *v.^
O
(^ 1
"^
o
_ o: _
Q.
ie
_/i
\>
•^
«
•I
?
Ul
L o
^
^
a.
•«::
^
T"
\
^
^
!
1
^
1
1
1
1
1
.^ «• i
«32;
o: o — £
uj "o i_
Q •• O
2 - 5i~
= ^^;
<n £ " e
UJ H « o
O " £ =
lO e UJ , o
? gsi>
en z ^ V
CONCENTRATION OF ECONOMIC POWER 45
from the pattern of prices which prevailed during 1926, while a rising
index denotes an approach to those relationsliips.
It is apparent that all three of these curves are generally parallel.
In other words, when industrial production declines sharply, the level
of sensitive commodity prices falls and there is an ever-widening
spread among wholesale commodity prices generally as compared
with their earlier relationships. An increase in the volume of pro-
duction ie associated with rising sensitive commodity prices and with
a decreasing spread between prices in wholesale markets.
It is far more difficult, however, to interpret the m^eaning of these
relationships than to show that they exist. It is particularly im-
portant to realize that wholesale commodity prices are only one part
of the price system. The relationships between wholesale prices and
other kinds of prices, such as retail prices or wages, rents, utility rates,
etc., may be fully as significant for the functioning of the economy as
the relationships between different groups of wholesale prices.
However, it will simplify the analysis first to concentrate attention
upon wholesale commodity prices. It seems axiomatic that certain
price relationships are more conducive than others to the full function-
ing of our economy. Adverse effects may therefore be anticipated
when there are any drastic distortions from such relationships. Un-
fortunately, it is very difficult to determine just what set of relation-
ships is most desirable. If it be assumed that the pattern which pre-
vailed between 1926 and 1929 was more conducive to full resource
utilization, than that since prevailing, ^^ it may be useful to examine
the departure or dispersion from the former pattern. Aluch analysis
has been devoted to the development of such measures of price dis-
persion in an effort to relate them to swings in general business
activity. Frederick C. Mills has contributed much in the field, and
other students of price analysis have also been concerned with price
dispersion.
Recently an index of dispersion has been developed by the Works
Progress Administration.^^ This is based upon prices of the 45 com-
modity subgroups included in the Bureau of Labor Statistics whole-
sale index. The disparity between the price pattern for these
subgroups existing at any time and that which prevailed during the year
1926, is first computed. (The year 1926 is, therefore, the assumed
'2 It may well be that some of the price relationships existing before 1929 contributed to the subsequent
downturn.
" Price Dispersion and Industrial Activity, 1928-1938. Works Progress Administration; February 1939.
This publication also describes other work done in the field: "Frederick C. Mills has done the most ex-
tensive work in the field (a). Among others who have investigated this aspect of price analysis, F. Y.
Edgeworth utilized as the measure of dispersion the so-called modulus, which is the standard deviation
multiplied by the square root of 2 (b). Wesley C. Mitchell made effective use of deciles (c). Dr. Silver-
stolpe employed the mean deviation in his analysis (d). Irving Fisher has used the standard deviation
computed from relative prices and from logarithms of relative prices (e). Norman Crump originally ex-
perimented with the arithmetic standard deviation and the logarithmic deviation (f). His most practical
compilations utilized the arithmetic coefficient of variation and a measure of the 'angle of deviation derived
from the standard deviation and the arithmetic mean.' A. h. Bowley has made use of the 'mean percentage
divergence,' a measure similar to. the mean deviation except that the variations which are averaged are the
percentage deviations of individual relatives from their geometric mean (g).
"(a) The Behavior of Prices, ch. Ill, see. IV, pp. 251-285.
"(b) Memoranda in Papers Relating to Political Economy (I/ondon: Macmillan & Co., 1925), vol. I.
"(c) Business Cvcles (University of California Press, 1913); and The Making and Using of Index Numbers
(U. S. Department of Labor, Bureau of Labor Statistics Bulletin 284, 1921), pt. I.
"(d) Dr. Silverstolpe's measures have been published in the Gotebergs Handels och Sjofarts-Tidning.
"''e) The Making of Index Numbers, A Study of Their Varieties, Tests, and Reliability (3d ed., Boston:
Houghton, Mifflin Co., 1927).
"(f) The Interrelation and Distribution of Prices and Their Incidence Upon Price Stabilization, Journal
of the Royal Statistical Society, 1924, vol. 87, pt. II. Mr. Crump's measures of dispersion are now published
currently in the Financial Times of London.
"(g) Relative Changes'in Price and Other Index Numbers, Special Memorandum, No. 5 (London and
Cambridge Economic Se""ice, February 1924."
46
CONCBNTRATION OF ECONOMIC POWER
— ii o
^ UJ
o
=>
o
o
or
Q.
<
UJ
q:
<
o
UJ
X
UJ
o
O o
si
E-
>
A
^
*•••*
^
A
E-
"^-^
7
-i
E-
^««i
s
.5"
-E
E-
z
?
~^
7
A
E-
q:
UJ
a.
to
UJ
<
>
*•-,
>
-i
^
a.
>'
z
o
O
. a. -
<
-E
- «
S.
>
;-
.^>
"7^
,
4
E-
^
<.
•
>
A
^
"\
\
\
, 1
•5 .
• s
A
E-
^
^-'
C
y
1
f
1
iftii
ill
overage deviation in 1929
The production indeies on the 1929 base «
computed from the Federal Reserve Board in
(1923-1925- 100.0) odjusted for seosono
variotion.
11 1 1 1 M 1 1 II 1 II 11 1 t II 1,1 I 1 1 1 1 11 i 1 t,
E-
i
i —
1'
■s
1
=-
<>
t-;
£
1
:
) i
1
1 ^
CONCENTRATION OF ECONOMIC POWER 47
base.) The trend of this disparity or deviation is expressed in terms
of index numbers, with the average deviation during 1929 being taken
as 100." Chart VII depicts the behavior of this index for the period
between January 1928 and July 193G, and shows also the trend of
industrial production during the same period. The relationship
between the two curves is striking. In general, increases in price
dispersion, that is, a widening spread of prices, seem to be closely
associated with decliaes in industrial production, while reduction in the
degree of dispersion is apparently related to increases in productive
activity. However, thiB existence of this close relationship does not
necessarily imply causaUty, Distorted price relations undoubtedly
impede business activity but it is also true that reduced activity tends
to disturb price relationships.
Since prices differ in their responsiveness to cyclical influences, it
is inevitable that price patterns during boom and depression should
vary markedly. During 1932-33 flexible prices were, by definition,
much lower with respect to the inflexible than had been true in
1928-29; by the winter of 1936-37 predepression relationships had
been approximately reestablished; during the subsequent recession
flexible prices again tended toward lower levels while the inflexible
remained relatively stable. It is basically these shifts which the dis-
persion index portrays.
Partly these price movements, particularly for the flexible group,
are the consequences of changes in the level of business activity.
Partly it has been suggested, these shifting relationships are also
to be considered causes of changes in business level; departure from
pre-depression patterns may aggravate recession while approach to
such patterns may accelerate recovery.
There have been many efforts to explore the nature of this inter-
action and much has been written about the manner in which changing
price relationships affect productive activity. Many lines of causa-
tion have been suggested, but two are commonly stressed.
The first considers the exchange mechanism of the economy as a
whole. If, at any given time, some pattern of exchange ratios is
conducive to the full utilization of productive resources, it is argued
that any drastic and rapid distortion of such ratios must act as a
depressant. Especial emphasis has been placed upon what is undoubt-
edly the most spectacular of these distortions; that affecting the farmer.
Between 1929 and the trough of the depression, the ratio between the
prices of the commodities which the farmer had to sell and those which
" This index and its derivation are thus described in the Works Progress Adm'nistration publication just
referred to:
"The measure worked out in the course of the present investigation is calculated by weighting the varia-
tions—which are the percentage deviations of individual relatives from their weighted mean — on a fixed
base (the year 1926).
"The index of dispersion ♦ • • is simply a measure of the spread among prices. For the most part,
it represents the spread between raw materials and finished goods prices • • • although the calculation
involves the prices of 45 subgroups of commodilies. The direction of the trend indicates whether prices
are moving toward or away from their mean (the all-commodities level).
"The computation of the index of dispersion involves, first, the calculation of the average percentage
deviation which is the amount the price indexes differed from the m'ean price index (a) . In this method ,the
average is obtained by weighting the percentage deviation for each subgroup by its value of production in
1935. A weighted average deviation is then ^culated for each month. This monthly figure is divided
by the 1929 average deviation to obtain the monthly index number of price dispersion."
(a) The subgroup indexes of the Bureau of Labor Statistics have been used in the calculation of the
average deviation. The subgroup, Structural Steel, was omitted, as it is included in the Iron and Steel
subgroup.
48 CONCENTRATION OF ECONOMIC POWER
he wanted to buy declined by about 50 percent. Other things being
equal, it might be assumed that his purchases were necessarily cur-
tailed by about the same percentage.
So far the argument is noncontroversial. However, the effect of
such a contraction in the purchasing power of any single economic
group upon the economy as a whole is very complex. Reduction in
the price of farm products in relation to other prices influences the
purchasing' power not only of the farmer but also of the nonfarm
population. For example, if as a result of such a change in price
relationships, the cost of foods and clothing to the industrial worker
falls while his income remains the same, he will have a larger sum
available for expenditure elsewhere. There are two sides to the
equation.
Nevertheless, there is strong reason for believing that the net result
of a drastic decline in farm purchasing power upon the economy is
undesirable, It is quite likely that a substantial part of the shift
in purchasing power accompanying a sharp decline in farm prices
constitutes a shift from hands which would spend to hands which, at
least in part, hoard. It is not at all certain that all or even a major
part of the reduction in farm prices would be passed on to the indus-
trial worker in the form of low prices for the necessities of life. Much
of the difference might be absorbed by intermediate groups such as
manufacturers, distributors, and banks. Consequently it would not
be rendered available for the immediate purchase of consumable goods
in quantities sufficient to compensate for the reduction in the farmer's
buying. In other words, the importance of the change in price rela-
tionships does not lie so much in the relationships themselves, as in
the shifts in purchasing power which they signify. Any sudden drastic
change in the purchasing power of an important economic group may
be expected to affect the economy materially; if the group involved
is one which normally spends a major share of its income for consump-
tion goods the effect is likely to be adverse.
But, this is only one part of the stoiy. In view of the stress laid
upon the influence of price disparities upon the farmer, it may be well
to examine that situation more fully. Table 2 shows that the dis-
parity between the prices of farm and industrial products was but one
of the exchange problems affecting American agriculture during the
depression. Prices of noncommodity items, such as mortgage inter-
est, farm taxes, freight and utility rates are materially less sensitive
to cyclical influences than even industrial commodity prices, yet a
substantial share of the farmer's income is allocated to these inflexible
noncommodity expenditures.
A
CONCENTRATION OF ECONOMIC POWER
49
Table 2. — Selected indexes of prices, wages, costs of distribution, farm taxes, and
mortgage interest, 191S-S8
[1910-14=100]
Year
a) 2
Prices paid by
farmers for com-
modities used
for—
"5
a o g
t; '-'.2
^ o.
•O
OS
S
<S
B
£
0)
2
at
a
S
Q<
3
'1
a
a
1
s
§
a
IS
o
s
a
OS
a
E
¥
S9
;^
f^
05
O
fR
103
103
100
98
104
111
101
104
100
99
105
113
103
105
100
99
105
122
113
112
100
97
110
129
141
127
101
98
129
143
177
157
115
116
159
152
207
184
129
133
174
191
242
223
147
144
202
232
155
205
164
174
190
248
151
198
IfS
160
175
249
169
212
153
152
177
253
173
220
153
152
180
253
176
221
152
150
185
258
179
225
152
147
192
258
179
228
152
147
190
264
179
230
151
147
190
266
180
232
150
146
198
26S
167
232
149
144
196
264
130
222
146
143
178
241
96
197
145
142
153
209
85
192
147
136
140
179
95
213
145
133
158
170
103
221
142
134
174
172
111
224
138
132
171
173
126
243
139
127
180
179
124
247
144
134
173
W
.a^^
1913..
1914..
1915..
1916..
1917..
1918..
1919.-
1920..
1921..
1922..
1923..
1924..
1925..
1926..
1927..
1928..
1929..
1930..
1931..
1932..
1933..
1934..
1935..
1936. .
1937 .
1938 ».
101
101
38
118
175
202
213
211
125
132
142
143
156
145
139
149
146
126
87
65
70
90
108
114
121
95
100
102
107
124
147
177
210
222
161
156
160
159
164
162
159
160
158
148
126
108
109
122
124
122
128
122
102
99
104
124
151
174
192
174
141
139
141
143
147
146
145
148
147
140
122
107
108
125
126
126
135
124
101
100
105
124
149
176
202
201
152
140
152
152
157
155
153
155
153
145
124
107
109
123
125
124
130
122
103
107
114
125
143
166
196
221
226
234
233
236
238
235
232
227
221
214
205
195
167
149
147
144
140
(«)
> Index of comRpsite wages in the United States, Federal Reserve Bank of New York. Converted from
1926 base.
1 Average of indexes of freight rates on wheat, livestock, and cotton, 1913=100.
5 Prior to 1916, year beginning July 1, Interstate Commerce Commission.
* Farm Economics, Cornell Agricultural College.
• Preliminary.
« Data not available.
Source: Bureau of Agricultural Economics,
tural Marketing Service.
Farm wage rates and freight rates compiled by the Agrlcul-
During 1932, for example, the price of farm products had declined
about 55 percent from their 1929 level, while mortgage interest pay-
able had been reduced by only 12 percent. The amount which must
be paid in any year on long-term debts does not vary with changes
in the prevailing rate of interest from year to year. It alters only as
debts mature and are refunded, as creditors make voluntary adjust-
ments to meet changing conditions, or as statutes are enacted to
relieve acute distress.
Consequently an increase in price flexibility for commodities bought
by the farmer (e. g., fertilizer, agricultural machinery), could con-
tribute only in a limited way to the solution of the farmer's purchasing
problem. The benefit which he mjght derive from reductions in the
prices of manufactured goods is limited by the fraction of his income
which remains after essential expenditures for noncommodity items
have been met.
Moreover, it should be remembered that the farmer makes most of
his purchases not on the wholesale but on the retail markets. The
preceding discussion is centered about the behavior of wholesale prices
50 CONCENTRATION OF ECONOMIC POWER
largely because the body of wholesale price data available is much
more comprehensive than that for retail prices. Yet a very substan-
tial fraction, probably approximating 40 percent, of total consumer
expenditures for commodities represents the mark-up of various whole-
sale and retail distributors added to the manufacturer's wholesale
price. In general, also, retail prices are somewhat less flexible than
wholesale prices for the same commodities. It appears that in dis-
cussions of the consequences of price rigidity too much stress has been
laid upon the behavior of wholesale prices and insufficient attention
has been devoted to the inflexibility of retail prices and distributive
margins. ^
As far as the farmer is concerned, the most serious consequences
of commodity price rigidity flow from the behavior of those items
which are either essential for production of his crops or are necessities
of life for his family. Thus, the cotton or tobacco farmer would benefit
very materially if the behavior of the price of fertilizer were more
closely parallel to the price fluctuations of what he has to sell. On
the other hand, the existence of relatively insensitive prices for com-
modities which constitute marginal or postponable expenditures af-
fects him far less severely.
Although the immediately preceding discussion has focused upon
the plight of the farmer, essentially similar considerations apply to
consumers generally. The impact of changes in exchange relation-
ships upon various segments of the economy is, therefore, selective.
Some commodity price rigidities may result in such shifts of purchasing
power as to create serious impediments to the normal flow of exchange
during periods of depressed business activity. In the case of others,
the detriment to one group may be roughly balanced by the benefit
to another, so that the net effect upon the economy as a whole is
small.
Cost-price relationships. — Essentially similar considerations apply
to the second aspect of price unbalance which has received major
attention — the disturbance of cost-price relationships industry by
industry. It may be desirable to achieve a substantial degree of
covariation between the price of any product and the cost of its pro-
duction, particularly between the prices of finished goods and the costs
of their raw materials. Assuming this to be so, noncommodity ex-
penditures again constitute a basic limiting factor. Overhead costs
per unit rise rather than decline as sales fall and production is cur-
tailed. Were it conceivable that all administered prices behaved
precisely as if they were market dominated, distortions would still
remain between commodity prices and noncommodity prices. In
some cases, at least, they might even become more serious.
Consequently in appraising the effect of disturbed price relation-
ships upon business activity and production, it cannot be too strongly
emphasized that the problem goes far beyond the behavior of whole-
sale commodity prices. Referring back to chart VI, it is apparent
that the trend of industrial production is associated just about as
closely with the behavior of sensitive commodity prices as it is with
the index of dispersion which measures commodity price disparities.
It may even be possible that the violent movement of the sensitive
price group in relation to the pattern of fixed costs may affect the
economy as seriously as the failure of inflexible commodity prices to
parallel the movement of the flexible.
CONCENTRATION OF ECONOMIC POWER 51
CONCLUSIONS
It has been shown that, within very broad limits, there was a
tendency for production to fall less where prices fell more during
the 1929-33 recession. Conversely, where prices were maintained
production fell much more sharply. It has been emphasized that there
were very many exceptions to this generalization. It has been
pointed out moreover that the existence of this limited correlation
does not of itself imply any causal relationship.
For any individual commodity, price is but one, and not necessarily
the most important, of the factors which affect its production. Thus
the relatively sharp decline in the consumption of most durable goods
between 1929 and 1933 was probably aggravated by the stability of
their prices, but it seems likely that the postponable nature of their
demand in combination with lower family incomes was of at least equal
or of greater importance. With the spread of unemployment and a
marked curtailment of purchasing power, the sale of goods whose
purchase is relatively more postponable will usually decline regardless
of price ; the sale of articles designed to satisfy wants which cannot be
long deferred is likely to be fairly well maintained, again regardless
of price.
Moreover assuming any specific set of market conditions, or any
given level of purchasing power, the effect of a change in the price of
any commodity upon the purchases of that commodity may be slight.
This is tantamount to saying that demand for many products, particu-
larly during periods of depressed business activity, varies little regard-
less of price. Among the most notable examples of such "inelastic
demand" are products such as steel castings, which find no independent
market but whose demand is part of a joint demand for some more
complex finished goods of whose total cost they constitute but a small
part.- In cases of tliis sort, isolated changes in price may have no
discernible effect upon consumption whatever. Nor can isolated price
changes during periods of curtailed purchasing power expect to influ-
ence materially the sales of such products as absolute necessities of
life or capital equipment for industries operating at fractions of their
capacity.
However, the price behavior of any single commodity has implica-
tions ^ar broader than merely its relation to the production of that
commodity. Assuming the extreme case of an article whose demand is
absolutely inelastic, a change in its price may importantly affect the
amount available for expenditure elsewhwere. Or, taking a typical
case of joint demand, a reduction in the price of bricks alone may have
little effect upon the consumption of bricks themselves, but if coupled
with similar reductions in the prices of other building materials, its
influence might be far reacliing. Similarly, a simultaneous cut in the
price of electric appliances, electric power rates, and installation costs
would probably have a very different effect on sales of electric equip-
ment, even during a downturn, than woidd a reduction in equipment
prices alone.
In other words, if the demand curve for a specific product is in-
elastic, a change in its price taken alone may have very Uttle direct
effect upon its consumption, yet it may cause an appreciable shift in
the position of the demand curves for other commodities. The cumu-
lative effect of many such changes may be very considerable. Con-
52 CONCENTRATION OP ECONOMIC POWER
sequeixtly, in considering the implications of the disparate behavior
of the prices of different commodities during downturn, it is essential
that attention be directed upon the economy as a whole and not upon
isolated segments of it taken separately. Moreover, it has been shown
that LQ appraising the effects of different kinds of price behavior and
in striving to form a judgment as to those best suited to promote
recovery, it is necessary to consider not only commodity prices but
also the behavior of the prices of many other items, such as wages,
interest, rent, etc.
Some attention has been devoted to the considerations which in-
fluence busLuess firms in their decisions as to price policy. The
horizon of each firm is necessarily limited. In framing policy it con-
siders primarily the effect of its decisions upon its own profit and
loss account. It would be unrealistic to expect any individual business
to reduce its prices materially in the face of its belief — whether or
not warranted — that such reduction would not be compensated for by
an increase in sales. For example, the producer of a commodity
subject to joint demand will not in the ordinary course of things reduce
his prices any more than he must, unless he has some reasonable
ground for expecting that the producers of related items entering into
the same finished article wUl do so simultaneously.
But although a broader view probably transcends the immediate
horizon of the individual firm, it does not exceed the scope of public
policy. It may be precisely in this field, too, that governmental
action can be most profitably directed. In such a key sector of indus-
try as building construction, for example, there is opportunity for
a concerted approach. If means could be secured for simultaneous
price reductions among all producers of important building materials,
by labor, and by finftncial agencies to reduce the cost of financing, it
might supply the incentive which is now lacking; insuring to each
group that its own change of policy will be paralleled by such other
changes as would in the aggregate exert an appreciable effect upon
the market.
The technique by which such a program could be effectuated is
beyond the scope of the present discussion. Certainly, however, the
interrelated character of the problem makes necessary some such
interrelated approach. Attention would first have to be directed to
determining those broad fields in which such efforts could be most
profitably expended.
Finally, it is evident that concern with wholesale commodity prices
should not exclude consideration of retail markets. It has been
pointed out that retail prices are, in general, less flexible than wholesale
prices. If it be considered desirable that prices of certain commodities
be reduced during periods of depressed business activity, it would
seem at least equally important that such reductions extend to retail
as well as wholesale markets. It is likely that some of the recent
activities of Government are operating in the reverse direction. Thus,
resale price maintenance legislation — the so-called "Fair Trade Acts,"
together with the Federal Miller-Tydings Enabling Act— have
increased the rigidity of the prices of many trade-marked commodities.
It is possible that the state "Unfair Practices Acts" and the Robinson-
Patman Act have reduced the flexibility of distributive margins in
certain markets. It may be well, therefore, for Government to
\
CONCENTRATION OF ECONOMIC POWER 53
reexamine its policy with regard to laws affecting the system of dis-
tribution in the light of these considerations.
All these suggestions obviously fail to go to the heart of the problem.
They represent merely isolated approaches on a few scattered fronts.
Despite the intensive analysis to which price inflexibility has been
subjected during the past few years, no adequate proposals for any
more comprehensive approach have emerged. There is little doubt
that the behavior of prices intimately affects the rate of business
activity. Nevertheless it seems equally evident that no simple, single
approach to prices as such will solve the problem of increasing and
maintaining industrial activity. The problem is far too complex.
CHAPTER III »
NONPRICE COMPETITION
SUMMARY
Price- is but one of the avenues— and not necessarily the most
significant — through which competition expresses itself. It has been
pointed out in chapter I that there are himdreds of other grounds
upon which sellers may choose to compete, such as the offer of better
quality, more elaborate service, more attractive guarantees, more
convenient terms of payment, chromium plating, neon lights, cello-
phane wrappings, better radio programs, etc. Reference has been
made to the probability that the relative importance of all these
latter devices for winning business, which may be collectively desig-
nated "nonprice competition," has increased materially during the
past generation, while the emphasis on the price aspects of compe-
tition has correspondingly declined.
This change in competitive emphasis has many implications. In
the first place it inevitably alters the focus of government policy
(Resigned to cope with the problems of monopoly and competition in
industrial markets. The efficacy of any program based upon or
directed toward the behavior of prices alone neglects elements of
vital importance. '
More broadly the direction which competitive rivalry takes in-
fluences in many important ways the amount and variety of goods
which are produced for consumption and the standard of living of
consumers generally. The efl'ect upon the well-being of the ultimate
consumer is especially marked because many forms of non price
competition are particularly significant in relation to retail markets
• and to the everyday necessities of life.
The analysis presented in this chapter is in no sense a complete
survey of all forms of nonprice competition; it is confined to a few
of the more significant. Nevertheless, it suffices to elicit the extreme
complexity of the issues involved.
Nonprice competition expresses itself through a wide variety of
avenues. Perhaps the most important of these is the actual quality
or content of the products involved. For example, little effort has
been made during recent years to reduce the price of automobiles to
the consumer. Instead, stress has been placed upon constant im-
provement in quality, performance, and appearance. Automobile
advertising reflects this policy, placing little emphasis upon price
and much ^ upon distinctive mechanical features, economy, and
beauty of line. The same observation applies to a greater or less
extent to most other complex mechanisms such as radios, refrigerators,
' Ch. Ill was prepared by Saul Nelson. Laura Mae Brown compiled the bulk of the material upon
which the analysis is based, particularly with reference to the influence of business convention as exempli-
fied by the institution of price lines.
54
CONCENTRATION OF ECONOMIC POWER 55
oil burners, vacuum cleaners, and the like.^ In the case of refrig-
erators, for example,, the retail prices of comparable models of
competing makes are identical almost to the penny.
Differences between rival products may represent very- real cor-
responding differences of desirability or usefulness. In addition,
however, there is an undoubted tendency to create the appearance of
difference where no real intrinsic difference in physical utility exists.
In developing and retaining a market, producers and distributors
make strenuous efforts to distinguish their products in the public
eye from those sold by their competitors. As a result, competition
in quality often takes the form of adding minor eye-catching features
bearing, at best, a remote relationship to the intrinsic utility of the
product. Intensive advertising campaigns, describing the merits of
such features, are frequently accepted by the public with somewhat
more credence than their accuracy warrants.' Buyers may come to
demand them with little or no regard for price relationships and to
reject, as inferior, products not bearing them.
Although nonprice competition is most commonly associated with
the element of quality, it should not be concluded that this is its only
aspect. Collateral terms of sale are often important. Among these
are guarantees of service or performance. In the case of rubber tires,
for example, guarantees of mileage, backed by appropriate provisions
for allowance in case the product falls short of the guaranteed per-
formance, probably exert a distinct influence upon the market. The
provision of adequate facilities for service and replacement has received
much attention in certain lines of business. Thus, an automobile
purchaser must consider not only its first cost, but also the prices
which he will be called upon to pay for inevitable rej!)airs. The sale
of one line of agricultural implements has been distinctly handicapped
by the lack of an adequate widespread service organization.
The direction which competitive rivalry takes in any given industry
is influenced both by the intrinsic nature of its markets and by policy
decisions of the concerns comprising it. In some industries, for ex-
ample, the nature of the product is such that elements of quality and
style inevitably exercise an important influence upon the buyer's selec-
tion. This is true, for example, in the apparel markets in which well-
defined "price lines" have become recognized as the result of custom
and convenience. Thus, there is a limited number of wholesale prices
at which almost all women's medium-price dresses are sold These
wholesale prices are, in turn, reflected in similar, though somewhat
less rigid, lines in retail markets. As a result the focus of competition
becomes the character of the garments which can be offered at the
accepted price and not the price at which some specific garment should
be quoted.
In their decision to stress nonprice elements in sales strategy, busi-
ness concerns are often influenced by the desire to avoid direct price
competition with their rivals. This has been one of the major factors
in stimulating the use of advertising and of distinguishing brands and
trade-marks. Much effort has been devoted to persuading the pros-
pective buyer that advertised and branded products have qualities
which distinguish them in important ways from similar products sold
2 In such lines as radios and refrifjerators, whose growth has been fairly recent, prices have been materially
reduced as techniques of production improved. However, even In these cases sales emphasis at any given
time usually centers upon features other than price.
U47149— 41— No. 1 G
56 CONCENTRATION OP ECONOMIC POWER
by others. These efforts have been most successful in those fields in
which consumers find it particularly difficult to form objective judg-
ments of the quality and usefulness of the merchandise. The drug
and cosmetic industry furnishes an outstanding example of the manner
in which the effective use of these techniques can shield trade-marked
products from direct price competition with similar merchandise; very
wide price spreads exist between virtually identical products differing
only in name.
Business policy decisions to stress some form of nonprice competi-
tion may represent a voluntary choice. However, concerns which
prefer to compete on a price basis are sometimes forced to adopt what
they consider a less satisfactory alternative because of pressure applied
from without. Such pressure may result from Government regula-
tion of price or perhaps from coercion by competitors.
In general, businessmen have displayed much ingenuity in seeking
some competitive outlet as alternative to price reductions. Under-^
N. R. A., when many prices were controlled by code provisions, some
of the schemes adopted verged on the fantastic. For example, a retail
druggist in California, unable to cut prices, employed a medium to
give free psychic readings to his customers. An automobile dealer was
accused of indirect price cutting because he bought six suits of .clothes
from a tailor to whom he sold a car. Lumber manufacturers cut
prices indirectly by shipping a higher quality of lumber than the in-
voice called for. Coal producers offered guarantees of heat content
which they knew were impossible of fulfillment, backed by a penalty
in case the fuel failed to meet the standards set. Price-maintenance
laws (the "Fair Trade" Acts) which largely eliminate price competi-
tion between retailers selling trade-marked products have resulted in
emphasis upon elaborate service in some cases, and in a search for
indirect ways of granting price concessions in others.
In some irrdustries, although legal controls may be absent, the fear
that price reductions may lead to price wars often results in the
multiplication of grades and sizes. For example, instead of cutting
prices on a standard grade of fertilizer, the producer may introduce
'a slightly different grade. As competitors match the new mix, the
process is repeated. In many states the number of different grades
became so bewildering that laws were passed to limit the variety that
could be sold. Similar practices have occurred in many other
industries.
This very cursory review of some phases of nonprice competition
emphasizes both the importance of the issues and the difficulties of
any unqualified appraisal. It seems reasonably clear that the change
in competitive emphasis has not been entirely undesirable. Thus it
is probably true that the increased attention paid to quality and per-
formance has served to stimulate technical research. Certainly the
automobile, the refrigerator, and the tractor are more satisfactory
products today than they were some years ago. Undoubtedly
technical advances would have occurred even if competition had
focused upon price, but it is at least arguable that centering attention
upon quality served as a more effective stimulation to its improve-
ment than would otherwise have been possible. Conversely, there
is some evidence that excessive emphasis upon- price may lead at
times to undesirable degradation of quality.
CONCENTRATION OF ECONOMIC POWER 57
Where products are highly diversified and comparability between
rival merchandise is very difficult to obtain, the elimination of price
as a major competitive factor may actually simplify the consumer's
problems of selection. For example, since the standardization of
women's dresses is remote from reality, the institution of price lines
is not without benefit. It is probably simpler for the average con-
sumer to select the dress she likes best at a given price than to weigh
the desirability of small differences in price as against small differences
in quahty.
On the other hand it must, be recognized that emphasis upon
quality has often served to divert effort from programs designed to
produce cheap but satisfactory merchandise to meet the needs of
lower-income groups. It has been argued, for example, that the
production of cheaper automobiles or refrigerators, stripped of all
luxury features, could serve a useful purpose in expanding the poten-
tial market for those products.
One of the most serious objections to many forms of nonprice.
competition is the manner in which they complicate the buyer's
problems of selection. Price is a universal measure and the signifi-
cance of a price difference is readily understood by any buyer. The
appraisal of differences in content or quality, or the translation of
collateral terms of sale into price equivalents, is much more difficult,
particularly for the average untrained consumer. Consequently,
when the policy of distinguishing one's product from a competitor's
is revealed not in any real betterment of quality but in the multiplica-
tion of unneeded gadgets and superficial eye-catching features, there
may be a distinct loss of competitive efficiency. It is unlikely that
fancy packaging is of as much value to the consumer as low prices or
improved quality. The forms taken by nonprice competition when
it reflects the suppression of price competition through collusive or
coercive tactics seem particularly valueless in serving the economic
system. All these schemes have the disadvantage of substituting for
a direct price cut, which the consumer wants and can measure, some
substitute of uncertain value which he can well forego. If but a small
fraction of these economically useless expenditures were translated
into reductions in the price level, the gain in public purchasing power
and the resulting stimulus to production and employment would be
material.
During recent years, there has been a very marked trend in the
■direction of rendering available to the consumer more accurate infor-
mation— and less misinformation — regarding the character of the
various commodities on our markets. The impetus has come from
a number of sources. Consumers themselves have shown a growing-
awareness of their interest and have formed increasingly effective,
organizations. Direct pressure has been exerted upon businessmen,
particularly upon retailers, to furnish adequate technical descriptions
of the commodities they offer for sale. Marked success has been
achieved in the field of textile fabrics; accurate designations of fiber
content and weave have been substituted for confusing names designed
to conceal rather than to reveal the true nature of the product.^
Businessmen, intelligently aware of their self-interest, have con-
tributed materially in many fields. Alarmed by the unnecessary and
' standard specifications developed by the Bureau of Labor Statistics for use in compiling Its retail price
•uata have stimulated the interest of many retailei'S in the accurate designation of textile products.
5g CONCENTRATION OF ECONOMIC POWER
expensive multiplication of grades and container sizes, they have
cooperated with Government and the consumer in programs of simpli-
fication. . Canned goods, accurately labeled as to grade, have appeared
on the market. The results of laboratory tests of competing products-
have been publicized. Of course these moves have encountered
material resistance but they have progressed notwithstanding.
Finally Government — both Federal and State— has intervened
actively. The National Bureau of Standards has cooperated with
industry in the move for standardization. The Federal Trade Com-
mission and the Food and Drug Administration have done much to
combat misrepresentation and to further informative labeling. Con-
gress has materially facilitated the work of these agencies by passing
the new Food and Drug Act and the Wheeler-Lea Act.
To summarize, the increasing emphasis upon the nonprice aspects
of competition, like most broad economic trends, is not susceptible to
unqualified appraisal. In part it is an inevitable reflection of changing
technology; in part the result of more controllable forces. Some of its
manifesta-tions and results are probably desirable, others are question-
able, \v^hile still others seem definitely to impair economic efficiency.
The most clearly undesirable aspects of this trend seem to arise
from coercive and collusive devices designed to restrain or eliminate
price competition. Public policy has been traditionally and properly
concerned with opposing such devices.
At the same time Government can encourage, both by cooperative
and by regulatory action, the improvement of comnxodity information
and the development of adequate standards of quality and perform-
ance. Such a program seems well designed to discourage inefTicient
and detrimental manifestations of nonprice competition.
The following sections of this chapter do not present a compre-
hensive record either of the causes or the effects of nonprice competi-
tion. They treat a few outstanding types of competitive patterns,
selected partly because of their importance and partly because of the
availability of data for statistical measures. A brief review of somfe
of the causes and implications of the trend away from jprice competition
is first presented, followed by a discussion of the role of quality as an
outstanding focus of nonprice competition. Certain specific com-
petitive techniques are then examined and their significance to the
functioning of the economy appraised. The first of these is the prac-
tice of price lining as exemplifying the manner in which business con-
vention may alter competitive emphasis. The second relates to the
use of brands, trade-marks, and fidvertising as means of distinguishing
the products sold by business rivals. The last examines the way in
which competitive strategy is continually altered to avoid restraints
imposed upon any specific form of competition either by Government
or by industry. Finally, the conclusions derived from this analysis
are considered in their relation to theforinulatjpn of Government policy.
PRICE VERSUS NONPRICE COMPETITION — THE SETTING OF THE PROBLEM
The changing jocus oj competition. — Many recent studies of the work-
ings of our economy maintain that competition has for years been
dechning in intensity and scope. To quote from one of these:
An industrial organization which was in the broad sense competitive has
become diminishingly so during the past half century * * *
*******
GONCENTRATION OF ECONOMIC POWER 59
Competiti^ o capitalism was given a protracted and thorough trial in the
United States after the Civil War. Although legal institutions were framed
with a broad and consistent regard for the assumptions of competition, capitalism
failed to preserve its competitive quality * * *
*******
The rise of the "heavy industries," changes in methods of selling, and the
widening use of the corporate forms of business organization are bringing, if they
have not already brought, the era of competitive capitalism to a close.*
This point of view has, of course, been vigorously challenged.
Specific illustrations of industries in which competition seems to have
become less intense during the past generation ape countered with
examples of other industries, such as petroleum, in which earlier
monopolistic controls have apparently abated. The evidence for
either side is largely an assembhng of individual type cases; even for
those the data available often permit, conflicting inferences. More-
over, agreement is even lacking as to prcciseh' what constitutes,
competition. Neither set of arguments seems at present conclusive.
Although proof of the thesis that competition is declining appears
inadequate, there is abundant evidence that the focus of competitive
effort has been shifting. In many sectors of the economy price com-
petition has dwindled in importance and sometimes even disappeared.
The nonprice aspects of competition have been emphasized instead.
However, this redirection of competitive strategy cannot of itself
be accepted as synonymous with a decline of competition. In
some instances it has probably been concurrent with an actual reduc-
tion in the intensity of the competitive struggle; nor is evidence lacking
that this has at times been its specific purpose. Yet there are cases,
though perhaps less typical, in which the converse is true and in which
emphasis upon factors other than price has intensified rather than
tempered the struggle between business rivals. What the net result
for the economy has been, on balance, is probably impossible to
determine. The available clues are fragmentary. Intensity of com-
petition is an abstract concept, not susceptible of quantitative
appraisal,^
Nor docs it seem particularly important, even for abstract discus-
sion, whether the trend toward nonprice competition has or has not
carried with it an appreciable abatement of the competitive struggle.
The significant issue, from the standpoint of public policy, is more
immediate and practical. The forms which competition takes
intimately affect the ways in whi^h our resources are utilized, they
influence the cyclical swings of business activity, and, in the long run,
the consumer's standard of living.
Nonprice competition is of particular importance to the standard
of living of consumers because of the extent to which it affects retail
markets and the everyday necessities of life. The amount which a
family must spend for food, clothing, groceries, drugs, and cosmetics
is related to the manner in which business concerns selling these prod-
ucts choose to compete, by their decisions to stress or skimp quality,
to advertise more or less intensively, to pack simply or elaborately,
to favor or oppose retail price-cutting, and so on. This is clearly a
matter of broad public concern.
* The Decline of Competition, by Arthur E. Burns, 1936, pp. v, 1, 40.
' However, some attempts nave been mafie to measure degree of monopoly power. See. for;example —
Michael Kalocki— A Theory of Commodity Income and Capital Taxation, The Economic Journal, Sep-
tember 1937, vol. XLVII, p. 444.
A. P. Lcmer— The Concept of Monopoly and the Measurement of Monopoly Powers, The Review of
Eeonomic Studies, vol. I, No. 3, June 1934.
60 CONCENTRATION OF ECONOMIC POWER
A wide variety of forces has contributed to the trend away from
the price aspects of competition. Some of these have been considered
eariier in this report; the salient points will be repeated here for the
sake of completeness. Among the most important of these forces are
the technological developments of recent years, reflected in the in-
creasing complexity, dijfferentiation, and the ever-changing character
of the commodities on our markets. As commodities increase in
number and complexity, it becomes more and more difficult for the
purchasers to form accurate estimates of their serviceability and utility.
Price differences become an ever less satisfactory yardstick for guiding
the buyer's selection. Even the most expert professional purchasing
agent often faces great difficulty in attempting to translate physical
product differences into terms of price. For example, the calculations
which a manufacturer must make in choosing between alternate makes
of machinery or different types of motive power unit involve a host
of variables, many of them based upon hazardous forecasts of future
trends; the initial price may be only a very minor consideration.
Even the raw materials of industry have multiplied amazingly. Syn-
thetic fibers, new alloys, and plastics of all kinds confront the industrial
buyer with a constantly increasing variety of choices wliich he must
make. As a result, the significance of price in guiding his choice is
much diminished.
The problems of the expert industrial buyer, difficult as they are,
are far less overwhelming than those which the technically untrained
consumer faces. There are today relatively few products on retail
markets which can be compared upon a simple price basis. Even
apparently standard products like salt or sugar have been packaged
or branded in such a way as to discourage reliance upon price alone.*
Increasing product complexity and differentiation has therefore
limited the significance of price comparisons, while it has correspond-
ingly emphasized the nonprice aspects of competition. In large part,
this has simply reflected the inevitable effects of technological develop-
ment. To an extent, however, there has been a deliberate policy on
the part of businessmen to accentuate the apparent differences between
their products and those of their rivals, for the specific purpose of
diverting competition into nonprice channels.
Many businessmen, probably a substantial majority, have long pre-
ferred to emphasize the nonprice aspects of competition and to subor-
dinate price appeal. There are many apparent reasons for this pref-
erence. Perhaps the most important is that consumer good will based
upon nonprice factors tends to be more lasting than that depending
simply upon price appeal. The manufacturer whose sole selling argu-
ment is price must continue to undersell his competitors indefinitely.
Should they meet his offer, his advantage is gone. On the other
tand, if he has in some way succeeded in creating a demand among
buyers for his products because of their quality, or appearance, or
packaging, or through the effective use of trade-marks or advertising,
his position in the market becomes more secure. He is not as vulner-
able to price reductions made by his competitors as would be true if
he depended exclusively upon price appeal. He achieves a protected
sector of the m.arket to the extent to which buyers have become
accustomed to attribute especially desirable qualities to his wares.
• For afuller discussioi: of the effect "of brands and trade-marks upon price competition, see pp. 75-90 below .
CONCENTRATION OF ECONOMIC ^OWER Ql
With it he also attains some latitude in determining his own price
policy without the need of constant reference to what his rivals are
doing.
In a sense, the maintenance of a market position based upon non-
price appeal requires continual vigilance over the long run, just as
does one based upon price appeal. Thus, good will built up by the
intensive use of advertising cannot be long retained if the advertising
is discontinued. Nevertheless most, though not all, businessmen
seem to find this less onerous than the maintenance of a poHcy of
continually underselling competitors.
Moreover, business rivals often bitterly resent the tactics of the
firm which constantly strives to undersell. The price cutter conse-
quently risks reprisals in the form of retahatory cuts, which often
culminate in costly price wars. Even if his rivals' products or prestige
are admittedly superior, they are often reluctant to permit him to
undersell them by an amount sufficient to compensate for this
disadvantage.
From the point of view of the seller, price appeal also has a certain
disadvantage in that its value can be measured in precise terms.
A price reduction by one firm loses its competitive force completely
if some other firm exactly matches it. On the other hand, even an
intrinsically insignificant change in the character of the product or in
the context of its advertising cannot often be matched so exactly,
and the advantage gained thereby is more hkely to persist.^
As the business-getting potentialities of nonprice competition have
been more thoroughly explored, price competition has fallen not only
into disfavor but also into disrepute. Many trade associations have
-condi cted long and vigorous campaigns to persuade their members
'that price cutting is an unethical practice; today the price cutter is
'videly considered a chiseler. The value of price reductions in expand-
ing markets has been ignored or underemphasized ; it is contended
instead that they disrupt the standards of an industry and create
distress to all its members. Price "stabilization" is held forth as the
desired goal.
A frank expression of this point of view by a prominent industrial
engineer and trade association manager follows:
If I were in a position to write the ticket for industry in this country, I should
give each industry the right to name the prices at which its products should be
sold, and I should enforce these price determinations through the due process of
law. In my opinion, these prices should be based on certain factors which would
insure absolute fairness and equality of treatment to capital, management, labor,
and consumers — four factors involved in every transaction. I should determine
these prices on the average industry cost, using replacement costs for raw material,
adequate wage rates for labor, and overheads based on a reasonable use of the
facilities of the industry. I should not expect this cost to include carrying charges
on idle, unused, or excessive capacity. Executive salaries should be checked and
should bear a reasonable relationship to the size of the company' involved.^
Among those who advocate eliminating price competition are many
who hold no strong brief for the nonprice forms of competition either.
Some at least are striving toward a market in which each firm is con-
tent with its allotted share of the total business available, and makes
' Of course some nonprice features— e. g., the terms of a guarantee— can be matched just as precisely as
price. Nevertheless, the proposition is broadly valid.
• Stevenson, Charles R., Price Control and the Allotment of Business — address delivered before the
National Association of Cost Accountants, June 26, 1934.
02 CONOBNTRATION OF ECONOMIC POWER
no effort to increase that share by the use of either price or nonprice
tactics. The ehmination of price competition is to some people merely
a step to the ultimate goal, the elimination of all effective competition.
As a preliminary step, however, they prefer to see sales effort devoted
to nonprice channels as a less obnoxious form of rivalry for business.
The development of certain business customs and conventions has
also served to divert competition from price channels. Among the
more important of these is the establishment of fairly rigid." price lines"
for a wide variety of commodities. The effects of this practice are
considered subsequently. (See pp. 70-75.)
Whether on grounds of expediency, custom, or ethics, therefore,
the business world at large, with some notable exceptions, has (?ome to
frown upon price competition. In order to make this disapproval
effective, ingenuous techniques have been devised for eliminating
price competition by fixing (or more euphemistically "stabUizing")
prices in many lines of industry. Many of these have proved extremely
effective. This phase of the subject, however, is not within the
province of this report.
At times Government, both Federal and State, has intervened in
ways calculated to limit the freedom of price competition. The most
comprehensive step of this kiad was the regulation of trade practices
under the N. R. A. At the present time such regulation is much more
narrowly confined, existing primarily in the field of public utility
rates, of bituminous coal, and of certain farm products.
In addition to such direct fixing of prices, other kinds of legislation
have served to limit price competition to some degree. For example,
the Fair Trade Acts which are now in force in 44 States, together with
the MUler-Tydings Enabling A^t, permit manufacturers to fix mjii-
mum resale prices for articles bearing their identifying brand or trade-
mark. As between retailers, therefore, competition, on the sale of
items of the classes affected, particularly of drugs*, toiletries, cos-
metics, books, and liquors has been forced to a considerable extent into
nonprice channels.
Many States have enacted Unfair Practices Acts which prohibit
sales below cost, with the term *'cost" defined in various ways. While
these laws do not of themselves suppress price competition, there is
some evidence that trade associations in a number of areas have used
them as a vehicle for fairly rigid price control.
Mention may also be made of the antidiscrimination laws, such as
the Robinson-Patman Act, though their effect is somewhat less
obvious. To the extent to which sellers are required to maintain
uniform prices to all buyers, they are rendered unable to seek particular
sales by cutting prices. If they choose to rely upon price competition
as their primary sales argument, they must cut prices simultaneously
to all comers. Naturally, many sellers are far more reluctant to take
such a broad step than to reduce prices on individual transactions.
In this way, therefore, antidiscrimination laws may restrict ■ price
competition and may favor the emphasis of nonprice factors.
Numerous other developments have undoubtedly affected the trend
away from price competition. For example, changes in market
structure, such as the number of buyers or sellers in a given market or
modifications in channels of distribution have exercised an influejice
upon the focus of competitive strategy. However, such forces,
CONCENTRATION OF ECONOMIC POWER g3
important as they be, have been less consistent in their direction and
perhaps less significant in their net effect than those which have been
]ust discussed.
Prices related to nonprice elements of the transaction. — So far, the
terms "price competition" and "nonprice competition" have been
used broadly to denote different general patterns through which busi-
ness rivalry expresses itself. Actually, of course, they are not mutu-
ally exclusive terms and it is difficult to draw the precise boundary
between the two.
A host of elements enter into the exchange between the buyer and
seller which constitutes the general business transaction. Some of
these, as, for example, trade discounts, are clearly translatable into
terms of exact price equivalents. Others, such as brand prestige, or
streamlined design, or neon lights in front of a retail store, are not
translatable into price equivalents and may, therefore, be considered
forms of nonprice competition.
In between, however, there is a wide variety of elements on the
border line which cannot be clearly assigned to either category.
Premiums offered in connection with sales at retail constitute one
example. Sometimes the premium offered is of a character which may
be Considered the direct equivalent of a monetary rebate, as in the
case of profit-sharing coupons, or it may take the form of some
specific article whose value is readily measurable in terms of doUars
and cents. Presumably, premiums of this kind might be considered
forms of price competition. On the other hand, many premiums have
a less tangitjje valiie, as in the case of pins denoting a child's member-
ship in some club organized for advertising purposes. Similarly
credit terms, particularly on conditional sales, have both price
aspects, such as the rate of interest, and nonprice aspects, such as the
form of security demanded or the conditions under which the article
sold may be repossessed. Guarantees expressed in general terms, or
which fall well within the expected performance of the merchandise in
question are largely of a nonprice nature ; however, if the guarantee
stipulates a specific performance, with a bonus for exceeding the
guarantee and a penalty for failing to come up to it, the price aspect
may be paramount. Certain elements of quality yield satisfactions
difficult to measure in terms of price; others such as the heat content
of fuels or the tensQe strength of steel are often directly translatable
into price equivalents.
It is apparent, therefore, that no strict line of demarcation between
price competition and nonprice competition is practicable. Conse-
quently the two terms should be understood to relate to broad trends
of business strategy rather than to any specific practice or set of
practices.
ASPECTS OF NONPRICE COMPETITION
Quality and performance. — Perhaps the most important single avenue
through which nonprice competition expresses itself is the actual
physical quality or content of the goods involved. Of all the nonprice
elements entering into the ordinary transaction, this seems to be the
most universally significant. Moreover, it is probably the outstand-
ing single factor conditioning the interpretation of price statistics.
QuaUt^ itself is by no means a simple concept. For any single
commodity it may invohe a host of variables. In the case of auto-
g4 CONCENTRATION OF ECONOMIC POWER
mobiles, for example, any appraisal of quality must include durability,
gasoline consumption, probable frequency and cost of the necessary
repairs, appearance, comfort, riding qualities, safety, ease of manipu-
lation, "brilliance" of performance, and so on almost indefinitely.
Each one of these may be subdivided further; thus economy of opera-
tion is a function of the speed at which the car is to be driven, as well
as of the roads over which it will be used. Some of these character-
istics, e. g., gasoline consumption, may be expressible in quantitative
terms. Others, such as appearance, defy such measurement.
All of these factors modify the significance of price quotations.
Some, as has been said, are relatively concrete and tangible; for
example, it is possible to arrive at estimates of the durability of cer-
tain kinds of goods. Chart VIII compares the price of automobile tire
casings with their average life during the last 27 years. Between
1913 and 1937 average tire life in years more than tripled; during the
shorter period' since 1926, there was an increase of almost 70 percent.
La terms of mileage, the increase in durability was undoubtedly even
greater, since the average car travels much farther in a year than was
true 20 or 30 years ago. It is apparent that the trend of the prices
charged for automobile tires tells only part of the story.
Similarly, in the case of mechanical refrigerators there has been a
substantial increase in durability since 1920, although the change
during the past decade has not been so great. In 1920 the average
life expectancy was 6 years; in 1926 it was 1 1 years; in 1930 it was 13
years, and today it is 15 years.
Economy of operation .is another element of quality competition
which may be approximately measurable. For example, the average
current consumption for 6-cubic-foot electrical refrigerators was re-
duced 21 percent between 1931 and 1938.^
Similarly, according to a recent study, operating costs per mile for
automobiles were reduced by more than 40 percent between 1925 and
1937; a significant component of this reduction was a decline of almost
70 percent in repair expenses per mile.^°
A comprehensive survey of some of the more measurable elements
of quality in the case of farm machinery was published by the Amer-
ican Society of Agricultural Engineers in 1933." This study sought
to appraise these changes in quality in quantitative terms. It was
concluded that changes in a wide variety of operating characteristics
between 1910-14 and 1932 could be expressed as composite percent-
ages of improvement.'^
» According to tests made in 1931 by the Procurement Division of the Treasury, the average consumption
of a 6-cubic-foot refrigerator (five makes) was 44 liilowatt-hours per month. In 1938 a test based on 14 makes
of refrigerators showed that the 6-foot box was consuming on the average only 35 kilowatt-hours per month.
'« TheDynamicsof Automobile Demand, General Motors Corporation, 1939; p. 117. (Part of this decline
in operating costs is attributable to the lower prices and greater durability of tires.)
" Report of an Inquiry into Changes in Quality Values of Farm Machines Between 1910-14 and 1932
pt. I, pp. 5 and 6.
n Quoting from this report:
"It was also decided to limit the study to 25 typical farm implements already highly developed and in
general use in the pre-war period, and not to go into the field of automobiles, trucks, and tractors which,
owing to their later development, present different questions and would call for a separate study.
"Changes in the design, material, or construction of a farm machine, or any part thereof, may add to its
quality value in a number of ways, of which the following are worthy of special consideration:
"1. Greater durability and prcduciive usefulvess.— The value of this quality is measured In terms of units of
service rendered during the life of the machine, such as acres oT land plowed, planted, cultivated, or. har-
vested; bushels of grain threshed or shelled; pounds of food ground; quantity of cream separated, etc.
"2. Reduction in the replacement of wearing parts. — Most machines have certain parts which in normal use
are subject to wear. Farm machines are so designed as to make the replacement of these wearing parts
convenient. The use of wear-resistant materials, such as heat-treated or alloy steels and corrosion-resisting
CONCENTRATION OF ECONOMIC POWER
65
QQ CONCENTRATION OP ECONOMIC POWER
Quality changes are not usually- thought of in connection with
such relatively standard items as steel, yet even here they may be
of material importance. Thus, during the last 15 years there have
been distinct improvements in the quality of ordinary structural steel.
Government specifications in 1933 stipulated an ultimate tensile
strength of 55,000 to 65,000 pounds per square inch with a minimum
yield point of 30,000 pounds. Present specifications called for an
ultimate tensile strength of between 60,000 and 72,000 pounds with
a minimum yield point of 33,000 pounds per square inch. These
changes have been reflected in modifications of standard design re-
quirements. For example, 12 j^ears ago the Procurement Division
based its structural steel design upon a working strength of 16,000
pounds per square inch. As the quality of steel improved, the work-
ing strength was increased to 18,000 pounds and, 5 years ago, to
20,000 pounds per square inch. In other words, the tonnage of steel
materials, not only means less expense for replacement parts, but less labor and time are required for re-
placements.
"3. Redaction in loss of time due. to failure of machines to function continuously. —The value of fnrm machines
(through improvement in design) is advanced by their ability to operate continuously without delay due
to choking, clogging, or the failure of any part to function properly
"4. Less breakage of machine parts.— The. making of machine parts of the proper design and of high-quality,
reliable materials results not only in a reduction of the expense for broken parts, but also in a saving of labor
and time for making the repairs. Furthermore, owing to the importance of timeliness for many farm oper-
ations, the dependability and freedom from breakdown of a farm machine is of great value. Many safety
features, such as spring releases for plows, have been introduced to protect machines from breakage.
"5. Increased efficiency in the use of energy. — The value of a farm machine is raised when a stated amount
of useful work can be accomplished with the consumption of less energy or power. Increased efficiency is
secured by the elimination of friction losses through the use of friction-reducing bearings, better lubrication,
and also by the introduction of mechanisms and features of design by which energy is applied more effec-
tively to the work to be accomplished. For instance, the advance in the design and manufacture of silo
fillers, or ensilage cutters, has resulted in easily doubling the output of useful work per unit of energy con-
sumed.
"6. Increased capacity of machine. — With the use of better design, better quality materials, and improved
construction, the capacity of many machines may be increased b> ^ permissible higher speed of operation.
Most field and belt-driven machines may now be operated at higher speeds with a corresponding increase
in output.
"7. Improved operating efficiency. — This quality is represented by the more efficient functioning of ma-
chines such as the more thorough elimination of weeds through cultivation, the harvesting of a crop with
less waste, or the removal of waste and weed seed from threshed grain.
"8. Improvement in operating precision.— Although related to operating eflSciency, precision in operation
and control represents a value not wholly covered by this term. This characteristic is indicated clearly by
accuracy in seeding machines, fertilizer machines, control of machines, etc.
"9. Reduction in time required to care for machines. — The time required to properly care for the lubrication
and adjustment of machines may be an important consideration as the output of useful work is influenced
thereby. Many current machines require lubrication only one-tenth as often as earlier machines on account
of enclosure of working parts, improved oilers, grease cups, etc.
"10. Reduction in lost time and expense due to accidents. — Important advances have been made in protecti'ng
life and limb by safety releases, better guarding of working parts, etc., reducing the loss in time and money
caused by accidents.
"11. Greater economy through improved operating devices. — Power lifts, balancing springs, convenient levers,
and adjusting devices make it possible to operate machines with a saving of time and effort.
"12. Increased efficiency through lessening operator's fatigue. — A more comfortable and efiScient position for
the operator, better protection for him from dirt and dust, and elimination of excessive vibrations contribute
definitely to the value of a machine, making possible more continuous operation over longer work periods.
"Being already familiar to a considerable extent with the construction, field operation, and testing of farm
machines, and the changes therein during the period under consideration, the authors felt that their task
should be primarily one of inspection, comparison, and appraisal rather than actual field tests. Obviously
the time and expense required would completely prohibit determination through following and comparing
the operation of 1910-14 and 1932 machines of the same type and purpose under varying conditions of soil,
crop, and climate.
"Accord ingly, the authors made a detailed examination of twenty-five machines of 1932 in comparison with
similar machines of 1910-14 at the plants of three prominent farm-machinery manufacturers where machines
of both periods were made available, together with the engineering records and data relating thereto. Be-
sides comparing and checking the machines part by part, the authors also questioned at length a number of
tngineers who have been devoting themselves to the development of these particular machines during the
past 25 years.
"In addition, the authors were provided' with chronological record of changes in machines, reports on
elaborate and extended shop and field tests made to determme the results of these changes, and the findings
and opinions of the engineers in question. The authors also called for and were supplied with data bearing
on the reduction in the demand from farmers for certain repair parts after changes were made, and on this
point were convinced that in many instances such reductions were extensive and signiicant.
"Further, in order to evaluate more accurately the effect of changes in the life and performance of the
machines considered, accelerated tests of wearing parts were made and laboratory tests of m&ny important
typical Darts, old and new, were conducted in the presence of the authors.
"The various changes in each of the 25 types of machines and the conclusions of the authors with respect to
their separate and combined effect on quality values are set forth fully in the detailed studies of each machine
contained in this report."
CONCENTRATION OF ECONOMIC POWER 07
required for a specific structure can be substantially less today than
it was before these changes in specifications and in design require-
ments. At the same time efiicient, wide flanged shapes were intro-
duced following the development of new. types of rolls for I beams;
these new shapes have also permitted lighter and more economical
design.
Many other criteria of quality are subject to some sort of concrete
measurement or specification. Among these may be listed the fiber
content or construction of cloths, the fabric and some aspects of the
workmanship of apparel, the leather used in footwear, the quality of
certain foods for which grades have been established, the metal con-
tent of silverware, etc. All of these elements are to some extent
physically determinable. It is manifestly impossible to compile a
complete list.
As a rule it is difficult or impossible to translate these quality
changes into price equivalents; the significance of price indexes based
upon quoted prices is limited accordingly. For automobiles, which
are of course exceedingly complex, there has been an attempt to devise
a price index which would show changes not only in price but also in
weight, wheel base, and horsepower expressed in terms of price. The
technique used involves many assumptions and a complex statistical
procedure; it is mentioned here merely to illustrate the variety and
significance of the many components of quality.^^
In addition to variables of this kind, there is a wide variety of less
tangible factors entering into the concept of quality which cannot
yield to any form of precise specification. Yet these intangible
elements are often of primary competitive importance; they may
largely determine the consumer acceptance of a product and must be
considered in any interpretation of price behavior. In the case of
apparel, for example, the consumer is more interested in the elusive
element of style than in physical specifications of cloth or workman-
ship. Similarly in the sale of food, the purely subjective factor of taste
or flavor may largely determine the popularity or failure of the prod-
uct. Reverting again to automobiles, the success of a model may be
more directly affected by the design or ornamentation of its hood
than by the efficiency of its carburetor. The color of bathroom
fixtures may exercise a not inconsiderable weight upon a prospect's
decision to purchase or rent a home.
Some of these elements of style, appearance, or comfort may have
a relation to objectively measurable characteristics. For example,
it may be that most consumers prefer the flavor of canned foods
meeting the grade A requirements of the Bureau of Agricultural
Economics to those which would be classed as grade C. Attractive
style is often associated with superior workmanship. Yet such
relations are often fortuitous. A high quahty grade is not a necessary
guarantee of desirable flavor; conversely, many may prefer the flavor
of certain grade C products to others classed in grade A. In general,
" Andrew T. Court describes this attempt to devise a hedocic price index in The Dynamics of Auto-
mobile Demand, op. cit., pp. 99-117. His procedure was based upon computing equations of multiple
regression for price in terms of weight, wheel base, and horsepower for the standard models of all the more
important makes of cars during each year. This technique was designed to determine the valuation placed
by the market upon each of these factors. Court listed, in addition, various other determinable elements
of quality, such as tire section, the period of the front spring, front seat width, top speed, rate of deceleration
and acceleration, rate of depreciation, etc. Of course any important change in design affecting the signifl-
cance of any of these elements, such as the introduction of a new lightweight structural alloy, would seriously
impair the usefulness of an index of this kind.
gg CONCENTRATION OF ECONOMIC POWER
the preference or whim of consumers cannot be confined within rigid,
definable categories. . .
It is apparent, then, that the range of quaUty competition may
extend from such precisely measurable characteristics as durabiUty,
operating economy, tensile strength, or fuel value to such relatively
indefinable elements as taste, style, comfort, or exclusiveness.
The degree to which any of these factors is actually emphasized in
business sales strategy varies widely for different commodities. Thus,
in sales to expert buyers (e. g., industrial, institutional, or Govern-
ment purchasing agents) technical specifications and tested char-
acteristics of performance are usually more important than such
elements as style or appearance. In deahng with the comparatively
imtrained ultimate consumer, on the other hand, less stress usually
is laid upon performance data and more upon style, taste, and eye-
catching features.
The focus of competition is materially affected by the degree to
which any element of the transaction has become standardized by
business practice, or custom, or by Government regulation. Thus it
has been pointed out that price uniformity favors the shift of com-
petitive pressure into nonprice channels. Similarly the standardiza-
tion of any element of quality necessarily reduces its value as a selling
argument. The increase in tensile strength of structural steel is of
considerable importance in the interpretation of price statistics;
however, since all steel plants are equipped to produce the same grade
of steel, it is not a basis for rivalry between them.
To the individual seller, therefore, certain phases of quality com-
petition involve problems similar to those which have been described
in connection with price competition. Where changes in quality are
such that they can 'be accurately measured and precisely duplicated,
their efficacy as a competitive weapon is thereby limited.
The following quotation expresses this dilemma which faces rival
sellers when their products approach imiformity:
The selling of refrigerators requires the massing of all conceivable sales influ-
ences. It becomes evident to one who compares the methods of the leading
companies that mere sharp angles will not sell refrigerators any more. As an
industry matures, angles disappear and products approach uniformity. Adver-
tising at the same time takes on a similarity.
Probably nothing is so striking about the refrigerator advertising as its simi-
larity. Probably no one feels this more keenly than the advertisers themselves.
Assuming that .Joe Doakes, the common man, has an analytical mind, he doubtless
compares the advertising of the leading makes with growing confusion. It is
certainly impossible for him to decide from the advertising which of them is best
for his purposes."
Conseauentlv, there has been some oendency for sales emphasis to
shift to tnese elements of quality which cannot be so readily imitated,
particularly for consumers' goods. Sellers of groceries rarely mention
their conformity with government standards of quality; sellers of
dresses do not usually emphasize fiber content;'^ cosngetics are com-
monly sold without reference to the quality of their ingredients.
Instead it is flavor, style, or attractive containers which constitute
the focus of interest. Distinctive appeal is far more readily attained
on the basis of the latter elements of quahty than on that of the former,
and is subject to ingenious variation to maintain leadership.
'< Printers' Ink Monthly, August 1937.
'•There has been a growinp tendency to indicate the fiber content of apparel on the label, partly as a result
of Federal Trade Commission activity. However, style usually reinnins the primary form of competition.
CONCENTRATION OF ECONOMIC POWER 59
Guarantees. — Closely akin to quality as a basis for competition are
guarantees offered by the seller. For example, an important consid-
eration in connection with the purchase of an automobile is the dura-
tion of the period diu^ing which the seller guarantees to remedy any
defects free of charge. This is perhaps even more important in the
case of used cars than in the new car market. The average purchaser
would prefer to pay substantially more for an automobile purchased
from a reputable dealer than for one bought directly from its private
owner, because of the possibility of recourse in the former case for
defects which are not observed at the time of purchase. Automobile
tires have already been mentioned as an outstanding example of the
importance of the guarantee. In the case of electric refrigerators the
general practice is to guarantee replacement of cabinets, shelves, trays,
accessories, refrigeration imit, and controls in case they become un-
satisfactory within one year of purchase due to any defects in manu-
facture. In addition, the refrigeration unit is commonly guaranteed
for an additional 4 years. In some cases this latter guarantee is
included as part of the purchase price. In others, the guarantee is
optional with the purchaser; he can, if he wishes, pay an additional
$5 for this added protection. Here there seemi3 to be a direct equiva-
lence between the price difference and the guarantee.
From the competitive standpoint, simple guarantees of this charac-
ter are subject to somewhat the same hmitations as price appeal.
Their terms can be matched exactly; once a practice has become uni-
form in the industry, the offer of the guarantee is no longer a competi-
tive asset. Thus, the present system of refrigerator guarantees seems
to have become the general practice in 1936. The effect of this
uniformity is commented upon in an editorial in a trade publication:
"is the 6-tear guarantee necessary
"A recent trip into the field reveals the fact that electric dealers are highly
dissatisfied with the epidemic of 5-year guarantees which seem to have broken
out in the national advertising of the electric refrigerators.
"Originally the guarantee found an excuse for itself in that it was the exclusive
promise of one company and so formed a sales argument for the salesmen handling
that line. Now, when practically every manufacturer makes the same promise, it does
not even offer a talking point against rival makes. "^^ (Italics supplied.)
Other common forms of guarantee are often important aspects of
the transaction. Thus, certain sets of china and glassware are sold
with the guarantee that additional pieces can be purchased as desired,
usually for stipulated periods of years. These so-called open sets
may sell for substantially higher prices than other sets of identical
quality.
In the wholesale markets, an important form of guarantee is the
guarantee against price decline. For example, the purchaser of fer-
tilizer may be protected against any reduction in the price level during
the balance of the selling season. Sometimes such guarantees extend
only to price changes by the specific producer involved; sometimes
the buyer is protected against any price reduction initiated by any
important competing seller. Guarantees of this latter kind greatly
limit, if they do not eliminate, the scope of price competition. They
make it unnecessary for the purchaser to compare competing price
offers or to delay his buying in anticipation of future market declines.
" Electrical Merchandising, December 1936, p. 22.
7Q CONCENTRATION OF ECONOMIC POWER
Price guarantees may also have the collateral effect of reducing price
flexibiuty during the periods covered. Since price cuts apply not
only to future but past sales, the reluctance of sellers to reduce prices
is correspondingly increased.
PRICE LINES
The foregoing pages have described the multiplicity of nonprice
factors which can be varied to furnish a basis for competitive rivalry
and the variety of industries in which they appear. It is important
to emphasize that the presence or absence of price competition is not
of itself a criterion of monopoly or collusion. While it is probably
true that active price competition is infrequent in monopolistic
markets, it is also possible for competitive rivalry to center largely
or exclusively upon nonprice elements even in highly competitive
industries.
The nature of the commodity may be such as to make price com-
parisons difficult and emphasis upon nonprice factors logical. Where
this tendency exists, it may be reinforced by the development of
conventional patterns of business practice. The so-called price lines
which characterize the retail and wholesale markets for a fairly wide
variety of commodities furnish an outstanding example of such
crystallization of business custom.
Price lines are most commonly associated with the apparel market.
In the case of women's dresses, for example, a series of definite whole-
sale prices has become established by the accumulation of habit and
tradition. These are:
$1.87>^ each
2.25
2.87/2 "
3.75
4.75
6.75
7.75
8.75
$10.75 each
12.75 "
14.75 "
16.75 "
19.75 "
22.75 "
29.75 "
39.75 and over
Manufacturers and wholesale buyers of dresses have come to accept
these lines as virtually immutable," except that new lines may be
added when extreme changes in cost occur. They are rarely, if ever,
considered subject to modification by bargaining. In planning pro-
duction, the manufacturer carefully estimates the material and labor
costs which will be required to produce a desired model and then
makes such modification in the design as wiU be necessary to permit
him to sell the product at one of these accepted fines. The com-
petition between two manufacturers producing, say, a $6.75 dress
will center not upon the price, but upon the quality of materials, the
quafity of trimmings, the workmanship, and the amount of style.
The efforts of the buyer similarly will be concentrated upon obtaining
the maximum value at a given price and not upon breaking down the
price line itself.
It is probable that even rigidly established customs of this sort
may be somewhat shaken during periods of severe economic stress as,
for example, during the buyers' market which prevailed during the
trough of the depression. Thus, it may be significant that the mem-
" The prices listed are gross prices subject to standard trade and cash discounts.
CONCENTRATION OF ECONOMIC POWER
71
bers of the corset and brassiere industry deemed it advisable to stipu-
late rigid adherence to accepted price lines as a code provision during
N. R. A. The clause in question follows: ^*
Wholesale prices. — To maiDtaih established trade practice, and to liroit the
multiplication of numbers, but without any attempt at price fixing, each person
being free to determine the value to be given at each price, the following shall be
the wholesale prices, per dozen, for sale to retailers (except chain stores selling
up to one dollar ($1) retail), and no intermediate prices may be used:
$2.00 doz.
2.25
3.25
4.00
4.25
4.50
6.00
7.00
8.00
$8.50 doz.
10.50
12.00
15.00
16.50
18.00
21.00
22.50
24.00
$27.00 doz.
30.00
33.00
36.00
42.00
48.00
54.00
60.00
66.00 and up.
Price lines in the wholesale market are reflected in a similar though
perhaps slightly less invariable practice at retail. This is illustrated
by the prices reported by the Retail Price Division of the Bureau
of Labor Statistics, covering the quotations of representative retailers
32 cities. For example, 114 quotations for women's medium
m
Price — Continued.
$4.69.
$5---,
$5.50.
Number of
guotatioTU
.... 1
.... 1
.--- 67
.... 2
Total 114
quality, woven elastic girdles, retailing from $2.95 to $5.50, showed
the following distribution as of June 15, 1938:
Number of
Price: quotations
$2.95 - 4
$2.98 2
$3.39 1
$3.50 32
$3.59 1
$3.95 2
$3.98 1
In other words, 99 of the 1 14 price quotations were concentrated at
2 figures — $3.50 and $5. Only 15 quotations, or 13 percent of the
total, were at intermediate figures.
Similar concentration of retail prices exists for many other apparel
items. For example, 396 quotations were reported for women's
hose ranging from 69 cents to $1.15 per pair. Of these, 119 were at
79 cents and 154 at $1. These two prices alone accounted for 61
percent of the total.
Although apparel, and particularly women's apparel, furnishes the
most conspicuous example of price lining, the custom is by no means
confined to these fields. Such products as electric refrigerators,
vacuum cleaners, and radios also show a distinct tendency toward the
establishment of a limited number of price lines. Table 21 in chapter
IV (p. 162) illustrates the effect of this practice in the case of refrig-
erators. During 1939 all major producers with one exception quoted
list prices which were almost identical for each size.
The retail prices of vacuum cleaners are usually spaced at $10
intervals between $39.95 and $79.95. It is apparently the opinion of
the trade that intermediate levels, such as $42 or $56, would meet
with customer resistance and could not be used. Similar variations
apply to radios.'*
" National Recovery Administration, Codes of Fair Competition, vol. I, p. 76, Corset and Brassiers
Industry, sec. 9 (i).
" The foregoing and additional exanrples of price lining are described in more detail In appendix II.
247140 — 41— No. 1-
y2 CONCENTRATION OF ECONOMIC POWER
The influence of price lines upon the pattern of competition has
been suggested above. In both the wholesale and retail markets the
buyer's choice is confined to selecting the best possible value at a
given price rather than to comparing prices for similar products.
The force of this generalization is, of course, limited by the size of
the interval between price lines. For example, the consumer may
find a $3.50 girdle as satisfactoiy as one ofl'ered for $5; in that case
price becomes the paramount consideration. In general, however,
there is an appreciable gradation of quality comparable to that of
price; in other words, the best article offered at $3.50 is of distinctly
lower grade than the poorest offered at $5. Consequently, though
price is not eliminated as a consideration, the scope of price com-
petition is limited.
Frequently another consideration rehiforces the emphasis upon
nonprice factors. Many manufacturers, particularly in the field of
apparel, concentrate their efforts upon not more than one or two price
lines. For example, a women's dress manufacturer may be spoken of
as a "$10.75 house" or a "$14.75 house." This means that the firm
in question regularly produces garments only within the price line
specified. Any changes in costs of production will be reflected in
changes of the character of the garment and not in modifications of
the price. For such one-price houses nonprice channels are the
only form of competition available.
The practice of price lining may affect market patterns not only for
the finished products sold at the price lines, but also for the major
raw materials entering into these finished products. Thus Mr. S. J.
Kennedy points out that the prevalence of price lines for apparel and
for piece goods is reflected in the gray goods market. It acts to
retard the responsiveness of finished goods prices to changes in tex-
tile manufacturing costs and means that the advantage of certain
savings will not be passed on to the consumer promptly. Thus it
introduces distinct rigidity into the market:
* * * It is patent that seasonal fluctuations in prices of gray cloth, even
when as great as 1 cent per yard, do not always reach the ultimate consumer in
the form of lower prices. If the given cloth were converted into printed percales
to be sold by the converter at 14^ cents per yard and retailed as yard goods at
25 cents per yard, a reduction of 1 cent per yard in the gray, if passed on by the
converter to the retailer would have no effect whatever under normal conditions
upon the price paid for the cloth by the consumer. It is not a large enough cut
to fit the cloth into a 19-cent bracket, which is the next lower price bracket used
generally on piece goods in the trade. The only result would be to increase the
margin to the retailer.
Likewise, if the cloth went into the hands of cutters-up instead of their selling
the garment at a lower price, they would continue the sale at their fixed wholesale
price, and at best might put on more or better trimmings or employ a more
intricate pattern of garment.
In other words, by the time the product reaches the consumer, price changes of
a temporary or minor character would have been absorbed bj' the channels of
distribution so that there is no certainty that such savings in manufacturing costs
as can be secured from the u.se of more efficient macliinery will have been passed
on to him. The increasing price inflexibility of our distributing system, as goods
pass from primary manufacturers to the ultimate retailers, makes it increasingly
unlikely that the consumer will get the beneGt of these savings unless they are
drastic enough to move the product out of one price bracket into a lower one.
Conversely, it should be noted that increases in price experience similar retarda-
tion. The same increasing price inflexibility, as goods pass from primary manu-
facturers to retailers, operates to prevent a price rise when costs are increased.
An increase of 1 cent per yard in gray clotii costs would, under certain conditions,
be absorbed by the various operators out of their gross margins before the goods
CONCENTRATION OF ECONOMIC POWER
73
reached the retail counter. Under present conditions of a high degree of organi-
zation in the distributing trades, whereby the combined buying power of many
individual retail outlets is applied jointly to the manufacturer, the latter must
absorb more than his share of this reduction in price spread. In other words,
his own prices will generally be less flexible than his costs'. When prices reach a
certain level, he will be unable to raise his price further and still get any business
on his product.
However, before such a level is reached where his customers are no longer able
to use the product for existing price brackets, the primary manufacturer would
probably have switched to a lower construction ; for example, from 80 by 80 print
cloth to 68 by 72; or if the product were a nonstandard cloth, he would have
"cut" the construction by removing a few ends or picks, reducing the width, using
lighter weight yarns, or any of the other many means for deteriorating quality.
On the other hand, if the price rise were a large one, enough to throw the cloth
into a higher retail price bracket, then the manufacturer could get a higher price
and maintain his profit margin; however, the volume on that construction would
be reduced and he would be under the necessity of developing a cheaper cloth for
the lower price bracket in which it had formerly fitted.
Put in another way, a price rise due to external factors such as a rise in cotton
prices or a manufacturers' sales tax, would put the manufacturer under the neces-
sity of finding a way to make the cloth at lower cost, to offset the increases in
these other elements of prime cost. Price pressure from retail distributors would
tend to prevent the manufacturer from raising his price until prices were practi-
cally equal to his direct costs. As that level was approached, either of two things
would happen: (1) The cloth might be forced into a higher retail price bracket —
for example, from 29 cents to 39 cents per yard as piece goods over the counter,
or from a $1 garment to $1.95 — in which case the volume would be materially
reduced, and a lower construction would be developed for the old price bracket;
or (2) the cloth might be progressively cheapened by "cutting" the construction
as the price rose, and be kept at about the same price level.
To what degree such "cuts" in construction lower the actual output of the in-
dustry or give consumers less for their money is not a problem to be settled here.
In large measure it is a problem in home economics, and is to be decided as a result
of research concerning relative wearing qualities of various constructions, and the
extent to which retail stores give actual value for money received.
It must not be overlooked, however, that this flexibility of quality, by which
manufacturers are able to adjust to price fluctuations without lowering real manu-
facturing costs, permits the industry to meet fluctuating price conditions in the
cotton market with a minimum of internal friction. It is made possible only by
the continued lack of knowledge on the part of the consumers (nonindustrial) of
what actual quahty of cloth is.^"
For some products, price lines are maintained by adjusting quantity
rather than quality to changing conditions. For example, the retail
price of bar chocolate is usually either 5 or 10 cents. The disinclina-
tion of many customers to bother with odd pennies is undoubtedly one
of the causes for the crystallization of this custom. Changes in the
size of the bar offered by a leading producer follow.
Table 3. — Changes in size
of chocolate bars
Date of change
Net weight per bar
Plain
Almond
5 cents
retail
10 cents
retail
5 cents
retail
10 cents
retail
Jan. I, 1926
\%
2
2'^
2?^
4
4
35^
1
2
Apr. 1, 1930
2H
Oct. 10, 1931
3Ji
Sept. 2, 1932
3
Nov. 4, 1032
3
' Stephen Jay Kennedy, Profits and Losses in Textiles, pp. 168-170.
•jf^ CONCENTRATION OF ECONOMIC POWER
Similarly, it is understood that the contents of packaged goods sold
by limited price variety stores are changed from time to time in order
that the conventional 5-cent, 10-cent, and 25-cent lines may be rigidly
maintained.
Bread affords a particularly striking illustration of the way in which
a price line can be maintained by varying quantity. A total of 1,132
retail price quotations for bread from stores located throughout the
country were reported to the Retail Price Division of the Bureau of
Labor Statistics as of February 1939. Of these 1,132 quotations,
808 or 71 percent were at 10 cents. In 8 of the 9 major geographic
census areas, the 10-cent loaf accounted for more than 50 percent of
the total nimiber of quotations. In contrast to this uniformity of
price, the size of the loaves offered for 10 cents varied from 16 ounces
to 24 ounces.
Price lining is also characteristic of many noncommodity prices.
Examples may be drawn from common experience. Thus, in many
localities, the charge for dry cleaning a suit of clothes is apt to be either
75 cents or 39 cents; intermediate prices are unusual. The usual
price for haircuts is either 35 cents or 50 cents. Frequently the price
of services is related to the size of convenient monetary units (e. g'.,
5 cents or 10 cents) as in the case of shoeshines or a cup of coffee in
ii restaurant.
The foregoing exam^plcs show clearly that the practice of price
lining definitely influences the focus of competition. It does not,
however, eliminate price competition entirely, but rather restricts
its scope.
In general, price lines are more rigidly adhered to in the wholesale
than in the retail markets. Yet, even in wholesale markets, prices
are shaded from time to time. In general this is done by modifying
one of the collateral terms of sale. The most important of these is
the so-called cash discount. In most apparel lines, for example, it is a
custom to allow a discount of 8 percent, 10 days E. O. M.^' In
reality, as the size of the discount indicates, this is a combination
trade discount and cash discount. It constitutes an important modi-
fication of the nominal wholesale price quotation. There is some
evidence that it is not adhered to quite as rigidly as the nominal price
line itself. It is commonly believed that price concessions are some-
times granted, particularly to very large buyers, by increasing this
discount, usually to 10 percent. Indirect price concessions may also
be granted by the use of other devices as, for example, by absorbing
freight on certain shipment'^.
In general, however, price variations of this kind in the wholesale
market are comparatively minor. In the retail market, on the other
hand, somewhat greater variations occur. Thus the retail prices
listed above (p. 71) reveal a material number of exceptions to the
established price lines. Presumably these reflect variations in the
pricing policy of different retail outlets. Retailers whose operating
costs are lower than the average may operate at lower than normal
mark-ups and thereby deviate from the established lines.
These cases are aU, however, exceptions to the general rule.
Broadly speaking, the practice of price lining necessarily diverts
" I. p., the discount applies if ;>■ -ment Is made not later than ttio 10th day of the month following that
during which the sale was made.
CONCENTRATION OF ECONOMIC POWER 75
competition into nonprice channels. The efforts of the producer and
the choice of the consumer both must accept prices as constant and
center upon such factors as quahty as the significant variables.
It should again be emphasized that this conventional restriction
of price competition is in no sense associated with concentration or
with any manifestations of monopoly power. Most of the industries
in which price lining is prevalent are composed largely of small enter-
prise and are by almost any criterion highly competitive. The
highly diversified nature of the product makes emphasis upon non-
price factors almost inevitable.
There is no evidence that the practice of price lining, as such, is
notably ineflBcient from the point of view of the consumer or the
economy. It apparently introduces certain undesirable rigidities in
the market for apparel and other consumers' goods which, in times of
rapidly changing costs, hamper market adjustments. However,
these rigidities do not appear to be sufficiently serious to create major
issues of public policy. Price lining, therefore, affords an illustration
of the manner in which factors inherent in the market more or less
naturaUy lead to emphasis upon nonprice elements as the focus of
business rivalry without materially affecting the costs of production
or distribution or the efficiency with which consumers' wants are
satisfied.
ADVERTISING, BRANDS, AND TRADE-MARKS
The practice of price lining does not of itself introduce any new
elements into the transaction. Given a situation in which the
product of rival sellers necessarily differs in quality and style, there
has merely been a decision to concentrate com^petitive effort upon
these elements and to accept price as constant. This procedure
represents a simple choice of emphasis between elements which were
in any event present, and does not of itself involve any major changes
in the cost of manufacturing or distribution.
In contrast, increasing use of advertising, brands, and trade-marks
has far broader implications. It represents the introduction of new
elements into the transaction; elements which are not necessarily in-
herent in the nature of the commodities offered for sale, and it has
far-reaching effects upon the functioning of the economy.
In one sense, the purpose of advertising is to disseminate informa-
tion as to those quality features in which the prospective purchaser
might be interested, while brands and trade-marks furnish a ready
means for identifying the merchandise in question. To an extent,
therefore, advertising and branding may be considered a phase of
the tactics involved in competition based upon quality.
However, advertising is rarely, if ever, content with presenting a
dispassionate, factual description of the quality or merits of an
article; nor is the use of a brand merely a. device to permit the ready
identification of a product having certain specific qualities.
Essentially a brand or trade-mark is a device used by a seller to
distinguish his product from similar competing articles. Advertising
is used to persuade the prospective purchaser that the product has
certain desirable characteristics which are unique or which it possesses
in greater measure than rival merchandise. If this effort is success-
ful, a demand is created for the article associated with its brand or
yg CONCENTRATION OF ECONOMIC POWER
trade-mark, and purchasers will specify such a brand or trade-mark
in their buying. Thereby two related ends may be accomplished.
The establishment of consumer preference for a specific brand yields
its owner a certain assured sales volume. At the same time the
product for which preference has been established is shielded to a
greater or lesser extent from the impact of direct price competition.
The effectiveness with which the use of trade-marks and brand
names can insulate a product against direct price competition with
similar articles made by others varies materially for different kinds
of goods. Probably the most important determining factor, although
it is but one of many, is the relative ease or difficulty which the con-
sumer encounters in making comparisons between the actual intrinsic
merits of rival merchandise. In those fields in which such compari-
sons are relatively simple, or in markets where buyers are wel! equipped
technically, there is a pronounced tendency to switch to competing
brands as soon as material price differences appear. However, where
for one or another reason the consumer is unable to compare rival
products intelligently, the effective use of brands or trade-marks
frequently permits very wide price differences to be maintained be-
tween virtually identical products. In such fields it is essential to
appraise brand significance in interpreting price behavior.
Trained buyers — industrial, institutional, or governmental — are
often well equipped to compare competing products on their merits.
Sometimes, as in the case of Government agencies, their judgment is
aided by access to the services of well-equipped laboratories. In
cases of this sort, the effectiveness of brands is limited. The buyer
is unlikely to accept advertising representations without investigation,
particularly if appreciable price differences appear between similar
products bearing different brands. ^^
The average household consumer is in a totally different position.
He lacks the training, the facilities, and the time required for tech-
nical comparisons of the merits of competing merchandise. Even
in fields in which commodity standards or methods of rating exist,
these are often inadequate or misleading. Thus Mr. L. R. Walker,
testifying before the Temporary National Economic Committee,
asserted that technological changes had made the prevailing system of
measuring the capacity of warm-air furnaces for homes largely useless
as a guide to their heating capacity, but that many members of the
industry opposed the introduction of more meaningful standards.
According to Mr. Walker:
I would say this: that the standard that the consumer has been taught to use
is no measure whatever of the rating of the product he gets. In other words,
because the industry for many years all made a similar product they used one
measure. Now, as we have learned to improve that product, they are still using
that same measure and it doesn't at all typify the output of that product. More
than half of the industry is still making the old product and opposes anything
that changes that standard.^*
The interest of the consumer in obtaining more adequate informa-
tion regarding the character of commodities on the market has
resulted in the establishment of a number of organizations whose
purpose is to supply the consumer with technical guides in his pur-
chasing. However, there are limits to the effectiveness with which
» See Temporary National Economic Committee Hearings, Part 8, pp. 3440-3452.
Mlbid., p. 3422.
CONCENTRATION OF ECONOMIC POWER
77
such private organizations can perform this function. Moreover, in
the case of several of these organizations, there even seems to be some
question as to the good faith of their activities. ^^ Consequently, the
average consumer is forced to a large extent to rely upon advertising
claims and to base his buying upon brand names and trade-marks.
In grocery products, for example, a distinction must be drawn be-
tween such relatively standard commodities as sugar or rice, and those
in which there are wide variations of quality, flavor, and contents,
such as canned peas or coffee. Even the former may be and often are
purchased by brand, but as soon as any material price differences
appear the average housewife is almost certain to switch to a cheaper
variety. In the case of the latter products, however, even material
price differences may not suffice to induce her to change her habits of
purchasing. Taste is so subjective an element that comparisons
between different brands of, say, canned goods are inevitably difficult.
Moreover, choice is complicated by the general refusal of packers to
adopt grade labeling for canned products, as well as by the multi-
plicity of can sizes which hampers any attempt to match prices on a
uniform basis.^^
Table 4. — Prices and quality grades for specified brands of canned foods
GREEN AND WAX BEANS
Brand
Price per
pound
Quality
grade
Brand
Price per
pound
Quality
grade
A. & P
$0.13
.14
.19
.08
;08
.11
.15
A
B
A
C
C
c
B
lona
Premier (wax).
Shrivers - - - .-
$0.11
.16
.13
f .11
1 .13
.25
.18
.17
C
Asco
B
Blue Label
B
Blue Ridge
Stokely . .
C
Crown or Maryland
Sweetheart
Torsch's
White Rose (wax)
A
Farmdale
Fort
C
B
BARTLETT PEARS
Approval..
Asco
Blue Label
D. O. S ..
Del Monte
De Mand.
Hunt
lona
$0.10
B
.11
A
.16
B
.18
C
.13
B
.15
C
.14
A
.10
C
Libby
Lyric
Mission
Premier
Ray Crest...
S. &. W
White Rose.
TOMATO JUICE
Alice
Ann Page
Approval
Asco
Beech-Nut
Campbell
College Inn._
Blackwell & Crosse
Heinz's
$0,066
1 A (86)
.096
A (94)
.083
D (C5)
.080
A (90)
.118
A (90)
.096
A (92)
.C99
A (90)
.108
C (84)
.106
A (94)
Le Grande.
Libby.
Phillips
Ritter
Scott
Stokely
Webster
Welch
White Rose
$0. 101
.096
.076
.075
.057
.087
.072
.15
.118
C (78)
A (89)
C(78)
A (87)
A (92)
A (93)
A (96)
A (94"/
C (82)
' Number in parentheses is the numerical grade.
Source: Hearing before the Committee on Coinage, Weights, and Measures, House of Representatives,
on H. R. 6964, Standard Metal Container Act of 1937, Mar. 15 and 18, 1938, pp. 20-21.
» The Federal Trade Commission is at present (Spring, 1940) proceeding against two organizations
which purport to furnish the consumer with technical buying information. See complaints of the Federal
Trade Commission in the matter of Albert Lane, an individual, trading as Consumers' Bureau of Stand-
ard?, Docket Xo. 3718, and in the matter of Hearst Magazines, Inc., Docket No. 3872.
" Sec Temporary National Econongic Committee Hearings, Part 8, pp. 3346-3355.
yg CONCENTRATION OF ECONOMIC POWER
Some of the consequences of this situation are reflected in table 4,
which is based upon data presented at recent congressional hearings.
The price per pound of different brands of Bartlett pears, tomato
juice, and green and wax beans, is compared. The quality grades
based upon the standards of the Bureau of Agricultural Economics
are also indicated. It is apparent that there is no significant corre-
lation between price and quality. Thus, one brand of grade A beans
costs approximately twice as much per pound as another brand meeting
the same specifications. Products of lower grade sold for more than
those of higher grade.
An informal questionnaire recently circulated among a small group
of consumers in Washington and Boston, by the members of the Tem-
porary National Economic Committee staff, gives some indication of
the extent to which brand preference prevails in the grocery market.
This questionnaire comprised a list of 60 common prepared foods.^^
Consumers were asked to specify the degree to which their purchasing
was affected by brand preferences in accordance with the following
instructions:
Mark the item "a" if, in buying, you simply ask for it by its general name
without giving attention to its brand or trade-mark. (E. g., "Give me a loaf of
bread.") ,,
Mark the item "b" if you usually ask for a specific brand and buy it if it is
no more expensive than competing brands but are still usually willing to accept
substitutes for trial or to save a cent or two.
Mark the item "c" if you ask for it by brand name and insist upon it, despite
small differences in price, but are nevertheless willing to experiment with other
brands and to shift if price differences become material.
Mark -the item "d" if you insist upon a specific brand despite material price
differences between it and competing brands and if you are not, generally speaking,
willing to experiment with other brands.
Mark the item "x" if you do not use it, or if your experience with it has been
too meager to furnish a basis for judgment.
NOTES
(1) By price difference is meant, not only differences in the price itself but ako
differences in other material factors such as quality, grade, size of can, attractive
premiums, and the like,
(2) The habit of buying in a specific store because you like the products handled
there is not, for this purpose, to be considered equivalent to buying by brand.
For example, if you like the butter handled by a certain grocery and regularly buy
it there, but if it is sold loose or if you are unaware of its brand name, you are
not buying by brand. On the other hand, if you go to that store because it
happens to carry, say, Blue Valley Butter, you are buying by brand.
The results are summarized in table 5. Particular attention is
directed to the frequency with which consumers indicated that they
would insist upon their favorite brand despite material difference s in
Erice. Thus, in the case of such products as tea, canned salmon,
aked beans, and flour, ipore than a -third of those answering the
question indicated that they would insist upon their favorite brand
regardless of price and another third would change only if the price
inducement were material.
» The lirt was selected from those prepared foods whose prices are reported in the Bureau of Labor Sta-
tlsncs wholesale price Index. This was done to permit comparisons of price behavior.
CONCENTRATION OF ECONOMIC POWER
Table 5. — Extent of consumer brand preference for prepared foods
79
Name of commodity
Dried apples
Powdered milk ,
Pretzels
Dried peaches
Cored beef
Dried apricots
Dried currants
Black pepper ,
Rice.- ,
Corn meal
Granulated sugar
Fresh meat
Dressed poultry
Cornstarch
Vinegar ,
Hominy grits
Peanut butter
American cheese
Sweet crackers
Olive oil -
Grape jam
Canned apples
Dried prunes
Lard
Oleo oil -
Canned cherries
Canned string beans.
Soda water
Soda crackers
Macaroni-
Canned apricots
Canned pears ,
Canned spinach
Canned tomatoes
Cured ham
Oleomargarine
Cendensed milk
Corn flakes
Canned peaches
Canned pineapple...
Dried raisins
Canned corn
Salt.-
Molasses
Butter
Wheat cereal
Evaporated milk
White bread
Rolled oats
Canned peas
Bacon
Ginger ale
Grape juice
Cocoa
Canned asparagus...
Family flour
Canned baked beans
Tomato soup
Canned salmon.
Tea....
Total re-
porting
Number of consumers who purchased —
Without re
gard for
brand or
trade-mark
With regard to brand or trade-mark
Total
By brand if
not higher
in price
By brand
unless there
was a very
marked
price dif-
ferential
By brand
regardless
of price
Source: Bureau of Labor Statistics.
gQ CONCENTRATION OF ECONOMIC POWER
In the field of apparel, price comparisons are in some ways more
difficult than in that of groceries. To the average consumer, such
matters as thread count or tensile strength are mysteries.^^ Few
buyers will examine a shirt to see how many stitches there are per
inch. Many do not even know that such terms as "satin" or "crepe"
or "velvet" refer to weave and not to fiber content. Consequently,
there is often a substantial difference in prices between apparel sold
under a well-known label and similar more obscure brands. For
example, according to data compiled by the Retail Price Division of
the Bureau of Labor Statistics, the average price of one nationally
advertised brand of men's business shirts during December 1937 was
$2, while the average for alh other brands meeting the same general
set of specifications was $1.61.
Frequently, apparel manufacturers sell identical products under
several dift'erent brands, one of which may bear their own nationally
advertised label, while the others bear distributors' labels. Generally
the product sold under the manufacturer's label commands a sub-
stantial premium both in retail and wholesale markets, over that
bearing the distributor's label. In the case of hosiery, for example,
according to the Knit Goods Weekly, ^^ the difference between na-
tionally advertised and private label merchandise is normally 75 cents
per dozen. Prior to 1938 the difference had been $1.25 per dozen.
Since the product is identical, the differential simply represents the
value of the brand.
Similar situations exist in many other lines. A recent investigation
by the Federal Trade Commission showed that the Goodyear Tire &
Rubber Co. was selling tires to Sears, Roebuck & Co. under the brand
"All State" which were of the same quality as those marketed by the
Goodyear Co. under its own "All Weather" brand. The difierence
in wholesale prices between these two brands during the period from
1927 to 1933 varied between 29 and 40 percent. On the retail market
the "All State" brand was generally sold at prices between 20 and 25
percent below the price of the "All Weather" brand. ^^
In another case the Federal Trade Commission found that the Ameri-
can Featherbed & Pillow Co. marketed their products under the five
brand names "Princess," "Progress," "Washington," "Puritan," and
"Ideal." In its advertising the manufacturer represented that these
products were of different grades in the order named, and correspond-
ingly different prices were charged for each. The Commission found,
however, that all these five brands were of the same quality, and that
the material price differential between the "Princess" and the "Ideal"
brand reflected a difference in the label only.^*^
Similarly, it is understood that there has been a difference of $50
in retail price between virtually identical refrigerators sold under the
manufacturer's label and that of a large distributor.
Probably the outstanding example of the degree to which trade-
niarks and brand names can grant immunity from price competition
is furnished by the drug and cosmetic trade."^ In this field the aver-
age consumer is dealing with something which is to him utterly mys-
terious. Moreover, it is a field in which experiment is not only diflfi-
" See Temporary National Economic Committee nearings, Part 8, pp. 3287-3308.
" Knit Goods Weekly, January 3, 1938, p. 8.
" Federal Trade Commission, Docket No. 2110.
w Federal Trade Commission, Docket No. 1129.
CONCENTRATION OF ECONOMIC POWER
81
cult but may be dangerous. Few consumers have any possible way
of appraising the merits of rival drugs. They know nothing of chemi-
cal formulas. Few are familiar with the significance of the specifica-
tions of the United States Pharmacopoeia. They may be guided by
the advice of their physicians or druggists, or perhaps by advertising
claims as to the virtues of various preparations.
As a result, very w^ide price differences are encountered between
products of virtually identical chemical composition. Table 6 com-
pares the wholesale prices of identical preparations sold under pro-
prietary and nonproprietary names. On the entire list the aggregate
cost of one ounce of each of these products sold under their nationally
advertised labels, is $28.95, while when marketed under their chemi-
cal names the price is only $4.59. Presumably, retail prices show a
similar spread. Consequently, the bulk of the price paid by the re-
tailer, and probably by the consumer, represents the value of the
brand. The saving for purchases under the nonproprietary name
averaged 76 percent.^^
Table %.— Comparison of wholesale prices of identical sxibstances sold under pro-
prietary and nonproprietary names
[Net prices to retailers July 1938]
Brand name
Phenatetin
Bayer Aspirin...
Veronal
Veronal Sodium-.
Atophan
Duotal-Withrop.
UrotroT^in
Luminal
Luminal Sodium
Irinol-Withrop .
Aristol-Withrop.
Total
Price per
ounce
$0. 03
.75
3.00
3.00
2.75
1.07
.25
6.90
6.90
1.90
1.80
28.95
Chemical name
Acetphentidin
Acetylsalicylic acid....
Barbital
Barbital sodium
Anchophen, _
Guaiacol carbonate
Mothenamine
Phenobarhital
Phenobarbital sodium
Sulphonethylmethane
Thymol-iodide
Total
Price per
ounce
$0.21
.13
.56
.62
.38
.29
.13
.57
.57
.70
.43
4.59
Saving under
chemical name
Amount Percent
$0.42
.62
2.44
2.38
2.37
.78
.12
6.33
6.33
1.20
1.37
24.36
66.7
82.7
81.3
79.3
86.2
72.9
48.0
91.7
91.7
63.2
76.1
176.3
> Average, unweighted.
Source: Price data obtained from Blue Price List Section, published by American Druggist, July 193?.
The high degree of immunity from direct price competition which
the owner of branded drugs, toiletries, or cosmetics, enjoys is often
reflected in a very v/ide spread between the price of his product and
the cost of its ingredients.^^ This is particularly true, of course, in
the case of nonstandard proprietary items of whose composition the
consumer is generally ignorant.
Num.erous efforts have been made to compare the retail prices of
some of these products with the physical cost of their ingredients.
Among the agencies which have conducted such work are the Ameri-
can Medical Association and the Bureau of Health of the State of
Maine. A summary of some of these data is presented in table 7.
The items included in this table are in fields which are, in the broad
sense, highly competitive. Consequently the very wide spreads and
" For other examples of wide price spreads between trade-marked and unbranded produets~see Tempo-
rary National Economic Committee Hearings, Part 8, pp. 3444-3452, and also Part HI of this voii me, infra,
pp. 398-69.
M Of course this spread is by no means all profit. Much of it represents the cost of advertising and
packaging.
82
CONCENTRATION OF ECONOMIC POWER
lack of any consistent relationship between ingredient costs and prices
clearly attest the importance of branding as an aspect of nonprice
competition. At the same time they demonstrate the futility of at-
tempting to base price statistics or indexes upon physical specifica-
tions for products of this kind. The significance of the brand far
transcends that of the constituents of the product or any conceivable
criterion of performance.
So far, the discussion has been concerned with the effect of brands
upon the price level prevailing at any instant. In addition, however,
brands may exert a very definite effect upon the way in which prices
behave during a period of time.
Table 7. — Comparison of retail prices of drugs, cosmetics, and foods, with the costs
of their ingredients
Product name
Advertised u.se
Quantity
Cost of ingredients
Retail price
under brand
name
Wholesale
Retail
Proprietary medicines:
Cure for TB and ul-
cers of stomach.
Ulcers of stomach, hy-
peracidity, general
gastric distress.
Phenobarbital and
baking-soda tablets.
$0.50
$7.00.
pound.'
Currier's Tablets '
100 tablets-. . -
3 $1.85
'.98
.02
$5.00.
Renesol *..
65 capsules
$4.50.
Electrovita '.-
1 gallon
$2.00.
Mouthwashes: Lister-
Few cents. -
$0.10
About $1.00.
ine.'
Dental remedy: Ora-
Dental remedy
$2.00.
Noid.'
Reducing agent:
Oermania Herb
Per package.
Per package
."i niincps
$0.15
$1.50.
Tea.8
Lesser '
Bathing salts
Few cents..
Few cents..
About 40
cents.
2 cents to 3
cents.
$0.65.
$1.00.
Min-amin "
Vitamin food
$1.00.
Pomay Rx "
Stardom's Holly-
Diet.n
Salve ---
Reducing food
8 ounces
$10.00.
Package . . ..
$1 to $2.
4 bottles of differ-
ent substances.
4.708 ounces
$5.00.
Downing's Cure."
Cosmetics:
Coty's Dusting
Powder.'*
Coty's Face Pow-
.157
.120
.338
.466
.066
.220
.160
.094
.118
.100
.098
.m
.174
$0.75.
1 SIR oiincps
$0.75.
der.u
Elizabeth Arden
6.345 ounces
$3.00.
Face Powder."
Elizabeth Arden
11.244 ounces
$3.00.
Dusting Powder
Venetian."
Harriett Hubbard
2.262 ounces . .
$0.60.
Ayer Face Pow-
der."
Harriett Hubbard
10.170 ounces
$1.65.
Ayer Ayeristocrat
Bath Powder."
Daggett and Rams-
4.883 ounces
$0.85.
dell Dusting Pow-
der."
Daggett and Rams-
2.934 min(y>B
$0.85.
dell Face Powder."
Max Factor Face
4.684 ounces -
$0.76.
Powder."
Helena Rubonstein
2.644 ounces
$1.00.
Faee Powder."
Bourjois Sales Corp.
3.332 ounces .
$0.60.
Poudre Java."
Evening in Paris
6.020 ounces
$1.10.
Bath Dusting
Powder.*"
Evening in Paris
$1.10
Face Powder with
Perfume."
See footnoteB at end of table.
CONCENTRATION OF ECONOMIC POWER
83
Table 7. — Comparison of retail prices of drugs, cosmetics, and foods, with the costs
of their ingredients — Continued
Product name
Advertised use
Quantity
Cost of ingredients
Retail price
under brand
name
Wholesale
Retail
Cosmetics— Continued .
Richard Hudnut
2.479 ounces
$0. 065
.077
.197
.140
.061
.037
.082
.143
.038
.024
.737
.031
.071
.088
.061
.087
.190
.268
.252
.053
.082
.100
.200
.140
$0.55.
Face Powder Mar-
velous."
1.872 ounces
$1.00.
der.23
Luzier's Cleansing
Cream."
Luzier's Lu Mar
5.700 ounces.
$2.50.
1.802 ounce...
$3.00.
Massage Cream. 2*
2.109 ounces.-
$1.00.
Cream."
Coty Rouge Refill ».
Max Factor Dry
Rouge."
Luzier Rouge "
0.148 ounce.-
$0.38.
0.300 ounce
$0.38.
0.317 ounce...
$1.00.
Harriett Hubbard
0.315 ounce
$0.55.
Ayer Cream
Rouge."
Elizabeth Arden Ve-
0.357 ounce
$1.00.
netian Lip Paste."
Springtime in Paris
Lipstick. 19
Bourjois Sales Corp.
Lipstick."
Coty's Special As-
tringent."
Harriett Hubbard
0.140 ounce
$1.25.
n 070 niinPA
$0.55.
4.000 ounces
$1.00.
11.993 ounces
$1.75.
Ayer Special As-
tringent."
4.000 ounces.
$0.85.
Freshner."
Luzier Skin Refresh-
1,910 nnncp.9
$2.50
ener."
Elizabeth Arden-
2.323 ounces
$2.00.
Vcnetian Derma-
tex Depilatory."
Evening in Paris
Perfume."
Springtime in Paris
Double Vanity. 20
0.550 ounce.
$2.75.
O.O.IS nnnr.p.
$1.75.
0.566 ounce -..
$0.55.
cle Remover. 2"
Barbara O o u 1 d
3.999 ounces... -
$0.45.
Hand Lotion.^'
Food:
Ovaltine "
14 ounces
$0.75.
Instant Alberty's
16 ounces
$1.35.
Food.28
16 ounces.. -.
$0.59.
1 Journal of American Medical Association, vol. 101, No. 12, Sept. 2, 1933, p. 795.
> Ibid., vol. 101, No. 3, July 15, 1933, p. 227.
' Retail price under nonproprietary name.
< Ibid., vol. 9S, No. 8, Feb. 20, 1932, pp. 658-«60.
» Ibid., vol. 98, No. 4, Jan. 23, 1932, pp. 337,338.
• Ibid., vol. 85, No. 1, July 4, 192.'i, p. 55.
' Ibid., vol. 92, No. 10, Mar. 9, 1929, p. 828.
• Ibid., Apr. 8, 1933, p. 1126.
» Ibid., vol. 92, No. 6, Feb. 9, 1929, pp. 492-495.
"> Ibid., vol. 104, No. 4, Jan. 26, 1935, pp. 335, 336.
" Ibid., vol. 109, No. 14, Oct. 2, 1937, p. 1142.
" Ihid., vol. 102, No. 4, June 16, 1934, pp.204!l 2042.
" Ibid., vol. 110, No. 7, Apr. 23, 1938, p. 1385.
" Legislative Document of the State of Maine, No. 683, 1935, prepared by Dr. O. R. Coomb, director.
Bureau of Health, p. 26.
" Ibid., p. 27.
" Ibid., p. 28.
" Ibid., p. 29.
"Ibid., p. 30.
"Ibid., p. 31.
"Ibid, p. 32.
" Ibid., p. 33.
"Ibid., p. 34.
" Ibid., p. 36.
'* Ibid., p. 35.
" Hearings before subcommittee on Interstate and Foreign Commerce, House of Representatives, F. R.
6906, H. R. 8805, H. R. 8941, and S. 5, July and August 1935, p. 371.
"Ibid., p. 381.
84
CONCENTRATION OF ECONOMIC POWER
In particular, the price of items sold under widely advertised brands
often shows a tendency to be substantially more rigid than that of
similar less advertised products. For example, chart IX compares the
Chart IX
RETAIL PRICES
OF MEN'S DRESS SHIRTS
DOLLARS DOLLARS
PER SHIRT PER SHIRT
2.20
200
1 80
2.00
1.80
,,— ''
\
\
^B^^^
V^
1 60
\
^■^^
^^-^,,
1
1.60
140
1.20
100
80
60
40
.20
~
1.40
1.20
1 00
80
60
.40
.20
1929 1930* 1931* 1932 1933 1934 1935* 1936 1937
* NO DATA
■c=«WIOELY ADVERTISED BRAND
^■■■B BRAND NOT Wl DELY. ADVERTISED
US BUREAU OF LABOR STATISTICS
trend of retail prices for one widely adveitised brand of men's business
shirts with the average of a number of less-known brands meeting the
same general specifications. The contrast is striking. Retail prices
for the widely advertised product showed no change whatever be-
CONCENTRATION OF ECONOMIC POWER
85
tween December 1929 and December 1932, whereas the average for
all other comparable brands declined from $1.91 to $1.55.
These dijfferences in price behavior characterize not only specific
brands but also the general class of commodity to which the brands
apply. For example, there is some reason for believing that brand
preference plays a more significant role in the market for corn Hakes
than in the market for rolled oats. In the case of the latter, the
product is somewhat more standardized and price comparisons between
rival brands are perhaps simpler. Chart X compares the trend of
wholesale prices and ingredient costs for these two commodities. The
contrast is marked. The price of corn flakes is quite rigid and appar-
Chart X
BREAKFAST CEREALS
PRICES AND MARGINS
i CENTS
PER POUND
22
ROLLED OATS
CORN FLAKES
CENTS
PER POUND
v^
x.^
,,^RETAIL
>^^^
^^-
WHOLESALE^^
y
-^
X^./
y^
FARM V
, . , ,
1935 1937 \ I9'26 1930 1935 1937
(I) SOURCE BUREAU OF AGRICULTURAL ECONOMICS
S BUREAU OF LABOR STATISTICS
eiitly independent of the fluctuations of its raw material costs. It
did not decline at all between 1929 and 1933, despite the fact that the
cost of its ingj'edicnts declined to less than one-third of its pre-
depression level. During th(i same peiiod, the wholesale price of rolled
oats fell about 39 percent, paralleling the course followed by the price
of its coustituents.
A more general comparison may be made on the basis of the informal
questioimaire, to which reference has been previously made. (See
p. 78.) The 60 products for which data were obtained were ranked and
divided into four groups or "quartiles", each group including approxi-
mately the same number of items, in order of increasing significance
of brand prefeience. The average wholesale prices foi- each quartile
gg CONCENTRATION OF ECONOMIC POWER
were then computed for the period between January 1926 and December
1938. These items for which brand preference was a relatively sig-
nificant market factor showed far greater rigidity, as evidenced by their
relatively sm,aller decline during the depression, as v^ell as by a similar
contrast in behavior during the 1937-38 recession. This comparison
is shown in chart XI. In addition, the quartiles were also compared
on the basis of the various criteria of flexibility described in appendix
I. This comparison is shown in table 8. Again it is apparent that
brands exert a distinct influence upon price flexibility, regardless of
the manner in which it is computed. Those products whose markets
are relatively unaffected by brand preferences showed greater fre-
quency of change, greater decline during the depression, and greater
recovery subsequently.
They also showed some tendency to respond more quickly to chang-
ing business trends, particularly during the recent downturn. Prices
of products for which brand preference were unimportant declined
after Jirne 1937, while those for which they were most important did
not start falling until 6 months later.
Table 8. — Relation of price fexihility to importance of brand preference — Median
flexibility according to specified criteria, for selected food products, grouped into
quartiles on the basis of consumers' judgment as to brand significance
[Median of each criterion per quartile]
Criteria of flexibility
Quartiles— in order of in-
creasing brand signif-
icance
Number of changes 1926 to April 1929
Percent decline, June 1929 to February 1933
Percent increase from depression low— 1937 peak
Percent difference, average of 1929 peak and 1937 peak, less depression low index.
Aggregate change less net change, 1926 to April 1929 _
Peak month of 1937 to 1938
34
55.0
93.9
57.9
94.7
6/37
18
45.8
74.4
45.5
93.1
6/37
13
34.3
43.7
39.5
40.4
9/37
37.9
44.6
38.2
15.7
1,'38
It is probable that the effect of brands and trade-marks upon the pat-
tern of competition has been somewhat affected by recent legislative
trends. In 44 States, under the so-called fair-trade laws, the manu-
facturer of a trade-marked article can, by contract, stipulate the min-
imum price at which such an article may be resold by any dealer or
distributor. Under the provisions of these laws, once such a contract
has been signed between the owner of the trade-mark and any dis-
tributor within a State, its provisions automatically become binding
upon all other distributors, even though they may not have assented
to such a contract. The Federal Miller-Ty dings Act exempts con-
tracts of this kind between trade-mark owners in one State and dis-
tributors in another from the provisions of the antitrust laws.
_ Wide use has been made of the provisions of these laws in connec-
tion with the sale of dru^s, toiletries, cosmetics, books, and Hquors;
in other fields such as radios and tobacco products, their use has been
more sporadic. Few price-maintenance contracts have been issued
for grocery products, except in one or two States, notably Ohio, where
minimum prices are jxperimentally established for a very few staple
products.
CONCENTRATION OF ECONOMIC POWER
87
e>
CO
o
o
O
o
O
o
O
<
(/)
o
^,</)
UJ
-•h
H
H CD
o
OC <
UJ
< X
3
_J
O O
UJ
z
(n
0= >«
Li.
O
o qq2
Ll. "
tr <»>
CO
oiuS!
UJ
si"
o
a:
en
Q.
UJ o
u. o
UJ
-J
mO
<
<^-
(0
_i
UJ
o
-I
o
(0
X
o
^
3
O
CC
Q.
UJ
_l
\
t
<
O
o
z
/
^ J
9
o
UJ
X
^"
^
c>
^
^^
y
UJ c n
- ? *
a: lo
fe^
V^
>
Ul
-FOURTH
Vfl W>««f5 W
1
1?*
0
<
O
Q
y^
l!
^^
o 2
^T
?
^
^
^
5
O ii £ 3
:47149 — 41— No. 1-
gg CONCENTRATION OF ECONOMIC POWER
The most obvious and immediate effect of this legislation, and the
one primnrily intended by its sponsors, has been the reduction or elim-
ination of price competition between retailers in connection with the
sale of nationally advertised merchandise. In those cases in which
the minimum price is set at the advertised list price, there is no room
for price competition as regards the products affected. For example,
this is the situation which prevails with regard to some price-main-
tained cosmetics. Wliere the minimum price has been set at a level
below list, some scope for price competition remains. In the case of
branded drugs, for example, there is a tendency to fix the minimum
price at list minus 20 percent, minus 1 cent (e. g., if the list price is
$1 , the contract minimum is 79 cents; if list is 75 cents, contract mini-
mum is 59 cents; if list is 50 cents, contract minimum is 39 cents, etc.).
In practice, however, there may be some tendency, though certainly
not a universal practice, for all retailers to charge the contract
minimum.
Consequently, the focus of competition between retailers in the fields
most affected (i. e., retail druggists, booksellers, and liquor dealers)
has necessarily shifted. Those stores which emphasize price appeal
have concentrated their efforts upon private brands which are not
price maintained. One leading opponent of these laws has made its
private brands available to any retailers who wish to compete on a
price basis. The advertising of these retailers often emphasizes their
private brands sold at reduced prices. Frequently, the advertising
carries detailed technical comparisons designed to show that the
product bearing the private brand is in every way equivalent to the
nationally advertised, price-maintained article.
On the other band, those retailers who favor the principle of price
maintenance seized upon the elimination of price competition as an
opportunity to feature such elements as service or convenience.^^
The effect of price-maintenance legislation is not confined to the
pattern of competition between distributors. It is probable that it
has also distinctly influenced manufacturers' sales strategy. In gen-
eral, price-maintenance contracts provide a substantial margin for the
wholesaler and retailer. Retail drug representatives have repeatedly
insisted upon 33!^ percent of selling price — equivalent to 50 percent of
cost — as the minimum margin acceptable. The manufacturer who
issues the contracts has therefore decided that it is more important
for him to retain the goodwill of his distributors than to appeal to the
public directly by selling his product as cheaply as possible.
The sales manager of a drug manufacturer summarizes this situa-
tion succinctly in an article in Printers' Ink.^* He explains to a critic
why manufacturers issue price-maintenance contracts:
If he has followed the history of the fair-trade movement he should know that
the laws were forced through by independent retailers; that very few manufac-
" FuDflamentally, this controversy is not so much one between individual retailers as between com-
petine channels of distribution. The mnjor proponents of price maintenance are members of the tradi-
tionnl orthodox channels of distribution; that is, the independent wholesaler and the relatively small inde-
pendent retailer. Aeainst thcra are arrayed some of the mass distributors, particularly large department
stores and mail-order houses, whr usually purchase directly fr-^m the manufacturer rather than indirectly
through the wholesaler. However, there exists certain anomalies in this line-up. An important group of
mass distributors, the brpe national drug chains, generally support price maintenance. The reputation
of these chains was originally built upon price appepl, but at present it is sufficiently established to permit
tijem to depend upon their prestige and to benefit fr^^m the larger [irofits which price maintrnance of.ers.
On fhe other hand, a number of smaller units, independents, or small chains, depend largely upon price
appeal and have opposed the principle of price maintenance.
** Printers' Ink, August 26, 19^7.
CONCENTRATION OF ECONOMIC POWER 89
turcrs hav'^e taken an active part in obta'ning passage. He should know, al?o,
that in the drug and cosmetic fields many manufacturers are being compelled to
operate under these laws against their wishes and better judgment. Pressure is
being brought to bear through the retailers' associations and their fair-trade
committees.
Manufacturers who do not file minimum prices arc having their troubles with
independent outlets in some States. Those manufacturers, such as ourselves,
who have filed prices have had to set higher minimums than they desired in some
instances. The committees are not permitted, supposedly, by law to dictate
what the minimum prices shall be but they are doing just that by refusing to
approve contracts containing prices which do not give the retailer what they
consider to be a fair-profit margin. In most cases the committees are insisting
on a mark-up of at least 20 percent and usually 33)i percent.
Ifc is not surprising, therefore, that many drug manufacturers, in
advertising to the trade, stress the high margins which they are offer-
ing the retailer on sales of their product. The following advertise-
ments, culled at random from various drug trade periodicals, illustrate
this trend. Many of them advertise mark-ups substantially higher
than the 33}^ percent minimum demanded by the trade:
Even at minimum prices — 10-cent bottle profit when you sell Squibb's Milk of
Magnesia 12 ounces at minimum 29 cents."
3|C * * * * * *
Dr. West's Miracle Tuft Toothbrush, retail price 35 cents. Weco's policy of
price and profit protection by every legal means to insure full 20 cents for you
ou every sale.^^
4c * * f * * *
(Johnson and Johnson) — Fair trade minimums protect your interest and give
you at least 42 percent average profit."
*******
J. & J. Red Cross Adhesive Plaster: Assortment cost $25.84 — your profit 48.3
percent — sell at $50.04. * * * At fair trade minimums you meet competition
and make a profit of 48 percent on the selling price.'*
*******
Your profits up from that big 45 percent to 54 percent on Co-Ets 48's.^'
*******
Solarex — Dark lens glasses: A high profit on all Folarex dark lens sun glasses,
assured bv strict adherence to the Miller-Tvdings fair-trade laws. You pay
$10.80. You sell for $18.36. Your profit " $7.5fi.
*******
In addition to offering you a diversified line of nationally known, popularly
priced products of high quality, we prescribed full advertised j>rices to insure
you a satisfactory profit. You can buy our products from your jobber, or, if you
prefer, you can take advantage of our liberal credit terms, which range from 3
to 6 months on direct purchases in quantities as small as $9.60, yielding an aver-
age profit of 44 percent * * * Our full advertised prices are our minimum
retail prices.^'
*******
$6.60— Cost Major Donald Duck Deal, 90 assorted packages, 1 large $4 Major
Donald Duck, 1 Disney Counter Display, sells for $]3.'"'
* :|c • * * * *
Fifty percent average profit on all McKesson sales.*'
" Drug Topics, May 16, 1938, p. 22.
" Ibid., Dcccmbf-r 12, ]9ZS, p. 5.
" Ibid , July 18. 1939, p. 7.
'•Ibid., May 30. 1938. p. U.
"Ibid.. April 3. 1939, p. 6.
<»Ibid , March fi. 1939. pp. 8, 9.
*' Ibii., June 20, lO'^S, p 24.
" Ibid., March r., 1939, p. 53.
« Ibid , August 29. 1938, p. 23.
9Q CONCENTRATION OF ECONOMIC POWER
Since price competition between rival manufacturers in such fields
as drugs and cosmetics is largely ineffective as regards branded goods,
price maintenance may have induced some reorientation of tactics
by concentrating further attention upon the distributor and less upon
the consumer.
The effects of price maintenance upon price behavior have been
the subject of much controversy. There have been no adequate
impartial surveys conducted. It seems probable, however, that prices
in those stores which used to feature price appeal have risen, and that
perhaps there has been some minor decline in those outlets which
competed on bases other than price. For example, the July 1938 issue
of Dun's Revio.w compares prices for 50 fast moving drug and cosmetic
items in the State of New York before and after the issuance of price
maintenance contracts. These figures show that for those drug stores
which featured price appeal, there was an average increase of 29 per-
cent. The increase of one item was as high as 67 percent. In contrast,
neighborhood drug stores which did not compete on a price basis
showed an increase of only 2 percent in New York City and decreases
varying from 4 percent to 10 percent in smaller cities. However, the
entire group covered included only 40 stores. Moreover, the data for
the first group of stores were obtained through the cooperation of a
trade association which has been very active in opposing the legisla-
tion, while those for the second group were obtained through the aid
of an association which had been its vigorous proponent. Figures of
this kind are particularly hard to verify, because there are few, if any,
drug stores which maintain records of the prices which they charged
in the past. Finally, it should be noted that the general trend of
wholesale and retail prices during the period covered was downward.
Consequently, the reliability of such surveys is somewhat questionable,
though with very broad reservations the trend displayed may have
some validity.
It seems likely, too, that price maintenance has increased price
rigidity in the wholesale as well as the retail markets for the com-
modities affected. When a manufacturer has issued contracts in
many states stipulating minimum resale prices, any change in price
involves a somewhat complex and expensive mechanical process.
It has already been shown that there is a tendency for prices of branded
goods to remain relatively rigid. Price maintenance, by making it
more difiicult to initiate price changes, has perhaps augmented the
tendency.
It is apparent, then, that brands, particularly for consumer's
goods, must be considered a major aspect of nonprice competition.
The use of brands and trade-marks materially lessens the intensity
of price competition for the products affected. This may result in a
level of prices somewhat higher than would othery^ise be the case.
It almost certainly impairs price flexibility. Both of these trends
may be reinforced by price maintenance legislation, though adequate
data relating to its efi'ects are unfortunately lacking.
OTHER FORMS OF NONPRICE COMPETITION — ESCAPE DEVICES
It has been suggested earlier (pp. 55-56) that the altering focus of
competition reflects to a considerable extent the attitude of business-
men based upon considerations of expediency. To many business
CONCENTRATION OF ECONOMIC POWER QJ
firms the concentration of effort upon nonprice factors represents a
distinct advantage, particularly as regards profit margins per unit
of sales.
These considerations of expediency do not, however, apply to all
kinds of business firms equally. If price competition is absent,
those firms which are best equipped to compete on the basis of quaUty,
service, or prestige, are most likely to retain or expand their shares
of the market. Conversely, those companies whose reputations have
yet to be established encoimter distinct difficulty in marketing their
wares if they are unable to offer some price inducement.
In many industries this situation is more or less implicitly recog-
nized by custom. The larger ** and better known companies often
permit their smaller competitors to imdersell them by a slight margin,
thereby permitting them to compensate in price for their disadvantage
in nonprice competition. It may be considered that such a practice
establishes a more or less direct price equivalent for certain intangible
nonprice elements.
Naturally, arrangements of this sort do not always survive periods
of stress. During an acute buyers' market, for example, price often
becomes an increasingly important competitive weapon and is used
freely even by those whose normal tactics and inclinations avoid the
use of price competition. During such periods, the small firm's edge
often becomes reduced or obliterated. Efforts on the part of small
firms to retain their edge sometimes culminate in severe price wars.
Differences of this kind in the competitive position of different firms
become particularly apparent whenever efforts are made to regulate
market practices. Under National Recovery Administration, for
example, these conflicts of interest become evident in many industries.
Price regulation constituted an important aspect of many of the
codes of fair competition. Regulations which tended to equalize
prices and to eliminate price competition necessarily placed certain
firms at a marked disadvantage. Thus, according to a report of the
Division of Industrial Economics summarizing the National Recovery
Administration experience:
In whatever way uniform prices were achieved, their intent and effect were
usually to impair the competitive strength of those concerns that had formerly
depended upon price appeal. In the retail solid fuel industry, for example, dis-
tribution by truck had expanded markedly during the depression. Small dis-
tributors maintained no storage yards, but bought truckloads from the mine or
the freight terminal and delivered directly to the consumer. Since their service
was often irregular and their prestige not well established, they could obtain
business only by price concessions. The effect of the industry's minimum
prices was to deprive them of their selling argument and also to weaken the very
small coal yards.
*******
In the Cleaning and Dyeing Trade the cash-and-carry cleaners contended that
they could not keep their business unless they were permitted to sell below the
prices of those cleaners who receive and deliver the garment at the customer's
residence. Their refusal to abide by the uniform minimum prices established
under the code was an important factor in the breakdown of the price structure.
In the Wholesale Confectionery Trade a cash-and-carry wholesaler complained to.
a member of his local code authority that he must either allow a larger discount
than his competitor who delivered merchandise and extended credit or else go
out of business. Aa he later described the conversation: "The answer was this,.
" In manufacturing industries the advantage of prestive is usually, though not always, on the side of the
largo, well-established firms. In the retail and wholesale trades, however, it is often the srhaller independent
concern which prefers to compete on grounds other than price.
g2 CONCENTRATION OF ECONOMIC POWER
'Mr. Lieberman, you have been a cash-and-carry man. From today on you
will become a service man.' I said, 'You are a code authority lawyer today;
what would happen if someone wanted you to become a criminal lawyer? Would
you like that' " '^
In other industries, prestige, rather than service, was a factor.
Thus in the business furniture industry there was a serious conflict
between the large manufacturers who depended upon their established
reputation and smaller ones who could only operate on the basis of
price appeal. Any program designed to eliminate price competition
seemed congenial to the interests of the larger producers. The con-
flict in point of view between those who favored price competition and
those who wished to eliminate it entirely in favor of nonprice com-
petition is clearly revealed in the following extract from a National
Recovery Administration hearing. A speaker representing a very
large producer stated:
One of the serious difficulties in our business has been that the large manu-
facturers by means of their designers, and advertising and other promotional
efforts have created a demand for these products — you will recall that there is,
after all, no particular demand for these products unless it is created — whereas the
small dealers undersell, and undercut the eflForts of these large manufacturers, and
the results in the past have been most disastrous.
* :i! * * * * *
The manufacturers who have developed these goods and the dealers who have
sold it (sic) and created the demand must not have their business taken away from
them— or all the profits taken away, which amounts to the same thing, by small
manufacturers or small dealers from over the other side of the track, who are
willing to sell at any price and thus spoil what was once a profitable business.
Our code provides that there shall be no discrimination against the little fellow
but nowhere, in any code, have I seen any reference to the small operator being
entitled to protection or an "edge" at the expense of the larger group. The small
operator is entitled to all the business he can get on the right terms and on equal
terms with the rest of the industry.
The representative of the Consumers' Advisory Board replied:
Mr. BoFFEY. You made the statement that the small operator should not be
allowed to take advantage of the big operator.
Mr. Keeling. I feel that very keenly.
Mr. BoFFEY. As between the small operator with limited sales promotion,
and the large manufacturer who is able to use advertising and create consumer
demand, who is going to get the order from the consumer on an equal basis?
Mr. Keeling. I would like to answer that in a rather roundabout way. Bear
in mind this, that all the large manufacturers were small at one time, and collec-
tively, and in some cases individually, they have spent millions of dollars in devel-
oping this business, and any small manufacturer has the right to come in tomorrow
and open up a little shop in a back alley some place, but there is no obligation on
my part to hold an umbrella over him and protect him until he is a responsible
competitor. He is entitled to all the business he can get on even terms. When
my firm started we asked no odds of anyone, and there are many other manu-
facturers who did the same thing. They started in business and went out on even
competition and built their business up, and there are many examples of manu-
facturers who have started within the last 10 years and have built up a substantial
business and asked no quarter of anyone. There are many manufacturrers doing
business in a loft, or in a back alley. They claim a preference and a protection
they are not entitled to. The small dealer is not entitled to any protection. He
is entitled to all the business he can get on the right terms.
Mr. Rauch. You also referred to there being no reason why the large producer
should hold an umbrella over the small producer. You don't mean to infer by
that if the small producer does not incur a large advertising expense, for example,
he should be compelled to sell at a price which would include that expense?
«• Miniipum Price Control— Stafl Studies— Division of Industrial Economics, ch. II, pp. 53, 57, 58.
CONCENTRATION OF ECONOMIC POWER 93
Mr. Keeling. I didn't mean that, but I mean this: If I have a file of a certain
grade as the man across the street who is just going into the business makes,
he has no right to undermine me by underselling me.. I like him personally and
all that sort of stuff, but I am not going to pat him on the shoulder and give him a
couple of dollars every time he sells a file. When my company started we asked
no quarter; we went out and got the business, so I see no reason for any edge or
protection from anyone in any line of activity. Let them go out and meet com-
petitive conditions as they find them. That is the way we feel about it.
Mr. Rauch. You maintain, do you not, that the small individual has the right
to file any price he wants, and you have the right to meet it?
Mr. Keeling. That is right. Any manufacturer has the right to file any price
he chooses at any time, but when once filed, he must sell at that price. He can
change it at any time, but he must file his change, and anybody has got the right
to go out and meet him.''^
A somewhat similar situation occurred in the tire-manufacturing
industry, where again it seems that smaller manufacturers could
compete with the larger only on the basis of price. The consequences
of the code provision designed to limit the freedom of price competition
were expressed by a small producer in the following words:
We don't want to sell below cost. We don't propose to sell below cost, but
you notice what they add to it. Nobody must sell below cost unless to meet
competition.
Well, up here is a big manufacturer. Everybody knows he has to sell above us
if he can make money. He can do it and has consumer acceptance that carries
him on. He would starve if he sold at our price. There is no question about it.
He does not have to. He keeps on advertising. Here is our cost. He does not
have to sell at his cost when he meets our competition, so he can come down and
meet us and we have not any right under the formula to fall below; in other words,
as I have heretofore said, w-e are chained to a post, and he comes and gets us and
sells against us as long as he wants to because of that provision. Don't you see
where it all leads? ^'
Illustrations of this kind could be multiplied indefinitely. Enough
has been said, however, to show that a sliift from price competition
to nonprice competition may not benefit all the firms in an industry
equally, even if the longer term aspects of the issue be neglected.
In general, established concerns are often content to retain their
positions in the industry, and to avoid price competition, while growing
companies must use aggressive tactics to expand their shares of the
market.
One procedure for equalizing the situation has already been sug-
gested; that is, a state of affairs in which firms with superior prestige
permit those whose prestige is inferior to charge a somewhat lower
price. Where this alternative is unavailable, either because members
of the industry do not accept the custom or because of some form of
price regulation, other devices have been attempted. Under National
Recovery Administration, for example, an amazing degree of ingenuity
was displayed in devising new forms of competition to take the place
of those prohibited by the codes. Quoting again from the report of
the Division of Industrial Economics:
Wherever minimum-price systems cause peculiar difficulties for one part of an
industry, there was a, direct incentive to evade or destroy the minimum prices.
Minimum-price provisions were consequently difficult to enforce.
Opportunities for evasion were manifold. Since the code provisions had been
hastily written, legal ways of selling below the minimum prices could often be
discovered. Even the most carefully drawn code provision was seldom an adequate
check upon a determined price cutter. Price concessions could be made by
« Ibid., pp. 54, 55, 56.
"Ibid., p. 56.
94 CONCENTRATION OF ECONOMIC POWER
greater liberality in the quality or quantity of the product or in any of the accessory
services or terms of sale; and to regulate every detail of each transaction was
impossible.
In the sale of tires prices could be cut by extending the duration of guaranties
of performance. Price concessions in the retail sale of automobiles consisted
largely of higher trade-in allowances upon used cars. In the lumber and bitu-
minous coal industries, price cutters delivered better grades than had been ordered
and paid for. Inthe bituminous coal industry some producers offered guarantees
which their customers knew were excessive and contracted to forfeit a part of the
price if the coal was below the guaranteed standard. In many industries premiums
or free deals were used to reduce the net price. Some producers attracted trade
by offering lavish entertainment to buyers. Others offered unusually liberal cash
discounts and credit terms. Long-term contracts whose date was alleged to be
prior to the minimum price system served as excuses for sales at low prices to
favored customers.
*******
Successive efforts to plug loopholes in minimum-price provisions made the
provisions increasingly complicated. Detailed regulation of terms of sale decreased
the flexibility of business transactions, caused inconvenience to many concerns
which were not using the prohibited practices to evade the code, and multiplied
the points at which governmental supervisions and enforcement were required.
Petty regulations became so complicated that in some instances they were a
nuisQ,nce both to the industry and to the administration. An example of the
detailed character thus given to Federal law is the stipulation in the Retail Tobacco
Code that "the retailer may give not more than 1 pad of matches for each unit sold
or 5 pads per box of 25 cigars, or 10 pads per box of 50 cigars sold." *^
Perhaps the best commentary on the variety of forms which compe-
tition can assume and the variety of ways in which price quotations
can be indirectly modified is the following list of the types of regulation
which were attempted under National Recovery Administration in the
eflFort to regulate all forms of competitive tactics. This summary of
code provisions is in a sense an index to all the varieties of nonprice
competition with which business men in various industries were
reasonably familiar, though even these did not include all the
possibilities.
Types of Concessions to Influence Sales as Dealt with by Codes
1. Concessions primarily related to time of buyer's payment:
Discounts.
"Terms" and "conditions" of sale or payment.
Credit practices.
Credit terms.
Cash discounts.
Periods of free credit.
Interest rate beyond free-credit period.
Datings.
Seasonal datings.
Installment sales.
Deferred payment.
Anticipation of bills.
Sales to delinquent accounts.
Sales not contingent upon buyer's credit standing.
Payment due when money received from other sources.
Retained percentages.
2. Concessions primarily related to risks of buyer:
Guarantees.
Price guarantees.
Contracts for deferred delivery not subject to price change.
Price offer not subject to change.
Advance notification of price change.
Delaying acceptance of order.
"Ibid.,pp. 70, 72.
CONCENTRATION OP ECONOMIC POWEU 95
Options.
Agreements indefinite as to time or quantity.
Offers w ithout time limit.
Offers not expiring within specified period of time.
Offers without withdrawal provisions.
Guaranties against defective goods.
Product guarantees.
Product guarantees against other than defective merchandise.
Uniform product guarantees specified in code.
Guarantees in excess of manufacturers' warranty (distributing and
fabricating codes).
Maintenance guarantees.
Adjusting incorrect shipments.
Accepting return of merchandise.
Accepting return of obsolete, discontinued or "unsalable" merchandise.
Exchanging merchandise.
Accepting return of other than defective merchandise.
Repurchase agreements.
"Money-back agreements.
Sales subject to trial.
Sales on approval.
Shipments without order.
Sales on consignment or memorandum.
Storing goods with customer.
Display for direct sale in customer's store.
Renting or leasing industry products.
Resale guarantees.
Agreeing that payment be governed by sales of secondary product.
Accepting orders for specific jobs before customer secures award.
Guaranteeing accounts due customers.
"Compensation of customer for business losses."
Unilateral agreements (buyer not bound).
Contracts containing penalty clauses.
Contracts containing liquidated damages clauses.
Contracts not subject to adjustment necessitated by noncontrollable
factors.
Assuming liability for nonperformance caused by noncontrollable factors.
Assuming liability for damage to buyer's drawings or equipment caused
by noncontrollable factors.
Assuming liability foi* errors in plans or specifications furnished or approved
by buyer.
Assuming liability for consequential damages.
Assuming liability for patent infringement.
Failure to give advance notice of discontinued lines.
3. Concessions primarily related to supplying additional goods:
Any gratuities.
Free deals
Premiums.
Sales of other or additional goods at reduced prices.
Combination sales.
Combination offers.
Coupons.
Samples.
Scrip books.
Prices.
Sales promotion awards.
Containers.
Special containers.
Labels.
Special labels.
Special equipment.
Accessories.
Certain advertising material.
Display materials.
Printed matter (other than advertising material).
96 CONCENTRATION OF ECONOMIC POWER
4. Concessions rendered buyer through use of seller's employees or property.
Any unusual service.
Providing sales help.
Demonstrating.
Estimating.
Furnishing drawings.
Furnishing plans and specifications.
Furnishing surveys and formulas.
Tnstaljation and erection.
Inspections.
Furnishing unusual processing services soecified in codes.
Stampings or markings.
Repair and maintenance.
Reconditioning.
Engineering services.
Handling.
Crating or packing.
Repacking.
Delivery service by seller's trucks.
Warehousing and storage.
Lending of equipment.
Permitting retention of trade-in equipment.
5. Concessions rendered buyer through financial assistance or favors:
Favors.
Entertainment.
Patronizing publications in which buyfer is interested.
Participating in group showing.
Gifts.
Gifts to organizations (in which buyer is interested).
Paying buyer's personal expenses.
Paying permit or inspection fees of buyer.
Paying customer's insurance.
Paying customer's advertising expenses for products other than member's
Assuming reversed telephone or telegraph charges.
Assisting customer to obtain used products for trade-ins.
Assisting customer to find purchaser for used products.
Subsidizing or financing buyer.
Employing customers, employees, relatives, associates.
Purchase of buyer's capital stock.
Financing payments due customer.
6. Concessions related to manner and/or time of shipment:
Split shipments.
Shipments smaller than specified minimum.
Tolerance in time of shipment
Deferred delivery.
7. Concessions through payment or diversion of commissions or fees to customer:
Payment of commissions or fees by members to buyers.
Payment of commissions or fees by members to other than bona fide or
controlled sales representatives.
Payment of commissions or fees by members to purchasing agents com-
pensated by buyers.
Payment of commissions or fees by agents of members to buyers.
Splitting of commissions or fees by agents of members with agents of
buyers without buyer's knowledge.
Splitting of commissions or fees by members or their agents with buyers
or their agents.
Payment of brokerage to other than bona fide brokers.
8. Concessions through allowances or payments for value rendered by buyer:
Allowances.
Trade-in allowances.
Advertising allowances.
Catalogue allowances.
Distribution service allowances.
Container allowances.
Installation allowances.
Allowance for further processing.
CONCENTRATION OF ECONOMIC. POWER 97
Maintenance or repair allowance.
Rental allowances for space hired.
Allowance on supplies furnished by purchaser for production of product
ordered.
Cartage allowances when buyer receives goods at factory.
Allowance for special service.
Label allowances.
Purchasing from buyer.
Renting from buyer.
9. Concessions through acceptance of competitor's materials from buyers:
Exchange of own for competitor's products.
Purchase of competitor's products from customer.
10. Concessions through sale of substandard or obsolete goods:
Sale of seconds.
Sale of used goods.
Sale of damaged goods.
Sale of rebuilt or overhauled goods.
Sale of demonstrators.
Sale of obsolete goods.
Sale of discontinued lines.
Willful manufacture of substandard products.
Sale of returns.
Sale of scrap.
Sale of chaflF.
Sale of culled goods.
Sale of surplus stock.
11. Concessions granted during performance contrary to provisions of agreement:
Rebates.
Departure from credit t-erms of contract.
Settlement of old accounts at less than full value.
Permitting improper deductions when buyer remits.
Permitting buyer's cancelation or repudiation.
Substitution of higher quality or greater quantity of goods.
Substitution of new contract at lower price.
Receipting bills before payment.
Extending or exceeding contract.
Collateral agreement not to enforce part of contract.
Departure from delivery date of contract.
Retroactive settlement or adjustments.
12. Acceptance of forms of payment in which concessions may be concealed:
Accepting securities.
Accepting buyer's capital stock.
Accepting goods from buyer.
Accepting real or personal property.
Accepting negotiable instruments.
Accepting other than lawful money.
Accepting credit transferred from one buyer to another.
Selling for customer account and accepting proceeds for credit.
Accepting form of payment other than specified in code.
Accepting rental payments as part payment on purchases.
Accepting deposit made to another manufacturer.
Assignments (of receivables, etc.).
13. Types of agreements, offers, invoicing, etc., by means of which concessions
may be concealed:
Oral agreements.
Oral offers.
Oral appraisals.
Oral orders.
False billing.
False orders.
False receipts.
False agreements.
False offers.
Delayed billing.
Misdated invoices.
Misdated contracts.
gg CONCENTRATION OF ECONOMIC POWER
Misdated orders.
Misdated offers.
Misdated receipts.
Invoices omitting terms of sale.
Invoices omitting date of shipment.
Invoices omitting specifications.
Invoices omitting other specified detail.
Agreements omitting terms of sale.
Agreements omitting date of shipment.
Agreements omitting specifications.
Agreements omitting other specified detail.
Offers omitting terms of sale.
Offers omitting <late of shipment.
Offers omitting specifications.
Offers omitting other specified detail.
Orders omitting terms of sale.
Orders omitting date of shipment.
Orders omitting specifications.
Orders omitting other specified detail.
Split billing.
Lump sum offers.
UniteWeed billing.
Orders not subject to member's acceptance.
Auction sales.
14. Types of agreements, offers, invoicing, etc., primarily designed to prevent the
concealing of concessions:
Uniform contract form.
Uniform order form.
Uniform bid or quotation form.
Standard invoice form.
Standard leasing form.
Form of contract.
It is apparent then that trade-practice regulation, such as that
practiced undei* the National Recovery Administration, often serves to
divert the focus of competition. However, it may not prevent or
stifle it; emphasis shifts from those aspects of the transaction which
are regulated to others which are free of control.
The National Recovery Administration experience was used to
illustrate this point because it covered so wide a sector of industry
and because of the wealth of data available as to its effects. How-
ever, the phenomena observed are by no means unique to that period.
Similar shifts in competitive emphasis are constantly occurring, not
only because of the impact of Government regulation but also as a
result ol all the constantly changing pressure to which the business-
man is subjected during the ordinary conduct of his affairs.
Thus, it is often hiexpedient for the individual firm to change its
nominal price quotations to secure large individual orders. To do
so may arouse the resentment both of competing sellers and of buyers
not equally favored ; since the Robinson-Patman Act was passed it
may even be illegal to do so. Consequently, many devices similar
to those considered in connection with National Recovery Adminis-
tration are utilized to grant indirect concessions in unregulated mar-
kets, as well as in those subject to some form of Government control.
Frequently these concessions amount so directly to modifications
of the nominal or quoted price that they arc not, properly speaking,
aspects of nonprice competition. However, since they are not usually
reflected in published price statistics, they must be accorded diie
weight in any interpretation of the movements of price indexes.
CONCENTRATION OF ECONOMIC POWER
99
An excellent illustration is afforded by the market for sulfuric
acid. The published price quotation for thi^s commodity is remark-
ably rigid. It showed no change at all between November 1927 and
May 1937. In all probability, moreover, this quotation accurately
reflects what the small buyer was required to pay during this period.
However, there is evidence that a very material share of the total
sulfuric acid production is sold on the basis of contracts covering a
period of a year or longer. The prices stipulated in these contracts
seem to be subject to material modification by bargaiiimg. They
are probably substantially lower than the published quotation at all
times, and also seem to show appreciably greater flexibility.
Thus, the following table contrasts the nominal quotations as re-
ported by the Bureau of Labor Statistics with the actual prices paid
by a large buyer:
Table 9.-
-Comparison of quoted prices for sulfuric acid with prices actually paid
by a large buyer
Year
Average quoted
price per ton
(converted to
100-percent
basis) '
Price paid by
large buyer per
ton (100-per-
cent basis) 2
Year
Average quoted
price per ton
(converted to
100-pcrccnt
basis) '
Price paid by
large buyer per
ton (100-per-
cent basis) 2
1926
$15. 67
16.20
16.63
$15.35
15.94
15.73
12.85
12.18
12.37
1932 .
$16. 63
16.63
16. 03
16.63
16.63
17.21
$12 38
1927..
1928
1933
1934 .
12.25
14.96
1029 _.' 16.63
1930 16.63
1935
1936
14.68
1931
16.63
1937
13.52
' The Bureau of Labor Statistics quotation was for 66° B acid. It was converted to a 100-percent basis
by dividing by 0.932, which is the acid content of 06° acid. This basis of conversion is approximate, but it
is adequate for the purpose of comparison.
' All these prices, with the exception of the year 1934, were on the basis of contracts for the period of 1
year or longer. The 1934 price represented noncontract purchases.
Sometimes wide concessions below the quoted price level are made
available to buyers generally, rather than to selected customersr Re-
ported and published prices remain stable, while the level at which
business is being transacted fluctuates sharply. The National Re-
sources Committee cites the following examples of this technique in
a report just published.*^
(1) The fertilizer industry. — Some clue to the extent to which rebates and con-
cessions affect nominal fertilizer prices may be obtained from a report of the
Federal Trade Commission. s" According to this report, there was widespread
selling of fertilizer at prices far below list during the years 1921 and 1922. The
Bureau of Labor Statistics index showed no change in price between January
and December 1921. It showed a substantial cut between December 1921 and
January 1922, and perfectlj' stable price quotations through 1922. According to
the Trade Commission, however, "in 192i and 1922 price lists were published as
usual, but were so high that the companies were unable to maintain such prices
for any length of time." The Commission reproduced many letters taken from
the files of fertilizer manufacturers which reveal the extent to which rebating was
practiced. During this period, for example, Swift & Co. were selling to dealers
at discounts of 33.3 percent plus 5 percent off schedule, and, in addition, granting
a direct rebate of $2 per ton. The American Chemical Co. instructed its North
Carolina sales managers to go as far as 33.3 percent below list wherever necessary
" The Structure of the American Economy, National Resources Committee, pt. I, June 19?Q. p. 178.
*> Fertilizer Industry. Letter from the Actmg Chairman of the Federal Trade Commission transmitting
in response -to « Senate resolution ot June 17, 1922, a report on certain phases of the fertiliier industry. S.
Doc. 347, 67th Cong., 4tb soss.
^QQ CONCENTRATION OF ECONOMIC POWER
to meet competition. On April 10, 1922, * * * a, district manager of the
American Agricultural Chemical Co. wrote to its vice president: "I think every
concern operating out of Atlanta, with no exception, is making almost any price
it sees fit in order to get some business. * * * All managers and division
managers practically admit that there is no regular price."
Although similar documentary evidence is not available for periods subsequent
to 1921 and 1922, persons close to the trade state that similar practices have re-
curred under similar conditions.
(2) Salt industry.— A parallel situation occurred in the salt industry during the
latter part of 1935. * * * Price quotations show no decline from March to
September 1935. Yet, according to a National Recovery Administration study,
a price war started early in 1935 and discounts of as much as 30 percent were
being granted by August 1935. According +o this report —
"Particularly during time of depression, in efforts to bolster declining sales
volume, many members of the industry offered secret prices, discounts, rebates,
and other concessions * * *_
"In the latter months of the- code period, the practice of granting secret rebates
atid other secret concessions from filed prices began to develop in the industry.
Filed prices were maintained at uniform levels within the various marketing areas,
but actual price uniformity was disappearing. The difficulty of discovering and
proving secret price concessions, plus rather apathetic support from the National
Recovery Administration along compliance lines, contributed to the growth, of
secret pricing.
"Following May 27, 1935, deviations from published prices became more and
more troublesome. By August, the secret prices evidently became sufficiently
serious to warrant retaliation by the price leaders in the industry. Since that
time, there has developed one of the worst price wars experienced in recent years
by this industry. Published prices remain practicp.lly the same as they were
during the code period, but discounts and rebates ranging from 20 to 30 percent
are being granted to various types of buyers."
Despite the existence of this price war, the nominal price quotations * * *
showed no change at all until October 1935. The October quotations were 26
cents, or 10 percent, below the September prices; but even this reduction in the
list price did not approximate the extent of the discounts which were being granted.
*******
Frequently, concessions are granted more indirectly. For example,
advertising allowances are a common form of granting special induce-
ments to purchasers. Allowances may be granted for window display,
preferred location of goods, use of special selling equipment, adver-
tising in local newspapers, distribution of samples, radio advertising,
the furnishing of store space for demonstrations, and the like. Sup-
posedly the allowance is proportioned to the value of the advertising
services so rendered to the manufacturer. Frequently, however, par-
ticularly prior to the passage of the Robinson-Patman Act, the amount
of the allowance was governed largely by competitive conditions sur-
rounding the particular transaction. In such cases the advertising
services to be rendered may have been merely the excuse for the
allowance; often no eflfort was made to determine whether they were
actually rendered in accordance with the agreement. Evidence as
to the extent of such allowance was obtained by Congress during an
investigation of the American Retail Federation.^'
Nor are practices of this kind confined to the wholesale market.
Retailers often find indirect ways of granting concessions, to customers
when overt price cuts either seem impolitic or are restrained by law.
For example, a retail liquor dealer in Washington, D. C, carefully
marks all his merchandise at the accepted price on his shelves but
allows discounts of more than 20 percent to any customer who asks
for it. In a southern city various retail druggists who depended upon
»' Hearings before the House Committee on Investigation of the American Retail Federation, 70th Cong.,
Ist sess., vol. 1, pp. 465-470 and vol. 4, pp. 215-344.
CONCENTRATION OF ECONOMIC POWER IQ^
price appeal, developed a novel scheme for evading minimum prices
established by contract under the provisions of the Fair Trade State
Act. They sold price-maintained drugs and cosmetics under the
installment plan, requiring a down payment of a specified sum some-
what under the minimum price, with the balance to be paid subse-
quently. It is possible that no serious effort was made to collect this
balance.
Basically the issues raised by this section may be summarized in
the following manner. In any industry or trade, unless an effective
method for the outright allooation of business exists, there will be a
degree of rivalry among competitors, each seeking to expand its own
share of the market. In most lines the competitive strategy best
suited to the position of the rival firms will show some variation
between them. Usually, some firms, such as the largest and best
known, can compete more effectively on the basis of their relative
prestige. Assuming all other elements of the transaction to be iden-
tical, a constant or increasing share of the volume would naturally
flow to them.
Consequently, those firms whose prestige is inferior usually find it
necessary to offer some compensating inducement. The most obvious
form in which such an inducement can be offered is as an outright
price reduction. Frequently, however, the possibility of using price
as a competitive argument is limited by such factors as the fear of
reprisal, the threat of coercion, or the operation of law. In ihat case,
competition is usually diverted into other channels.
In a few industries, of course, all members are apparently content
merely to maintain their respective positions. Whether such deci-
sions be voluntary or reflect some form of duress, the result is equiva-
lent to outright monopoly. In most industries, however, there are at
least some firms which are dissatisfied with their shares of the market.
WTaenever any particular form of competition becomes either illegal,
unprofitable, or for any reason inexpedient, other outlets for the
pressure of business rivalry are devised to take its place by these
aggressive concerns. The range of such devices is limited only by the
ingenuity of businessmen.
This protean quality of competition must be reckoned with in any
efforts to regulate or control specific competitive practices. When-
ever any one avenue of competition is closed or made difficult, whether
by business itself, or by Government through such legislation as the
fair trade laws, a diversion of business tactics is the probable result.
Unfortunately, as indicated in the following section, not all the
aspects which competition assumes can be considered equally con-
ducive to the efficient functioning of the economy.
CONCLUSIONS
In summarizing this illustrative discussion of phases of nonprice
competition, it should be borne in mind that the basic criteria upon
which public policy in regard to business practices must be based are
their effect upon the standard of living of the people, and, more
broadly, upon the manner and efficiency with which the Nation's
economic resources are utilized. Uneconomical or wasteful practices
which lead to unduly high prices are not in the public interest; ob-
JQ2 CONCENTRATION OF ECONOMIC POWER
souring the true value of products is not in the public interest; undue
degradation of quality, even though it may bring lower prices, is not
in the public interest. All of these practices prevent or interfere with
the best use of the consumer's dollar and limit his standard of living.
It is clear from the discussion presented here that the issues involved
in regulation of business practices and, in particular, of the trend
away from price competition, are exceedingly complex. This report
has not attempted to present all the evidence required for categorical
judgment on the value of these various forms of nonprice competition;
but rather to suggest where the weight of evidence lies, and to point
to possible types of public control.
Attention may first be directed to the escape devices discussed in
the immediately preceding section. The evidence seems to show that
in many industries there has been a constant redirection of competitive
effort. As one or another accepted form of competition becomes il-
legal or inexpedient, the ingenuity of business firms is exercised in
exploring new channels to replace the old ones. The economic effi-
ciency of this process seems highly dubious. Its general trend seems
to be the substitution of increasingly indirect ways of granting con-
cessions as more forthright and direct ones are successively abandoned.
Indirection is not generally an economical or efficient process. More-
over, it complicates the problems of choice facing the buyer in com-
-paring the offers of rival sellers.
It has been shown that the trend frequently reflects the efforts of
established firms to maintain their position in an industry by making
it difficult for new entrants to compete on a price basis, or for small
and comparatively unknown companies to expand by featuring factors
other than prestige in their sales strategy. To the extent to which
such efforts are sucfcessful, they impair the desirable flexibility of
business structure. Even when they fail in their ultimate purpose,
they often result in diverting competitive effort from direct and effi-
cient channels into indirect and less efficient channels. Public policy
may therefore be properly concerned with keeping all legitimate
avenues of competition equally open, and with discouraging efforts to
bar any one of them.
A sharply contrasting situation is presented by such conventional
practices as "price lining." Price lines do not involve any constant,
wasteful redirection of competitive effort. Even in the absence of
price lines, such factors as quality and style would necessarily play
major roles in the apparel market. In fact, the existence of price
lines, instead of complicating the problems of choice facing the buyer,
as do most of the escape devices described, actually simplifies them
somewhat. The number of variables between rival offers is reduced.
The buyer can accept price as a constant and concentrate his attention
upon comparing other elements such as quality or style. To the
seller some economy is achieved in the problems of business planning.
On the other hand, there seems little doubt that price lining incurs a
penalty, particularly when the lines become unduly rigid. The ad-
justments necessary from time to time to keep a product within
established lines may be wasteful or undesirable. If manufacturing
costs rise, for example, quality factors may be seriously skimped.
When costs fall, on the other hand, adjustment may take the form of
adding unnecessary frills which do not add proportionately either to
CONCENTRATION OF ECONOMIC POWER 103
appearance or usefulness. Such developments seem inevitable when
production is geared to an unchanging price pattern. Considerations
of this sort apply not only to such goods as apparel but with f^qual or
greater force to other price-lined articles sucli as household equipment
(e. g., radios, washing machines, etc.).
Moreover, rigid price lining may detract from the degree of price
flexibility which is economically desirable. This is particularly true
where the steps between successive prices are large and where the
buyer cannot readUy adjust by shifting from one price line to another.
For example, during a period of declining purchasing power, the con-
sumer may be obtaining a somewhat superior article for the same
price; but this is not equivalent in its economic effect to a direct price
reduction for an article of unchanged quality.
It cannot be gainsaid that there is a certain inevitability about the
development of conventional patterns of business behavior. Price
lines and similar customs largely reflect the adjustment of buyers and
sellers to each others' preferences and convenience. Occasionally,
the rigid maintenance of price lines may be associated with some form
of concerted or collusive action, although, in the main, they represent
the gradual growth of custom in highly competitive industries, where
collusion would be next to impossible.
Consequently, if certain aspects of conventional business practice
were found undesirable from the point of view of public policy, any
program of action would have to take lines quite different from those
traditionally followed by government. A mere attack upon collusive
practices would accomplish little or nothing. Instead, any revision
of business habits would probably have to proceed from a general
discussion of the problem and mutual agreement within the industry
as to the desirable modifications of conventional patterns.
So much for the more general problem. It now becomes pertin,ent
to consider the specific issues involved in the several major forms of
nonprice competition which have been described above.
One of the most important and difficult issues involved is the net
effect of the emphasis upon quality as a basis for competition. It is
desirable that quality be good, that shoddmess be avoided; but at
the same time that consumers with limited incomes have available a
usable article priced within their means wherever that is possible.
It is reasonably certain that the recent trend away from price com-
petition has materially affected the character of the goods on our
markets as well as standard of living of consumers.
In some ways this influence has been undoubtedly beneficial.
Efforts to improve quality through technical research and otherwise
have been stimulated. This is notably true of many of the newer
mass production industries manufacturing consumer goods. Thus,
it may be argued that the automobile is today a far more satisfactory
product than would have been true had competition focused primarily
on price. Data have been cited (see pp. 63-67) showing that improve-
ments in the quality of such products as automobiles, refrigerators,
tires, etc., are in some ways equivalent to direct price reductions.
The benefit which the consumer derives from increased economy of
operation or greater durability is concrete and tangible; sometimes
it may be translatable into direct price equivalents.
247149— 41— No. 1-
JQ4 CONCENTRATION OF ECONOMIC POWER
Conversely there is some evidence to show that where the price
aspects of competition are strongly stressed, degradation of quality
may occasionally follow. If price cuttmg is the niost expedient means
of expanding sales, producers may be faced with the necessity of
cutting costs correspondingly. Sometimes, of course, costs may be
reduced by introducing economies of operation based upon improved
technology, but this is not always feasible. The pressure on prices
may then be reflected in attempts to reduce labor costs or to skimp
on quality. The latter alternative is most feasible in the case of
articles whose quality consumers find it difficult to appraise, as where
objective standards of quality are unavailable or inadequate. Nat-
urally, this tendency becomes aggravated when price competition
becomes unusually severe, as in the case of the buyers' market pre-
vailing during a depression. National Recovery Administration
experience reveals many instances of this situation."
However, the reverse side to this picture is of great importance,
particularly to consumers of limited income. Quality features have
at times been stressed far beyond their intrinsic worth. Unnecessary
gadgets and eye-catching features have been multiplied. Intensive
selling campaigns have been conducted to persuade consumers to de-
mand such features in place of price reductions which could have
K The following are excerpted from a study prepared by the Division of Review of the National
Recovery Administration.
(InfoTmation Concerning Commodities— A Study in NRA and Related Experiences in Control, Part B,
Standards and Labeling. By Hunter P. Mulford, Division of Review Work Materials, No. 38.)
Mayonnaise Industry. — "At the time of the sponsoring of its code the industry faced a difficult situation,
marked by severe, price competition, which was felt to bear particularly heavily upon the makers of higher
grade products. Reduction of oil content, use of substitutes, and synthetics, etc., were among the means
chiefly employed to reduce costs and increase sales volume based upon low price appeal." (Ibid., p. 18.)
Preserve, Maraschino Cherry and Olace Fruit Industry.— "Duving the years of the depression, due to steadily
increasing price competition, a decided decline in the Quality of the industry's products occurred. This
was a natural result of endeavoring to reduce costs and by so doing keep selling prices at a fairly low level
in an effort to either retain or obtam volume. This is easily understood when the following cost figures are
considered. At 2.5 cents per pound for fruit, when 53 pounds of fruit are used to make ICO pounds of pure
preserves, the cost per case is $1.33, but when only 21 pounds of fruit are used to make 100 pounds of pre-
serves, the cost "is only 53 cents per case.
"Therefore, it can be clearly seen that by reducing the amount of fruit and increasing the amount of
water, plus pectin, considerable savings in costs can be made. Industry representatives discussed this at
considerable length at the public hearing on their code. They felt that this lowering of quality was harmful
to the industry as a whole, and misleading to the consumers." (Ibid., p. 191.)
Hosiery Industry.— "This depressed condition of the market resulted in a deterioration in the quality of
hosiery which, because of the nature of the product, can readily be misrepresented. Thus Mr. A. Propper,
executive of a large Chicago department store stated:
" 'Women's hose • • * is more or less a blind article. Any manufacturer, imknown to us, or any-
body, can easily take something out of a hose, that we don't know has been taken out until wo find • * ♦
that something has marred the wearing quality of the hose. Courses can be dropped, inferior silk can be
used, threads can be tightened, and other small manufacturing qualities that are not discernible to the
naked eye can be cheapened.'
"Various forms of quality degradation are described in a booklet issued by a manufacturer of unbranded
hosiery as skimping by reducing length; reducing number of stitches in the seam; use of lower-twist thread;
elimination of reinforcements; insufBciont number of courser-; dropping of needles in the knitting bar; old
stock sold as new; failure to identify fiber, etc.
"That price competition had induced these and other manipulations in quality was alleged. To quote
again from Mr. Propper's speech:
" 'We nil know that it is easy to cut hosiery down to a price » • • that is aU we have been doing In
the past, cutting it down to a price.' " (Ibid., p. 175.)
Canning Industry.— "Pressure of competition within the industry has reduced prices in recent years,
and this reduction in prices has in turn led to reductions in quality. Prices for canned goods were con-
siderably lower during the years 1932-34 than for some years previous, and during this later period some
buyers have complained that, after having placed contracts for future delivery, it was practically impos-
sible for them to secure merchandise in conformance with their specifications." (Ibid., p. 138.)
Macaroni Industry. — "Since price competition had become so acute in the industry in the last year and
a half, manufacturers felt that they must cut the cost of producing their goods in any way possible. They
could not^cut their labor costs without running into difficulties, therefore they cut the cost of raw materials.
Consequently there has been a great increase in the use of artificial coloring to take the place of egg content;
there has also been increase in the use of inferior grades of flour hi place of higher grade semolina; and finally
there has been an effort to use a mixture of soya and ordinary flour to simulate semolina." (Ihid., p. 24.)
Cleaning and Dyeing Industry. — "Testimony as to the lowered quality of services which accompanied
price competition was given by the President of the National Association of Better Business Bureaus (and
by others) at the hearing on prices and code violations for the cleaning and dyeing industry:
" 'Our files show that refusal to adjust complaints is in the majority of cases excased on the basis that at
cut rates the public ain't expect service or responsibility.
'' 'From the consumers' standpoint, low prices have resulted in unsatisfactory cleaning jobs and resulting
«Jestruction of merchandise at a very alarming rate.' " (Ibid., p. 212.)
CONCENTRATION OF ECONOMIC POWER JQ5
contributed materially to making available a larger volume of goods
to the consuming public. Where cheeper models stripped of such
features have been introduced, they have often been used primarily
as leaders; sales effort by the retailer has been devoted to switching
the consumer from such cheaper models to more expensive ones
carrying luxury features of doubtful value.
Sometimes a group of manufacturers in an industry makes delib-
erate efforts to establish unnecessarily high standards of minimum
quality. By precluding the appearance of low grade, though satis-
factory, merchandise on the market, they hope to limit the scope of
price competition. On the other hand the product which it is sought
to bar may, when properly used, fill a perfectly legitimate need
among consumers in the lower income brackets. For example, certain
members of the plumbing fixtures industry have constantly sought to
prevent the marketing of "culls" or "seconds" as a means of protecting
the existing price structure. These efforts were the subject of antitrust
proceedings by the Department of Justice. According to the Court:
Defendants (in District Court) represent the Standard (Standard Sanitary
Mfg. Co.) as the dominant * * * and the only honest manufacturer, point-
ing out to other manufacturers the worthlessness of their output, they not having
the Arrott patent; also the dishonesty of * * * putting out "seconds," the
inferiority of which was discernible only by experts * * * thereby * * *
"discrediting the ware and demoralizing the market and business." To avert these
evil results * * * the Standard was willing to forego the advantages which
its ownership of the Arrott patent gave it and confer them upon the other nianufac-
turers. But upon terms, "First and foremost" * * * that ng "seconds"
should be marketed. ^3
Later, there was an endeavor to accomplish this same purpose
under the National Recovery Administration by prohibiting the sale of
culls under the terms of the Code. According to a National Recov-
ery Administration study:
Opposition to the provision was voiced by several smaller manufacturers on
the ground that certain types of production equipment produced a larger pro-
portion of culls; that to prohibit the sale of culls would drive such plants out of
business; that there was a demand for this grade of ware, which had sound utility;
and that to ban it would increase the cost of plumbing fixtures to the public
generally. (Mulford, op. cit., p. 16.)
Similarly, the bedding industry has made continual efforts to pre-
vent second-hand materials from being used in the manufacture of
bedding even after proper sterilizatian. In a few States, laws to this
effect were enacted, but they were uniformly held unconstitutional
on the grounds that:
The business here involved is legitimate and useful; and, while it is subject to
all reasonable regulations, the absolute prohibition of the use of shoddy in the
manufacture of comfortables is purely arbitrary and violates the due process
clause of the fourteenth amendment."
Sometimes, instead of attempts to bar inferior articles from the
market absolutely, it has been sought so to stigmatize them as to
render them unsalable. Thus canners unsuccessfully urged the De-
partment of Agriculture to require substandard products to be labeled
in such a manner as to discourage their purchase.
Excessive emphasis upon price competition, then, may lead to
deterioration of quality; undue emphasis upon quality may result in
unwarranted increases in price.
" Standard Sanitary Mfg. Co., et al. v. U. S. of America (226, U. S. 20).
•< Ibid., p. 29.
JQg CONCENTRATION OF ECONOMIC POWER
It is exceedingly difficult to strike a balance between those aspects
of quality competition which may be considered beneficial and those
which appear detrimental to the efficient functioning of the econom3^
Each product presents a different situation. The line between the
desirable and the unnecessary in any specific case is one which must
in the last analysis be drawn by the consumer. It is appropriate,
however, for Government to endeavor to devise such standards and
to place at the consumer's disposal such technical information as may
make it possible for him to make these decisions intelligently.
Similar conflicting considerations apply to the second broad issue —
the competitive emphasis upon brands, trade-marks, and advertising.
To an important extent such devices are necessary and useful. The
creation of mass demand does in many cases pennit the introduction
of improved methods of production and the material reduction of
manufacturing costs. It is probable that the rapid growth of the
newer mass-production industries, particularly in the automotive and
the electrical household equipment fields, has been facilitated by the
intensive use of advertising.
Certainly, too, the use of brands and trade-marks to distinguish the
product of rival sellers is an essentially useful technique, both to the
producer who has acquired a deserved prestige and to the consumer
whose problems of choice are facilitated.
On the other hand, there have been manifestations of growing dis-
satisfaction with the manner in which brands and advertising are
used today. Consumers, in particular, have come to question the
reliability of the guides furnislied them by advertising and branding.
The very rapid growth of the organized Consumer movement during
recent years is largely a reflection of this dissatisfaction. Business-
men have become increasingly concerned with this reaction of con-
sumers. The proportions and significance of this discontent were dis-
cussed in a recent issue of Business Week:
This is a study of organized discontent — the discontent of some consumers
with the things thej' buy and the way those things are sold to them. It is a dis-
content which feeds upon Uself and which business cannot afford to overlook be-
cause it has already assumed the proportions of a real threat to producers and
distributors of advertised brands."
Basically, the criticism centers about the failure of advertising and
branding to serve as adequate guides to quality, and to their tendency
to divert the stream of competition into inefficient channels. While
both those allegations are serious, it is the latter which is of primary
importance to the present dibcussion, and with which public policjT^ is
concerned.
It has been pointed out that one efi'cct of the creation of mass de-
mand through advertising may be the reduction of costs of manufac-
ture as volume increases. On the other hand, it must be conceded
that in some lines of business any such reductions in cost show little
if any tendency to become translated into lower prices. Thus,
according to Milton Handler —
It cannot be denied that the current bewildering use of brands is economically
wasteful, and undoubtedly tends to increase the costs of distribution. The tin-
selled phrase is frequently designed to camouflage shoddiness of quality. The
fortunes spent on popularizing catch words and nonsense syllables could better
be devoted to the improvement of product and the dissemination of detailed in-
»» Business Week, April 22, 1939, p. 39.
CONCENTRATION OF ECONOMIC POWER 107
formation regarding it, which is so essential to intelligent consumption. But in-
telligent consumption also requires some means of identifying today the articles
that pleased or displeased yesterday. This is the primary function of the mark.
The unfortunate excrescences of modern trade-mark usage should not blind our
perception of this fact.^^
The very wide spread between production costs and retail prices for
certain common drugs, toiletries, and cosmetics has been described.
(See pp. 80-83.) This spread does not necessarily represent any in-
ordinate profits- to either manufacturer or distributors; much of it
represents the cost of advertising and sales campaigns and elaborate
packaging. Regardless of the cause for the spread, however, its
existence does imply the possibility of greatly reducing the prices of
products of this kind by altering the focus of competition. Such a
reduction in prices would, of course, be equivalent to a material in-
crease in consumers' purchasing power for other products.
Here again, there seems sufficient cause for public concern and
proper scope for pubhc action. The development of adequate com-
modity standards and the establishment of regulations requiring
informative labeling in accordance with such standards would go far
toward fostering the desirable and discouraging the undesirable
aspects of advertising and branding. The consumer should be in a
position to appraise the significance of advertising claims and of brand
names against a background of authentic product information.
In summary, it seems that the less desirable aspects of the trend
toward competitive reorientation are stimulated by at least two
avoidable conditions. One of these is the concerted .or collusive
effort of certain business firms to prevent the use of sales tactics
which they deem inexpedient. The second is the inadequate informa-
tion of most consumers with regard to the character of commodities
offered on the market. Both of these are appropriate subjects of
public concern; both may, to an extent, yield to corrective govern-
mental measures.
By pursuing its traditional policy of opposmg collusive action by
business firms, Government may ease artificial impediments to the
use of socially desirable forms of competition, particularly of price
competition. This implies also that individual business firms must
be protected in their freedom to choose competitive channels from
coercion imposed hj their rivals who prefer that such channels be not
used. To some extent this pursuance of accepted antitrust policy
may also serve to minimize the development of wasteful escape
devices resulting from the establishment of restraints upon one or
another form of competition. It would seem highly desirable to
consider seriously the consequences of imposing legal restraints upon
the direction of competitive effort, by such legislation as the resale
price maintenance acts or other laws seeking to restrict price com-
petition. By thus endeavoring to keep all avenues of competition
equally open, the orientation of competitive effort may be determined
more by the combined decisions of buyers and sellers expressed in the
market place, and less hj the monopolistic determination of specific
sellers.
In the second place. Government can intensify and expand its pro-
gram for the establislmaent of commodity grades and standards and
its requirements as to informative labeling. Such a program might
w Handler, Milton, Unfair Competition, Iowa Law Peview, January 1936, pp. 185-186.
2Qg CONCENTRATION OF ECONOMIC POWER
well bo coupled with a broad plan for consumer education. In this
way the consumer v/ould be enabled to profit by the trend toward
emphasis upon quaUty. He would be made competent to judge rival
products on their merits instead of being forced to rely largely upon
claims advanced by sellers. The accumulated pressure of buyers
equipped with an adequate basis for judgment might, in turn, serve
to direct competition into socially desirable and economically efficient
channels.
CHAPTER IV ^
THE ELECTRICAL EQUIPMENT INDUSTRIES— AN
ILLUSTRATIVE CASE
SUMMARY
So far, problems of price and sales policy have been considered in
a broad setting. The complexities involved, and the dangers of broad
generalization or over-simple solution have been stressed.
In order to lend concreteness to the discussion a type case has
been selected which presents in specific form many of the policy issues
encountered in the preceding analysis. This case comprises a group of
industries manufacturing household electrical equipment, such as
refrigerators, washing machines, vacuum cleaners, etc.
These are all relatively new industries which have experienced
their major growth during the past two decades. A number of them
seem, at the present time, to have entered stages in their development
which require new decisions as to manufacturing and sales policies.
The analysis of these industries contained in this chapter shows that
they have all experienced similar patterns of growth. First is the
experimental stage during which the product is being developed.
Many crudities are still apparent. Costs are high because of the lack
of standardization, coupled with a low aggregate volume of output.
Prices are correspondingly high and sales are necessarily confined to a
limited group which can aft'ord the luxury of experimentation.
This period merges insensibly in- vj one in which the product has
become relatively satisfactory, manufacturing methods have become
standardized, and prices fall in anticipation of, and partly as a result
of, the introduction of mass production. The product passes out of
the class of a curiosity and obtains a wider and wider general appeal.
Sales expand very rapidly as more and more consumers realize its
convenience or desirability. Usually price reductions are slightly
ahead of sales expansion. During this phase of growth the expansion
of sales seems at times almost limitless. Even the depression of 1930
to 1933 exerted no more than a very limited effect upon the sales of
refrigerators and washing machines. By the fall of 1933, for example,
the sales of washing machines were exceeding the 1929 rate by a
substantial margin. During such a period, also, as profit possibilities
seem very attractive, the number of companies in the field often
increases sharply. Eventually, however, signs of approaching maturity
become apparent. The first symptom seems to be an arrest in the
progressive decline in costs and prices. Then the rate of increase of
sales begins to taper off. Distribution of the product among families
in the upper and middle income brackets has reached a high level.
The number of remain ing original prospects in those classes dwindles
' Ch. IV was prepared by Walt. • <. '« im anu i ihn M. Blair.
109
J IQ CONCENTRATION OF ECONOMIC POWER
rapidly, even despite the constant increase in the number of wired
homes, particularly in rural areas.
At this point the industries begin to display very marked sensitivity
to changes in general business conditions. Once the early period of
dynamic growth has passed, they are no longer almost depression-proof.
The durable nature of the product involving the possibility of post-
poning purchase or replacement until conditions are favorable renders
them subject to extreme cyclical fluctuations. For example, in con-
trast to the record of the period 1929-1933, the number of washing
machines sold fell 30 percent from 1937 to 1938, while the sales of
refrigerators declined more than 45 percent.^ At the same time,
recovery in sales volume ha&been longer delayed and much less rapid.
At this point, then, the members of the industry are faced with the
urgent need of reorienting their sales policy to changing conditions.
Two major fields for sales promotion are available. One of these is
the expansion of the market among families in the low-income groups.
The other is the development of the replacement market, the substi-
tution of new equipment for outworn or obsolete units. The tactics to
accomplish these ends are conditioned by many other market factors
such as the rate of obsolescence of equipment, the channels and costs of
distribution, the possibilities and limitations of installment selling,
and so on.
Until 1940 manufacturers of these products had formulated no clear
policy to meet these changing conditions. There had been some effort
to produce cheap "stripped" models devoid of all luxury features to
appeal to lower income groups. There had been a few scattered
attempts to deal with the replacement problem. Those approaches,
however, seem to have been largely exploratory.
The first evidence of any important change occurred in the refrig-
erator industry during the early months of 1940. During the second
week in January, one manufacturer announced drastic price reductions
for its 6-foot stripped model and" its competitors immediately followed
its lead. At the same time economies were sought in the costs of both
manufacturing and distribution. It is too early to determine whether
these moves represent a true change in long-term policy, or whether
they merely represent a temporary "price war" touched off by the
action of a single manufacturer. In either event it seems significant
that sales have risen sharply; during the first quarter of 1940 they were
33 percent higher than during the corresponding months of 1939.
It is apparent that the iormulation of sales policies designed to
exploit the potential markets of these industries to the maximum
involves many and complex issues. The nominal price alone is but
one of these. Methods and costs of distribution must be subjected to
searching analysis. Decisions musi be made as to collateral marketing
poHcies. The treatment of used equipment is a basic issue. Another
•of major importance is the financing of conditional sales. More
liberal credit terms may stimulate the market immediately, but fail-
ure to maintain sound business practices in the process incurs a sure
penalty. The precise balance which is to be struck between improve-
ments in quaHty and reductions in price is of prime significance.
Moreover, all of these decisions must be adjusted to changes in general
» This (lifTerence may have been due partly to the fact that prices were reduced during the forircr but not
during the latter period.
CONCENTRATION OF ECONOMIC POWER m
business conditions as well as to the markets for the specific product
in question.
The problems confronting these industries are typical, in many-
ways, of those encountered in many other industries producing con-
sumers' durable goods. The consumers' durable goods industries
have played a particulariy important role in the economy of the last
generation, in creating opportunities for new investment and employ-
ment and in opening new horizons for consumer enjoyment. At the
same time, during periods of business recession, the drastic contraction
of employment and investment opportunities to which these industries
are generally subject creates acute social and economic problems.
The manner in which the concerns comprising these industries adapt
their sales policies to changing market conditions will largely de-
termine whether they will expand further, remain static, or decline.
It may also effect, at least to a limited extent, the stability of produc-
tion during the swings of the business cycle.
Consequently, such decisions regarding sales policy are proper
subjects of public concern. A socially and economically desirable
policy is one which would permit the widest possible distribution of
sales so that more consumers may have the benefit of these products,
afford maximum opportunities for employment and the investment of
idle funds, and achieve a degree of stability adequate to minimize the
distress attendant upon severe cyclical fluctuations. The orientation of
policy to attain those objectives must embrace the entire problem;
particularly it should be recognized that although price behavior is
important, the issues far transcend the field of price.
Moreover, it should be emphasized that governmental action need
not be regulatory in character. Thus the Federal Housing Adminis-
tration for a time insured loans for purchases of certain types of
electrical equipment and stimulated sales of these products. The
Electric Home and Farm Authority has also assisted - in financing
sales of many kinds of electrical equipment; in the process it encouraged
the production of relatively inexpensive models to meet the needs of
low income groups. The Rural Electrification Administration, by
widening the distribution of electric power, has expanded the potential
appliance market. Efforts to reduce utility rates may also have con-
tributed materially to the expansion of this market.
PRICE AND PRODUCTION TRENDS
The growth of the electrical-appliance industries during the past
10 or 15 years has followed a pattern which is typical of the early
stages of most new industries. Rapid technological developments and
sharp price reductions made possible mass demand and the economies
of mass production. The following tables compare the average retail
values of refrigerators, washing machines, vacuum cleaners, radios, and
electric ranges for the years 1929, 1932, and 1937, with their sales dur-
ing the same years. Charts XII to XV show the trends of average
retail value and sales for these-products, with the exception of radios,
for each year between 1927 and 1938.^
' Average unit retail value was selected as the basis for this analysis instead of some form of price index
for two reasons: (1) It is difficult to adjust the usual type of price index, which is supposed to relate to a
more or less uniform commodity, to the very rapid changes in product which occurred in these industries
during the period covered, and <2) average unit value figures are more useful because they portray the
average outlay by the consumer for the commodities involved.
112
CONCENTRATION OF ECONOMIC POWER
In the case of each of these industries the period of most marked
price decline was from 1927 to 1932, whereas the period of most
vigorous sales expansion was from 1932 to 1937. Apparently the
stimulus to sales caused by the decline in prices was somewhat delayed
due to the depression from 1929 to 1932.
Table 10. — Average retail value and sales of selected electrical appliances
AVERAGE RETAIL VALUE
1929
1932
1937
Item
Average
retail
value
Index,
1929=100
Average
retail
value
Index,
1929=100
Average
retail
value
Index,
1929=100
$292
113
46
133
165
100
100
100
100
100
$195
59
35
48
150
67
52
76
30
91
$171
72
46
56
134
59
Washing machines - . .
64
100
42
Ranges ... -
81
SALES
Item
Refrigerators.-
Washing machines
Vacuum cleaners—
Radios
Ranges
Units
778,000
956, 000
1, 395, 745
4, 435, 000
152,781
Index,
1929=100
1932
Units
100 798, 000
100 569, 830
100 557, 288
100 12,477,000
100 60,000
Index,
1929=100
103
60
40
56
39
1937
Units
2,310,000
1, "-05, 405
1, 706, 337
6, 278, 267
405, 000
Index,
1929=100
297
153
122
142
265
The decline in average unit retail value in these industries, in gen-
eral, ended in 1932. Between 1932 and 1939 average unit values have
shown comparatively little change. However, sales rose sharply
until 1937.
In the case of electric refrigerators, for example, the average retail
value declined from $350 in 1927 to $195 in 1932; 1 year later it
fell to $170; it has remained near that figure to 1938. Sales rose from
375,000 units in 1927 to 778,000 in 1929. The increase was inter-
rupted but not reversed by the depression; in 1932 sales were 798,000
or slightly more than in 1929. During the subsequent 5 years the
expansion was resumed even more vigorously; in 1937 2,310,000 boxes
were sold.
Similarly, the average unit value of washing machines fell from $143
in 1927 to $59 in 1932 and remained stable at about the latter level
until 1936. In 1937 and 1938 the average value rose to approximately
$72. Probably this last increase reflects a shift in buying from
cheaper to more expensive models rather than any change in prices as
such. Sales of washing machines increased slightly from 1927 to
1929, then declined moderately through the depression. With the
first signs of business recovery, however, sales expanded sharply; the
1933 level actually exceeded the previous peak which had been
reached in 1929. This upward trend continued to a maximum of
slightly over 1,500,000 machines sold in 1936 in contrast to the pre-
depression peak of 956,000.
CONCENTRATION OF ECONOMIC POWER
Chabt XII
113
NUK.eER SOLD
THOUSANDS
4000
3000
ELECTRIC REFRIGERATORS
NUMBER SOLD AND RETAIL VALUE
1000
900
800
70 0
600
500
400
300
RETAIL VALUE
MILLIONS
400
UNIT VALUE
DOLLARS
400
1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
AVERAGE REALIZATION AT RETAIL AND
100
90
80
70
60
50
30
WHOLESALE PRICE INDEX
1932 = 100
300 -
100
90
80
70
^REALIZATION'
PRICE INDEX
400
WHOLESALE PRICE
1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
(I) SOURCE' ELECTRICAL MERCHANDISING
U.S. BUREAU OF LABOR STATISTICS
114
CONCENTRATION OF ECONOMIC POWER
Chabt XIII
NUMBER SOLO
THOUSANDS •
2000
ELECTRIC WASHING MACHINES
NUMBER SOLD AND RETAIL VALUE
1000
900
800
700
600
500
300
RETAIL VALUE
MILLIONS
200
100
90
80
70
60
40
30
1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
AVERAGE REALIZATION AT RETAIL AND
UNIT VALUE WHOLESALE PRICE INDEX
DOLLARS
300
100
90
80
70
60
200
PRICE INDEX
300
'-REALIZATION'
1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
(I) SOURCE' ELECTRICAL MERCHANDISING
US BUREAU OF LABOR STATISTICS
CONCENTRATION OF ECONOMIC POWER
Chaet XIV
115
NUMBER SOLD
THOUSANDS
2000
VACUUM CLEANERS
NUMBER SOLD AND RETAIL VALUE
2 00
100
RETAIL VALUE
MILLIONS
200
100
90
80
70
60
50
40
30
20
10
1927 1928 1929. 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNIT VALUE
DOLLARS
200
100
90
80
70
60
AVERAGE REALIZATION AT RETAIL AND
WHOLESALE PRICE INDEX
IS3ZM00
30
20
WHOLESALE PRICE
PRICE INDEX
200
J L
J 1.
100
90
80
70
60
1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
(DSOURCE: ELECTRICAL MERCHANDISING
30
20
116
CONCENTRATION OF ECONOMIC POWER
Chart XV
NUMBER SOLD
THOUSANDS
600
ELECTRIC RANGES
NUMBER SOLD AND RETAIL VALUE
400
100
90
80
70
60
40
RETAIL VALUE
MILLIONS
60
20
927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 193
AVERAGE REALIZATION AT RETAIL AND
uNiTVALUE WHOLESALE PRICE INDEX
IC32HOO
DOLLARS
200
PRICE INDEX
200
100
90
1927 1928 1929 1930 1931 1932 1933 19J4 1935 1936 1937 1938
('1 SOURCE ELECTRICAL MERCHANDISING
US BUREAU OF LABOR STATISTICS
CONCENTRATION OF ECONOMIC POWER 117
The electric range industry is somewhat younger than the two
previously mentioned. Presumably reflecting its more recent growth,
the decline in unit value did not get under way until 1931 ; between that
3^ear and 1935, however, there was a material fall in the average prices
paid by consumers. 1937 sales of 405,000 units were more than 2}^
times as large as the 1929 peak of 153,000 and were more than 6 times
as great as the 1932 low of 60,000.
The electric vacuum cleaner industry constitutes a possible excep-
tion to the pattern described, probably because it is slightly older
than those previously considered and had achieved a more mature
stage of development prior to 1927. Nevertheless the all-time sales
peak was attained in 1937. The average retail prices of vacuum
cleaners declined from $49 in 1927 to $35 in 1932 and then rose,
stabilizing at approximately $45 for the years 1934-37. This rise
probably reflected an increase in the proportion of the higher-priced
models sold, rather than any change in price as such. The sales of
vacuum cleaners increased from 558,000 units in 1932 to 1,706,000
in 1937.
Taken as a whole the price and sales behavior of these new indus-
tries manifest three basic common characteristics:
(1) A marked decline in price between 1927 and 1932.
(2) A relative stabilization of price near the low level reached in
1932.
(3) A great increase in sales during the period 1932-37.
To these three characteristics may be added a fourth. In each case
there was an abrupt decline in sales during the "recession" of 1937-38.
During this period electric refrigerator sales declined by 46 percent,
electric washing machines by 30 percent, vacuum cleaners by 24 per-
cent, and electric ranges by 38 percent.
These declines came immediately after each of these industries had
reached a sales volume never before attained. Presumably they
reflected basic changes in market conditions. An important factor
is probably market "saturation."
MARKET SATURATION
For the electrical appliance industries, market saturation may be
measured in terms of the proportion of homes wired for electricity in
which these appliances are installed. In appraising the significance
of this measure, it is important to remember that the number of
wired homes is continually increasing, both as new homes are built
and as the use of electric power is extended. This is particularly
true in rural areas, partially due to the activities of such government
agencies as the Tennessee Valley Authority and the Rural Electri-
fication Administration. (The significance of these programs in
creating new markets for electrical appliances is discussed below —
pp. 158-160.) Since the number of potential consumers is thus
growing, the degree of saturation in terms of wired homes prevailing
at any time should not be construed as setting any fixed limit to the
available market for original sales. Nevertheless, this measure does
afford an indication of the potential market available at any given
time, and the rapid increase in the percentage of saturation for many
of these appliances shows that the market for original sales is steadily
dwindling despite the increasing availability of electric power. At
118
CONCENTRATION OF ECONOMIC POWER
the same time, the figures also show that complete saturation has
not even been approached for any of these appliances; a substantial
original market remains whose effective development obviously de-
pends upon the sales policies adopted by manufacturers.
The trend of market saturation from 1925 through 1937, measured
in this way, for electric refrigerators, electric washing machines,
.electric vacuum cleaners, and electric ranges is shown in chart XVI
and in the following table:
Table 11. — Saturation of the market
Percentage of wired liomes owning—
Year
Refrig-
erators
Washing
machines
Vacuum
cleaners
Ranges
1925 -
(')
2
4
6
9
13
17
22
25
29
34
41
49
62
21
27
28
30
33
35
41
39
44
46
49
53
5«
58
31
37
39
41
44
44
45
47
49
48
48
49
49
49
3
1926 - --
3
1927 . . . 1
3
1928 -
4
1929 -.-
4
1930
5
1931
5
1932
6
1933 -
6
1934
6
1936 . ..
7
1936 - ---
8
1937
9
1938
10
1
' Less than 1 percent.
For electric refrigerators, electric washers, and electric ranges the
degree of saturation has steadily increased, especially during the
period 1932-37. The vacuum cleaner market, on the other hand,
has not experienced such a sharp increase during recent years because
it was already saturated to a much higher degree, than were any of
the other fields at the beginning of the decade.
A comparison of saturation in each of the industries with the ex-
tent of sales decline during two periods of business recession is pre-
sented in the following table. Saturation in 1929 is shown in relation
to the change in sales between 1929 and the depression years 1932-33,*
and saturation in 1937 is compared with the sales decline between
1937-38.
Table 12. — Market saturation and sales
Item
Percent
saturation
1929'
Percent change
in number sold
1929 to average
1932-33
Percent
saturation
1937
Percent change
in number sold
1937-38
Refrigerators
9
33
44
-f 17 49
-20 50
—54 4Q
-46
Washing machines
-30
Vacuum cleaners
—24
' Percent of wired homes.
Source: Electrical Merchandising.
* The 1932-33 average was considered to give a better measure of dciJiossion decline than either of the.'^e
years taken separately. For refrigerators and washing macliinos 1932 sales showed a drop which was
somewhat extreme. On the other hand, 1933 sales for both of these industries showed a very sharp revival.
Consequently, tho two were averaged to obtain r. more eenorally representative figure.
CONCENTPATION OF ECONOMIC POWER
119
O — uj m
<a:
ecu
30-
<
I-
<
CO
\
\
(
1
\
z
o
If
^
UJ
_l
<
\
i
1
Qlui
30-
^;
zll
ol
3 1
1
-IqO
-ISO
CO
LJ
<
CO
^
o
a:
\
\
/
. in
% UJ
\ _i
\ <
\|
■
1-
<
>
\
\
\
uluj
30.
1
i
CO
■
<o
\
-
rr
ll z
\
III
y 2
\
■z
1 <
\
<
(£
%
UJ
H
\
1
<
1
o
Vi'
I
s
\
to
)
3
\
UJ
/
_)
1
<
/
o
n
""J 1
<
H
\l 1
>
y
\
\
1
.
a
UJ30
-lOO
247149— 41— No. 1-
-10
]^20 CONCENTRATION OF iX^ONOMIC POWER
For refrigerators a sharp drop in sales between 1937 and 1938 con-
trasted with an actual increase between 1929 and 1932-33. In the
case of washing machines there were declines during both periods,
but that between 1937 and 1938 was materially greater although the
recession in general business Activity was much less prolonged.
Between 1929 and 1937, however, the degree of saturation for re-
frigerators had increased fivefold, and for washing machines it had
almost doubled. The sharpest difference in the trend of sales oc-
curred in electric refrigerators in which the change in saturation was
most marked.
The sales of vacuum cleaners declined much more severly during
the 1929-33 depression than did those of either refrigerators or
washing machines. At the same time the degree of saturation for
this product was materially higher than for either of the other two.*
Apparently, therefore, the change in the character of the market is
largely responsible for the change in the sensitivity of these industries
to depression influences. As long as there is a wide market for
original sales, declines in the rate of general business activity seem
to retard growth somewhat, but do not result in severe contractions
of sales. As the original market becomes more nearly saturated,
however, the picture changes. This is probably true particularly of
that segment of the market which involves the replacement of used
equipment, since replacements are usually postponed during periods
01 general economic stress. Consequently, the exploitation of the
original market, coupled with the tendency of consumers to postpone
replacements during periods of bad business, results in making in-
dustries of this land increasingly sensitive to depression influences as
the degree of market saturation increases.
Saturation by income groups. — Market saturation is particularly
significant in relation to income groups, since it reveals the particular
segments of the market which constitute the most favorable prospects
for "new" sales.
A study of consumer purchases ^ by the Bureau of Labor Statistics
in 1935-36 shows the distribution of ownership of electric refrigerators,
washing machines, vacuum cleaners, and radios,^ by various income
groups.* This survey covered a representative sample group of
Tamilies restricted, in this case, to urban- areas and to families whose
heads were native-born and of native parentage. These data, as
presented in charts XVII to XX inclusive, give an approximate indica-
tion of market saturation for this specific sector of the population
and may also afford some guide to conditions prevailing in the market
as a whole.
The charts compare the degree of saturation (i. e., the percentage
of families having these appliances in each income group) for these
products in selected cities in six areas of the country. The patterns
» Electric ranges have been omitted from this discussion. Although saturation as measured by wired
homes undoubtedly affects their sale, this effect is probably overshadowed by the influence of the rate of
new-home construction. It may even be contended that new-home construction constitutes almost the
entire true "original" market for electric ranges; that the substitution of an electric range for a used gas
or coal range la largely in the nature of a replacement sale.
• The Study of Consumer Purchases, in which the Bureau of Labor Statistics and the Bureau of Home
Economics have cooperated with the National Resources Committee, the Central Statistical Board, and
the Works Progress Administration, provides data on the average purchases of families, including husband
and wife, both native-born, at different income levels, in cities in different parts of the country for the year
1935-36.
' The radio data are presented to illustrate an industry whose market is almost completely saturated.
• This study of consumer expenditures reifttes to nonrellef families including husband and wife, both
native-born, in 18 url>an areas throughout the country.
CONCENTRATION OF ECONOMIC POWER 121
for refrigerators and vacuum cleaners are similar, with a rapid and
progressive increase of saturation as income rises. In the case of
radios, saturation is almost complete at a relatively low income level.
Washing machine ownership presents a contrast; there is a rise in the
rate of ownership until the $1,250-$1,500 income class is reached, but
higher income brackets show little if any further increase. This
probably represents the greater tendency of upper income groups to
send laundry to commercial laundries.
Chart XVII presents o^\^lership data for electric refrigerators in
more detail. The pattern is generally consistent; in each case sat-
uration increases rapidly with income. The lower income groups
have not been reached effectively while, in general, the market among
the upper groups is almost completely saturated.
The two "metropolises" (i. e., New York and Chicago) present
exceptions to this pattern; the curve flattens out in the middle and
upper income groups. These exceptions can be explained by the
large number of such families living in apartment houses in which
refrigerators or refrigeration are furnished by the landlord. Although
this practice is most marked in these two areas, it is not confined to
them. In interpreting these figures, therefore, it should be recog-
luzed that in general the percentage of families in the middle and
upper income levels using electric refrigerators is greater than the
percentage owTiing them.
The rapid increase in the proportion of families owning this equip-
ment as income rises, as shown by the steepness of the curves for all
areas, indicates that future sales to the upper and upper middle income
groups must be largely for replacement, and that the major potential
market for original sales is to be found among families with lower
incomes.
In 1935-36 only 17 out of 100 homes having incomes of less than
$1,500 reported ownership of electric refrigerators. The market in
the middle-income groups, $l,500-$3,000, was approximately 54 per-
cent saturated while, for families with incomes of $3,000 and over,
the ratio was 80 percent.
For vacuum cleaners the saturation pattern is simdar to that of
electric refrigerators. Saturation increases rapidly as income rises;
29 percent of the families in the $250 to $1,500 income groups own
cleaners; for the middle income group the figure is 71 percent; for the
upper group it is 90 percent.
In the case of radios it is apparent that saturation is practically
complete for all income groups except the very lowest; the radio market
is therefore almost entirely on a replacement basis or on a basis of
selling extra radios for other rooms in the home.
The charts also show certain geographical differences. The market
saturation curve for most items is lower in the Southeast even among
white families than in the other areas. This is particularly true of
washing machines and vacuum cleaners. In the case of electric re-
frigerators, the contrast is not so great, probably because of climate.
In most areas, the saturation curve for large cities is slightly above
the curves for small cities. Finally, for each of the items, the satura-
tion curves for small cities, middle-sized cities, and large cities display
a surprising degree of uniformity; that is, there is the same general
122
CONCENTRATION OF ECONOMIC POWER
Chabt XVII
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
ELECTRIC REFRIGERATORS
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
PCRCEHl
NEW ENGLAND
PER
eo
r
-^
^
0
A.
^^^
^--^'^-^
-=^
40
fl
i
/
V
^
V
i
/s
^-
20
0
/'f^\
J
C
^
„,*-— "^
V^
s
L.
^
U
0^
^
^-^
^V
^
EAST CENTRAL
eo
1
A =5.^—=
1 /^
K
1 ^-^
\ £/
^
S^
1
^
-^ — ^
-L^ 4-L-
... ..
WEST CENTRAL
80
250 1000 2000 3000 4000 5000
INCOME GROUPS IN DOLLARS
^^ METROPOLIS ►♦^^ MIDDLE-SIZED CITIES
"=• LARGE CITY ooooo SMALL CITIES
US mWC*U or LABOR STATISTICS |STUOt OF CONSUMER PURCHASES. URBAN SERIES
80
20
rp^
C^]^__
— ■
100
r
y
9
^
^
60
40
20
0
^
1
i
/
=
J
i
-
V
t
4
1
rSOO AND OVER
CONCENTRATION OF ECONOMIC POWER
Ohabt XVII— Continued
123
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
ELECTRIC REFRIGERATORS
1935-36
NON RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
PERCENT
100
80
20
40
20
SOUTHEAST
ROCKY MOUNTAIN
PACIFIC NORTHWEST
250 1000 2000 3000 4000 5000 7500
INCOME GROUPS IN DOLLARS
— =» LARGE CITY
•♦■♦^ MIDOLE-SIZEO CITIES
U^S ■UWtAUJjMJjOjjl »T«TISTIC»; STUDY Of COWaUMIW jUjlCH*M«, jjWMiM ^flMM
r^
>^
»
fr
^
«
c
^
I
^
^
1
i
A
f
i
9
H
H
— M — ■ — 1/-^
10,000
MPOVtH
T500 *Np even
124
CONCENTRATION OF ECONOMIC POWER
Chabt XVIII
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
POWER WASHING MACHINES
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
PCRCENT NEW ENGLAND PERCCNT
80 -
60 -
40 -
c
20 -
80
60
40
20
0
100
80
60
40
20
*"
i
r
A.
yxxi
,00
i
ft
v^
...— '
^^
\
y^
"*-
^
A=*
^^
-
"
\
^^"^u-r^ r^
EAST
CENTRAL
80 -
60 -
40 -
20
p
^3^
/^
f ^
^
1
^1
•eS
k:>
x^--^
*L
r
^
^
•^
-^-^
WEST
CENTRAL
100
80
60
40
20
80
60
40
20
,,,
^
r^
%
^
<
^
-N
.
"XT^
i
v-
""•^
1
°2
V) 8.1
0 lob
\iM*u a
0 2000 30'00 4000 5000 75
INCOME GROUPS IN DOLLARS
— • METROPOLIS •**** MIDDLE-SIZED
— =• LARGE CITY .««o« SMALL CITIES
r LABOM STATOTICSi STUDY OT CONSUUER PURCHASES, URBAN SERIES
00 iO.C
:iTIES
•7500 «
0(
MO
)
n
OVER
CONCENTRATION OF ECONOMIC POWER
Chart XVIII— Continued
125
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
POWER WASHING MACHINES
I93S-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
PERCENT
100
SOUTHEAST
40
PERCENT
100
40
PERCENT
100
ROCKY MOUNTAIN
PACIFIC NORTHWEST
250 1000 2000 3000 4000 5000 7500
INCOME GROUPS IN DOLLARS
— =» LARGE CITY
•♦♦^ MIDDLE-SIZED CITIES
u ». tunw Of iMon groTtmcSi stupy or comuMCw puwcm*sc», umah stmts
_^__
,
80
60
40
-
/
/^
V
::^
«^
c
^"'"
J
/
/
r
/
/
20
0
•7900 *N00yW_
126
CONCENTRATION OF ECONOMIC POWER
Ohabt XIX
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
VACUUM CLEANERS
1935-36
NON RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
PERCENT
too
eo
40
20
20
100
60
NEW ENGLAND
EAST CENTRAL
WEST CENTRAL
250 1000 2000 3000 4000 5000
INCOME GROUPS IN DOLLARS
«— METRQPLIS
— =- LARGE CITY
7500
MIDDLE-SIZED CITIES
<«>*»« SMALL CITIES
i
^
^.yi
^
^1 ! msi ^
^ jp-r^^
^^
^ .
■ — ■
k
i
r
v
>
k
1
1
r
k
\
/
-
J
Li
J
1 — '
PERCENT
100
80
20
60
40
20
"■[ ■■ ■ ■■ ■ — — '
1 — 1
^^^^
SSS^-.-—
""^^
y^\
At
U t.WRIAU Of L«tOW tTATI»TIC«; 8TUDY OF COWSUMIR PURCHAglR. URB*N MRItS
10,000
ANO OVER
7S00 AND OvtR
CONCENTRATION OF ECONOMIC POWER
Chart XIX — Continued
127
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
VACUUM CLEANERS
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
KRCENT
100
60
40
SOUTHEAST
^^^^___^»
r
***.
H^^^'^
^
Vy
..^
\
— '
ROCKY MOUNTAIN
PACIFIC NORTHWEST
250 1000 2000 3000 4000 5000 7500
INCOME GROUPS IN DOLLARS
•=» LARGE CITY
•*•** MIDDLE-SIZED CITIES
U ». lUMM) OF U»OW ITgmTIMi tTUOY Or COW«uytR Pm>CM*«E». URBAN StHH«
100
-•w
IOC
^
1^
!^^»^
==»----— — —"■ "
60
40
20
0
/
/
?
4
9
60
40
20
0
J
f
/
-
*
}
^
V
I
-
_
U
}P^^
""^^
jM
V
¥
1 0,000
AND OVER
*7500 AWOfVew
128
CONCENTRATION OF ECONOMIC POWER
Chabt XX
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
RADIOS
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
40
NEW ENGLAND
EAST CENTRAL
WEST CENTRAL
250 1000 2000 3000 4000 5000 7500
INCOME GROUPS IN DOLLARS
•^— METROPOLIS MIDDLE-SIZED CITIES
-c=« LARGE CITIES <><kxx> SMALL CITIES
U 3 BUREAU OF LABOR STATISTICS, STUDY OF CONSUMER PURCHASES, URBAN SEBICS
PERCENT
100
•
f
f
¥^
^
iMi
iOft
***
==*•«
.10,000
AND OVER
7500 AND OVER
CONCENTRATION OF ECONOMIC POWER
Chabt XX — Continued
129
HOUSEHOLD EQUIPMENT OWNERSHIP BY INCOME GROUPS
RADIOS
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
PERCENT SOUTHEAST percent
100 -»- — — — — — - »^n tT»^ '■ , , — .ino
80
60
40
20
0
100
"/
/
t
;■
c5
^
A
"
^^
pn*-
- 80
- 60
- 40
- 20
i
f
f
r
ROCKY MOUNTAIN
-ilOO
- 80
- 60
- 40
- 20
■ 0
100
80
60
40
20
80
60
40
20
0
i
f
i^
^
^
7 "
^
«=:*•
^=^"
^^
f
— ' 1 1 1 1 1 ■ ' ' 1
PACIFIC NORTHWEST
80
60
40
20
\
V
f
^
^
^
w
^
!»^
iSr-*
-=*.
'^^
2
U.S.
50 lobo 20'00 3000 40
IN
■UREAU OF LABOR STATISTICS; STUDY OF C0<
00 50
COME GRC
=» LARGt
►^MIDDL
4SUMCR PUR
00 75
UPS IN DOLLARS
: CITY
E-SIZEO CITIES
CHASES, URIAH ICRIIS
00 10,0
ANDC
•7500 AND
00
)VER
OVEH
130
CONCENTRATION OF ECONOMIC POWER
tendency for a larger share of families in upper income groups to own
electrical appliances in all communities.
Expenditures by families. — During the period of general business
revival in 1934-36, the Bureau of Labor Statistics conducted a study
of actual expenditures for living by families of employed wage earners
and clerical workers in various incorne groups. Among the products
purchased, of course, were electric refrigerators, washing machines,
vacuum cleaners, and electric stoves and hot plates. The results of
this inquiry are presented for families at three economic levels —
representing family incomes of approximately $1,000, $1,600, and
$2,100 — in the following summary and in table 24.
The figures represent average expenditures per family and accord-
ingly are small, since only a fraction of the families make such pur-
chases (or payments on such purchases) in any one year. For example,
at the $1,000 level, only 1.1 percent of the families purchased electric
refrigerators during the year, while at the $2,100 level 12.1 percent of
the families purchased such equipment.
Table 13. — Average expenditures hy families of employed wage earners and cle;;rical
workers, by economic level
[Refer to table 24]
Item
Refrigerators..
Washing machines
Vacuum cleaners
Ranges and hot plates
$1,000 income
Percent-
age of
families
purchas-
ing
1.1
3.4
0
0
Average
expendi-
ture per
family '
2.43
0
0
$1,600 income
Percent-
age of
families
purchas-
ing
6.9
6.0
6.0
.6
Average
expendi-
ture per
family '
$2,100 income
Percent-
ape of
families
purchas-
ing
$11.34
3.81
2.C3
.40
12.1
5.8
10.fi
2.2
Average
expendi-
ture per
family '
$21.57
3.93
5,19
2.0O
' Average for families in 42 large cities from unpublished data of the Bureau of Labor Statistics based on
total tiumber of families in groups, not on families purchasing.
As was to be anticipated, the upper economic level spent consider-
ably more for electric refrigerators than did the middle group; the
latter in turn spent very much more than did the lowest economic level.
A similar sharp contrast in expenditures appears for vacuum cleaners
and electric stoves; for washing machines, as might be inferred from
its saturation pattern, the difference is less striking.
Families in the $1,000 level spent an average of only $1.98 for elec-
tric refrigerators, $2.43 for washing machines and no expenditures
were recorded for vacuum cleaners and electric stoves. It is apparent
that these families did not participate significantly in the markets for
those products. Consequently the bulk of sales was to families in the
upper and middle income classes.
Income residuals. — The reasons for this greater-than-proportionate
reduction in expenditures for electrical household equipment as
income falls are apparent. A family can afford to purchase an ex-
pensive piece of equipment such as an electric refrigerator only if it
has already met, or made provision to meet, the expenses incurred for
what are commonly spoken of as the "necessities of life" — food,
clothing, shelter, and personal care. Consequently, the amount of its
income which a family may be able to spend for household equipment
CONCENTRATION OF ECONOMIC POWER 131
should be measured only after the family's expenditures on th^se
items are deducted.
In chart XXI the income which remains after deductions are made
for these primary expenditures is shown as a percentage of total
income.
In general, it is apparent that nonrelief * families in the very low
income brackets actually expend more than their total incomes,
whereas those in the upper brackets have a residual of more than
40 percent. It is out of this residual that purchases of such equipment
must come, as well as expenditures for such items as transportation,
personal care, medical care, recreation, tobacco, drugs and cosmetics
and taxes. The opportunities of purchasing such products as refriger-
ators, vacuum cleaners, or washing machines arc correspondingly
limited.
This docs not mean that the lower income groups must be dropped
from consideration as a potential market for these goods. However,
the extent of that market should be measured not in terms of the
entire income of a family, but rather in terms of that share of the total
income which remains after more urgent expenditures have been made.
Obviously, if these markets are to be tapped, prices must be low and
payments must be extended over substantial periods of time.
COMPETITION AND SALES STRATEGY
The expansion of certain household-equipment industries since 1920
has been very marked. Sales of refrigerators, vacuum cleaners, and
ranges more than trebled, and sales of washing machines and radios
more than doubled during the period 1932-37. In each industry, the
1936-37 peak was far in excess of pxe-depression levels.
The virgin markets available to these new industries were, of course,
a primary, basic factor in their rapid development. Sales were stimu-
lated by (1) price reductions, (2) improved equipment, quality and
appearance, (3) modern merchandising methods, and (4) general
business recovery.
Price uniformity. — During the downswing of the cycle from 1929 to
1932, the focus of sales effort seems to have been on prices. The
reduction in average unit retail value for all these products during
this period has been described. (See p. 112.) Price competition
seems to have been particularly active during the most acute phase of
the depression. The refrigerator industry experienced a severe price
war during 1931-32; dunng its course some boxes were sold slightly
under $100 retail.
From 1932 on, less attention was given to price and more stress
was placed upon the development of efficient, modern-styled equip-
ment. Prices were fairly uniform and, in general, price competition
was not emphasized.
This type of situation became increasingly characteristic of the
industries as the years passed. By 1938 prices quoted by the leading
electric-refrigerator manufacturers, with one important exception, had
approached a degree of almost complete uniformity, as is shown in
table 21. Altogether, the concerns listed in the table control at least
80 percent of the total sales of electric refrigerators. The one im-
* Many of the families in metropolitan areas and large cities with annual incomes under $500 which main-
tained tb'-'nselvcs without relief were those with resouroes to draw on either in the form of past savings or
credit.
132
CONCENTRATION OF ECONOMIC POWER
Chabt XXI
INCOME RESIDUALS AFTER PRIMARY EXPENDITURES
BY INCOME GROUPS
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
NEW ENGLAND
250 500 750 1000 1250 1500 1750 2000 2250 2500 3000 3500 4000 5000 7500 10,000
AND ANO AND AND AND AHO AND AND AND AND AND AND AND AND AND <nd
UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER* UNDER UHDER UNDER UNDER UNDER UNDER UNDER
500 750 1000 1250 1500 1750 2000 2250 2500 3000 3500 4000 5000 7500 10,000 OVER
INCOME CROUPS IN DOLLARS
— METROPOLIS ECTtjBsa MIDDLE-SIZED CITIES
QZZB LARGE CITY iyA>//A SMALL CITIES
U. S BUREAU OF LABOR STATISTICS; STUDY OF CONSUMER PURCHASES, URBAN SERIES
CONCENTRATION OF ECONOMIC POWER
Chart XXI — Continued
133
INCOME RESIDUALS AFTER PRIMARY EXPENDITURES
BY INCOME GROUPS
1935-36
NON-RELIEF FAMILIES INCLUDING HUSBAND
AND WIFE BOTH NATIVE BORN
SOUTHEAST
250 500 750 1000 1250 1500 1750 2000 2250 2500 3000 3500 4000 5000 7500 10,000
AND AND AND AND AHO AHU AND AND AND AND AND AND AND AND AND .„-
UNDCN UNOCfl UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER UNDER *"''
500 750 1000 1250 1500 1750 2000 2250 2500 3000 3500 4000 5000 7500 10,000 OVER
INCOME GROUPS IN DOLLARS
I LARGE CITY ^253 -MIDDLE-SIZED CITIES
U. S BUREAU OF LABOR STATISTICS; STUDY OF CONSUMER PURCHASES, URBAN SERIES
234 CONCENTRATION OF ECONOMIC POWER
portant deviation from the pattern of price uniformity is the Coldspot
refrigerator, handled through a mass distributor.
The uniformity of prices among the various companies during 1938
is quite apparent from above table. In addition to this uniformity of
Ust prices, guarantees were generally uniform, consisting in most cases
of a one-year guarantee on cabinet shelves, traj^s, and accessories, a one-
year guarantee on controls, and- a 5-year "replacement" or "protec-
tion" plan on the refrigerator system itself. In the cast of all the
companies listed, except Stewart-Warner, these guarantee features
are included in the list price; if the price quotation for this company
is corrected by adding the charge for the guarantee, the price uni-
formity becomes even more striking.^" During 1939 this price
uniformity continued; the important change which occurred early
in 1940 will be discussed subsequently.
Prices in the washing-machine and vacuum-cleaner industries are
also uniform. In both of these industries the influence of "price
lines" is predominant. Most vacuum cleaners and washing machines
sell at either $29.95, $39.95, $49.95, or $59.95. In the case of washing
machines the size of the machine offered at each price line is much the
same for each of the major companies. Thus, competition is removed
from the sphere of price and size of machine to the efficiency of opera-
tion and to general quality appeal.
Concentration. — It is probable that the trend toward price uni-
formity in the refrigerator industry in the years following 1933 was
facilitated by increasing concentration among producers. Business
mortality was high during the depression. Thus the Electric Re-
frigerator News in May 1933, published a list of concerns which had
ceased manufacturing electric refrigerators. The 250 producers in
1932 had been reduced to 75; 110 had gone out of business, 41 could
not be reached by mail, and 24 had been absorbed by other
manufacturers.
This high mortality undoubtedly reflected the stress of the de-
pression generally, ani, more particularly, the severe price war of
1931-32." ■ In addition, however, a sharp reduction in the number of
concerns is often a symptom of an industry's approaching maturity
and represents a more or less inevitable "weeding out" process
following its developmental stage.
Table 22 reveals the degree of concentration among producers in
three of these appliance industries during 1937. The output of the
four largest producers in each case is expressed as a percentage of
total output in the industry. Concentration was least marked in the
washing-machine industry where four producers accounted for more
than half of the total production; it was greatest in the electric-
refrigerator industry where four concerns produced approximately
three-fourths of the total dollar value.
In appraising the significance of this concentration, certain relation-
ships existing between companies should not be neglected. For
example, the Kelvinator Co. manufactures and distributes the
Leonard refrigerator, and, in addition, has a substantial interest in
the Universal Cooler Co.'^ Patents are of strategic importance,
'» The addition of a .$5 "Ruaranteo" to the ILst price of the Stewart- Warner 6.0-6.9-foot model brings the
net price to $184.75 which is exactly the same price charged by Frigidaire and General Electric.
«i Sec p. 112 above.
II Standard Corporation Records, the Kelvinator-Nash Corpwration.
CONCENTRATION OF ECONOMIC POWER J 35
especially in the washing-machine industry. The Maytag Co., which
produces washing machines and ironing machines exclusively, owns
the basic patents on the type of mechanical agitation utilized by most
washing-machine manufacturers.*' In the spring of 1939, however,
the patent control of the Maytag Co. was materially lessened as a
result of a decision by the United States Supreme Court.** In the
electric- refrigerator industry the more important patented features
are freely utilized by most of the industry's members.
Emphasis upon quality. — The corporations surviving the depres-
sion— especially the large firms — invested heavily in research and
experimeptal activities. Modem sealed units for the refrigerator
were introduced by the majority of manufacturers; "streamlined"
refrigerator cabinets were perfected; economic methods of insulation
were devised; and great advances were made in improving the internal
features of the refrigerator. Washing machines acquired many new
features. The "spinner" type of machine was introduced. Table-
top ranges with high-speed cooking units were developed. Through-
out these industries important technological advances were achieved.
New designs and new styles enhanced not only the appearance but
also the utility of the appliances.
At the same time, sales effort was intensified, not only by manu-^
facturers and dealers, but also by public utilities which sought to
expand the demand for electric current. House-to-house canvassing
and demonstrations of the various products became a common prac-
tice. Complete electrical kitchens were advertised and salesmen were
trained to sell not merely a single item, but completely equipped
kitchens for the home. Price was not emphasized duiing this period;
the focus of competition had altered. Advertisements stressed
improved quality, style, design, efficiency, and reputation.
Manufacturers sought for and developed new markets. This
required new distributors and more outlets. This movement toward
the extension and expansion of distributive outlets was aided by
established retail stores of various kinds. Furniture stores, hardware
stores, music stores, automobile accessories shops, and department
stores seized the opportunity to handle these new and profitable lines.
Today the largest group of outlets is electrical specialty stores (includ-
ing radio stores), with department stores second, public utilities third,
and furniture stores fourth.
Distribution systems vary according to product. In general, sales
are through some sort of retail store, but some of the larger manu-
facturers of vacuum cleaners maintain large sales staffs which conduct
house-to-house canvasses and sell by means of demonstration. This
'3 Standard Corporation Records, the Maytag Corporation. The National Recovery Administration
Code History of the washing-machine industry describes it as being of a "very compact nature" and that
the industry was "not troublesome from the viewpoint of compHance. The small number of violations
reported (wore due to) the fact that this was a well-disciplined industry * * * " It is possible that
patent arrangements played a role in this experience.
'< The Maytag Co. filed suit against several corporations for infringements of its patents. The patent,
Isyjed July 12, 1932, to the Maytag Co., assignee, contained 39 claims, 36 of which were for washing machines
and 3 (Kq^-. 1, 38, and 39) for a method of washing fabrics. The Maytag Co. contended that the functions
performed under claims 38 and 39 were distinct and separate. The Court decided otherwise. To quote
the opinion delivered by Justice Roberts:
"The company insists that the crucial difference lies in the fact that in 38 the moving fluid in the tub Is
said substantially to suspend the fabrics, whereas in 39 tbe same agency is said to cause the fabrics to be freely
moved about. But the difference in verbiage describes no difference in operation or result. We conclude
that, when read in their entirety, they describe the same method * * • we are of the opinion that the
patent is void for failure to disclaim claim 39." (Afaytag versus Hurley ^Machine Company, Easy Washing
Washing Machine Corporation, and General Electric Corporation, 59 Supreme Court Reporter, October term
1938, p. 857.)
136
CONCENTRATION OF ECONOMIC POWER
procedure seems to entail higher distribution costs and prices than the
orthodox retail channel used by another major group of manu-
facturers.'*
Prior to 1931, most manufacturers presented relatively few models
and styles of each item of equipment. After business recovery began
in the spring of 1933, the number of price lines was increased, affording
the consumer a wider variety of choice. Instead of showing only
three or four refrigerators as was the case in 1929, by 1935 the average
dealer was able to present to the prospective customer 8 or 10 distinct
lines. In general, at least until 1940, there has been some tendency
to reduce the spreads between prices of different models.'^
After 1932, when efforts to expand the market were intensified,
attempts were made to introduce models wliich would appeal to
families in the lower-income groups. For a time efforts were made to
sell small 4-foot refrigerators, which were the lowest-price models, to
those homes wliich could not afford to buy the larger, more costly
equipment. During the early stages of the recovery, sales of 4-foot
and smaller boxes predominated. During 1934 and 1935, however,
advertising and sales effort were directed primarily toward marketing
5-foot, 6-foot, and 7-foot boxes which are more useful for the typical
household. Prices were further reduced on these lines, in order to
widen their appeal. This trend has continued, and at present the
6-foot box is the most popular size.
Year
Percentage distribution of sales by size of box
4 cubic feet
6 cubic feet
6 cubic feet
7 cubic feet
1934 . . ...
31
13
21
25
13
35
11
1937
9
In other items of equipment — washing machines, ranges, cleaners —
salesmen constantly warn against purchase of small, low-quality mod-
els. They have been educated to "sell quality" and to sell those
models, particularly the higher-priced lines, which bring them larger
commissions.
"Leader" selling has come to be a standard practice in these indus-
tries. For example, most manufacturers of refrigerators produce at
least one model stripped of all the gadgets and extra features which
are included in the "deluxe" styles. These models are advertised to
gain the attention of bargain seekers. The "leader" models usually
lack merely the eye-catching innovations, the special trays, the evap-
orators, and specialties of the higher-priced lines. They are available
at relatively low prices and have come to represent a fairly large pro-
portion of sales. On the other hand, prospective buyers attracted by
the advertisement are often persuaded by the dealer to buy a higher-
priced line instead. Similarly, in washing machines, radios, and
cleaners, models stripped of gadgets and attachments are made avail-
able at relatively low prices to meet the demand of the "price con-
scious" segment of the market.
:» See p. 146.
" In the case of washing machines, the various lines offered are usually priced et $10 intervals, at 5 cents
under the even figure. (E. g., $29.9S, $39.95, $49.95, etc.) Some manufacturers claim that this pricing tech-
nique results In the sale of more higher-priced models.
CONCENTRATION OF ECONOMIC POWER. 137
The turning 'point — the 1937-38 recession. — Sales had advanced at a
rapid pace throughout the recovery period from 1932 to 1937; the
latter year was the all-time peak in sales for all of these products."
Production far exceeded that of 1929.
The first and second quarters of 1937 represented prosperous levels
of business. Aided by modem merchandising policies, advertising,
favorable terms and conditions of sale, new styles, efficiency of equip-
ment, and general business recovery, sales came easily.
The subsequent experience of the refrigerator industry may be con-
sidered typical of the group. Manufacturers had expanded plant and
equipment facilities throughout the period 1932 to 1937. As a result
they were prepared to meet the' high levels of demand which came
during the early months of the latter year. However, encouraged by
the large increase in sales during the first quarter of 1937 and by
favorable reports from distributors in all parts of the country, they
continued to expand plants to meet still further anticipated increases
in sales. Manufacturing activity was maintained at a high rate
throughout the summer of 1937, despite accmnulating evidence of an
impending business set-back. Heavy inventories were created during
this period ; production was not curtailed for some time after the rate
of purchase had fallen off.
Plans were being made to modify the seasonal pattern of the indus-
try. Showings of new models, which were usually held after the turn
of the year, were scheduled for a pre-Christmas date during 1937.
The industry had planned to stimulate winter sales by promoting holi-
day gift buying and elaborate preparations had been made accordingly.
The change may have been suggested by the successful experience of
the automobile industry which had altered its seasonal pattern in 1935
by changing the date of introduction of new models.
It became evident early in the summer of 1937 that the decline in
sales would be much greater than normal seasonal expectation. Buy-
ing dropped off rapidly during the summer and fall. The expected
increase in sales at the end of the year during the Christmas holidays
did not materialize. The downward trend became even more severe
during the early months of 1938. During the latter year, refrigerator
sales were 46 percent below the 1937 peak level.
Inventories rose rapidly. At the end of 1937 there were 300,000
refrigerators in dealers' hands as compared with only 125,000 during
December 1936.
The curtailment of public purchasing power was reflected in the
failure of many conditional buyers to keep up th nr monthly pajrments.
Repossessions of equipment which had been sold on time increased
sharply during the winter of 1937-38. Some manufacturers have indi-
cated their opinion that the favorable credit terms which had been
offered prior to the break were at least partly responsible for this high
rate of return. Presumably the impact of the recession hit with espe-
cial force marginal buyers in the lower-income levels whose purchases
had been made possible in the first instance by the easy terms offered.
The large credit companies seem to have become aware of this situa-
tion somewhat belatedly. Their policy was changed during 1937, and
credit facilities were generally restricted, terms of payment shortened,
" In the case of washing machines, although dollar volume reached its peak in 1937, the number of units
Bold was greater! n 1936.
J 38 CONCENTRATION OF ECONOMIC POWER
larger down payments required, and the paying ability of prospective
purchasers more carefully examined. These changes may have con-
tributed to the contraction in sales. During 1939, however, there was
evidence that the terms of conditional sales were again being made
more liberal. Such liberalization is apparently characteristic of periods
of active demand. Terms are usually tightened up when sales decline.
PROBLEMS OF SALES POLICY DETERMINATION
It is evident that some at least of the industries considered in the
foregoing section, particularly the refrigerator, washing machine, and
vacuum cleaner industries, have come to critical turning points due to
the increasing saturation of a substantial portion of their original
markets, particularly in the more prosperous sector of the population.
The effect of this change in market conditions was forcibly revealed in
the sharp dechnes in sales experienced by these industries during the
1937-38 recession. During 1939 there seemed abundant evidence
that their initial period of rapid technological development, aggressive
price reductions, and vigorous growth had apparently reached or was
rapidly approaching an end.
It is clear that this change in market conditions reflecting ap-
proaching maturitjr must be met by corresponding changes in market-
mg techniques and in price policies if the expansion possibilities of these
industries are to be fully realized. The policies which these industries
followed between 1932-37 seem to have been well suited to the ex-
ploitation of the original market among families of the middle and
upper income brackets. This market is, however, rapidly declining
as evidenced by the saturation figures which have been presented.
Consequently, the bulk of future sales must be either to famihes in
income brackets who have not hitherto been able to afford the pur-
chase of these kinds of equipment, or else they must be sales for the
purpose of replacing worn out or obsolescent equipment. Maximum
expansion would be achieved through appeal to both of these markets
concurrently.
It is convenient to consider these two possibihties separately.
Consequently, the discussion will first proceed to an examination of
possibilities of expanding the original market, particularly among
members of the lower income groups. The possibilities of stimulating
replacement sales will be examined subsequently.
EXPANDING THE ORIGINAL SALES MARKET
Quality emphasis and advertising. — Since approximately 1932, and
until 1940, programs for expanding sales in these industries (as well as
competition between rival firms for their shares of the market) have
focused primarily upon nonprice techniques. Prices throughout this
period for all these industries and for most of the firms within each in-
dustry, with the large mail-order houses constituting a notable ex-
ception, remained stable. Sales effort concentrated partly upon
advertising and sales campaigns designed to acquaint the public with
the virtues of the respective apphances, and partly upon improvements
of quality and appearance. Guarantees were ejxtended to assure
the consumer of the reliability and durability of the product. Im-
CONCENTRATION OF ECONOMIC POWER 139
provements in efficiency of operation were continually sought through
constant laboratory analysis and research.^*
In the absence of revolutionary changes in mechanical details and
construction, the future effectiveness of these techniques seems clearly
limited. Although advertising wiU probably remain an important
instrument of rivalry between competing concerns, its value in ex-
panding the market is conditioned by the dwindling number of
potential original purchasers. Moreover, there is some evidence
that the ingenuity of advertising copywriters is beginning to be
strained in devising new forms of appeal. Every conceivable aspect
of an electric refrigerator, for example, has been exploited in advertis-
ing. Such features as the size and shape of the box, "streamlining,'*
the "efficient" compression unit, the number of trays, the control
over temperature, etc., have been described repeatedly in advertising
copy.^^ The exhaustion, of "sharp angles," the similarity of advertis-
ing of the various producers, and the consequent necessity of repeti-
tion lead to extremes in advertising which often mitigate its effect-
iveness. ^'^
The washing machine industry has not been characterized by
advertising as extensive as has the electrical refrigerator industry.
Instead, it relies heavily upon a system of direct sales solicitation.
Manufacturers often maintain elaborate schemes for establishing
prospect lists and for guiding "follow-up" work.^^
18 The early electric refrigerators were affected by constant (liflBcalties with motors, compressors, mechan-
ical drives, cooling units, stuffing boxes, freezing trays, and enamel finish. Cork Insulation was expensive
and was only moderately successful in excluding heat. As a result of research, however, all of these diffi-
culties were overcome. Enamels were developed which enabled the entire cabinet to be fabricated and
fired as one piece. New and superior types of insulation such as wood fibre, rock wool, aluminum foil, glass
wool and paper were devised. In addition a noncorrosive, nontoxic, noninflammable, nonexplosive and
Inexpensive refrigerant was created, dichloro-difluoro-methane or "freon." This refrigerant — which boils at
21 degrees below zero — was immeasurably superior to SOi, ammonia, and methyl chloride. This improve-
ment has alone contributed materially to the growth of consumer acceptance of the electric refrigerator
(H. A. Toulmin, Jr., Patents and the Public Interest, Harper and Bros., 1939, pp. 149, 150.)
i» In the words of Printers' Ink Monthly, August 1937:
"The selling of refrigerators requires the massing of all conceivable sales influences. It becomes evident
to one who compares the methods of the leading companies that mere sharp angles will not sell refrigerators
any more. As an industry matures, angles disappear and products approach uniformity. Advertising at
the same time takes on a similarity.
"Probably nothing is so striking about refrigerator advertising as its similarity. Probably no one feels
this more keenly than the advertisers themselves. Assuming that Joe Doakes, the common man, has an
analytical mind, he doubtless compares the advertising of the leading makes with growing confusion. It
is certainly impossible for him to decide from the advertising which of them is best for his purposes."
>ii A few examples of these extremes are as follows:
"New super-duty Frigidaire with the meter-miser cuts current cost amazingly! Proves completeness
never before known in all five basic services for home refrigeration."
"The new Kelvinator is plus-powered. It has as much as double the cooling capacity of other well-
known refrigerators of equal .''ize. The new Kelvinator runs only half as many minutes per day — during
the rest of the time it maintains low temperatures using no current at all."
Incidentally, this latter type of extreme advertising resulted in action by the Federal Trade Commis-
sion. (Federal Trade Commission, Stipulation No. 1749, and Docket No. 3125.)
An indication that the advertising features of the product have been exhausted is revealed in the ten-
dency of the General Electric Co., to become philosophical in its advertising:
"Life * • ♦" General Electric remarks, "a few fleeting measures of conscious time • • • precious
• * • packed with infinite possibilities— but how to make the most of our time? It flows away so fast
• • * priceless, because nothing can purchase more time than is given to us all * • *"
" The Maytag Co., for example, goes to great lengths in suggesting methods for obtaining narnes of pros-
pects. These consist of: Contacting regular customers who come into the store; personal solicitation of
Maytag owners; field solicitation; circular letter with return card; newspaper advertising; exhibits at auto
shows, fairs, carnivals, and public gatherings; cooking schools and home sliows; demonstrations at church
and society activities, clubs, etc.; guessing contests; drawing and registration schemes; bonus offered to
Maytag owners who turn in prospects that result in sales; rough survey, the salesmen call at every fifth
house; demonstrating to high-school domestic-science class; advertising second-hand washers in classified
ads, some of those answering can be traded up; store and widow demonstrations; newspaper coupons, the
company recommends some such offer as "This week's washing done free;" contacting newlyweds; follow
birth announcements; locate washerwoman prospects by following up "washing taken in" ads in news-
papers; watch "help wanted" and "situation" or "laundress wanted" ads in newspapers; newly wired
homes; swapping prospects; regular charge-account customers; bookkeepers, repairmen, linemen, clerks,
etc.; Maytag on truck at customer's door; getting husband's permission first to bring the machine to tie
home; newspaper news, leads; gas inspectors, meter readers, etc.; special invitation cards to the store.
(Printers' Ink Monthly, August 1937.)
l^Q CONCENTRATION OF ECONOMIC POWER
In tlie vacuum-cleaner industry, as has been noted, two principal
producers maintain their own salesmen and rely upon house-to-house
canvassing. This necessitates the establishment and maintenance by
the manufacturer of branch warehouses, district sales managers,
branch managers, crew managers, and canvassers. In addition, con-
siderable amounts are spent in the education of salesmen and in devis-
ing effective sales techniques. Companies selling through ordinary
retail channels apparently find it more difficult to achieve high sales
volume. It is the opinion of many in the industry that house-to-
house canvassing is necessary in order to persuade the housewife that
she is eliminating only part of the dirt from her home with her carpet
sweeper or her old cleaner.
In each of these cases the sales techniques which have been described
are somewhat expensive. Yet it seems unlikely that they will be
materially modified in any particular in the near future. Although
their value in increasing the total sales volume of the respective
industries may be limited, particularly in view of the present degree
of saturation, they nevertheless constitute effective competitive tech-
niques. Consequently, no one company can abandon them without
risking some loss of its share of the industry's sales volume. In any
appraisal of the expansion prospects for each of these industries as a
whole, therefore, these particular aspects of nonprice competition may
be somewhat detrimental in that they impose elements of cost which
must in turn be reflected in the price level.
Other forms of nonprice competition which these industries have
recently utilized may not involve any material additions to cost.
Nevertheless, it is doubtful whether "streamlining" of styles or the
further extension of attractive guarantees can be counted upon to
expand markets appreciably. In fact, as some of these techniques
come to be generally utilized, they may even lose their value as com-
petitive devices. When, for example, one or two refrigerator pro-
ducers first introduced long- term guarantees, these guarantees may
have had some effect in augmenting the manufacturers' respective
shares of the market. Soon, however, the practice of granting long-
term guarantees became general. At present these are so uni-
form that they are no longer a basis for distinguishing the product of
one manufacturer from that of his rival. Shortly after this uniformity
in guarantees was achieved, an editorial in a trade publication pointed
out the consequences:
IS THE 6-yEAR GUARANTEE NECESSARY?
A recent trip into the field reveals the fact, that electric dealers are highly dis-
satisfied with the epidemic of 5-year guarantees which seem to have broken out
in the national advertising of the electric refrigerators. The point is, of course,
that the advertisements are worded to give the customer the impression that the
merchandise purchased is warranted against interruption of whatever character
over a 5-year period, whereas that is not intended at all. The manufacturer is
guaranteeing his wares only against defects for which he is responsible.
Originally the guarantee found an excuse for itself in that it was the exclusive
promise of one company and so formed a sales argument for the salesmen handling
that line. Now, when practically every manufacturer makes the same promise,
it does not even offer a talking point against rival makes.^^
In summary there seems good reason to doubt the efficacy of these
nonprice sales techniques as means of expanding the markets for
'* Electrical Merchandising, December 1936,< p. 22.
CONCENTRATION OF ECONOMIC POWER 141
electrical appliances, once saturation has reached a relatively high level
among those who can afford to purchase at the prevailing prices.
However it is possible that some future revolutionary change in me-
chanical detail and construction might improve the refrigerator to
such an extent that the replacement market would be greatly stim-
ulated.
Credit terms. — Before turning to the level of prices as such, it may
be well to consider briefly the structure of credit terms on conditional
sales. Thel"e are four basic elements to the credit transaction which
may be examined as offering possibilities of stimulating sales. These
are:
1 . The size of the down payment.
2. The period over which payments are to be made.
3. The effective interest rate.
4. The degree of emphasis upon the purchaser's financial status.
During the period of increased demand in 1936 and 1937, efforts
were made to liberalize each one of these aspects of the credit trans-
action. In part, at least, this reflected the activities of various.
Federal agencies, such as the Federal Housing Administration- and
the Electric Farm aud Home Authority, which financed equipment
sales at low interest rates. Similar practices were adopted by the
industry generally and by private financing companies. Down pay-
ments were gradually reduced until, in many cases, none at all were
required.
The period for payment was gradually extended from the earlier
practice of 18 to 24 mouths; first to 30 months, and later to as long as
36 months. Interest rates were cut, particularly by public utility
companies and by large department stores. Apparently too, pro-
gressively less effort was made to examine the prospective customer's
financial position. It has been mentioned above (p. 137) that distress
among consumers during the 1937-38 recession resulted in a large num-
ber of repossessions, part of which, at least, reflected the liberality with
which credit had been extended. In an effort to avoid a recurrence
of this experience, some attempts were made to tighten the credit
structure. Apparently, however, the only important difference
between conditions today and those preceding the recent recession is
a somewhat greater surveillance of the prospective customer's financial
status. Otherwise, down payments are still small or not required,
interest rates low and the period of payment long.
It is true that the decision of many prospective purchasers is often
governed more by the size of the required monthly payment than
by the aggregate amount which they are called upon to_ pay. If
monthly payments could be made smaller, sales might be increased.
On the other hand, the interest rate charged by many sellers is now
so moderate that further reductions would be unlikely to affect the
size of the monthly payment appreciably, and the period oyer which
payment is extended is probably as long as is consistent with sound
financial policy. Consequently, further liberalization of credit terms
does not seem to be a promising method of stimulating the market
for these appliances. It is the retail price which is the basic element.
Price reductions. — The most obvious means of stimulating original
sales among families in the lower income brackets is a policy of price
reduction. Between 1932 and 1939, however, the prices of these
142 CONCENTRATION OF ECONOMIC POWER
products were maintained at relatively stable levels and, except for
refrigerators, these levels still prevail. While this has represented
the general policy there has nevertheless been some effort, particu-
larly in the refrigerator and washing machine industries, to introduce
so-called "stripped" lines.
Since 1937 most of the major refrigerator companies have introduced
special, low-priced 6-foot models. These models are "stripped" of
the many special features and accessories found on the regular models.
The trays do not slide out; there are no special devices for removing
the ice cubes from their container and various other similar features
are omitted.
Only in the 6-foot line — which retailed at about $175 in 1939 — has
the new model been introduced. During 1938 and 1939 the reduction
in price by most producers was approximately $35, or to about $140.
This price was still beyond the range of many potential purchasers of
limited means, but it did serve as an attractive price line for some of
the lower income families.
The new line was introduced primarily as a "leader," Thus adver-
tisements often proclaimed that a 6-foot box of a well-known producer
.was to be offered for sale at the "amazingly" low price of $149.50.
Customers who were attracted to the store by such an advertisement
were frequently urged by the salesman to purchase one of the "de luxe"
or "regular" models instead of the low-priced "leader," ^^
The "leader" sales technique is also utilized in the electrical washing-
machine industry. In this case the "leader" motive, while perhaps
uppermost, is accompanied by an even keener awareness of the poten-
tial market for such a product among lower-income groups. Thus,
washing-machine manufacturers have acknowledged indebtedness to
the stimulation of their sales resulting from relief payments. Pre-
sumably, therefore, these cheap lines of washing machines have con-
tributed materially to sales in their own right, and not merely in their
capacity as "leaders."
Vacuum cleaner manufacturers have apparently made little effort
to introduce similar "special" lines. Partly this may reflect the
nature of the product- partly it may be due to the physical difficulty
of selling more than a single line through the house-to-house canvassing
system. Where price leaders have been utilized in this industry, old
cleaners have been reconditioned to serve this purpose.
Despite the emphasis on the "leader" aspects of these special lines,
they reflected a realization by the manufacturers of the increasing
role which price consciousness among consumers is pla,ying in the
market for these electrical appliances. To the extent to which serious
effort was actually devoted to selling these cheaper lines to purchasers
of moderate means, they have resulted in some expansion of the poten-
tial market. The price difference was sufficient to attract certain
marginal buyers that could not afford the regular models. However,
this effect was probably somewhat narrowed by the practice of many
salesmen in treating these models as substandard, since some con-
» In sales terminolof;y this selling technique is known as the set-back method. The customer, attracted
into the store by the "leader," is first shown the most expensive de-luxe models. If he indicates that the
price Is too high, the salesman leads him to the standard or regular models, which are still at least $30 above
the price of the model advertised. If the customer insists that he wishes to see the advertised model and
(sannot be interested in anything-else, the salesman will finally show him this model, saying that, although
It is a very good refrigerator, it cannot be compared In service and desirability to the regular models.
CONCENTRATION OF ECONOMIC POWER 143
sumers preferred not to buy at all rather than to buy articles which
were indicated to be inferior.
Much broader prospects of sales expansion than those derived from
the introduction of these special models would flow from a general
reduction in prices. In other words, a resumption of the price trends
which prevailed between 1927 and 1932 would, if feasible, be likely
to widen the potential market materially. The precise degree of
expansion which might be expected to reward any particular decline
in prices cannot, of course, be predicted.
The crux of the problem is contained in the phrase "if feasible."
Presumably further price reductions must reflect lower costs. Broadly
speaking, savings in cost may be achieved in two directions, (1) by
reducing costs of manufacture, (2) by cutting the costs of distribution.
Reductions in the cost of manufacturing. — When interviewed during
1939, manufacturers in these industries did not seem to be especially
sanguine as to the prospects of materiaUy reducing manufacturing
costs. In the refrigerator industry, for example, the smaller ma,nu-
facturers apparently beheved that important savings in manufac-
turing costs could be initiated only by the three or four largest com-
panies in the industry and there was considerable doubt as to whether
such savings could be possible even to this restricted group. There
seemed to be some effort to explore the possibility of achieving econo-
mies by reducing the number of distinct models produced. The very
marked change in the situation in this industry since the beginning
of 1940 will be discussed subsequently.^*
Reduction of costs in the manufacture of washing machines appar-
ently encoimters certain special obstacles. Most producers in this
industry are specialized, producing washing and ironing machines
exclusively. The industry is largely one of machining and assemblage.
Most of the manufacturers purchase a considerable portion of their
materials partially or wholly fabricated.^^ Opportunities to lower
the cost of manufacture are correspondingly limited. However, one
or two very large corporations have recently entered the industry;
this may result in materially reduced production costs.
In the electric-range industry, reductions in production costs may
be expected to continue if the volume of the industry's sales maintains
its present rate of growth. Members of the industry confidently ex-
pect that when the industry reaches a higher output basis, production
costs will be materially below their present level.
Distribution costs. — The foregoing comments with regard to manu-
facturing costs were largely inferential, since there are few data upon
which to base a more informed appraisal. Somewhat more informa-
tion is available regarding costs of distribution.
In general, the distributive margin in these industries constitutes a
very substantial fraction of the retail price. In the case of refriger-
ators, for example, the retail price during the past decade has con-
sistently approximated slightly more than twice the manufacturer's
price. In other words, between 1928 and 1937, the combined whole-
sale and retail mark-ups have slightly exceeded 50 percent, measured
« See p. 154 below.
» National Recovery Act Code History, Washing and Ii oning Machine Manufacturing Industry, pp. 2, 3.
144 CONCENTRATION OF ECONOMIC POWER
in terms of the consumers' list price. The spread between factory-
price and retail price during this period is shown below:
Table 14. — Distributive margin of electric refrigerators
Year
Average
factory
Average
retail
Margin
Year
A.verage
factory
Average
retail
Margin
price'
price >
Actual
Percent
price'
price'
Actual
Percent
Estimated
Estimated
Estimated
Estimated
1828
$166
$334
$168
60
1933
$83
$170
$87
51
1929
134
292
168
64
1934
84
172
88
51
1930
132
275
143
62
1935
78
166
88
53
1931
129
258
129
50
1936
81
164
83
61
1932
101
196
94
48
1937..—
86
173
88
51
1 Source: National Electrical Manufacturers' Association.
' Source: Air Conditioning and Refrigeration News.
During 1938, the spread between factory and retail prices for the
cheapest 4-foot models produced by three important manufacturers
ranged between $64.62 and $67.80. It is apparent that a very mate-
rial reduction in the retail price level could have been achieved had it
been feasible to reduce this distributive margin.
Somewhat the same situation exists in the washing-machine indus-
try. One prominent producer operates on the basis of the margins
shown in the following table:
Table 15. — Distributive margin of electric washing machines
Manufac-
turer's
price to the
Jobber i
Suggested
price to the
consumer '
Distribu-
tive
margin
Distribu-
tive
margin as
percent
of retail
price
Model A.
$23. 26
27.25
33.76
$39.95
49.95
69.95
$16. 70
22.70
36.20
41
Model B
46
Model 0
52
» Not including freight charges.
The distributive margin for the highest-priced washing machine,
model C, amounted to 52 percent of the retail price, or approximately
the same ratio as that shown for refrigerators. This percentage
represents the actual situation in the industry more adequately than
do the figures relating to the two cheaper models, since only a minority
of sales fall into the lower price brackets.^^
" The actual distribution of sales of electric washing machines in 1938 by price classes is shown in the
following table:
Table 16.— Distribution of sales and average value of electric washing machines by price lines— 19S8
Retail price classes
Units
Average
retail
price
Percent
of total
Below$40
88,916
161, 002
450, 077
331,358
$36.63
48." 11
63.22
105. 46
9
$40 to $49.99....
16
$50 to $69.99
44
$70 and over
32
Total
1,031,363
72.14
Source: National Association of Washing Machine Manufacturers.
CONCENTRATION OF ECONOMIC POWER
145
In the vacuum-cleaner industry distributive margins on sales through
the orthodox wholesaler-retailer channel are of approximately the
same order. However, the house-to-house canvassing system used
by some of the leading companies is even more costly. Thus one
prominent vacuum-cleaner manufacturer, selling through regular
channels, was able to offer his cleaner which cost him altogether
$10.30 to produce at a retail price of $25, less 50 percent discount to
the dealer. This allowed him a profit per cleaner of only $2.20.
Thereupon, he decided to embark upon a program of house-to-house
canvassing. When this system of distribution was established, he
found that in order to cover the cost of canvassing, he had to raise
the retail price of the cleaner to $49. 50.^''
A similar example is cited by O. W. Blackett:
The management of Eureka Vacuum Cleaner Co., which had average annual
earnings of well over a million dollars prior to the depression, lost so heavily in
1931 that it reconsidered its whole method of retail distribution. It has used
various methods of promotion, but had inaugurated a system of direct sales to
consumers in 1922 which had proved so successful that by 1930, the major part
of the sales volume was obtained in that way. The method was, however, very
expensive since it required branches and subbranches to handle installment-sales
accounting, to care for local advertising, and to carry a sufficient inventory. The
decline in sales necessitated the cutting of expenses, which was accomplished by
substituting dealer outlets for the company's own branches. It was possible to
predict roughly the saving in expense througli elimination of branch offices. The
major uncertainty was how much reduction of sales volume would follow the sub-
stitution of other outlets. The management fully expected such a reduction, but
hoped it would be more than balanced by the saving of expense. In this instance,
the management made what for the moment, at least, was a wise decision, since
the change enabled them to show a sizable profit on reduced volume in 1932.
Only time will tell whether the immediate gain justified the abandonment of a
system of distribution which had aided tht company to increase its sales from 15 5
percent of the industry in 1921, to 27.2 percent in 1927. In very recent years
the company has returned to its former policy of direct sales but to date has not
regained the dominant position relinquished for the sake of immediate profits in
1932.28
The one important exception to these high costs of distribution
relates to products marketed. through mass distributors. The follow-
ing table presents a comparison of the costs of refrigerators and wash-
ing machines distributed through a mass distributor and through
orthodox retailing channels.
Table 17. — Distributive margins
[Sales througb mass distributors and regular channels]
Retail
price
Manu-
facturer's
cost
Cost of distribution
Type of distribution
Actual
Percent
of retail
price
Refrigerators:
Typical standard brand sales orgaoizatlon
$207.60
158.00
155.00
89.50
$93. 34-
100.00
64.00
56.00
$114. 16
68.00
91.00
31.50
165.0
Mass distributor
36.7
Washers:
Typical standard brand sales organization
«58. 7
Mass distributor
31.2
• However, the margins shown in this table for the orthodox channel of distribution are somewhat higher
than those shown in tables 14 and 15 above (p. 144) for the same year. This dlflerence may be due to the fact
that this table is based upon comparatively expensive models.
Source: Compiled from Thomas, John F., Varying Functions in Distribution, Their Costs and Influences
on RetaU Prices, Journal of Marketing, July 1938, p. 6fl.
" Rost, Fred O., Distribution Today, 1933, pp. 180, 181.
" Economic Problems in a Changing World, a symposium.
Rlnehart. p. 421.
Edited by Willard Thorp — Farrar and
J 46 CONCENTRATION OF ECONOMIC POWER
These figures illustrate the possible savings which may flow from
greater efl&ciency in the process of distribution. The distributive
margin in the case of the company using direct distribution was $58;
for the refrigerator distributed through the regular channels the spread
amounted to $114.16. In the case of washing machines the distribu-
tion cost for direct distribution is $31.50; for the product distributed
through the regular channels it is $91. There is some difference of
opinion regarding the comparability of these models, but this does not
affect the contrast in distributive margins.
In addition, the mass distributor sells a. vacuum cleaner at $49.50
which, according to the company, is comparable with other makes
retailing at $79.50. It is claimed that the saving is made possible
by its more economical system of distribution.
At the present time, sales through mass distributors apparently
constitute the most aggressive effort to reduce costs of distribution,
although at least one other large producer is endeavoring to cut dealer
margins. Jn fact, some members of these industries have expressed
the opinion that distribution costs are already as low as they can be
brought, and that any further reduction would result in a loss of vital
sales outlets, dealer cooperation, and necessary advertising.
Members of the washing-machine industry claimed that distributive
margins in the industry had not changed materially in recent years,
and that their reduction could not be expected in view of the guarantee
for repair parts and of the responsibilities for servicing which the dealer
has assumed.
In the vacuum-clean.er industry it is said that some of the large
companies which are now utilizing house-to-house canvassing are
planning to distribute extensively through ordinary channels. How-
ever, unless the canvassing technique is largely abandoned, it is un-
likely that any savings in cost due to the partial utilization of regular
channels will be translated into lower prices to the consumer. It would
be impractical for a company to charge different prices for its product
when sold by a visiting salesman and by a retail store. It seems prob-
able, therefore, that the prices charged on store sales will be maintained
at the same level as those on house-to-house sales, and that that level
will be largely determined by the costs of the latter system.
It is apparent, consequently, that there have been obstacles to any
program of extensive price reductions in these industries, whether such
reductions applied to the manufacturer's price or to the distributor's
margin. During 1939 most manufacturers in these industries appar-
ently believed that the era of price reductions had terminated and that
further cuts in price would not be rewarded by a sufficient increase in
volume to make the venture profitable. Thus, it has been mentioned
that the smaller refrigerator manufacturers believed that only the
largest members of the industry, comprising corporations which had
extensive interests outside the refrigerator industry, could afford to
take the risks incurred in any material change in price policy.
On the other hand, there has been increasing awareness among both
manufacturers and distributors that the price element is becoming
increasingly important as the market among families in the more
prosperous income levels is becoming saturated. As early as the
spring of 1939 one large manufacturer had become convinced of the
need for lower prices. An editorial in Electrical Merchandising,
CONCENTRATION OF ECONOMIC POWER 147
published in January 1937, expressed this point of view even before
the sharp contraction in sales which forcibly focused attention upon
the problem.
Electrical distributing trades, both wholesale and retail, may eoon be forced to
face the problem of justifying markets. Wholesalers and retailers have always
upheld the need for more margin, although they agree over-all distribution costs
are high. Now a question as to whether retailers and wholesalers are performing a
service equivalent to their remuneration. Costs in 1937 are bound to increase
because of rising costs of raw materials and demand for higher wages. But
manufacturers a're faced with the necessity of keeping prices down. A survey
indicated 42 percent of refrigerator business in 1938 will come from lower-income
families, a market definitely conditioned by lower prices. Yet, it is possible that
appliance prices may be forced up. Profit from present market — a market dis-
tinguished from former years by higher costs and lower prices — can be in some part
derived from greater production efiiciency. But there is the question as to how
much further manufacturing efficiency can be increased; this leaves only distribu-
tion expense to be trimmed, and manufacturers are asking if it is possible to reduce
by some percent the present high cost of distribution.
Difference between manufacturing cost and selling price is high — for many
appliances the cost of selling is two-thirds or more of total retail value.
Wholesalers have given much study to reducing operating costs. Chains
already claim efficiency and savings to the public, but independent retailers have
given little study to operating costs and possible savings * * *_ Qur guess is
that distribution costs are in for an acute scrutiny.
The same periodical later (1938) published letters from appliance
dealers which revealed their concern with the problem, and particu-
larly with the competition offered by low-cost mass distributors:
Appliance business will be more efi'ectively and profitably handled when —
manufacturers sell direct to dealers and eliminate jobber on several lines and on
other lines — such jobbers who now exist should be converted into direct-selling
retail specialty companies.
From 18 to 20 percent margin is now being absorbed by distribution or those
endeavoring to sell to the dealers — which amount of percentage should come to the
retail distributor to use for direct sale promotion.
And—
All manufacturers keep prices up knowing dealers have to have long margin,
the general public compare all standard makes with catalog houses, which is from
$10 to $15 lower. Catalog houses get the deal and consumer does not mention
his old trade-in, so I am heartily in favor of taking smaller percentage of profit,
provided distributor and manufacturer will lower their profits. This, I think, is
only way you can lick catalog competition. (Electrical Merchandising, The
Appliance Dealer, 1938.)
Obviouslj'- this awareness of the problem must be somehow trans-
lated into a positive program for reducing prices if the market among
lower income groups is to be widened appreciably. Until 1940,
however, there was no concrete evidence of such a trend, except for
that provided by a few mass distributory organizations. Their
relatively low cost of distribution permits them to compete on a price
basis. As a result, their share of the market has expanded materially.
Between 1932 and 1937, sales of the lower priced equipment by mass
distributors increased four times as fast as sales for the industry as a
whole. It is also noteworthy that the decline experienced by mass
distributors during the 1937-38 recession amounted to only one-half
as much as that of the entire industry. The success achieved by these
concerns merely demonstrated the efficacy of low prices as a sales
argument and emphasized the need of serious attention to the problem
by the concerns utilizing regular channels.
148
CONCENTRATION OF ECONOMIC POWER
THE REPLACEMENT MARKET
Need jor considering the replacement market. — The second majoi
avenue of sales expansion for these electrical-appUance mdustries is
the stimulation of the replacement market. For any industry pro-
ducing consumers' durable goods, the replacement of worn-out or
obsolescent merchandise necessarily constitutes an ever-increasing
share of the market as the industry matures. In fact, it is this pro-
gressive shift from original sales to replacement sales which con-
stitutes the basic significance of market saturation. It is obvious
that the mere fact that a family already possesses a refrigerator or
washing machine or a vacuum cleaner does not automatically elimi-
nate that family from consideration as a sales prospect for a new
model. On the other hand, the considerations which will determine
such a family's decision to buy are in many ways different from those
relating to original prospects. Consequently a program designed to
stimulate replacement sales must give due weight to these differences.
Moreover, it should be emphasized that the development of the
replacement market is not to be considered merely as an alternative in
case it should not prove feasible to extend original sales among fami-
lies in the lower income brackets. Regardless of the success of the
latter course, the replacement problem will be of growing importance.
The consequences of saturation may be temporarily minimized or
avoided by altering price policies so as to widen the number of original
prospects, but eventually they must be met notwithstanding. In
other words, a shift from original to replacement sales is inherent in
the very nature of consumers' durable-goods markets.
Extent of replacement sales. — The outstanding example of an in-
dustry whose market has largely shifted from an original to a replace-
ment basis is the automobile industry. As far back as 1926, 73 per-
cent of all new passenger car sales were accompanied by trade-ins;
that is, they involved the replacement of an older model. Since 1929
this ratio has increased further; in 1937 approximately 88 percent of
all new passenger car sales were for replacement.
In the electrical-appliance industries the ratio is not nearly so high
as yet. However, it is increasing rapidly. The trend of replacement
sales as a percent of all sales in the electric-refrigerator industry is
shown in the table below. The data are for two leading refrigerator
manufacturers; they seem sufficiently parallel to be considered
indicative of the general trend in the industry.
Table 18. — Replacement sales as a percent of total sales of electric refrigerators
Year
Company
A
Company
Year
Company Company
A 3
1
1929 -
3
2
3
1
3
1934 __-
1935 ...
9
10
13
15
19
7
1930
10
1931 -
1936
1937.
14
1932 . .
1
2
16
1933
1938
18
The ratio rose particularly sharply from 1933 to 1934. Since the
latter year it has increased steadily. For the year 1938, the figures
of these two companies are slightly below an estimate made by Air
CONCENTRATION OF ECONOMIC POWER
149
Conditioning and Refrigeration News. This estimate, based upon
reports of manufacturers, distributors, and dealers, indicates that
about 20 percent of the United States sales of household electric
refrigerators during 1938 involved the replacement of a unit pre-
viously used by the same family.^^
In the washing-machine industry it is estimated that the ratio of
replacement to total sales is currently as high as 46.3 percent.^" For
vacuum cleaners, the replacement ratio is believed to be between 35
and 40 percent.
Factors influencing replacement sales. — In any program designed to
stimulate replacement sales as a means of expanding the market for
these products it is necessary to emphasize the specific considerations
surrounding the replacement market. It has been pointed out that
the factors which would induce prospective purchasers to replace
used equipment are in many ways distinct from those governing the
original market. These specific considerations may be conveniently
grouped into three categories, (a) durability, (6) obsolescence, and
(c) trade-in allowances as affecting the cost of replacement. These
will be considered consecutively.
Durability. — The importance of durability is apparent. When a
product is worn out so completely that it is either useless or extremely
expensive to operate, its replacement can no longer be delayed. In-
creases in durability, such as have characterized these appliances
during recent years, may to some extent be expected to retard re-
placement. For example, the increase in the life expectancy of the
average electric refrigerator is shown in the following table:
Table 19. — Estimated durability of electric refrigerators
Year of manufacture:
Life expectancy (years) '
Year of manufacture:
Life expectancy (years)
1920
6
1930
13
1921
7
1931
. 13
1922
8
1932
13
1923
9
1933
13
1924
10
1934
14
1925
11
1935
14
1926
11
1936
14
1927
12
1937
15
1928
12
1938
15
1929
._. 12
1 The figure for each year is an average of data compiled from a sample study which was made by a large
manufacturer of refrigerators.
Similarly, there is evidence that the durability of washing machines
and vacuum cleaners has been increasing. Thus, according to the
Secretary of the Association of American Washing Machine Manufac-
turers, a modern machine will, with reasonable care, last at least 10
years. The Secretary of the Vacuum Cleaner Manufacturers Associa-
tion estimates that the average life expectancy of a cleaner is approxi-
mately 12 years today, in contrast to only 6 years for a 1929 model.
This trend conforms with the concept that it is not in the public
interest to reduce durability in order to sell more appliances unless
there is a marked decline in prices; even then it may be undesirable.
Obsolescence. — However, the importance of absolute durability
" Air Conditioning and Refrigeration News, Januar.y 1939.
" Electrical Merchandising, The Appliance Dealer, 1938.
^5Q CONCENTRATION OF ECONOMIC POWER
may readily be overemphasized. Although some owners will continue
to use products of this kind until their utility is entirely destroyed,
the introduction of more efficient or more attractive products often
results in inducing replacements long before the article in use has
become completely worn out.
The persuasiveness of obsolescence in stimulating replacement
varies with the nature of the product. In the automobile industry,
for example, changes in style are apparently of far more importance m
determining the rate of replacement than is durability as such. As
far as durability is concerned, there has apparently been a distinct
lengthening of actual car life during the last 10 or 15 years. Thus,
studies of cars in use in 1926 and 1935 show that, whereas in the
former year 50 percent of the cars survived between 6 and 7 years,
in the latter year 50 percent survived about 9 years.^^ Yet, despite
this increase in durability, frequent changes in style and improve-
ments in comfort and lower operating costs have resulted in maintain-
ing replacements at a high rate.
Conditions with regard to obsolescence in the appUance industries
are not entirely analogous to those in the automobile industry. It is
doubtful, for example, that the desire to own the latest model of
refrigerator can ever be quite as impelling as the wish to display the
newest style of automobile. Nevertheless, according to an official
of a leading refrigerator manufacturing company :
In America, Mrs. Housewife will insist on buying a new electric refrigerator a
couple of years after she bought her last one, because the new refrigerators are
streamlined, more efficient, or decorated in delphinium blue or have some new
trick gadgets '2 . . . Therefore, in all our thoughts on saturation, don't let us
forget that the American public will always continue to discard their electrical
devices long before they have worn out, and buy new ones provided, of course,
we manufacturers can keep on changing the models and our utility and dealer
friends aggressively point out the new advantages to the public.^'
Moreover, the same official suggested that the tendency of operating
costs to increase after a few years of operation might constitute an
added inducement to early replacement.
These considerations have their obvious limitations and there is
evidence that the viewpoint expressed above is by no means unani-
mously held in the industry. Nevertheless, changes in style^ or in
mechanical features will, to a limited extent, stimulate the desire for
replacement. In the case of such products as washing machines and
vacuum cleaners, mere changes in appearance can probably have little
if any effect. Neither of these products is a display piece; their
purpose is purely utilitarian. Obsolescence must, therefore, be
induced by basic changes in operating features rather than in appear-
ance. The new "all purpose" washing machine and the tank type of
cleaner may represent this type of major technical improvement.
Cost of replacement — The trade-in allowance. — Assuming a desire on
the part of an owner to replace obsolescent equipment, a basic con-
sideration determining his decision is obviously the question of cost.
The cost of making a replacement is dependent not only upon the
price of the new product but also upon the allowance granted by the
dealer for the used article. High trade-in allowances will obviously
stimulate replacements — low allowances will discourage them.
" The Dj namics of Automobile Demand, General Motors Corporation, New York, N. Y., 1939, pp. 47-49.
" Seme n anufacturers, however, question the efBcacy of this technique of Inducing rapid replacement.
" Quoted In Printers' Ink Monthly, August 1937.
CONCENTRATION OF ECONOMIC POWER 151
Probably the outstanding feature of the automobile industry's re-
placement policy is the highly developed character of the used car mar-
ket. Trade-ins are accepted by dealers as a matter of course. On sales
of new vehicles, the automobile turned in by the new car buyer is, in
turn, resold and on that resale there "is usually another trade-in.
During 1937, trade-ins were accepted on 88 percent of new car sales
and on 56 percent of used car sales. ^^ Used car values have become
well standardized. What is perhaps most important is the fact that
these allowances are sufficiently high to induce most car buyers to
replace their automobiles after only 2 or 3 years of use.^^
In general, although the acceptance of trade-ins on the sale of
electrical household equipment is becoming increasingly common, the
market has not yet reached the highly organized state of that existing
in the automobile industry. Nor are the allowances granted usually
as liberal. A comparison of the percentages of the retail list price
allowed for popular priced automobiles and for refrigerators of differ-
ent ages is shown in table 23.
For a 1937 automobile, the trade-in allowance was approximately
50 percent of the original price whereas for a refrigerator of the
same age the allowance is only 32 percent. This same type of diver-
gence applies to most of the older models.
In the case of washing machines it is understood that the trade-in
allowance on recent models usually ranges from 25 to 35 percent of
the list price. Often this allowance is fixed regardless of the type,
make, or condition of the machine offered in trade.
For vacuum cleaners, the allowance is generally about 25 percent
of the list price but rarely exceeds $15 for any model.
Actual allowances on any specific sale are of course determined by
the dealer. Consequently, these figures must be considered merely as
approximations. They serve to show, however, that the amount
which an owner of used equipment can expect to recover on a trade-in
is materially smaller for these electrical appliances than is true in the
case of automobiles. Since it is this allowance which determines the
actual outlay required for replacement, it is apparent that the induce-
ment offered to o ,vners of used equipment to change for new models is
correspondingly lower.
To some extent these differences between the equipment industries
and the automobile industry reflect differences in distributive mark-
ups. The average retail mark-up for a popular priced automobile is
only 25 percent of the retail list price as compared with about 40
percent for refrigerators and washing machines. It is evident that a
dealer is unlikely to grant an allowance for used equipment exceeding
the cost to him for new equipment. Consequently, as soon as a
refrigerator, for example, has passed from the retailer to the consumer
it has suffered an immediate depreciation equivalent to at least the
amount of the retail mark-up. In this way, high distributive margins
not only restrict the original market by increasing the retail price;
they simultaneously discourage replacements by limiting trade-in
allowances.
'< Automobile Facts and Fipures, 1938 edition, p. 67.
" Trade-in markets have also become established in other industries. In the agricultural machinery
Industry, for example, a recent survey by a leading producer showed that out of a total sale of nearly 9,000
machines, by 50 dealers, trade-ins were taken on over ."JiOOO machines. Moreover, the bulk of the machines
on which there were no trade-ins were of relatively small size, such as knife grinders, walking plows, etc.
Eighty-two percent of tractor sales involve trade-ins of various kinds.
247149—41 — No. 1 12
3^52 CONCENTRATION OF ECONOMIC POWER
The second factor governing the character of the trade-in market
is the disposition of the used models turned in. This disposition, of
CQurse, depends to a considerable extent upon the condition of the
used equipment. Some of it is unfit for future use. Even in the
automobile industry some of the cars received from trade must be
junked, though the proportion is very low. (During 1937 less than
8 percent of all trade-ins were junked.)^^
In the electrical-appliance industries the ratio of junked equipment
is materially higher. A survey conducted during January 1938,
covering 820 independent dealers scattered throughout the Nation,
showed that about one-fourth of all used refrigerators taken in trade
was considered unfit for resale. In the case of washing machines the
percentage was even higher. According to the same survey, 41 per-
cent of used washers were jimked.^^ For vacuum cleaners the ratio
was also about 40 percent.
These relatively high ratios reveal, in part, the tendency of many
owners of electrical household appliances to postpone their replace-
ment until the equipment has bocoDie completely worn out. In
addition, dealers in these industries are possibly not as well equipped
to recondition used equipment as arc automobile dealers, who usually
maintain complete service stations in connection with their salesrooms.
Allowances granted on equipment whose destination is the junk
yard merely constitute price concessions, indicating a willingness on
the part of the retail dealer to forego part of his margin in order to
make the sale. To an extent the original equipment may be over-
priced in order to meet just this situation.
However, the majority of equipment accepted in trade is resold
either with or without reconditioning. In the case of refrigerators,
approximately 44 percent of total used equipment received is resold
"as is" while 32 percent is reconditioned. In the case of washing
machines 30 percent is sold as is and 29 percent reconditioned.^^
The amount which may be recovered by the dealer on resale of
second-hand equipment is affected by the manner in which it is recon-
ditioned. This resale price, together with the cost of reconditioning,
are in turn important elements in determining the trade-in allowance
which may be extended.
Facilities for reconditioning equi'pment—the Crosley plan. — It has
been pointed out that many electrical-equipmeat dealers, in contrast
to automobile dealers, do not possess the service facilities needed for
efficient and economical reconditioning. Recently, however, several
efforts have been made to remedy this deficiency.
For example, an experimental policy was recently adopted by the
Crosley Co. This policy covers nine models, seven of 1937 and tv/o
of 1938. A list of national trade-in allowances has been established
for these nine models. Dealers receiving Crosley refrigerators on
trade-ins may have the units reconditioned in the service department
for two-thirds of the price registered in the standard trade-in schedule.
Refrigerators other than Crosley may be reconditioned by an organiza-
tion known as the General Refrigerator Sales & Service Co. for a flat
fee of $20, or may be sold to this organization for one-half of the
listed trade-in price. A 90-day warranty is offered with the rebuilt
'" Automobile Facts and Figures, 1938 edition, p. 67.
" Electrical Merchandising, The Appliance Dealer, 1938.
>8 Ibid.
CONCENTRATION OF ECONOMIC POWER 153
units, but only "reasonably operative" boxes will be accepted for
reconditioning. One-half of the pick-up cost of the old refrigerator
will be borne by the Crosley distributing company and the other by
the dealer. The national trade-in allowances as announced under the
plan range from approximately one-sixth to one-fourth of the list
price of the various models. ^^
The Philadelphia plan. — In Philadelphia an independent company
knouTi as the Associated Refrigerator Plant, Inc., has been organized.
This organization is equipped to recondition 300 used refrigerators a
week and is said to be the only plant in the United States offering
reconditioning service on such a scale. Under its agreement with
dealers, the plant will recondition all types of refrigerators in one-
door models up to 10 cubic feet at a flat price of $20. This fee includes
free service on the miits for a period of 90 days from the time they are
installed for new users. Where the dealer does not desire to have
the traded-in refrigerator reconditioned for resale, the company will
purchase the refrigerator from him for one-half the listed trade-in
price. In this way, the firni points out, dealers who trade for used
refrigerators may either have them reconditioned at a flat rate for
resale, or may dispose of them directly to the firm itself.
Reconditioning exchange system in vacuum cleaners. — Large vacuum
cleaner manufacturers have an interchange agreement on replaced
equipment. Instead of attempting to recondition machines of another
make, each manufacturer exchanges the trade-ins to the original man-
ufacturer where the reconditioning is done. In addition, there are
quite a number of small concerns loiown to the industry as "fly by
night" reconditioners. These companies purchase old cleaners at
very low prices, recondition them — often it is said inadequately — and
then resell them.
Summary. — Regardless of whether these specific efforts are successful,
they are significant of the growing concern of these industries with the
replacement market. They are also important as demonstrating the
probability that some steps can be taken to handle the trade-in prob-
lem more efl"ectively than has been the rule in the past.
Moreover, the very fact that the major fraction of the used equip-
ment received in trade can be resold with or without reconditioning is
evidence of the possibility of expanding the replacement market. It is
apparent that many owners of these kinds of equipment will not con-
tinue to use them until they are completely worn out before contem-
plating replacement. Obsolescence is a factor which must be con-
sidered.
Any program designed to expand the replacement market materially
must be basically concerned with the question of allowances. The less
expensive it becomes to exchange equipment for new models, the more
rapid will such turnover be, and the larger the potential scope of the
market. In turn, the used equipment which is received in trade can
be reconditioned and resold to families of lower-income brackets who
cannot afford to pay the prices demanded for new equipment. This
does not mean that there is any probability that the rate of replace-
ment for electrical household appliances can be made to approach that
of automobiles. Nevertheless, it does seem that it can be stimulated
materially beyond the present rate.
" Air Conditioning and Refrigeration News, October 20, 1838, vol. 25, No. 8.
J54 CONCENTRATION OF ECONOMIC POWER
CURRENT TRENDS IN THE ELECTRICAL-REFRIGERATOR INDUSTRY
During the early months of 1940 a major change in price structure
occurred in the electrical-refrigerator industry. In the second week
of January the Nash-Kelvinator Corporation presented its 1940 models
at prices which were substantially lower than its 1939 quotations. In
the announcement accompanying these reductions major prominence
was given to a 6-foot stripped model offered at a retail price of $119.95
delivered east of the Rocky Mountains. This was the lowest price
ever quoted for a comparable model by any leading manufacturer
utilizing the traditional wholesaler-retaUer system of distribution. It
was well below the $129-$ 134 level which the other leading companies
had earlier announced for competing lines. Moreover, the new price
was not far above that quoted by large mail-order companies for their
6-foot stripped models.
This action by the Nash-Kelvinator Corporation precipitated a
wave of similar reductions by its competitors. General Motors,
General Electric, and Westinghouse, among the larger companies,
all offered comparable 6-foot stripped models at a consumer's list price
of $114.75 delivered in the zone nearest their respective plants. In
each case this involved substantial reductions below the prices which
had been previously announced for 1940.
Companies which had been selling at levels below those of the
"Big Five" also lowered their prices. The Crosley Corporation re-
duced the price of its 6-foot stripped model and also cut the prices of
its other models. Sears, Roebuck offered its stripped 6-foot model
at $89.95 and reduced the price of its de luxe 6-foot model from $139.50
to $129.50. To meet these new reductions Nash-Kelvinator, in turn,
announced another 6-foot stripped model for $114.75. Some of the
other leading companies thereupon cut prices further to $112.75.
Other changes in price structure were made simultaneously. For
example, the Nash-Kelvinator Corporation discarded its former zone
system and is now selling refrigerators on a delivered basis anywhere
east of the Rocky Mountains. The Norge division of the Norge-
Warner Corporation is offering an all-porcelain refrigerator at $159.95,
a figure which is said to be considerably below that of any other all-
porcelain model. The Philco Corporation is presenting a 7-foot
refrigerator retailing at $119.95, instead of the usual 6-foot model.
In order to reduce costs to correspond with these new prices, econ-
omies were sought in both manufacturing and distribution. One
method utilized has been a reduction in the number of different sizes
of box produced. Thus, the Nash-Kelvinator Corporation has con-
centrated its 1940 production on 6- and 8-cubic-foot models, a policy
which, according to its officials, has resulted in important savings in
costs.
At the same time, this company eliminated many of its dealer out-
lets in an effort to cut the costs of distribution. Although dealers'
margins remained unchanged in terms of percentage, the lower price
level involved a corresponding reduction in the actual dollar margin
on each unit sold.
For most companies the widest price reductions have been for the
stripped 6-foot model (now generally retailing between $112.75 and
CONCENTRATION OF ECONOMIC POWER
155
$114.75). On other 5- and 6-foot models the reduction from the 1939
price is considerably narrower. This is indicated in table 20, which
compares 1939 and 1940 prices for a number of leading companies.
Table 20. — Retail published list prices of electrical refrigerators, 1939 and 1940
{delivered, Washington, D. C.)
NORGE
1939
1940
Model
Cubic
feet
Price
Model
Cubic
feet
Price
Q3 .,
3.25
4.22
5.19
5.25
5.07
6.11
6.11
6.18
6.07
8.25
8.08
$119.95
146. 95
172. 95
194. 95
219. 95
149. 95
189. 95
219.95
249. 95
259. 95
299.95
VR3S
3.25
3.33
4.22
6.62
6.62
$119 95
VR3
119 95
G4
VR4
144.95
G5
DR5
197 50
N5
SR5
219 95
S5
UR6
Sp c. 6...
159 95
Q6
MR6 .
6.75
6.65
6.65
8.75
8.75
189 95
M6-..
DR6
219. 96
S6
SR6
244.95
MS
DR8
249.95
S8
SR8-
279.95
WESTINQHOUSE
U3
2.90
3.25
4.25
6.25
6.25
5.25
6.25
8.25
13.50
20.10
5.25
6.25
8.25
13.50
20.10
6.20
22.70
24.80
39. 80
$119.50
119.50
146. 00
171.50
190.00
192. 50
217.00
254.00
419. 50
489. 50
213. 50
242.00
280.00
469. 50
549. 50
159. 50
440.00
695.00
785.00
U3
2.90
5.25
6.25
5.25
6.25
8.25
13.50
20.10
6.25
8.25
13.50
20.10
3.25
4.25
6.20
6.20
8.25
6.25
8.25
$119 76
H3
H5
H4
H5
169 75
H6
H6
179 76
A5
A5
189 75
A6
A6
204 75
AS.-.
A8
254 00
A135...
A135
419 50
A200
A200 . .
489 50
E5
E6 .. .
E6
234 50
E8
E8 ..
279 50
E135
E135
469 50
E200
E200
549.50
S3.
119. 75
S4
129.76
LS6
114 75
S6
S6 .
139 75
S8
179. 75
D6
224.75
WF25_.
D8
264.75
A2525R
A4025R.... ....
KELVINATOR
KS3...
KS4...
K4....
KS5...
K5....
PK5...
Spec. 6
KS6...
K6
PK6...
Kg
PK8...
3.25
$119. 50
4.20
144.60
4.20
159.50
5.30
169.50
5.20
187.50
5.20
209.50
6.20
149.50
6.20
187.50
6.20
212.50
6.20
237.60
8.24
254.50
8.24
282.50
SS6.
S6...
HS6.
R6..
HD6
S8-..
R8..
HD8
j56 CONCENTRATION OF ECONOMIC POWER
Table 20. — Retail published list prices of electrical refrigerators, 1939 and 1940
{delivered, Washington, D. C.) — Continued
FRIGIDAIRE
1939
1940
Model
Cubic
feet
Price
$119.50
139.50
159. 50
179. 50
159. 75
214. 50
149. 75
179. 75
204. 50
229.50
244.50
249. 50
274. 50
289.50
Model
Cubic
feet
Price
DAB
3.1
4.1
4.1
5.1
5.1
5.1
6.0
6.2
6.2
6.2
6.2
8.2
SV3
3.0
4.0
6.1
5.0
5.0
6.0
6.0
6.0
6.0
6.0
6.0
6.0
8.0
8.0
8.0
8.0
$119.50
DA4
SV4
119.50
Masters
Master 5
149. 50
Specials
Cold Wall Master 5
Cold Walls
169. 50
De Lux
174.50
SVS6
114.75
Super Value 6
Super Value 6
129.50
Special 6 . ._ .
Master 6
Master 6
159.50
De I,ux 6
189. 50
Cold Wall Master
184. 50
Cold Wall
Cold Wall
214.60
Cold Wall (porcelain)
Cold Wall (porcelain)..-
Super Value
Masters
Cold Wall ...
239. 50
Masters
169. 50
199. 50
Cold Wall
8.0
8.1
254.50
Cold Wall (porcelain)
Cold Wall (porcelain)..
279. 50
GENERAL ELECTRIC
JB3
3.2
4.0
5.0
6.0
6.0
6.0
8.25
5.0
6.1
8.24
6.1
$119.75
146. 50
175.00
192.00
191.00
218.00
260.00
217.00
238.00
283.00
1.'9. 90
JB4
4.0
5.0
6.0
3.0
5.0
6.0
8.25
5.0
6.1
8.24
12.0
16.0
6.0
3.0
6.0
8.0
JB4
$129. 75
JB5
JBS
169. 75
JB6
JB6
179. 75
B3
119.76
B5
B5
197. 75
B6
B6
B8
214. 75
B8.
259. 75
PB5
PBS
219. 50
PB6
PB6 .
239.50
PBS
PBS
279. 50
SP6
PB12
453.00
PB16
557. 00
LB6B
114.75
LB3
LB6
119.76
139. 75
LBS
179. 75
It is highly probable thai this reduction in prices contributed
materially to the sharp expansion in sales which was recorded during
the early months of 1940. Sales of electric refrigerators during the
first quarter of 1940 totaled 814,000 boxes, compared with 611,000
for the same period in 1939; an increase of 33 percent. According
to the New York Journal of Commerce of May 10, 1 940 —
While manufacturers' shipments of refrigerators are not holding at the high
level of the first quarter, sales to dealers for the first half of the year will show
about a 30-percent rise over last.
These figures seem to illustrate clearly the possibility of expanding
sales by reducing prices substantially. It is still too early, however,
to determine the extent to which these price reductions represent a
lasting change in industry policy, rather than a temporary price war.
One important question bearing upon the interpretation of sales
policy is the extent to which manufacturers and dealers actually try to
promote the sale of the stripped models upon which the major reduc-
CONCENTRATION OF ECONOMIC POWER
157
tions have been announced, or alternatively use them as leaders and
attempt to divert consumers to higher-priced models upon which the
reductions have been much less drastic. There is evidence that at
least some manufacturers are adopting the latter rather than the
former policy. For example, according to the New York Journal of
Commerce —
Favorable consumer response to the new low-priced "stripped refrigerators"
caused dealers to increase orders sharply. Major manufacturers are finding it
necessary to ration deliveries of these models, to discourage dealers from promoting
their sale at the expense of the regular, higher-price lines.^"
The Air Conditioning and Refrigeration News on March 20, 1940,
makes this significant comment:
An interesting phenomenon is the "inability" of manufacturers to make ship-
ments of the lowest-priced boxes. Hundreds of dealers are reporting to prospects
that they are temporarily "sold out" of the rock-bottom jobs. Shipments are
exceedingly slow in arriving from the factories. This fact forces them to "sell up"
to the higher-priced boxes.
The same trade publication on March 27, 1940, carried the following
advertisement by the Nash-Kelvinator Corporation addressed to its
dealers, in which the policy of selling higher-priced models wherever
possible was strongly advocated :
Yes; the evidence is pouring in — and it proves the soundness of Kelvinator's
1940 program. Look at the chart showing the percentage of Kelvinator's sales
by models and prices, and then compare these facts with your own sales. The
evidence shows clearly that Kelvinator dealers are selling higher-priced mer-
chandise.
Those who sell Kelvinator have more than a selling plan * * * they have
a working selling plan. And it is working because it was carefully planned months
ago with logical and easy-to-sell step-ups between models. There are low-priced
models for the vast low-income market * * * and beautiful, full-featured
models (including the new "Moist-Master" controlled humidity system) specifi-
cally designed to get the rapidly growing replacement business. Throughout
Kelvinator's line of sixes and eights the salesman can step up sales because plus
features in each step offer visible and provable added value to the customer.
79.8 percent of the Kelvinator' volume is in refrigerators with the greatest
margin, the greatest gross dollar sale. The average unit sales price is better
than $160.«
According to this advertisement, field reports received by the
company up to March 19 showed that actual sales of the various
models were in the following ratio :
Price
Model
Percent
Price
Model
Percent
$114.75
CSX-6
SS-6
S-6
HS-6
R-6
6.4
13.8
30.3
13.5
12.5
$179.95
S-8
HD-«
R-8
HD-8
7.3
$124.95
$209.95
8.1
$139.95.. .
$209.95..
4.1
$169.95.
$239.95
4.0
$179.95..
« New York Journal of Commerce, May 10, 1940.
<i Ad rertisements addressed by other manufacturers to their dealers are of the same general tenor. For
example —
"Dealers— this is the type of Norge that Mrs. America is buying, not a promotion model but a big
de luxe model that carries a big, full-sized profit— the kind of profit you need and must have to stay in busi-
ness.
• ••»••"
"Of course, Norge makes low-priced models, too, spectacular promotion models and full-profit volume
models, all useful in selling the whole market— and in helping you to 'sell up' into the big profit figures."
(Norge advertisement, Air Conditioning and Refrigeration News, April 10, p. 17.)
"Here's the best 'step up' of the industry; 18 models. $10 and $20 steps— each logical and easy to sell.
"Shelvadors sell at $99.95 to $249.95 with models designed for easy sales steps all the way up. You can
instantly fit any family need and pocketbook. There's no high jump into long profit models." (Crosley
advertisement, Air Conditioning and Refrigeration News, April 17, p. 3.)
25g CONCENTRATION OF ECONOMIC POWER
The relatively low proportion which sales of the stripped model bear
to total sales, according to this advertisement, is striking and suggests
that dealers are cooperating fully in this "step up" program. In fact,
one dealer reports proudly that he has not sold a single stripped model
a,ll season:
More refrigerator sales during the first 4 months of this year than in all of 1 939,
and not a "special" among them — that's the record of Roy L. Eidman, Kelvinator
dealer.
Mr. Eidman has one of the $114 models on his sales fioon — the same one he
"started the season with. But it's never been anywhere, because Mr. Eidman
and his four salesmen (two full-time, two part-time) have worked the "step-up"
plan with considerable pleasure — and profit.
Most of the company's 1940 sales have been in the $140 range, but a substantial
nimiber have been made above that class, Mr. Eidman said.
*******
Prospects can readily see the extra dollars' worth in the more expensive models,
he finds, and so the process of working them up from the leader models hasn't
been at all tough. In general, his sales method is to show the prospect the model
he comes in and asks about — and start the selling-up tactics from that point
(Air Conditioning and Refrigeration News, July 24, 1940, p. 2).
Another dealer in describing his efforts to avoid sales of the less
expensive refrigerators voices a somewhat different reaction:
Manufacturers may be hearing songs of praise in many quarters for dropping
refrigerator prices this year, but one dealership they'll never hear from in this vein
is General Radio & Electric, Westiughouse retailer, if Clifford Biggs, one of the
two owners of the place, has any say-so about it.
As far as he's concerned, about all the "specials" have accomplished is to make
higher-priced models harder to sell.
"They wouldn't have had to cut the prices this year to help my business," Mr.
Biggs said. "If people want good refrigeration, they're willing to pay for it.
We sold plenty of high-priced models when the mail-order houses were 'way under
us, and I believe we could have kept right on doing it.
"We'U work almost as hard trying not to sell a 'special' as we do in trying to sell
a de luxe model. There's no money in specials, so we've kept away from them.
Right now one of our best models is the $160 job" (Air Conditioning and Refrigera-
tion News, July 24, 1940, p. 2).
It seems obvious that the extent to which decreases in price will
result in savings to the consumer and in expansion of sales may be
largely determined by the popularity and acceptance of the "stripped"
leader. If, however, the bulk of the sales continue to go to other
models, the net savings to the consumer will be much more limited.
Phis may also mean that the stimulation of sales will be less substantial
and less lasting.
Nevertheless, it is evident that refrigerator manufacturers are in
the process of recasting their sales policies to meet changing conditions.
Problems such as the relative emphasis upon the stripped model,
important as they are, may well solve themselves if consumer demand
for these cheaper lines proves to be sufficiently insistent. The im-
portant point is that prices, which had been stable between 1932 and
1939, are again in the process of reduction, a trend which may well
result ultimately in a sustained higher level of sales.
THE ROLE OF GOVERNMENT
The solution of the market problems confronting these industries
is at present being evolved by the business concerns affected — either
gradually by day-to-day decisions or as a more conscious industry
CONCENTRATION OF ECONOMIC POWER l^Q
policy. Directly, Government has not taken any steps to influence
these decisions of business policy. In the present organization of
the industry it seems evident that little could be accomplished through
regulatory action. However, certain programs undertaken by
Government have had important effects upon these industries and
afford an illustration of the manner in which Government action
can influence industrial markets.
An important factor in the market for these products has been the
programs which are focused primarily on rendering electric power
more widely and cheaply available. The regional program of the
Tennessee Valley Authority and the work done by the Rural Electri-
fication Administration to encourage the extension of power lines into
rural areas are principal examples. By thus increasing the availability
of power, these activities have created new markets and increased the
number of potential users of electrical household equipment.
In addition, the Federal Government has acted directly to stimulate
the sales of certain kinds of equipment to families in low-income
groups. The Federal Housing Administration, for example, w^as
authorized from June 1934 to April 1937 to insure modernization loans
made by private lending institutions for the purpose of repairing,
modernizing, or improving homes and other properties. Through
May 1937, Federal Housing Administration had insured loans of
$2,000 and less for single and multiple family residences totaling
$392,000,000.^^ There is no information available to indicate what
proportion of such loans was for electrical household equipment.
However, repossessions were high and later regulations excluded
household equipment after April 1, 1936.
Another important step in the direction of market stimulation was
the creation of the Electric Farm and Home Authority, which was
organized to finance the retail purchase of electric household and farm
appliances of various kinds. The Authority originally confined its
activities to electric refrigerators, water heaters, and ranges; the list
has since been increased to 19 kinds of equipment.
In its activities the Authority functions in cooperation with retaU
dealers and privately and publicly owned utilities. Prospective pur-
chasers whose credit is found acceptable contract directly with the
dealer for the purchase of equipment. The latter, in turn, endorses
the contract of sale and receives the amount of the unpaid balance
from the Electric Farm and Home Authority. The purchaser pays
monthly installments to the utility which provides service, and these
payments are transferred to Electric Farm and Home Authority.
When the Authority was first established, 5 years ago, its activities
were confined to the States in the Tennessee Valley region. During
the past three and one-liplf years, however, the plan has been extended
to many other areas in a total of 33 States, where the rates for domestic
power consumption are considered to be sufficiently low to justify the
use of electrical appliances by families with restricted incomes.
Since the purpose of the Electric Farm and Home Authority was to
render the use of these labor saving devices available to low-income
groups, efforts were made to reduce the original price of appliances
eligible for financing. When the Authority started operations, it was
believed that much of the equipment on the market was too expensive
" Federal Housing Administration Annual Report for Year Ending December 31, 1937.
160
CONCENTRATION OF ECONOMIC POWER
for families which it was desired to benefit. Consequently, an effort
was made to induce manufacturers to offer a cheaper product. The
Authority drew up specifications for a 4-foot refrigerator designed to
retail at $79 to $89 in the Tennessee Valley area. Later a 2-cubic foot,
chest model refrigerator with a lift top was substituted to retail at
the same price. At first manufacturers cooperated, generally, in this
program of price reduction. However, manufacturing costs increased
in the latter part of 1934 and 1935, partly due to the influence of
N. R. A. code agreements. Since that period, the Authority has
made no direct attempt to influence the prices of equipment. Only
certain designated makes are eligible for financing, and in selecting
these makes the Authority considers "such factors as the financial
responsibility and reputation of the applicant^ quality and design of
equipment, and prices." *^
Through June 30, 1939, the Electric Home and Farm Authority
had accepted 151,000 financing contracts.
The Rural Electrification Administration, in addition to its primary
function of rendering electrical power available to the farm population,
also promotes the sale of electrical appliances by assisting in the
financing of water pumps and heaters.
The Rural Electrification Administration has conducted two surveys
designed to measure the extent of use of electrical appliances eligible
for Electric Home and Farm Authority or Rural Electrification
Administration financing in Rural Electrification Administration
territory. They indicate a very widespread immediate purchase of
certain equipment, such as electric irons and radios, followed closely
by washing machines, refrigerators, and toasters."
To a considerable extent the purchases reflected in these surveys
represent net additions to the electrical appliance markets which
might have been difficult to achieve without the aid of Government.
Ten leading
appliances in each of two studies
July 1938 survey (6.0 months' service experience)
January 1938 survey (8.4 months' service experience)
Item
Percent of
families
purchasing
Item
Percent of
families
purchasing
Hand iron
83
80
56
30
25
19
17
15
11
10
3
Radio
86
Radio
Hand iron -.
81
Wtishing machine ...
Washing machine .
47
Refrigerator
Refrigerator . . .
26
Toaster
24
Vacuum cleaner
Water pump
17
Water pump
Vacuum cleaner
16
Hot plate
12
Motor, up to 1 horsepower
Motor, up to 1 horsepower
9
Cream separator
Poultry lighting . ...
9
No appliances .^
3
Source: Rural Electrification News, January 1939.
" Electric Farm and Home Authority, Annual Report forthe Fiscal Year Ending June 30, 1938.
** Purchases of electrical appliances by families participating in Rural Electrification Administration
programs.
CONCENTRATION OF ECONOMIC POWER JgJ
CONCLUSIONS
It is clear that for some of these electrical-appliance industries at
least, the early period of easy and rapid growth has reached, or is about
to reach, an end. The sales policies which were well adapted to intro-
duce these commodities to the more prosperous sectors of the popula-
tion may be on the verge of outliving their usefulness. Certainly as
the market for original sales among this group of consumers dwindles,
it becomes imperative that these policies be seriously re-examined.
Certain governmental activities designed to stimulate sales among the
lower-income groups may confer limited benefits, but it seems clear
that the basic solution must come from the industries themselves.
Two major fields for future expansion have been suggested. The
first is the potential market among families who have not been able
to afford to purchase these products at their present levels of prices.
The second is the stimulation of the replacement market, by increasing
the incentive and reducing the cost of exchanging old equipment for
new.
In both of these fields price is of paramount concern. The question
has been raised as to whether it is feasible for these industries to re-
sume the policy of aggressive price reductions which characterized
their earlier history. It has been shown, for example, that during
recent years sales strategy has shifted from price appeal to nonprice
channels ; it has been suggested that this may have resulted in increas-
ing rather than reducing costs and prices. Is there any prospect of
reversing this trend? Is there any hope of expanding the market
sufficiently by further price reductions to achieve manufacturing
economies adequate to make the venture profitable?
Or has the limit of important technological advances been reached,
at least as far as manufacturing economy is concerned? Undoubtedly
these are questions with which the members of these industries are
seriously concerned. The recent experience of the refrigerator indus-
try suggests that there may be a very real possibility of reducing prices
sufficiently to tap new markets.
A basic problem is the cost of distribution. It has been shown that
this cost ^v. :u .(S for approximately one-half of tlio retail price. It
constitute^ an imposing obstacle both to price reductions for new
equipment .iii to attractive allowances for used equipment offered
in trade, '^hcre seems to be some evidence that thli jost can be
reduced through the use of mass-distribution me. hot i? Whether
similar economies can be achieved through ordinary Iistrii ative chan-
nels is an important question. Apparently some manii^ cturers fear
that reductioi. in distributive margins would result in tl 3 loss of cer-
tain retail out its. On the other hand, this might not necessarily be
equivalent to .. loss of sales. It is conceivable that a sTialler number
of outlets, operating at narrower mark-ups and consequently lower
prices, with a larger volume of sales through each outlr^t, might pro-
vide a more efficient and more economical method of disiibution than
the one at present in use.
162
CONCENTRATION OF ECONOMIC POWER
Finally, there are problems which the industries seem now to be
attacking, such as the disposition and reconditioning of used models
accepted in trade. Here there is little reason for doubting that im-
portant advances in technique will soon be achieved.
In short, the saturation of a substantial segment of the original
markets does not necessarily mark the end of the period of expansion
for these industries or for others in like position. It does, however,
make imperative a searching re-examination of sales policies generally
and of price policies in particular, and an appropriate revision of
these policies to cope with the changing character of the market.
The importance of the industries which have been described in the
foregoing pages does not lie primarily in their size nor even in the
relationship which they bear to other segments of the economy. It
consists rather in the fact that the problems with which they are
currently confronted typify a pattern of much more general application.
All industries producing consumers' durable goods must, at some
stage in their individual histories, face a transition from a market
composed largely of original sales to one in which replacements pre-
dominate. It may be noted in passing that the decline in the rate
of population growth, which has been stressed by witnesses before
the Temporary National Economic Committee,*^ aggravates the
change by narrowing the possibility of original sales to the successive
increments of population.
Such transitions in the character of the market are inevitable for
industries of this kind. The manner in which the firms involved
adjust their marketing techniques and price policies to changed con-
ditions will largely determine the subsequent growth of these indus-
tries and the opportunities which they will offer for employment and
investment.
Table
21.^ — List prices of ele
dric ref
rigerators 1938, principal companies '
Size, cubic
feet
Frigid-
aire
General
Elec-
tric
Westing-
house
Kelvin-
ator
Crosley
Leon-
ard
Norge
Stewart
Warner
Uni-
versal
Cooler
Cold-
spot
3.0 to 3.9:
Size
3.1
D3
$119.50
4.1
N4-3S
$144. 50
5.1
Sp. 5-38
$164. 50
6.1
Sp. 6-38
$184. 75
7.2
Sp. 7-38
$204. 75
8.25
M8-38
$264. 50
4
B^
$144. 50
5
JB-5
$164.95
6.1
JB-6
$184. 75
7.1
JB-7
$204. 75
8.1
B-8
$204.50
3.2
nDS-32
$119.50
4.2
HDS-J2
$144. 50
5.2
HS-52
$169. 50
6.2
HS-62
$189. 50
7.2
HS-72
$209. 50
3.16
K3-38
$118. 95
4.15
£4-38
$142. 95
5.16
KS5-38
$162. 95
6.13
KS6-38
$182. 95
7.19
KS7-38
$202.95
3.16
KB5-31
$117. 50
4.3
KB5-43
$142. 50
6.07
KB5-50
$162. 50
6.0
.KB5-«0
$182. 50
7.1
KB5-71
$202.00
3.14
L3-38
$118.95
4.1
L4-38
$142.95
5.12
LS5-38
$162.95
6.09
LS6-38
$182. 95
7.3
LS7-38
$202. 95
3.12
R32-8
$117.50
4.14
R41-8
$142. 50
5.15
S52-8
$162. 50
6.15
S62-8
$182. 50
7.14
S71-B
$202.50
8.11
R81-8
$259. 50
Model
Price
4.0 to 4.9:
Size
4.5
458
$144. 75
5.64
550
$164. 75
6.3
770
$179. 75
4.2
Model
3804
Price
$114.50
5.0 to 5.9:
Size
Model
Price
6.0 to 6.9:
Size
Model....
Price
7.0 to 7.9:
Size_
Model
Price
8.0 to 8.9:
Size
5.25
AD-538
$164. 95
6.51
AD-C5S
$184.95
7.45
AD-758
$204. 95
6.3
3816
$169. 50
8.6
Model
3838
Price
$179. 50
> Prices are on lowest price comparable model in each size group.
Source: Air Conditioning and Refrigeration News, Business News Publishing Co., Mar. 9, 1938.
« See Temporary National Economic Committee Hearings, Part 9, pp. 3504-350&
CONCENTRATION OF ECONOMIC POWER
Table 22. — Percent of concertration, 1937
163
Item
Production of
first four
companies
Percent
of
total
Total pro-
duction
Number
of com-
panies
ELECTKIC REFRIGERATORS, DOMESTIC
Capacity under 6 cubic feet:
Number . .
754, 130
$58, 464, 364
728, 660
$73, 739, 375
(■)
$2, 406, 123
717, 900
$28, 515, 327
(1)
$22, 986, 563
69
69
74
77
0)
77
49
53
(0
70
1,093,026
$84, 458, 077
991, 022
$95, 985, 895
(')
$3, 130, 046
1, 478, 480
$53, 759, 751
1, 190, 782
$33, 016, 817
Value---
21
Capacity 6 to under 10 cubic feet:
Number . - . -
Value .- -
25
Capacity 10 cubic feet and over (including those not re-
ported by size):
Number ^
Value
14
WASHING MACHINES, HOUSEHOLD USE aNCLUDING APART-
MENT SIZE)
Number - - .-
Value -
32
VACUUM CLEANERS, FLOOR
Number
Value
29
> Data not available.
Source: Bureau of the Census, Department of Commerce.
Table 23. — Cash value on trade-ins
[Cash value as percent of list price, delivered ']
Year
Electric refrigerators
Automobiles
7-foot >
6-foot 3
5-foot >
4-foot »
Coach <
Coach •
1933..- -
Percent
10.0
11.0
21.0
23.0
32.0
Percent
13.8
17.9
22.2
24.2
32.4
Percent
10.3
16.6
21.3
24.7
31.6
Percent
16.6
18.5
24.1
25.5
34.8
Percent
15.1
22.2
30.6
39.0
52.6
63.1
Percent
11 7
1934 ,
18 6
1935-.
29 3
1936
39 5
1937
49 8
1938
63.3
' Refrigerators: Manufacturers' suggested retail delivered price; northeast zone. Automobiles: E.sti-
mated delivered retail price, Washington, D. C.
' Company A.
' Company B.
< Company C,
• Company D.
Source (Refrigerators): The National Market Index, published by the National Refrigrator Index
Publishing Co., Inc. (Automobiles): Blue Book, Executives' Edition, published by the National Used
Car Market Report, Inc.
164
CONCENTRATION OF ECONOMIC POWER
Table 24. — Average expenditxires by families of employed wage earners and clerical
workers by economic level '
■5
Electric re-
Washing
Vacuum
Electric
stoves and
hot plates
S>.
frigerators
machines
cleaners
£g
i
.2
3
.2
^
.2
^
_»
5^
Economic level— family spending
fen,
B tD
•3°iL
B tB
'St.
B bc
"5?
§Sf
'3 1!.
per expenditure unit per year
S--
.■a
i§
a>?
•oS
n>>
•o'i
pi?
o 3
a^
a ^
g
o-B
o-a
Q.S
aa
X 3
<uX3
^
la
bo 2
OS O.
a Q.
sa
a o.
as
>
S
i-t
fe
>
S
u
U
S
>
8
>
■<
■<
P4
<
PM
<
Ph
<
(U
<
All families
3.32
$1, 538
6.0
$9.77
5.9
$3.70
4.6
$1.97
0.7
$0.38
Under $200 . ..
5.96
4.79
1,021
1,219
1.1
1.4
1.98
2.30
3.4
5.2
2.43
3.00
$200 and under $300
1.9
,91
.2
.04
$300 and under $400 --
3.84
1,352
2.9
4.90
6.3
3.74
2.5
1.03
.6
.24
$400 and under $500 --
3.30
2.94
1,487
1,606
6.0
6.9
9.31
11.34
6.6
6.0
4.11
3.81
4.5
60
2.02
2.63
.6
.6
.29
$500 and under $600
.40
$600 and under $700 _
2.62
1.694
8.6
13.69
,5.7
3.88
,5 3
2.12
1 ?.
.48
$700 and under $800
1.99
1,787
8.6
14.61
4.9
3.32
5.6
2.32
1.0
.51
$800 and under $900
2.27
2.20
1,868
1,984
11.1
11.7
19.95
17.65
5.2
6.8
3.04
5.31
8.5
3.7
3.88
1.21
1.8
.6
.77
$900 and under $1,000
.64
$1,000 and under $1,100
2.23
2,102
12.1
21.57
5.8
3.93
10.6
5.19
2.2
2.00
$1,100 and under $1,200...
2.17
2,255
12.1
20.42
7.8
4.97
9.1
6.02
.5
.51
$1,200 and over .. . .
1.94
2,395
12.9
20.13
3.9
2.67
15.1
6.62
3.1
2.39
' Economic level is determined by the amount spent per expenditure unit, a measure which takes into
account total family expenditure and family size and composition. An e.xplanation of the method of com-
puting this measure was given in the Monthly Labor Review for March 1936 (pp. 558-559).
2 Average for families in 42 large cities from unpublished data o' the Bureau of Labor Statistics based on
total number of families in group, not on families purchasing.
Source: Bureau of Labor Statistics "Study of Money Disbursements of Wage Earners and Clerical
Workers."
APPENDIX I '
MEASURES OF PRICE FLEXIBILITY
PURPOSE
In the course of the discussion of price flexibility contained in
chapter II of this report, reference was made to the various ways in
which price sensitivity may be measured. (See ch. II, pp. 27-31.)
A distinction was drawn at the outset between criteria designed to
measure the responsiveness of prices to the specific economic forces
affecting their markets, and criteria based solely upon the observed
behavior of prices. It was pointed out that, although criteria of the
former kind were in some ways more significant, practical considera-
tions made it necessary to use behavioristic measures at the present
time.
It is the purpose of this appendix to present data relating to the
flexibility of 784 ^ individual price series included in the Bureau of
Labor Statistics weighted wholesale price index, as measured by vari-
ous aspects of their behavior. A total of 14 different measures is
presented; 2 of these were prepared by the National Resources Com-
mittee, 1 1 were developed in the course of the present study, and 1 is
based upon an earlier analysis by this Bureau. All of these measures
were based upon the behavior of these price series subsequent to
January 1926.^
The criteria presented are designed to measure three general aspects
of price behavior: (1) The frequency of price change, (2) the ampli-
tude of cychcal price movement, (3) the timing of changes in price
trends.
Twelve of the criteria (A to L, inclusive) are based upon some one
of these aspects alone. The two remaining criteria (M and N) are
designed to measure the combined effect of frequency and amplitude
of change.
In computing these measures, 169 of the individual price series
reported by the Bureau were grouped into 50 composites in conformity
with procedure utilized by the National Resources Committee.* For
example, prices are published by the Bureau of Labor Statistics for
six different kinHs of wheat. These sLx series show closely parallel
movements and may therefore be satisfactorily represented by a single
composite series. The purpose of using composites was to avoid
' Appendix I was prepared by Saul Nelson and Walter G. Keim. Joseph W. Lethco assisted In pre-
paring the statistical data.
' During January 1938, the index was expanded to include 813 individual series, and during January 1940,
it was enlarged to 863 series, but data for the additional series are inadequate to permit their inclusion in
this analysis.
' This date marks the point at which the Bureau of Labor Statistics wholesale-price data were materially
revised and many new series added. Measures of price behavior prior to 1926 are included in The Behavior
of Prices, by Frederick C. Mills, National Bureau of Economic Research, 1927, and also in Prices In the
Trade Cycle, by Qerhardt Tintner, Vienna, 1935.
* The Structure of the American Economy, National Resources Committee, pt. I, June 1939, p. 186.
165
IQQ CONCENTRATION OF ECONOMIC POWER
imputing excessive weight to the items comprising them in the calcu-
lations and correlation charts. For example, the retention of 18
individual butter series, in place of a single composite, would m effect
give butter a weight 18 times greater than that for other products
which were represented by single series.
The criteria of flexibility for the composites were derived from the
criteria for their individual constituents. In the case of measures J,
K, and L, reflecting the timing of price change, the criterion for the
composite is the median of the measures for the series included. In
all other cases the arithmetic mean of the criteria for the individual
series was computed to obtain the corresponding measure of flexibility
for the composite. In this way the tendency of composites to yield
misleading measures (e. g., composites generally show a greater fre-
quency of change than any of their components) was avoided.
These measures are presented with full awareness that there are
inherent inaccuracies in the basic data for this purpose. It has been
pointed out repeatedly that the Bureau of Labor Statistics wholesale-
price indexes are not ideal for the measurement of price flexibility.
Thus, for some commodities, price changes take forms such as rebates,
concessions in terms of sale, or modifications of the nature of the
commodity which are not reflected in reported price data. Allowance
for some of these changes may later be made possible in the course of
the Bureau's program of revision and refinement of its price series.
Other difficulties, such as changes in the nature of the commodity,
may prove difficult or impossible to correct. Nevertheless, in view
of the current interest in the subject, it was considered desirable to
present these criteria of price flexibility on the basis of the price data
now available.
THE CRITERIA UTILIZED
A description of the specific criteria to be presented follows:
(1) Criteria based upon frequency of change. —
A. Number of monthly changes in price, 1926 to 1933. This cri-
terion was first presented by Gardiner C. Means in Industrial Prices
and Their Relative Inflexibility.'^ It has been somewhat amplified
and revised by the National Resources Committee and is inc' ided
in the recent report of the Committee, The Structure of the American
Economy.^
B. Number of montlily changes in price, January 1926 to April
1929. This criterion is designed to present a measure of frequency of
price change during a period of relatively full resource utilization.
(2) Measures based upon the amplitude of cyclical price change. — •
C. The amplitude of downswing during the 1929-33 recession, as
measured by the percentage of decline from January 1929 to Feb-
ruary 1933. The bulk of these data were presented in an earlier
publication of the Bureau of Labor Statistics.'^
D. This is a measure of the amplitude of cyclical upswing. It is
based upon the percentage of increase from the depression * low to
the 1937 peak, computed as a percentage of the former.
> S. Doc. n, 74th Cong., 1st sess.
• The Structure of the American'Economy, National Resources Committee, Juno 1939, pt. I, pp. 186-204.
' U. S. Department of Labor, Bureau of Labor Statistics, The Trends of Wholesale Prices, June 1929
to 1933 (mimeographed).
' For purpo.ses of convenience the term "depres.sion," if not otherwise modified, will be used to denote
the 1929-33 downswing.
CONCENTRATION OF ECONOMIC POWER lg7
The last two criteria described measured downswing and upswing
separately. The next three (E, F, and G) combine elements of up-
swing and downswing. Each of these three measures is based upon
a comparison of the depression low price with the average of the pre-
depression and post-depression peaks. One of the purposes of this
technique is to make some allowance for secular trends during the
period 1929-37. For example, the prices of such commodities as
rayon and electric refrigerators experienced a broad secular down-
trend during most of this period. Consequently, measures based ex-
clusively either upon the amplitude of downswing or upon the am-
plitude of upswing are misleading.
E. Criterion E was developed by the National Resources Committee
and is included in The Structure of the American Economy.'^ It is
based upon the difference in index points between the 1932 annual
price average and the mean of the 1929 and 1937 annual prices,
expressed on the basis of 1929 equals 100.
Criteria F and G may be distinguished from E in two respects.
In the first place they are based upon monthly rather than average
annual data. Consequently they reflect the extreme peaks and lows
somewhat better, but on the other hand they are influenced by seasonal
price movements. In the second place, the difference between the
depression low and the two peaks is expressed as a percentage of the,
average of the latter rather than on the basis of 1929 equals 100. It
is considered that this procedure is somewhat better adapted to
compensate for secular influences,
F. Criterion F is based upon the difference between thfe mean of the
monthly peaks during the years 1929 and 1937, and the low month of
the depression, expressed as a percentage of the former.
G. Criterion G is distinguished from F merely in that the post-
depression peak month was taken during the period between January
1936 and March 1937, inclusive, instead of during the calendar year
1937. This was designed to eliminate the influence of the sharp rises
in the prices of certain otherwise insensitive commodities which took
place during the latter part of 1937, well after the general down trend
was under way.
Criteria H and I are similar to the two just described, in that they
measure the relation of the depression low to the predepression and
postdepression peaks. They represent two alternative devices for
minimizing seasonal influences.
H. This criterion is based upon the percentage of decrease between
the average of the 1929 and 1937 annual prices and the 1932 annual
average price, expressed as a percentage of the former. This use' of
annual averages eliminates seasonal influences. This criterion is
similar to the National Resources criterion E, except that the decline
is expressed as a percentage, rather than in index points.
I. Measure I is based on the percentage decline between the average
of the February 1929 and February 1937 prices, and the February
1 933 price, computed as a percentage of the former. The use of the
the same mr th in each year should largely eliminate seasonal varia-
tion. The month of February was selected because prices during
February 1933 were close to the depression lows and prices during
February 1937 generally approximated the recovery highs.
• Op. cU, loc. cit.
24 7149 — 41— No. 1 1.3
168 CONCENTRATION OF ECONOMIC POWER
(3) Measures based upon timing of price change. — J. This criterion
is the month during which the predepression peak was reached, based
upon the period January 1929 to December 1931, For most com-
modities, of couise, the peak month occurred during 1929, but in some
cases the downtrend started much later. Some commodities showed
no decline at all during this period.
K. Measure K is the month durLug which the depression low was
reached. The period included is from January 1932 to December
1934.
L. Criterion L consists of the month during which the postdepres-
sion peak was reached, preceding the 1937-38 downswing. Data are
based upon the period January 1936 to December 1938.
(4) Measures combining frequency and amplitude. — Criteria M and
N are designed to yield measures reflecting both frequency and ampli-
tude of change during a period of relatively full resource utilization.
Price behavior was observed during the period between January 1926
and AprU 1929, inclusive. For each price series, the aggregate change
in price during this period, regardless of sign, was totaled.
M. Criterion M is obtained by dividing the aggregate change in
price during the period January 1926 to April 1929 (computed as
explained above) by the actual number of price changes displayed
during that period. This yields a measure of the average number of
points by which each price index changes when it does change; i. e.,
of change per change.
N. From the aggregate change in price during the period January
1926 to April 1929 was subtracted the net change in price between
the beginning and end of this period. This procedure was designed
to yield a measure of the total amount of price movement which did
not result in an ultimate net change in price. It may be considered
to constitute a rough approximation of the total casual and seasonal
variation experienced by each series during this period.
PRESENTATION OF THE DATA
Tables 25 and 26 present the flexibility of each of the individual
price series and composites as measured by each of these criteria.
In table I the actual measures themselves are shown. It will be
noted that measures are omitted for some of the series for some of
the criteria. The character of the data made this necessary. In
some cases the available data did not cover a sufficient period of time
to permit the computation of certain measures. For other items
criteria A and E were not available in the tabulation of the National
Resources Committee. Moreover a considerable number of com-
modities showed no change whatever between January 1926 and
April 1929. For these commodities criterion M — average change per
change — could obviously not be computed.
For the purposes of table 26 the series were ranked in ten groups,
or "deciles," on the basis of each of these criteria. Group I included
those commodities which displayed least flexibihty as judged by the
measure in question, and group X included those commodities which
displayed most flexibility. As far as possible, an attempt was made
to include the same number of commodities in each group, but the
character of the data precluded uniformity in the process. In two
CONCENTRATION OF ECONOMIC POWER 169
cases deciles had to be combined.^" Table 26 presents the results of
this method of ranking; it shows the decile into which each series
falls as judged by each of the measures used.
RELATIONSHIPS BETWEEN THE MEASURES PRESENTED
Since these criteria measure different aspects of price behavior, it
is to be expected that the relative degree of flexibility exhibited by
specific commodity prices will vary with the measure used. On the
other hand, it was poLuted out in chapter II (pp. 31-32) that under-
lying differences in market patterns lead to the existence of certain
broad relationships between different phases of behavior; as for
example between frequency of change and ampUtude of cyclical
movement.
In order to facihtate comparison between the various measures
compiled, a series of 18 tables (tables 27 to 44 inclusive) has been
prepared." Each of these tables compares the decUe ranking of all
the items for which data are available for two measures of flexibility.
For example, table 27 compares the percentage of decline from June
1929 to February 1933 (criterion C) with the percentage of rise from
the depression low to the peak of 1927 (criterion D). Thus this
table shows that, for the 65 items ranked as most insensitive under
measure C, data were also available under measure. D; that 31 of
these 65 items were also in the most inflexible group under the latter
measure, 16 in the next most rigid group (group II) five in group
III, five in group IV, etc. Similarly 42 of the items which were
classed as most flexible under criterion C were also in the most flexible
group under criterion D.
These tables are presented in the following order:
Table 27 compares depression decline (1929-33) with recovery
(1933-37).
Table 28 compares the timing of the depression downturn (1929-31)
with that of the initial recovery (1932-34),
Table 29 compares the timing of the depression downturn (1929-31)
with that of the 1936-38 recession.
Table 30 compares the timing of the initial recovery with that of
the 1936-38 recession.
Tables 31 to 34, inclusive, compare frequency of change with amp-
litude of cyclical movement.
Tables 35, 36, and 37 compare frequency of change with timing of
movement.
Tables 38 and 39 compare amplitude of cyclical movement ■v^th
timing of movement.
Tables 40, 41, and 42 compare average change per change with
frequency, amplitude of cycHcal movement, and timing of movement,
respectively.
Table 43 compares frequency of change with aggregate change less
net change.
10 This occurred for Criteria L and N. Measure L relates to the peak month before ■downturn daring
the period January 1936 to December 1938. For 158 series, or more than two-tenths of the total, there was
no downturn through December 1938; hence groups I and' II were combined. Measure N relates to ag-
gregate change less net change for the period January 1926 to April 1929. For 198 items, or about three-tenths
of the total, this criterion was 0.0; hence groups I, II, and III had to be combined.
" These 18 tables present what appear to be the more significant relationships betwec these measures.
In addition 13 other tables of the same kind (Nos. 46 to 58 mclusive) have been prepared end are appended
for the convenience of those who may be interested in such comparisons.
lyO CONCENTRATION OF ECONOMIC POWER
Table 44 compares amplitude of movement with aggregate change
less net change.
The relationships depicted by these tables are summarized in table
45. This table shows the extent to which decile ranking varies for
each pair of criteria. For example, criteria C and D are compared in
the first line of this table. Twenty-nine percent of all the items in-
cluded fall into the same rank for both of these measures; 63 percent
show a difference of one rank or less; 81 percent show a difference of
two ranks or less; 89 percent show a difference not exceeding three
ranks; none show a difference of nine ranks. (Relationships involving
criteria L and N were omitted from this table because the grouping
of deciles prevented the use of this technique.) Obviously a high
degree of uniformiiy between the ranking for any pair of criteria
imphes a close relationship between the two aspects of flexibility meas-
ured. The relationship to be anticipated on the basis of purely chance
distribution is also shown.
The significance of these comparisons is summarized below:
Depression decline compared with extent oj recovery. — There is appar-
ently a marked relationship between the extent of decline between
1929-33 and the percentage of recovery from 1933 to 1937. The per-
centage of items falling into the same rank under both criteria is
almost three times as great as chance expectation.
Relationships between various aspects oj timing. — There was some
tendency for prices which declined early in 1929-31 to recover early
during 1932-34. Approximately the same degree of relationship exists
between the timing of the depression low (1932-34) and the recovery
high (1936-38) and also between the timing of the 1929-31 peak and
the recovery peak. However, these correlations are not very close.
Only 16 percent of the items fall into the same rank for criteria J and
K as compared with chance expectation of 10 percent. Evidently the
order of price movement changes materially at successive turning
points.
Frequency oj change and amplitude oj cyclical movement. — It was
observed in the course of the general discussion of price flexibility (ch.
II, pp. 31-32) that prices which change frequently show a marked ten-
dency to move widely in response to the broad upswings and down-
swings of general business activity. Tables 31 to 34 present four
aspects of this relationship. The closest correspondence is evidently
between criteria A and F. Presumably this is due to the fact that
both of these measures are affected by seasonal movements. In cri-
teria H and I the effect of seasonal forces is largely eliminated; the
former is based upon annual price averages and in the latter the same
month of each year is used. Table 45 shows that the pattern of rela-
tionships between frequency of change and each of these two measures
is very similar but is not as close as that existing without seasonal
correction. The comparison between criteria B and I shows that the
relationship between frequency and amplitude of movement is of about
the same order whether frequency be based upon a period of relatively
full resource utilization (measure B), or upon a longer period including
a major downswing (measure A).
The Pearson ian coefficients of correlation for these comparisons
have also been compu<^ed on the basis of unranked data. These are:
Correlation between A and F +0.83 (standard error is 0.013).
Correlation between A and H -+-0.74 (standard error is 0.018).
Correlation between A and I +0.77 (standard error is 0.01 3).
CONCENTRATION OF ECONOMIC POWER 171
The correlation between frequency of change and the National
Resources Committee measure of depression sensitivity (criteria A
and E) is somewhat lower; the coefficient is +0.70. The difference
in principle between the National Resources Committee criterion E
and criterion H has been pointed out above (p. 167) and may explain
the reason for this variation.
Frequency and timing. — Tables 35 to 37 show a distinct relation-
ship between frequency and the timing of change. Table 45 indicates
that this relationship is of approximately the same order as that
between frequency and amplitude of cyclical movement. Thus for
criteria A and J (frequency of change and timing of the 1929-31
downturn), 24 percent of the items show no change in rank, while
for the comparison between frequency and timing of the depression
low (criteria A and K) 22 percent of the items are unchanged in rank.
The Pearsonian coefficient of correlation computed from the unranked
data is +0.59 for the comparison between A and J, and +0.49 for
the comparison between A and K. These coefficients are materially
lower than those relating to the comparisons between frequency and
amplitude of cychcal movement; however, this difference may be
partly due to the fact that the relationship between frequency and
timing seems to be curvilinear rather than linear in character.
Amplitude of cyclical movement and timing of change. — Timing of
change seems to be related to amplitude of cyclical movement in
approximately the same degree as it is to frequency of price change.
This is shown by the pattern of tables 38 to 40, inclusive, as well as
by the summary in table 45. The Pearsonian coefficient of correla-
tion between criteria I and J (cyclical flexibility and timing of 1929-31
downturn) is +0.58; that for the comparison between cychcal flexi-
bihty and the timing of the depression low is +0.54.
Change per change compared with frequency, cyclical flexibility, and
timing. — Tables 40 to 42 show that there is no apparent relationship
between the amount of change per change (measure M) and other
criteria of flexibility. This inference is borne out by table 45, which
shows that for these three comparisons involving criterion M the
distribution closely parallels chance expectation. Apparently, the
amount by which a price, changes when it does change is not an indi-
cator of other aspects of its behavior.
Aggregate change less net change. — Tables 43 and 44 show a high
degree of relationship between aggregate change less net change
(measure N) and both frequency and amplitude of cyclical movement.
Unfortunately so large a proportion of the total number of items
shows an aggregate change less net change of 0.0 that it is impossible
either to present a summary of these relationships in table 45 or to
compute a meaningful coefficient of correlation. Nevertheless, the
similarity of pattern shown by tables 43 and 44 make it probable that
this kind of measure, combining as it does elements of both frequency
and amplitude, may serve as a useful index of pric(; behavior.
172
CONCENTRATION OF ECONOMIC POWER
'«oe4'«-«i '0< a> '<< o> to 00 o acoO'<«-o«e4cO'«'«ooaoMoooaoo<oeoaoocic40
^ tp-^^?^^ eo »o »-* ro >d ci ^ AOodoo -^o6c4ioocc>c^ coc^ t^o»(^Me4 ^a»*c ^ACJo
•iSiNNrH « .^ c« e» S5 rt « ^ CO c» ■«' CO ■* lo CO c5 .-I N -nRr^t-i ■-loO've^n
^ ^t^Nooo r-i rH t>. I— ^ N t- (x>a>^aooot^ooc4t>0'4it.co>o>Hoaci t-aot>m<-<C4oo
IS ujiotocom o6>dcd'dad>o<s '^0(»c^'oc4Ti<oo^co^co^too>nrJmi--<<dcoe4oo
eT>^^^^^
t. tcr « t*
t^flCiDt*h>r«aot«QO-aoN.ot*-r-oo'iD<0<o
v^i^t^oS^CN^* cO^«s<^otf^«^«^<#K^'s)aNos^^^'i5N«ve^^ve5Nr2^'«Kofl^eV'Ors3>^«
^^^M v^^MvMvT*^ ^^ri vM vM y£4>^ vM -Tl ^C^ %£4 >M ■>^ n^ >M ^ sT* ^ Nf) ^ •^ >M o^ ^T* >^ >«4
Noo^t-.-<«"<'i~ ■>ii<e<5r-^eoTj<o»t»«o>eoeoot~«C'Oi-ioo'Ooo>et~eooo
t^Qoiioanr-^^ co'«od>oooQmT)!coe«it-:<-<>4^a>cj>o^aoQ'Hadi^o^
^3>oioSio^ to>S>0'*'<<>oeo^Hvt-i«u5e^r~u3t»ioirt3oot^«x5to
ooc»50>o«>e^o 03'HTi<iOT(it-eocOT»"0-^eoioeoo>oo>ot^o>oOi-icoN<0'-i
•o >Q '« CO <o >o CO "O CO CO ^ CO us e>» CO ^ CO CO 1-1 CO es to "J* o « CO o <o o^'*
t»o>-ioo«
coaid'Ji-i
lo vH -^ a» o) kc o
•O 0» >2 5^' 00 CO Q
CO CO CO t^ t^ CO ^
o^oc^oa»e*QO■-'eo©e^>oeoa»^"eoc^eo•o•-laoaoao■-"o>
oocJcQ'«>de<iaicooriaW'^cdo^r~^>aeoeorH<-'°coi^'^
t^co^^^*o^«cou^c0^r^rau^eooo<o^«vcocooooo^-t^t^
r~oot»t»ce
CO r^cot^r^c
o «o CO o N rt t- >o»^eoe<'<»<coeor-oooeoco«»oopcoo>t-
c5 1>^ d 00 1~ >o "i •-« CO cp 06 CO •"< t>i Q 'p 1^ ><» M eo-i-i «■ CO ^ ci
r^ CO b> S> lO t» CO CO CO 9 1« CO U9 CO S <o t^ CO <o CO 00 00 r> t> t>
73
;3
e<OO>0rH
O 0> 0> O CO o •<«<
COOON
<ooooco«"eov^ococ«c«'"*oooocO'<<'«<oo^
«>ooo>oo>o>i~^i-4do>rH<>piio^cQcoco^>or^
C4 ^ rH 74 CO Ci '«■ i-l CO --I CO <o l» ^ CO S S ^^-^
cooo>o>o^
-H « t» ■♦ OS O t~
d go t; r^tr "5 «
»-<i-H«CO<
coco'4<>o>nacocoiococ^aor~>oc«o>coo><OrHO>ococ>ico
rf* S ^ ?j S2 3? g <* ffi >» SJ ?a t: t: w OS r)* t; ^ tC S SJS
^00 t^cot^ooooc»c>op<co*coa>'<<i^-<t»eo»o w« CJ05C
CO »0 O t* CO -^ OS
lO t^ CD CD CO >0 >0
C*CON^OaaWt^»0<DCDO»Ot^05003»OCN|WcDQOOOC«
S*uSir5ooosos«or>^b-i^»6cflt>oicc-HeoM3tDC^Q'Hi*^QO
»o»ocD»ocD^»o^eo«C'^»oNt^^t^»o»o^eooo»« w5
CO CO CO coco
Oft oa a» o) 00 oa oa o> Aa»t*o»cDasaba)cDoae^^'^^jgkOagco
CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO CO c~
*-H ^ COMC
5^00 OOC
3 wrtSse
ua lo to lo ko
O Ok Ott 0> Oft
SSc
lo lo-^^ iioeo *o»o --H CO ^oiocoeo •-* o»oeo»«co '^oO'^os
OS ^^03 iO>00OaO)O)0C'd^(NCO^^t>>CDwO&00O>O>Q>b*O)QO
s
n
•a.
59 a o oa >>r;
JmOOP5^
3 2 .:
o S
tt-a
a >
2 OS o
gJ
iS-oS-
■ ■ ^
.2 fen
S 03
00 -0
_2 S
^ M O 03
la-s
III
$ 03 C8
-",«'
i-t CO iQ t* oa ^ 5
CONCENTRATION OF ECONOMIC POWER
173
lOtOC^Tfiao wo C4 00 C4 ^OOOOO^ MO Til C4 O^ ^ 00 CO C4 oc^ioooe^oo^o^oo
coSicjeo me!! to -h ooogiogco ^^^ o -^ »-< o» ■* « o> ob o> •«< <o ro ■-" "-"O co oo "S N
•<«1 CO 1-J -H CO
^_^0 »-i Ob ^ ^^(D ^^0» O -^ M W •* C^ -^ M O »0
o^'^.-Jci'^cDcocd'^cocooii-Iec^iococSt^
C« (D OO o t^
t^ .-K fJS ^\ C^ *^ -^ C4^ r^ C^ i>^ vi^ M3V rN ■0' > t0^ M N oCTs 0^
r^o(r-k$^«vc(rv>5^|5^e$^eKwso!N^^ ^t^^r-k«-Ka^«s
^^
S^H^
*Ss e<3^ «^»^ cV- ris d^ w^ 5^ ^ -Js e^N e5^ c^
2;s
9 a o o) 01
r^cOC400& CO -^ CO »-< t^ CO OS OS t>" 00 «D (O CD i-H «0 <-l O 00 N 00 CO ^ •-* O 'H lO WS C^ »0 00 1^ I t^»OCOCl rH^ CO
^-Hid'^'eo u?Ti<-*cDrtidcsoc«'«r>ooQa6'oa6co-HO>t5 >or»ocoo-<eooscDodt-^^ icDt>^cOTi<od«og;
iCOseC*00 to O l^ C^ t^ C*l »-» OS t* CD i-< 00 CD CD CO ^H r» ^ CO »-ICOOOBCONt*CD W •-•'^^ ^^^ >O^hO00»-<
coos-^ooi-H ■oc-J'*o-<eoe»<3-H'>ri'^"QOso6osoc--oso6 rtio'ast-^oiaJ^^Of'C^^'odeooqes 'csijcj
■3< CO •-< ?!> T)< leoco^ j.Jl'* J5m ■*^tDeoco3>-icort NMeSc<N«-**i-i-*io 4. i-<c5co cow
^OSNCOO 10 Tt< ■* OS OS to t- OS N ■"! -- "5 O t^ O -H O ■»!" »-" >»" CD CD O CO ■* CO >-l N ■-< N 0> "O "O O * OS >0 00 N
S'coxjcoo cJTiicDTii ■<N'fl>'e3Tt<Ti<Qoci-H-«ii-iaoc^'coo NC^ujidodoocoeacpgJgC'H^goeooda'oeo
uSM-S-fiS comco^ rt loSco -Hi3>ooO'*oo3— lioio co co eo •* co « is co N co co 9 •>»< « Si -« »-i M ■»■<»•
00>C-^CDO C0>0^ t^OSOt^OSC900*-)CI ^^ b- F-iCOOO O ^ lO O CD r« t« 00 Ob C^ C^ CO CO lO lO CO CO OS 00 t> kO
S"eocd>oo "dcocouj 'n-ifcit^>oa6cie^-«cideiuit^ c<i'«i'rtirfooQ<oqoceeooO"-H'icoodo'oO's'2?2
S5i-H-5"S5 eScoeort iiiSSco K <c oo ■* oo t- —i "5 •" co co ■^i ■«< S ^ C 55 m co 3 ■>«> ■» M co ■>»< i-i i>» ■<" •*
t-tr-OOi-^O CSW OCOOO •-< COCOOS CDt^cD coo CDOOOO W CO ■<*• COOO t^CDOCSCOCDW^OCONOf-lCDCl 00
^cO"-<c<co I C0CO.-1 I I ifrtcs CO CO t~ "«< t» lo --I CO ■-< « N c5 « Pi c5 CO CO coco | ^nm eo--"
ooosooso o c< c^ "o t* o ^ o CO 00 »-< •-< CD *o CO i-^ t^ t^ »-< 00 1^ c< 00 00 ^H ^ -^ O'^ c* oco cow ooco w oot"
S* ^ h^ C4 c5 I^O OO *^ W CO O 00 00 COb* OS to OS 00 CO O O lO t^ CO OS 00 "^ •-^ OS f* 00 CO OS c4 CO ^H ci CO *# « rH
5 S© SuSaSsS ScoS-gi SJoSojioSc^SHp. •* co 35 5* iS lo o oo m o> os co oo co >o to ci eo ^ eo
t^f^t^OS« « -^CS OSCDOO COOOCO t^O« ^ W CO'^'^O ^ooot^otoo ^o*t* Wt^OOOSOOtO ^OSO
g"ioeo»-^Q eoo6>oo6ei t^e-Jc^'cocicocoodcd^cooscD Os'ooo^j^oodas'oQQ'cjjgeoosjjar-jfflooo
lOOS
«CO
OSPJ
:SS
o»oacogQu3 oo»o^eooosoco»-«oioogot^ooMi-HN
COCOMCi ^ ^
CCCO CCC4
McO'<i<03'^o>eo»oeoect*OiOOeO'^oo5^-oooo
ss^ss
CO O CO CO cc
goeo^ootjooc
Tj^-^QCCDN ■^t^cD»C«Oi-<W5'^^»-H»ONiOC*«»OQOOOC^
OiOiCOCO^ ^H^H^i
03 1— ( 1— ( OS 03 03 CO CO 00 •-< 00 t*
SiSSS
iio^Ar-a:C4C^Q^iO)-icoio<ou3
SSSi
•oC4ooaocoooasaoioc^C4>ocoiO'«<eo
ss
■OHiSfe
a,->^ a> a a ^
"oja o > o
EJ«QOWPh
Q
-^-J'^- 1' a)
^Js ^ fc -1 a 3 «
aooZZro So fc
gPQP5pqBPQUOO
o
03 V
■^11
fell's "3"
j^ j^ t." I-"-- 3
o "
a> S bo p. Q.X3
o;g g o! 08 o
S p "SScd — '^'O'O
O O |i4 -^^ "* H^ CO 03 03
« 3 a « 8 «•§ a
'O'CaoJeOoP.O.m"-
o§p'0'0'0'a'0-9§
o 3 0-2 .2.2^.2 " a
o3o8cO>-<>-'^^iM03a3
II ii^ss S8ss$s;ssss||ss22^22 Ss^lS^BSSBiSsssissss
174
CONCENTRATION OF ECONOMIC POWER
^US'^tOOO'^'^'^dM'^OO
•<< N « ■tfKO O <D © 00 <0 -O" •«)< O to •* O N W O
0> W -^ 'H t^ S ^ O OOT^ "5 ^ »-• rH 00 P3 ^ ^ to t^ y ^H «a« 00 00 ^ C^ CO to i-H »-t »
1-1 rH N CO —I i-l •-! -H ■-( N W ■-> i-l •-' ■-' .-l«l-l 11 eS
tO«'000-<|<'<'-<l<0-HOQCt-M
ujiotoo6uj-^-^coc«9c&t^^'^
I CO 1-1 ^ oi 00 CO C* -< 0> CO ■* to 00 N O 0> >0 00 O N ^^to
■ C/.5^e<s wco cit-<tDe>ac<5odi-<tO'<i<t^c4od^^t»teeoe>i wci
(DCSOC^(3i'-*C0O«0C000*00> CSt^r.00WC0»O'^»0Ol^N'^09C000*OC000»0?et^^*0»0eO
Tf«C0C*3:^*OcO»O'^'^»O»OC0CO Ti-t CI»-HCOC0»OMCSC4W»OC0CQi-t»0 ■<ir»0'^lO COi-l
t^ ^ kO t^ r«l to 00 t^ 1^ CO 04 00 t^ r-^ »-i fsl tO •rf O "^ t^ 00 •H ^ O P< 1^ <0 t*» ^ »0 CO h^ c4 00 CO O CO
»0 0> 0> C» »0 >C •»** CO U3 t- »0 00 00 W -^ O <-« t^ «5 CD -^ r^ CD CO ^ CO 00 CJ OiCD^ |CO«-Hb-CO
^^ ^ ^ CO CO •-< i-( N -H I .1 CO 1-i W T-ir-i I
l^-^ 000000*0 Wt^»M»-(0 i0<0r*0000t*McDOWC000C0>0rHC0>0t*05»0»-iC<C0C0'«t*^
o><-J»dcot^o6^^^cou3^cDC^i ^^•^r^^-^^o»Oit^o^*'-*c^^^*'^ooi^o^»oQcoo»-^'^^•^
is *0 ■* -^ lO 25 CO »0 »0 CO »C ■* »0 ^^-^ ^ CO -^ »0 »0 Jo -^ -^ •«* U5 CO CO CO CO 1-t CD iO uS 00 i-l-^W
»OO000CC00S0C0Sb-0»0&CD0a
COCOCOCOCOCOCOCOCOCQCOCOCO
^ooo*oo>oo-^oco»-tt--b-'^'*Noowo»«DOs-^t*oao
€0 COCOCO.-<C*C<ClCS«»-t CO— ("tCO CO CO
)^^'«t*c»r^Q»OQco»o»oeo
>t>>O^Odt^C090>^030%000>
C*0'^»oa>'<*''^t^ooocDQQO'^cot*-^t^O'^c«'<*<'^r-t^w
r-t 0» Oa 0> QO CO *0 *C CD iO »0 -^ 1-H OS •-« ■* t^ CS OS ^H ^ fi 0»
JMJ«i
10:2;
■otT
j^'-gja-S-e
si .£3
s
■2«
Q uco-^iotot^aoasQi-iesco ^>Q<Ot«oca>Oi-ic^ra^>5tor^oQS
9 1-1 ^ ^'^^ ^ 9 -^ 35tou5u5 «&i6ti5«OkCto^co to toto^d toS to
o>Oi-<e^co«<<>ocot^ooa>
CONCENTRATION OF ECONOMIC POWER
175
<&co^coooooo^oooo
0» ■* «o ■* 00 to o CO t~ o i)<t^O<CO^
coao>-> NMM
CO CO «o »-* ec r* 00 <D 00 N cowst^csoous
r^ 00 -^ CO id ci M d c^ -^ oJo6odcoo6»d
»5s -3k e^ ^ w^. -3s. ^>. ^ cflS c
t^f^pJv^v^St>^|2^vX.i^v4s O9S0S JK^^c^^.
OS flO^ tjv ijv |Js ^v ^s ^X Cf^ ds
s «s tOx ^ t§^ ^^ eSs «
S? ^i? ^5? "^ ^' "^ "^ ^^ "^ '^^ '<'' ^^ *<* ^ S9 ^^
;s:R^jj°ssi;s$i:rs2
S^^J:?:^
00t»»H00»<t»>OO>00'«<
c!lt~'»SO«OW>J<<050M
ooooM05«<5oo>-ie<«
ect*^b»tDb»^l>-cpc4
Ni^-oo'oeo.-iM-Hwo
MC4coa>e<iooaooaoo
06Q0»OidO00C0t^w5Q
3>oo>oeoi-it^iomo>o»
^Qt^«C'O&»OO5cp00«-t
w CO -^-vioto rococo
<«• >o 00 m o 00 o> c^ C4 C4 OTi<o»OP»t~
^ooo6o6«d>dT)<T(N5D od<3>«>:a>.-<<d
W N ^ i-i ^H .-( M CS »-l N CC CD to -Tf< CO t^
w»o«ooi-*cs^eoooo
'*eo'^»c-HMC^r-Ncoco
c^ a» 'tf* ccrec o ^ -^ *-t 00 <Okcodto<oC4
e0t-MtD00Ot~i-110t0
si
"5 *^ **? C5 oi ^* ^^ ■^ c^ C3 wS CO »-I oc ^ o>
WuS-^tOt^C^fHOOi^O
•^oiotd'O'OOJoccco
^m>5>o<-iccc^c4meQ
O >0 b- CD "tf" rt o» ^- «n >-l eO-fCIONO
00 -^ <d fj •'5 ■-" 00 CD CO 50 r^oo^-ioocDO
tOO»-i05t^C^»-i^O'tf'
'*'*ioiOi-icoWNcoeo
•owo^eoto wo-*o totD>Qt-a>o
K i-l in e*! i-H c< ei .-. « ©COCOtCiOI^
oo^^oo^co^oooo>o
C^C<ltD»Ot^tdo»OCO'^
eocicoeo .ifrJiN
IOCS
S7
00 o> 00 00 a> CO C4 m r- CO >oco>oooc^
•6 .-< CJ 00 i-< 00 Q i-i 0» lO --QCOQt^^t-
■* W CO CO CO CO io ^ »-« W O CO ^ OQ N
00 ^ ^ O 05 t* ""S* ^ t^ ^
i^t>^<dcoocDcD3i;'a>cJ
C0'*000.-CC4COIN«OIO
0> Oiico
f-H O ^ 00 CO
CO ootos.
00 OS CO ■>*< © 00 .-I M N t~ eotDCit~t~oa
M .-I r-; <d CO ^ o ■* es ■* coor^wt-ied
eococort r-i9c<ii-ico r~ t>. CO "<< CO lo
t~e>iiocot^o>oeotoooo
C00CCCD'««O5^^»-^CDC^C^
'^^CO'^'O.— 'COCOf^COCO
00 00 00 t* t^
citde>i>o>rf
e<"-i^eo"5
+
OSOt^N-^OlOOQOOO^
CO CO CO C> CO fl-Cl i-H M
lO •* T)< <o U5 o» 00 CD t^ »0 OOOS'
e<i CO CO p» CO CO
C»COOOt.N©rH.-lCCiO
l«CON»-<»HCOr*CDiO»0
>a>c^ooioo>cor~coco
^ 0» C to i-i 5< ■^ -< CM ■* CC«OQt^V<
.-1 i-i 1-1 I-H N ■*je« i-( rH oooa*t^ooe
>o>>ot^^>oai'«<'«'
is^
si
not-
_ O ®
■Ji 03 >
aw O fl^ -^ ® L*
u. C u. -w^ r" ' —
5 — a* o -^
5PhmO
: 3 O
JO*
o o
, '.a , ■ CD
g-o g a fe« > «
^11^ « III §-&|fel^^-? -sill «
•O 05
5 ^
Sg
S >
. w ■
£2 : at
•852 S
O O p
.. §8«2«
Q ^ ^ <D O ID
ccE-i 3mSS^S fl
f-iNeo3|io 5
odqoooodSoooooooooo
o^eo or* o o o oe
176
CONCENTRATION OF ECONOMIC POWER
oot^ooeoooooooo
0000 'O0oo<o<oaoc«a»^<oo^o^ -^ t^'vaoc><C4
_ _ - --^ uj e^' e« >o «■ CO oi ci »-<■ t>: t-i ■* ei "(J t^ eo o
■-106 'oooo "oeowcc-^ oeoeoo mt~ lot^a
!»■.-<« 00 C^eov
O C CD OK t« f^ O
/06 CO ec 06 «d m ij*
m^e«5>o«DOicJ>d«>"«<««>de>5MC>eoTi<e<i
«N t c5sodKe^^dNeT^^e5s^«N ^»2s»3^
V^ ^ (^ tOs utv ^ esN <^ ^ cSn ^ i-f^ 40s t^ <r^ ov *^ vs ^
se^seK^Ksflffseo^t^^^
wvc*^ ^s ^Ms eo^r2\lvs^i^p5^ wN w^ «y^«^ c5sm^ w^ ^ «fs
e (x a> o o
^MNOffvciSsuy'flSscSswsodscS^^ns MSeJsuK
9oa>»oo»ooooiO)Oai»a>o>a»»
ujs ,j«v er»«s 0^ osN ^ i-K efls. er^ i^ ws iij^ ws CIS ^ -^ t^\ ^
«0 i»H I >0 O Oi O) CI t~ ■<»< 0> 00 O MtT^
N imosot-:odec.-<«'«5<D i^>o«
^ • CO CO C^ 09 C4 C4 CO CC CO lOCfllO
rH.-l<«< I d C<9 00 r~ >0 >a 03 to CO ^ to it^W'C
O <0 >-l 10 <0 O "5 '«". W "S" o t-
cocqT^cocoeoecMNTfieciN
050e<ic>t~cct~o»e<<ooo>oo«DOt^<o^co
05ec^*»Ci-*i-HCD'T^ca»ciN;odgDOi<dotN.*»0'1*
'»«>*i-<jieO'*-^coe'<>oeOTf^«ec'*«e<5ii<'*
CO CD "3 N OS o» •-I r- "5 o> t^ o co—ios
w r4 CO *-( o t*' 1-5 CO t-J r-i r^ t^ i-ie^fH
■*N Tf coe^i<« Ncocoeo ■oco'O
«o>cD-*ot~o>t»c<it^i-icooo>oo^>oooe«
»-Jt^-<*5ioo6t^oi-^'c»oi'-5t-HOt^o6cpQCOQ
cD"<«u5T»iT»>'*T»'««OT)<cocoeo'«>>o«>ow>5
>ooooieo'*<o»>-cosoN
e-t I CO e4 ■»!< -H «■ t-: CO «■ qi CD
^ CO cc ^
1 t»CO»H
«M N CD
eoioi-i
ric6ci
eoeo uscoio
^00COOSt^»D00»C^t^OSC0MfHO5^»CN00
T-Jod»o»dodt^'c»coeoos»-;w»-Io6odcDO'^Q
CO^iC^^-^Sl-^CltO^CDCOeO-^lOC^ICWtlO
OaCD ^ OW o
wi iQ o o c4 co' 00
■««<cq eococoeo
uici «-i Ob
N-U" cof5
100 00
OOOCOO'-HC^IOSTj^kOCDOOCDIOOOOOCDCOCD
co" 00 w -^ ts^ o c4 c<i t^ c4 eo' wi CO ^' CO 00 »c •-* t^;
■<»'re'«'eoeoeococ^-«"cOT(<Ti<e5eo'^'<co'Vco
ec ■* 00 1~ ■><< o t~ i-i eo^os
oeo'^"-<«0'OCJi-i<Jc> eiod
- -^ i-iT)<oo»>o ocoa>
> CO 00 i-l •«)< 00 «
corti-<ooscot~.co-!j><oooooooococ»eo'»'oo
op b" ?^_S; S S9 r* SS r* 3; S I"* S; S3 f^ S f"
5 -1 1^ r~^ob o M t- e
) ^ t~ Tt< e^ o o t-
os'oeoMt^coi-'ooocooooos ooiiot>-ocao>e^>ooast»oot~ocaoiciooc^i-iM'*'co
■*ideo^cDOsoiococ«t~;coododTi< e^'oT)!N's<ocdcDNOode<ir-;cD'*cdOi-<'«ft-;c6i-^>*
>0'>rt<CO'* f> 1-1 CO P5 CO CO « « CO CO lO N lO tO CO «3 ■* ■* 10 ■* ^i CO «0 •>«< >0 M5 CO ICl Kl ■^ ■'f "5 lO
^i-iioc<)0'-<odcococ><oeoia
"S<0'-ieoo»Oi'Qt~-oo»ioioeD>9<>-iooco
— -* coco <-io Wi-ieo
< O "-I CO o» OS "Q
03 ^ cocoes co*^0^* 'Oir^o»-t
goMcct^oii-iioooeocoiocooa'cot^ooo
t~ooc4co>-i>o--ioocooso»i-i-*<oc5iocoeB
^pqSStHEHfqSSo«CC)POCCESoSSop4^PHEraKSro£^E-i
cor~ooa>Q<-4C4co-«>o«Qt.coo>o ^oco'^iiQcot^coaso o-<t<>o«DE-ogo>ooio«or-oo
CONCENTRATION OF ECONOMIC POWER
177
00 w^ e» 0000 <c« i-iooO'*>o oo«do«o«d^oooo ^oo«oo« o «o f ■* ■* ^ <o «c oo <Ct»i «o
c^oob^ scO'-Joooicoor-^f^ot^'^ idpr^irioitDoociooS'Hmi-ito iot-^>rit~.'r."50C>«Crtoo«i-HOo6
mnein
Mi-JTiiweocsodcoJr^eiciwci
rtNifirtOst-eDe^Tfiooust-cit-.
t^ ciiM 00 i-i « n" 00 -^ i-i ei f-i ei fh
««Kt2^ffK^ oNocKt^3scK
^•^
r^q^ (^ dscKGN«T^d^cKCT^0ff^^U7^t3\CT^.C^^
^V^gS^^CK fiKc5^<iKi3^«Ke^^«$S^^fN
e¥v^^eT\ ^^^cV*^vs3^^^^t5CtSspKt>te*v tS\^c5^i5^^«5f^i5vo!K5v«N«N«Se^
^^ '^'>f] vCO >C0 >M ^«4 oM ^ oXO ^9 tXi^ vrt nM >fO
ccF-i»oeiGOo6Qt^o^*<p*oo>^
t«t^t0r*00CCCDC4C0C3>0'^O0b
odododo»r^b^ccoae>orHi-4QOO
C0C0C0*^C5NC0C0C0'V^^^»O
c4cpi^t><d'^»ociciHc5Nt^^C|
^s^^$
<0 ^^ CO ^^ rH ^H OA t^ h» ^H ^ ^ 05 O
eoN^ec-ii-icowcccc-^^-^
ooeD'*foot*Mt^eoo»ooo»ocoo»t^
NOONt^
g'daoei
e»5»o»o
^ec.-io»e<5<o«i«o>N>-i<oooo
QOUStHCOOOCOCOCC^DCOCJ^C^CO
5«o eoeo^
»e<5'<»'«-*-*-*x5lO
COOO-<r>OOOI^COOC<90QOOOOO>
M*oo>t>t>*dcD«^o^coo^ad^'^^
■»»< t» lO M « -^ w fS «D F-i eo>o>oc4
^ CC »H ^ 06
co-^xje^od
■9* CO^ CO ^
<C5 tsTic I id
rHmt^MtDc<5«oo«ooioe<i'o
idciOQOt~idc«oQQOe»5o5aSa-^id
-<t>coid
•flie«t»«o->»<«c«eo«D»ooooM
^ooNmcao<o<oa«ot^
S'^cd-^CJor^cDOidb^
e>5N-*»«i-ieceoeo«
•"I'OO
ooMtooooe^eooc^c^ooiaooio
o -H o '»< «D id .H c5 1-' 00 o5 SB id Q CJ
idoS^ujid
OOiOM 'W
OOM iCO
lOlOiOOOW«<<DOO>OOi-lODO>
apida^oidcDQ'-H^ai^Qo^id
BtaoSto^^ooor^oboooo
« •* o ■»• r- CO •* ■* "5 or~o»>-io
ssgs^sig^sii^s^jgss
1 T :j-4<c4a><0'-i lOTtit^o
o o CO t~ lo OS 00 i-i t^ t^ lo lo e> i-H o>-c* i oN"-"-^ <o-Hooe»^.-<r-
Q«ooiQ»eiooioioo»rH« ■>* 00 c>t-!2 ' a?eoo?25e'**£3'=2<5U
■Si ■♦ eo 3 CO M eo CO CO CO •«" -"il •* •* -w'toto iw^coeoto •<nai3co
" <0 00 O ^ -V MUX) <OOCO<-lMCDt-OOOr> lOOOO'^OXQiO'^M^OaO
CON CO
i-H w tt ^ ?^
CO CO CO fH 1— ( t-H CO
SSSS SS^S^j52^2?3SgSS SSSSS
t» 5(5 OS -.»< Ej CO N o 1-^M eo N CO lo Tji CO OS lo lo lo » >«• 12 o 00
•-i«4^<-i<^<-ii-ie4e4coco
>O>00i-lrti6r-4.H-"
9^-'
.13 o,3 S §1
a « >> l:^^
o a (s s c
-HO -a I
CO ® a> 10 ®
B S S a a 1
«> O O 4> O '
-II
■ © w ^
So a
a^aa
o o o o o
pp
d a co-s
c i- E l: o
a g s ©"o 05
■§9^=
-gife-sa
ce p,
o T a g fe g I
IDZ^ o g o
cs 03 ►- *; a
■3og,Sg
ego «-3-3 35 Sa a g fe-sl I g S S| I ai§as I
53"S[a. if
COCQCOl> O
® 03 .g .9
S f fe te
s *
RnoS
> — ««■«»• V *> uus o o» o "I ei CO ■»!< to <c t^ o £»
S in cJSS
Oi-iMCOiJ'iOtCh.OOOO 55
F^ "^ 00 00 00 00 cE 05 Oioa C5 m5 cs CO o «o or-<f-4^Mi-(t-t^H^H^^oocsc^c<iirp c«c5NcococococOcocoeoco«5;»-*
iS* (SNPJiSSSSrSciii^SoSS Jo to CO CO CO CO CO CO CO =! CO CO CO e4 co co co co co eo co eO co co co co cO co 2^
cic* Ci '"• f^ n coco CO
178
CONCENTRATION OF ECONOMIC POWER
882
Sco r^ oc eo CO c*3 f-H t*
< CO"-! ^ »-C 1-1
ooooooooooooooo
ervcK^ eK«seTv
«5^^s c*^-^»^-J^<fl^»^'^^^^^0^
0^'c5^df^CT^e5NeT-.oiJ^d^3Nc*^cf^Os ' d^cN
;ssi
3^. "^ »ff^ <^ NN o^v otN tdv «<J^ «Tv
'^ »C CO O CS CO OM t» lO O 00 O »0 CO ^ »o »o
^_L.io "^or-^ 00^ ci t> t>^ c^ ^ 00 *o t^ <d t^
CSC^t^ O0COt>. OOiO O-^O'^^OeOOiNCD
_t LI i-i^rH -^c^ ■^poioccMi-iM.-iec'^
■*** CO •O CO00»O o>co 00 o> ■^ C^ '«*"* o to t* «o
(05000 edep^' oJ ooc^oiwcs-'t'cdocSf-J
^ i-H i-hWN 25m ©lOt- « <C>C0 ^ COQO CO
CDCOO OOOC^ COC^ t^ to ^ « »0 CO O CD r^ -^
uiiood cdcdco o iQ oi CO OS CO N CO CO c5 Q c4
,-< ,-1 pHCIC4 tC C5 CO »0 h* CO CO CO ■^ CO 00 CO
OSOOO COCOCO « t-» CO N C^ W 00 »0 00 »0 C^l CO
co«o6 cit^co oflcs) c<io"^'-H'*<coooi^co
I I I rH .-( rH iO « *0 CO -^ CO W i-< W ^H CO CO
>-H -^ -* O ^ »0 0000 CD <-f OS t^ 00 -^ O *0 OS c^
odKo iot^t>i irf^l o»ooc^os^cicco6a
fh c^eoco h* »o CO o t* CO " CO ''t* CO 00 o
ciwoi oooeo co^ ot-oosooc^ ^ «r* -H
co*o^* oicocd tfJOi (^^^'«*<uDi-icOTj<ocd
.-I ^ r-l CO»-l CO CO r- -^ CO CO CO W t-- CO
+
.-ieooo^oooQoorooooo=t~P5N<o
t^cocDoo.-t'^oasTfco^^oot^oo
t^«-*0'^^'-<co»ccsooocjoe»ot-^
„^ -■ 4- — ' +
.-ia)oO'*o»a>Meot-.oot^c<Nto
00«0000NO(NC^'>»'tD»O0CO'*
5» 1-5 tp o <o <o o c5 o t-' 00 00 !-• lO o
<D'<i<o®t-^o6o>o6e4<»<diocioo
MO'* ffioor^ t-^5
st»o»i-<o>oer~oc
CO CO CO CO CO CO CO ^^ CO CO CO CO 00 CO CO
sss
OlM.-iOOr-(r-iC<00— lOrHOO
• OSO ^rH
S0»*t-"'1'C0CD03»O<
i-«>eo t»« So oo o» 00 o> ■* 00 i-H ■>!' !
NP5r-li-l'*C9Tl<IOi-l"i(<CONTl<00
•2 3
s 2 § 2 3
i?j " ' ^ Tj P^ (rt w
8^ £0(^ «".
S ai
o « «
T •< •"
.— —I a a
s gg
"o o o
3 a 3
O 03 o
O a>
«
03X3
Ic
0=:
03*0
00
S >S a"^
o a aaS
m- t? S O J m
|£'3 2^^|^&S
o<5
1 CO CO CO CO CO CO *
lA^tCtOO^tpCOCDC
cocO€oco»3eocococ
r-aoo»0'-Mco*io«eh~ooo>S'2
<o3ot~t-t-t-fct~t^t~F-t-a5op
CO 00 W CO CO CO 00 CO CO CO CO CO CO CO CO
CONCENTRATION OF ECONOMIC POWER
179
eoi-^oooooooooooooo oooe^'©ooQ-Ha;o.--<o6o«<dQ05«N'oooooo6o6e<ioodi^e4 *•-<
—1 >-l05«Dt~>0^^0 05CO® C<5t~N "OtO t^ « <0 O « lO ■^ "O i-H
- e<i ei c< i-i ^ rt' ^ N M c4 1^ pi ci <d ci CO vl^ w C- O^ c5od"-i«e4t>^c<i«ei
^**oJ^N^N^o^o^»3^ I Nvet^iff^dNeJ-o^*-^N^ off^eTv^^^x 1 WMri^irt^^v^lsioN(^^>i^s<^g(js^ (>ls 1 e^e^^s^^M^'-f^<^irt^^^iff^ttf^uy-(ffv
N^^ovAvax^^^-^NoaktCv^jfxcsN^^tff^oiv e«^^(ffscV-e*^^l've^e^t3vo>^rtxct^•J^•^rt^^^cK^vcJv-X^vtf^rt^c^e^^^^^^^^t^
tO\ cB** r^ ar^ M^ aS^ oK w^ ^ c5^ eV * a»N e^ ej^ (ff\ C3N
r^«-HeoccMcocOi-<ooi^*Of-fOscccoc<»
N OS OS <0 OS CO r-( C^ to i-H t>» rH ^ -^J* U5 iO 00 r-l 1^ W »-H CD OS O -^ OS O »0 00 OS O
»ftOW5MOC*3i-HC00S»OC^CCCDi-HQ»-H'H0d0S *i-Hldoso6«Q>^"CflCDcd-^I-^0
t~t-t^«ieccsioN>o";r^osooiooTi<
^coooscsc^os»dosc6ocdccb-^poci
■^ MlO<0-^C10-Ht^VTj"r»COOOi<5i-lC<l«IOO'ONW«Dt~..-lt^COi-l«OCO««
i-^ot^*^ 'ot^t-^csTj«iOf-4^t^fO-TjJr-^csi£i^ 'irsoso6oo'M"^ccosos"cdosf-^
«000»O^C^C0«D»-HM5M*Oi-HOSt^0000
0'0^'^t^C^rH»-H»-^<DCC<OC4<NcdW
CD l^ t^ -^ rH N t^ CC -"i* c^ c* r^ C<J OS M *o C^ »-4 t>. OS O M t^ OS W3 00 CD OS f-< c^ *o
^-"o•OT(ocil-H05cold^-;loO'^<lOc6T^■eooQOTM■^-;o^^<3it~;-He<3•-<os■os.-^^
>0 Tj" 00 OS —I 00 O "9< 00 h- CT M 1-" OS »
1-1 NrHOSN0>b-«0WC>NOS0SCJCOC0«O'^00O0bOCDt-00'-"t~CqiOb-t-00
0600606 ■|>^•4gBr^Jo6gocoOlOo6^^oso696e4c^■^^c>o6©o6N■T^<<^^TJIosa50^
Os-HCD-^0»OM I e^OS CO ^ 0*C OS "3
MCC(N —IN
) OCO CCC*5C
t~«'>j">*coor-oor~.ONocqt~oo
-HC*5QosO'^ost^oso6»-It^'^»oco«
■* 0S-^c0C<lc0»O00CDO*^CDC^t^C^NOO00»OC0W^00CqC^»O'^iOC0Nt^
i-<Oc6cp ■MOt^N»OCpi-<McdirfiCo6e<iTl5i-HOMOsOSC<5rH"irfM— ioOi-HOSO
•-H « ««<
•O i-H OS ■* "O OS "O — 1 CO CO CO O CO t- <N
00 b-Or^t^'^CSeOOOeOO^i-tOOsO^—'OOO'^cDiOCOOOSOO'^OOb-'^O
<OiO t^ «0 *<»* t* -^ -^ ^ »0 »0 O W T)< W iCtTi-hOO'^ owdoocooo
O0"*CC^ Ot^ 00O»OC< ■^ CO -^ o
+
CO rtO OOSOO — 1^5^> Ot^cD—icOOOr^ 00rt«lO>OO t-i(Nt~-^l
^^oos■^oc^t^55g5»ocococDaQcooo6'<J*coooJ^°oo5^;20Nl55gcg
-H N -H«N MN.
ic coco w co<
ooO'-'O^'-HNOcooO'-toooeo ooot^*^ooosTf*coo-^co^Hr^t^o-^NcoooooO'^"^'^cscDosooco
r-i—l-m .H
'SSS
iO'nin-^'^^>oo'onc*e^c*>a<o<o Nocoof5'fl<osooo3cDosoi5oocot~-t~>og»cos;or-it~t~cocoo5— inooo'Oosn
eocoNco
C0t~-t~>0«C0^Or-lt~t~C0C005— iNOOO'Ogt
t^OOOSO— iNCOTfOOOsjHCO'O' _*
1-1 rt — c e5 c< Jm N « w t- CT CO CO CO 05
GO go CD 00 00 00 00 00 S OS OS C3S OS OS OS OS S^OQ
CO CO rt CO CO CO CO CO CO CO CO CO CO W CO CO CO CO ^ ^
MCO^»OCOr^OOOSO*-fNCO'^W5COt^OOOsP'-"
OOOQQOOQa-^'-i'H
180
CONCENTRATION OF ECONOMIC POWER
OOO 00 OCXO^OO <0 CO 04 <0 00 OO CD '^ OOCS i-H CO a-V 0)0000 nco^Ttr
oVo<ooo-<MTj<oe^cirtO»ide>sMo'oode>50cDoe^ «oo o«d^«<>ocpo>cD>o
^-4 C* ■**'€^N »-i -^ Ol CI *-( N •* I-H a> ^ CO CD 00 ^ »0 CO "^
mco 00 ^-l'^^^^^^ o >o m e>5 o O •-< US -H e>) iH i~ •* co
n ^'^i-i On n e* 9J ^cQ i-i ^ ^' cj i-i oj c4 ^ C4 c<i to •-! t^co
>00 Ot^OOOOMt^iOiO^
COM •M >d c4 CO ci uj (N oi e<i P)
>ro>*^ >^ vfO -^ stt sfO >M •io ^ ^ -xo
«kd^^5^lrisH^>tf^5^•J^t2^K^K^4Nc*^eTv^^^^^^atf^e3^^^fl^u^ t^koBN e5r>.t5\tX«^tSve^rXo*^(I^c^
■>»<i-it-0>00'OCDCO»COr-IO»'<>'>OOOmO->»'t>.t~i-cOCOO
CO ^ C4o^-cooo IC0OC4CO
o>t~-««<a><-(Osoot~^'-ioo>t~cooot-<0'*ot^'*>-i<»0'-'
iOCOOCC *^*OI»dcOCD^3C*^S^*OCOCOCO»^'^*c4cO'^CDCO
1-H M COi-li-1 CO « IN « — < .-I CO C5 rt -M i-H ,-iMf^
od" c^o^- V
-Hco '«<^cd
OdOCO
^«.cd'fQOcoo5>oeo
i »0 CO CD O COCO-^-***
OS'»1<OOOSOS^OOOCOOS»OCOCOOOCSOWCOOSCOOOC«COC^O
h-l-<1*C0t^*<1^0i^C0'-4'^C0^*-^OC0 0iOt^OC50i-^t-'^t^'^
rt -H -H oq rt CO 1-1 c5 -H « t~ CO CO CO OJ o) ■»• o « e5 •-I eiesco
oo oocouscoeo cocooco
i-ico 00 cj oj TjJ e» o r^ ■-< 1-^ i>^
^_i CO'Wt~CO ■^lOiOlO
O»OC0C0040SC0t^O00*OC0C0»O^CDOOO-*C00»C0^HlO
os«3t>^og-^c4o5cocdt>coc<i'»j<F4u6c<i^*oQ"i'-HCOcoooooos
X< rtrtfSrt cor-Je5rHNt~cocococ^ N-fl-eSi o»mM oScSco
fH c« oo^»ococo cocooaco
oioo 00 ci ej ■* oi o t>i oi t-i t>;
(NOi-<I^'-«'«J'OCDOOOasOt^t>.'*COOIO*^OOOOiOO
OOOOICD^ ^T'^'CO"
*io ■* eocococo
ocoa&oooooo09oo*oco*oooo^a3oacDA-^o*o-i«*oa
-Hr»!odocoQcd'J<o>a5Sr-cooiodocDi-^odr>.'rtcd«D"ij<oo-«'
C4 _ rt 3 -< S CO CO ■-< CO cj w«r ■«' ■<»< CO t~ 'J" CO CO CO •^■"("oo
t~.oo lOh-t^eo eo>ct»>o
^co O^^rijrio^cD'gico
*-« CO O^ CO CO 03 o o c
OSOIOS 090-^OCD lOi-H 05 *COt^cO COr^O OICO CO 0 04-^
co»«t^t^t^t^ocD»ot^3fgQOiosco-<i<«5odiooooow^
COr-l Nrt>-lrHO«<OC'lCOC5rHrtCO'-li-ii-cC5 " —
««0 C«0OCOCO'-l t^OOCD
Tj*CO ^ »0 -^ CO t>^ O ^ OQl^
McsN rt oi coM^m ■«»<»
CO CO O 00 O » t~ Ol Ol O 'J' -a" Ol go Ol Oi CO t-- Tf OS C» 0» IM O 00 "OCD 0>0> 'OOOSMOOOQO
rH .-< r-l cocoes
?-H »-H f-H CO CO CO CO CO c
O»a5r^o-^o»o-^r*u5»oot^-^oot^ — WcooooN»ooo»
■<f COi-iC^ 00 1~ US CD ^ rt CO CO —C >-l I-H CO CO
eo^t^ge^wocot^OJ
i-HOli-HOOOO t^oocot-
5 o aft
L, <u S " «; OT
3«i; g^ « i, s.
"mOfliraaaWOH&OW
Is^
S^ CO ' '
•is
•- o cj ?■-
a.b
no
CD f^ 00 Oi O ^H C4 CO -nfi *0 CO t^ 00 OS O 1-H CS CO -^ lO CD O O i-H OOO OS O —< C^ CO -^ 'O CD t^ 00
CO CO CO CO -^ ^ -"t* -^ -^ ■*** -^ ^ -^ ^ lO »c »o W3 lo »o »5 1^ ^ CD ^5> CO r* r^ t- K. t* t* t^ t* r-^
^Jl ^ ^1 ^ M*^ ^ HP ^ ^ M< ^ ^ ■^■^ ^i Tjl ^1 ^ ^ It* U5 ^1 ^ CO ^ ^ ^ ^ ^ ^ -^ ^ ^ ^ ^
CONCENTRATION OF ECONOMIC POWER
181
«O'<!t<CO0O COOO O 00^50 I ^DOO'^COOOW c* o o
,-).-.,-< rHc^ CO »ob»co it-HiN'^aoweowwc^
<-i O O GO 0» CO t* 04 U3 C4 U3 Oa e>9 00 t^ t^ a» 04
c*c4 w^^e^F-Joiwoi ^eo»6^»d-^-^ci
CO * r^ ei 00 '^ t>^ ^ w«6 ^ ^
04 lOt-HOO
^^^^^-tOOCOCOO*^
ft CDCOO) 1 1^ 04 04 CO CO CO 04 Ol i-i
f5^w^ffl^-X^ctf\t^<^eS«3^ wserv|ws.(Jsc5^e5N^c^
»2^ Ks rt^ c5^ c5n c5h.pK •J^ e^
N» sTo -^ "^o ^ -^ -^ y|5 "><o '^ ■'i' ■*♦' ^
n^ N^ -^ ^ os^ ■^'^ ■^
^s.rtsi5^tov
M^ (ov cN aj^ id^ e*^ ^ ici^ c5n -^
s? s;sJ;s
w^ e3s 1-^ ^ ^ otN «^ ^ «4^
•^ ^ >^ >^ vW i^ ^ >^*r4 >w
OTv w^ c^ -^ ciTs e*s pj^ c^ co^ w^
OS Gi '- ^
nW vPi ^ *>e>l vTJ NP5 Nf3 ><0 sC* ■'fS ""f^ ^^ vC-l >£1 v« N(
vfj N^ ^r* ^ ^f* >P5 ^ >^ ^
aoo^a»>o<o«cc-Hoo oo t^ o> 'f o> o ^ >o
ep ci >-i t^ f-i ec >d t^ tv -^ epu3Q^»oo»0'^
^ ^ ^^ •<44 lO to ^ ^ U5 O N lOCSCOCOMCO
TfJ o6 -H r-1 00 00 1-< ldcot~^^
rt rt M rH i-H t-( N icoeo ■*
.-i.-iooO'H.-ic>jot
mSi
> a> o o> a> r~ 00
^ 00 -^ »C »C OS CO »0 -^ CO CI »0 CO CO *o t^ « OS
^co>6c^c4>o'o6cjr>^c^ co^o^tct^oow
■^ CO "-H •» "O « CO •>». ICO C^t-HCO^CO r-iN
05«ONM«ococo»or*»o»o-^
»o^c^'^os»oc*iaao'<i5c»jeo
.1 64 -H i-H — . IN !n PS CO c5
i-c eo-<><
c>)iOtacococoao>oeoC40iaoc^
-- e^csCT'O'O'Tj'M'^e^'-Hio
'Ji «> rt lO to (>• 00 -^ M >o >o M o> t- o t~ t^ OS
ci o> t«^ »-^ t>^ *d Q CO »d o ^ ooosoi cooo »o
lO T}' p^ to «a CO *C iO CO ^ CO ^ »0 C4 CO CO CO CO
■"J-OO—ICOOOCOOCOCOIOOOCO
Oso6-Ht^oo6eoc6cooot^op
•-H « N .-I CO -H e^ CO CO CO ^
CO 00 OS
00>OCOOOC40S'<<0S
OQCOt^eO'^'^OCJQ
e<iioiouioidco^co
"J" CO CD ■«(< t» t^ 00 "-H N lo OS c» o 00 'J' t~ r» CO
oi as.eo Qt^ioQco>dQ cio6-^oocoo6t>^
»0 ^ "CS »0 iO CD >0 u5 CO » CO i-< »0 CO ^ CO CO CO
OS-^OOCOt^uSt^MCDCOOOO
Osd*ot^i-io»ooscoo6t*^b^
. t-HdrtCOpjCJCOCOCO
o coooo
^ o6t^T(<
e4 co>oco
00t^C0OOC0C0i-<0>
SioSusSSeooS
OOOSOC^C^CO^OOIOOO
t-^cicDoscd—irjSoococi
coco-^comcocortoio
O CJ -H O "O 00 -"T
CO OS 00 ^ CO CO o
ot^-os-HMcoe^ooooN-^co
■ooco>oo6'>a-'*oscococ>i«
CO « i-H .-< .-H M fl ■* CO !-•
OOOOOOM'OOO'O'M—IOOSCOCO
oocscipscd*oco»oot^cot^o6
CO 0> O ■V* «0 ■* CO CO "O COOS4<CDCOOOCS
OS ^^ •«< r- >o CT »~ OS CO CO co co •* co "O i-h ^ t»<
rH<V) —. rt
OS CO CO c< c^jii >a CO ^t^o co >o
^ OS CO t-^ Ci 00 CO ^ pH CD 'os
^^ ^ WCO »-< ^CO«5 »0 CO
«OC000t~C0"9<OC>»00OTt<^00
TaJt^^c4o5eoot^i^QC4c4c^
(^■*^ocD'*'0-*-<o<«Tj<eMt-
t^0»0 00 CS 00 ^ t^OS CO CO CD Tf t^ OS 1^ ^ t^
ci OS ci OS r^ CD CO CO OS CO o_il'-^os OQcso
I0'9*i^'^^-^i0*0»0»0 CO I COM -^^^ CO
COCOCDCDtJ'OCO'^
of4o6e4e4>ooocOi-<cbot^
CO Cl >-< '-' CJ « >-< CO « CO "S" i-H CO ■»»< M '-"^ ■«• "O ■* O)
^t^t^OSOOCOOOt^COOSf-HCON
o6cDI>^'*o6o>'"00«Q'H2'lO
>-<as oososoe -^w CO N e>) t>. >o CD CD lo
SClCOrt CO C» NCOCO «N«^.-c
■-■ t~ CO -H M C» CO ^ O M "I N «o C«t~cD copoosRooc^cocot;
C4*M rHCO"— »'CSi-HCN»-H»-Hf^CO
t^ CO -^no »o »o QO t^ r^ 00 1 OB lo ^ 'J* c^ sp CO
<oScoast~o>2<oeooo <cicO'^c^ciFi^
oco^ooajt^r-^t^Nt-cD
lO f-i OS r^ CI ^ ^ '-I OS OS CO t* 00 c«
f-t OS 00 C4 •-< C4 OS OS lO CO CO CO CO OS
xj 2 ^
CO M ■ .
Of OS CO CO
m S'w fcl •- I T; ^ £ "a ISO.S O ■- w M 'i'O
i: o5a o- S ^ o S^ oj 03 " a! =55 « «
i-S
1^
'~ « o aj
bo
a
=3 .
:3 0)
3S3
a ^'
IZW
-o i-Bxi'" a" 01 o K ot§^ ^ . Mo "-S £ "i^rt-S-S i
S 0 0 ci> g>^ S-3 o:2<g3;i^ -c ^2^ S D.3 3 a a a^'
»'oo.!3SSS=£5oo^aoSo^«x5>.ooa»«'3
« -o
^>H a
"^ -4-1
SO -2 CJ CO -2 >0 CO b- OO OS Q -" C< CO ■<>< >0 CO
__opooooooooooooooor —^
S OS OS OS OS OS OS
r^ 00 OS o ^ N CO Tj* *o CO t* 00 os o i-^ ci co -^ "O co t^ oo os o *-« ci ^
o: asasooC''Oooooo o . r-i^H^^»-<^H^^f-t^H,-i,-ic4c*c» cw
•^•^T)-i0»0>O«5«0i0i0»0»0 ^ JOWSiOiOiOiOtOiOurjlOiOiOiO
182
CONCENTRATION OF ECONOMIC POWER
NtO ONO •«»< ■<< <o <0 -VO ■« to -^ <0 OOOOCCtON to
t^*ri^aiuio6 OOOOOOOC^Ot^OOQ6cOQOQ-^QcDciot*OU?t^»O^OeO
COIN ?>o e<5 M —I n^i-h3 >o r~ 00 e5 to Tti t-
M « M i-H CO "5 wCO T.-'
^CT N ^_^ V CO ,__«0 Tf«<Ci-IC0t-O00Mt»>O00r"O>^©^
uT^ uj-. cj^ cr . (3\ IT
e5^ilTsc^c5Ne5NNS<SNi^«0" d^^^e^'^v^^^pjvco^c^o^w^iflNO^'a^tJ^^^o'^^MNr^s
s irtv "^ u5v c5^ iJ^
i3^ i2^ wv i3^ cSn »2k c^ '^ e^N «N w^ CT^ e5^ e*^ NN <5^ c5n
«;:?;;;?j:
OOOOsrooo
« ■* TO CO ■W* rt IM 1
00 1^ oa o "O to 00 >o r^^owo ■* i-h « t- -h to "«" to c«i to to « to eo
t^tDTO06<O<
l28+'*®S28:f°°='S^S§Sg'°g?SS§Sg;5«"*
iC OS 00 N tfi -Tj*
1^ ^ QO >C CO -^
cococ^Sco ^-^
000i00C^CDCD0000t>-00(N.t^00Tt<O»OO^t*00NOW»0wCS03O00
rnWeO CO lO-^CSCD<D
CO o -^ r^ •-< o
-^ -^ CO o« •-< »o
^■^co-^io^
COiOCOW»CCOOOO'*t^»OOOOOiOOOOOC^OOOOOt^'^Oi"<*'«D'^
r-loicbcse6o4li-HT|J'^coQ"^oCt^o6*6oo>'^t^OQOco«^OTjJco«-5
lo '•I* o oi --H »o
^»ooocoo5'^oO'^eor»?oocooOrHWeooc^ooooeot>»^t*^«oeo
»^o>oQ»cosc^ilcoco'^'^oc^oaoico^QoJ^oscioseo^o^coic5
w c5 w r-( 2^ "T CNi i5 ^ « eoco^^-^ t^iocor^t^co ih
(DOS CO QO coo
00 OOQ Tt< CC CD
CO CO C5 CO -v^
eot>-*ococoM*oooocsb-coec)ooooot^ooicocor*oO'<*»Ma»cot>-t^co
o6c4i^'-HiM^ i'eoi>o6^ i*i-Jo6t-Ho6-^ooi'^cD--3cst^i-HQ<DcooJ
C5 t* CD t^ «-<<
CO CO ^ Oi Oi CO t-» W i-i C^ t>- CO t* t* CO •-< 1-H OJ b* C^ 00 »C W3 03 -^ iO
idC^OSCDcdc^i-HOo6t^COO*O^CDO"^>'^Oc5t^CS»0^05o6'«4?COt^»0
cocD'-ir» coo CO rococo *-i
N CO W WCO I i-H^
i-H CO O t^ *0 -^ <-i
OS 00 O -^ lO »0 OS
CO CO "^ CO CO ^ CO
OCOC^t-»»OW CD O CO 00000"^'-*0»'-<COCO'^WC^<NOS 1-H
c^oaioo6oocDoc6ot^o^'-H»0'-^o6osc4'<5*'^'-5o6coQcoof«-
M-Hf^lCS'-tCS C4 CO C4 »-4.-lCSWCO«-l^f-HtiiCOCOCO00«-< rH
COOC^OQ'* W
rH ^ c5co
•«**oooow«-*0'^^HOOs»o<o»ooo-^oow:iwcC'OOcoosoiOii-t»o
> C< ^Hi— tcswcococococo
0>C«OSCOCO<N iOC^OOCOcDN<-(CCiO'^tN.OCO^piO>^»OCOCO*CWb»M*r^»0»-<0
coco t^COC^ 1-4 i-H .-( ■^ — • -H W M N CD »-H CO 00 0> i-i OS 00 Oi i-t
o) H a)
.9-S-9
a '3 .2
sag
,— • 03 <D S O ?
, ® fl o ©
„=; a aT3 S-S 5'S S-s-y " g § i^-S '='t^ 3 n a ti t-^ 9'?,5
g(Uoo»S.®>>02aoO.2a!3oeijpaJE;ja-a-"O®r
H o
3.Sg
d:^ 2
"So
CO-^u^COr^OOOS Oi-iC^C0'^M5CDr-000SO'-'C^C0'V>CCCi^000SO^C^C0'^>CC0t^00
CMC^c^MNCNiw coc5cocoeocoeocococo^'^'^-^'^-gC'^'^^'$*o»cio»o»o»o«o*o»2
CONCENTRATION OF ECONOMIC POWER
183
OBtoMNoooo no o C40
ooooooeoo>oca>t-^r-<o>dgdoQOOe<s
' 0000 C«CO -VO OC4C« C4 <«•
•ooot-iNoggjoggogoocgooo^jooogo
^^CO *0 CO CC »0 t^ >0 O CO lO <D »0 CD 00 ^^iM ^^CM O
J^«o ^ ^ rJ fh 00 c(5 1-* ' 'oJcieo^^ciC-cd^
eo W ^_^<0 CO CO CD O >0 00 t-H O OCOOOOO*^ ^ b^CDiOOt
eo lo wco ci N o -^ »o ci CO t^ wcd od co -^ .-J wco w(^ r^ ^ ^
■sp rt ^^ nW NTS NfS ^«o >» -^ Nfo >«o %« s« srt N« N« ^« xra >f> >*^
t«aocoaoaoKoeaoh>»ooooao«eeaoaoeooh-t<.eo«
ofl^ cl^ «r^ eis ^ 5^ V^ -Ss ^ .^fs iiji^ e^ e^ tX ^ t^N ^ c^ ^ cN
e^ Mjv c4s cK e4^ p*^ e^ c*v ris e^ e*^ ,>s ds ^ e*v ^ (5^. e*s (^ ^ d^ «*v c^
e^ Ns oy^ aS^ «"' 5^ tcf^ wN >-N r-K -Is (cJs. c3n o5«> c<^ r^
'>*t0 0«0'^ t^OOC>OOOOOOOOOC403kOCDO^
<CMcooaco'>ot-^N->a».-<>doo«)«;t>^co<ot^eo
r~<»»Mooa>i-ii-(oooi-<'00>oocomooeo-«<co
tDo6"ctd'0>ot~^«oc4o6Ni<'«<'-<'-<?4(NT(; 'oJ
r-l r M i-<l-l_l_C».-H l-H rt rt 1-1 i-H e^ ,-1 CO N
CO i-iiO'*t~t^oooNos<oa5U5ooo<3>ocon<
eoocoo&o>>do6^t^^cDt>^>OiOC>odcdc»csco
C>5 i-lNilr-r I ■♦.-l-HTHi^ N eC CO i-H CO « CO
eo ^iooocot~oco<ot~eoa>o<oooo^>-i ^
cooe>5'i)"«ocoodTiiod^t-^tdidt-^e^oood'd--c5
t^ CD 00 t^ r^ 1^ O CO 00 00 00 CD O ^ O CO 00 C*3 CO
to CO »0 t>^ lO wi CO CO C< t^ 1-i CO O CO CO 00 CO CO 'OS
l-l . M-HW iNl-C rt rn « fH r-H-H 1-1 CO C5
00 I I
I '
o» c>cocDc>)>-c«^NC»«o>ot^caooo»N>-i
oioocd^co-^coo6o>t^co»6o6'*wt>»dc6i^
■<4* ^ CO ""ij* CO r-* t^ f-< i-( CO W ^ t^ NN O -^
I
t-c^t^rt O'OioooioooscoO'^coocoo o
CDt^cdoO'^^»OCO^^r^r-^QCDCOQCO»0005
— j.— cSc'iN CO -H .I —I N 00 rt -H B CO N
OP»cS'-<'-i'Hcot^'>j<'«'Ocococo-^o>oocooo
eococo cS w CO
lOO toco o e<5 CO l-l CO CO CO CO 00 l-l CO "O ■* eo 00
eo'oooOr;t^02®*^K*eoidcd'<«< X*^' ei es ei •* co o
•IN iOi-i eo « Jlj_j_-<T j_.-i i-i « .-I
•<* w N t-i
r-; ci o •-; o CO
ococ^r>i-icococo^i-iov>ocoi-ico
jco»oc6»coe»5eo
+++++++
WCO '»'CO 00 000-<COT»<OOt»e»OCOlON^O»
rcs5©ooe3t--'o-HONcDoiX5^'^«coodcie4M06e<io
N CS »0 iH ^ «^N IN i-lf^»-lcON
•-ICO N veo 00 rt 00 CO ■-< eo CO N i-i r~ lo n i^ o»
!g350c4oe2«^o-<coiocDos_Lodoocoo>t>;pie<50S<o
I to CM o
< i-i o -H o ■*
>o«ooo>tooco«oooooo«ocoo>oo
«(ic» CO « t^ •<«' CO to o o a» eo «o CD N eo o >o t"
idgo^O'Oooootog'dooioioO'^copi'H-voseicoo
■-<•-! ooot-^^oo>oo6cDooocooo6o>eocico'*io'o
CON ^<0 eo rtCOi-li-l _1_ 1-1 i-l N -Jl rH
COt^OCOtOION^CD^kOOOONOOOOeO^^OeOOtOUdCON
cocoosft^ooiecoeOTtiTfeooot-i-icD^NJ^
coeOT(iTf<eooot-i-ico^N«^N
1-1 1-1 CO 11 i-l CO'*' i-lil N
1-l^^OCOiAN I ^1-1 ^OSOO^OOt^ CO t^t^ •* ^-^O »0 COC^
■^ I iji ^ N rH ^H i-l
S'*'2SS?'
Ifc-r.fe
ill
irC^o-S-S-o
fe ■< t, ^ Q Q ^ fLi ^ O cy w m Ph P-i CO m CO ^ c
•O 00 o -
0? a) a>
.■"•WO
fc ° $
fulfil t.ri|liil§ls^li
5gS
N 00
aa
S oJ'o'o'S
Port's "a
mfQouu
> 4Q to O U2 tC t
co'^iccor^ooosOi-»c^co'«j«*r5cph*oo^Q»^c^cO'**<»ocDi^
SOOOOOOCpODQQOiOiCsOiOSOCTOSOOlQOQQOQQO
247140 — 41 — No. 1-
-14
184
CONCENTRATION OF ECONOMIC POWER
o oo«coTt*tocDdWTfTfooo"^ -^roco -^C^ OCOOO OOO ■^'^CO
M -^C^ C<l 05 »0 CO CO .-t CO ^ »0 C5^0i coo i-t iH(0^ «^»o
'<rt<0605«OOCO(NOiC^C^OO»C»OcO(C''*COOCOOCOOO>OTt<C^OOC<l
wo^^co^'"^cs^o^Dr^TJ5c^'cou^cDa>w^c^»o^'^lO»oco^^'-HC<^
i-i CO CO i-H C4 C<i Oi w CO »o fO
c^ C«*N c4s c^ cfv ^ ^x c«Js c^ c
;;j;2;:
■^cjNr>,c«r,t^e4" cT^a>^ ot^-^K^j^
■NC^^*.-^^tf4Nrt^^.xay^-^e^lrt^oJ^^is,-^os^.ofve^cNO'■e^CJ^CN^^ e^^ere^ar M^ p^.-<jK.-Kt^c^(Os**v;^fflNcr CK
d^>'3^c5' 5s.i-K»5^ Ol ^ «rt^ "l*^ c5"- MN
^Oi-iFHt^wot^osoc;
o «o o CO -^ CO CO -^ -^ o OS t^ r* -^ cx> CO 1-1 ■* -^eocooi
^'*'" -" ^.^i?5?D rHCOCOeiCOC^CO^COl
^ -^OINCO
+ + +
+"
— — I 1 <o^co>o
• u^r^os — oscjw-v^c^
■-1 -"Ji IM —KM "-H
r- loocc Tj<o CO ''j'co ^ t^r* 00000030 t^M ^os^co
?) — 1 lib N M M c-S — I lo ^ -H -M r~cjtDco
cico>0i-i0osoor~-^'- o
eONco-<**oo^p>cciiocOTT*
c<coc<5nconm-hcc^_»o
•O O M 00 CO JO ■<»HD ^ CO t>- t^ CO 00 CT> O r~ Cq ■*05'J"tO
oooooicJ>ofi^ocO'-<od"-<-^"5coocoo<Oi-IoNe~i'<j'C
NOOt-COOOWOOt^ — — iC
^'toco^or^^oseDOco' "
— •) M c- —
t>-<N«6tO C^ CO CC C^ CO M CO ^ ■<»"
+-'=
f-H 'f OS O ^ -^ f- Oi 00 »0 lO O N <D CS C<» CO to CO O O CO 00
-^o 'ocdad'<fosioi>^r^o6'^cscsioc^'»di-Ieo "^'o^'c^'od'^
^ ■^ i-H ^ C^ Cv| Tj* I O I CO'-'oi-^
ocowoO'^c^cor-^*-o
o> Q c^' 05 (^ »o 05 ^ t~^ r-^ CO
CO 1-t r- w Tj* 00 w CO i-Hio o QO OS -^ r^ o —"co ocot-oo
odotoocooioc^^r^'-«'-^c^'r^osiocdt^o^T^oo^»--'*oco
*' — -tc^ioocoeo b- <-i ft cDi-Hcocc
^(N I
i:^oo»cooco»ot^oaio —
ocot^coooooooQiidr;
•-ic^ooc»-'*<i-'Ccc5^ 1 oc
O CD O b- 00 -^ C^ CS CO t^ *-" CO O OS lO b* 1-1 Tt« ^OOSi-t
OOOOOb»QC0CDC0C^0SC^'^»-<C0'^00b-'-ib*'^Ot^»OC0'^
CO »OC^COCCC^ rH lO ^-t »-i I _L_j I CDCSTfCO
+
o—ic^c^coc^eDTrf^oa*
r^ooooCM'ao-^ — i-^'^'-rKi
CO ■«" CO CO CO T(> ■<)< _1 M
MT)<c01M'«><I^T»><0tD0»T(<tDC000<0 0f'C0C0-HiOC0t^^OIM00T)> 00'OC^CI'rcD-*C'*'<3-
CS— irt—c "^COC-ICO — lt->"COC^ —
CO -"jtt^ Noo w «?o '^ -^ eD«og>coos c^os COCO «or^ ^cooo »OGO ^
OC^^^UOCIOOIOC^OOO
■vc<esoO'>J<^ ■» ■^
I'll
O 03.2 g
■i^fsg^.s
o o o o o £. o o t^.S 03 3r3r3
o o o r:> ri n ti, J ■^ n . r-i <-vJ5 JB
3-0 3
5 o >?
2WO
lis
a o'S
a §5
(3 to —
0) k, 03 01 dflx:
E-OUOUOO
:— « -
> O w D
05 g JJ
"2 »
SSS^r^^^^'^^'^oo^©— *c^cO"^»oor*ooc»o^c^ico-^ »cot^ooa>o— 'C^co'«S'»c
S?s^Sr:ir^r^r:i':i':;':i'^^'^^^'M*Mc^c4c5ficococococo cococococo-^-^j'-'t^vTf-j*
cocc>CDCOCOeOCOCOeOCD<0«DeO^<OCDCDCOCOCC>OC05D50;D<OeD eo^ooccoto'^^to^so
CONCENTRATION OF ECONOMIC POWER
185
^_^ to ^_^ rH -^ ^ CO ^^ <0 WD
£-* £n »d t^ ^ £06 N
ci »o c« ci ^ ^' ^* M CO 0
t^t-tQOCO^^^^t^C^lOO«Dt^OO-^^ 00 00 M CO -^O
^ ^ oi 06 w^i^ coco-^odcood-Hrs: ;^(o r<I ^ c^ c4 co
oe«ooaoao«coto«eo
MS e5^ «P wS eVs ^ cK ^ ifls c3n
tfs. tJv cK ^ »5v ejs cjs e5^ rts Jn
00 K
r^aDt^«aoaot^wr«oocDcooo«aoaor<'t<>ot*t-ao
^v ^^ .>K c^ ejs eJv p^ e4v .-K crs (0S. cTv c^ oK ejs e^v .^K ^ .^ Qffs rX <ff\
Ks ^ ^ e^ e5^ e^ cK 0?^ t§^ t5v
^^
-aK ws ■^^ .«j^, OT^ e^ © V ^ co^ u3^ idv rtx uT^ tJ^ offv c^ <->v --i^ r^ wv f-*^^
|.I;?|^;I;S^^;§
■spiNrO's«v«Nr5NfON«N^sr4>^
e^ M5^ 0*^ etv CIV or* cK ^ u?^ ^
oooMotet^o>o>j-ico
lOCON i-l r-l M CO (^
+ ++
am
Sis
^CO00CO»O ' uD ^^ 00 10 1-1 t^ O '<*' OS "^ O '«»' W3 O OC O
?S?^S;^ iSsSS^Si^SSS^SSSSSS
«5n "«o^'oO'*'_l1co >d
t^t^f-i>aioncoo^c4oa>i-it~^^oo<-io3e4co
oi t-^ CO o -^ _iloo •--c^c5iS«5»dc5i-H<o?pw?»o»o»-5^
cocococo Tc!ic^c»-«c^ o5«f5i-i Pi f5 t-c eo co ■-■
ClT)<iO<C100rHt-NC000
t^(^rHidoi^cdc4co^'
io-*-^i-ic«eo^cocot>-
rgcio5r^'^'<rgoe4^c4^coooo>cd«d^c>i<d»oo>oi
■«"»>COCO Si C^ M -H CO CO •-< CO 1-1 CO CO ^ CO CO i-l
r-)Oit-i->tDMO'>'NOO
ooocoorJoico'piao
)«eoi-i
■—11-1 eoco<
oio>ocoa>a>^«oi-i(x>
.00 OJ -H 00 ■-< Ci 00 CO « -"li
r) o
c4C4c4r«iciooi-^>0'4*i-Hi4<i-HO)03U3i-Ht^a»cooci
f^coco CO Pi « 1-1 fi CO i-i ■* r-i CO CO »-i Tj< ^ rH
tee^-i)iooeoNNcqoo
— O) I r-. i-l I
b-ooc^toiocoeoNc^oo
ocop'»Oi-icOi-ioat>^co
COC0« rt 1-1 1-1 to
C^-^OJb-t^COi-iOOCSUSW'^'^C^OOONtO'^OO'^O
— <■ Q in h^ .-■ ~< a> 10 oj ci
1«»* C««l « I
ooo>oop»ootooo«ot~
S'^Dcociodoodod^ift
l^ CO CO ^ Co t^^ Oi
003
N?5
t^OOCOO^ OC^ OOSQO^ CDt^ t^COCOOOt^OO
*r3as'^^030ioirit^»o«5coi-ioooo6oO'-Ht^o*-<
ot»r^ic -^ -^ -^ »-i CO CO »o coco^ooio^
:i.-5 0CO6t~eO oooc^
j«j ■fii-I«DOO'^I>^
il<CO ^ O —I to •* t^ <3>
fojoi-i o r- CO 00 «i t~ 1-1 h- 1-1 cj -H <o >o M 00 o <e
io»oio^O'^g5o6»OTi<cd|>»oco»oc^'^coa5oi'^iO
■a-eoco'j' c5 i-c 1-1 rt CO N 1-1 CO o3 " CM c-5 1-1 Pi ■* c4
= aeococoNC40coa>
?32
>o r- >a >o CO CO Til >o 00 toci
CO ^-H 1-1 «
i^co«cooo-<i-ieoN'fl<Ncoi-ic»0'0'>i'e<"5^eo
e> o 'V t> ?) >o t~ CO to oaooo>o;oooeor»
— OO-H ,-1 (K< ^ _l ,-1 pH
oo>o;oooe
« 1-1 -^3e
-Hioiocooc^r^coa3c^o»co^^t^xc^t»t«t^t»coo
OS
a ;.2s o
S
sg
§»Sao2-S
si |-o|l ill i| aS-il S -a|!
I|lt||f||||l§|-i|||||sl
Ul ^
«2
boo
!8&
» ® b „ ,
3-^
•g _a 03 ft u, ■
i-SflSS 33.2.2.22
00
.So-;
a3o32!3'at;^Si^i^aBa)a>».S-
mmooM<(a5^fefeh:ii-qwwwoooPH(iiM a
^iJ~^ fe •!->
-*^i I
:|3?
SiO kO kO kO 10 to ic to u5 to c
CD CO ^ CD CO CD CD CD CD CO c
* N CO -^ *o y t)
7 CD CD CO CO CO r>-
3 CO CD CO X) CO CO
-O CO
cjco'Vtocor^ooo»Oi-<Mco'^*ocot^c
t*t~»t^t^t^r>-r>-t^aoooooooooo6ooooo6oOOTaaoi _-
CO ;OCOCOCOCOCOCOCOCOCDCDCDCDCDCDOCDCOCO<OCO
186
CONCENTRATION OF ECONOMIC POWER
CO i-l CO CS N
r- <o oa "5 00 -^ cc r^ cc -^ co o as t^ o go
1-1 ^ N
>Or*00»C5Dt'-OSOS'-HOiCOiO
CO * ' ' '^CO 'r-J "r^ci
^ f5v i2s ^ ^IN eJ^ ^^, tO\ ^f . e5 . c-l^ e*N c^^ c^- OTv c*^ N-v
o(^lCf^r^^evH^.»c^o(^4'^CJ^o>"^o>Nc5^eJv<l^olv^Js^is, l5^tf)N(tfslJvl5^a^•cy^t-^^-^^^>K^«^
>ri sct sTi v-M sr> vc-i Nfj ^i s?» ^ >r5 -^
O^ «T^ e>r^ c^ *o^ c*v. cN (tfs c4" iff^ oOn iQS.
tOy,i>^,-Kc5--ttf^W^tf"^^
<ooos'«**»^co»oco—<T-<r-«i-ic<)eocDeo
t>o6QQ<d"^CDCSo6oic6o>05Tt'OiCCD
WT*<PS.-<CSl<-HCOrt ^ C^COi-HCO
COt^-'J^eOC^kO^Di-HCOC^Q'^
.-H c^ c^ c5 CO CO j_ _j_c5ci
»OCOOOOOO^«OW3
^ w d ^ fl w ,-( ,-t
-«j« M est-- Qot^t--ai»oi-Host-"^cDo coos
.-iM^i-'i^i-ii-HCSr-l t-t I IM CO I-*
<0*Or^O0000CM»O0aO'^CD
P K ri ^ ^ ^ '^ X*^ ""^ '^
oio-^-^t^attcscs
O cc r-4 CO «o lo b- I q
i-H C5 CS f-H W CO T^
CDCS-^OCOCOO^^
0«0«f-H-^'*'*<<D'<*<CS«OCMCS»-iCO«OCO
cot^coo><oi-'5eccso6od*rfosoi'^Qd»r3«D
»-< N ''t* M .-• cs .-H CO i-H <-i 1-t c^co^co
000^0»wt^«Dt^»OOS^«0
03 t- ^ -^ CS 00 00 jl<o X"-* "^
^Ncscscoco "T Treses
»0 O t^ 00 1-- o o> •*
0(OOi<-*'^c^t*a>eocscDt^<DooocDeo
o6t>op5^t^^^f^c^oo*ovco<cotocd
.-iCS^cii-iCS.-HCOCS^i-Hi-<i-HMTjii-HCO
r^OOi-Ht^lCOeOOOttiOSrHO
S' CO o t^ go CO ^ CO
M e^ .-1 fS eq e<< .-c
MOO
T-t 2^ CO
0000O01'*OC^1iOt1<1N
N r* -H i-i I I e-i CO <-!
OJ>OOOCOlOMiOCOOOC<500eoe<«0<Mi-iCl
g"-^e^cO'oa;o6(Ncqc5<0'<><"0'S'oo<3
O t^ "* Ci ITD UO c5 CO tH 1-H »0 OO 1
•ooo>coOM'c»oco'*oO(Ne-)
cocctjKcscot^^'-Hcoc^oogo
»O^CDod»O^OW
cocoeo c-)co(N 1-1
00 ■-< O CO ■* M "3 ■* O t~ t~ t>. -^ t- ■*
t^-njI-^CO^CDCOCOOOOOcdcDCOOQOiT-^
»-H CO W3 C^ CO CO CS CO ^^ i-i »-i oi c^ uo
0>'^O'^*O00C00iCD»O'«J«^
cvicocS(>io-^os»-<-<}*^ict^
c^coeoco^co MW
NCOCOO'Ot-OOO
c*if-^ocbot^t>cD
ICO r-l oco ^ -^ coooc* ^ -^ 00 »o «-' 00 ^ CO -^ cq CO w »o
'j'meoxsooi-HO
■^■^eo ' ■* ' I »-< 1-t CO r^ lo »o CO Q 00 00
S Is
si
■o.§S
a CO c3
<DS3 05
Ob- ,
„ OS osSs
cj SX3 o > m bixl
^ 0 H 5 S
ppooC-woooS
" O o ^
..Hfloia'ro.'r,
a ajajacfl a S a '
□ «iw$«'2g3jag-3'S£e«ii<nSggj3jai:£iagH«
m ctl <V
" o ^
■2°
>«io«r^aoc»o^P'^io<pt^oo^O"-t csco'^io<ot>.oooiO'-icsco*^>«ot^goosO'-<c<i
5tt^o>oa500^ooooooi-'»-i ^— <i-»^i—i-H^i-Hf5cscscsic'icscsc4p5c5coeoco
CONCENTRATION OF ECONOMIC POWER
187
271.2
346.8
64.6
306.4
jj' t~ »■ o o o 2 -i^' o 2 2
00
C» 00 M O NOOOOCJ ON O
-<ooo-HOo>oO'-'''ooosoi»<e>50o5o
CO •-* »-* 00 CO o
8® i
o-vco
CC OOCO lO
t~aooo«ONoO'«'0»>oo
o>
>0 00 CO CO 0> ^^CO >0 ^^Cq CO « CC O •<»< 00 » o ___
» '
•"jieon)
t»(3»«00
■*w*00'»"<O'*e<iNNus
>o
■w'-HW'* Z^-^ t^^ci n ei ei 'tf e6 m CO <6Z^
<di. 1
00 00 r« r» r« I
dKc5^o^ ^JJC^+v^ 3^^3^dKc5N<-fMrrN«^tf^CT^-5\ e5s eQ^eV>e^d^cNe^^o^eQ^«^^c4^M^cT^e3^r^
H^
1^1^
«
:K^
a> » 9
0» 9 9 Ok
J^ «dv .d^ w^-^ CN e^ <rfs c5s c5^ ^v
^
MI^OO
0>0'<«*00
Ot-*0C^0&00 CCt>.-HCC>
00
Tfi->i<i-io>coeooc»oco.-io«oo«oe>r->-ii-i
^^
S?3S
00— too^
coNcoecr-^H '^■^ccco
s
^ to id rr CO OS 00 ci oi OS lo uJ e4 Q CO •-' »■ "5 uj
1— 1 f-H
" +
■^c^oos r* t* 00 — ^ CO >o ^ OS -^ c^ c^
pi -h' t-: •* id o ci "d CO to ' to id <N -w
-. -) .^ (M «
0>00C00SO'*C^O'-"'("0bO->1<0SrtC0e^5DW0SNi000
Mcqso tococoto eococoN o» cO"
QC^^CO— ^C<IOaiOCO— ^■^tOiOOSlOOt^COlO'^t^r-iCO
f5_|_'H^^ I lUOC^COMPj «C<-HriN J_-*i-l+<«<
ososioi-t tot^t^wio-^ t^^eoo
idcOOioO -"jil^COOCOOOONtOCO'tD'
r.t^'Vr. >*cocOcoe^e5 if'j'coco
"TTC^t-eoooooiotocoosoot^oot^oo
00 Tj; Q to 00 CO .-t CO t* OS GO O »0 lO O lO lO OS h» lO
00 ciN^^i-irtM lo 3 3 CO lO « ■* CO 1-1 « Jl
•-C0O
coot~-
t~;o to
OOIO lO OS
CD id o> 00
CO ^ CO t^ t^ ^ t^
i-iiOC<t~tOt^Tl<OS
CO CO lO OS OS t^~ OS
eoMco ■«■ Tfcoco
^•^h-i-iiocot^OiooOOOSt^Ot^oOr^OO
cdcdt^o>id»-«t^t^o>ooi-<idt^oididcot>id
C<) C4 rH fH ^ rH M lO O tO CO lO C5 ^ CO f5 P» _1_
cooococo csooocooo ecoi-ioo
-^eo--id o>->»«--idco.-<'ooOi-<Pis!J
tOlOCOCD COCOCOC^ CO «10NC4
eOOOiOCST}i«-iC4cOcOOOr-00^<O^^OOCOOOOOtO^O
o>cicicoocidide^'r-^tdNeo>-HCOoo6co->i<idrt^h.'
— i|-H,-l— I .-ilt^r-lC-^INCOCjNi-li-^CS •*C0|'«<
OiOCOi-l
<3idt^O
o CO CO lo >-i w c> T>> 00 cjt-oscoio oooooscoM woen^r ■^ost'
id'^'coi-i'^t^coci CO ostd^^^•-^OQldcoo1-iccgsldo^*o^os
lo 00 i-ic^toto 00 fin i-i »-i is ri o r~ 00 CO ci CO t^ lO -^ CO i
rtTft^Kjl 00 lO ■»«<•«'■* O OSeOiON
oaooodc^ ooto"co'ot-^c50coosi>>"
— c* (M CO CC " ^
eoNioosMt-ooooMooeoot^ooos—i ioto>-<eo
g'jit-^pooooot-idtdt-^^odeo'i^osb^odoosoot^od
CM N f5 c» i-< CO N CO lo to ^ lo 1-1 CO -Hc^ coK Tf
++
CMCS lOCOTl<tO
^ CO CO ^ 00
U3 lO -^ OS t^ ^ 00 ^ W ■^ -- CO <-1000 COO CO
1— ii-H^H COCOCOCO I— li— <r^
—I i-l CO
00 N CO N N © 00 N o lo 'J" sjs en N a> OS CO CO o 'lOO
lOO'*"!*" eqt^iOrtooooomN-^c^
sooos cocoes
-HooooomN
M M M C) OS N rt
0'4<cocot-'^c^iot>'4t^cxio«ONNoooC4ao^^!P
"300 l^ 00 i-t »-l »
©•-
,3^
t.£-2'£S
u « 9
t-. *^ rr, <~i /-I ^^ rr^ /-i tn
1^
a o
dd.
toTS
Oj 03—3 (CO •
f^_fe 2 8 5 -
S^^dddd..\
|BB.r5.f
IS & 2 5 I
'teS
t 03 O O O O 2j3 ^ "
1 ki h u q^ U b O
3 3 3 «2 o a« 2
CONCENTRATION OF ECONOMIC POWER
Q3g.£f.£f50S|
S8
a £
o o
03 ^
,^ o oi oi
fi « !- (^toK g aS
5|s il
.-en g M-^ .7;
e.s.g^.-§ ! g
c2 £ M 9 •- -
•HO _:
S g oj
■^ -"3
- rt'O
bjos >
§«■§
ja-H.2
g§'-g«S|gS|*3oogSS
■o g ^ a a oB.E
rT. ,n o o o c c
§.ap.p.&
CONCENTRATION OF ECONOMIC POWER
189
190
CONCENTRATION OF ECONOMIC POWER
'Si.
OS
^ -a
Si g
? 2
'tt o
•sii
!=!aag> t^BBSkag a x^ xxxxxsk^ ^>^gH>^>CB
>»
» ">
!>t: >
>">
Sa^aS «aBSaa^ « g^ abfe3«>^a" >^aBaaK>bB
MaMHB aaBBBHB M » B«Bt:t:HMM B>ak^Ht:BBM
HMMHM g«HM><Ha M ^M gaHGg><B>; >X>MK«>^HHk!
»
> >
xxxxx HMMHK^a « aa Ma«>aHaB >B»<««Mat><K
M MM M MMMM
> >
t^t-iO^ M )-IM)-l
>
M MM M MMM^
>
►^M"^ M MMM
K«t«it^K ^<!XHH«MB M aa
>>
>X>>aBM BB^Ht-IKMaHH
M '-IMK,M Mti MM
WHMHM ^jMHtxJMWg « KM t^S^<>j>^^^BX
mm"^ mm
>
aXHfrj^ HKWKt«!><H K ^x^ wBxa><3a
> > >'
aK>xaK>^xaM
HHK«H KKKXKHM K KM MMMMMMMM >S>;MaMMMaM
> >
MMMMM MMMMMMX M MM IMMMMMMM
•9
a
.-se
o a o
3mo
O O)
".9
!g-a.-a
t:t:>aaMMMXM
►''^mmmm m
>>
S OS o
SCO
S Sf $ a 3 «« 60 a
S5x! « o . o ea ft
§-3>>S.;a^
n ea ^ ;i- ^
►40<lWt
03 ^
*'flar-(03«-_ «„,
S « o
^^ o a>
OO ^ lO «C t^OOO* y C^ CO*^ »0 «0 t^ 00 OS O »-; N
W CO CO PO CC CO
^^'^^^^kO*0>0
CONCENTRATION OF ECONOMIC POWER
191
MHH« KM H«t:BB "Bg-g "-H*^ >'"' XXXa H«" B> H»t:BB«
HKk!«
HII-I
B>
«>WMt»
s^>BB^
>
MM
B>BM
BBM
>>
^3
•M^^BB^B
>
^KH^^
MB
t-ii-i
>
>M'-'MM
X^>B-
^X-
>M
MMBB
""^>
Ml-H
»
MM
BB>BB>B
MB
MB>BM
>B>B'-'
-\<t
>>
MBBB
MMP-II-I
BB>
MM
^>BM^MB
>
KM
MtlMMM
BBBM"
>
*-'MB
MB
«gg£
t— It— tl— 1
>>
>>tt§B>
MM
MMBBB
t>BB3'-'
»
-'MB
MMMB
>
MMS
MB
MM
>
>>>>>>><
1— IhH
MM
> >
»—(•—)(—•
»'-'
"MB
>B
MBMB
MMB
B>
>
K. HH t— ) HH hH »— 1 K*i
MKMW
MM
MBBBB
t> hH h^ t— t H- (
l-lt-ll-l
HHWI-l
l-K-H
MBMB
"> >
MM3
MB
1— It— )
>
»>«>>«
kIKMM
MM
K^ hH l-H h- ( HH
K^ t-H HH hH hH
l-ll-ll-l
"B"
>
>
MBMB
MMB
MM
K^ 1^ 1— t hH h-l rH V-H
1-^ K^ t-C HH ►> t-t 1-4
hHI-D-l
MM
HBB>B
> >
"gS3"
"MB
IHI-C
>B
MMMM
MMB
i-i
B^
>
^ hH M 1— t H^ HH )-l
>
KMHM
MM
MBBBB
B>>S^
BMB
i-ii-i
>-
MMMB
>
MM>;
MB
">
M>i,MMMMkJ
MM
MM>BB
>^>-"
"BB
MBMB
MMB
BB
>>
>BBBB>M
^»M M
W
.
MMM>
MMB
MB
MM
kKXM
MMBBB
">^«B
'"'M'"'
t-l
>BtiBB>S
> »
>>
MMBBB
>>>BB
"M"
l-(l-H
BB
MMMt:
MMB
Mh-I
MB
MM
>
>B>BB>^
> »
^B
Joss a"s
<= g « al'o'-'^
2
o 0^
S-C-o a, ■}:» 5j; □
R 09 <B
C a « & I
""III
•3 a? ^
■'=' So.2 2
0) D-'C ® cfl 3 Q^
fll «* «* f 1 rL (TL d Mt
S 2 ° £m o £-2 „ a 03 C3, a eo 05 I- „
SS.8S
00050M c«mTt<>otD r~oo» om £j ow«>< mtot* ooo> o —' « w s; "« «P
192
CONCENTRATION OF ECONOMIC POWER
'- >
^xa
b^a^a^^>^b>^a
l-lwl'Sk-ll— ll-ll-ll— H-lhHPSWI— I
t> hH l-H I— I ►-! I— 1 1—1 1— I HH I— I HH I— I
|-I>>|— 11-11—11— l>-ll>l—i>-l>>Mi— I
>^>>>a>'^>>«a^
M>aaa^aaaaa3a a>a^a
xa^axxxKXkaaa "aaa>
xaaaxKxxxxxaa '-'>aa>;
">>> "" » >
x>aa>
K*^ |_t ,^ HH HH t-^ »^
xaxx'-'a>;^a"aa>
x>;xxaa>5:aa>aa
x>xxaa>saa>aa
W-HM >>'-l^|>l-ll-^>
aaaa'-'a>5:a'-*aa>;
aaaasa^>>w'^>«
xxxxxxxxxxxxx
> -
x>
xaaaxxxxxxx^s:
^" ^>a>:a
xxaxxxxxxxxaa
>'^^ WW www
«>"xa
x>xx>a>aaaaaa
W 1-K.K^wwWW
>>-
xxaaxxxxxxxax
I— *l-|l^l-H 1— IHH I— IfHhH
^a>
>
xaxxaas:>a>aa>
WWWWWWI^ Kj. w»>
xaxxxxxxxxxxx
WW w
WWW(^,
xaxxxa>^aaaaa xaxxaxxxxxxx
§0.2 So
o) C il? oo :3
SSp
"O — — — — acloai»a<iua)0> 3
0^ 0^ q; ^ en ^
•a rj 0)"—
2 o-o-o-o °*-"-: ibis's fe g ^ «^
a.^s.^.^.a-'iiaqaaaaaq -s H-g S c g j- giS a a 3£ c a'S S S
H O a a -Of^'
C-OQaO wNm^>n«Dt~.ooo» Q OM ^ « « r~ ooo>o -h Men ^•Qcor-oo
Nolc5«coco«Mmec«Mec 9 w ^ ^ m< I" V* ■» iS o us ui >d>aiaio>n
CONCENTRATION OF ECONOMIC POWER 193
XK«
t:BBBsaBB«s:gH>t><>>'
i^XK
X ^BBBBBB>X>BB>X,>>> X
XXX>XI=!XBBSB
«3"
x>>xxa^x>;Xt:axx>;B
S5>S5>533'~'>
XXB>
B»B>S
BXX
»xxxxaxx'-'Bxex'^aB
XXX'-'XXXBXXS
>
>>>^
g>g^>>
x^a
BBBBXXB^BBBX^a>;>B
>>> > > > >
XXXXBBX5XBS
>
>>^>
>^^$:^>
XXX
BB>XX>^>XX>X>X5XS
r:t:xaxxxBx^x
l-H (-t k" H-l
5!> "
l-H H-t M HM HH >-(
BBX
>>
Ba3gX>g>X>XXXXSBB
»xaxxxsxx^
> " >
g>fe£
l-l l-l l-H 1^ l-H 1^
aax
>>
g>s>bgS^«riXxxxaBe
»XBxxxexx>
>^>>B>
XXX
g5g><>^Bg^^r=hh««55g
>;:xaxxxaxx>
> " >
>>>;3
BB>^-^
xax
^Sg>S><«g^><abd5«5«5
>^xaxxxsxx>
> ^ >
>>^B
^B>^-B
>>x
>>^^bgS5«55^dg-->
»XBXXX>XX>
>B^>
^>^>B>
^>x
^BB>x>saxaBxx->Bs
>> > > >
>^XBXXXBXXB
>B^^
B>S^BB
> > HH
axx
5gggb>sg><S^5b«"55
>;^>;;bii:xxbxi*,^
>>>B
'^Bpw'^>
XXX>XBXBBBB ttt^
>t::^B>>>
BBBt>
i-i>-i>-it-i
B>B>>>
.. c c
O CS
S' c
33 -3 "O « ■? „
c.
I a-:
3x: £
S3^-g I ap * § o §15^ g g «CK = B 0 p
a,aiOQOQOOljSOOft.K(EOOK E-faOO
t PA S
s s -a
S !»S«o
K a^.-"^
a Si
l-s
a
;p£P;§SS'ag §
: <a 2 2 * t; -ij
194
CONCENTRATION OF ECONOMIC POWER
i» —
wC^CO-VWtO t^ 00 O; O t-H W CO ^
CONCENTRATION OF ECONOMIC POWER
195
>«
X
XX
aas:aaxaxx>
1— 11— 1
l-H l-H
>>
>aBxx'-'
XX
t,'^>>'^>
>
HH
>
a>
>
>
aaxaa>a>>a
!—(»—( ►->. »-> t— '^H
>>
a>tr:a>>
>>
>'-'aa>>
>
xa
^">>>x
>
>>
aaxx>axax3
HHI-H
>>
>2^aac:
xa
><^t>>^
> >
>
XX
^HHXx>xaax>
HHI-H
aa^xx^
XX
l-H
>> >
hHt-H
>
>sa
>
>X
aaaa>x>x5:>
X>
a>aaxa
XX
1— ( t— 1 hH K^ l-H Kj,
>a
> >>
«
>>
:aaa>xaxx^
ax
>
labad>
;> >
XX
l-Ht-H
aaa>a>
>>> >
HHH-I
>
>^d
X
l-H
XX
axaai^xaxx^
ax
>axxx^
XX
>>> >
l-H^
^tt^>>
5>S
> >
X
I— < 1—1
>>
aaaa>xaxx>
ax
>aaax^
XX
l-HHH
K>a^S^
t-HHH
§>t><>>
> >
X
>>
aaaa>xaxx>
ax
^aaaa>
>>>>
XX
l-H l-H
a^a>a
in i^s^sa
>3
>
X
ax
^Hl-H
>
aaxa>xaxxr
ax
>
>axaxa
XX
hHhH
xaa>a5
HHl-H
hHI-H
>
X
ax
aaaa>xaxxs
ax
axxaa^
XX
a^a-
>>^dp>
x>;X XX aa axaa^xaxx>
>>>•'> >
XX aaxxx^ xx
aaxax> at
>> > >
ax
rraa^x>xx>
"^ 1^ l-H P> 1^ W f-l
aa >aaxx> xx
»^»^ aa
> ;a>>a
a ax ^a>a>x^xx>
aa raaxx^ xx
:=sg? >■
K* r* tr J> K^ k" )-(
® a
0.4-
«-= 5
iS o c c
5 £ o t-, i 2.s^tn ji!<'^ E 03 03-5^=^ ■§«■;;■" c-^opa
«2
.. '- a
:as
"O :S rt ''-'•'
' a d --^ B u.-_2
!c a) M oj c3 .t;
aScSga
o o ® o ts
; 5 § 2 XI
Be "S
* * o
ifflCQQ Q E cSSoStri^Ec
o fc- t-
So a a
CNIC^JC^MC^C^ WCSCSC^ N WW NWCIWWWC^C^WCS WW WWWWWWW W WWWWWW WW
196
^ r-X ~
CONCENTRATION ^OF ECONOMIC POWER
)-t[-l W >^>-l l-ll-l ^ h^l^ ,_, t_(|_(tHK,l-H
b<!b<!t> "^M*^ M !> *-• W-" b» "-• bf" I-"-"-! '-' '-'*-' l-HI-IM l-H l-H M 1-1 hH l-l
PSr^K' l-ll-ll-l f«i>^l-lt>Sl-tj'l-l PS ►> l-l l-t hH l-ll-H ►i.b»W t-l l-H b, ►->. t-l S
>« >
K >>>K>>>
Kt
B>BB5: «K
H-ll-tl-l I-I M HH tk t-l k^ hi
>>> >
»B
>
»B
>
>»a>»
>
^^XXti KB
>
W^l-I
>
>>B>«K^
l-l|-|l-<l-H
>
>XM t:B>< «3K>>>> >BBBB XX
IH ►* l-( l-l>> P-IP-II-I>-I |-|l-l>>>> '-'
>>
>>
xxti
>
>
>BK
BBM
BBBKB^B
hH h-l I— I l-l HH l-IM
hHHHI— IhHI— I I— irN
»
>» >
BW«
>
^^B!»X'
>
>BM
^>X
I— 1 1— I I-I M I— I >> >> l-< l-l hH I-I I-I b("-l l-'bl'b*' I-I I— I I-I l-H ►> kJ
w I-I >> "^ I— I '^ '^ I-I IH I-I I— I t-i PSi-i I— iPnPS hh m i-i k^ >* rS
•>>>'^l— !►> ►> I-I I— I I-I l-l l-ll-l I-I l-l 1— IHHK*
>>>> > >
>
BB BBBBS>
>>>!r:
>•->
SXX
>>ti>>xi
wk^ I-I ^
>>>
B> >
>
>>>>> It;
>>
KXX
>>B>>'Kt
>>B
>>B
>
BBS:XB>>
bKbb
XX
\=iXX
> ^
BBB>>><'
>
BB B ;>
B^BBB^>
H- ( h- i (-H HH t— t hHtV
HH HH KH l-H h-H hH ►'S
>xti
>BB>>X"
>xx
JBX
1— I I-I I-I f^ ►> ^ M K^ 1^ M M I— I I-I
>>
BX«
>l-l M I-I M 1-1
^ I-I I-I i-» n h-i
'>X
B>M
> ^
I-I ?»i-i;> )H
►>^ f-l 1-1 HH HH hll— I
SiB>>> ^B
MMB
H- 1
>
»BS>B
1-1 wi-i>^?->
>>M
B>«
>
MP* »> >> h-l
>>>
y 3 0
1 ID
- crj O
•O-O
£h
jB M«X >>B>>:BB
>>
2-9 &
«5
, G^-
"^'g —
< OOCS C*J c^ »
O CO O COCCC*3CCCOCOC*5 COfO^HCOCC
O ^ C^ CO -^ »o '-^
t^t.^tN cocococococor^
CO CO CO CO CO CO CO CO to T-Z
CONCENTRATION OF ECONOMIC POWER
197
«>x'-'5:
>>>
>>>
xp^
SX XXX
XX >aa
^»( t-H 1— 1 1-4
HH 1— ( 1— (
BHa
b>-
>> xm^
>P >r
£ ££•"> £
I— I ^^
>
XXX >>> M>>M ■-> x^s
>> "rsa
I^HHh-tl— lhH^»-4hHt— I
> >
>x >t:ix s:^ >>> HKHaaaaa^
J» MM M M
aaxi=i> xx> xxa xs
M>M M M
> f^* ^ >> -^ f^* >>
>
5> KSjj ^^ b*^^ ^"'^"^5^3'^
M MMM
m;>mm^ mMm m
XS XKB >r >SX BBBIi:SB>>;'-'
'-> >> ?> !>M MMM MMMM
-g><s> aaa a>> 5>;
xa XXX SB >xb<; ►-bb^bbbb'^
M MM I^M M M MM
> >
a^xs> ss- a>> g>
XB XXX BB >XX B'^B'~'B3BB'~'
M MM 1^^ M M MM
5PK^> B>t «>
XB XBB >> >BB BBBBBB>>'^
> MK.?> M j^M MMM MMMM
S>XKS GGS >» X^
MMM
XX XXX >;^ >XX BB>B>B>;>-^
5BXXB
(i.MM'*
»— ( I— I HH h^ HH ^^ »■
MM '^'-1
>
>xx
*>X3>
cocofocc«coeoc*3
198
CONCENTRATION OF ECONOMIC POWER
^
HMI-IWMW»l-ll-iMW5>M
H-IIH M
^MI-IM
MMMI-H
MI-IM
>"g^>^">:
§
_"_K__^'-'«_a"t=i_><_^B
€^€^
BB>^B" B
Hi
"SS iBS«a"'^S3«
-->s
^a>'-
1— 1
M
KH i»>»-HhHI— 1 M
M
BB>B
l-ll-l>
h-l
B"^«a>BB
i->
>
>>BH
WMl-ll-l
MMQ
1-ll-IK.I-ll-ll-IMM
►> "^ l-l l-l ►> l-l M
i-(
K^l— IhHI— IMt— 1^1— lb>-^— "-^'— ll-*!— 11— II— 11— '*— 1
p-MI-l ,-1 1_( ^ HH f*^ l-l h-l M l-l l-l l-l M l-l l-l
MM l-ll-|l-l|-l I-IMM >H
1— IK^hHI-l
B^^B
B-^B
>«»>^>>
W
1— (1— 11-11— II— IH-IJ>.»>.^I— II— 1^1— ih>.i-ii— II— II— 1
aaa '~'a *-< aai-iai-ia'~'3'^
>>>B
>-ll-ll-lhH
a->
>">>>>>>
o
1— II— II— II— Ih- II— 1^ 1— IK^HHI— II— II— IHHI-HhHI-HI-^
a'"""' aaw"^ '~"~"~' B'^
B>BB
--^
>«^»^>>
fe
BBB"" aB>aaaa
aaaa
h-ll-ll-l
>
>"^>!>^>>
H
aa>'^Ba>>;>aa>a>aaaB
>>>>
a«>
P
>a>'-'a'^>>>aa>a'-
l-lBl-l M M M Hr W h-l M
B2>a
B>>B
mmB
>
t:^BB>BS>
3>aB B'^> a'-'>B>»>
^a"B'^'-'>>B"Bt
>>;B3Ba"S
>►— 1 1— I l-fc 1— ( I— 1 1^
>>'^>'-l'^
o ^
"3 °
t. <p a>
C3 c3 o
o ^ te
do 2
b «5 2
"2 '^
OS a>
I- w
p. V
0^-3
a> oi
^&
o o
fta.
PhW
° ° n
t- I ^7 rt H il> X3
^^-i-i-"2!20'a'"«>s
a> 03
? o CS 03 I'' 03
)cQCO>2;OE-i
'J3 03
I SI
ot>-ooa>QrHC^?5'!t¥5^t:rcoc»^»:H^c5
O^OO^ OOiOaO 030^0 oooooooo
> cc CO CO eococoeo co co ^
CONCENTRATION OF ECONOMIC POWER J^QQ
> ►> >> >i> p» ;> ;>
> >'
KX^>:t!t'<a>a>'-' e
>t>t— "— ' Si I— I t-H HH M t-H t-H HH t— ( H-l (— t M h-l H-l b> ^^
>>>;>a^t><
„W«W,^W«>.«^>.>.>.>.>.^I-I>.|-| ^^^WW,^>^>^>.J-|^^WWK^MW>.W >j-J
HH l-l W W ''^ h-l hH >^ HHMhH t-l M I-" l-(
-»>SB>>"'^>;>!=!^^BSB>kBX>>;Bt:'-' >;>t:Bt=iBBKSXBXt:r»'^t!B>; Bt!
>»>
>'-'>'
^>>>B>B>''
^>>BB»'-'>5B>>B-'B>
B>;B ^B>;B>t'<^>:^BBB>;B>;>;B>;>;> BB
B>SS>>a>a
r^ 1^ hH H^ HH
35'*'BB^^BBBB'*'BBBB^'"
B>>BBKt;5;>>>S>>>BB»S' BB
«>5:>;B>B>^
;>BKK>'~'>>a>^BBB>t
K, K' i_i *^ >«i '
B >B>B>X>S>>>B>BBB'-'»g BB
>^>B>'-'>'
-t:>BXK>'-'>gS>BBBB>B >B>B»<>S>>BB>>B>'-'»t;: BB
I— (►-^fc-lt— (h-it-Ht— (I— ti— (K>b^M>— '^
B>>BBKSS!>>'='«S!>>>«^>S!
> >
i^^i:l»'-'>l
•^BBB>''^S>B^BBBB>t
>> "^ > >
B>>B>MS>5:>>Bg>>>B>s!B BB
^>?^BB5>'-'>S>>BBBBBB >BBB>t><>B>BB5!>B>>">>> B>
B"^^>5BB
««^BB>^^BBB ^
p— (^>>i-H rS PS I— (l-< t^ ►> l-H l-l ^ ►> l-H P— I >> l-c ^h^
B>>>>;^B^'
'>>B^B>BSBBBBB'-
^>^BBWBBB>>BS;>>B"BBB
>>> >
>-'>
: c^i2
tl> ?^ O QJ
©DO
„ U o; O
-'— C O a;
a> -^ 'A ^ S Q
S 9 ' "o,
P " c bti ?> i
fLc&HliicoOraOPHCoaiCJ
; 3 a o ==
) CO c ^- CJ
j«;^_ » m «
as £ « ® iB
-2^1 oga-^
^ £ 3ac8 «
■S.D.,
t! 0) a
se=-:
oi C (U u;
i o o o
lOtpOp'H CM » Pt(
247149— 41— No. 1 15
200
CONCENTRATION OF ECONOMIC POWER
.8
TS
%
8
.^6
-e i£,
©"
»>
i
1— |H-(i— (t-H I— 1 1— * *^ >> *-j, t^ ►-^ I— t •-> I— I f^ l-i. *-> 1— I I— (1— II— t >-(»-IH-lhH
'S>^S'^^^^b«K>'^HS^^Kd '-'>Ba>'^'-*>
a«a><xHB>KKMX>K«x«MX^ aBa>KXXH
> >
^XBXX^aXXXBBBBXXBBXK ^B><>B^BB
'XBkX'-'BBXKBH>XX«BXX« >>;B>BB>>
BXBMX'-'BBXXBBBBXXBBXM >BB>B^B^
BXB«X'-'BBXBBB>BXXB3XX >BB>B5:^^
>> >>> > >>
"XXXX"BBBBBB>BXXBBXX
>B>BB>>
"XBXX"BXXBBB>BXXBBXX >>^>BB>;
B^>BX«BBXXXBBBBBXXXX >"X>BBB>
^X>XXBBXBBBBBXBXBBXX BB^BB>>>;
>X>XX'-'BXBBBB>:XBXBBBX
« d ^' S^ *5 ' ■ ,^
■S.fc'?
•^^>^>^
, OJ o w '
■B» ; 2-" 00.2
& u-.Sf oStf-^ " S
a o.;i-=i 0? « « >
5 fc 3-S-2 9-03 o a feS aS £•§ >2 c S a e-g-S 05 S « ^
'>>>
X'-'X>
:gx
>r''>
BB»
B>>>
B>>>
3B>B
BBS>
>>t>B
'BB>
>
'BB>
2-3
c3 a ,
2 a a £g
^ o o .i: S
a> o i-H c^ po -iij* »n CD r^ 00 O) o ^ c<i CO Tji m eo t^ 00 Oi o »-' cs c^ tj« »o co
<c t^ r^ t^ t^ t^ r^ t^ t^ r^ 1^ 00 00 00 00 00 00 00 00 00 00 os os os os Oi os os
CONCENTRATION OF ECONOMIC POWER
201
> >
>>>
it>l-ll-llv"-<>-IIHI-ll-l
1 >>«>^»>
;B^"Bk>i
M^MK^MHB"
B>;>
MBB>>>B>'-'
:>>B'^>B
£ ££££>>£ >£« ^^- -
'-ii-'»>i-"-KK
rS>^ H- 1 1— (i-H H- 1 ►-;». HH ►->. rS
:B3"><B>;
>-l l-l"*^ 1-1 l-l?*M
> >
►^B>B^t^"^«
>B>
>
^3B>>^^>B
>> >
B>B><B><
>> >
t-H ^ •— • HH t> ►::>
>3b
>
B>pB>«B>>
>KBXtftl
> >
BBBBBB"^"^>B^BBXKK>K
ttt |>g=3a
l-lk>l-l
>^KK^K>^^
BB^BXB
»-i. I-H »^ i-i. HH t— (
>> > >
>B>>>>^B"><B>'-'B'-'>>BBB
>>>B>BB>>
" > > ^
>
BBBBXX
^S>>;>;>"BBXB"BBBB^BBB
h;>-i>*^i^>^ i-i*-"
>
BX>
>><XB>B>BK
^P>^5b
BB>;>3B'-^>"BBB'-'3'-'B^BBB
^B«>^> BB
>
>><> \
>BXB>;B>BK
>>>>^>
BB>>BB">"3BB"BB^>BBB
M,^„ M „ „ > K^HHK^
>>r:B><BBB>
BK>B^K><><>k^>><!
BBBBXK
3"^BBb'''^^3B*^^B^B>^3B
t^>^>>^>t
B«BB^XKX>t^>BX ;
BBBBt^B
>'-!>>>> ">-'Bs!'^^S'~'B'^>BBB
>>>I^X5'-'BB BB>B>B!><B>B>>WBBB5^BB >B>>>>'~'>"K">'^BB>>B>B
MMM>M> MM K.« MM^„„ « M „ ^ K, ^ » „ j, M MMM „ „ M M k, M ^
BBB>^BBB>; I^XB
^>
BBBB>^Bt!X ;^t:BBXB '-^>^'-'"'-^BB'-'>B'-'S>BB>B>B
"»^ ^>^- >>MMMM M MM M >M^j^ „ „
^Bm >;::;t
>BBB3>BB>: Xt><S'>SXXBBBBBX ;B^BBX> B>BBBB'-'B">'-'BBB>5SS>B
< ,_| H^ « 1^ l-l M I-- |.^n>-,>^K.'^'^MMMMMl^ ,M>>,MMKN1"
„„ M M „m;>M?-„MMJ^K.;>k^„ ,K^f>MMM
B"^''^>>BmB
> >
6 iS'
ffl ^~ a
5<= —
cs i!?a^-£i:^— .00)
■2;'_OmCC =
3 g
s
era
■" o ox:_ >
2 = = n ^^TJ
■§.§
0J3.
a"S.S
2S o®
"^SS
03 -1^ O; l_X:
— , ca > a"© is
, •o=-cCi.2§~i2g*oo£'-S'§-£aBa2 S^a-cSS
a;«oo«-oi>.'*cS3ooOS3ocBoS£x3j3t2o®g.-S
* '^JH a a, m "^ ?■« » ®
OOQOOOOCO
;tC»C»'3»C'C*0iC»CiC»C'Cw^'O»OU7»O*Oi0'O »C»C"^'CiC»OtC»C»CtC"^»0»OiOW5»0*0»0»d*0
202
CONCE^TRATION OF ECONOMIC POWER
■2*
8
^T3
9
n
o
e*43
•j* a
.^u
S
t>
a
o
1
e
HH
s>
O.
?»
S
*« 2,
oS^
>
(-(t-m-m-Hhm— it>>H
t>.l-l !-'>> HHI-H l-l
-^ -' ^'-' £^ "^ >£ £^
^aK>sGkac x"aa>>aaKS5:aaxaaM'-'K>
l-c l-l I— I h-l 1— I K-l vj »-l l-H 1— 1 1— 1 1— I l-l l-l t-l M l-l iv bd W l-l *-< I-"-! !> lx"-"-l tx*
l-l •> b. l-l b* ^ l^ !> l-l l-l l-l HH l-l l-l Pn ri PS l-l i-ii-ii^?Si-i PS
l-l 1^ ^ w •*■ 1- -> |-,l_Jj.l>|_| M f> M ^H
sKas^xaaa >«a^>a"saaa>;'-'a>aaaaa
{>•*■ l-l -1 1-|K»I-I„ >MI-ll-lt-l l-l >.Wf>. ^
^ M K*^ ►^ h** t> *^ t-H l-l I— I >H I— t b^ 1— I *— I >— ' ►-H I— ' »^ *-H b» l^ t> b> "^ t^ t-^ ►H I— I
PS ks b, PS Pi ►> H b» l-l "-^ l-l l-l l-l h-i l-l l-l l-l i' ri "^ t> M i-< l-l ►>
«»*■ ?• ?• l-l-l p,l-l l-l l-l >*l-lf> >"
aK^^^ixK^^a >«a^>>;aaaaa>^>;>t;aaa>
:xt««i5:Mxaaa >;'-'aa>;>;'^>aaa>">;>>>;a"a
-xx>t'<a>aa ^-'aa>>;"aaaa>;>^aa>xat;
Ki^^xx„ a a a^wM'-'>aaa^ aaa"> ^
a'^>
3><[x!axwKa>; ^aaaaaa>Mxa>aaa"«"a>
»
8 .a
2 S
ri c
330h
1'^
o .
O 9 ;
r S is
>a
f>l-IIH
a>'
at«<xaKt><aaa >'^a5>>'-'s>aa>'-'aa>>a*^a >a'
Mfj. l-l l-l l-l ,>l-ll-l f>l-lM|_,l-l |_|H< l-IJ^ Jj. Ml-I
>>►
>>►
>>►
'x«>«ww"a '-^'-'a>;aaa>>^>;>aaaa>;>;a> >a
CONCENTRATION OF ECONOMIC POWER 203
*>a"«k"«x"aas:'-' whh mm.-, «;-.«« g«„^gj^„^gj_,j_,^j-j«j-|>^hHi-,wi-,«[>,^i-<«jH
"> >" -"-' ^>'^ > ^ > >> ^"^>> >^^'-' " >^
>aa('<Ka>a« at><>a
aw K^wa^g-^hH >
t«!k>t'<aaaa(«!aa>aa«aaa'-'t;aa>t><aa
'-'-'a-'aa'-'Kt'<>;"HH«
> '-'>■
-"-'«^^aa^'->
K ►* > > IH1-I>H)-II-I
tHI-I^Mt-l^l-ll-I^M^l-IMM
^ 1-1 l-l HI
-^^^^Kt^a^^^^xt^a^ag^aa^^a-^Ba
>
aa^a->>-a
>
«a«">xaa""BB^>a"Baa'^""M>k(«!
"'-'x>;«a'^a>a""""
'^a"aa>a"'a
►Ht-I P-l
-««>aa>>aaaaaaa'-'a"'-"-"-"-'wa><«
a"« :«aaa>a«-"«
1 >
-«-aa^>;"a
"'^">ak>>^>aakaa^aaa'"'^"«>a«
--aa-a"a>a">-- -■ . ^. . - ^^^. .....
> >
„„gg„„„„^„„g„„ ■" - ' " ■ . ^^^^^^^..^....
„„WH,
a-'x
'3aa>:
W >> H-l I— I W M h-l l-l kH HH >-l h-l >>►> I— (>-(
'-«'-'>aK>>assaKaB'
a'-'x'-'
-^a>aaaa-^
aaaa "
^>'-3axa'^aa>'-'aaaaa"^
H l-l 1-1
-xaxx
U-l 1— 1 1— 1 U-J 1— 1 «— f i— 1 »- 1— <.—. 1—1 .—.■—. .-J ,_.._.■_.._,.. ._,._,,_,wj ^^__^ l-_.l_-.k. ._. l_. _ ._■ t_. . l—l .— 1 1_1 l-_. 1— . 1—1 t-i k_l l_J I J ».. I-J 1 J
>
^ ^^«
««««►,
1-1 ?*■-* Wl-I l-l
>
»aa>a>aa'-'5:>>i=i a'^5:'^>>5:t
>aa>>a>araaa>>>
aaa^at>'a
xaax
hHt— ll-HhH
>
> a!-.>
-a '-a'-'a>;aa>>;>aa^a>a>;'^>;a3'
'xaax
08-0
2 OS o
s
"3 '
0ST3
■g 03"o
"1 i> 15
IS"?
I -I hr
I St, 03 CO
OT3 o
CS Q u
M <fl 5
,3 a o-p
^^"2 0
fc g 5 =5
Ci K/> <^ d ® •
a.S^2~ o X
J2 '^S--! '5
*-• J o! •'^ . Jjd
.2.3.3.2 -S£.q? SS i § ?5 ^-^ §^ 8 2 5 3-S 3 3^ ^ i
-<jm
03— O 03 03 C3 05 O
psmmooooo
.Q S " c ca.3^.3.2'o =
O O C O O «.a 03 3-3'3it 5o= O O C "5 O o: 03 „
OOOfeiJZCMOO'raaiOoQajOraooOE-ieP^fM J
^ a
aa
'S'a
PLiAh
us u? U3 IC *0 lO >0 IC >0 lO kC tC lO to CD V CD V CO <0 V CC ^ CD
0-— McCTj'.cccr^ocoso — Mc?'
I cs c^ c< c^ C^ c
■ ul tC t^ 00 05 O i— o « ■«>■ f^
204
CONCENTRATION OF ECONOMIC POWER
>> > > >>
>
> £>£ >
■(l-CJ^l— I ^M
W M l-C »-lj>
"'>a^a«K««'^a>S«a"^>>a'^ b^a'
a>>a>a5:aa"t^"xa'-'aaa>s:« ><S'
>a G"
>>>
>>
>as>s>S!>S"'xas"a"aaaaa xa'
'>>x >>
aJ^aaa'*'a'*'^'~'X'~'aaa'~"~''*''~'aa xa^aa*'
'a>x >>
>>^ (_^ K^ H^ K^ HH l-H HH HH H-( I— ( 1— ( H^ t-H HH ^H hH f-> t-H )— 4 K> ^H i-H »—< ^-^ ►:>
rN i-H l-H »^ ►^ I— * "^ ^
a>5x >>
a>>£i>S;5«g a>a'-"^ >'^a>" sa a^^
> i> > > >
a>^x >>
^H K. L^ HH )— 1 ^ l-H K. ►-^ t— 1 k> )— I HH I— I >-H t-( H- 1 1^ hH H- 1 h-l HH ►-( |-H t-H t— 1 1— I h
l_l !■*• PS I— 1 ►-» "* t-1 1^ f^ KS fv^ I— I 1^ l-O-l l-HI— I I— II— I
i-l >_, i_< »* M 1^ l-H M 1^ 1-C |_|M
'a>x >>
">a>s!=!>s>'-'x'-'>aa'-"-'aa>'-* aa'-'>s:>aa>K >>
^aa^a>aaa^>a^aa"^">aa xa^-'^a^aaax ^^
>a^^xa>'-'a>a"X'^as:aa'-'ag aa»>aaxaa a^
ra>>xa>aaaa>xa">>>>>> aaaaaaaaaa a>
o r^ 00 03 o — <M cc -*j« lo o u
CONCENTRATION OF ECONOMIC POWER
205
>>-->
»
^>>,^^^^t>>^
l-H
^•^^
xxxsa
>sx>;aa'-"-'sa_x>>xaxx
>>>""">">>«
>>
H-ihH^-*
" >> > >
^x^^»>->^>y.x
x>
>a«
xx>xx
aH>x>H>s^55a--5x>>;
>>>>w««gaiiia >« >>B >>a>>; aa>;>;>>K>a'-'>'-"-"-'>>aa
>>>>
>^^"'^ -^^ ^^" ^^3>" Si
>i— t^^'^^^l-H^-s.l^l-(l— IHHI— l^^^^l—^l-H
>>
>>
>>
r»
i_< w Mw hi M hH ►> i-H w ►> i-ii> »>'-"-< "-I '-1 1> b<! >-* t>L>>!!!!
i_i I— ( I— 1 1— I h- 1 i_|i^|>^i_4K* K^f^ ^i_(i_i s>!>Cl'^t> ILtL'^'"'
1— II— l>-l>> >> •^M "^l-H I— ll— I C 1^ I— 1 1-1 1^ l-IW »-|
, l-l ''M I— I
i-i i-c 1— 1 1— 1 1— I h-i ►> ►-> 1— 1 1— 1 1— I >it>. i-ii— ii-i ►^ K, >-i 1-1 1-1 >— 1 1— I !> l-l i-< t-l > H t"* t"' >• t> S H t"' H ^
>£::>
W MM i-HI-ll-l « WW
ass ***'~'aap-< aa """a i-n-iass aa'~'> a^aa'"' wwasa'"'
>aaa
>>>>
i> I— I I.H hH hH >-^ »^M I— l»-l li^ >^ hH I— t H- 1 t— t PT I— <
l-ll-l hH hH WH (-1 >>•> l-l>
il-IWI-IH-ll-ll— O-IWI-IM
) l-i <u«
• 5? a<
on
!" in " —
•r! i:< fl <D
o « a
■ - „ 5 ■ » 1^ S e
;|o®^
I &) lA
" S & 1b
•9.
D
<pq^(i,;i,H5 W WO
5ij_o " 5 ■— o" 0 oi -3
2-9 w
S2 Z
.c «
MW^iO^Dt-aOOiQi-HN
* N CO-* lo^h^go^ O^
d Od Od 0% ^ O) ^
CO CO CO CO CO <0 CO CO CO CO
coco<o^^^*o^*^«•^^^*^•^*^•^*
206
CONCENTRATION OF ECONOMIC POWER
oS^
>>»>xt'<>>">>
^> > > ^ ^
s^»^aB-n->>
>
:>>>>Ba'-"-"-'>>
4 l-HI-l K, h-ll-l
l-l >-<<-< »* Ml-"
l-l'^2^l-l>ri-ll-l ►H>-ll-l'f^
>BB> >>>>
l-lt-ll-l «-"tH>-lhH
>>
„BWH BBBB
l-Hl-l l-(
>
^>>a BB>B
wi-ii-i i-ii_ii_t
>>>B >;>BB
l-H ^ t^ )— • ►^ »-H h-i K^ "--^ t-H ^ I h-" HH K^ "^
'-'>'-<^>^>-l>'^'^'-'-' .>-HI-(>l-l
-J 03';
.b
O •■„ <u o
S^^-C
w £'3'OS2«i3
"03X12
aooooo" °
"- '"a o
n nx3x:i3x] a § a ®
ag
o o o 2
t:>B HMB«
>=* ►> M l-ll-l
b"^ bH>b
>> >
^^^ BkBB
r^r^t-t l-l l-Hl-l
> »
MKB «M^^
>
^B^ MMBH
^ >
>
BBB HtxIBM
>>> >
BBB MXXK
HXXM
^^B ««B« B
!> > >
»>B >>BB ^BS: XKB><1 B
l-ll-IW l-l|_ll-| *^>'^ tt >
jWaai^S gi^-r >
coco
£ «.SS
■a§^P5ffl(5Smm(5QSMwM3p3o
CO CO C*5 CO CO CD CO
CONCENTRATION OF ECONOMIC POWER
207
>>'- SB xa^
'> W>^>
IX
>»>';:: >> ««
> >
a>
>
X>>-'>'-' !i!>>>M B'-'>>>'-'XMW KB >B>> >BBB
4^ I— ( K^ w hH l-H HH ►^i, ►-> l-H M h> H-l I— I H-i )— 1 HH ►> J— * t> t> ""^ fc> »-< l-H >— I h- HH H-l I— (
'-'>">^B"K
t-l l-l l-H l-l >~^ l-l l-c 1— I HH >-l kJ •> b> '—"—"—"-"—"-' Ix* I— II— I I— If^b*!— 1 '-lt>t>
>>
>BBBt
1>'-'B
>
^^>->
)-H M '^ HH 1-^ HH HH *^ HH *^ HH )^ ^ hH ^H hH
> > >
BB^^M
>BBBBB>;'-'t><
KX
VI
VIII
III
VIII
>B^"
>B
>BB"B>"B
I ;^^>"
BB>^«
>;>BBBB>;'-*«
MW
^XBB
>^b'~'
;BB-B>"5
B«>-r
>
>'-'3>;BB'-"-^t^
>>
>B>>
>
B>t!BX
M "^ HH
B^K
B>'-' :'-'> IB
tiBB'- XXBBX >>bbb"5:bx bb >m>b b»^
>5»>'-'. BBSIBK >>>>>>'-"-'t: k« BMBB BB>^B XBB>S:BBBB"^
>>'^>
>««>
>r-'B">
>>«>« J>B>BB'-'>B^ >X BXB^ >>B'
'BB>'
= •0 .
;3S
fflliilipiliiiiilfl
a,--^C'o<i>o6£<jj-2c9'5;
«o
S^S3!SS E:?2^"5" m- m «o t- 00 o> o — • pj co-* >osDt~
^ <q* ^ ^ T}< ^ "^ "^ "^ ^ ^^ »C 10 IC »C Ct »C O O O (O <D CD CO CO
05 o-<e<«co
«lOCOt^OOOSO^C^W^
r^t^t*r»t*t^r^i
cDt^r^t^t^- t^r^t^t^t^t^oooooooooo
t^ t>. t^ t^ i^ t^ r^ t^ t* t^ t^ r^ t^ t^ r* f^ t^ 1^ I
208
CONCENTRATION OF ECONOMIC POWER
Table 26. — Flexibility of commodity prices measured by various criteria ranked in ten
groups for each criterion in order of increasing flexibility — Continued
DESCRIPTION OF CRITERIA AND DISTRIBUTION OF SERIES
[Wholesale commodity price indexes of the Bureau of Labor Statistics, used in each measure, are divided
into 10 groups, as nearly equal in number as possible, with Items in group I showing least flexibility,
and group X the greatest flexibility]
Group
Group limits
Num-
ber of
items
Group
Group limits
Num-
ber of
items
Number of monthly changes in 95 chances, January
1926-December 1933
Number of monthly changes in 39 chances, Janu-
ary 1926-April 1929
A
0to4 -
619
I
II
III
IV
V
VI
VII
VIII
IX
X
B
0
652
I
75
61
60
61
59
56
62
62
63
60
75
II
6to7 -.
1...
40
III
8toll -.-
2 to 3
95
IV
12 to 16
4 to 5
63
V
17 to 22 . ...
6 to 8
58
VI
23 to 34
9 to 13
60
VII
35 to 49
14 to 20
63
VIII
50 to 77
21 to 30
65
IX
78 to 92
31 to 37.
58
X
93 to 95 . . ..
38 to 39.
76
Percent of decline from June 1929 to February 1933
Percent increase from depression low to peak of 1937
C
No change and increases. - .
664
67
67
68
67
65
67
64
68
65
66
I
II
III
IV
V
VI
VII
VIII
IX
X
D
Decreases to 4.3 percent increase .
4.4 to 12.0
643
I
65
II
0.1 to 10.9 . ...
62
III
11.0 to 17.9
12.1 to 23.2
65
IV
180 to 25.2
23.3 to 33.2
65
V
25.3 to 31.3
33.3 to 45.7
64
VI
31.4 to 37.5 . .-
45.8 to 57.0
63
VII
37.6 to 43.9 .
57.1 to 77.4_
66
VIII
44.0 to 50.9
77.5 to 101.0
62
IX
51.0 to 58.9
101.1 to 172.0
64
X
59.0 to 85.3
172.1 to 927.2
67
Average of 1929 and 1937 indexes, less 1932 index, on
basis of 1929=100 percent
Percent decrease, average of 1929 and 1937 peak.<5 to
depression low index
E
-20.6to0.4
617
I
II
III
IV
V
VI
vn
VIII
IX
X
F
Increases to 8.5 percent decrease.
8.6 to 16.7
640
I
61
60
62
61
63
62
60
62
63
63
63
II
0.5 to 7.5
65
HI
7.8 to 12.8
16.8 to 23.1
65
IV
13.0 to 17.5 . . _
23.2 to 28.0.
63
V
17.6 to 23.2
28.1 to 33.6_
62
VI
23.3 to 27.4
33.7 to 39.7
65
VII
27.5 to 32.9
39.8 to 46.3
65
VIII
33.2 to 39.4 .
46.4 to 57.3...
65
IX
39.5 to 47.5
57.4 to 65.9
64
X
47.9 to 81.8
66.0 to 90.0
63
Percent decrease, average of 1929 peak and 1936-
March 1937 peak, to depression low
Percent decrease from average of 1929 and 1937 t
1932
G
Increases to 7.8 percent decrease.
7.9 to 15.3
655
I
II
III
IV
V
VI
VII
vin
IX
X
H
28.5 increase to 0.4 decrease
0.5 to 7.4
652
I
II
65
65
66
66
65
66
65
65
68
64
66
63
III
15.4 to 20.9 . . .
7.5 to 12.7.. .-
64
IV
21.0 to 27.0....
12.8 to 18.2....
67
V
27.1 to 32.7
18.3 to 23.4
66
VI
32.8 to 38.5
2.3.5 to 28.5..
64
vn
38.6 to 45.4
28.6 to 34.8
66
VIII
45.5 to 55.8
34.9 to 41.4
64
IX
55.9 to 65.4
41.5 to 51.6 ...„ ,
51.7 to 81.1
67
X
65.5 to 89.9
66
See footnotes at end of table
CONCENTRATION OF ECONOMIC POWER
209
Table 26. — Flexibility of commodity prices measured by various criteria ranked in ten
groups for each criterion in order of increasing flexibility — Continued
DESCRIPTION OF CRITERIA AND DISTRIBUTION OF SERIES— Continued
Group
Oroup limits
Num-
ber of
items
Group
Group limits
Num-
ber of
items
Percent decrease, average of February 1929 and
February 1937 to February 1933
Peak month of index, 1929-31
I
644
I
II
III
IV
V
VI
VII
VIII
IX
X
J
December 1931
656
I
62
63
65
66
66
64
67
64
64
63
71
II
1.7 to 10.0......
December 1930 to November 1931
June 1930 to November 1930
January 1930 to May 1930
November 1929 to December 1929
September 1929 to October 1929..
June 1929 to August 1929
61
III
10.1 to 16.3
59
IV
16.4 to 21.0 . . .
61
V
21.1 to 26.2
60
VI
26.3 to 33.3
72
VII
33.4 to 40.1
72
VIII
40.2 to 48.5
April 1929 to May 1929
67
IX
48.6 to 57.5
March 1929
60
X
57.6 to 86.8
January 1929 to February 1929...
83
Low month of depression 1932-34
Peak month of index 1936-38
K
December 1934
656
I
II
III
IV
V
VI
VII
VIII
IX
X
L
December 1938
650
I
80
56
50
88
52
71
40
82
78
59
158
II
December 1933 to November 1934
August 1933 to November 1933...
June 1933 to July 1933
(')
III
IV
July 1938 to November 1938
April 1938 to June 1938
40
67
V
May 1933
December 1937 to March 1938
September 1937 to November 1937.
June 1937 to August 1937
61
VI
April 1933
67
VII
March 1933
73
VIII
December 1932 to February 1933-
July 1932 to November 1932
January 1932 to June 1932.
April 1937 to M-ay 1937 .
62
IX
X
January 1937 to March 1937
January 1936 to December 1936. .
71
61
Average change (index points) per change,
1926-April 1929
January
Aggrega
le change (index points) less net
January 1926-AprU 1929
change,
M
0.0 to 1.6
577
I
II
III
IV
V
VI
VII
VIII
IX
X
0.0 -
652
I
66
60
58
59
57
54
58
60
57
58
198
II
1.7 to 2.2 .. .
(*)..
ni
2.3 to 2.6
(!)
IV
2.7 to 3.2
0.1 to 0.8
65
V
3.3 to 3.8
9 to 17
65
VI
3.9 to 4.5
18 to 28
61
VII
4.6 to 5.6
29 to 45
65
VIII
5.7 to 6.7 ...
46 to 79
66
IX
6.8 to 8.9
80 to 151
67
X
9.0 to 34.7
152 up
65
' The code numbers are those used in the wholesale price bulletins of the Bureau of Labor Statistics,
except that items followed by "c" are composites as explained below.
» These measures are explained on pages 166-168 of the text, and also at the end of this table. See end of
table.
• These composites include the following individual series (The numbers shown for the individual series
In parentheses are their code numbers used in the wholesale price bulletins) :
Composite 2c includes: (2) Corn, No. 2, yellow; (3) Corn, No. 3, yellow.
Composite 6c includes: (6) Wheat, No. 2, red winter, Chicago; (7) Wheat, No. 2, hard; (8) Wheat, No. 1,
northern spring; (9) Wheat, No. 2, dark northern spring; (10) Wheat, No. 1, hard white; (11) Wheat, No.
2, red winter, St. Louis.
Composite 13c includes: (13) Cows, fair to good; (14) cows, good to choice.
Composite 15c includes: (16) Steers, fair to good; (16) Steers, good to choice.
Composite 17c includes: (17) Hoes, heavy butchers; (18) Hogs, light butchers.
Composite 19c includes: (19) Ewes, native; (21) Wethers, fed.
Composite 22c includes: (22) Poultry, live, Chicago; (23) Poultry, live. New York.
Composite 24c includes: (24) Cotton, Galveston; (25) Cotton, New Orleans; (26) Cotton, New York.
Composite 27c includes: (27) E?gs, Boston; r28) Eggs, Chicago; (29) Eggs, Cincinnati; (31) Eggs, New
York; (32) Ef;gs, Philadelphia; (33) Eggs, San Francisco.
Composite 40c includes: C40) Hay, clover; (41) Hay, Timothy.
Composite 55c includes: (55) Pot.itoes, Boston; (56) Potatoes, Chicago; (67) Potatoes, New York.
Composite 59c includes: (59) Wool, grease, cloth; (60) Wool, grease, delaine; (61) Wool, grease, half blood;
(62) Wool, grease, medium; (63) Wool, scoured, fine;
Footnotes continued on p. 210.
210 CONCENTRATION OF ECONOMIC POWER
Table 26. — Flexibility of commodity prices measured by various criteria ranked in ten
groups for each criterion in order of increasing flexibility — Continued
Composite 65c includes: (65) Wool, Argentine; (66) Wool, Australian; (67) Wool, Montevideo.
Composite 68c includes: (68) Butter, Boston, extra; (69) Butter, Boston, 1st; (70) Butter, Boston, 2nd;
(71) Butter, Chicago, extra; (72) Butter, Chicago, extra, 1st; (73) Butter, Chicago, 1st; (74) Butter, Cincinnati;
(75) Butter, New Orleans, fancy; (76) Butter. New Orleans, choice; (77) butter. New York, extra. (78)
Butter. New York, Isf (79) Butter, New York, 2nd; (SO) Butter. Philadelphia, extra; (81) Butter, Phila-
delphia, extra 1st; (82) Butter, Philadelphia, 1st; (83) Butter, St. Louis; (84) Butter, San Francisco, extra;
(85) Butter, San Francisco.
Composite 86c includes: (86) Cheese, Chicago; (87) Cheese, New York; (88) Cheese, San Francisco.
Composite lOSc'includes: (103) Flour, standard patent, Buffalo; (104) Flour, 1st, clear, Buffalo; (105) Flour
short patents, Kansas City; (106) Flour, straight,' Kansas City (107) Flour, standard patents, Minneapolis;
(108) Flour, 2nd patents, Minneapolis; (109) Flour, patents, Portland, Ore.; (110) Flour, shorts, patents,
St. Louis (111) Fluur, straights, St. Louis; (112) Flour, standard patents, Toledo.
Composite 141c includes: (141) Beef, fresh, Chicago; (142) Besf, fresh, New York.
Composite 190c includes: (190) Boys' shoes; (192) Misses' shoes.
Composite 194c includes: (194) Shoes, calf, blucher; (195) Shoes, calf, 4A; (196) Shoes, cord tip; (198)
shoes, series 1; (199) Shoes, series 2; (200) Shoes, side oxford.
Composite 201c includes: (201) Shoes, kid: (204) Shoes, brown.
Composite 202c includes: (202) Shoes, work; (203) Shoes, elk.
Composite 205c includes: (205) Shoes, blucher, oxford; (207) Patent ieuher pumps; (210) Shoes, elk,
colors.
Composite 206c includes: (206) Shoes, strap; (209) Kid pumps.
Composite 212c includes: (212) Steer hides, native; (213) Steer hides, Texas.
Composite 222c includes: (222) Leather, oak bends; (223) Leather, oak scoured back; (224) Leather, union
Composite 261c includes: (261) Muslin, No. 1, 80x92; (262) Muslin, No. 2, 80x80; (263) Muslin, No. 3, 80x80.
Composite 270c includes: (270) Sheeting, light; (271) Sheeting, heavy.
Composite 272c includes: (272) Sheeting, brown; (273) Sheeting, medium; (274) Sheeting, light.
Compo.<;ite 281c includes: (281) Yarn, 10/1, north; (282) Yarn, 22/1, north; (283) Yarn, 40's, south.
Composite 284c includes: (284) Yarn, 20/2; (285) Yarn, 40/2.
Composite 295c includes: (295) Rayon, 150, 1st; (296) Rayon, 150, 2nd; (297) Rayon, 300, 1st; (298) Rayon,
300, 2nd.
Composite 299c includes: (299) Silk, Canton; (300) Silk, Japan, white; (301) Silk, Japan, double extra;
(302) Silk, Japan, yellow.
Composite 303c includes: (303) Silk yarn, 62/1; (304) Silk yajn, 60/2.
Composite 306c includes: (306) Silk yarn, crepe; (307) Silk yarn, organzine; (308) Silk yam, tram.
Composite 318c includes: (318) Suitings, serge, 15-ounce; (319) Suitings, serge, 16-ounce; (320) Uniform
serge, fine; (321) Uniform serge, medium.
Composite 325c includes: (325) Yarn, half blood; (326) Yarn, fine.
Composite 341c includes: (341) Jute yarn, No. 1; (342) Jute yarn. No. 2.
Composite 350c includes: (350) Retort coke, Alabama; (351) Retort coke, New Jersey; (352) Retort coke ,
Chicago.
Composite 359c includes: (359) Gasoline, Northern Texas; (360) Gasoline, Oklahoma; (361) Gasoline,
Pennsylvania.
Composite 425c includes: (425) Iron ore, Bessemer; (426) Iron ore, non-Bessemer.
Composite 427c includes: (427) Pig iron, basic; (428) Pig iron, Bessemer.
Composite 457c includes: (457) Fence wire, annealed; (458) Fence wire, barbed, galvanized; (459) Fence
wire galvanized.
Composite 462c includes: (462) to (467) passenger cars, 6 series.
Composite 565c includes: (565) Plate glass, 3-5 square feet; (566) Plate glass, 5-10 square feet.
Composite 567c includes: (567) Window glass. A; (568) Window glass, B.
Composite 574c includes: (574) Individual prepared shingles; (575) Prepared roofing, medium; (576) pre-
pared roofing, slate.
Composite 666c includes: (666) Fertilizer, Middle Atlantic; (668) Fertilizer, New England; (670) Ferti-
lizer, South Atlantic, other; (671) Fertilizer, South Central and Southwest.
Composite 667c Includes: (667) Fertilizer, Middle West; (669) Fertilizer, South Atlantic, 3-8-3.
Composite 702c includes: (702) Dinner sets; (703) Dinner sets, spray.
Composite 751c includes: (751) Rubber, amber; (752) Latex crepe.
' Groups I and II were combined for criterion L and are indicated as group I.
* Groups 1, II, and III were combined for criterion N and are indicated as group I.
« No change in price between January 1926 and April 1929.
CONCENTRATION OF ECONOMIC POWER
211
Table 27. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Percent of decline, 1929-33, compared with percent or recover, 1933-37. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION D
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X
1
1
1
1
5
8
6
11
1
1
5
3
6
10
2
3
1
3
10
2
6
14
6
15
8
42
13
5
4
1
65
O IX
28
20
4
3
65
2; VIII
5
1
9
9
4
10
4
10
13
8
3
4
67
O VII
2
3
4
3
9
12
13
9
7
8
3
2
2
67
S VI.-. _ ._.
12
13
8
8
2
64
g v..
12
13
13
3
3
63
1 IV
13
12
9
5
65
3 III.
11
16
5
1
1
1
68
II
14
16
3
63
I
31
65
Total
65
63
65
63
64
63
66
62
63
68
642
Source: Criterion C — Bureau of Labor Statistics. Criterion D— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBIUTY
Criterion C— Percent decline from June 1929 to
February 1933:
Oroup Percent decline
I... Increase and no change
II 0.1-10.9
III 11.0-17.9
IV.. 18.0-25.2
V 25.3-31.3
VI 31.4-37.5
VII 37.6-43.9
VIII 44.0-50.9
IX 51.0-58.9
X 59.0-85.3
Criterion D. — Percent increase from depression low
to peak of 1937:
Group — Percent increase
I- Decrease to 4.3 increase
II 4.4-12.0
III - 12.1-23.2
IV 23 3-33.2
V 33.3-15.7
VI 45.8-57.0
VII 57.1-77.4
VIII 77.5-101.0
IX 101.1-172.0
X 172.1-927.2
212 CONCENTRATION OF ECONOMIC POWER
Table 28.- — Correlation table of comnwdities distributed according to their ranks by
two criteria of wholesale price flexibility
[Timing of predepression peak (1929-31) compared with timing of depression low (1932-34).
classified in 10 groups — group I least flexible, group X most flexible]
CRITERION K
Oommodities
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X
2
2
7
2
6
3
2
7
12
6
1
4
1
12
4
5
4
2
3
6
2
4
8
3
4
3
11
12
4
10
2
4
3
10
5
15
3
4
13
7
8
6
12
11
19
16
4
3
4
10
5
6
4
4
3
85
IX
10
10
10
10
6
5
5
3
49
*Z VIII
12
15
14
6
5
5
2
66
O VII
3
2
3
4
4
3
72
S VI
5
11
12
4
3
1
72
g V
4
12
4
7
1
60
1 IV
7
18
16
3
61
D III
4
8
10
59
II
6
13
61
I
37
71
Total .. .
80
56
60
88
62
71
40
82
78
59
656
Source: Criterion K — Bureau of Labor Statistics. Criterion J — Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion J.— Peak month of index, 1929-31:
Group— Month
I December 1931
II December 1930-November 1931
III June 1930-November 1930
IV January 1930-May 1930
. V November 1929-December 1929
VI _.. September 1929-October 1929
VII June 1929-August 1929
VIII April 1929-May 1929
IX March 1929
X January 1929-February 1929
Criterion K.—liOw month of depression, 1932-34:
Group— Month
I December 1934
II December 1933-November 1934
III August 1933-November 1933
IV.... June 1933-July 1933
V. May 1933
VI. April 1933
VII March 1933
VIII _ December 1932-February 1933
IX July 1932-November 1932
X January 1932-June 1932
CONCENTRATION OF ECONOMIC POWER
213
Table 29. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Timing of pre-depression peak (1929-31) compared with post-depression peak (1936-38). Commodities
classified in 10 groups — group I least flexible, group X most flexible]
CRITERION L
Group
land n
combined
III
IV
V
VI
VII
VIII
IX
X
Total
X..
6
6
14
7
7
15
12
21
4
1
6
1
9
3
3
6
1
3
5
9
3
10
2
8
7
5
4
3
5
18
9
2
7
17
7
21
8
5
6
7
13
9
1
4
5
4
84
XI
23
6
2
9
3
3
1
1
50
vni ..
10
9
4
3
6
1
1
3
65
•^ VII... _
16
8
8
8
5
8
■
72
^ VI
8
7
12
7
1
2
72
S V
5
2
8
9
4
56
W IV .._.
11
11
3
6
58
^ m
3
9
68
« n.... .
28
41
59
^ I
70
Total--
157
39
57
60
67
71
61
70
62
644
Source: Criterion J— Bureau of Labor statistics. Criterion L — Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion X— Peak month, 1929-31:
Group — Month
I December 1931
II December 1930-November 1931
III June 1930-November 1930
rV January 1930-May 1930
V - November 1929-December 1929
VI September 1929-October 1929
VII June 1929-August 1929
VIU April 1929-May 1929
IX.- March 1929
X January 1 929-February 1929
Criterion i.— Peak month of index 1936-38:
Group— Month
I and II December 1938
III ... July 1938-November 1938
IV April 1938-June 1938
V December 1937-March 1938
VI _ September 1937-November 1 937
VII June 1937-August 1937
VIII. April 1937-May 1937
IX... January 1937-March 1937
X - January 1936-December 1936
214
CONCENTRATION OF ECONOMIC POWER
Table 30. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale -price flexibility
[Timing of depression low (1932-34) compared with post-depression peak (1936-38). Commodities classified
In 10 groups— group I least flexible, group X most flexible]
CRITERION L
Group
I and II
combined
ni
IV
V
VI
VII
VIII
IX
X
Total
X --
7
9
2
3
8
13
33
29
2
2
1
1
3
3
4
9
3
1
1
5
6
6
3
n
1
10
1
9
3
6 ■
7
11
7
16
n
7
9
10
3
3
3
7
4
6
9
5g
IX
16
19
10
3
2
1
5
2
78
vni
16
18
81
W VII
9
16
6
1
2
1
2
5
5
6
2
3
39
is VI - --
r"i5
9
12
4
3
4.
68
2 V.
6
12
5
3
4
52
g IV
16
3
7
5
87
Eh III
5
11
6
50
pj II
16
42
54
U I
77
Total
159
38
56
60
66
71
62
71
61
644
Source: Criterion K — Bureau of Labor Statistics. Criterion L — Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion K.—liOw month of depression, 1932-34:
Group — Month
I December 1934
II December 1933-November 1934
III.. August 1933-November 1933
IV... June 1933-July 1933
V May 1933
VI April 1933
VII March 1933
VIII December 1932-February 1933
IX... July 1932-November 1932
X January 1932- June 1932
Criterion X.— Peak month, 1936-38:
Group— Month
I and II December 1938
III July 1938-November 1938
IV April 1938-June 1938
v.... December 1937-March 1938
VI September 1937-November 1937
VII- June 1937-August 1937
Vllf... April 1937-May 1937
IX January 1937-March 1937
X January 1936-December 1936
CONCENTRATION OF ECONOMIC POWER
215
Table 31. — Correlation table of commod't'ies distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with amplitude of cyclical movement. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION F
Group
I
II
III
IV
V
VI
VII
vni
IX
X
Total
X
2
2
4
10
1
3
13 1
6
13
20
31
23
6
2
60
IX .--
1
3
9I
18
63
< VIII
1
7
9
9'
12
4
9
62
g VII. -
1
1
2
1
10
11
3
1
2
7
8 ■
4
4
9
n '
11
14
8
9
I
1
61
2 VI...
i — T
9
14
9
3
51
« V
8
7
10
5
3
m
E- IV..
7
13
6
3
67
tf III
8
14
8
59
" II
17
23
1
59
I
33
70
Total
59
61
58
55
56
62
61
62
64
62
600
Source: Criterion A — National Resources Committee. Criterion F — Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBIUTY
Criterion ^.—Number of monthly changes, in 95
chances, January 1926-December 1933:
Group—
I
II..-
Number of changes
0-4
5-7
III .: 8-11
IV.. 12-16
V 17-22
VI. 23-34
VII 35-49
VIII 50-77
IX 78-92
X 93-95
Criterion F. — Percent of decrease from average of
1929 and 1937 peaks to depression low index:
Group-
Percent decrease
I Increase to 8.5 decrefse
II. 8.6-16.7
III 16.8-23.1
IV 23.2-28.0
V... 28.1-33.6
VI 33.7-39.7
VII 39.8-46.3
VIII 46.4-57.3
IX 57.4-65.9
X 66.0-90.0
247149— 41— No. 1-
-16
216
CONCENTRATION OF ECONOMIC POWER
Table 32. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with amplitude of cyclical movement. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION H
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X
1
1
3
1
4
6
11
1
8
8
8
6
9
6
8"
13
28
27
7
1
1
60
IX
1
21
17
6
4
6
65
•< VIII
3
6
4
5
«
8
7
8
14
16
12
4
2
62
5 VII....
4
2
6
4
8
1
2
7
Ifi
6
8
10
9
5
1
62
2 VI
9
6
13
8
2
57
« V
9
9
9
10
1
57
i^ IV
11
9
15
6
61
tf III
5
11
20
59
" II
6
25
1
61
I
22
74
Total.--
62
57
61
64
63
55
62
62
67
65
618
Source: Criterion A— National Resources Committee. Criterion H— Bureau of Labor Statistics.
DESCEIPTIONS OF CRITEBIA OF WHOLESALE PEICE FLEXIBILITY
Criterion A. — Number of monthly changes in 95
chances, January 1926-December 1933:
Group—
I
II-
Number of changes
0-4
5-7
III - 8-11
IV -- --. 12-16
V - - 17-22
VI -.. 23-34
VII - - 35-49
Vm 50-77
IX - - 78-92
X - - 93-95
Criterion H. — Percent decrease from average of
1929 and 1937 to 1932:
QrQUp Percent decrease
I 28.5 increase to 0.4 decrease
II 0.&- 7.4
III 7.5-12.7
IV- — - 12.8-18.2
V 18.3-23.4
VI 23.5-28.5
VII.- -- 28.6-34.8
VUI -.- 34.9-41.4
IX -. 41.5-51.6
X -- 51.7-81.1
CONCENTRATION OF ECONOMIC POWER
217
Table 33. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
iFrequency of change compared with amplitude of cyclical movement. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION I
Group
I
II
m
IV
V
VI
VII
VIII
IX
X
Tota\
X
1
1
1
3
2
10
U
1
2
9
7
3
5
9
10
10
14
27
25
8
3
1
58
^ IX
20
17
5
1
4
66
[j VIII
1
4
1
2
7
8
2
4
6
13
1
6
5
11
14
10
9
6
1
61
§ VII
3
1
5
3
U
12
9
11
10
15
5
1
59
S VI
10
9
10
7
3
1
53
W V
7
8
8
5
2
61
& IV
4
12
11
8
61
g ni
II
12
12
59
12
26
1
1
58
I
24
73
Total
59
61
58
59
57
59
68
61
62
64
608
Source: Criterion A — National Resources Committee. Criterion I— Bureau of Labor Statistics.
DESCEIPTI0N3 OF CRITERIA OF WHOLESALK PRICE FLEXIBILITY
Criterion ^.—Number of monthly changes in 95
chances, January 1926-Deeember 1933:
Group—
I
II.
Number of changes
0-4
5- 7
III --- 8-11
rv ---. 12-16
V 17-22
VI 23-34
VII 35-49
VIII 50-77
IX 78-92
X 93-95
Criterion I. — Percent decrease, average, February
1929 and February 1937 to February 1933:
Qjoup Percent decrease
I Increase to 1.6 decrease
II 1.7-10.0
III.. 10. 1-16.3
IV 16.4-21.0
V... _ 21.1-26.2
VI .... 26.3-33.3
VII 33.4-40. 1
VIII _ 40.2-48.5
IX 48.6-57.5
X 57.6-86.8
218
CONCENTRATION OF ECONOMIC POWER
Table 34. — Correlation table of commodities distHhuted according to their ranks by
two criteria of wholesale price flexibility
{Frequency of change compared with amplitude of cyclical movement. Commodities classified in 10
groups — group I least flexible, group X most flexible]
CRITERION I
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X.
1
4
4
1
6
9
2
1
3
3
g
7
2
1
5
14
8
2
3
7
11
5
2
8
11
11
19
32
19
6
4
1
1
74
^ IX
2
1
2
7
6
8
19
4
4
2
2
4
9
15
16
15
a
2
1
2
1
59
7, VIII....
11
9
7
8
2
5
64
§ VII
10
10
6
10
4
62
S VI
7
9
10
7
5
3
59
W V
8
9
8
2
9
58
& IV
6
15
9
11
61
^ III
14
7
14
93
"" n...
18
40
I -
13
1
73
Total
62
63
66
66
66
64
67
64
63
63
643
Source: Criterion I— Bureau of Labor Statistics. Criterion B— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion B.— Number of monthly changes in 39
chances, January 1926-April 1929:
Oroup—
I
II...
Number of changes
..._ 0
1
2-3
4-5
III :
rv
V 6-8
VI 9-13
VII 14-20
Vni— 21-30
IX 31-37
X 38-39
Criterion /.—Percent decrease, average of February
1929 and February 1937 to February 1933:
QfOQp Percent decrease
I_.- Increase to 1.6 decrease
II. 1.7-10.0
III 10.1-16.3
IV 16.4-21.0
V 21.1-26.2
VI _ 26.3-33.3
VII ._ _ 33.4-40. 1
VIIl- 40.2^8.5
IX 48.6-57.5
X 57.6-86.8
CONCENTRATION OF ECONOMIC POWER
219
Table 35. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with timing of pre-depression peak (192&-31). Commodities classified in
10 groups — group I least flexible, group X most flexible]
CRITERION J
Group
I
II
III
IV
V
VI
vn
VIII
IX
X
Total
X
2
2
6
7
5
11
15
6
9
11
7
5
6
12
6
25
16
14
8
7
5
3
2
1
61
IX
1
3
8
10
11
10
16
5
2
2
4
1
2
1
63
<J VIII -
1
2
7
11
12
9
10
7
3
5
2
5
3
60
"Z VII
2
2
3
9
11
12
8
9
1
7
4
63
2 VI
5
3
1
3
10
54
« V
10
7
5
5
3
59
tH IV
4
14
13
12
6
4
1
60
2 III.-..
11
9
2
60
o II
15
16
61
I
39
75
Total..
70
58
55
66
52
69
64
62
49
81
616
Source: Criterion A— National Resources Committee. Criterion J— Bureau of Labor Statistics.
DESCBIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Crilerion A. — Number of monthly changes in 95
chances, January 1926-December 1933:
Group—
I
n.
Number of changes
0-4
5-7
in 8-11
rV 12-16
V 17-22
VI. 23-34
vn --- 35-49
Vm 50-77
IX 78-92
X 93-95
CriUrion J.— Peak month of index, 1929-31:
Group— ^^^^ month
I December 1931
II December 1930-November 1931
III June 1930-November 1930
IV T^nuary 1930-May 1930
v.. .- . November 1929-December 1929
VI September 1929-October 1929
VII June 1929- August 1929
VIII April 1929-May 1929
IX March 1929
X January 1929-February 1929
220
CONCENTRATION OF ECONOMICS POWER
Table 36. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with timing of depression low (1932-34). Commodities classified in lO
^oups — group I least flexible, group X most flexible]
CRITERION K
Group
I
n
III
IV
V
VI
VII
vni
IX
X
Total
X .-.
1
2
4
4
4
3
3
9
2
2
1
4
1
2
6 ■
2
1
I
7
6
12
1
2
5
7
7
2
3
5
12
2
5
id'
21
23
15
15
11
7
3
4
8
7
3
4
61
IX
14
9
4
5
6
1
2
2
63
< vni
16
4
7
1
4
1
1
63
^ vn
2
3
7
3
10
13 '
9
5
4
1
1
1
61
2 VI
13
13
13
2
3
54
g V
4
7
8
6
59
^ IV
—To
15
18
3
60
« III
9
7
13
59
" II
8
18
62
I
37
74
Total
76
55
47
75
47
66
38
78
72
62
616
Source: Criterion A— National Resources Committee. Criterion K— Bureau of Labor Statistics.
DESCEIPTION9 OF CEITEEIA OF WHOLESALE PRICE FLEXIBILITY
Criterion X.— Number of monthly changes in 96
chances, January 1926-December 1933:
Group—
I
11...
Number of changes
0-4
5-7
ni 8-11
IV 12-16
V. 17-22
VI. 23-34
vn. 35-49
VIII 50-77
IX 78-92
X 93-95
Criterio-n K.—Liow month of depression, 1932-34:
Group
Month
I December 1834
II December 1933-November 1934
III August 1933-November 1933
IV June 1933-July 1933
V_ May 1933
VI April 1933
VII March 1933
VIII December 1932-February 1933
IX July 1932-November 1932
X January 1932-JuEe 1932
CONCENTRATION OF ECONOMIC POWER
221
Table 37. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with timing of post-depression peak (igse-SSV Commodities classified in
10 groups— group I least flexible, group X most flexible]
CRITERION L
Group
landn
combined
ni
IV
V
VI
VII
vni
IX
X
Total
X
1
2
3
6
3
1
1
5
7
10
9
1
5
3
5
7
5
3
3
8
5
10
14
15
22
11
11
7
7
5
5
4
4
5
3
60
IX
3
1
4
5
9
15
26
13
24
3
2
3
1
63
^ VIII
10
7
5
3
2
1
62
Z VII
18
10
6
9
6
1
62
2 VI
10
11
12
7
3
2
54
05 V
6
9
8
4
2
58
g IV .;:
4
8
4
5
59
S m
5
17
58
o n
38
41
60
I
1
71
Total
141
37
54
50
64
73
58
68
62
607
Source: Criterion A— National Resources Committee. Criterion L— Bureau of Labor Statistics.
DESCRIPTIONS OF CEITEEIA OF WHOLESALE PRICE FLEXIBILITY
Criterion ^.—Number of monthly changes in 95
chances, January 1926-December 1933:
Group—
I
Number
of changes
0^
n 5-7
III 8-11
rV 12-16
V 17-22
VI 23-34
VII 35-49
Vni 50-77
IX 78-92
X 93-95
Criterion Z.— Peak month of index, 1936-38:
Group -P*"* month
I and n. -December 1938
III July 1938-November 1938
rV ...April 1938-June 1938
V December 1937-March 1938
VI_ September 1937-November 1937
VII June 1937-August 1937
Vin April 1937-May 1937
IX January 1937-March 1937
X .January 1936-December 1936
222
CONCENTRATION OF ECONOMIC POWER
Table 38. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
lAmplitude of cyclical movement compared with timing of pre-depression peak. Commodities cla.ssified
in 10 groups— group I lease flexible, group X most flexible]
CRITERION J
Group
I
II
III
IV
V
VI
VII
vni
IX
X
Total
X
1
3
6
7
13
9l
2
6
4
11
7
9
12
6,
o"
9
11
11
7
8
10
24
13
9
14
5
3
4
9
1
2
62
IX
12
12
8
1
2
2
4
1
65
'" VIII.
5
5
8
9
11
11
5
11
7
7
2
2
4
64
§ VII
1
2
1
5
7
17'
3
2
10
11
14
4
12
8
5
6
3
1
67
a VI..-..
4
6
8
8
8
2
65
g V
11
7
4
7
1
66
& IV
6
4
2
65
« III
5
7
8
65
II
14
4
63
I.
37
62
Total
70
58
58
66
60
72
70
64
52
84
644
Source: Criterion J— Bureau of Labor Statistics. Criterion I— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion 7.— Percent decrease, average, February
1929 and February 1937 to February 1933:
Qj.Qup Percent decrease
I Increase to 1. 6 deereace
II 1.7-10.0
III 10.1-16.3
IV 16.4-21.0
V 21-1-26.2
VI 26.3-33.3
VII - 33.4-40.1
VIII 40.2-48.5
IX 48.6-57.5
X 57.6-86.8
Criterion J^.— Peak month of index, 1929-31:
Group— Month
I December 1931
II December 1930-November 1931
III June 1930-November 1930
IV January 1930-May 1930
V -. November 1929-December 1929
VI September 1929-October 1929
VII June 1929-August 1929
VIII April 1929-May 1929
IX -. March 1929
X January 1929-February 1929
CONCENTRATION OF ECONOMIC POWER
223
Tablk 39. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
Amplitude of cyclical movement compared with timing of depression low (1932-34). Commodities classi-
fied in 10 groups— group I least flexible, group X most flexible]
CRITERION K
Group
I
U
in
rv
v
VI
VII
vm
IX
X
Total
X
4
2
1
2
4
6
7
8
2
2
4
3
5
9 1
2
1
8
13
16
2
1
6
4
16
3
6
8
17
3
6
15
29
19
10
12
8
4
6
1
9
8
4
2
5
65
IX
18
16
10
8
2
4
4
6
62
"^ VIII
11
9
6
4
3
64
5 vu
1
FT
2
3
2
67
2 VI
11
11
5
0
1
63
g V
6
6
6
22
l~6-
9
7
1
60
& IV
20
8
4
67
« III
10
8
6
65
^ II
14
8
1
1
63
I
39
62
Total
79
65
49
86
52
68
38
81
77
69
644
Source: Criterion I— Bureau of Labor Statistics. Criterion K— Bureau of Labor Statistics.
DKSCBIPTIONS Of CBITEBU Or WH0LB3ALB PRICE FLIXIBIUTT
Criterion /.—Percent decrease, average of February'
1929 and February 1937 to February 1933:
Qfoup Percent decrease
I Increase to 1.6 decrease
II 1.7-10.0
III. 10.1-16.3
IV 16.4r-21.0
V 21.1-26.2
VI 26.3-33.3
VII 33.4-40.1
Vni 40.2-48.5
IX ,... 48.6-57.5
X 57. 6-86.8
Criterion K.—Low month of depression, 1932-34:
Group— Month
I-. December 1934
II December 1933-November 1934
HI August 1933-November 1933
rv. June 1933-JuIy 1933
V May 1933
VI AprU 1933
Vn March 1933
Vin December 1932-February 1933
IX July 1932-November 1932
X January 1932-June 1932
224
CONCENTRATION OF ECONOMIC POWER
Table 40. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with change per change. Commodities classified in 10 groups— group I
least flexible, group X most flexible]
CRITERION M
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X
2
4
17
4
7
6
5
4
4
9
6
11
7
3
5
7
10
8
8
7
6
6
10
6
8
4
5
7
3
8
6
8
6
15
3
8
7
6
3
3
2
6
7
10
7
5
60
^ IX
1
7
9
3
2
7
3
7
r 5-
2
1
3
13
6
12
7
63
^ VIII
4
4
7
5
7
6
3
5
62
O VII
6
5
7
3
5
3
9
62
S VI
9
5
3
4
6
54
W V
4
6
4
3
2
57
& IV
8
2
2
2
57
g III
2
5
3
52
II
1
4
44
I
4
34
Total...
43
54
55
60
53
50
58
59
57
56
545
Source: Criterion A— National Resources Committee. Criterion M— Bureau of Labor Statistics.
ijESCEIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion yl.— Number of monthly changes in 95
chances, January 1926-December 1933:
Qroup Number of changet
I 0- 4
II 5- 7
III.. 8-11
rV 12-16
V : 17-22
VI 23-34
VII 35^9
VTII 60-77
IX 78-92
X 93-95
Criterion M. — Average change (index points) per
change January 1926-AprU 1929:
Qroup Average change
I.. 0.0- 1.6
II 1.7- 2.2
III 2.3- 2.6
IV.. 2.7- 3.2
V 3.3- 3.8
VI 3.9- 4.6
Vn 4.6- 5.6
Vin 5.7- 6.7
IX 6.8- 8.9
X 9.0-34.7
CONCENTRATION OF ECONOMIC POWER
225
Table 41.^ — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
Amplitude of cyclical movement compared with change per change. Commodities classified in 10 groups-
group I least flexible, group X most flexible]
CRITERION M
Group
I
n
III
IV
V
VI
VII
vni
IX
X
Total
X
2
3
5
10
5
6
7
8
8
2
10
8
6
8
7
5
4
15
7
12
6
2
7
9
8
4
4
6
6
6
8
7
7
9
16
3
10
6
5
7
6
4
4
8
7
5
4
63
IX
3
5
10
7
6
8
3
1
4
62
"Z VIII
1
2
8
5
8
13
5
3
5
8
10
4
1
6
3
64
S VII.-...
6
5
5
2
2
5
11
62
2 VI
6
7
4
3
5
4
61
M V
5
3
5
8
4
58
^ IV...::::..::
5
4
2
3
55
3 ni..
4
6
2
50
II
2
2
45
I
12
40
Total
66
56
58
59
67
64
58
69
67
66
569
Source: Criterion M— Bureau of Labor Statistics. Criterion I— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITEEU OF WHOLESALE PRICE FLEXIBILITY
Criterion /.—Percent decrease, average of February
1929 and February 1937 to February 1933:
Group — Percent decrease
I Increase to 1.6 decrease
II 1.7-10.0
in 10.1-16.3
rV 16.4-21.0
V 21. 1-26. 2
VI.. 26.3-33.3
VII 33.4-40.1
Vni 40.2-18.5
IX 48.6-57. 5
X 57.6-86:8
Criterion M.— Average change (index points) per
change, January 1926-April 1929:
Group — Average change
I .0.0-1.6
II 1.7- 2.2
III 2.3- 2.6
IV 2.7- 3.2
V 3.3- 3.8
VI .- 3.9- 4.5
VII 4.6- 5.6
Vin 5.7- 6.7
IX 6.8- 8.9
X 9.0-34.7
226
CONCENTRATION OP ECONOMIC POWER
Table 42. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Peak month, 1929-31, compared with average change (index points; per change, January 1926 to April
1929. Commodities classified in 10 groups— group I least flexible, group X most flexible]
CRITERION M
Group
I
II
III
IV
V
VI
VII
vm
IX
X
Total
X
8
2
4
12
8
6
1
7
6
14
7
6
6
7
6
6
2
6
6
8
7
11
3
7
6
11
9
7
6
4
0
6
8
6
8
11
3
6
7
12
4
7
8
5
7
7
3
4
6
10
7
3
9
3
6
84
IX
4
6
5
4
9
6
8
4
4
50
^ VIII
6
10
4
5
5
6
6
5
64
O VIL
5
6
6
5
2
3
10
70
S VI
6
3
5
3
6
3
68
W V
7
5
6
1
5
56
^ IV
7
6
2
3
50
g ni
3
4
4
51
II
4
36
I
3
47
Total
66
59
SB
59
57
63
69
60
67
68
676
Source: Criterion J— Bureau of Labor Statistics. Criterion M— Bureau of Labor Statistics.
DESCBIFTIONS OT CBITERU OT WHOLESALK PRICE FLEXIBIUTT
Criterion J.— Teak month, 1929-31:
Oroup— Month
I. December 1931
II December 1930-November 1931
ni June 1930-November 1930
IV January 1930-May 1930
V November 1929-December 1929
VL September 1929-October 1929
VII June 1929-August 1929
Vni April 1929-May 1929
IX March 1929
X January 1929-February 1929
Criterion A/.— Average change <index points) per
change, January 1926-Apri] 1929:
Average
Group — change
I 0:0- 1.6
II 1.7- 2.2
UI --... 2.3- 2.6
rv 2.7- 3.2
V 3.3- 3.8
VI 3.9- 4.5
VII 4.6- 5.6
VIII 5.7- 6.7
rX 6.8- 8.9
X 9.0-34.7
CONCENTRATION OF ECONOMIC POWER
227
Table 43. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with aggregate change less net change. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION N
Group
I, II, and lU
combined
IV
V
VI
VII
VIII
IX
X
Total
X --
1
4
15
5
12
19
36
19
9
1
60
; IX ....
1
8
16
27
10
7
2
2
63
§ VIII
5
7
11
15
14
12
4
3
62
5 vii__. -
2
3
11
20
1
6
10
14
12
8
6
2
1
2
62
W VI...
8
9
9
6
2
64
^ V
15
10
11
4
1
59
^ IV
12
7
10
2
60
Q
ni
34
44
70
60
n
61
I
76
Total
184
48
64
69
65
65
67
64
616
Source: Criterion A— National Resources Committee. Criterion N— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion /!.— Number of monthly changes in 95
chances, January 1926-December 1933:
Group—
I-
Number
of changes
.... 0-4
II 6- 7
III 8-11
IV -. 12-16
V 17-22
Vi 23-34
Vli 35-49
VIII..-. 50-77
IX 78-92
X : 93-95
Criterion iV.— Aggregate change (index points) less
net change, January 1926-April 1929:
Group- Difference
I, II, and III 0.0
IV 0.1- 8
V 9- 17
VI 18-28
Vri - 29- 45
Vlli 46- 79
IX 80-151
X 152 and up
228 CONCENTRATION OF ECONOMIC POWER
Table 44. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Amplitude of cyclical movement compared with aggregate change loss net change. Commodities classified
in 10 groups— group I least flexible, group X most flexible]
CRITERION N
Group
I, II, and III
combined
IV
V
VI
VII
vm
IX
X
Total
X
1
2
5
15
11
22
29
3
7
12
6
2
1
7
9
in
1
1
6
8
2
14
11
6
14
15
35
12
10
4
1
1
1
62
" IX - -..
20
13
4
3
7
2
64
O VIII
8
10
7
7
3
6
3
1
63
5 VII
10
5
7
4
2
5
3
67
W VI
15
9
6
4
1
9
64
& V
7
11
8
6
6
66
g IV
10
11
7
8
66
Ill
34
39
37
65
II
2
63
I
63
Total.
195
64
66
60
63
65
66
64
643
Source; Criterion I— Bureau of Labor Statistics. Criterion N— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBaiTY
Criterion /.—Percent decrease, average of Febru-
ary 1929 and February 1937 to February 1933:
Percent
Group— decrease
I Increase to 1.6 decrease
II 1.7-10.0
III.... 10.1-16.3
IV 16.4-21.0
V 21. 1-26.2
VI 26.3-33.3
VII.. 33.4^0.1
VIII. 40.2-48.5
IX 48.6-57.5
X.. 57.6-86.8
Criterion iV.— Aggregate change (index points) less
net change, January 1926-Aprll 1929:
Group— Difference
I, II, and III.. 0.0
IV 0.1- 8
V 9- 17
VI 18- 28
VII 29- 45
VIII 46- 79
IX 80-151
X 152 and up
Table 45. — Distribution of commodities according to differences in rank under
various criteria of wholesale price flexibility
[Commodities classified in 10 groups— maximum diflerence=9]
C orrelation between
criteria
Difference in rank
Same
rank
1 and
less
2 and
less
3 and
less
4 and
less
5 and
less
6 and
less
7 and
less
Sand
less
9 and
less
C-D
29.0
16.9
27.0
21.2
22.2
19.6
24.2
21.9
19.7
21.9
9.2
9.0
11.1
10.0
63.0
42.7
66.5
57.0
59.2
60.5
62.9
64.5
46.8
56.8
25.7
25.9
27.8
28.0
80.7
62.5
85.7
80.5
81.6
73.2
72.2
77.1
66.8
76.1
40.8
45.1
45.4
44.0
89.4
73.6
95.2
92.3
92.6
85.3
84.4
84.2
82.2
86.6
53.6
61.4
60.8
58.0
95.2
85.2
98.5
97.0
97.2
91.7
92.0
90.0
91.2
90.5
67.9
72.6
72.8
70.0
97.7
90.8
99.5
98.8
98.7
96.4
97.0
94.1
96.4
93.6
77.1
84.0
84.5
80.0
99.1
94.8
99.8
99.4
99.7
99.0
98.5
97.3
97.4
96.6
90.5
93.5
92.2
88.0
99.6
96.9
100.0
99.6
100.0
99.5
99.7
98.8
99.4
98.3
97.3
96.8
95.7
94.0
99.7
99.2
100.0
J-K
100.0
A-F.
A-H
100.0
A-I . - .
B-I
100.0
100.0
99.8
99.7
99.2
99. 1
98.9
98.8
98.0
A-J..
A-K ....
100.0
I-J....
100.0
I-K
100.0
A-M
100.0
I-M
100.0
J-M
100.0
Relation to be an-
ticipated if purely
chance distribu-
tion
100.0
Source: Bureau of Labor Statistics.
CONCENTRATION OF ECONOMIC POWER
229
Table 46. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change 1926-29 compared with frequency of change 1926-33. Commodities classified in 10
groups— group I, least flexible; group X, most flexible]
CRITERION B
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X
1^
2
3
56
17
1
1
60
IX..
1
2
8 '
41
6
3
2
63
^ VIII
1
4
8
46
13
3
62
; VII_
1
3
10
10 '
4
13
10
30
10
2
1
62
§ VI
19
16
7
2
54
S V
2
3
8
17'
1
5
8
20
10
7
3
59
W IV
21
11
6
4
1
2
60
& III
24
26
14
60
« II
16
61
I
41
75
Total
71
39
88
55
57
55
63
66
57
75
616
Source: Criterion A— National Resources Committee. Criterion B— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBIUTY
Criterion A. — Number of monthly changes in 95
ohancjs, January 1926-December 1933:
Group —
I
II.
Number of changes
0-i
5-7
III 8-11
rv 12-16
V 17-22
VI 23-34
VII_ 35-49
VIII. 50-77
IX 78-92
X 93-95
Criterion B.— Number of monthly changes in 39
chances, January 1926-April 1929:
Group—
I...-
II...
Number of changes
0
._ 1
III 2-3
IV 4-5
V 6-8
VI 9-13
VII 14-20
Vni 21-30
IX 31-37
X 38-39
230
CONCENTRATION OF ECONOMIC POWER
Table 47. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Two measures of amplitude of cyclical movement compared. Commodities classified in 10 groups-
group I least flexible, group X most flexible]
CRITERION F
Group
I
II
III
IV
V
VI
VII
vm
IX
X
Total
X. - --
1
8
16
4
17
15
42
11
2
5
1
62
,, IX
1
2
5
15
2
6
16
23
11
4
8
2
1
1
62
r, VIII
24
9
4
2
1
1
60
g VII^
1
1
6
21
11
15
16
9
6
3
1
56
H VI
12
13
6
4
3
2
60
W V
1
6
26
15
10
3
4
1
60
fc IV
15
5
6
3
61
g III
1
24 '
19
5
5
61
II..
16
13
59
I ..
34
1
59
Total
59
61
58
65
66
62
61
62
65
61
600
Source: Criterion E — National Resources Committee. Criterion F — Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBIUTY
Criterion E. — Average of 1929 and 1937 indexes, less
1932 index, on basis of 1929 equals 100 percent:
Group —
Percent
I -20.6-0.4
II. .5-7.5
III 7.8-12.8
IV 13.0-17.5
V 17.6-23.2
VI 23.3-27.4
VII 27.5-32.9
VIII.... 33.2-39.4
IX . 39.5-47.5
X 47.9-81.8
Criterion F. — Percent decrease, average of 1929 and
1937 peaks to depression low index:
Group-
Percevt decrease
I Increase to 8. 5 decrease
II 8.6-16.7
III 16.8-23. 1
IV 23.2-28.0
V 28.1-33.6
VI 33. 7-39. 7
VII 39.8-^6.3
VIII. .- 46.4-57.3
IX 57.4-65.9
X 66.0-90.0
CONCENTRATION OF ECONOMIC POWER
231
Table 48. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Two measures of amplitude of cyclical movement compared. Comunodities classified in 10 groups-
group I least flexible, group X most flexible]
CRITERION H
Group
I
II
m
IV
V
VI
vn
vin
IX
X
Total
X
1
3
in
1
n
11
51
11
3
64
„ IX
1
36
16
2
62
y, VIII
33
13
2
1
62
61
§ VII
2
7
8
8
36
14
2
3 vi-
1
35
13
1
60
62
62
w v
39
12
1
fc IV.....
6
43
12
« m
2
47
6
62
60
61
"" II
1
52
1
1
I
60
Total
61
55
60
64
61
58
66
61
65
65
610
Source: Criterion E— National Resources Committee. Criterion H— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITEBIA OF WHOLESALE PRICE FLEXIBILITy
Criterion E.— Average of 1929 and 1937 indexes, less
1932 index, on basis of 1929 equals 100 percent:
Group— Percent
1 -20.6-0.4
n 0.5-7.5
m 7.8-12.8
rV 13.0-17.5
V 17.6-23.2
VI 23. 3-27. 4
vn 27.5-32.9
Vm 33. 2-39. 4
IX. 39.5-47.5
X 47.9-81.8
Criterion //.—Percent decrease from average of
1929 and 1937 to 1932:
Group— Percent decrease
I 28. 5 increase to 0. 4 decrease
11.. 0.5-7.4
III 7.5-12.7
IV 12.8-ia2
V 18. 3-23. 4
VI 23. 5-28. 5
vn 28.6-34.8
VIII 34.9-41.4
IX.. „ 41.5-51.6
X 61.7-81.1
247149— 41— No. 1-
-17
232
CONCENTRATION OF ECONOMIC POWER
Table 49. — Correlation table of commodities distributed according to their ranks
by two criteria of wholesale price flexibility
(Amplitude of cyclical movement compared with change per change. Commodities classified in 10 groups-
group I least flexible, group X most flexible]
CRITERION M
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X —
2
6
4
9
6
7
5
5
9
4
8
10
3
5
9
6
4
14
9
11
4
4
5
10
8
3
6
6
7
6
9
7
7
7
14
6
9
7
5
6
7
2
8
6
4
8
5
64
IX
5
2
10
11
8
5
2
2
4
66
VIII. .
2
1
9
3
12
11
4
6
5
7
5
5
5
3
4
64
hi VII-. -
8
4
5
1
6
2
11
63
^ VI --.-
4
8
5
2
4
3
59
o v.... -
6
2
6
5
6
61
S IV
7
1
3
2
54
g III
4
8
1
50
g n
1 6
1
45
gi
U
48
Total
55
58
58
59
57
54
58
6D
58
57
574
Source: Criterion H— Bureau of Labor Statistics. Criterion M— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion H.— Percent decrease from average of
1929 and 1937 to 1932:
Group— Percent decrease
I Increases too. 4
n 0.5- 7.4
in - 7.5-12.7
IV 12.8-18.2
V 18.3-23.4
VI 23. 5-28. 5
VII 28.6-34.8
VIII 34.9-41.4
IX 41.5-51.6
X -- 51.7-81. 1
Criterion J\/.— Average change (index points) per
change, January 1926 to April 1929:
Group — Average change
I 0.0- 1.6
II -. 1.7- 2.2
III 2.3- 2.6
IV -.. 2.7- 3.2
v.. 3.3- 3.8
VI. 3.9- 4.5
VII 4.6- 5.6
VIII.. 6.7- 6.7
IX 6.8- 8.9
X 9.0-34.7
CONCENTRATION OF ECONOMIC POWER
233
Table 50. — Correlation table of commodities distributed according to their rankt
by two criteria of wholesale price flexibility
[Two measures of amplitude of cyclical movement compared. Commodities classified in 10 groupe— group I
least flexible, group X most flexible]
CRITERION I
Group
I
II
in
rv
V
VI
vn
vm
IX
X
Total
X
1
1
3
6
3
3
9'
6
61
11
64
IX
2
2
10
33
24
62
vm -
34
16
1
63
^ VII
1
2
14
7
11
27
24
1
61
5 VI
2
......
10
4
2
g'
21
23
2
6fi
a V
2
1
3
8 '
19
25
3
61
H IV
21
25
1
62
£! m
23
25
64
« II
31
16
66
°i.
47
63
Total
61
63
63
66
65
60
64
63
63
62
630
Source: Criterion F— Bureau of Labor Statistics. Criterion I— Bureau of Labor Statistics.
DESCKIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBHITT
Criterion /.—Percent decrease, average of February
1929 and February 1937 to February 1933:
Group —
I
II....
III..
IV...
V.
Percent decrease
Increase to l .6 decrease
1.7-10.0
10.1-16.3
16.4-21.0
21.1-26.2
VI 20.3-33.3
VII 33.4-40. 1
VIII 40. 2-48. 5
IX 48.6-57.5
X 67.6-86.8
Criterion F.— Percent decrease, average of 1929 and
1937 peaks, to depres-sion low index:
Group — Percent decrease
I Increase to 8.5 deereage
II 8.6-16.7
III 16.8-23. 1
IV 23.2-28.0
V_ 28.1-33.6
VI. 33.7-39.7
VII _. 39.8-46.3
VIII 46.4-57.3
IX 67.4-65.9
X 66.0-me
234
CONCENTRATION OF ECONOMIC POWER
Table 51. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Two measures of amplitude of cyclical movement compared. Commodities classified in 10 groups —
group I least flexible, group X most flexible]
CRITERION I
Group
I
II
m
IV
V
VI
VU
vm
IX
X
Total
X
2
1
18
2
15
15
46
13
1
2
66
TY - -w
36
9
3
66
w vin
3
17 1
33
12
1
2
64
Z vu
2
6
17
5
27
23
11
10
1
64
2 VI
20
15
4
4
2
65
g V
19
2
26
17
8
6
2
2
64
H IV
26
11
3
66
« in
24
11
3
63
^ II
14
30
10
1
1
61
I
47
66
Total
61
62
85
65
66
65
67
65
63
63
642
Source: Criterion H— Bureau of Labor Statistics. Criterion I— Bureau of Labor Statistics.
DESCKIPTIONS OF CEITEBIA OF WHOLESALE PRICE FLEXIBILITY
Cyiterion H.— Percent decrease from average of
1929 and 1937 to 1932:
Qroup — Percent decrease
I... 28.5 increase to 0.4 decrease
II 0.5- 7.4
III 7.5-12.7
IV 12.8-18.2
V.., 18.3-23.4
VI 23.5-28.5
Vn 28.6-34.8
VUI 34.9-41.4
IX 41.5-51.6
X..., 51. 7-81. 1
Criterion I. — Percent decrease from average of
February 1929 and February 1937 to February 1933:
Qroup — Percent decrease
I Increase to 1.6 decrease
II 1.7-10.0
III 10.1-16.3
IV 16.4-21.0
V 21. 1-26.2
VI 26.3-33.3
VII. 33.4-40.1
VIII 40.2-48.5
IX 48.6-57.5
X 57.6-86.8
CONCENTRATION OF ECONOMIC POWER
235
Table 52. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale -price flexibility
[Frequency of change compared with amplitude of cyclical movement. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION G
Group
I
II
in
IV
V
VI
vn
vni
IX
X
Total
X
2
2
6
10
1
3
9
6
13
21
31
26
6
2
60
^ ix -
1
4
11
8
19
19
1
63
^ vm
1
6
10
12
17
12
4
9
2
1
I
61
O VII
3
3
8
9
6
2
7
9
10
16
10
12
1
60
S VI
rrr
9
13
8
4
1
64
W V
3
1
8
12-1
8
8
11
4
2
2
1
60
& IV..
7
13
6
2
61
g m
10
17
10
60
II
■l-
24
1
61
I
36
7S
Total
60
62
60
67
67
05
62
64
64
64
61S
Source: Criterion A— National Resources Committee. Criterion G— Bureau of Labor Statistics.
DESCEIPTI0N3 OF CEITE8U OF WHOLESALE PEICE FLEXIBILITY
Criterion Q. — Percent decrease from average of
Criterion ^.—Number of monthly changes in 95 1929 peak and 1936-March 1937 peak to depression
chances, January 1926-December 1933: low index:
Group—
I
II...
ni..
IV.
Number of changes
0- 4
5- 7
8-11
12-16
V 17-22
VI - 23-34
VII 35-49
VIII 60-77
IX 78-92
X 93-95
Group — Percent decrease
I Increase to 7.8 decrease
II 7.9-15.3
m 15.4-20.9
IV 21.0-27.0
V 27.1-32.7
VI 32.8-38.5
vn 38.6-45.4
VIII 45.5-65.8
IX 55.9-65.4
X 65.6-89.9
236
CONCENTRATION OF ECONOMIC POWER
Tablb 53. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with amplitude of cyclical movement. Oommodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION H
Group
I
n
ni
IV
V
VI
VII
vm
IX
X
Total
X
1
1
2
4
4
g
17J
4
6
2
6
7
4'
1
2
6
3
12
8|
3
6
9
6
2
6
13
10
6
9
8
6
19
33
22
6
4
1
76
IX
2
2
1
6
6
7
21
3
16
17
4
3
3
1
3
68
« vm
9
16
10
6
4
6
66
g vn.
8
8
3
9
9
2
3
62
J- VI.
9
10
10
6
4
3
62
fH V -
11
11
9
8
5
6S
tl IV
6
11
7
13
61
tf in
12
9
14
03
° n
7
18
40
I
18
1
76
Total-
66
63
63
67
66
63
66
64
65
66
649
Source: Criterion B— Bureau of Labor Statistics. Criterion H— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE PRICE FLEXIBILITY
Criterion B.— Number of monthly changes in 39
chances, January 1926-April 1929:
Group—
I.
n
in -
IV -
V
VI -
vn -
Vin 21-30
IX 31-37
X 38-39
Number of
changes
0
1
2-3
4-5
6-8
9-13
14-20
Criterion H. — Percent decrease from average of
1929 and 1937 to 1932: „
Percent
Group — decrease
1 28.6 increase to 0.4 decrease
n 0.6- 7.4
m 7.5-12.7
IV 12.8-18.2
V 18.3-23.4
VI 23. 5-28. 5
VII -... 28.6-34.8
VUI 34. 9-41. 4
IX 41.6-51.6
X 51.7-81.1
CONCENTRATION OF ECONOMIC POWER
237
Table 54. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
(Frequency of change compared with timing of pre-depression peak (1929-31). Commodities classified in
10 groups— group I least flexible, group X most flexible]
CRITERION J
Group
I
II
III
IV
V
VI
VII
VIII
IX
X
Total
X
1
4
9
13
5
12
10
6
6
13
8
10
6
9
8
11
4
3
1
5
9
11
22
15
7
11
10
5
3
7
3
2
64
IX .— —
11
5
4
6
12
11
14
10
5
2
1
1
4
1
66
W VIII -
1
3
5
7
14
111
13
8
8
7
6
4
2
4
64
5 VII -
66
« VI.
1
3
3
6
21
5
8
7
8
5
4
64
w V
5
8
9
3
3
66
f;^ IV
8
4
4
2
66
« III -
64
^ II..
5
63
I
37
66
Total
71
61
59
56
60
71
72
65
49
85
649
Soutce: Criterion H— Bureau of Labor Statistics. Criterion J— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITKEIA OF WHOLESALE PRICE FLEXIBILITY
Criterion H.— Percent decrease from average of
1920 and 1937 to 1932: p^^^^^^
Group — decreaoe
1 28.5 increase to 0.4 decrease
n... 0.5- 7.4
III 7.5-12.7
IV - 12.8-18.2
V 18.3-23.4
VI 23»5-28.5
VTI 2a 6-34. 8
Vm.... .^ 319-41.4
IX 41.5-51.6
X 61.7-81. 1
Criterion J.— Peak mon^h of index, 1929-31:
Group— Month
I December 1931
II December 1930-November 1931
III.. June 1930-November 1930
IV Januarj- 1930-May 1930
V November 1929-Dcccmbcr 1929
VI September 1929-Octobcr 1929
VII June 1929-August 1929
VIII April 192»-Mayl929
IX.. March 1929
X January 1929-Februarv 1929
238 CONCENTRATION OF ECONOMIC POWER
Table 65. — Correlation table of commodities distributed according to their rank by
two criteria of wholesale price flexibility
(Frequency of change compared with change per change. Commodities classified in 10 groups— gioup I
least flexible, group X most flexible]
CRITERION M
Group
I
n
ni
IV
V
VI
vn
VUI
IX
X
Total
X
1
8
13
9
9
3
8
8
7
6
8
11
6
5
7
0
8
8
8
7
10
6
9
9
6
6
9
3
6
6
8
8
3
15
3
10
10
4
3
1
2
3
7
15
13
76
IX
6
10
7
7
3
8
7
8
3
2
1
4
7
10
17
3
58
« VIII
3
8
4
9
4
9
5
66
g VII.
7
6
11
4
7
5
63
2 VI
10
3
6
11
61
« V
6
5
9
1
60
y IV
5
2
2
64
tf III
6
2
91
" n
1
40
I
*
Total
S6
60
58
59
57
53
59
60
67
68
677
Source: Criterion B— Bureau of Labor Statistics. Criterion M— Bureau of Labor Statistics.
DESCEIPTIONS OF CEITERIA OF WHOLESALK-PRICE FLEXIBILITT
Criterion B.— Number of monthly changes in 39
chances, January 1926-Aprll 1929:
Group—
I
Number of changes
0
1
2-3
4-5
II -
HI
IV
V - - 6-8
VI 9-13
VIC - 14-20
Vm - - 21-30
IX 31-37
X 38-39
Criterion A/.— Average change (index points) per
change, January 1926-April 1929:
Group—
I
II--..
III-..
IV...
v....
VI...
VII .
VIII.
IX...
X.-..
Average
0.
1.
2.
2.
3.
3.
4.
5.
change
0- 1.6
7- 2.6
3-2.2
7- 3.6
3- 3.2
9- 4.8
6- 5.6
7-6.7
8-8.9
0-34. 7
CONCENTRATION OF ECONOMIC POWER
239
Table 56. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Frequency of change compared with affiregate change less net change. Commodities classified in 10
groups— group I least flexible, group X most flexible]
CRITERION N
Group
I, II, and UI
combined
IV
V
VI
vn
VIII
IX
X
Total
X
5
16
27
43
15
6
1
75
^ IX
2
2
6
12
2
11
12
4
14
19
12
6
3
58
flQ
2
4
10
10
r; VIII
18
14
10
2
66
S VII
2
2
8
17
18
11
11
6
1
63
3 VI
12
12
9
4
60
W V
15
11
16
68
fe IV ::::
19
63
g III.....
54
40
75
1
95
II
40
I
76
Total
198
65
64
62
66
66
67
66
652
Source: Criterion B— Bureau of Labor Statistics. Criterion N— Bureau of Labor Statistics.
DESCRIPTIONS OF CRITERIA OF WHOLESALE-PRICE FLEXIBILITY
Criterion B.— Number of monthly changes in 39
chances, January 1926-April 1929:
Group—
I
II
III....
IV
V
VI
VII 14-20
Vin 21-30
IX 31-37
X 38-39
Number of changes
0
1
2-3
4-5
6-8
9-13
Criterion AT. — Aggregate change (index points) less
net change, January 1926-April 1929:
Difference
0.0
0.1- 8
9- 17
18- 28
2*- 45
46-79
80-151
X 162 and up
Group —
I, II, and m.
IV
V.
VI....
VII
VIII
IX
240 CONCENTRATION OF ECONOMIC POWER
Table 67. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
[Amplitude at cyclical movement compared with aggregate change less net change. Commodities classified
in 10 groups— group I least flexible, group X most flexible]
CRITERION N
Group
I, II, and III
combined
IV
V
VI
vn
vni
IX
X
Total
X -
1
3
6
U
13
19
30
2
2
4
9
9
2
2
6
6
12
1
9
9
6
10
11
6
12
16
31
15
6
6
1
2
63
a IX
24
9
9
1
7
68
Z VIII -
14
10
1
3
9
6
1
3
63
o vn...-
10
9
7
4
1
2
5
66
S VI
■■l7-
6
7
4
7
63
« V
13
9
6
5
5
66
XI IV
9
14
9
8
68
O III
32
43
38
3
1
1
62
65
II
I
66
Total
196
66
65
60
65
65
69
63
649
Source: Criterion H— Bureau of Labor Statistics. Criterion N— Bureau of Labor Statistics.
DESCEIPTION8 OF CEITEBU OF WHOLESALE PRICE FLEXIBaiTY
Criterion K.— Percent decrease from average of 1929
and 1937 to 1932:
QpQup Percent decrease
1 28.6 increase to 0.4 decrease
II. 0.5- 7.4
m 7.5-12.7
IV - 12.8-18.2
v. 18. 3-23. 4
VI -• 23. 5-28. 5
VII 28. 6-34. 8
Vin 34.9-41.4
IX 41.6-51.6
X 61.7-81. 1
Criterion iV.— Aggregate change (index points) less
net change, January 1926-April 1929:
Qroup— Difference
I, II, and lU 0.0
IV 0.1- 8
V 9- 17
VL- 18- 28
VII 29- 45
VIIL 46- 79
IX 80-151
X 152 and up
CONCENTRATION OF ECONOMIC POWER
241
Table 58. — Correlation table of commodities distributed according to their ranks by
two criteria of wholesale price flexibility
(Change per change compared with aggtegate change less net change. Commodities classified in 10 gronpa —
group I least flexible, group X most flexible]
CRITERION N
Group
I, n, and ra
combined
IV
V
VI
vn
vni
IX
X
Total
X -
20
13
0
12
11
16
9
4
i
4
6
5
3
11
6
4
3
4
6
7
6
6
6
1
3
3
2
18
16
17
12
3
66
w IX
2
8
7
13
15
15
6
69
"Z vm
8
6
6
10
10
11
8
1
60
§ VIL
7
9
6
6
10
11
3
68
S VI
3
3
7
4
11
10
64
W V
2
8
11
13
6
67
& IV
4
8
10
20
69
f^ m
7
9
17
66
^ II
62
I
66
Total
123
65
66
61
64
66
67
66
677
Source: Criterion M— Bureau of Labor Statistics. Criterion N— Bureau of Labor Statistics.
DESCEIPnONS OF CRrTEBIA OV WHOLESALB PEICE TLEXIBILITT
Criterion Af.— Average cliange (index points) per
change, January 1926-ApriI 1929:
Group— Average change
1 0.0- l.G
n 1.7- 2.2
III 2.3- 2.6
rV 2.7- 3.2
V. 3.3- 3.8
VI 3.9- 4.5
VII 4.6- 5.6
VIIL _ 6.7- 6.7
IX 6.8- 8. '9
X - 9.0-34.7
Criterion iV.— Aggregate change (index points) less
net change, January 1926-April 1929:
Group- Difference
I, U, and in... 0.0
IV — 0.1- 8
V 9- 17
VI 18- 28
VII 29- 46
VIII 46- 79
IX 80-161
X - 162 and up
APPENDIX II 1
CONVENTIONAL PRICE LINES
INTRODUCTION
The maintenance of price lines in certain markets as an aspect of
nonprice competition has been described briefly in chapter III above.
Reference has also been made to the significance of the so-called
"cash" discomit common in the apparel maricet as related to price
lines. This appendix is presented in order to describe these practices
more fully.
No attempt has been made, in this appendix, to present appraisals
of the economic significance of these practices. It is designed merely
to assemble the salient facts relating to each of them.
The price behavior of many commodities is affected by the practice
of "price lining." Conventional pricing practices have become more
or less firmly established. In both the wholesale and retail markets
the prices of these articles show a tendency to cluster at a limited
number of specific points fixed by custom; quotations at intermediate
levels are rare or absent. "
The manifestations of this custom will be discussed for wearing
apparel and consumers' durable goods, illustrative types of "price
lines." There is evidence that the practice prevails also to some
extent in other fields, such as certain kinds of drugs, toiletries, and
certain packaged groceries.
WEARING APPAREL
The practice of price lining is perhaps most fumly established in
the wholesale markets for wearing apparel. As changes occur in
material or labor costs, or in styles, the quality of the garment is
changed in order that it may be sold at one of these accepted levels.
For example, if the material becomes more expensive, the cost of the
finished garment can be maintained at the conventional level by the
use of lower quality materials or less or cheaper trimmings, or by
decreasing the amount of labor.
Wholesale price lines are apparently somewhat more rigidly main-
tained for inexpensive and mediuln-priced merchandise than for
apparel of higher quality. It is reported that manufacturers produc-
ing dresses to wholesale at $22.75 and above change their lines from
year to year in order to maintain the same quality.
Corsets and brassieres. — The corset and brassiere industry is an
excellent example of an industry whose wholesale price lines have
> Appendix II was prepared by Laura Mae Brown. Acknowledgment is due Miss VIela Darnell, S.
Kann Sons Co., Miss Elizabeth Farrell, Julius Oarflnckel & Co., and Mr. W. B. Stringham, Qeneral
Electric Supply Co., for their assistance In supplying certain data used in this analysis.
242
CONCENTRATION OF ECONOMIC POWER 243
become fixed by custom. Under N. R. A., conformity with these
price Hnes was made mandatory. The code for this industry, as
approved on August 14, 1933, stipulated:
"Wholesale prices. — To maintain established trade practices and to limit the
multiplication of numbers, but without any attempt at price fixing, each person
being free to determine the value to be given at each price, the following shall be
the wholesale prices, per dozen, for sale to retailers (except chain stores selling up
to $1 retail):
$2.00 doz.
$8.50 doz.
$27.00 doz.
2.25
10.50
30.00
3.25
12.00
33.00
4.00
15.00
36.00
4.25
16.50
42.00
4.50
18.00
48.00
6.00
21.00
54.00
7.00
22.50
60.00
8.00
24.00
66.00 and up." 2
Testimony at the hearings indicated that the industry as a whole
had for many years observed these wholesale price lines, which cor-
responded to similar price lines in the retail market, and that the
latter in turn reflected the accumulated experience of retailers in
dealing with the consumer.
To an extent, therefore, the inclusion of these wholesale prices in
the code was simply a recognition of a practice long established
through the cooperation of manufacturers and retailers. Presumably
some deviations from these lines had appeared during the buyers'
market of 1932-33; the code provision may have been designed to
prevent such deviations. The manufacturers maintained that, as a
result of the stabilization of prices, the retailer could carry a much
more complete selection of sizes at each price than would be possible
if prices varied more. They contended that customers benefited
from such a practice. They also argued that the setting of wholesale
price lines was not equivalent to fixed prices since the manufacturer
was completely unrestricted as to the quality of the garment he might
sell at each price, and since a price line was not restricted to a garment
meeting a standard specification.
The same general practice is followed to a considerable extent in
the retail markets, although price lines are less universal than in the
wholesale markets. The extent of uniformity is indicated by the
retail prices quoted to the Bureau of Labor Statistics, as of June 15,
1938, by representative retailers in 32 cities. Of the 114 quotations
reported for women's "medium quality" woven elastic girdles retaihng
from $2.95 to $5.50, 99, or 87 percent, were at two prices — $3.50 and $5.
One hundred ninety-two, or 85 percent, of 227 prices for foundation
garments were at the $3.50 and $5 lines. Eighty-one percent of the
142 prices reported for brassieres retailing between 94 cents and $1.50
were at the $1 line; 11 percent at $1.50.
' National Recovery Administration, Codes of Fair Competition, vol. I, p. 76, "Corset and Brassiere
Industry," sec. 9 (i).
244 CONCENTRATION OF ECONOMIC POWER
The actual distributions of these prices follow:
Table 59. — Distribution of retail prices of girdles, foundation garments, and
brassieres
Girdles
Foundation garments
Brassieres
Price
Number
of quo-
tations
Price
Number
of quo-
tations
Price
Number
of quo-
tations
$2.95
4
2
1
32
1
2
1
1
1
67
2
$3.19 1
1
1
1
1
77
2
4
16
1
1
3
115
1
1
1
1
$0.94 .
1
$2.98...
$3.25
$1
115
$3.39
$3.29.
$1.25
9
$3.50
$3.39
$1.29
1
$3.59...
$3.50
$1 50
16
$3.95
$3.59
Total
$3.98
$3.95
142
$4
$3.98
$4.69..
$4.69
$5....
$4.95
$5.50
$4.98
$5
Total
114
$5.29
$5.30
$5.95
$5.98
Total
227
Dresses. — Wholesale price lines are also maintained in the market
for women's dresses. Many firms manufacture dresses to sell at one
wholesale price line only; those producing inexpensive garments tend
to maintain the same price lines for many years. This practice has
become so well established that manufacturers are often described by
referring to the price lines in which they specialize; e. g., one may
be known as a "$10.75 house" or a "$14.75 house."
There are two branches of the dress industry. The first is the
wash frock or "house dress" group. This branch of the industry
originated with the manufacture of house dresses and aprons — cotton
garments which had practically no "style." It now manufactures
both cotton and rayon dresses, practically all of which are styled for
street as well as for house wear. Producers of these garments usually
own their own plants and ordinarily are not located in the large
metropolitan centers.
The second branch of the industry, usually known as the women's
dress industry proper, originated with the manufacture of silk dresses.
Most of the production of this group of manufacturers is of rayon,
wool, linen, and the more expensive cotton materials, since fewer
silk dresses are now sold than in former years. Many of these dresses
are manufactured by contractors; a large percentage of the total
volume is produced in New York City in what is known as "China-
town." The wash frock industry is more highly mechanized than is
the dress industry proper and the frocks manufactured by the former
group tend toward the more tailored styles.
The more usual price lines quoted by wash frock manufacturers at
the present time are: $4.75, $6.75, $8.50, $12.50, $16.75, $22.50,
$30,00, $31.50, $33.00, $42.00, $45.00 per dozen.
All these prices have been "standard" for many years, with the
exception of the $31.50 line which was introduced about 1931. Close-
CONCENTRATION OF ECONOMIC POWER
245
outs, as well as'regular merchandise, are priced at these lines. Close-
outs are often made from left-over materials which would ordinarily
have been used for more expensive lines; they- are sold in lower whole-
sale price lines dm'ing the latter part of a season in order to reduce
material inventories and to keep labor more steadily employed.
It is not unusual for merchandise which would have sold at $45 per
dozen at the beginning of a season to be sold at $22.50 per dozen at
the end of the season. This merchandise is used to enlarge the stocks
in the retail stores for end-of-season clearance sales. Thus there are
in efi'ect price reductions as the season progresses, but they are made
in conventional steps downward.
Retail price lines are also common in the wash frock market. It
is imderstood that agreements are often made by buyers in competing
stores to observe uniform price "endings." Such agreements usually
affect the marking of lower-priced merchandise only.
The importance of retail price lines in this field is indicated by the
data compiled by the Retail Price Division of the Bureau of Labor
Statistics. Of the 258 prices reported during Jime 1938, for dresses
retailing between $1.50 and $3, 201, or 78 percent, were on four price
lines: $1.95, $1.98, $2.00, and $2.98. The distribution of these 258
prices follows:
Table 60. — Distribution of retail prices for wash frocks
Number of
Price: quotations
$1.50 2
$1.59 1
$1.69 11
$1.79 1
$1.86 1
$1.88 2
SI. 94 2
$1.95 38
$1.97 1
$1.98 99
Number of
Price; quotationi
$1.99_ 11
$2.00 39
$2.25.
$2.77.
$2.95.
S2 98.
$2.99.
$3.00.
3
1
12
25
2
7
Total 258
The "accepted" wholesale price lines in the dress industry proper
at the present time are: $1.87)^, $2.25, $2.87^, $3.75, $4.75, $6.75,
$7.75, $8.75, $10.75, $12.75, $14.75, $16.75, $19.75, $22.75, $29.75,
$39.75 each and over.
Before 1931 or 1932, prices were 25 cents lower for all garments
selling at $4.75 or over (e. g., the lines were $4.50, $6.50, etc.). They
were increased to their present levels under an agreement instituted
by the Half Size Guild, the Dress Creators' League of America, and
the Party Dress Guild.^
The development of rayon dress materials has made possible the
introduction of cheaper dresses during the past 10 years. About
1930 the first $2.25 street dresses were introduced and at the present
time a $1.87^ line is on the market. The depression made this new
field a very popular one; practically all wholesale lines below $4.75
have been introduced within the past 10 years.
The retail market shows concentration at the 95-cent price ending.
Of the 215 prices between $14.75 and $19.95 reported to the Bureau
in June 1938 on women's "medium quality" rayon or silk street
' N. R. A. Code Hearings on the Dress Manufacturing Industry, January 7, 1936, pp. 141 and 186.
246
CONCENTRATION OF ECONOMIC POWER
dresses, 148, or 69 percent, were on the $14.95, $16.95, and $17.95
lines. These quotations were distributed in the following manner;
Table 61. — Distribution of retail prices for women's medium-quality dresses
Number of
Retail price: guotationg
$16.98 1
$16.99 1
$17.50 9
$17.95 23
$18.00 1
$19.75 2
$19.95 9
Number of
Retail price: guotatiom
$14.75 3
$14.88 1
$14.95 56
$14.98 3
$15.00 11
$15.93 1
$16.50 9
$16.75 16
$16.95 69
Total 215
Of 242 prices reported in June 1938 on lower quality rayon street
dresses retailing from $5.88 to $12.95, 63 percent were quoted at four
prices— $5.95, $6.95, $7.95, and $10.95. The distribution follows:
Table 62. — Distribution of retail prices for women's cheap dresses
Retail price:
$5.88- _.
$5.94...
$5.95_..
$5.98_..
$5.99...
$6.50- _.
$6.60...
$6.90-..
$6.95---
$6.98-..
$6.99- -.
$7.95...
$7.98- _.
$8.00- -.
Number of
Quotations
1
1
24
14
3
5
1
14
35
7
10
57
11
1
Retail price:
$8.94..
$8.95.-
$8.98--
$9.75..
$9.95- .
$10.00-
$10.75.
$10.95-
$10.98.
$10.99.
$11.95-
$12.95.,
Number of
Quotationi
1
4
1
3
1
1
2
36
3
1
1
4
Total.
242
According to the above distributions, the important retail price
lines for women's medium and lower priced silk and rayon dresses are:
$17.95, $16.95, $14.95, $10.95, $7.95, $6.95, and $5.95.
One feature of these last two distributions seems noteworthy.
There is a complete avoidance of the use of any price between 1 cent
and 49 cents over the even dollar. In other words, of the 457 quota-
tions included in these last two tables, every one which is not quoted
at an even dollar is at least 50 cents over the dollar.
Presumably this reflects the retailers' appraisal of consumer psy-
chology. It may well be true that to many consumers there is a
smaller psychological gap between, say, $16.25 and $16.98 than
between $16.98 and $17.15. That retail pricing should reflect this
probably well warranted belief is natural, but the complete unanimity
shown by these distributions is very strOcing.
Girls' cotton dresses. — Girls' cotton dresses are also sold at "price
lines." The following distribution of 523 retail prices reported to
the Bureau as of June 15, 1938, for girls' cotton dresses retaihng from
98 cents to $2 shows that 24 percent retailed at $1.98, 21 percent at
$1, and 12 percent each at $1.19 and $1.95. Only 31 percent of the
quotations were at other prices.
CONCENTRATION OF ECONOMIC POWER
Table 63. — Distribution of retail prices for girls' cotton dresses
Retail price:
$0.98- _.
$1.00-..
$1.09--.
$1.10--.
$l.ll-_.
$1.15--.
$1.19_-.
$1.25---
$1.29--.
$1.49---
$1.59- _-
Number of
guotationi
31
109
2
2
26
65
19
2
2
1
Retail price:
$1.65.-.
$1.69-..
$1.83-..
$1.95...
$1.97--.
$1.98...
$1.99.-.
$2.00--.
247
Number of
guotalions
1
2
2
65
2
128
12
44
Total.
523
Coats.
-A third example of wearing apparel sold at rigid price lines
IS women's and misses' coats. The most usual wholesale prices in
this field are: $6.75, $10.75, $16.75, $22.75, $26.75, $39.75 each.
In addition the following prices are also quoted by many houses,
applying to both trimmed and untrimmed coats: $3.75, $4.75, $5.75,
$8.75, $12.75, $14.75, $19.75, $29.75, $49.75 each.
Women's hose. — The importance retailers attach to hosiery price
Hues is indicated in the following:
It seems taken for granted that the 79-cent retail price is too firmly entrenched
to be fooled with and that any revisions on goods in this price class will be in the
nature of construction changes.''
The prices reported to the Bureau in June 1938 demonstrate the
importance of the 79-cent line and the $1 line. One hundred fifty-four,
or 39 percent, of the 396 prices quoted were on the $1 hose, 30 percent
on the 79 cent, 1 1 percent on the 69 cent, and 7 percent on the 89 cent.
Only 13 percent of the prices quoted were at other levels.
Table 64.
— Distribution of retail prices for women's hose
Price
per pair
3-thread,
45-gau^e
4-thrcad,
42-gause
7-thread,
42-gaugc
Total
Price
per pair
3-thread,
45-gauge
4-thread,
42-gauge
7-thiead,
42-gauge
Total
$0.69-...
$0.75....
1
17
2
25
43
2
1
1
119
1
1
18
4
$0.89-..-
$0v94....
$0.95..-.
$0.97...-
$1.00....
$1.09-...
$1.15--..
Total_
6
1
2
1
95
1
15
9
12
27
1
$0.77....
1
1
3
$0.78...-
1
56
1
$0.79....
$0.80..-.
13
50
1
1
10
1
27
32
154
1
$0.84..-.
1
3
19
$0.85....
$0.88.-..
3
2
5
1
141
119
136
396
Girls' anklets. — Quotations for girls' mercerized anklets reported
on June 15, 1938, to the Bureau show price lines at lower levels.
Forty-seven percent of the group retailed for 29 cents; 26 percent
retailed for 25 cents.
Table 65. — Distribution of retail prices for girls' anklets
Retail price:
$0.25--.
.27--.
.28--.
.29-..
.30-..
.31--.
Number of
quotations
.... 33
.;-- 1
3
..-- 60
1
1
Retail price:
$0.33--
.35.-
.37--
.39-.
Number of
quotations
.-.- 16
5
1
.--. 7
Total 128
* Knit Goods Weekly, October 17, 1938, p. 10.
247149— 41— No. 1 18
248
CONCENTRATION OF ECONOMIC POWER
Men's work shirts. — In men's ready-to-wear, retail price lines are
important in the pricing of men's suits, business shirts, underwear,
socks, neckties, and felt hats. The retail prices of men's work cloth-
ing also give evidence of price lining, although it is not as marked as
for women's clothing. The 349 retail prices reported to the Bureau
on men's work shirts retailing from 39 cents to $1 in June 1938 are
generally grouped at 10-cent intervals between 39 cents and 89 cents:
Table 66. — Distribution of retail prices for men's work shirts
Retail price:
$0..39.-
.45. _
.47..
.49. _
.50..
.55.-
.58-.
.59..
.65..
.67__
.68..
.69..
.75..
.79..
Number of
quotations
.-__ 13
2
1
-.. 22
4
.... 2
1
.... 61
1
.... 3
1
.--- 55
.... 7
.--- 35
Retail price:
$0.80--
.82..
.85--
.88--
.89.-
.90.-
.92-.
.L'l.-
.95.-
.98.-
1.00-.
Number of
quotations
1
1
4
1
.--- 50
1
1
2
5
.--. 39
.... 36
Total 349
One retailer reported that the chain-store organization which he
represented found that goods which were changed in price sold better
if they were increased or reduced to an "accepted" price line rather
than to some intermediate price. For instance, shirts which had been
selling for 49 cents would sell better when placed in the 59-cent
group, a price line to which their customers had become accustomed,
than if they were priced at 54 cents. Similarly, he said it was nece^ary
to observe customary lines even during sales.
It has been pointed out that the retail price lines found in women's
ready-to-wear are the result of two factors: (1) The rigidity of whole-
sale price lines, and (2) the acceptance of "customary" price lines by
consumers with the result that retailers consider it expedient to
observe these conventional pricing practices. For men's work shirts,
however, only the second factor is significant since the wholesale quota-
tions are flexible, usually changing when costs of production change.
VARD GOODS
Retail price lines are also followed in the merchandising of yard
.goods. Buyers who have established price lines on yard goods are
anxious to purchase cloths which can be retailed at established
prices. In order to maintain these lines in the face of changes in costs
quality is necessarily altered, but the variations are seldom great
enough to be evident to the average consumer. In the caoe of woolens,
for example, the quality of the cloth may be changed in any of the
following ways: (1) Changing the construction of the cloth; (2) using
another grade of wool; or (3) introducing some reworked wool or
rayon. In the case of cotton goods, the price may be stabilized by
varying the quality of the yarn used, and, if the cloth is printed, by
varying the number of colors and the elaborateness of the design.
CONCENTRATION OF ECONOMIC POWER 249
Retail prices on printed percales, 80 x 80 construction, reported to
the Bureau as of December 1938 indicate the prevalence of price
lining. Two price lines — 19 cents and 25 cents — accounted for 114 of
the 134 quotations.
Table 67. — Distribution of retail prices for printed percales
Number of
Retail price: quotations
$0.14 1
$0.15 3
$0.17 6
$0.19 46
$0,2r. 1
$0.22 6
Number of
Retail price: quotations
$0.23 2
$0.24 1
$0.25 68
Total 134
CONSUMERS DURABLE GOODS
The retail list prices of certain kinds of consumers' durable goods
also show evidence of established price lines, although the practice is
not as universal in this field as in the apparel markets. Many elec-
trical appliances, for example, are regularly priced at 5 cents under the
even $10 mark. As in the case of apparel, price lines are more com-
mon in connection with the sale of merchandise designed for consum-
ers in the low and middle income brackets than for goods destined for
the less price-conscious luxury trade.
Washing machines and vacuum cleaners. — In the sale of both washing
machines and vacuum cleaners it seems to be the accepted practice
for retail prices to be quoted at 5 cents under the even $10 mark.
For example, electric vacuum cleaners are usually priced at $10
intervals from $39.95 to $79.95. Washing machines show the same
general pattern but the range extends materially above the $79.95
level.
As in the case of conventional price endings for apparel, this practice
is largely the outgrowth of manufacturers' and distributors' appraisal
of consumer psychology. It is generally contended by these trades
that inter ediate price levels are less satisfactory in stimulating sales.
Thus, if the cost of producing and distributing a certain vacuum
cleaner warranted a price of $61, it would probably be marked at
$59.95; similarly, if its cost indicated a retail price of $57 it would still
sell much better at $59.95. The uniformity with which this practice
is observed illustrates at least that these industries are convinced of
the validity of their interpretation of the consumer's reaction.
Radios. — The more common retail list prices for radios follow:
$12.95, $17.95, $24.95, $29.95, $39.95, $49.95, $59.95, $69.95, $79.95,
$89.95, and $129.95.
Recently a small portable radio designed to retail at $9.95 has been
introduced by many manufacturers.
Refrigerators. — There is also some evidence of the maintenance of
price lines for electric refrigerators. In this case, however, there is
somewhat more variation both as between different makes and at
different periods of time. Table 21 compares the retail list prices for
the 1938 models of nine nationally advertised refrigerators. (See p.
162 supra.)
250 CONCENTRATION OF ECONOMIC POWER
THE CASH DISCOUNT IN THE APPAREL MARKET
It has been pointed out in chapter III of this study (see p. 74
supra) that wholesale price lines for apparel, and particularly for
women's apparel, should be interpreted in the light of the standard
so-called cash discount. For most lines of women's apparel, manu-
facturers regularly grant a discount of 8/10 EOM off the accepted
price line.^
An indication of the extent to which this discount is actually ob-
served for different kinds of goods has been obtained from data
published by the National Retail Dry Goods Association.® According
to the data compiled, the 8/10 EOM terms are being granted on the
following items of women's, misses', and girls' clothing:
(1) Neckwear and scarfs.
(2) Millinery.
(3) Corsets and brassieres.
(4) Sdk and muslin underwear and slips.
(5) Negligees and robes.
(6) Coats and suits.
(7) Dresses.
(8) Blouses and sportswear.
(9) Girls' wear.
(10) Aprons, housedresses, and uniforms.
(11) Furs.
Although this allowance is usually called a cash discount it is in
reality a combination cash and trade discount. This interpretation
is indicated both by its size, which is unusually high for a strictly cash
discount, and also by the fact that failure to pay by the date stipulated
does not usually entail the loss of the entire discount. Instead, if
payment is delayed, the terms are usually changed to 7/10/60.^ This
is equivalent to charging interest at the rate of 6 percent per annum
for the additional 60 days allowed.
As in the case of the price lines themselves this discount largely
represents the crystallization of business custom. It was, however,
definitely formalized about 20 years ago by a conference of retailers
and manufacturers. Later (about 1925) the relative bargaining
power of the retailers seems to have increased, with the result that
the discount was increased to 10/10 EOM in a substantial portion of
the market, particularly in the lower price lines. Under N. R. A.,
however, manufacturers succeeded in restoring the terms of their old
level of 8/10 EOM; since that time this has been the prevailing prac-
tice. There are, however, occasional variations from these terms. It
is understood that very large buyers are sometimes granted 10/10
EOM terms (representing an advantage of two percent.) Some
merchants doing business in small communities are believed to receive
' I. 6., a discount of 8 percent if payment is made within 10 days after the end of the month during which
the sale was completed.
' 1937 Departmental Merchandising and Operating Results of Department and Specialty Stores, pub-
lished by the Controllers' Congress of"^° National Retail Dry Goods Association. These figures show the
typical performance figure in pach of toe separate departments for the items listed. Cash discounts from
which any "loading" discounts had oftfln eliminated weio expressed in the National Retail Dry Goods
Association report as a percentage of sal*» In order to calculate the cash discount as a percentage of cost
(the flsure to which the S-percent discount is applied), the "typical" figures for both the cumulative mark-
ons and mark-downs harl to be considerftd. since each percentage represents the typical performance
rather than the actual performance of any slmrle store.
' I. e., a discount of 7 percent if payment is made within 10 days of the expiration of a 60-day period.
CONCENTRATION OP ECONOMIC POWER 251
a discount of only 3 percent. In this way changes in discount impart
a limited degree of flexibility to conventional price lines.
The question may be raised as to whether a discount so uniformly
granted has any real significance in the market other than that implied
in an equivalent reduction in the nominal price lines. There is some
evidence, however, that there is a difference in the ultimate result,
particularly from the point of view of the consumer. It is standard
bookkeeping practice in many department stores to apply this discount
to the expenses of the "front" office rather than to the credit of the
specific department involved.* If a buyer should, for any reason, fail
to obtain the standard discount, and if office procedure is based upon
the practice just mentioned, it is common to "load" the buyer's cost.
For example, assume that the terms received on a $10.75 dress are only
6/10 EOM. In such a case the dress would be charged to the depart-
ment at $10.98 and the difference credited to the "front" office.^
This practice in turn influences the retail selling price. The operat-
ing results of each department are computed upon the basis of whole-
sale price level. Consequently, it becomes incumbent upon the buyer
to adjust his mark-up accordingly, if the department is to show an
adequate operating profit.
Opinions as to the actual significance of this situation differ. It is
contended on the one hand that it results in a higher price to the con-
sumer for the commodities affected because of the pressure upon the
buyer to show a profit based upon a fictitious cost. It is suggested on
the other hand that, if this practice did not prevail, the result would be
much the same because larger operating profits would be required
from the individual departments in order to defray necessary adminis-
trative expenses. Perhaps what really happens is that retail prices
in the departments aft'ected by this practice arc somewhat higher than
they would otherwise be, while prices in other departments are corre-
spondingly lower. In any event the situation is significant as an illus-
tration of the manner in which retail price levels may be affected by
business convention.
* Recoutlv, however, thereseenis to be some trend iu the opposite direction.
«.|10.75 loss 6 percent equals $10.10. .$10.98 less 8 percent equals $10.10.
APPENDIX III
Statistical data supporting charts
Sensitive and insensitive prices
11926 = 100]
(Chart I based on the following statistical data appears on p. 24)
INDEXES OF WHOLESALE PRICES OF SULFUR, CRUDE
Rela-
tive
Jan-
uary
Feb-
ruary
March
April
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
Year
1926...
1927...
1928...
1929...
1930...
1931...
1932...
1933...
1931...
1935...
1930...
1937...
1938...
1939
93
98
98
98
98
98
98
98
98
98
98
98
98
87
3
8
8
8
8
8
8
8
8
8
8
8
8
9
93.3
98.8
98.8
98 8
9S.8
98.8
98.8
98.8
98.8
98.8
98.8
98.8
98.8
87.9
96
98
98
98
98
98
98
98
98
98
9S
98
98
87
1
8
8
8
8
8
8
8
8
8
8
8
8
9
86
98
98
98
98
98
98
98
98
98
98
98
98
87
4
8
8
8
8
8
8
8
8
8
8
8
8
9
104
98
98
98
98
98
98
98
98
98
98
93
98
87
3
8
8
8
8
8
8
8
8
8
8
8
8
9
104
98
98
98
98
98
98
98
93
98
98
98
98
87
3
8
8
8
8
8
8
8
8
8
8
8
8
q
104
98
98
98
98
98
98
98
98
98
98
98
98
87
3
8
8
8
8
8
8
8
8
8
8
8
8
9
104
98
98
98
98
98
98
98
98
98
98
98
98
3
8
8
8
8
8
8
8
8
8
8
8
8
98
98
98
98
98
98
98
98
98
98
98
98
98
8
8
8
8
8
8
8
8
8
8
8
8
8
98
98
9S
98
98
98
98
98
98
98
98
98
90
8
8
8
8
8
8
8
8
8
8
8
8
1
98
98
98
98
98
98
98
98
98
98
98
98
87
8
8
8
8
8
8
8
8
8
8
8
8
9
98
98
98
98
98
98
98
98
98
98
98
98
87
8
8
8
8
8
8
8
8
8
8
8
8
9
100
98
98
98
98
98
98
98
98
98
98
98
96
0'
»
8
8
8
8
S-
8
8
a
8
a
INDEXES OF WHOLESALE PRICES OF BRICK: LIGHT COLORED FRONT, GOOD GRADE
1920...
103.8
103.8
103.8
101.1
101.1
101.1
98.4
98.4
98.4
98.4
95.7
95.7
100.0
1927...
93.0
93.0
93.0
93.0
93.0
93.0
93.0
93.0
93.0
93.0
93.0
95.7
93. a
1928...
93.0
90.3
87.6
87.6
87 6
87.6
84.9
87.6
84.9
84.9
84.9
84.9
87.2
1929...
84.9
84.9
84.9
84.9
84.9
84.9
82.2
82.2
82.2
82.2
82.2
82.2
83.6
1930...
82.2
82.2
82.2
82.2
82.2
82.2
82.2
82.2
82.2
82.2
82.2
82.2
82.2
1931...
82.2
79.5
79.5
79.5
79.5
79.5
79.5
79.5
79.5
76.9
76.9
76.0
79. a
1932...
76.2
76. 9
76.9
76.9
75.8
74.2
72.2
74.2
74.2
74.2
74.2
74.2
75.1
1933...
74.2
74.2
74.2
74.2
74.2
74.2
76.2
82.2
82.2
82.2
82.2
82.2
77.7
1934...
83.9
84.9
87.0
88.0
89.0
89.0
89.0
89.0
89.0
89.0
89.0
89.0
88.0
1935...
89.0
89.0
89.0
89.0
89.0
89.0
89.0
89.0
84.9
83.6
83.6
85.8
87.5
1936...
80.2
80.2
82.4
82.9
81.6
82.9
82.9
82.9
82.9
82.9
84.9
86.0
82.8
1937...
89.3
94.4
94.4
94.4
94.4
94.4
94.4
94.4
94.4
87.6
84.9
84.9
91. a
1938...
84.9
84.9
84.9
84.9
87.1
87.6
87.6
87.6
89.0
89.7
90.3
90.3
87.4
1939...
90.3
90.3
90.3
90.3
90.3
90.3
90.3
INDEXBS OF WHOLESALE PRICES OF WHEAT, NO. 2,
HARD
1926...
120.8
115.3
106.6
107.4
104.5
102.7
91.7
83.1
89.3
92.5
91.8
91.8
100. a
1027...
92.0
90.7
88.7
87.4
95.4
99.4
93.6
93.5
88.4
89.5
90.1
91.1
91.7
1928...
93 3
92.3
96.5
103.5
109 5
103.4
86.0
73.3
72.9
76.5
76.4
76.1
88.5
1929...
77.4
80.3
78.6
74.6
68.4
69.8
85.5
82.2
82.9
82.1
78.9
83.0
78. a
1930...
79.4
74.4
68.0
68.0
86.4
62.6
54.7
55.0
52.9
50.7
46.2
47.6
60.1
1931...
46.7
46.7
47.3
49.0
49.1
44.5
31.3
29.7
30.7
33.3
40.9
37.3
40.5
1932...
36.6
37.1
34.6
36.6
36.8
30.3
31.2
32.7
32.6
30.6
29.0
28.3
33.0
1933...
28.8
29.5
32.8
40.3
47.6
53.0
66.5
59.3
58.7
64.8
56.1
54.2
4a 4
1934...
56 5
56.5
54.8
51.1
.S5. 1
61.6
63 5
71.3
71.5
68.2
68.2
70.3
62.3
1935...
67.3
67.2
04.5
68.7
66.7
59.3
64.8
69.3
76.5
79.6
74.1
74.4
69.5
1936...
74.5
72.5
71.0
67.8
61.5
63.5
74.8
81.2
80.4
81.6
81.5
89.5
75.1
1937...
92.7
91. 1
92.9
91.5
88.6
81.8
82.1
73.5
73.8
69.1
63.1
65.2
80.3
1938...
69.0
66.8
61.2
56.3
52 0
54.5
47.0
43.9
43.3
43.0
42.8
45.5
61. »
1939 ..
47.2
46.3
45.8
46.4
50.8
49.2
44.6
-
Source: Bureau of Labor Statistics.
252
CONCENTRATION 01' ECONOMIC POAVER
Wholesale prices of selected commodities
[1926=100]
(Chart II based on the following statistical data appears on p. 25)
EGGS, FIRSTS, NEW YORK
253
Year
Janu-
ary
Febru-
ary
March
April
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
Yearly
aver-
age
1926...
107.8
86.9
81.1
89.2
86.0
84.8
82.3
88.3
106.2
113.6
140.4
135. 0
100.0
1927...
117.8
89.8
70.5
69.1
65 8
65.1
69.6
79.0
96.3
111.1
122.6
127.5
89.9
1928...
126.4
91.2
80.4
79.8
83.5
82.8
85.0
88.1
92.8
91.2
103.0
102.8
92.6
1929...
102.2
115.5
92.0
78.2
87.5
86.0
91.1
97.0
102.0
111.0
135.7
142.1
103. 5
1930...
118.2
98.8
72.3
75.5
65.6
68.4
62.9
70.2
70.6
74.4
87.2
80.7
78.2
1931...
68.0
56.6
61.5
5Q. 6
53.1
52.2
56.6
62.6
67.8
67.9
80.0
75.0
63.2
1932...
52.4
48.4
39.4
39.7
41.2
39.7
42.2
48.8
58.0
67.2
86.7
88.3
54.3
1933...
64.3
38.8
38.3
37.7
39.6
37.4
43.0
39.9
49.9
56.5
72.3
60.5
48.4
1934...
62.4
51.3
49.7
46.9
46.1
45.7
46.9
58.4
62.1
66.5
77.4
74.7
57.2
1935...
83.6
84.4
60.2
67.5
70.5
68.0
68.6
72.9
76.0
75.9
82.4
75.9
73.9
1936. --
68.1
85.3
58.9
57.5
60.7
62.0
63.8
66.6
69.3
76.1
90.7
90.8
70.8
1937...
70.2
63.7
65.1
63.4
57.9
57.9
59.9
59.6
65.6
66.3
73.3
71.2
64.5
1938...
63.0
52.0
50.4
50. 8
58.8
57.9
60.2
62.2
70.9
74.9
81.6
78.1
63.4
1939...
55.2
49.8
49.1
48.4
46.2
45.5
45.7
COTTON GOODS
1926...
107.5
106.6
104.9
103.5
101.0
98.6
98.1
99.0
99.4
96.2
93.7
91.8
100.0
1927...
90.1
90.7
91. i
90.9
92.9
94.5
95.6
100.1
106.8
106.2
104.3
102.6
97.1
1928...
101.3
100.1
99.7
99.6
100.7
100.5
101.5
100.7
99.2
99.9
100.5
100.9
100.4
1929...
100.4
99.8
100.6
99.4
98.5
97.8
98.2
98.2
98.4
98.5
97.4
96.2
98.8
1930...
94.7
92.8
90.3
89.6
89.0
87.2
83.9
81.1
78.6
77.0
77.5
75.6
84.7
1931. ._
73.5
73.1
72.4
71.4
69.2
67.6
66.8
64.0
61.5
59.7
58.1
56.4
66.1
1932...
55.8
56.4
56.2
55.1
52.9
51.0
50.0
52.6
57.9
56.2
53.6
51.7
54.0
1933...
50.1
49.1
50.0
50.7
57.9
67.1
80.2
93.5
91.3
88.8
80.0
85.5
71.2
1934...
86.5
8S.6
89.1
88.2
86. 3
86.0
8?. 1
86.4
87.8
86.6
84.4
84.3
86.5
1935...
84.1
83.3
82.4
SI. 8
82.7
82.5
82.0
82.5
83.2
84.6
80.8
86.0
83.4
19.36...
80.4
78.1
77.1
76.2
75.5
75.4
78.7
79.5
80.0
82.0
85.5
90.3
80.3
1937...
SI. 9
91.3
94.0
95.1
92.6
89.7
86.8
82.2
76.8
73.1
70.5
68.7
84.3
1938...
68.2
67.6
67.6
65.7
65.0
63.9
65.1
C4.4
64.1
64.6
65.1
64.6
65.4
1939...
64.3
63.7
63.7
63.4
63.3
64.1
65.1
DOMESTIC RAYON
1926...
110.5
110.5
110.5
110.5
110.5
110.5
91.2
91.2
91.2
91.2
91.2
91.2
100.0
1927...
80.1
80.1
81.2
82.9
82.9
82.9
82.9
82.9
82.9
82 9
82.9
82.9
82.3
1928...
82.9
82.9
82.9
82.9
82.9
82.9
82.9
82.9
82.9
82.9
82.9
82.9
82.9
1929...
82.9
80.1
71.8
71.8
71.8
69.8
63.6
63.6
63.6
63.6
63.6
63.6
68.9
1930...
63.6
63.6
63.6
63.6
63.6
63.6
59.1
52.5
52.5
52.5
52.5
62.5
68.5
1931...
47.0
41.4
41.4
41.4
41.4
41.4
41.4
41.4
41.4
41.4
41.4
41.4
41.9
1932...
41.4
41.4
41.4
41.4
40.3
35.9
31.8
30.9
33.2
33.2
33.2
33.2
36.5
1933...
33.2
33.2
33.2
27.6
30.4
31.8
34.5
35.9
35.9
35.9
35.9
35.9
33.6
1934...
35.9
35.9
35.9
35.9
31.9
30.4
30.4
30.4
30.4
30.4
30.4
31.2
32.4
1935...
33.2
33.2
3.3.2
32.1
30.4
30.4
30.4
31.2
31.5
31.5
31.5
31.5
31.7
1936...
31.5
31.5
31.5
31.5
31.5
31.8
33.2
33.2
33.2
33.2
33.2
33.2
32.4
1937...
33.2
33.2
33.2
34.8
34.8
34.8
34.8
34.8
34.8
34.8
34.8
34.8
34.4
1938...
33.0
29.8
29.8
29.8
28.7
27.1
27.1
28.2
28.2
28.2
28.2
28.2
28.9
1939...
28.2
28.2
28.2
28.2
28.2
28.2
28.2
Source: Bureau of Labor Statistics.
254
CONCENTRATION OF ECONOMIC POWER
Wholesale prices of selected commodities — Continued
[1926=100]
(Chart III based on the following statistical data appears on p. 26)
PHOSPHATE ROCK
Year
Janu-
ary
Feb-
ruary
March
April
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
i926
94.6
95.5
95.5
98.7
98.7
98.7
98.7
98.7
90.8
108.3
58.9
58.9
58.9
60.5
99.5
95.6
95.6
98.7
98.7
98.7
98.7
98.7
90.8
108.3
58.9
58.9
58.9
60.5
103.6
95.5
95.5
98.7
98.7
98.7
98.7
98.7
90.8
108.3
58.9
58.9
58.9
60.5
101.1
95.5
95.5
98.7
98.7
98.7
98.7
98.7
90.8
108.3
58.9
58.9
58.9
60.5
100.3
95.5
95.5
98.7
98.7
98.7
98.7
98.7
90.8
108.3
58.9
58.9
58.9
60.5
100.3
95.5
95.5
98.7
98.7
98.7
98.7
98.7
93.3
108.3
58.9
58.9
58.9
60.5
100.3
95.5
95.5
98.7
98.7
98.7
98.7
98.7
103.5
108.3
58.9
58.9
58.9
60.5
100.3
95.5
97.9
98.7
98.7
98.7
98.7
95.9
103.5
108.3
58.9
58.9
58.9
100.3
95.5
98.7
98.7
98.7
98.7
98.7
87.9
103.5
108.3
58.9
58.9
58.9
100.3
95.5
98.7
98.7
98.7
98.7
98.7
89.2
103.5
108.3
58.9
58.9
58.9
100.3
95.5
98.7
98.7
98.7
98.7
98.7
89.2
103.5
108.3
58 9
58.9
58.9
100.3
1927.-.
95.5
1928
98.7
1929
98.7
1930
98.7
1931
98.7
1932
98.7
1933
89.2
1934
104.4
1935
61.3
1936
58.9
1937 . .
58.9
1938
59.2
1939
ANTHRACITE
1926. -.-
1927
113.7
99.1
94.8
91.6
91.2
88.9
94.8
•88.7
81.6
82.3
82.3
81.6
80.1
80.3
102.0
98.9
95.3
91.6
91.2
88.9
94.8
88.7
81.2
82.3
82.6
81.6
79.8
79.9
101.2
96.8
94.8
91.4
91.2
88.4
89.9
88.3
81.2
81.1
82. 5
77.8
79.3
79.4
98.1
93.8
89.7
88.1
90.2
86.4
85.7
81.4
78.1
75.5
80.0
72.4
76.0
71.7
97.6
93.6
89.0
67.4'
86.7
87.5
85.6
78.5
75.7
73.0
7fi. 6
74.2
73.8
75.3
97.3
94.8
90.4
88.1
85.8
88.8
85.3
76.8
76.9
74.0
77.0
74.5
74.5
70.5
97.4
95.2
90.5
89.1
86.5
90.8
84.5
77.9
78.6
77.0
78.5
76.6
76.2
72.6
98.1
95.7
90.3
90.0
88.0
92.2
86.0
79.2
79.9
78.6
79 1
76.8
77.9
98.4
97.0
91.2
90.6
89.1
94.3
87.7
82.0
81.3
80.fi
80,6
78.7
79.1
98.4
96.9
91.2
91.2
89.7
94.2
88.7
81.8
82.0
82. S
81.8
78.8
79.1
98.8
96.9
91.2
91.2
89.6
94.2
88.8
81.8
82.1
83.0
82.4
79.8
80.1
98.8
96.8
1928 ....
91.2
1929
1930
91.2
89.6
1931
94.8
1932
88.7
1933
81.5
1934..
82.3
1935
82.9
1936
82.3
1937
80.0
1938
80.1
1939
POTATOES
(Wliits, good to choice, bulk)
Year
Jan-
uary
Feb-
ruary
March
April
May
Jane
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
Yearly
aver-
age
1926...
134.0
123.2
132.4
151.8
112.6
105.7
67.0
74.0
75.9
72.2
77.8
75.1
100.0
1927...
76.8
77.8
62.7
86.3
119.5
122.6
70.9
66.0
64.3
58.3
58.6
55. 6
76.6
1928...
56.6
65.8
86.1
65.1
50.3
44.8
30.0
2G. 6
30.5
27.4
28.2
31.9
44.9
1929...
34.5
28.8
26.8
23.4
25.3
26.3
69.5
84.0
83.4
79.7
75.3
77.0
53.3
1930...
82.6
81.3
78.6
92.6
89.2
88.8
52.6
63.3
69.9
59.3
51.0
46.8
70 9
1931...
48.5
46.5
47.6
49.2
41.9
52.4
45.6
39.6
31.5
25.1
20.1
27.9
40.1
1932...
27.2
25.9
27.8
27.2
27.9
37.0
31.3
24.4
23.1
21.8
22.1
24.4
26.6
1933...
24.5
25.0
25.9
25.3
24.5
53.9
91.3
83.8
52.1
40.5
42.3
42.7
44.2
1934...
55.1
59.5
50.8
45.0
33.9
35.5
41.5
45.2
30.0
27.8
26.0
20.0
40.4
1935...
27.4
25.2
22.1
27.4
21.9
33.0
45.6
33.8
30.2
28.0
36.1
38.0
31.0
1936...
38.6
42.7
39.5
45.0
60.4
88.9
77.8
78.2
72.2
68.2
70.9
73.8
63.6
1937...
88.8
94.6
87.3
68.6
64.3
50.0
50.4
38.7
31.7
31.9
35.1
36.3
56.2
1938...
33.9
34.6
33.4
38.3
45.1
53.1
33.8
30.0
29.6
29.7
36.0
36.4
36.2
1939
41.3
41.4
40.0
39.9
41.8
61.9
41.1
Source: Bureau of Labor Statistics.
CONCENTRATION OP ECONOMIC POWER
255
iVholesale prices of selected commodities — Continued
POTASH SALTS
[1926-28=100]
Month
January-
February.
March
April.
May
June
July
August
September
October...
November
December.
1929
101.0
101.0
101.0
101.0
92.8
95.0
95.8
96.9
97.9
98.9
100.0
102.0
1930
102.0
102.0
103.2
103.2
94.0
96.0
97.0
98.0
99.0
100.0
101.0
103.2
1931
103.2
103.2
103.2
103.2
91.8
95.9
97.0
98.0
99.0
100.0
101.0
103.2
1932
103.2
103.2
103.2
103.2
90.5
95.8
96.8
97.8
98.8
99.8
100.9
102.8
1933
102.8
102.8
102.8
102.8
90.2
90.2
90.2
90.2
90.2
96.0
96.0
96,0
1934
101.0
101.0
101.0
101.0
80.0
80.0
81.1
59.6
59.6
63.5
63.5
63.5
1935
63.5
63.5
63.6
63.6
61.6
61.5
56.4
60.3
60.3
64.2
64.2
64.2
1936
64.2
64.2
64.2
64.2
64.2
64.2
62.3
67.3
67.3
69.3
69.3
70.7
1937
70.7
70.7
70.7
70.7
70.7
66.4
71.9
71.9
71.9
75.5
75.5
75.5
1938
76.6
75.6
75.5
75.6
75.6
66.6
71.9
71.9
71.9
76.7
Source: National Fertilizer Association.
Average factory price of electric refrigerators
[1928 = 100]
Year —
1928 100.0
1929
1930
1931
1932
Source: National Electrical Manufacturers Association
Index
Year —
00.0
1933
80.8
1934
79.8
1935
77.5
1936
61.0
Associa
1937
tion.
Index
50. 1
50.8
46. 9
48.6
51.2
Changes in average wholesale price and quantity available for consumption for 11 J
commodities, 1929-33
[Chart IV based on
the following statistical data appears on p.
39]
Percent change
Commodities
Percent change
Commodities
Average
price
Amount
available
for con-
sumption
Average
price
Amount
available
for con-
sumption
NoDfiuiablfc goods.
Corn
•-37
•-20
•-28
-57
-ei
-55
-53
•-32
•-44
-39
-42
•-58
•-34
-53
-47
-7
-17
•-13
-51
-56
-57
-15
•-13
-51
-45
-9
-9
•-3
•-27
•+1
+28
-2
•+6
-1
-4
-62
•+4
-4
-l
•+7
•+1
-16
-13
•-15
•+6
•+4
+3
-6
•-6
-13
+2
-31
-37
Nondurable goods— Con.
Coke
-6
-27
-14
-TA
-14
0
-24
-11
-28
-28
-56
-30
-53
-34
-53
-55
-16
0
-8
-9
-12
•-33
-21
-6
-2
-43
-60
Oats . ..
Fuel oil
—30
Wheal
Oasoliui'*
+3
Steers
-15
Hops
Cans, sanitary
—2
Poultry, live . .
Sulfuric acid..
Alcohol, denatured
Sodium ash
-34
Eggs
-42
Apples.
—7
Oranges
Castor oil
-39
Milk. ..
Olycerine
Ammonia (sulfate)
Superphosphate
Tankage . .
—7
Tobacco
+53
Bean<;, dried 1.
Potatoes, white
-37
-39
Butter. .
Fertilizers, mixed
Bran and middlings
Cottonseed meal
Poiboard
-46
Cheese
—31
Brpad
-3
Flour, wheat
-8
Rice
Beef, fre.oh
Wrapping paper (ma-
nila)
-10
Pork, fresh..
Soap, laundry
-9
Poultry, dressed ..
Cigarettes
-1
Sugar:
Ci<'ats. -
-2«
Granulated
Semidurable goods:
Cotton . .
Raw
•-7
Vegetable oil, coconut..
Twine, binder
Shoes:
Children's
+26
Coal:
Men's .
-6
Anthracite
Ladies'
0
Bituminous
Hides, steer
-14
256
CONCENTRATION OF ECONOMIC POWER
Changes in average wholesale price and quantity available for consumption for 111
commodities, 1929-83 — Continued
Percent change
Commodities
Percent change
Commodities
Average
price
Amount
available
for con-
sumption
Average
price
Amount
available
for con-
sumption
Scmidurabie goods— Con.
Skins, goat
Jycather:
Calf..
-32
-24
-37
-41
-36
-2
-7
-11
-28
-34
-23
-47
-47
-23
-51
-67
-55
-32
-18
-26
-36
-22
-20
-18
-26
-26
-71
-18
-2
-19
-18
-11
-4
-58
-42
-11
-40
+2
+ 1
-23
-41
+4
+ 1
+64
-23
-75
-14
-28
+1
-37
+10
-50
-37
-49
-41
-27
-52
-99
Durable goods— Continued.
Plows...
Tractors
Castings, malleable
Pipe, blick steel
Structural steel
Tinplate and terneplate.
Passenger cars
Trucks
0
-29
-25
-16
-15
-17
-16
-23
-61
-43
-13
-27
-38
-26
-19
-7
-7
-6
-30
-22
-20
-11
-28
-28
-29
-47
-21
-17
-21
-01
-95
-63
Kid
-26
Sole...
-76
Gloves
-3
Ovsrcoats and topcoats.
Shirts, dress
-64
—45
Suits, men's..
Copper, ingot.
Leid, pig
Tin, pig . .
-88
Print cloth
-65
Sheel ing, bleached
-28
Cotton yarn, carded
Boilers, heating
-21
Hosiery:
Radiation
-76
Rayon
Bathtubs...
-69
Silk .
Brick:
Common.
Fire clay
Front
Union suits, women's. -.
Rayon . ...
-82
-59
Silk, raw, Japan
Silk yarn
-87
Cement
-63
Dress goods, woolen
Overcoating
Lumber:
Dougla' flr
-53
Yarn, wool
Oak
-77
Burlap
Pine
-62
Thread, cotton..
Paint, outside white
Varnish
Crushed stone
Tar, pine._
Carpets
-51
-22
-19
Linseed oil, raw
Tires, balloon
Stoves, gas
Washing machines,
electric
-54
+8
Durable goods:
Belting, leather.'.
Harvester-thresher
Mattresses
Davenports
Paper, book
-50
-67
-28
Source: Percentages computed by the Bureau of Labor Statistics, except those marked
furnished by the Bureau of Agricultural Economics.
which were
Farm products — prices and production
[1926 = 100]
(Chart V based on the following statistical data appears on p. 41)
Year
Index of
wholesale
prices '
Index of
produc-
tion'
Year
Index of
wholesale
prices '
Index of
produc-
tion'
1926
100.0
99.4
lO.'-i. 9
104.9
88.3
64.8
48.2
100
97
102
99
99
105
98
1933
51.4
65.3
78.8
80.9
80.4
08.5
95
1927..
U'34
92
1928..
1935.. _
90
1929
1936
93
1930
1937
106
1931 .
.1938
102
1932..
' Source: Bureau of Labor Statistics.
' Source: Bureau of Agricultural Economics.
CONCENTRATION OF ECONOMIC POWER
257
Wholesale prices of SO basic commodities, industrial production, and reciprocals of
price dispersion
[1929=100]
WHOLESALE PRICE INDEXES OF 30 BASIC COMMODITIES
(Chart VI based on the following statistical data appears on p. 44)
Year
Jan-
uary
Feb-
ruary
March
AprU
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
tober
No-
vem-
ber
De-
cem-
ber
Yearly
aver-
age
1926...
1927...
1928...
1929...
1930...
1931...
1932...
1933...
1934...
1935...
1936...
1937...
1938...
1939 ..
117.0
103.2
108.5
101.9
89.1
61.9
46.3
37.2
57.4
71.8
72.0
89.9
68.6
63.1
112.6
104.1
105.6
103.4
88.2
60.0
45.1
36.4
61.1
72.0
71.6
89.2
67.1
62.9
108.4
103.7
105.4
104.1
85.7
61.1
43.9
38.4
61.0
70.0
70.8
92.6
65.9
63.3
106.2
103.3
106.3
101.9
84.7
59.1
41.4
41.3
60.6
70.4
70.3
90.4
63.3
61.7
104.6
102.9
107.5
98.4
80.8
55.9
39.0
51.0
60.9
70.8
67.8
87.0
61.7
62.5
107.3
103.2
105.7
98.2
76.4
55.2
37.6
55.9
61.7
09. 9
68.7
84.6
60.9
62.0
108.1
103.7
105.9
iOl.4
73.4
55.3
38.6
61.7
f.2.4
69.2
73.2
86.8
64.3
60.3
106.9
105.9
103.9
101.9
72.7
52.6
42.8
58.7
65.9
70.7
76.7
85.0
03. 3
59.5
107.9
107.3
104.0
102.3
71.2
50.3
45.2
58.0
67.9
72.7
77.8
&3.4
63.2
104.7
107.0
102.8
99.6
68.8
49.1
42.0
55.3
66.5
74.8
77.8
76.7
63.8
102.4
106.7
101.9
94.3
66.5
60.1
40.3
55.8
67.6
74.1
81.4
70.5
63.8
102.7
107.7
102.0
91.3
64.6
47.1
38.0
54.6
68.9
73.1
86.4
68.1
63.1
107.6
105.4
105.4
100.0
77.0
55.0
41.9
50.7
63.9
71.9
74.8
84.2
64.3
Source: Bureau of Labor Statistics.
INDEXES OF INDUSTRIAL PRODUCTION, ADJUSTED
Year
Jan-
uary
Feb-
ruary
March
April
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
1926
89
90
90
100
89
70
61
56
66
77
82
96
68
85
88
91
92
99
90
72
58
53
68
75
79
98
66
82
89
92
91
99
87
73
56
50
71
74
78
99
66
82
90
91
91
102
87
74
53
56
72
72
S5
99
65
77
89
92
91
103
86
73
50
66
72
71
85
99
64
77
91
90
91
105
82
70
50
77
71
72
87
96
65
82
91
89
92
104
78
69
49
84
64
72
91
96
70
85
92
89
92
102
76
66
50
77
61
73
91
98
74
86
93
87
95
102
76
64
56
71
60
76
92
93
77
93
86
97
99
74
61
56
64
62
SO
92
87
81
92
85
98
92
72
61
55
61
63
82
9fi
7.5
87
90
J927
86
1928
99
1929....
87
1930
71
1931
1932 :
62
66
1933
63
1934
1935
72
87
1936
1937
102
71
1938....
87
1939
Source: Federal Reserve Board.
RECIPROCALS OF INDEXES OF WHOLESALE PRICE DISPERSION
Year
Jan-
uary
Feb-
ruary
March
April
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
1928...
116.1
103.1
100.9
70.0
41.4
34.4
42.7
75.8
71.6
92.3
63.9
65.8
125.8
105.9
99.2
66.4
39.3
32.8
45.7
76.1
75.1
93.4
60.2
54.3
126.9
92.0
93.6
64.3
39.7
34.1
46.4
69.2
72.2
82.0
59.0
53.3
114.8
91.8
93.0
62.3
39.4
35.3
44.8
71.5
75.4
72.5
56.2
61.8
106.6
94.8
92.8
57.1
36.7
41.1
45.2
71.1
79.2
69.8
54.8
63.3
112.6
97.8
90.1
53.2
36.0
45.1
49.7
73.3
87.2
68.6
54.1
64.1
99.9
90.3
89.0
53.2
39.7
47.9
51.7
72.3
93.7
62.1
54.7
64.4
94.5
89.3
91.6
53.0
40.9
44.2
67.9
66.3
88.2
68.6
64.9
61.8
88.0
92.9
83.4
49.7
42.2
45.1
64.9
64.7
88.5
68.7
56.0
105.6
99.2
81.0
48.6
39.6
43.1
69.3
67.4
94.6
60.1
57.1
113.0
105.3
74.5
48.1
39.4
42.9
59.7
75.4
98.6
63.6
69.2
109.8
1929 .
102.7
1930
72.9
1931...
43.7
1932
36.6
1933
40.6
1934
60.1
1936
70.4
1936...
97.3
1937
64.4
1938
69.2
1939
Source: Works Progress Administration.
The measure of dispersion is the weighted average of the deviations of the 45 commodity subgroup price
indexes from the all-commodities index. The indexef were derived by dividing the monthly average devia-
tions by the average deviation in 1929. • The reciprocals were obtained by dividing each monthly dispersion
index into 100.
258 CONCENTRATION OF ECONOMIC POWER
Indexes of Wholesale Price Dispersion and Industrial Production
[ioa6«=ioo]
(Chart VII based on the following statistical data appears on p. 46)
INDEXES OF WHOLESALE PRICE DISPERSION
Year
Jan-
uary
Feb-
ruary
March
AprU
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
1928
1929...
86.1
97.0
99.1
142.8
241.6
290.5
234.4
132.0
139.8
108.3
156.6
179.1
79.6
94.4
100.8
150.7
254.7
305.0
219.0
131.4
133.2
107.1
166.1
184.3
78.8
108.7
106.8
155.6
252.2
293.3
215.3
144.5
138.5
121.9
169.6
187.5
87.1
108.9
107.6
160.5
253.8
283.2
223.3
139.^
132.6
137.9
178.0
193.0
93.8
105.6
107.8
175.1
272.5
243.2
221.4
140.6
126.3
143.2
182.4
187.6
88.8
102.2
111.0
188.1
277.4
221.7
201.4
136.6
114.7
145.7
186.0
184.8
100.1
110.7
112.4
187.8
252.1
208.8
193.4
138.3
106.7
161.0
182.8
183.8
106.8
112.0
109.2
1&8.6
244.4
226.4
172.7
150.9
113.4
170.6
182.2
193.2
113.7
107.6
119.9
201.4
237.1
221.7
154.1
154.5
113.0
170.3
178.7
153.5
94.8
100.8
123.4
206.3
252.3
231.8
168.5
148.3
105.7
166.3
175.2
171.1
88.5
95.0
134.2
208.0
253.8
233.2
167.4
132.7
101.4
157.2
168.8
91.1
97.4
1930
137.2
1931..
228 6
1932
281 6
1933..
246.4
1934_
166.3
1935
142.0
1936...
102.8
1937
155.4
1938
168. S
1939
Source: Works Progress Administration.
INDEXES OF INDUSTRIAL PRODUCTION, ADJUSTED
Year
Jan-
uary
Feb-
ruary
March
April
May
June
July
Au-
gust
Sep-
tem-
ber
Octo-
ber
No-
vem-
ber
De-
cem-
ber
1926
■ 89
90
90
100
89
70
61
55
66
77
82
96
68
85
88
91
92
99
90
72
58
. 53
68
75
79
98
66
82
89
92
91
99
87.
73
66
50
71
74
78
99
66
82
90
91
91
102
87
74
63
56
72
72
85
99
66
77
89
92
91
103
86
73
50
66
72
71
86
99
64
77
91
90
91
105
82
70
50
77
71
72
87
96
65
82
91
89
92
104
78
69
49
84
64
72
91
96
70
85
92
■ 89
92
102
76
66
50
77
'61
73
91
98
74
86
93
87
96
102
76
64
56
71
60
76
92
93
77
93
93
86
97
99
74
61
56
64
62
80
92
87
81
101
92
85
98
92
72
61
55
61
63
82
96
75
87
90
1927
86
1928
99
1929
1930
1931
1932-
87
71
62
66
1933 . .
63
1934..
1935
72
87
1936
102
1937 .
71
1938
87
1939....
Source: Federal Reserve Board.
Automobile tires — wholesale price and average life of automobile tires
(Chart VIII based on the following statistical data appears on p. 66)
Year
Price index i
(1926 = 100)
Tire life »
(years)
Year
Price index '
(1926=100)
Tire life »
(years)
1913 .;
207.2
173.1
155.1
160.4
198.0
229 2
209.2
232.5
179.0
115.4
109.6
92.6
98.6
0.805
.722
.768
.762
.712
.893
.933
1. 281
1.486
1.296
1.608
1.670
1.6S1
1926
100.0
74.9
63.4
64.5
51.3
46.0
41.1
42.1
44.9
45.7
47.2
66.8
57.7
1.770
1914
1927
1.665
1915
1928
1.650
1916
1929
1.848
1917.
1930
2.465
1918
1931
2.417
1919 .. »
1932 .. -.
2.689
1920
1933
2.427
1921
1934
2.666
1922.
1935
2.725
1923
1936
2.695
1924
1937
» 2. 908
1925.
1933
1 Source: Bureau of Labor Statistics.
'Source: Bureau of Foreign and Domestic Commerce, Rubber News Letter.
'Preliminary.
CONCENTRATION OF ECONOMIC POWER
Retail prices of men's dress shirts
(Chart IX based on the following statistical data dppears on p. 84)
259
Date
One na-
tionally ad-
vertised
brand
Other
brands '
Date
One na-
tionally ad-
vertised
brand
Other
brands *
December 1929
$1.95
1.95
1.95
$1.91
1.55
1.76
November 1934 .. . .
$1.95
2.00
2.00
$1.73
December 1932.
December 1936
1.59
December 1933
December 1937
1.61
' Unweighted average.
Source: Bureau of Labor Statistics.
Breakfast cereals — prices and margins
(Chart X based on the following statistical data appears on p. 85)
[Cents per pound]
Rolled oats
Corn flakes
Year
Farm
value '
Wholesale
price '
Retail
price >
Farm
value '
Wholesale
price >
Retail
price '
1926...
2.2
2.5
2.7
2.5
2.1
3.4
1.0
1.4
2.3
2.2
1.9
2.3
6.6
6.7
6.6
6.6
6.6
6.0
5.4
4.0
5 3
5.8
5.6
5.7
9.1
9.0
9.0
8.8
8.6
8.0
7.4
5.8
6.8
7.5
7.4
7.5
2.8
3.6
4.0
4.0
3.6
2.2
1.3
1.7
2.8
3.6
3.6
4.4
13.4
13.4
13.4
13.4
13.4
13.4
13.4
13.4
13.0
12.5
12.1
12.6
21.0
1927.
19.8
1928 _--
1929 _
18.8
18.6
1930 ..
18.4
1931
17 6
1932
16.8
1933
16.8
1934 -.
16.8
1935
1936
16.6
16 2
1937
15.8
> Source: Bureau of Agricultural Economics.
2 Source: Bureau of Labor Statistics.
Wholesale prices of selected foods (■products classified into 4 guartiles according to
consumer buying habits) '
[1929 = 100]
(Chart XI based on the following statistical data appears on p. 87)
FIRST QUARTILE
Years
Month
1926
1927
1928
1629
1930
1931
1932
1933
1934
1935
1936
1937
19.38
1939
January
103.8
92.8
101.0
98.0
96.1
74.4
61.7
49.0
67.0
79.2
78.6
80.2
72.1
68.4
February
102.7
91.0
102.5
97.9
9.5.9
70.8
59.8
48.2
68.3
79.4
76.9
80.2
71.6
67.5
March
101.6
90.0
103.5
98.9
94.5
71.6
58.6
49.9
69.5
79.6
75.6
81.1
71.6
67.5
April
101.0
90.5
104.2
100.1
93.7
70.2
57.2
51.7
69.9
81.1
76.5
83.8
71.4
67.6
May
102.1
92.6
105.0
100.8
90.7
69.5
55.7
56.1
71.1
81.4
75.2
84.4
70.8
68.2
June
99.9
92.8
102.0
99.1
89.4
67.5
55.1
52.7
71.4
81.0
74.4
83.8
70.5
66.8
July
99.6
93.0
102.1
102.1
85.0
67.0
55.1
56.4
72 6
79.8
76.8
84.1
70.9
65.8
August
97.8
92.5
100.6
103.0
83.8
66.2
55.0
55.9
76.1
80.4
81.1
82.5
68.8
September..
96.2
94.5
102.9
102.8
81.8
65.4
55.2
63.7
79.0
81.2
82.0
81.4
69.1
October
94.8
94.4
100.9
100.6
78.9
63.1
5b. 4
65.0
78.4
82.0
79.9
77.9
68.2
November...
93.5
97.7
98.3
98.7
75.8
64.0
51.3
66.8
78.1
80.1
78.8
72.3
68.1
December...
92.9
99.3
96.6
97.7
74.6
62.4
49.3
66.7
78.4
80.1
78.9
72.0
68.2
Vearly aver-
age
98.8
96.2
101.7
100.0
86.6
67.6
55.6
58.7
73.3
80.4
77.9
80.2
70.1
' For first quartile, brand names were least significant to consumer, and progressively more significant
in each succeeding quartile.
Data based upon sample study of consumer buying habits designed to determine relative weight given
to brand names by consumers in purchasing different commodities. The products covered were ranked
according to the importance of brand names in their respective markets, and then grouped into iquartiles
on the basis of these ranks. Unweighted averages of the Bureau of Labor Statistics wholesale prices for each
■quartile were then computed.
260
CONCENTRATION OP ECONOMIC POWER
Wholesale prices of selected foods (products classified into 4 quartiles according to^
consumer buying habits) — Continued
[1929=100]
SECOND QUARTILE
Years
Month
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
January
98.6
93.0
104.0
99.5
96.0
78.0
62.3
57.0
68.1
85.6
77.2
89.5
74.4
66.5
February
96.9
94.7
105.0
99.1
95.4
76.3
61.6
56.3
70.3
88.2
76.4
89.5
72.3
65.8
March. _
94.4
94.5
105.0
100.1
94.1
76.6
60.8
57.4
72.9
88.3
75.6
90.5
71.4
65.5
April...
94.7
95.3
105.2
99.4
92.4
75.6
59.6
59.2
72.3
87.8
75.6
91.6
70.0
65.2
May
94.5
98.6
106.7
98.6
89.0
74.1
59.0
63.2
73.6
86.6
73.6
91.1
69.3
67.5
June --
96.0
96.0
99.7
101.0
106.8
104.7
99.1
101.0
86.6
85.2
73.1
72.7
58.5
59.0
64.7
68.5
74.6
75.0
85.9
84.1
73.2
77.1
90.7
88.7
67.6
67.5
67.4-
July
66.3
August
95.5
101.2
101.1
101.6
87.6
71.9
59.5
68.1
77.4
83.3
84.7
86.8
66.8
September. _
94.6
98.6
102.8
102.5
87.1
70.8
60.3
68.9
80.1
83.6
86.5
84.3
66.7
October
95.5
100.4
104.1
100.6
86.6
68.7
59.7
68.3
81.1
83.5
83.7
81.4
66.7
November...
93.4
100.2
103.1
99.3
83.1
66.8
59.1
69.0
82.1
81.8
83.5
77.9
65.9
December...
92.8
101.0
101.9
98.9
80.9
64.0
57.8
67.8
83.3
80.2
86.1
76.1
67.5
Yearly aver-
age
95.2
98.2
104.2
100.0
88.7
72.3
69.8
64.1
75.8
84.9
79.5
86.5
68.9
THIRD QUARTILE
January
February
March
April -.
May.
June.. _
July..
August :.
September. .
October
November...
December. . .
Yearly aver-
age
104.0
103.5
99.9
98.3
101.3
86.9
76.7
68.9
77.2
87.0
81.5
85.3
83.7
103.6
103.8
99.0
98.8
101.5
87.2
76.3
68.2
78.2
87.3
81.4
86.3
83.8
103.3
103.3
98.6
96.9
100.2
85.3
76.7
68.1
80.0
87.6
81.4
86.7
83.5
103. 4
103.2
98.6
97.3
98.6
84.5
76.6
68.6
80.7
86.9
82.0
86.9
83.1
103.1
103.3
99.7
99.5
93.5
82.9
76.1
70.5
80.3
86.3
81.0
87.0
82.4
104.0
102.9
99:6
100.5
93.6
81.3
75.2
72.1
81.1
86.2
81.2
87.8
81.4
104.4
102.0
99.4
102.3
90.8
81.1
73.6
75.5
82.7
85.7
82.8
86.8
80.9
\0X 5
101.2
97.5
101.5
90.5
80.0
71.5
78.2
82.8
83.0
85.7
85.9
80.2
103.8
101.6
97.7
101.5
91.1
79.4
69.6
80.6
85.4
83.2
86.3
86.4
79.2
104. 5
101.0
99.7
101.9
90.4
79.3
69.9
79.6
87.1
82.9
8.5.3
86.1
78.2
103.8
101.1
98.3
100.9
88.6
78.1
69.5
77.9
87.1
82.8
85.0
85.6
77.4
103.8
101.2
98.3
100.0
86.8
77.8
69.1
76.9
86.7
82.9
85.3
84.4
77.5
103.8
102.3
98.9
100.0
93.9
82.0
73.4
73.7
82.4
85.1
83.3
86.3
80.9
77.8
77.5
77.4
77.5
77.5
77.5
77.0
FOURTH QUARTILE
January
February
March
April
May
June
July
August
September. -
October
November...
December. ..
Yearly aver-
age
103.2
101.7
104.0
102.5
102.2
102.7
101.9
101.9
102.7
ini. 7
101.9
103.5
101.6
101.7
104.3
102.6
101.7
104.4
102.8
101.1
103.8
101.1
100.6
101.3
101.5
100.2
100.8
102.5
101.5
100.1
102.5
102.8
100.0
102.9
102.8
99.7
102.2
101.6
102.3
100.1
101.8
101.3
100.4
100.1
100.2
100.9
100.7
100.5
99.0
97.7
97.7
96.7
87.0
76.8
67.0
75.6
85.1
86.0
88.0
84.7
96.8
87.0
76.2
65.1
76.7
87.1
85.7
87.0
84.4
96. 7
86.0
75.4
65.2
76.9
86.8
84.9
80.8
83.3
96.4
84.4
74.2
67.0
77.1
87.5
83.8
86.9
81.8
95.5
83.5
72.3
69.1
78.6
86.4
82.3
86.7
79.6
93.6
83.2
70.8
70.1
80.2
84.9
81.9
87.0
79.5
93.0
82.8
70.6
73.9
80.2
85.4
83.6
87.6
79.2
93.0
82.6
70.7
74.6
81.6
86.3
85.9
85.8
77.8
31.1
81.4
70.0
75.1
83.4
86.8
85.5
85.8
77.3
■10.9
80.9
69.5
75.6
83.7
86.0
84.6
85.7
77.2
•8.8
80.5
69.4
76.1
83.8
86.1
84.7
85.0
76.7
87.8
80.1
69.4
75.2
84.2
86.8
86.3
84.7
77.2
93.3
83.3
72.1
71.2
80.0
86.2
84.6
86.4
79.9
77.1
76.8
77.9
78.1
78.0
78.0
78.1
Source: Bureau of Labor Statistics.
CONCENTRATION OF ECONOMIC POWER
261
Electric refrigerators — number sold, retail value, average realization at retail, arid
wholesale price index
(Chart XII based on the following statistical data appears on p. 113)
Year
Number
sold I
Total retail
value '
Unit
retail
value '
Wholesale
price index
(1932=100)'
1927 ---
375, 000
535, 000
778, 000
79 i, 000
906. 000
798, 000
1,016,000
1, 283, 000
1, 568, 000
1,996,000
2. 310. 000
1, 240, 000
.$131,260,000
178, 690. 000
227,176,000
217,525,000
233, 748, 000
155,610,000
172. 720. 000
220, 676, 000
253. 648, 000
327, 344. 000
395, 010. 000
213, 280, 000
$350
334
292
275
258
195
170
172
162
164
171
172
1928 -
1929. _..
1930 -
1931 __.
1932
100 0
1933 . ....
86 7
1934 -
90 9
1935
89 2
1936 -
80 6
1937
93 9
1938
96 3
> Source: Electrical Merchandi.'ing.
2 Source: Bureau of Labor Statistics.
Electric washing machines-
-number sold, retail value, average realization at retail,
and wholesale price index
(Chart XIII based on the following statistical data appears on p. 114)
Year
Number
sold '
Total retail
value 1
Unit
retail
value I
AVholesale
prire index
(1932=100) »
1927 -
775, 661
809, 884
956, 000
802. 000
812, 000
569, 830
966, 698
1.121,137
1, 228, 774
1,528,585
1, 405. 405
1, 032, 956
$110,925,000
108,000.000
107. 900. 000
83. 809. 000
69. 020. 000
33. 619. 970
59, 935. 276
72. 873, 905
79.931,748
100.947.753
105. 860. 857
74, 279, 866
$143. 01
133.35
112.87
101. 50
85. 00
59.00
62.00
65.00
65. 05
66.04
72.24
71.91
211 0
1928
172 8
1929
153 8
19.30
138 2
1931 -.-
121 1
1932 ....
100 0
19.33 --.
82 3
1934
80 6
1935
80 6
1936 .
86 7
1937
86.7
1938. - - ,
86.7
• Source: Electrical Merchandising.
> Source: Bureau of Labor Statistics.
Vacuum cleaners — number sold, retail value, average realization at retail, and
wholesale price index
(Chart XIV based on the following statistical data appears on p
115)
Year
Number
soldi
Total retail
value 1
Unit re-
tail value'
Wholesale
price index
(1932=100)»
1927
1,194,614
. 1,219.460
1, 395, 745
1, 170, 339
877, 695
557, 288
739, 354
968, 376
1, 200, 940
1,510,9.53
1,706.337
1, 297, 530
$58, 536, 086
60, 973, 000
64, 810, 970
55, 987, 704
37,310,822
19, 600, 756
30, 271, 330
43, 555, 465
54, 709, 769
67,456,541
77, 783, 784
63, 986, 896
$49.00
50 00
46.43
47.84
42.51
35. 17
40.94
44.98
45.56
44. 65
45. 59
49.31
129. 1
1928
1929
129.1
125. 1
1030
121 2
1931
112.0
1932 _
100.0
1933
95 »
1934
102.5
1935
93 0
1936
86. 1
1937
86 t
1938
86.1
' Source: Electrical Merchandising.
' Source: Bureau of Labor Statistics.
262
CONCENTRATION OF ECONOMIC POWER
Electric ranges — number sold, retail valtie, average realization at retail, and wholesale
price index
(Chart XV based on the following statistical data appears on p. 1 16)
Year
Number
sold '
Total retail
value '
Unit re-
tail value >
Wholesale
price index
(1932=100)>
1927
102,000
135,000
162, 781
180,000
115,000
60, 000
50,000
123,000
215, 000
318,000
405,000
275,000
6, 539, 566
22,175,000
25,270,000
27,000,000
18,795,000
9,000,000
7,100,000
15, 990, 000
27, 305, 000
41,413,140
64,270,000
39,875,000
$162. 15
164.26
165.40
150. 00
163.43
150. 00
142. 00
130.00
127.00
130.23
134. 00
145.00
132.4
1928
134.2
1929 -
126.9
1930
97.0
1931 ---
97.0
1932 -- -
100.0
1933 ---
93.6
1934
99.4
1935
88.0
1936 . --.:
89.2
1937
97.2
1938
98.1
1 Source: Electrical Merchandising.
* Source: Bureau of Labor Statistics.
Sales and saturation *
(Chart XVI.based on the following statistical data appears on p. 119)
Electric refrigerators
Power washing
machines
Vacuum cleaners
Electric ranges
Year
Number
sold
Percent
of homes
using
Number
sold
Percent
of homes
using
Number
sold
Percent
of homes
using
Number
sold
Percent
of homes
using
1927
375, 000
535,000
778, 000
791,000
906,000
798, 000
1,016,000
1,283,000
1,568,000
1,996,000
2,310,000
1,240,000
4.3
6.4
9.4
12.8
17.1
21.6
24.6
29.3
34.2
41.1
49.4
51.7
775,661
809,884
956, 000
802,000
812.000
569, 830
966, 698
1, 121, 137
1, 228, 774
1, 528, 585
1,465,405
1,032,956
28.4
30.2
33.4
35.1
40.8
39.4
43.9
46.0
48.8
52.5
55.5
57.6
1, 194, 614
1, 219, 460
1,395,745
1, 170, 339
877, 695
557, 288
739, 354 ■
968, 376
1, 200, 940
1,510,953
1, 706, 337
1, 297, 530
38.8
40.7
43.6
44.4
45.4
46.6
48.5
48.1
48.3
48.9
48.8
49.0
102, 000
135,000
152, 781
180,000
1 15, 000
00,000
50,000
123,000
215,000
318,000
405, 000
275,000
3.3
1928
3.8
1929
4.4
1930 .
4.8
1931
6.3
1932
5.5
1933
5.8
1934
6.1
1936.
6.8
1936 . ...
7.9
1937.
9.0
1938 .. ..
0.6
1 Percent of wired homes.
Source: Electrical Merchandising.
)
CONCENTRATION OF ECONOMIC POWER
263
Household equipment ownership by income groups, 1936-36 — Percentage of families
reporting ownership, selected cities by regions
(Charts XVII to XX based on tne following statistical data appear on pp. 122-129)
ELECTRIC REFRIGERATORS
New England
East Central
West
Central
South-
east
Rocky
Moun-
tain
Pacific
North-
west
Income class
1
S
.2
'5
be
T3
0)
-o'S
a
03
"o
a
o
u
'S
bo
■a
1
'3
a
to
'3
1
1^
Or
".2
Hi
'3
a
^'3
■a
'3
•a
$250 and under $500
12
9
9
21
27
30
43
42
56
61
69
86
82
100
10
12
20
28
36
43
56
59
71
81
81
90
89
85
8
12
12
27
36
42
51
60
63
66
75
'"7"
15
27
35
48
54
56
57
67
73
78
89
82
88
10
4
11
22
37
46
56
63
66
76
72
88
90
99
"¥
16
28
43
55
57
66
61
70
65
72
78
68
6
11
25
33
40
64
64
01
71
66
87
84
78
84
ii"
9
6
16
23
30
34
47
57
51
66
75
70
82
12
9
11
23
31
30
42
56
58
67
76
77
88
77
"is"
9
21
28
32
48
51
56
64
77
68
65
85
$500 and under $750 .
13
7
15
14
15
18
18
19
32
25
24
19
29
28
2
11
13
14
26
28
32
44
50
63
63
61
75
12
14
17
20
35
37
47
56
72
63
6
9
15
17
28
27
32
34
37
40
42
37
42
30
"e"
23
28
39
44
48
55
60
70
60
75
84
.<2
$750 and uader $1,000 ..
$1,000 and under $1,250 ..
8
15
19
25
33
$1,250 and under $1,500 -
$1,500 and under $1,750-.- _
$1,750 and under $2,000.-- --
$2,000 and under $2,250- _
$2,250 and under $2,500..
$2,500 and under $3,000.
49
62
54
58
$3,000 and under $3,500.
$3,W0 and under $4,000
$4,000 and under $5,000..
$5,000 and under $7,500
71
$7,500 and under $10,000
$7,500 and over. .. .
66
95
92
$10,000 and over..-
11
50
POWER WASHING MACHINES
$250 and under $500-
24
34
54
:8
04
63
65
51
59
63
64
19
62
72
77
79
81
83
82
75
75
68
78
67
80
56
63
77
74
88
84
84
80
77
86
78
66
55
70
70
73
76
68
70
71
76
81
74
82
85
46
44
66
69
73
70
75
70
73
66
67
56
66
60
27
55
45
56
62
57
68
65
67
51
48
68
68
79
31
45
64
61
61
69
67
70
70
76
69
75
79
63
$500 and under $750
$750 and under $1,000
13
3
7
6
2
4
5
9
14
8
13
11
10
14
6
7
10
14
19
18
21
22
37
34
32
32
18
25
42
43
46
45
45
53
43
54
56
51
59
22
25
40
46
44
54
55
48
52
56
52
53
48
41
57
59
68
77
76
81
80
82
77
83
79
84
82
86
5
9
12
9
12
17
10
16
12
17
6
22
2
5
4
10
6
9
6
10
11
14
7
7
13
25
31
45
51
48
48
51
52
52
57
43
61
53
39
53
66
$1,000 and under $1,250 -
80
$1,250 and under $1,500
71
$1,500 and under $1,750
69
$1,750 and under $2,000.
80
$2,000 and under $2.250
73
$2,250 and under $2,500
$2,500 and under $3,000.
77
72
$3,000 and under $3,500
73
$3,500 and under $4,000-..
77
$4,000 and under $5,000
87
$5,000 and under $7.500 . ..
83
$7..500 and under $10,000
$7,500 and over
47
29
82
$10,000 and over
16
63
VACUUM CLEANERS
$2.50 and under $500
$500 and under $750
$750 and under $1,000 ..-
$1,000 and under $1,250-.
$1,250 and under $1,.500..
$1,500 and under $1,750.-
$1,750 and under $2,000--
$2,000 and under $2,250-
$2,250 and under $2,500-.
$2,,'i00 and under $3,000..
$3,000 and under $3.500..
$3,500 and under $4,000-.
$4,000 and under .$5.000..
$5,000 and under $7,.'',00-
$7,500 and under $10,000.
$7,500 and over
$10,000 and over. --
100
20
40 30
25 46
42 48
37
22
43
40
52
72
68
78
69
92
90
95
96
100
247140 — 11— No. 1 m
264
CONCENTRATIOM OF ECONOMIC POWER
Household equipment ownership by incoviO groups, 19S5-36 — Percentage of families
reporting ownership, selected cities by regions — Continued
RADIOS
Income class
New England
$250 and under $500. _.
$500 andninder $750.
$750 and under $1.000
$1,000 and under $1,250
$1,250 and under $1,500
$1,500 and under $1,750
$1,750 and under $2.000
$2,000 and under $2,250 '100
$2,250 and under $2,500 99
$2,500 and under $3,000 ..| 99
$.3,000 and und?r $3,500 98
$3,500 and under $4,000 jlOO
$4,000 and under $5,000... j 99'
$5,000 and under $7,500 97
$7,500 and under $10,000 I 97
$7,500 and over '. —
$10,000 and over ilOO
97
95
94
98
99
99
100 I 98
99 98
100 100
100 100
100 100
Kast Central
74
91
88 I 93
87 96
97
West
Central
South-
east
Rocky
Moun-
tain
Pacific
North-
west
99
100
85
90
92
97
100
100
100
100
Source: Bureau of Labor Statistics: Study of Consumer Purchases, Urban Series, 1935-36.
Note. — These data are compiled from a study of urban consumer purchases conducted during 1935-3*^
by the Bureau of Labor Statistics. The study relates to nonreiief families including husband and wife,
both native-born, in 31 selected cities throughout the ruuntry. The data include only equipment owned
at the end of the schedule year, and all hgures based upon number of families in the three-way control
(occupation, income, family type) represent weighted data.
I
CONCENTRATION OF ECONOMIC POWER
265
Income residual after primary expenditures ' by income groups, 19S5-S6 — Nonrelief
white families, including husband and wife, both native born ^
(Chart XXI based
on the following statistical data
appears on p.
132-3)
New England
East Central
West
Central
South-
east
Rocky
Moun-
tain
Pacific
North-
west
Family income class
"o
a
o
1
.2
1-1
ii
a
CO
"3
£
ta
.2
'a
a
03
'5
1^
.2
'3
Hi
S"3
'3
ca
1-5
T3
$250 and under $500 .
-69
-6
6
13
16
21
22
29
29
34
33
42
46
45
-28
-11
10
14
22
20
27
29
30
33
41
-16
2
10
15
19
23
26
25
29
35
35
38
45
46
61
"i
10
16
21
25
28
30
32
37
37
42
44
45
52
68
-28
-2
9
16
20
25
29
31
35
37
39
43
46
57
-23
3
14
16
25
26
30
30
34
37
49
■(3)-
12
14
19
23
26
30
34
35
36
41
42
43
55
-32
2
12
19
22
27
30
34
36
37
41
47
46
58
"'"8
9
15
21
23
24
29
30
33
35
36
41
45
59
-15
5
16
18
21
22
26
28
33
32
38
41
42
52
"-4
12
19
23
25
28
29
34
36
37
40
43
46
53
-39
-6
5
15
19
28
24
32
33
31
37
41
42
57
"-2
11
21
24
30
31
33
35
35
41
43
46
51
61
-''0
$500 and unaer $750 ._. .
-43
-8
7
10
15
17
18
22
24
26
29
28
32
36
51
-5
9
13
17
19
24
23
29
30
31
40
38
42
46
3
$750 and under $1,000
?0
$1,000 and under $1,250
?1
$1,250 and under $1,500
?8
$l,.500and under $1,750
$1,750 and under $2,000
$2,000 and under $2,250
$2,250 and under $2,500
$2,500 and under $3,000
29
30
32
36
39
$3,000 and under $3.500
3<i
$3,500 and under $4,000
4?
$4,000 and under $5,000
$5,i.j0and under $7,500
$7,500 and under $10,000
49
51
$10,000 and over
' Figures show percent of income remaining after expenditures for food, home maintenance, clothing and
personal care are made.
' Family types covered are as follows:
Family type I — 2 persons (husband and wife only).
Family type II— 3 persons (husband, wife, 1 child under 16, and no others).
Family type III — 4 persons (husband, wife, 2 children under 16, and no others).
Family type IV— 3 or 4 persons (husband, wife, 1 person 16 or over, and 1 or no other person regard-
less nf age) .
Family type V— 5 or 6 persons (husband, wife, 1 child under 16, 1 person 16 or over, and 1 or 2 other
persons regardless of age).
Family type VI— 5 or 6 persons (husband, wife, 3 or 4 children under 16 and no others).
Family type VII— 7 or 8 persons (husband, wife, 1 child under 16, 4 or 5 other persons regardless of age).
Family types VI and VII appear in east central region only.
« Less than 1 percent.
Source: Bureau of Labor Statistics; Study of Consumer Purchases, Urban Series, 1935-36.
PART II
GEOGRAPHIC PRICE STRUCTURES
BY
SAUL NELSON
ASSISTED BY
WILLIAM C. FRENCH, JR.
PART II
PREFACE
In part I of this volume, it was pointed out that the behavior and
structure of prices is influenced in varying degrees by the policy
decisions of businessmen, acting individually or in concert. Such
policy decisions, within the scope of their effectiveness, must take
into account not only a nominal price quotation but also a host of
collateral terms and conditions of sale. One of the most important
of these concerns the expense and responsibility of shipping the mer-
chandise from the place of business of the seller to that of the buyer.
A quotation which implies that the purchaser must arrange and pay
for transportation is clearly different from one which includes de-
livery to destination.
It is axiomatic that there are two points of view in every transac-
tion. The seller is concerned with his net return which excludes
freight; the buyer with his total outlay after freight has been paid.
In choosing between the offers of two rival manufacturers producing
identical commodities, if transportation costs are of any significance
in the unit cost of a product, the buyer will naturally compare de-
livered costs and not net price at the plant; the latter is not his
immediate problem. If the merchandise is not identical, it is never-
theless the difference in delivered costs which he must weigh against
any inequalities of product.
This situation is inevitably reflected in commodity price structures.
Sellers, acting within the field in which they can formulate and main-
tain policy, have adopted a wide variety of practices with regard to
the burden of shipping costs. Differences in practice reflect partly
dilferencos in market coiiditions, partly administrative decisions as to
expediency, and partly the abiliij'^ to enforce such decisions in a
given economic and legal environment. Some sellers maintain a
uniform price at their plants to all buyers regardless of their location,
others quote uniform delivered prices in all markets or within de-
fined geographic zones, still others vary their prices systematicnlly or
unsystematieally in order to meet c' undersell their nvids in all
markets in which they wish to do busmess.
Some of these practices, notably basing point S3"stems and zone
systems, result in greatly limiting or eliminating price competition
in the markets for the commodities affected, although competition
may take other forms.
These types of geographic price structure, particularly the basing
point system, have consequently been the subject of much contro-
vers}^ in discussions of the problems of monopoly and eoiupetition in
ii, lustrial markets. The Federal Trade Commission has conducted
intensive studies of geographic price structures in many industries.
In recent hearings before the Temporary National Economic Com-
269
270 CONCENTRATION OF ECONOMIC POWER
mittee the practices of the steel industry with regard to freight were
considered in great detail.^
There has not, however, been any general survey of the extent to
which diflPerent types of geographic price structure are actually
encountered in the American economy, nor of the considerations
which favor the development of one or another type of practice.
Such information seems needed for an adequate appraisal of the
relationship between such practices as basing point systems, zone
systems, and other means of freight equalization and the pattern of
competition within an industry. Among the problems with which
the Temporary National Economic Committee is immediately con-
fronted is the adequacy of existing antitrust legislation to cope with
geographic practices which may seem to impair the efficacy of price
competition.
Part II of this volume is designed to yield the factual basis needed
for such an appraisal, and as a guide to policy. It does not present
conclusions nor recommendations, which are the province of the
committee. It describes the geographic pricing structures of a wide
variety of commodities; industrial, agricultural, and extractive. The-
list is by no means complete, but it is reasonably representative.
The two chapters consider in order:
I. Types of Geographic Price Structure: A discussion of the
importance of the element of freight as a market factor and a de-
scription of the more common types of geographic price structure.
II. Geographic Practices in American Markets: A product by
product analysis of the types of geographic price structure currently
observed followed by -a summary indicating the extent of the more
common types of geographic practice.
Part II was prepared by Saul Nelson with the assistance of William
C. French, Jr. The data relating to geographic price structures of
building materials were assembled by Walter G. Keim. Jesse M.
Cutts of the Wholesale Price Division provided much of the basic
information. Valuable assistance was accorded by trade association
officials and business executives regarding the price structures of their
respective industries. Mr. Edwin B. George of Dun & Brads treet,
rendered material help in the planning of this study.
' See Temporary National Economic Committee Hearings, Parts 26 and 27.
CHAPTER I
TYPES OF GEOGRAPHIC PRICE STRUCTURE
INTRODUCTION
The importance of transportation costs. — The expense of physical
transportation constitutes an important element in the total cost of
preparing goods for the market. According to a recent estimate ^ the
total cost of producing and distributing commodities for the national
market during 1929 was $65,600,000,000. Thirteen percent or
$8,800,000,000 of this total represented the cost of transportation.
According to the same estimate, only $27,100,000,000 of the
$65,600,000,000 total represented the cost of physical production
while $38,500,000,000 constituted the cost of distribution. Conse-
quently the cost of transporting commodities was almost one-third as
great as the cost of physically producing them, and constituted 23
percent of the aggregate bill for distribution.
The $8,800,000,000 bill for transportation included a variety of items:
Rail freight, water freight, railway express, electric freight, motor
trucking, pipe-line transportation, and parcel post. For most of these
means of transportation, shipping rates are either fixed by law or are
otherwise out of the control of the shipper or receiver of the goods
transported. Partly as a result of this situation, freight rates are
notoriously rigid; their variations are narrow and bear no apparent
relationship to the movement of commodity prices. Consequently,
the bill for transportation becomes oroportionately much more im-
portant durmg periods when commodity prices are low or falling; it
decreases in relative importance when commodity prices are high or
rising.
The data quoted for 1929, therefore, probably represent an under-
estimate of the significance of freight during periods of low prices and
limited use of resources, such as the last decade.
Unfortunately, there are no data readily available which would indi-
cate the size of the total freight bill during the period since 1929.
Some information is available relating to one of the most important
single components of that bill — rail freight. According to the Inter-
state Commerce Commission,^ rail freight revenue on class I roads for
1930 was $4,200,000,000, or 6.7 percent of the total value of commod-
ities transported. For 1933, the effect of the generally low price leveL
was reflected in an increase of this ratio to 10.7 percent. As prices
rose again the ratio declined to 8.5 percent for 1936, the last date for
which these data were compiled.^
' Does Distribution Cost Too Much, Twentieth Century Fund, p. 118.
' Interstate Commerce Commission, Bureau of Statistics, Freight Revenue and Value of Commodities
Transported on Class I Steam Railways in the United States, calendar year 1936.
' These data are presented merely to show trend and are not at all comparable to those in the Twentieth
Century Fund publication previously cited. A major difference is that the Interstate Commerce Com-
mission figures include numerous duplications entering into the est; nate of total value: for example, iron
ore will first be included as such and will again enter into the value of shipments for semifinished and finished
steel products. This results in an underestimate of the over-all significance of freight and thus differs from
the Twentieth Century Fund data which are based upon the value of products in final form.
271
272 CONCENTRATION OP ECONOMIC POWER
Factors affecting freight costs. — The importance of transportation
costs varies very widely for different kinds of products. Many factors
enter into the picture. One of the most important is the reLation
between the price of the product and its weight; other things being
equal, freight will be relatively more significant for cheap, bulky items
than for those which cost more per pound. For example, rail freight
revenue represents 56 percent of the value of bituminous coal at des-
tination and 46 percent of the value of salt, whereas it constitutes less
than 10 percent for sulfur and only 5 percent for copper ore.
For the same reason freight will be a less important factor for man-
ufactured goods than for their constituent raw materials; thus the
percentage of freight revenue to value at destination for cereal food
preparations is 3.4 percent as against 5.9 percent for wheat flour, S
percent for wheat, 9.3 percent for corn, and 12.4 percent for oats.
Another significant factor is the location of supply in relation to
the market. Where production is concentrated within a circum-
scribed area, while consumption is distributed throughout the United
States, the average haul is likely to be long and the relative import-
ance of freight considerable. Wliere centers of production are scat-
tered or are located near most important centers of consumption,
hauls are likely to be shorter and freight relatively less important.
More generally, if production must be located near sources of raw
material, freight for the finished product will be more important than
when plants can be established at or near the markets.
Reference may also be made to perishability and the consequent
need for special or expeditious handling which is probably responsible
for the fact that freight constitutes 60 percent of value at destination
of such products as grapes.* Another element may be public policy,
as in the case of the extremely low postal rates for newspapers and
periodicals.
Economic significance. — Obviously, these costs of transportation
must somehow be included in the price of the delivered product.
There are many ways in which this can be done. Ench buyer may
be required to bear the full expense of shipping his particular pur-
chase directly, or the seller may choose to defray this expense in the
first instance and then to distribute it in varioiis ways among all his
custon^ers. In the sale of most commodities, practices witb regard
to the manner in which freight charges are borne and distributed
among the different buyers and sellers in the market have developed
ce: tain conventionalized patterns. These practices are commonly
referred to as the "geographic price structure" for the product in
question. The form they take in any particular case reflects the im-
pact of many forces, such as the inherent characteristics of the mar-
ket, the requirements of law as interpreted by courts and adminis-
trative agencies, and the policy decisions of businessmen acting in
this environment. Geographic price structures in turn have far-
reaching economic effects; they influence the character of competi-
tion within an industry, the location of its plants, and the prospects
of profit or survival of individual concerns.
However, the appraisal of the economic implications of the dif-
ferent types of geographic price structure encountered in American
industry is beyond the scope of the present study. The issi.es raised
* In 1933, when prices were lower, the ratio for grapes was almost 65 percent. Interstate Commerce
Commission, op. cit.
CONCENTRATION OF ECONOMIC POWER 273
in such an appraisal are many and complex. Practices in particular
industries, such as the basing point systems in the steel and cement
industries/ have been the subject of considerable and intensive
analysis; yet conclusions regarding its merits and implications re-
main in considerable dispute. It is intended here merely to present
factual data regarding the types of geographical price structure which
characterize different sectors of American industry and thus to fur-
nish a basis for broader analysis of the problem, as well as to permit
a better understanding of the meaning of price and price quotations
in different industries and markets.
Types of structure summarized. — The cost of shipment enters directly
or indirectly into virtually every transfer of commodities between
buyer aud seller. There is, however, a very wide variation between
different industries and even within industries as to the manner in
which this element is related to the price quotation and charged to
differently located buyers. Although there is usually a degree of
uniformity in geographic pricing practice between companies which
are competing in the sale of identical or similar products, this is not
necessarily the case. Moreover, the same company may vary its
methods of price quotation for different parts of the country or to
meet special situations encountered in particular transactions or
groups of transactions. Changes in structure are also likely to occur
from time to time under the impact of altering market conditions or
the requirements imposed by Government through law or admmis-
trative action. Consequently, any analysis of geographic price
structures must start with a recognition that they are not rigid or
immutable, although specific patterns may persist for long periods of
time in individual industries. Before proceeding to consider different
types of geographic structure i,n detail, it is useful to summarize
briefly patterns of variation which may actuall}^ occur. Among the
more common are —
(1) The amount paid by- each buyer varies in precise accordance
with the cost of transporting the product from point of shipment to
point of destination.
(2) Unsystematic schemes of freight equalization in which a seller
will reduce his price on particular transactions in order to meet or
belter the offer of a competing seller who is more advantageously
located.
(3) Systematip schemes of freight equalization in which this type of
adjustment follows some set pattern which is generally observed by
all or most competing sellers.
(4) Single or multiple basing-point schemes in which the amount of
freight charged to individual buyers varies in accordance with, shipping
costs from one or more basing points recognized by the mdustry.
These basing points usually represent important producing centers,
but in a true basing-point system there will always be some plants
which are not located at any basing point.
(5) Zone pricing in which the delivered prices paid by buyers are
uniform throughout certain conventionally accepted geographic areas
but vary between areas.
• Probaoiy the most intensive work on this subject has been done by the Federal Trade CommissioDi
See for example Price Bases Inquiry, The Basing Point Formula and Cement Prices, Federal Trade Com-
mission March 1932.
274 CONCENTRATION OF ECONOMIC POWER
(6) Uniform delivered prices in which the same dehvered price is
paid by all buyers in the United States wherever located.
(7) Unsystematic price variation in which the prices in particular
markets show no direct relation to shipping costs. They may be set
arbitrarily to meet peculiar competitive conditions, or they may vary
constantly with day-to-day changes in supply or demand in those
markets.
(8) Various combinations of the above.
The differences enumerated all relate to the way in which the
amounts paid by buyers and the net returns of sellers vary on sales
to different localities. In addition, the form of quotation may have a
bearing upon the implications of the sales contract, particularly as
regards the distribution of risk of shipment between buyer and seller.
Thus there is a distinction in principle between prices which are
quoted at the point of shipment — f. o. b.** pricing — and prices which
are quoted at the point of delivery — delivered pricing.^ In the former
case, transfer of title to goods may take place at the point of ship-
ment, such as the seller's plant or warehouse, and the cost and respon-
sibility of shipment is borne by the buyer. In the latter case, transfer
of title may not occur until the merchandise is delivered to the point
at which the seller is located, with the risk of shipment borne directly
by the seller. However, the point at which title passes and burden of
risk in any specific instance cannot be determined merely by referring
to the form of the quotation, since other factors such as the terms of
the bill of lading, the sales contract and the intent of the parties are
also involved.
Insofar as this distinction relates merely to the form of quotation,
it does not carry with it any necessary implication as to the variation
of prices between differently located buyers. It is true that basing-
point systems, by their very nature, require that prices be quoted on
a delivered basis. However, f. o. b. prices may be so adjusted for
differences in freight, that the actual delivered cost of the product is
the same to all buyers throughout the United States or within a given
zone; conversely, dt /ered prices may include the full cost of freight
in every instance and vary in precise accordance with differences in
shipping costs. While the latter situation is unusual, the former is
quite common. Many concerns quote prices f. o. b. plant with full
freight allowed, which is equivalent to a uniform delivered price.
When freight is thus "allowed," the buj'^er ordinarily pays the trans-
portation agency in the first instance and then deducts the amount
of this payment from the invoice. In some cases, freight is not onl}^
allowed but also prepaid, under which circumstances the seller paj^s
the cost of shipment at the source, thus relieving the buyer of the
necessity for advancing freight charges.^
6 These initials are an abbreviation for "free oil board" and Indicate that the quotation includes the
expense of placing the merchandise on railroad cars or other means of transportation indicated at the point
named, with the buyer bearing the expense and responsibility of shipment from that point E g f o b
cars, Chicago, means that the price includes placing the merchandise on ralkoad cars at Chicago
'In this and the subsequent discussion the terms "price" and "market" are used both in relation to the
point of origin and the point of destination; the specific meaning in each case is indicated by the context
It should be noted, however, that "price" and "market" to the consumer may mean one thing- they may
mean quite another to the businessman; they may have still another meaning to government agencies
charged with the duty of determining whether industrial pricing policies suppress free and fair competition
It IS not the purpose of this monograph to take any position w;„h respect to these various viewpoints about
price" and "market" or their legal and economic implications.
« The distinction between "freight allowed" and "freight prepaid," since it is reflected in the gross amount
of the invoice, may also aflect the amount of cash and other discounts which may be figured on the gross
amount as a base.
Page 274. Mono. 1.
247149—40
CONCENTRATION OP ECONOMIC POWER 275
However, too much emphasis should not be imputed to the mere
form of quotation, even as it relates to the point at which title passes.
Thus it may be questioned whether the free and unreserved transfer
of title at the point of shipment is compatible with any system involv-
ing freight allowances. Certainly it is not ordinarily within the intent
of the seller that the buyer should be free to divert the shipment before
it reaches its announced destination. If this were not true, it would
be possible for a buyer located at some distance from the point of ship-
ment to take advantage of his freight allowance by reselling the mer-
chandise at a profit to another buyer who is located closer to the source
of supply and who would not, therefore, be entitled to as large an
allowance. Presumably, therefore, the reservation that the shipment
must proceed to its announced destination is implied in any system
involving freight allo'vances. To that extent any such system diffei's
from straight f. o. b. mill pricing in which the buyer can do as he will
with the merchandise once he receives delivery at the mill door.
In addition, reference may be made to the type of quotation known
as "c. i. f." which is often used in connection with goods shipped by
water. The initials represent an abbreviation for "cost, insurance,
freight," and mean that the quoted price includes the cost of freight
and insurance to the port specified, and delivery in good condition to
railroad cars or trucks at that port, with the buyer bearing the expense
and responsibility of further transportation.^ The initials "f. a. s.",
meaning "free alongside," are also used in connection with water trans-
portation and differ from "c. i. f." in that the buyer accepts delivery
at the wharf and must arrange for loading the merchandise on cars or
trucks for the land shipment.
COMMON FORMS OF STRUCTURE — DEVELOPMENT AND CHARACTERISTICS
The form of geographic price structure which prevails in the market
for any commodity reflects the operation of a host of factors. Among
the more important of these is the intensity and focus of competition
including the relative emphasis upon price or nonprice rivalry, the
degree of geographic concentration of the industry, the location of
sources of supply in relation to markets, the relative importance of
transportation costs as an element in the price of the commodity, the
channels of distribution utilized, the extent of economic concentration
among sellers and among buyers, the interest of sellers in maintaining
control over resale prices and conditions, etc. The way in which
conditions of this kind are actually reflected in the geographic price
structure, and the consistency with which such a structure is observed,
will also be affected very considerably by the degree of freedom which
individual sellers or groups of sellers have in formulating and main-
taining price policies. The possible impact of these forces upon some
of the more common types of geographic price structure will illustrate
the issues involved.
F. 0. b. plant prices. — Probably the simplest type of structure is the
f. o. b. system of pricing with no freight allowed. Under this system
all delivery charges are borne by the buyer who accepts delivery at
the point of shipment; the price charged by the seller to buyers wiU not
be adjusted in any way to reflect the varying transportation charges
» Less common variants of this type of quotation arc "c. i. f. e.", which indicate that the quotation ia-
eludes provision for converting foreign exchange; and "c. & f." which mean that the buyer must arrauge
for insurance during the marine transit.
276 CONCENTRATION OF ECONOMIC POWER
which the latter are called upon to pay because of their different loca-
tions. The same practical result, except as relates to risk of ship-
ment, can be achieved by a delivered price system in which the
delivered price includes actual full freight in every case, but this is not
a usual practice. This type of structure yields the seller a net return
on all sales which is independent of his destination and which will
be uniform insofar as all other terms of sale (e. g., quantity discounts)
are identical. It is most likely to be encountered in those cases in
which there is no severe pressure upon the seller to reduce his prices
in certain markets to meet the competition of some rival who happens
to be more advantageously located with respect to that market,
'^his condition will be fulfilled, for example, when all sellers of a given
commodity are located in a narrowly circumscribed geographic area
so that the cost of shipping the product from any plant to any market
is practically the same as that of shipping it from any other plant to
the same market. Turpentine, which is produced largely in Florida
and Georgia is an example, as is the women's dress industry ^° which
is almost entirely concentrated in the New York area, and the automo-
bile industry in Michigan before the establishment of assembling
plants at other points. These conditions could also be fulfilled by a
seller who enjoys an outright monopoly, or who has succeeded in
creating unique consumer acceptance for his product, so that there is
no effective pressure from substitute products at anj^ point. A similar
situation may occur where freight is so small a part of the price of the
finished product that it does not constitute an important competitive
factor, particularly wdiere emphasis is upon nonprice elements such as
style; thus most apparel is sold on the basis of a uniform f. o. b. price.
The existence of material differences in the quality or design of com-
peting products may even permit uniform f. o. b. plant prices to be
used in connection with items for which freight is a material element;
thus milling and grinding machines may be sold on this basis.
These considerations relate, of course, only to the territory actual!}^
served by the seller in question. The existence of numerous sources
of supply throughout the United States — or outside it — neo(^ not
affect the structure so long as the product irom each source is dis-
tributed in a geographically circamscribed area which does not
seriously ov^erlap the area served by other sources. For example,
the existence of important phosphate rock mines in Tennessee does
not appreciably affect the pricing practices of the producers of phos-
phate pebble in Florida, so long as they sell in distinct markets.
Freight equalization. — When there is more than one geographic
source of supply and one seller seeks to expand his territory into an
area contiguous to the other, modification of this simple structure is
likely to occur. From the point of view of the buyer, it must be
emphasized, the significant element is the total price which ue is called
upon to pay at destination, and not the seller's net realization. This
does not deny that buyers have a very substantial interest in the
geographic pricing practices of sellers as they affect the character or
intensity of competition and the level or behavior of prices; the advan-
tages derived from freight concessions or allowances are often apparent
rather than real. To the individual buyer on any single purchase,
however, the total cost at destination is the item of immediate concern.
'0 This refers to the woinen's dress industry proper, and not to the house dress or wash frock industry
which is much more decentralized.
CONCENTRATION OF ECONOMIC POWER 277
In the sale of a standard commodity, therefore, sellers who distrib-
ute through a wide geographic area are likeh^ to meet constant pres-
sure to adjust tliei' prices on individual transactions to meet the
offer of competing sellers who happen to be nearer freightwise. To
illustrate: assume two rival producers located in New York and
Chicago, respectivel}", who are selling identical commodities. Suppose
that Philadelphia and St. Louis are two important markets, that both
sellers are using a simple f. o. b. system of pricing, and that the plant
prices of both are initially identical. Obviously, the New York pro-
ducer will not be able to sell in St. Louis, nor the Chicago producer in
Philadelphia. Originally this m.ay have presented no problem, be-
cause the New York manufacturer found ample markets in eastern
territory, while the Chicago producer was able to dispose of all his
merchandise in the \lidwest. With the passing of time, however,
and the expansion of plant facilities, one proflucer may readily find
himself with surplus capacity or surplus product on his hands which
cannot at the moment be absorbed by the territory which he has been
accustomed to serve. If under such circumstances the New York
firm learns that a buyer in St. Louis is in the market for a substantial
order, it is likely to attempt to invade the St. Louis territory and to
meet or better the offer of the Chicago producer at that point.
Of course, one way in which the New York producer can reduce his
price to the St. Louis buyer sufficiently to meet Chicago competition
would be simply to cut his plant price to all comers by an amount
sufficient to compensate for the difference in freight. In general,
however, such a course would involve so large a loss on sales in nearby
areas that the benefit from making occasional sales in remoter areas
would be completely lost. Consequently a much more expedient and
likely decision would be to cut prices only on the St. Louis transaction
by an amount approximately equal to the difference in freight. If
prices are quoted on a delivered basis, this can be done directly; if
an f. o. b. system is used, the quotation can be reduced by the discount
necessary to make the sale.
Some such process of "freight absorption" is likel}^ to occur when-
ever geographically separated sellers of reasonably similar products are
•competing in the same markets and is probably the alternative to a
strict limitation of the sales territory of each seller to the area which
he can serve most economically. The tendency to sell in remote
areas is augmented by fluctuations in local demand, which are con-
stantly and inevitably occurring, and as soon as sales tei-ritories over-
lap some form of freight absorption or "equalization" is likely to occur.'*
It should be emphasized that the foregoing illustration is strictly
hypothetical. It was presented merely to suggest the way in which
pressure to adjust delivered prices in competitive territories may arise
initially. The actual process of adjustm.ent is rarely so simple or
^'natural." In practice, freight equalization assumes much more con-
ventional forms than the sort of sim.ple adjustment to m.eet the needs
of the individual transaction which has just been described. In
many industries there are systematic schemes of freight equalization
which are more or less closely observed by all sellers and which are
far too elaborate in detail to represent purely spontaneous develop-
" Something akin to equalization may occur within the organization of a large company, as well as between
competitors. Thus a large agricultural implement producer has a main factory in Chicago with numerous
more specialized plants in other cities. On sales from these latter plants freight is charged from plant or
from Chicago, whichever is lower.
278 CONCENTRATION OF ECONOMIC POWER
ments. Moreover these schemes are often found in conjunction with
arrangements for maintaining well-defined relationships between the
prices at different plants, thereby permitting a substantial degree of
control over the entire price structure. Such practices, if rigidly ob-
served, effectively limit the possibility of price competition.
On the other hand, it should not be inferred that the existence of
such a systematic scheme of freight equalization is per se an indication
of the absence of effective price competition.*^ All that can be said
is that the more complex and conventional types of geographic price
structure often spring not from natural adjustments to the market
but from a conscious effort on the part of concerns in an industry to
limit or eliminate price competition and that they may even be indis-
pensable tools to this end. Thus although the more obviously artifi-
cial types of geographic price structure are frequently encountered
under circumstances which give rise to suspicion of collusive restraint
of trade, yet it is not necessarily true that their existence is either the
direct cause or manifestation of such collusion. It is theoretically
possible, for example, that aggressive price cutting should take place
within the framework of such a system as well as without it.
Geographic price structures of this kind take many forms. In the
case of many heavy chemicals such as sulfuric acid, for example, plant
price quotations are apparently uniform for all plants of all companies
throughout the United States.** Freight is equalized on the basis of
shipping costs from the plant nearest the point of delivery.** Since
the location of all plants in these industries is known, all producers
will tend to quote the same delivered price in any market.
Another common type of equalization involves a division of the
country into zones. Plant prices in each zone are uniform and freight
is equalized as before, to the plant nearest the point of delivery.
Asphalt shingles and floor tiles furnish examples of this very common
type of structure. A further degree of simplification may be introduced
by the adoption of a standard relationship between plant prices in
different zones; the price in one zone automatically determines plant
prices in all other zones by the application of a simple scheme of dis-
counts or additions. Here again a high degree of price uniformity
between rival producers is readily attainable because the structure is
so conventionalized.
In some cases sellers find it expedient to set certain limits to the
amount of freight which they are willing to absorb in connection with
equalization schemes of this sort. The limit may be based upon the
location of the. point of delivery, the alternative shipping point for
which equalization is computed, the size of the order, or the actual
cost involved. For example, unlimited equalization for floor tiles is
confined to a few items such as the standard one-inch hexagonal tile;
for other products it is restricted in accordance with various criteria.
Equalization may be allowed only on sales of a specified quantity;
thus in the case of soda ash and caustic soda the practice is to equalize
freight only on carload shipments presumably because the higher
" These comments apply equally to the basing point and zone structures described subsequently.
'• There is some evidence that this practice is more strictly observed on "spot" sales than on contracts
covering a period of time; the latter type of transaction seems to be subject to some variation, especially when
the buyer can exert substantial bargaining pressure.
i< In this and all subsequent discussion the phrase "nearest the point of delivery" should be understood
In terms of freicht cost and not of physical mileage. In other words, "nearest" is used as shorthand for
"having lowest shipping costs to."
CONCENTRATION OF ECONOMIC POWER 279
J. c. 1. rates would require disproportionate absorption. Reservations
of this kind as to the maximum amount of freight which the seller is
willing to absorb have the effect of limiting the potential sales territory
correspondingly and presumably reflect a decision that sales to more
distant points or of smaller quantities involve an unjustifiable sacri-
fice of plant net. In principle, a concern may be willing to absorb
freight up to the point at which the resulting net realization is adequate
to cover little more than direct out-of-pocket costs; in practice con-
ventional arrangements within an industry often result in setting
much narrower limits to freight absorption.
The schemes of freight equalization so far considered all involve the
acceptance of reduced plant realizations by the seller on sales to dis-
tant points. On sales to immediately surrounding territory, however,
prices remain on a uniform plant-net basis and the price to the pur-
chaser at the plant door wUl be lower than to buyers twenty or a
hundred miles away. In other words, the location of each mill governs
the price structure in the contiguous area and the erection of a new
plant in new territory wiU be reflected automatically by a change in
delivered prices in that territory.
Basing-point systems. — It is in this last respect that schemes of
systematic freight equalization differ fundamentally from basing-point
systems. The simplest form of this structure is the single basing-
point system. Delivered prices at any point in the United States are
related to a "base" price at some single important producing center and
are arrived at by adding to this base price the freight rate (usually for
all-rail shipment) from that point to the point of delivery. This was
the type of structure, for example, which prevailed in the steel industry
between 1900 and 1926 except for certain temporary lapses and was
known as "Pittsburgh Plus." As the name implies, the delivered price
at any locality was the base price at Pittsburgh, plus freight from
Pittsburgh. Thus for a mill located, say, at Chicago, the delivered
price on sales at the mill door would include full freight from Pitts-
burgh; the price to purchasers farther from the point of shipment but
nearer freightwise to Pittsburgh would be substantially less. The
seller would charge fictitious freight on the former transaction and per-
haps absorb some freight on the latter.
In contrast to the systems of freight equalization previously
described, which may have developed naturally as mills enlarged their
territories, there is evidence that one of the important considerations
leading to the adoption of the basing-poinfc system, at least in the
case of the steel industry, was to restrict price competition as far as
possible. According to evidence presented to the Temporary National
Economic Committee, based upon an earlier investigation by the
Federal Trade Commission, the Pittsburgh-Plus system originated
under the following circumstances:
No systematic Pittsburgh-Plus system had been adopted by the steel producers
at the time of Pittsburgh's greatest predominance in the steel industry or until
after 1900. From 1873 or earlier to 1903 steel producers attempted generally
with some success to fix prices for steel products through pools, price-fixing trade
meetings, and later on through what are known as the "Gary Dinners." From
1903 to 1909 the Pittsburgh-Plus system of quoting and selling steel products was
used in connection with and as a basis for the price-fixing activities of the steel
producers. From 1909 to the present time, with minor interruptions, the Pitts-
burghrPlus system has been used by the steel producers independently of such
247 L4 9 — 41— No. 1 20
280 CONCENTRATION OF ECONOMIC POWER
pools, price-fixing trade meetings, and Gary Dinners for the purpose and with the
effect of reaching uniform delivered prices.
In 1921, with the advent of price competition on plates, shapes, and bars, the
Pittsburgh-Plus system was discontinued by the Chicago district mills in their
sales of those products, but not in their sales of sheets and tin plate and wire and
wire products, in which articles in that district and everywhere else Pittsburgh-
Plus prices still prevail.
The wire nail producers, including the Respondent, American Steel & Wire Co.,
agreed on zone prices in May 1898. In 1904 the large wire producers agreed to
maintain uniform prices by means of the Pittsburgh-Plus system.
Prior to the year 1900 sheet steel was not sold on the Pittsburgh-Plus system,
and even after the absorption of a large number of sheet mills by the American
Sheet Steel Co., which was later taken over by Respondent, American Sheet & Tin
Plate Co., that company sold its sheets in the Chicago district f. o. b. its mills in
that district. In the fall of 1900, however, that company inaugurated the Pitts-
burgh-Plus system in selling its sheets, and the Respondent, American Sheet &
Tin Plate Co., has followed the system ever since, practically without exception.
Prior to 1900 to 1903 tin mills sold their products generally f. o. b. mill, but after
absorption of many tin mills by the American Tin Plate Co., which was shortly
after taken over by Respondent, American Sheet & Tin Plate Co., that company
inaugurated the Pittsburgh-Plus system in selling its tin plate from its various
mills. '
In 1903, it announced as to its Indiana mills that tin plate would no longer be
fiold f. o. b. the Indiana mills but would be sold thereafter on the Pittsburgh-Plus
system because of the higher cost of production at the Indiana mills. The
respondent, American Sheet & Tin Plate Co., has continued the Pittsburgh-Plus
system ever since on tin plate. '^
Further excerpts from the Federal Trade Commission inquiry, as
reported at these hearings, include the testimony of Col. Henry Bope,
who was vice president of the Carnegie Corporation after it was taken
over by the United States Steel Corporation. This testimony throws
further light upon some of the considerations involved in the adoption
of Pittsburgh Plus.
Q. Going back to the original organization, what connection did the Pitts-
burgh-base system have with that?
A. (Colonel Bope) The price was made, based upon Pittsburgh, because the
Carnegie Bros. & Co. were the largest manufacturers, and it was felt they should
have the say as to what the price should be, and how it should be established at
the main point, so as to give stability of prices, which had been fluctuating all
over the lot.
Q. By that do you mean to get uniform prices?
A. To get uniform prices.
Q. Before that time what was the practice?
A. The practice was eenerally to quote f. o. b. mills. Every mill was a law
unto itself.
Q. And the difference in prices between the mills, did that amount to the
freight rate, or was it entirely independent?
A. Each mill made whatever price seemed necessary to take the business.
Q. What was the necessity for a basing point? Could they maintain prices
without a basing point?
A. No. They tried it once in 1909 and got into such chaos in a short time that
the mills were glad to get back to the old base. Every system has to have some
stabilizing point, and Pittsburgh, from its natural location, its natural advantages,
and everything of that sort, seemed to be the natural basing point. '^
The maintenance of the Pittsburgh-Plus system greatly simplified
the preservation of price uniformity within the industry. It was
manifestly easier to make sure that all competitors charged the same
price at every market if they all quoted on an f. o. b. Pittsburgh basis
than would be true if each quoted f. o. b. the nearest mill. Since
Jnost concerns preferred to avoid price competition, this was con-
sidered a very important advantage.
" See Temporary National Economic Committee Hearings, Part 27, afternoon session, January 29, 1940.
i«Ibld.
CONCENTRATION OP ECONOMIC POWER 281
As an industry becomes more decentralized, however, the main-
tenance of a simple basing-point system of this kind becomes increas-
ingly difficult. It is likely to incur growing resentment from buyers
who are located near a mill distant from the basing point, and who do
not see why they should be called upon to pay fictitious freight from
the basing point upon shipments which actually travel only a short
•distance. Moreover, there is doubt as to the legality of single basing
point systems under the Sherman and Clayton Acts and under the
Robinson-Patman Act. Consequently there has been a shift in
many industries to the so-called multiple basing-point system in
which the basing-point principle is retained but the number of basing
points is increased materially to reflect the establishment of important
new producing centers. Thus the steel industry shifted from the
single to the multiple basing-point system in 1926, at least partly
because of pressure by the Federal Trade Commission. ^^ The price
actually paid by the buyer for delivery at any point then becomes
the lowest sum of the price at any basing point and freight from, that
basing point.
Since an important aim of the basing-point system, whether single
or multiple, is the maintenance of price uniformity, it is essential to
its successful operation that all sellers calculate their freight charges
in the same way. For this purpose "freight books" are frequently
issued by leading companies or by trade associations; these books
indicate the freight charges which are to be used in calculating the
cost of sliipment from any basing point to any important market.
The rates shown in these books do not necessarily conform in every
detail with actual freight charges but usually follow them rather
closely. They usually seek to discourage cheaper means of trans-
portation such as water shipment and motor truck, since to do this
would permit the buyer to effect a price reduction by selecting a
more economical mode of transit- and thereby to interfere with the
maintenance of uniformity. In the steel industry, for example, al-
though a buyer is permitted to accept plant delivery in his own truck
he is generally required to pay a premium amounting to 35 percent
of the cost of all rail delivery for this privilege. ^^ The entire structure
is frankly arbitrary, and is predicated at least in part on the assump-
tion that price competition is not desirable. It was admitted by
President Fairless, of the United States Steel Corporation that the
effect of the basing-point system, if it were always faithfully observed,
would be to eliminate price competition in the industry entirely.
According to Mr. Fairless:
It seems to me that for all practical purposes and for the conservation of time,
which I believe is important to all of us, we will concede, if that is the point that
you are trying to make, that if base prices as announced were followed in every
transaction, and that the nearest basing point to the consumer governed, and
that the rail freight was added from that point, and the delivered price arrived
at in that manner, there wouldn't be any competition in the steel industry. It
would be a one-price industry, pure and simple.**
However, in common with most other systems of pricing, discounts
and concessions from the nominal price level are granted sellers under
certain circumstances. Such concessions are most common during a
buyers' market when the pressure to obtain business is most acute.
" A cease and desist order was issued by the Federal Trade Commission against the Linited States Steel
Corporation on July 21, 1924, Docket No. 760.
>* See Temporary National Economic Committee Hearings, Part 27, afternoon session, January 26, 1940.
"Ibid.
2g2 CONCENTRATION OF ECONOMIC POWER
Although the ba sing-point system has been described in terms of the
steel industry, it should not be inferred that this is the only important
area in which it is encountered. Cast-iron soil pipe, for example, has
been sold on the basis of a single basing point in Birmingham, Ala.
The pulp, sugar, cement, and lead industries all use multiple basing-
point systems. In some cases basing-point systems are observed with
respect to part of the market only; for instance, benzol is priced
f. o. b. Minnequa, Colo., only on sales in the region "Omaha and
West" and gasoline is sold f. o. b. Tulsa only in parts of the Midwest.
In each case the system may be adjusted to the peculiar needs of the
industry involved and some of its more important variations will be
described in the following chapter.
"Fostage stamp" and zone systems. — For all the geographic struc-
tures so far considered, delivered prices at any point are arrived at by
taking some combination of plant price and shipping costs, though as
was pointed out, the addition for shipping charges is often arbitrary
rather than actual. Delivered prices vary from locality to locality
depending upon its distance freightwise from whatever point is the
actual or nominal base of shipment.
There is a second major tj^'pe of structure which does not display
any such point-to-point variation but in which delivered -prices are
uniform either throughout the entire United States or within certain
defined geographic zones. This may be accomplished either by quot-
ing delivered prices directly, or by quoting f. o. b. prices and allowing
full freight.
Uniform delivered prices thioughout the United States are most
commonly encountered when shipping costs are relatively minor in
relation to the value of the commodity. They are frequent in the
case of nationally advertised consumer goods, particularly where some
effort is made by the manufacturer to control resale prices as for
nationally advertised drugs and cosmetics. When the manufacturer
advertises a list price for his product or fixes minimum resale prices in
accordance with State price maintenance laws, there is an obvious ad-
vantage in geographic price uniformity, since otherwise distributors in
one section of the coimtry would be forced to accept smaller mark-ups
than those in other sections. Even in the absence of resale price
maintenance, delivered price uniformity may be favored as a means
of reducing the incentive to distributors to encroach on each other's
territory .^° Uniform delivered prices are also quoted for some indus-
trial products when freight is a minor element; this practice is fol-
lowed, for example, in the case of aluminum.^'
>» Thus, according to a recent article in the Quarterly Journal of Economics;
"The policy of quoting prices freight allowed is frequently said by manufacturers to be used in order to
place their distributors in adjoining territories on 'an equal competitive basis'; and further, at times to give
the wholesale trade the same mark-up in a policy of maintaining national, uniform, resale prices. With a
quoting of prices f. o. b. factory, freight allowed to jobbers' warehouses, any given jobber would be at a
disadvantage in entering another's territory even though he had general salesmen in that field. Thus a
manufacturer of air-rifle shot in assigning a reason for the use of the freight allowed policy said: 'To make
landed cost to distributors everywhere the same and thus localize each jobber's business and keep far-away
jobbers from entering others' territory.' Other typical answers of various manufacturers were 'to put all
distributors on the same cost basis regardless of location, so that they can compete on an equal basis of cost';
'to give jobbers the same cost'; and 'so that distributors of our products in adjoining territories will be on an
equal competitive basis.'
"The desire of manufacturers to give the wholesale trade the same mark-up in a program of national,
uniform resale prices is illustrated by the following str.tement recently sent by a glass manufacturer to its
Jobbers. ' • • • Glass Works will carry the freight burden, enabling jobbers to operate with a fixed
gross profit uninfluenced by varying freight rates, undisturbed by their fluctuations. Suggested retail
prices will be the same for east and west. Allowed freight eliminates the need for a differential.' " (The
Quarterly Journal of Economics, vol. LIV, February 1940, "The 'Freight Allowed' Method of Price Quota-
tion" by Vernon A. Mund, pp. 238, 239.)
M According to the Interstate Commerce Commission rail freight during 1936 represented 3.24 percent of
the value of aluminum at destination.
CONCENTRATION OF ECONOMIC POWER 283
A distinction may be made between commodities which are de-
hvered at the same nrice (or on which full freight is allowed) to any
destination in the United States and those for which this privilege
extends only to established distributing or jobbing centers, with pur-
chasers not located at such centers being required to pay the expense
of further transportation. The former practice is more commonly
associated with light goods, such as pharmaceutical products and the
latter with heavier merchandise, such as building materials, but prac-
tice is by no means consistent. Since in general most important con-
suming areas are recognized as distributing points, delivered price
uniformity at such points is often equivalent to uniformity for the
bulk of the market.
In some cases uniform delivered prices may be combined with plant
pricing in such a way that they act as a ceiling to the market, rather
than as a universal price. Thus carbon black in less-than-c irload lots
can be purchased either f. o. b. plant, or, at the buyer's option, it will
be delivered anywhere in the United States for a fixed premium.
Instead of nation-wide uniformity, delivered prices may be kept
constant throughout certain defined geographic zones. The extent
of these zones varies considerably; one may take in all the area east
or west of the Mississippi or east or west of the Rockies, or it may be
restricted to the limits of a single State or part of a State. An impor-
tant factor is again the relative cost of shipment; where this is high,
the zones are likely to be narrower than when it is low. As in the case
of basing point systems, zone systems often reflect the historical
development of the industry. Thus where scattered sources of supply
are competing within certain geographically limited markets, there
may be a tendency for price uniformity within such markets to
exist. Such dividing lines as the Mississippi River or the Rocky
Mountains may be explained both by the gradual extension of markets
into areas previously untapped and by the nature of the railroad
freight rate structure itself.
There are numerous examples of zone systems in majiy different
kinds of industries. Many chemicals such as carbon black, carbon
tetrachloride, and anhydrous ammouia are priced on a zone basis.
A highly developed system of 19 zones and many subzones and even
subdivisions of subzones is used in the market for fertilizer. Zone
systems are observed in the sale of paper with the number of zones
varyiug widely for different products. Thus, there are 10 zones for
newsprint and 4 for fine papers. As in the case of uniform delivered
prices, zone prices sometimes apply to any destination within the
zone and sometimes only to distributing or jobbing centers.
In most cases, the boundaries of zones have become generally
recognized throughout the industry and are observed by all com-
peting sellers, except insofar as prices may be cut on particular
transactions in order to obtain a desired order. However, this is
not always the case. For example, most refrigerator manufacturers
maintain a zone system for the retail markets of their products, but
zone boundaries are not the same for all producers. Moreover, kince
the beginning of 1940 one manufacturer has recently announced
uniform prices for the entire region east of the Rockies.
Sometimes zone systems apply at one market level, but not at
others. Thus, certain electric refrigerators are sold to wholesale
distributors on an f. o. b. plant basis, and distributors resell to retail
284 CONCENTRATION OF ECONOMIC POWER
dealers on a zone basis. The same practice seems to be true in the
case of fine paper.
Zone limits may be used to set a maximum price for the area
rather than a fixed price applicable to all customers. For example,
buyers of fertilizers who happen to be located near certain ports are
able to buy on what amounts to an f. o. b. port basis; prices increase
with the distance from the port until the maximum for the zone is
reached; beyond this point there is no further advance. Frequently
zone prices apply on purchases of a specified minimum quantity only,
usually a carload. This is true, for example, of fertilizer, carbon black,
and numerous other products. Sometimes the situation is reversed,
with the zone structure applying to small shipments only, while some
other basis is used for larger orders. For instance, caustic soda and
soda ash in carload lots are sold freight equalized, but for 1. c. 1, lots
prices are on a zone basis.
The relationship between prices in different zones may or may not
be fixed by custom. In the case of newsprint, for example, the price
in any zone can be derived by applying a premium or deduction to
the quoted price in an accepted ''base" zone. A similar practice is
followed in the case of many other commodities. On the other hand,
zone differentials may vary considerably from time to time with the
price in each area determined by conditions in that area.
One further variant of the zone type of structure which is commonly
encountered is the "free delivery zone." In the case of many kinds
of apparel, for example, such as women's dresses, there is no charge
for delivery within the metropolitan area in which the garment is
manufactured. The prices in all other areas are on an f. o. b. plant
basis. In some instances the free delivery zone may be dictated by
competitive considerations rather than by the location of the produc-
ing plant. Thus some manufacturers of men's shirts make no charge
for delivery in the New York City area, even though their plants may
be at some distance from that city. As is evident from these examples,
the existence of a free delivery zone or zones does not necessarily imply
the observance of a zone structure in other areas.
Buyer dominated structures — equalization at the -point oj origin. —
So far, geographic price structures have been described in relation to
the marketing policies of sellers. It has been suggested that sporadic
freight absorption may reflect a concern's desire to extend sales into
an area in which a rival enjoys a freight advantage, while some of the
more conventionalized forms of structure may represent efforts to
limit or eliminate the influence of price competition as a market factor.
In the latter situation, particularly, this has involved the implicit
assumption that decisions as to price policy were largely in the hands
of sellers and that buyers either could do little to alter such decisions
or else acquiesce in them as mutually beneficial. While this assump-
tion is obviously an oversimplification, it probably does not materially
misrepresent the usual situation in most industrial markets. The
breakdowns of structure which occur during a depressed buyers'
market merely emphasize the rule.
There are, however, numerous sectors of the market in which buyers,
and not sellers, normally hold the balance of power. In such cases it
may be to the interest of these buyers to avoid competing among
themselves in their purchases of raw materials. Just as price competi-
CONCENTRATION OF ECONOMIC POWER 285
tion among sellers may force prices down, so price competition among
buyers may bid prices up. There is some evidence that geographic
price structures may occasionally be adapted to prevent the latter as
well as the former type of price competition. Under such circum-
stances prices will be quoted and published by buyers rather than by
sellers, and they will be equalized at the point of shipment rather than
at the point of delivery. Clear instances of this kind are uncommon,
but they do occur. Two such cases — nonferrous scrap metal and, at
least until recently, cottonseed — will be described in the next chapter.
Crude petroleum is another possible example.
Unsystematic price variation. — Finally, there are types of geographic
price variation which do not fit into any of these more or less clear-cut
patterns. For example, prices in different markets may be largely
out of the control of the seller, as in the case of fresh fruits or vegetables
sold at auction or on consignment. Special competitive situations
may exist in particular markets which make it necessary to deviate
from the general practice on sales in those areas. Thus where imports
are competing with domestic sources of supply, prices at important
ports of entry may bear no direct relation to the general domestic
price structure. For example, because of the competition of imports
the price of cement in New York is not related to the general basing-
point structure of that industry ; in the language of the industry, New
York is an "arbitrary" point.
In practice, the types of structure which have been considered are
subject to almost infinite variation and combination to meet the
peculiar needs of specific markets. Some of these will be illustrated
in the followdng chapter, which describes the patterns of price variation
actually found in various sectors of the American economy.
CHAPTER II
GEOGRAPHIC PRACTICES IN AMERICAN MARKETS
METHODS OF ANALYSIS
The preceding chapter included a description of most of the more
common types of price structure encountered in American markets.
In the following pages, practices actually observed in connection with
the sale of a wide range of commodities are described. The com-
modities discussed were selected partly on the basis of availability of
data and partly m an effort to include a representative group illustrat-
ing a wide diversity of market situations.
The analysis is extensive and not intensive. It has not been
possible to consider the geographic price structure for any commodity
in full detail, since to do so would far transcend the limitations of
time, personnel, and space which have been allotted to this study.
The primary purpose of this study, as stated in the preface, was to
afford some indication of the extent to which particular kinds of
geographic price structure are observed in different sectors of industry
and in the economy generally, and it is in the light of this purpose
that the following discussion should be interpreted.
The data upon which the analysis is based have been compiled
from a wide variety of sources. The most important of these was di-
rect contact with members of industry and trade association officials.
In addition, much information was obtained from experts in other
agencies of the Government, from published studies of the Federal
Trade Commxission, the Department of Agriculture, and other Federal
departments, from trade publications, and from records of the Whole-
sale Price Division of the Bureau of Labor Statistics. Information
with regard to steel and petroleum products is primarily based upon
testimony presented at hearings before the Temporary National
Economic Corftmittee. Data relating to building materials largely
reflect the results of a detailed field study which has been conducted
by the Temporary National Economic Committee Studies Section of
the Bureau of Labor Statistics. In addition, various reports of the
National Recovery Administration proved useful as source material
in casting added light upon current practices, but they were not relied
upon per se as evidence of existing geographic price structures. Some
information was also obtained from a recent study by Vernon A.
Mund, published in the Harvard Quarterly Journal of Economics}
This chapter considers commodities and broad commodity groups
in the following order:
Agricultural commodities.
Food and kindred products.
Textiles and textile products.
' Op. cit.
286
CONCENTRATION OF ECONOMIC POWER 287
Leather and its .major products.
Tobacco products.
Steel and steel products.
Lumber and its products.
Turpentine.
Building materials other than steel and lumber.
Furniture.
Chemicals.
Drugs, cosmetics, and toiletries.
Fertilizer.
Paper and pulp industries.
Passenger automobiles.
Agricultural implements and machinery.
Machinery and related products, other than automotive and
agricultural.
Electrical household equipment.
Nonferrous metals.
Petroleum and its products.
Bituminous coal.
These analyses of conditions in specific markets are followed by a
summary of the major distinct types of geographic price structure,
indicating the products and sectors of industry for which each was
encountered.
AGRICULTURAL COMMODITIES
The geographic price structures of agricultural commodities are
rarely as well defined as those for the products of industry. The
reasons for this are obvious. The number of sellers in any market is
usually so great that no one of them can exert any appreciable in-
fluence upon the prices which hei receives for hi^ crops. Since the
price itself is largely beyond his control, there is little opportunity
for the development of any. rigid conventional practices regarding
collateral terms of sale, such as the payment of freight charges. At
the same time there are many different kinds of buyers in the market,
purchasing under different conditions and for different ultimate uses
and destinations.
Nevertheless there are certain broad price relationships and cer-
tain customs with regard to the payment of freight costs which have
displayed a degree of persistence and ^hich apply to substantial
sectors of the market. In contrast with the geographic price struc-
tures which prevail for manufactured commodities, however, these
relationships usually represent inevitable adjustments to character-
istics inherent in the market, rather than business policy decisions,
although the influence of the latter may be revealed in some minor
details.
In general, the pattern of geographic variation of the prices re-
ceived by producers of agricultural commodities is governed in the
first instance by the location of major terminal markets. In some
cases, as for fresh fruits and vegetables, such markets exist at most
important centers of consumption, which also serve as points of dis-
tribution for the surrounding territory. For staple commodities, and
particularly those traded in organized exchanges or in futures markets,
288 CONCENTRATION OF ECONOMIC POWER
these terminal markets are more narrowly concentrated and represent
primarily points at which the product is collected for distribution
throughout the United States.
In surplus producing areas, that is in those sections which raise
more of the product than can be used locally, the price received by
growers tends to be determined by the price prevailing at the terminal
market, less the cost of transportation to that market. In deficit
areas which raise less than they consume, the reverse relationship
will be encountered and growers may receive a price limited by the
terminal market price, plus the cost of transportation. For export
commodities, such as wheat, the controlling element will be not only
the domestic requirements of any area but also export demand.
In both surplus and deficit areas the price relationships just des-
cribed are limiting relationships which may not actually conform
with the existing pattern of variation at any time. Thus in a surplus
area the prices are not likely to fall below the terminal market price
less freight , and in deficit areas they will not rise above terminal
market price plus freight, because in either event it would become
profitable to ship to or from the terminal market. However, there
may be many conditions which would cause variation within these
limits, such as the avaUabUity of advantageous freight rates for
direct shipment from a surplus to a deficit area without passing
through recognized terminal markets. For some commodities, such
as wheat, there may also be "mUling-in-transit" freight rates which
combine the cost of shipping the wheat to the flour mill and the flour
to its ultimate destination into a single charge, thereby permitting a
further narrowing of the differential between the terminal market
price of wheat and the amount received by the grower.^ A somewhat
similar situation applies through "storage-in-transit" rates for such
products as potatoes which make it possible to store the product en
route from farm to market without any equivalent increase in the
cost of shipping.
Another important influence upon the geographic price structure
of agricultural commodities is the manner in which they are marketed.
They can either be sold by the farmer or local dealer on an f. o. b.
basis at the point of shipment, or they can be sent directly to the
terminal market on a consignment basis. The latter practice is com-
mon in the case of fresh fruits and vegetables and for the former the
price to be paid at the market is determined at organized auctions.
Under such circumstances the grower or local dealer does not know
what his net return will be until after the auction has been held. In
extreme cases, it is even possible that the price received at destination
will not be sufficient to cover the full cost of shipment. Even on
sales "which are nominally on an f; o. b. basis, guarantees against
price declines during transit may be required, which result in a con-
dition not materially different from that for consignment transactions.
The manner in which these general considerations affect the market
for 10 important agricultural commodities — wheat, com, oats, cotton,
potatoes, hogs, wool, butter fat, eggs, and chickens — is revealed in an
analysis prepared by the Department of Agriculture.^ The way in
which prices grade down in surplus producing areas and up in deficit
> Seep. 289 below.
« U. S. Department of Agriculture, Regional Variations in Prices Received by Farmers, 1925-34, for Ten
Selected Commodities, May 1939.
CONCENTRATION OF ECONOMIC POWER 289
areas is clearly illustrated in a series of 10 contour maps included in
this publication, which shows the actual average prices received by
farmers for these products in different regions for the period 1925-34.
The detailed characteristics of the markets for a few important
products are described below.
Wheat. — The geographic price structure of wheat is largely affected
by the existence of six major terminal markets; Kansas City and
Omaha for hard winter wheat, St. Louis for soft red winter wheat,
Minneapolis and Duluth for spring wheat and durum, and Seattle for
western white winter wheat. Spot prices in each of these markets
are constantly changing, partly under the influence of fluctuations in
futures markets. GeneraUy speaking, prices at grain elevators lo-
cated elsewhere than at terminal markets move in direct response to
terminal market prices. In major wheat producing areas, in which
the crop is more than adequate to take care of any local requirements,
local prices will tend to be less than terminal market prices by an
amount equal to the cost of shipment and handling to the most
advantageously located terminal market.^ In a sense this may be
compared with a basing point system in reverse, with the prices at
any point being the difference between the base price and the cost of
shipment rather than their sum.
This situation exists, however, only in those areas where the supply
of wheat for sale exceeds the demand from local mills. In regions
where the mill demand exceeds the local supply, the reverse con-
dition may occur and price be determined by adding freight to the
terminal market quotation, rather than subtracting it. This is
generally true, for example, on the eastern seaboard.
Some regions may be border-line in character, with the crop ex-
ceeding demand during good ye^rs and being inadequate to meet it
during poor years, and prices will reflect these changes. In Colorado,
for example, the price tends to fluctuate between the Kansas City
piice plus freight, when the- crop is poor and the Kansas City price
minus freight, when the crop is good.
One important modification of the structure described relates to
the availability of "miUing-in-transit" freight rates. A substantial
amount of wheat is sold under an arrangement whereby the freight
rate on wheat shipped to a flour mill and then reshipped as flour to
its ultimate destination is based upon the through rate from the
point of origin of the wheat to the point of destination of the flour,
rather than upon the individual hauls of the wheat and of the flour.
This "milling-in-transit" rate varies with the freight zone or area in
which the wheat originates and the zone in which the flour terminates.
Within these zones or areas the freight rate is identical; in other
words it is a "blanket rate." For example, for wheat raised in the
Chicago area, there may be three possible blanket rates depending
upon the origin and destination; a trans-Mississippi rate, a rate for
the State of Illinois, and a rate for the territory east of Illinois.
The price which the miller can pay for wheat at any elevator, there-
fore, depends upon the location of his flour market and may be sub-
stantially higher than the spot price at the terminal market, less
* Thus, according to a study by the Federal Trade Commission, "Grain prices paid in the country to
farmers under normal competitive conditions among country elevators are based primarily on the 'cash'
or 'to arrive' prices at terminal markets for the same kind and grade, less freight, terminal handling charges
and the country dealer's gross margin." (Federal Trade Commission, Agricultural Income Inquiry, 1937,
Pt. I, p. 328.)
290 CONCENTRATION OF ECONOMIC POWER
straight haul freight. It would be most accurate to say that these
two situations set the limits within which prices in any surplus pro-
ducing area wiU vary. Prices will not at any time fall appreciably
below the terminal market less freight, because if they did, it would
become profitable to ship to the terminal market. On the other
hand, millers may often be in a position to bid above this limiting
quotation when they see the possibility of advantageous "in-transit"
freight arrangements.
According to the Department of Agriculture, the lowest average
price received by farmers for wheat during the decade 1925-34 was
in the surplus producing area in eastern Wyoming. The price in this
area was about 80 cents, or between 15 and 20 cents below the prices
at the major midwestern terminal markets. Another low area was
Idaho, in which the price of about 85 cents was some 15 cents below
the Seattle level. Highest recorded average prices— $1 .30 per bushel —
were in the extreme southeastern States, Georgia and Alabama, which
produced little wheat and are furthest freightwise from the terminal
markets.**
Milk. — The price of fluid mUk is subject to minimum price deter-
mination by the Department of Agriculture. The United States is
divided into approximately 25 marketing areas, and in each of these
areas minimum prices are established by classes of milk. In general^
these prices apply to delivery at the market so that the net return to
the farmer will vary with his distance from the market to which he
ships and with the arrangements which he can make for transporta-
tion. The difference between the price at the market and the net
return to the farmer may be substantial; thus for four urban market
areas the delivered cost to dealer during October 1935 averaged $0,053
per quart, while the net return to farmer was $0,045.®
Cattle. — The marketing of cattle is centered in Chicago and Kansas
City and prices at these two important centers are closely related to
each other because of the ability of packers to shift their purchases
from one market to the other. Net return to producers in major
producing areas, therefore, usually represents the difference between
prices at these terminal markets and cost of shipping cattle to them.
Potatoes. — There is a wide variety of different practices observed in
the sale of potatoes with regard to the burden of transportation costs.
Practices vary for early and late potatoes, with the producing area,
the method of financing the crop, the channel of distribution, the grade
of the product, and many other factors. In some cases, sales are on a
straight f. o. b. basis, m others there is a guarantee against price decline
during transit, and in still others, particularly with regard to potatoes
of lower grade, sales are on a consignment basis. These differences in
practice are described in detail by the Federal Trade Commission in
its agricultural income inquiry. A few relevant quotations from this
report follow and illustrate the diversity of possible situations.
METHODS OF SALE BY GROWERS
The practices which exist in connection with the disposition by the grower of
potatoes vary considerably in the several commercial producing areas under con-
sideration. Fundamentally, these differences stem from the single question of
whether or not the grower had to depend upon outside sources for a part or all
« Op. cit., p. 2.
• Federal Trade Commission, Agricultural Income Inquiry, 1937, Part I, p. 121.
CONCENTRATION OF ECONOMIC POWER
291
of the capital necessary for financing the production of his crop. Where. the
grower receives an advance it is almost invariably accompanied by some control
over the disposition of the crop. * * *
Where the grower is able to finance his crop without resort to outside agencies,
he is, of course, free to dispose of it in whatever manner he chooses. The ordi-
nary channels utilized are direct sales by the grower to truckers, to local dealers,
sales in carlots to terminal market receivers or chain stores, and shipments on
<!onsignment to commission merchants.
In Florida: The Florida crop is marketed largely on an f. o. b. basis, except in
the case of potatoes grading lower than U. S. No. 1, or shipments made after other
commercial producing areas have begun to compete strongly with Florida potatoes
in the terminal markets. In the exceptions just mentioned, shipments are usually
on a consignment basis and are sold as circumstances permit. * * *
In South Carolina: * * * jjj ^j^g Charleston area it is estimated that about
70 percent of all sales are made on an f. o. b. basis. These f. o. b. sales carry the
true characteristics of such a sale, because there is rarely any change made in the
f. o. b. price after the shipment has started its movement. This practice is some-
what different from that existing in Florida where, in the case of so-called f. o. b.
sales, the seller ordinarily guarantees the purchaser against a decline in price dur-
ing the time the shipment is in transit. * * *
In North Carolina-Norfolk, Va.: The method of disposition by growers in this
area differs radically from the customarj^ procedure in P'lorida and South Carolina.
In the latter areas the local dealers through whom the crop is marketed rarely
purchase potatoes outright, but handle them for the account of the growers,
whereas in the area now under consideration a substantial part of the crop is
purchased from growers by local dealers. * * *
* * * That part of the crop not sold outright to local dealers and shippers,
consisting in large part of potatoes not equal to U. S. No. 1 in grade, is generally
handled by the local shipper on consignment for the grower's account. * * *
The proceeds of sale, less this ch.qrge and freight and terminal handling charges,
are remitted to the grower or applied on the grower's account where funds had
been advanced to him. * * *
In western New York: In western New York growers finance their own opera-
tions with the exception of some loans secured through production credit associa-
tions, which place no restriction upon disposition of the crop. * * *
The prices paid to growers in this area by buyer-loaders and local dealers are
based upon carlot prices in the terminal markets ordinarily supplied from this
area. The terminal market delivered price is reduced by the freight charge, 8
cents per hundred pounds for the cost of the sack, 4 cents per sack to cover foreign
brokerage, and from 15 to 20 cents per sack to cover other expenses and afford a
profit to the dealer.
In Wisconsin and Michigan: * * * The price paid to growers in Wisconsin
is based upon the Chicago delivered price less deduction's to cover freight, foreign
brokerage, cost of containers, and the gross margin of the dealer or market receiver.
* * * In Michigan the Chicago quotations are not the major factor influencing
the price received by the grower, since quotations to growers in Michigan are
generally computed on an f. o. b. Cadillac basis. The Cadillac price is directly
■dependent upon quotations in the terminal market for which a particular ship-
ment is destined.
DISPOSITION BY LOCAL DEALERS
In every commercial producing area in which inquiry was made the majority
of all shipments destined for terminal markets is handled by local dealer-shippers
or other types of local marketing organizations. * * * The methods of sale
by local dealers are quite varied. The customary methods are: (1) Sales f. o. b.
shipping point; (2) Delivered sales; (3) Sales through brokers; and (4) Consign-
ment sales.
Sales f. o. b. shipping point are transactions in which a local shipper sells potatoes
loaded in cars at shipping point. Delivered sales are those in which the shipper
seUs potatoes delivered at a point designated by the purchaser. In sales through
brokers either f. o. b. or delivered it is customary for the broker to obtain the
shipper's approval of the price before closing the sale. In these sales payment is
a matter between the shipper and the purchaser and with respect to which no
responsibility attaches to the broker. A consignment sale is one in which potatoes
are shipped to a terminal market commission agent for sale at the best price obtain-
able without prior approval of the price by the shipper and navment is guaranteed
by the commission agent.
292 CONCENTRATION OF ECONOMIC POWER
There are almost infinite variations of these methods of selling resulting from
individual agreements between buyers and sellers. For instance, the Atlantic
Commission Co. not infrequently handles potatoes on the basis of "price arrival."
This term designates a shipment intended for the Great Atlantic & Pacific Tea Co.,
and as to which the Atlantic Commission Co. agrees that it will accept the pota-
toes at the average market price in the destination market on the day of arrival
provided the shipment is in suitable condition. Unless otherwise specified, the
price is submitted to the shipper for confirmation before the sale is completed.
The Atlantic Commission Co. also uses "arrival sales." These are shipments
on which the best offers obtainable on a carlot basis are submitted to the shipper
for confirmation. The potatoes may be sold to the general trade or bought by
the Atlantic Commission Co. On such shipments there is no liability on the
part of the Atlantic Commission Co. to accept the potatoes, as is the case in "price
arrival" sales.
In f. o. b. sales the shipper is paid a price agreed upon at the time sale is made,
regardless of price fluctuations between the time of sale and the time of arrival
at destination. In the case of f. o. b. shipments from Florida and some other
southern areas it is not unusual for the shipper to guarantee the price on arrival
at destination; that is, if any decline occurs in the shipping-point price before a
shipment reaches its destination the price on such shipment will be reduced
accordingly.
Shipments from southern areas are customarily sold on an f. o. b. basis, unless
the withdrawal of large buyers from the f. o. b. market forces a resort to consign-
ment sales or urgent competition from other early-crop areas makes it appear
advisable for buyers to concentrate their purchases in terminal markets. The
principal exception to this custom of selling f. o. b. results from advances made
by market receivers to local dealers. These advances are made by commission
merchants in terminal markets primarily to assure themselves of a supply of early
potatoes in order to meet the requirements of their trade. This practice results
in shipments going to a specific market regardless of the. fact that prices may be
more favorable in some other terminal. * * *
Dealers in Maine sell principally upon a delivered basis. This places the respon-
sibility for the condition of the shipment at destination upon the shipper. The
risk of loss from damage in transit is an important factor in shipments from
Northern points during winter months.
* * * In Wisconsin and Michigan production areas some terminal market
receivers maintain what might be called chain-buying agencies. * * * Here,
as in Maine, the delivered sale is the most usual type of transaction between
shipping-point dealers and terminal buyers. The proportion of potatoes from
these areas which will grade U. S. No. 1 or better is smaller than in the early
producing areas or in Maine. This res"ults in few sales being made upon grade,
and in resort to sales on a price basis subject to inspection and approval upon
arrival. '
Fresh fruits and vegetables. — Marketing practices for fresh fruits
and vegetables are also described at length by the Federal Trade
Commission in its ^^ricw^^wre Income Inquiry, 1937.^ In some cases
growers dispose of their crops as they stand, in others they may gather
them and deliver them to local dealers, in still others they retain title
to them and ship them on consignment to terminal markets. In
general, the net return on shipments to any particular market will
vary with day-to-day changes in conditions at that market. In the
case of fruits, prices at terminal markets are largely determined by the
fruit auction system. In consequence the pattern of geographic price
variation for fresh fruits and vegetables is in no sense systematic.
Cottonseed. — Cottonseed is usually classed as an agricultural product
although its production does involve a simple stage of processing.
The geographic price structure for cottonseed is nmch more regular
and apparently subject to a substantially greater degree of control
than is true for the farm products described above.
' Federal Trade Commission, Agricultural Income Inquiry, 1937, pt. I, pp. 573-581.
8 Op. cit.
CONCENTRATION OP ECONOMIC POWER 293
Prior to 1934, the geographic price structure for cottonseed was very
clearly defined. The producing territory — the Cotton Belt — was
divided into a number of zones whose boundaries corresponded with
the jurisdictions of the millers' trade associations. Within each of
these zones the mills published the prices which they were willing to
pay for cottonseed f. o. b. shipping point. If a mill in one zone pur-
chased cottonseed from a gin located in another zone, it would pay
the published f. o. b. price in that zone whether this price was higher
or lower than that prevailing in its home zone.
The fact that shipping point prices, rather than delivered prices,
are uniform in each zone presumably reflects the competitive structure
of the industry. The buyers of cottonseed — the cottonseed oil mills —
are in general larger and more concentrated than are the sellers and
are therefore in a position to exert a substantial influence over the
prices which they pay for their raw material. The maintenance of
price uniformity at the shipping point means that each mill is bidding
the same price for supplies at every point and that there is no incentive
for the seller to deal with one mill rather than with another. This
may lessen the likelihood of prices being bid up by competition among
buyers.
In a sense, this form of price equalization at the buying point is the
obverse of the more commion form of equalization at the selling point,
but it springs from the same general motivation. Where rival sellers
are well organized, the geographic price structure often reflects the
desire to avoid price competition in selling, while where buyers are in
a position to exercise substantial control over the market, they may
wish to avoid price competition among themselves in their purchases
of raw materials.
On May 31, 1934, a Federal Trade Commission complaint^ was
issued, as a result of which mills stopped publishing bid prices. At
the present time the Department of Agriculture publishes a range of
carlot prices on 10-ton lots or more in those States where sales are
based on a standard grading system. There is no information avail-
able as to current practices in the industry. However, according to a
recent study, there is some evidence that the exchange of price infor-
mation between mills continues. '°
FOOD AND KINDRED PRODUCTS
In terms of value of products, the group of industries classed by the
Census Bureau as Food and Kindred Products is much the largest
group in the American economy. Total value of product during 1935
was ahnost $10,000,000,000."
The geographic price structures of food products reflect a very wide
diversity in market characteristics such as perishabihty, degree of pro-
cessing, extent of standardization, importance of trade-marks and brand
names, relative importance of freight as an item in cost, etc. Accord-
ingly they exhibit almost every recognized pattern of variation in-
cluding basing-point systems, zone systems, f. o. b. plant pricing,
freight equalization, and uniform delivered prices, as well as com-
pletely unsystematic price variation between markets. In general,
» Federal Trade Commission Docket No. 2190.
'« Walton Hamilton and Associates, Prices and Price Policies, p. 281.
" Bureau of Census, Biennial Census of Manufactures, 1935, p. 42.
294 CONCENTRATION OP ECONOMIC, POWER
there is some relationship between the degree of processing and the
character of the geographic price structure; slightly processed com-
modities, such as meats, tend to vary in as irregular a fashion as
agricultural products, while foods which have undergone a greater
degree of fabrication and particularly those which are branded or
trade-marked commonly display the more conventional types of
structure usually associated with the products of industry. There
are often differences in the geographic price structure for a single
product, depending upon whether it is sold under a national brand,
under a distributor's brand, or in bulk; advertised brands are more
commonly sold on a delivered or freight allowed basis than are private
brands or bulk products.
Because of the diversity of products included in the food industry,
it would be impractical to discuss in detail the geographic price struc-
ture prevailing for even a reasonably representative selection of items.
Instead a very limited list of commodities has been accorded separate
treatment, followed by a tabular summary of the prevailing geographic
price structures for a considerably wider group.
Meats. — The price of meat products in different cities of the United
States seems to bear no apparent relationship to their cost of shipment
from major producing centers or from central markets. This is clearly
illustrated in the case of beef by the report of the Federal Trade
Commission in its Agricultm'al Income Inquiry. ^^ This report lists
the average wholesale prices for "good beef carcass" in 51 cities, during
the year November 1934 to October 1935.'^ The weighted average
price per 100 pounds for all 51 cities was $16.28. Prices in the two
large packing centers — Chicago and Kansas City — were $17.22 and
$18.02 respectively, or materially above this average for the United
States. In contrast, the value in Baltimore, which is remote from
the major producing area, was only $14.41, while in Washington it
was $15.91 and in New York, $16.43. Prices ranged from a low of
$11.89 in Portland, Oreg., to a high of $19.12 in New Haven, Conn.,
but there was no evidence of any variation which might be considered
to reflect the location of supply in relation to markets.
The range of veal prices is even greater than that for beef. Accord-
ing to the Federal Trade Commission report,'^ average wholesale prices
per 100 pounds for the period November 1934 to October 1935, varied
from $8.88 in Little Rock, Ark., to $17.93 in Washington, D. C. The
weighted average for all 51 cities was $14.75 and prices in terminal
markets at Kansas City and Chicago were $12.36 and $14.75 per 100
pounds respectively. Again the variation did not reveal any con-
sistent pattern in which the influence of transportation charges to
and from terminal markets could be clearly traced.
Vegetable oils. — There are three zones observed in the sale of cotton-
seed oil: the southeastern area, which includes aU southeastern States
as far west as Alabama and eastern Tennessee inclusive, the Mississippi
Valley area including Louisiana, Arkansas, and western Tennessee, and
the southwestern area including Texas and Oklahoma. In each of
these areas prices are quoted f. o. b. mill, with the prices for all mills in
any given zone the same at any time. The price is usually lowest lq
the southwest, % cent higher in the Mississippi Valley, and again
" Federal Trade Commission, Agricultural Income Inauiry, pt. I .Principa IFarm Products, 1937.
" Ibid, pp. 158-159.
" Ibid, pp. 169, 170.
CONCENTRATION OF ECONOMIC POWER 295
higher by about another }i cent in the Southeast. Cottonseed oil is
traded on organized exchanges which largely influence the prevailing
price. It is understood that the boundaries of the zones are related
to the railroad freight-rate structure and that purchasers of cottonseed
oil are usually unable to cross from one zone to another in their buying
because this would involve their losing the advantage of the most fa-
vorable "fabrication-in-transit" rates.
The prices of soybean and other minor vegetable oils are said to be
usually uniform in crushers' mills over the entire country.
Vegetable shortening. — Nationally advertised vegetable shortening is
sold on a delivered basis at uniform prices anywhere in the United
States. However, in the case of at least one well-known brand,
there are special prices in effect in some of the Southern States, in
the Mountain States, and in the western section of the Dakotas,
Nebraska, and Kansas. The lower prices in effect in these zones are
for the purpose of introducing the sale of this product in those areas
and suggest another of the considerations which may afi'ect geographic
price structures.
Unadvertised or private brajids as well as bulk shortening are sold
f. o. b. shipping point with no freight allowed.
Bread. — The market for bread is largely local in that the product
is rarely shipped any considerable distance from the bakery. Prices
to distributors are on a delivered basis and are uniform for the same
kind of customer within any given locality. However, the same
bakery may sell at quite different prices in adjacent areas and it is
not uncommon for the price to be lower in a town at some distance
from the plant than at nearer points. For example, according to the
Department of Agriculture, the Washington, D. C, plant of a large
baking company sells bread in Washington at a wholesale price of 16
ounces for 8 cents, equivalent to 8 cents per poimd, while the same
plant sells to Fredericksburg, Va., at a price of 22 ounces for 8 cents,
equivalent to 5.8 cents per pound. The same company operating
from another plant sells its bread at 8 cents per pound in Norfolk,
Va., and at 6.4 cents per pound across the river in Newport News.^^
This sort of price variation is clearly not related in any way to trans-
portation costs. In fact there is some evidence that the effect of
this kind of geographic pricing practice on the part of this large com-
pany may be to create difficulties for smaller competitors located in
the areas in which prices are arbitrarily reduced. ^^
Sugar. — The prices of refined sugar at any point in the United
States are related to the prices of cane sugar at seaport refineries on
the Atlantic, Gulf, and Pacific coasts. These ports in effect consti-
tute multiple basing points and the base prices at each such point are
usually identical. This structure reflects the fact that practically all
cane sugar refining, which accounts for approximately 80 percent of
all refined sugar produced in the United States, is conducted at these
seaboard refineries. The uniformity of prices at all basing points
may be explained by the fact that the bulk of raw sugar consumed
in the United States is imported, and the costs of shipping this raw
'5 Temporary National Economic Committee Press Release, T. N. E. C. 30, January 29, 1940.
" These practices have been the subject of complaints issued by the Federal Trade Commission on the
ground that they "tend to create a monopoly." See F. T. C. Docket No. 3669, dated December 17, 1938,
relating to the practice in the District of Columbia and Vireinia areas; and F. T. C. Docket No. 3740, dated
March 20, 1939, relating to the same subject in Iowa, Minnesota, South Dakota, and Nebraska. The
former case is still pending; a Cease and Desist Order was issued for the latter case on December 28, 19.39.
247149—41 — No. 1 21
296 CONCENTRATION OF ECONOMIC POWER
sugar from its points of production to any of these seaports will not
vary significantly. The delivered price of cane sugar at any destina-
tion is arrived at, theoretically, on this basis of "seaboard plus"; in
other words it is computed by adding the cost of combined rail-
water-truck shipment to the base price. Some years ago it was the
custom to compute freight on an all-rail basis only, but the increas-
ing use of water and truck transportation forced a modification of
the practice.
Beet sugar, which is produced primarily at inland points in the
West, is directly competitive with cane sugar and consequently shows
the same general pattern of geographic variation. However, there
appears to be a slight difference in popular acceptance which results
in a r'elatively minor price dift'erential between cane and beet sugars.
Under ordinary circumstances tne price of beet sugar in any market
is 20 points — i. e., $0.20 per 100 pounds — below that of cane sugar
in the same market. The result of this practice is that the highest
price for beet sugar occurs around Pittsburgh beyond which point it
becomes unprofitable to ship it and which represents its longest haul,
while its lowest price is in the region adjacent to its producing
centers.
In basing point cities, the delivered price usually includes a small
charge for trucking which is in some respects similar to the switching
charges observed at steel basing points. For example, in New York
City during April 1939 there was a charge of three points for truck
deliveries involving stops at more than one store.
An indication of the approximate relative importance of freight, on
shipments of various length, is afforded by the following schedule of
freight extras prevailing during April 1939, at a time when the base
price approximated $.044 per pound.
Freight extras pi r
100 pounds
Bridpeport, Conn ^ $0. 14
Pittsburgh, Pa 0. 28
Cleveland. Ohio 0. 36
Springfield, 111 0. 42/2
Minneapolis, Minn 0. 54
As in the case of many other commodities, adherence to the struc-
ture just described is by no means perfect. The nominal quotations
are often shaded to meet competitive conditions. In addition the
differential between beet sugar and cane sugar may vary from time
to time, although it usually remains within the range between 10
and 20 points. Guarantees against price decline are common, and
concessions of this sort affect not only current transactions but also
past orders within the terms of the guarantee. Since price conces-
sions of this kind do not affect all markets uniformly, they amount to
modifications of the nominal geographic price structure.
Salt. — Salt is marketed in accordance with a complex freight equali-
zation system which operates on a zone basis. The delivered price
at any point in a zone is, in general, determined by adding freight
costs to the f. o. b. price of the most advantageously located plant in
that zone. Sellers located outside the zone play no part in price-
making beyond the limits of their accepted territory.
Salt is produced commercially in only 12 States. Of these two, New
Mexico and Nevada, produce very little salt and a third, Oklahoma,
CONCENTRATION OF ECONOMIC POWER 297
has not until recently been sufficiently important to warrant being
considered a separate producing- field. The eight producing fields
recognized by the industry are New York, Ohio, and West Virginia,
Michigan, Louisiana, Texas, Kansas and Oldahoma, Utah, and
California. "Natural marketing areas" have been established roughly
corresponding to these producing regions and producers generally
refrain from selling in a marketing area, other than their own, at a
price lower than that of producers in the field. Within each area a
system of freight equalization prevails and "freight books" are used
to insure uniformity of delivered prices. Producers outside the area
may compete at the same prices but they often set a limit to the amount
of freight which they are willing to absorb in order to do so.
The functioning of the system is well described in a report prepared
by the Division of Review of the National Recovery Administration.
According to the best information available, the same general structure
still prevails.
Following the organization of the Salt Producers' Association in 1914, that
organization prepared and published what were known as State freight rate books
for every State in the Union. These freight rate books contained the name of
every known delivery point, or point of destination, in each State, together with,
the railroad freight rate to such delivery point from the nearest producing plant,
The various producers, in calculating the delivered price of salt to such point of
destination, would add to the base price the figure set forth in the State freight
rate book. Thus, every producing plant became a basing point for all delivery
points nearer to it than to any other plant.
The following quotation is an excerpt from a letter, written by a member of the
industry to a Nebraska wholesale grocer in 1915, explaining the method of using
price lists and freight rate books (which system is still in effect):
"We have sent to you Nebraska and Iowa books and scales. You will note that
there are two scales — one scale No. 7, which applies on Michigan salt, the other
scale No. Z-7, which applies on Kansas salt. The rate books show freight rates
both from Michigan and Kansas. The method of using the books is very simple.
Take the town of Weeping Willow, Nebr., for example. Reference to the rate
book will show that the cheapest rate to Weeping Willow is from Kansas, and is
36 cents. To arrive at the price to Weeping Willow, use the Z-7 book and look
under column 36, which will show that the price of Number 1 Jack Rabbit is $1.21.
This is the price to be charged a retail dealer. From this price you are allowed a
5-cent per barrel commission, as shown on the last page of the schedule. We
insist that the wholesale grocer keep the discount for themselves and shall not in
any way rebate to the customer or sell him at prices less than those shown in our
schedule.
"To arrive at the price on Michigan Salt to Weeping Willow, we refer to the
Michigan rate, which is 57 cents. Recently, however, it has become the practice
of Michigan manufacturers to absorb the difference befiween Michigan and Kansas
rates to the extent of 15 cents per barrel. Therefore, the Michigan price to Weep-
ing Willow would be at the rate of 57 cents less the maximum absorption of 15
cents, which makes 42 cents, and the price of salt from Michigan to Weeping
Willow is found in Column 42 of the Michigan Schedule. Thus, the price on
Michigan salt is $1.27 per barrel."
The amount of freight absorption varied considerably, depending on the need
for an expanded market on the part of manufacturers in any given area, and even
varied on different grades of salt. Thus, in 1932, we find one southern manu-
facturer issuing a price schedule containing instructions to salesmen to limit
freight absorption on rock salt in Southern States to a point which would net the
producer at least $4 per ton at the plant, but permitting complete freight absorp-
tion to all points of destination on high-grade industrial salt. In sales in Ken-
tucky, for example, the salesman is instructed to figure freight rates on the
Michigan or Ohio freight rate, whichever is lower, instead of figuring the freight
rate on the actual cost from I.ouisiana, except that on rock salt the absorption of
freight was limited to a figure which would net the producer $4 per ton.*^
"National Recovery Administration, Division of Review — Manufacturers Control of Distribution: A
Study of Trade Practice Provisions in Selected National Recovery Administration Codes, by Irwin S.
Moise and George B. Haddock; Work Materials No. 62, March J 930. pp. 82, 83.
298 CONCENTRATION OF ECONOMIC POWER
The maintenance of this elaborate system may be explained partly
by the relative standardization of the product ^^ and partly by the
great importance of freight as an element in the delivered price of
salt. According to the Interstate Commerce Commission/® rail
freight revenue on carload shipments of salt amounted to 46 percent
of the delivered value of the product at destination during 1936.
During 1933, when prices were lower, Interstate Commerce Com-
mission data show that freight reached the high ratio of 64 percent
of delivered value; in other words, almost two-thirds of the average
delivered wholesale price of salt represented the cost of transporta-
tion.2»
The two largest producers, who are apparently the price leaders of
the industry, have plants in many different producing areas and
between them they are direct market factors in 44 of the 48 States.^'
Consequently there is little incentive for these two concerns to dump
their surplus product across zone boundaries. At the same time they
are in a position to utilize their prestige for the purpose of maintain-
ing the established system, and according to the National Recovery
Administration report quoted:
There is some evidence to the effect that this uniformity in published prices
resulted from a definite fear on the part of smaller producers of disastrous re-
prisals if they disturbed the prices established by the larger, more powerful
producers.22
Nevertheless the system is not always rigidly observed and there is
considerable evidence of price cutting during periods of stress. It is
possible that the tendency on the part of smaller producers to cut
prices occasionally is related to their difficulty in competing on the
basis of uniform prices with larger companies who have obtained
public acceptance for their advertised brands.^^ Sometimes sporadic
price cutting culminates in severe price wars during which the entire
geographic structure may become little more than nominal. Such a
price war occurred, for example, during the latter part of the National
Recoveiy Administration period in 1935:
Following May 27, 1935, deviations from published prices became more and
more troublesome. By August, the secret prices evidently became sufficiently
serious to warrant retaliation by the price leaders in the industry. Since that
time, there has developed one of the worst price wars experienced in recent years
by this industry. Published prices remain practically the same as they were
during the code period, but discounts and rebates ranging from 20 to 30 percent
are being granted to various types of buyers.^*
Coffee. — Unadvertised b^'ands of coffee are generally sold f. o. b.
shipping point with no freight allowance. Nationally advertised
brands, on the other hand, are often sold on a uniform delivered price
basis. Thus one company charges a uniform price for store door
delivery anywhere in the United States, another prepays freight to
the buyer's city only, and a third prepays freight to the buyer's city
but quotes different prices east and west of the Rocky Mountains.
Rice. — Rice in bulk, as well as unadvertised or private brands, is
sold on a simple f. o. b. shipping-point basis with no freight allowed.
" Trade names and brands have some effect upon this marnet, but not enough to support an appreciable
price differential.
>• Op. eit.
M Interstate Commerce Commission, Freight Revenue and Value of Commodities Transported, 1933.
" Manufacturers Control of Distribution, p. 81.
a Ibid., p. 83.
M Ibid., p. 145.
« Ibid., p. 147.
CONCENTRATION OF ECONOMIC POWER 299
In the. case of nationally advertised brands, practices vary. One
brand is sold at a uniform delivered price at all eastern seaports and
a uniform differential above this at all other points. Another brand
is sold full freight allowed, except in a group of midwestern and
mountain States in which the delivered price is higher.
Other food products. — Prevailing geographic price structures for
othor food products are summarized below. Where the practice
applies only under certain conditions, e. g., to manufacturers brands,
unadvertised brands, or in bulk, the limitation is noted. When
there is no such note the practice applies generally regardless of
brand or packaging.
The following products are usually sold f. o. b. shipping point with
no freight allowed:
Grape juice: Nationally advertised brands and bulli only.
Corn meal: Unadvertised brands and bulk only.
Crackers: Unadvertised brands only.
Wheat flour.
Chocolate coating: Unadvertised brands and bulk.
Cocoa: Bulk only.
Creamery butter: Bulk purchases in certain cases only.
Condensed milk: Bulk purchases in certain cases only.
Processed cheese: Unadvertised brands only.
Bulk cheese.
Canned peaches.
Canned pineapple.
Dried apricots.
Prunes.
Raisins.
Canned soup: Unadvertised brands only.
Canned corn: Unadvertised and some advertised brands.
Canned peas: Unadvertised and some advertised brands.
Canned tomatoes.
Vegetable shortening: Unadvertised brands and bulk only.
Lard.
Molasses: Bulk purchases in certain cases only.
Black pepper: F. o. b. warehouse, New York City or port of arrival.
Canned salmon: Advertised and unadvertised brands.
Tea: Bulk.
Vinegar: Bulk.
The following products are sold either at uniform delivered prices
anywhere in the United States or f. o. b. shipping point, full freight
allowed. The latter practice is indicated by the initials "f. a."
Ginger ale and club soda: Advertised brands, f. a. (except in Washington and
Oregon where freight allowance is limited to 50 cents per 100 pounds).
Ginger ale and club soda: Unadvertised or private brands.
Grape juice: Advertised brands (f. a. to warehouse city).
Corn flakes: Advertised brands (some quoted f. a., others delivered).
Wheat cereal: Advertised brands, f. a.
Crackers: Advertised brands, f. a.
Macaroni: F. a (on unadvertised brands freight allowance may be for carlots
only).
Pretzels: Nationally advertised and bulk, f. a.
Packaged candy: Nationally advertised, f. a.
Cocoa: Nationally advertised, f. a.
Creamery butter: Bulk delivered in some cases.
Condensed milk.
Powdered milk: Nationally advertised.
Toilet soap, bar laundry soap, and soap flakes: Private brands or bulk, f. a.,
nationally advertised brands delivered.
Canned soup: Advertised brands, f. a.
Baked Beans: One advertised brand, f. a. Unadvertised brands, f. a. in carlots.
300 CONCENTRATION OP ECONOMIC POWER
Canned corn and canned peas: Some advertised brands.
Canned tomato juice: Advertised brands, f. a.
Jelly: Some advertised brands, f. a. Unadvertised brands, f. a. in carJots.
Molasses: Some advertised brands, f. a., and bulk sometimes f. a.
Oleomargarine.
Peanut butter: Some advertised brands, f. a., and unadvertised brands, f. a.
in carlots.
Tea: Advertised brands.
Vinegar: Some advertised brands f. a., and unadvertised brands, f. a. in carlots.
The following products are sold on a zone basis with two delivery
zones, east and west of the Rocky Mountains.
Corn flakes: Unadvertised brands.
Farina: Unadvertised brands.
Oatmeal: Unadvertised brands.
Cooked wheat cereal: Unadvertised brands.
Powdered milk: Bulk.
The following products are* sold on a zone delivered basis with
three or four zones recognized.
Farina, oatmeal and cornmeal: Advertised brands.
Evaporated milk.
Processed cheese: Nationally advertised.
The following nationally advertised products are sold by at least
one manufacturer on a delivered -price basis, using six or seven zones:
Canned baked beans, jelly, molasses, peanut butter, vinegar.
Bulk corn sirup and bulk cornstarch are sold in accordance with a
basing point system on carload factory shipments.
Packaged sirup in carlots is sold on a basing point system in some
areas and on a zone delivered price basis in others.
Packaged starch in carlots is sold on a delivered basis with prices
varying in 12 or more zones.
TEXTILES AND TEXTILE PRODUCTS
Transportation constitutes only a minor item in the price of most
textiles and textile products. During 1936, according to the Inter-
state Commerce Commission, freight was only 2.5 percent of the value
of baled cotton at its destination; for cotton cloth and cotton fabrics
the ratio of freight to value was 1.8 percent.^' It is logical to assume
that the relative importance of freight is even less for finished apparel
and for more expensive fibers such as silk, wool, and rayon.
The minor rple played by freight is probably at least in part re-
sponsible for the absence of any complex forms of freight equalization
or zone pricing in the markets for these products. A few products
are sold on a uniform delivered basis but the general practice seems to
be to quote straight f. o. b. mill or f. o. b. mill with occasional minor
modifications.
Yarns. — Cotton yarns are sold on a sim])le f. o. b. mill system.
Knitters constitute the principal market for this product because
cotton weaving is almost entirely in the-hands of integrated mills.
Rayon yarn is sold on a freight-allowed basis. Quotations are
f. o. b. producer's plant with minimum freight allowed to destination.
The term "minimum freight" simply means that the amount of freight
allowance is determined by the lowest shipping rate available, regard
less of the route actually used.
»• Interstate Commerce Commission, op. clt.
CONCENTRATION OF ECONOMIC POWER 301
The geographic structure for woolen yarns varies with the type of
yarn. Weavmg yarns are sold f. o. b. mill. Knitting yams, however,
are sold on a delivered basis in the Philadelphia, New York, Cleveland,
and New England areas; for other points they are sold f. o. b. shipping
point of the finished (dyed) yarn. Apparently knitting yams are
usually dyed and finished by companies other than the spinners and
the practice is to quote the price f. o. b. the finishing plant.
Gray goods. — Gray goods — both cotton and rayon — are understood
to be sold on a stniiglit f. o. b. mill basis with no important modifi-
cations.
Finished cloth. — In general, cotton and wool finished cloth, as well
as gray goods, is quoted on a straight f. o. b. mill basis. There are,
however, certain variations. Clothiers' linings and corset cloths are
usually sold on a delivered basis to New York manufacturers, who
apparently constitute a major segment of the market for these prod-
ucts and are consequently able to exert an important influence upon
their terms of purchase. ^^ However, the price to manufacturers
outside New York is f. o. b. mill. Clothiers' linings and corset cloths
sold to retailers are quoted either f. o. b. mill or, if shipped from
New York stocks, f. o. b. New York warehouse.
Finished raj'on cloth is sold on a delivered basis to metropolitan
areas where warehouses are located; in other areas it is sold f. o. b.
mill or warehouse, whichever is lower.
Finished apparel. — The great bulk of finished apparel is sold on the
basis of a simple f. o, b. system. This practice is followed even though
there is a tendency for retail prices to the consumer to be uniform
throughout the United States either because of the existence of con-
ventional price lines or, in the case of some nationally advertised
products, because of price maintenance efforts by manufacturers.
Under these circumstances it becomes necessary for the retailer —
who usually purchases directly from the manufacturer — to absorb the
cost of freight in his gross margin. Although this might be thought
to impose a burden upon retailers who are unfavorably located with
reference to their sources of supply, the actual cost of shipment is very
low for most apparel and consequently the problemi is not serious.
During recent years, freight costs have been further reduced by the
increasing use of truck delivery. In general, therefore, the f. o. b.
system seems to be observed simply because the element of freight is
too minor to become the subject of competitive bargaining, especially
in view of the emphasis placed by the market upon nonprice factors
such as style.
The prevailing f. o. b. system is subject to some modifications, a few
of which are generally recognized. Thus it is common practice to
allow free delivery anywhere within the city or metropolitan area in
which the apparel is manufactured. Since the cost of such delivery
is unlikely to be great, this is a minor concession.
In the case of a number of products. New York City retailers are
apparently granted a favored position and allowed free delivery by
manufacturers located anywhere in the United States. This is often
true, for example, of women's dresses and men's suits and shirts.
The practice probably reflects the historical development of the in-
dustries. It is only recently that wornen's dresses and men's siijts
" The same practice was at one time followed in connection with the sale of shiitings to New York maba-
facfurers, but it has since been abandoned.
302 CONCENTRATION OF ECONOMIC POWER
have come to be produced in any quantity outside of New York ; the
production of men's shirts was for a long time concentrated exclusively
in the Troy, N. Y., and New York City areas. As a result, metro-
politan retailers undoubtedly became accustomed to free delivery.
As mills were established in other areas, it may have been natural for
these retailers to insist upon their customary prerogatives as a con-
dition of purchase. Even at the present time the bulk of men's
suits and women's dresses (except wash frocks) is produced in New
York City. At the same time the great importance of this market
and the bargaining power of the large department stores in the area "
are probably factors in maintaining the custom.
Companies which have showrooms in more than one city may allow
free delivery in any of these cities and base freight charges to other
points on the rates from the nearest such free dehvery point.
In addition to these generally observed practices, a few companies
absorb freight more or less regularly. For example, a few wash frock
manufacturers in California pay one-half of the freight charges on
shipments to the East in order to compete with eastern houses, but
this seems to be an exception rather than the rule. One manufacturer
of flannelette garments in Michigan equalizes his freight on a New York
basis. A large work clothing manufacturer allows freight on ship-
ments exceeding a specified number of garments. An important
knit goods producer, who advertises on a national scale, sells on a
delivered basis.
In addition to practices of this kind, which form a part of the estab-
lished policy of most members of an industry or of individual firms,
a very limited amount of freight absorption may be encountered on
specific transactions when the producer feels it necessary to make a
minor concession in order to consummate a sale. In general, however,
concessions of this kind are made in the form of an outright reduction
in the price quotation.
It should be emphasized that these deviations from simple f. o. b.
pricing which have been described are all exceptions from a widely
observed general rule.
Binder twine. — The geographic price structure for hard fibers and
their products does not usually conform with the pattern for the textile
products which have been described above. For example, binder
twine is sold on the basis of a system of freight equalization. Three
of the largest producers in this industry are definitely known to observe
this practice and presumably smaller producers follow their lead in
this respect.
However, an appreciable proportion of binder twine is produced in
prison shops and. it is doubtful that these observe the same selling
practices. In the case of the Minnesota and Wisconsin State prisons,
prices are apparently f. o. b. point of production. However, these
exceptions may not conflict seriously with the general use of the freight
equalization system in the industry because the sale of prison-made
twine is confined largely to the States in which it is produced, partly
on account of restrictions imposed by other States upon imports of
prison-made goods.
•' Many chain stores maintain central offices in New York at which they accept delivery for distribution
to; their branches; this increases the pressure to favor the New York market.
CONCENTRATION OF ECONOMIC POWER 303
The freight equalization points in use at the present time, as reported
by two of the largest manufacturers, represent, in part, important
producing centers and, in part, ports of entry for foreign twine. These
latter points are: Baltimore, Beaumont (Tex.), Boston, Buffalo,
Chicago, Corpus Christi (Tex.), Galveston, Houston, Lake Charles
(La.), Los Angeles, New Orleans, New York, Norfolk, Philadelphia,
Portland (Oreg.), Seattle, and San Francisco. Until 1937 equalization
was largely on the basis of domestic producing centers but the practice
was then extended to include the ports mentioned. The significance
of import competition is increased by the fact that there is no duty
upon binder twine.
The system of freight equalization which has been described is not
always observed closely. There is evidence of considerable price
variation on specific orders as, for example, on large-scale purchases
made by groups of dealers who pool their orders.
Manila Rope. — According to a recent study, manila rope is sold by
at least one manufacturer with full freight allowed to distributors;
a practice equivalent to uniform delivered prices. ^*
LEATHER AND ITS MAJOR PRODUCTS
Leather and leather footwear are usually sold f. o. b. tannery and
factory respectively. There is apparently little tendency to deviate
from uniform plant prices in either case.
Leather. — The f . o. b. tannery method of selling is adhered to closely.
Such departures as do occur are usually confined to periods of very
slack business. Freight absorption or equalization to meet the compe-
tition of more favorably located producers is uncommon.
The minor importance of transportation charges in the cost of the
finished product is presumably the principal reason for adherence to
simple f. o. b. plant tannery pricing. Freight revenue on carload ship^
ments of leather represented only 1.3 percent of value of product at
destination during 1936, according to the Interstate Commerce Com-
mission.^^ In addition, there are apparently individual variations in
the quality and grade of leather which lessen the importance of price
comparisons and make it possible for differently located tanneries to
compete in the same market despite minor variations in their shipping
costs.
Leather boots and shoes. — F. o. b. factory pricing is adhered to on
sales of boots and shoes even more closely than in the case of leather.
The considerations which make this possible are the same in principle
but are even more pronounced than in the leather market. There are
no data regarding the ratio of freight revenue to delivered value on
raU shipments of boots and shoes, but it seems probable that this ratio
is lower than for leather because of the higher unit value of the finished
product. The extensive use of trucks for shipment probably reduces
freight costs considerably. In addition, differences in grade and qual-
ity of product are greater than for leather and consumer acceptance
of rival lines is largely affected by the use of trade-marks and brands
which lessen the importance of price considerations and make it
« Mund, V. A., op. cit., p. 237.
" Interstate Commerce Commission, op, cit.
304 CONCENTRATION OF ECONOMIC POWER
generally possible to ignore transportation costs as a competitive
factor. Tie-ups of long standing between manufacturers and dis-
tributors may be another factor making for simple f. o. b. plant pricing.
Leather transmission belting. — Leather transmission belting, in lots
of 100 pounds or more, is sold with full freight allowed to destination,
at least by some manufacturers.^"
TOBACCO PRODUCTS
Cigarettes and tobacco. — Cigarettes, and smoking and chewing
tobacco are sold at uniform delivered prices anywhere in the United
States. This practice is presumably dictated by the desire to maintain
a certain degree of uniformity of retail prices to consumers, although
cigarette manufacturers do not as a rule resort to such steps as price
maintenance. Since distributive margins for cigarettes are not very
liberal it would be difficult for distributors to absorb freight differences.
PrevaiUng practices are described in detail by the Federal Trade
Commission in its Agricultural Income Inquiry:
The prices and terms quoted on cigarettes, smoking and chewing tobacco
include freight delivery to the customer's railroad destination. * * * In a
few cities certain manufacturers make store-door deliveries to their customers,
but such instances are rare. In cities where railroads have instituted store-door
deliveries the customer receives the benefit of this arrangement.
Manufacturers accept occasional collect telegraphic orders from their customers,
make deliveries by express and bear the cost of the telegram and express charges.
They endeavor to prevent an abuse of this method of ordering and try to hold
their customers to the use of telegraph and express orders in cases actually amount-
ing to emergencies. Some manufacturers' price lists set out in detail the arrange-
ments or adjustments which will be made with a customer on express shipments.
Tobacco products generally and cigarettes in particular have a very rapid
turnover in retail establishments. Manufacturers consider it important to keep
an adequate supply of their brands in the hands of jobbers and retailers and
almost as important to avoid overstocking them and thus allowing stale mer-
chandise to reach the consumer. It is said that the use of a recently developed
moisture-proof wrapping has materially lengthened the period of freshness, but
it is still necessary for tobacco products to move rapidly through the channels of
distribution.
These considerations, as well as delivery costs, make it important for manu-
facturers, particularly those whose products are distributed nationally, to use
service depots near their centers of distribution. The larger manufacturers
utilize the services of public warehouses, consigning merchandise to such ware-
houses from time to time to supply the needs of the trade in those areas. The
goods are stored by the warehouse company and delivered by it on order of the
manufacturer. Although more than one manufacturer may use the services of
the same public warehouse, it does not appear that there are any joint arrange-
ments among manufacturers concerning the use of such warehouses. Several
manufacturers operate their own distributing warehouses on the Pacific coast,
but this is a departure from the usual method.
Deliveries of goods sold to chain-store companies are usually made directly
fronfi the factory to the warehouse of the chain. Customers of this type usually
receive the same terms as jobbers and they are expected to service their individual
stores. In some instances manufacturers make drop shipments to individual
stores of a chain. These have sometimes represented as much as 50 percent of
the total sales of cigarettes to a particular chain but such instances are unusual.
Nearly all manufacturers make drop shipments of certain minimum quantities
or combinations of brands directly to retailers for the accounts of jobbers. Often
such shipments include free goods or special allowances to retailers and in some
instances jobbers are given additional allowances. Some manufacturers will
make drop shipments of quantities as low as 1,000 cigarettes, or 5 cartons. In
this way it is possible for consumers to order through customers of the manu-
'« Mund, V. A., op. cit., p. 233.
CONCENTRATION OF ECONOMIC POWER 305
facturer in quantities small enough for their personal use or for division with
others. Such shipments are made by the manufacturer on the order of his
customer, and when they are in interstate commerce state stamp taxes are. avoided.
This type of merchandising does not appear to be engaged in to any substantial
extent at the present time.^'
Cigars. — Cigars are also usually sold on a uniform delivered price
basis. According to the Federal Trade Commission:
Only one instance was found where a cigar manufacturer made sales f. o. b.
factory and in this instance a trade discount of 12}'^ percent, plus the customary
cash discount, was given. No additional discounts or allowances are given to
direct customers of manufacturers on account of quantity purchased. Additional
allowances are made to indirect cuctomers, including customers of branch houses,
in drop-shipment deals, and occasionally an extra allowance is made to the
distributor for securing drop-shipment orders.^^
Snuff. — In contrast to the other tobacco products described, snuff
is sold on a zone basis. There are five recognized zones in the United
States, two of which include the single States of Kentucky and
Virginia. However, price variation between zones is not the same
for all producers. In all cases reported by the Federal Trade Com-
mission,^^ the price in the Northeast is between 4 and 6 percent lower
than in the region west of the Mississippi and north of Oklahoma.
Two of the three producers charge the same price in the South as in
the East, while the other quotes the higher western price in the South.
Further minor differences are introduced by variations in discounts
and other terms of sale.
STEEL AND STEEL PRODUCTS
The geographic pricing practices used by the steel industry were
described in detail at hearings recently held by the Temporary Na-
tional Economic Committee.^* Consequently, only the salient fea-
tures of the system will be recapitulated here.
The steel industry represents probably the best known illustration
of a multiple basing point system. For each major group of products,
such as structural shapes, tank plates, bars, hot rolled sheets, cold
rolled sheets, galvanized sheets, etc., "base prices" are quoted at a
number of basing points. Basing points are not the same for all
classes of product but vary, depending partly upon the actual loca-
tion of producing mills. For a specialized product such as tin plate,
the number of recognized basing points will be less than for those
whose production is more widely distributed, such as structural shapes
or hot rolled sheets.
These "base prices" apply to orders of a specified character and
quantity. The actual price "f. o. b. basing point" for any particular
order can be computed from this base price by the application of a
detailed schedule of extras and deductions.
The delivered price on any order at any point will then be, at least
nominally, the lowest sum of any basing point price, corrected by the
application of the relevant extras or deductions, and of freight from
that basing point to the point of delivery. Freight rates used are
" Federal Trade Commission — Agricultural Income Inquiry, 1937, pt. I, pp. 519, 520.
» Ibid., p. 522.
" Ibid., pp. 478-479.
" See Hearings, Part 27. January' 27-29, 1940
306 CONCENTRATION OF ECONOMIC POWER
compiled in a freight book which is pubUshed by the American Iron
and Steel Institute and are usually based upon all-rail rate.^^
For most important products, there is a tendency for base prices at
various basing points used to be uniform, but there is some variation.
For soft steel bars, for example, prices as of February 8, 1940, were
the same at Pittsburgh, Chicago and Gary, Cleveland, Buffalo, and
Birmingham. The base price at Duluth was slightly higher, while
prices were also quoted f. o. b. cars at Gulf ports and Pacific ports at
levels above those for all basing points. Similarly, for cold rolled
sheets, the base price at Granite City was higher than at Middletown,
Cleveland, Buffalo, Chicago, Youngstown, and Pittsburgh, all of the
latter being uniform.^^ In general, the price quoted f. o. b. Gulf
ports or Pacific ports approximate the base price at the nearest eastern
producing center plus combined rail-water freight.
The Iron Age, which is the recognized source of price quotations for
the industry, also quotes delivered prices for New York and Phila-
delphia. It is understood, however, that these delivered prices are
nothing more than base prices plus all-rail freight
For a few items, such as soft steel bars and hot and cold rolled
sheets, there is also a delivered price quotation at Detroit. This last
quotation is usually "arbitrary" in the sense that it is below the figure
which would be arrived at by adding freight to the price at the nearest
basing point.
Freight charges in almost all cases are based upon all-rail freight.
It is, however, usually permissible for the buyer to accept delivery
from the plant in trucks, but in such a case he must pay 35 percent of
the published all-rail freight to destination in addition to the base
price. According to testimony presented at the hearings before the
Temporary National Economic Committee, this premium is added in
order to discourage truck shipments because of the extra costs to
producers said to be involved in making truck delivery .^^ In general
there is no provision for making use of water shipments in order to
reduce freight costs. According to representatives of the industry,
the purpose of this practice is to avoid giving an advantage to cus-
35 Thus, according to the testimony of Mr. Fairless, chairman of the board of the United States Steel Cor-
portation, before the Temporary National Economic Committee:
"Mr. Fairless. The American Iron and Steel Institute has a traCBc committpe composed of traflBc man-
agers of 10 different steel companies. This committee supervises the institutes Freitrht Rate Book. There
are four sections to the Institutes Rale Book, and the responsibility of keeping these sections up to date is
assigned to different members of the committee.
"When corrections are necessary— and by necessary I mean when rate changes take place— these com-
mittee members have the changes made on supplementary sections or pages, sending these sections or pages
to the institute for distribution to holders of the rate book. The rate book is availablo to anyone internstcd
in the steel business, but peculiarly, it is not used by all the steel companies and is used by some manufac-
turing concerns not classed as steel companies. There is a nominal charge made for this service and the
individual holders of the book pay these charges to the institute." See Temporary National Economic
Committee IJnarinss, Part 27, morning session, January 27, ]04().
3« Iron Age. February 8. 1940.
3' On this point Mr. Adams, President of the United States Steel Corporation, testified to this effect
before the Temporary National Economic Committee.-
"Mr. Adams. On truck deliveries where we contract with a common carrier, the truck company, to
deliver our products to destination, we charge the all-rail rato of freipht. We do that because in our analysis
of rail rates versus truck rates we find that there is practically no difference. There may be a difference
of a few cents here or there, but generally speaiing they are approximately the same. If we sell our material
on a delivered-price basis, as we always do, and a buyer wants to send his truck to our mill to pick up that
material, we quote the delivered price predicated upon a transportation cost which is equsl to the rail rate
and we deduct from that 66 percent of that rate. Our object in doing that is something that we do not
attempt to conceal.
"We are attempting to discourage ine use of trucks in the transportation of our products for many reasons.
In the first place, our production facilities are not laid out to haul all of our products by tryck, smaU truck
loads. We couldn't possibly ship 12 to 15 millions of finished products throughout this country each year
and use trucks; there is not enough space in our plants to handle trucks on that basis, so it is an attempt on
our part to discourage the use of trucks in the handling of steel products. Also there is the question of the
material being damaged in transit and other items of that character." (See Hearings, Part 27, after-
noon session, January 26, 1940.)
CONCENTRATION OF ECONOMIC POWER 3Q7
tomers located on waterways as against those who could not con-
veniently use water shipment. According to executives of the United
States Steel Corporation only 1.6 percent of the total steel tonnage
actually moves by water at the all-rail freight rate.^^ It is possible,
however, that the volume of water shipment would be larger if cus-
tomers were- permitted to take advantage of the resulting, economies.
On shipments to customers located at a basing point, a switching
charge is added which is uniform on all transfers within the basing
point regardless of the actual location of the seller or the buyer.
Although the tendency of this system, insofar as it is observed, is
to equalize the quotations of all sellers m each market, there will be
differences in certain cases because of the availability of fabrication-
in-transit rates. Through the use of these rates there is a single
freight charge covering shipment from the steel mill to the fabricator
and from the fabricator to the destination, and this single rate is less
than the smn of the two straight-haul rates involved. As a result, a
fabricator may obtain an advantage by ordering his steel from a mill
located at some distance from his plant, rather than from one nearby,
because the low through rate permits him to save a substantial portion
of the cost of shipping the fabricated product to the job. Some of
the consequences of the availability of this privilege were suggested
by Dr. De Chazeau, associate professor of economics at the University
of Virginia, testifying before the Committee:
Incoming waybills (i. e., waybills on the shipment from mill to fabricating
plant) may be accumulated by the fabricating plant and used on outgoing ship-
ments of equal tonnage which permit the greatest saving to the fabricator. So
long as foreign mills arc willing to quote him, therefore, it is profitable for the
fabricator to purchase his stec! from the foreign rather than from the home mill.
For example, through the application of incoming way-bills on shipments to
paiticular areas, the fatricator may save up to five or six dollars a ton. Obviously
the saving depends entirely on the destination, on the freight rate structure, and
on the source of supply; but the advantage (for purposes of f-i-t) in buying from
a contieruous mill is very small.
The price to the faliricator at his plant is the same from both mills. But if
he is at Neville Inland, say (within the switching limits of Pittsburgh), and he
buys from a Pittsburgh plant, thtTe is no advantage in f-i-t. The maximum
difference lietween the through rate from the Pittsburgh mill to destination of
the fabricated material and the sum of the two local rates is not more than a few
cents. However, if he can get his steel from Chicago in shipments to certain
destinations the difference will be substantial and effects a reduction in the cost
of steel to him at ultimate destination. The saving varies up to about five or
six dollars a ton. I don't assume that is the average; the average is likely to be
considerably less. Thus, if the home mill is to retain its business, it must cut the
price to compensate the fabricator for foregoing his f-i-t privilege.^"
It was stressed at the hearings before the Temporary National Eco-
nomic Committee that the price structure for steel is not always
rigidly adhered to and that concessions are granted from time to time
as market conditions warrant. During the summer of 1939, for ex-
ample, according to this testimony, discounts amounted to from $6 to
$8 per ton. The effect of these concessions as a factor modifying the
normal geographic structure depends upon whether they are uniformly
extended to all buyers, wherever located, or whether the actual cost
of shipment is a factor in determining the willingness of the seller to
reduce his prices on particular orders.
"Ibid.
'• See Hearine.s. Part 27, morning session, January 26, lfl40.
308 CONCENTRATION OF ECONOMIC POWER
Other iron and steel products. — Lake Superior iron ore is usually
quoted "delivered lake ports." Imported ores are usually priced
c. i. f. seaboard.
Some light steel products, such as bolts, nuts, and rivets, are sold
on a freight-equalized basis. The price is f . o. b. seller's works, freight
equalized with Cleveland, Pittsburgh, Chicago, or Birmingham. This
system differs from a true basing-point sj'^stem in that the price at
the seller's works will never be higher than that at points remote from
the seller's works.
Ferro-alloys. — The practice with regard to ferro-alloys varies. Fer-
romanganese is quoted f. o. b. Atlantic and Gulf ports (New York,
Philadelphia, Baltimore, Mobile, and New Orleans). Bessemer ferro-
silicon and silvery iron are sold on a basing-point system, f. o. b.
Jackson (Ohio) or Buffalo (N. Y.). Electric ferrosilicon, ferrochrome,
silico manganese, and many other alloys are priced on a uniform de-
livered basis.
Hardware, tools, and other light fabricated steel. — Such products as
-cap and set screws, screw products, stove bolts, tire chains, machine
knives, furniture tacks, and steel pulleys are generally sold f . o. b.
plant with full freight allowed to destination. Usually some limita-
tion regarding the size of shipment and sometimes the amount of the
allowance is specified; for example, for cap and set screws and stove
bolts the allowance is not to exceed 65 cents per 100 pounds on orders
of 200 pounds or more. For some items, such as sash pulleys and
saws, freight is allowed within given zones. For pliers, wrenches,
screw drivers, and many other small tools, freight is allowed to dis-
tributors or to distributing points.^''
LUMBER AND ITS PRODUCTS
Although conventional forms of geographic pricing practices have
been developed in the market for most lumber products, the verj^
large number of competing mills, the multiplicity of grades and sizes,
and competition between different varieties precludes their rigid ob-
servance. Consequently the types of geographic price structure de-
scribed below should not be interpreted as constituting more than the
usual or prevailing practice.
Lumber — Douglas jir .—The general practice is to quote prices either
f. o. b. mill or f. o. b. destination and to equalize delivered prices in
an unsystematic manner in order to meet competition. However,
individual mills may choose not to sell in territories in which exces-
sive freight absorption is required. For example, one west-coast
manufacturer does not compete within the territory between the Mis-
sissippi River and the Rocky Mountains because of the existence of
more favorably located mills on the eastern slope of the Rockies. He
will, however, ship to the east coast by boat because of the low water
freight rates prevailing. In general, mills located on the West Coast
are more favorably situated with regard to the east-coast market than
are mUls farther inland.
Lumber — Ponderosa pine. — The geographic price structure for Pon-
derosa pine is generally the same as that for Douglas fir except that
*'> These statements are based partly upon information, contained in the Iron Age, and partly upon data
compiled by Mund (op. cit. pp 233-237). While these practices are reported by some manufacturers,
there is no evidence to indicate whether their observance is universal.
CONCENTRATION OF ECONOMIC POWER 3Q9
the source of this lumber extends farther east and south than does
that for Douglas fir.
Lumber — Southern pine. — Southern pine is quoted on what approxi-
mates a multiple basing-point system, with bases at Norfolk (Va.),
Hattiesburg (Miss.), and the Raleigh mountain district of North Caro-
lina. This system is observed more commonly by large mills than by
small; the latter adjust their prices in most markets to meet competi-
tion. In areas adjacent to Atlantic ports, such as Baltimore, southern
pine comes into direct competition with western softwood shipped by
water. Prices will usually be modified accordingly to meet this com-
petition.
Maple flooring. — Maple flooring is sold on a single basing-point
system. Prices are quoted f. o. b. Cadillac, Mich.
Oak flooring. — Oak flooring is sold on a multiple basing point system,
with bases at Johnson City and Memphis (Tenn.) and Alexandria
(La.). Prices are quoted f. o. b. destination and include full freight
from the basing point most favorably situated. The computed freight
is rounded at 50-cent intervals; thus a mill quotation of $65 per thou-
sand board feet in carlots plus a freight charge of $7.80 would be
quoted f. o. b. destination at $73 per thousand board feet.
Philippine mahogany. — Although Philippine mahogany is not a true
mahogany, it is directly competitive with Honduran, African, and
Cuban mahogany for most purposes. It is sold on a smgle basing-
point system, f. o. b. San Francisco, Calif.
Mahogany — Honduran, African, and Cuban. — These varieties of true
mahogany are sold at delivered prices which are, at least nominally,
uniform throughout the United States. However, it is understood
that prices may be varied to meet the competition of other hardwoods
and particularly of Philippine mahogany.
Doors — Douglas fir and Ponderosa pine. — A zone-price structure is
observed in the sale of doors and prices are quoted f. o. b. destination.
One manufacturer lists 21 zones in which he competes, but the prices
in 2 or more zones may be the same. The method of price quotation
for this product is a varying discount off a nominal fixed list price.
Windows and vdndow frames. — Windows and window frames are
also quoted by varying discounts from a nominal list price. Plants
are small and more widely distributed than for doors. The sales
territory of individual plants is usually circumscribed and sales are
made at uniform delivered prices anywhere in this territory.
Wooden boxes. — Wooden boxes are usually quoted either delivered
to destination or f. o. b. plant with a maximum freight allowance.
Of three quotations reported to the Bureau of Labor Statistics, two
are on tiie former basis and one on the latter.
Wooden caskets and coflins. — Wooden caskets are also usually quoted
either delivered to destination or f . o. b. plant with a maximum freight
allowance.
Axe handles. — Axe handles are quoted on a delivered basis east of
the Rocky Mountains and on a basis o a maximum freight allowance
west of the Rocky Mountains.
Ladders. — Quotations are usually f. o. b. factory with freight allow-
ances limited either as to territory or amount. In some cases freight
will be allowed only on shipments exceeding a specified weight, such as
100 pounds or 200 pounds. Several manufacturers allow only the
carload rates on 1. c. 1. shipments.
310 CONCENTRATION OF ECONOMIC POWER
Plywood. — Quotations for plywood in the Engineering News Record
indicate the existence of a single basing point at Seattle, Wash. A
series of rail-freight increments for various points in the country is
published together with this base quotation. However, the buyer
may take advantage of water shipment to reduce the delivered price
in case he is located at or near a seaboard.
Summary. — The prevailing geographic price structures for these
products are summarized below.
Lumber— Douglas fir: Unsystematic freight equalization.
Lumber — Ponderosa pine: Unsystematic freight equalization.
Lumber — southern pine: Multiple basing point, subject to equalization for
competing varieties.
Maple flooring: Single basing point.
Oak flooring: Multiple basing point.
Philippine mahogany: Single basing point.
Mahogany-Honduran, African, Cuban: Uniform delivered prices.
Doors — Douglas fir and Ponderosa pine: Zone delivered prices.
Windows and window frames: Uniform delivered prices, area of shipment
limited.
Wooden boxes: Uniform delivered prices or limited freight allowance.
Wooden caskets and coffins: Uniform delivered prices or limited freight allow-
ance.
Axe handles: Uniform delivered prices or limited freight allowance.
Ladders: Limited freight allowance.
Plywood: Single basing point.
TURPENTINE
Turpentine is usually sold on a delivered basis but the price is said
to include full freight from plant in each instance. Sellers will quote
f. o. b. plant prices but this will involve no difference in the net price
dehvered.
The ability of turpentine producers to maintain uniform plant
realizations for a standard product of this character may be explained
by the high concentration of the producing area. Of a total value of
product for 1935 of $19,000,000, $10,000,000 was produced in Georgia
and $18,000,000 in the 3 States, Georgia, Florida, and Alabama.
Consequently, freight differentials between rival producers are unlikely
to bo important.
BUILDING MATERIALS OTHER THAN STEEL AND LUMBER PRODUCTS
Although building materials cover a very wide range of commodities,
they have many market characteristics in common. The most im-
portant of these, from the point of view of geographic price structures,
is their relatively low price per unit of weight, with the result that
transportation charges in most cases form a very appreciable part of
their delivered price. For some items in this group, in fact, trans-
portation costs are so great that they cannot be shipped over long
distances; brick, sand, and gravel, for example, have distinctly local
markets. Moreover, since they are usually sold not to the ultimate
consumer but to building contractors, the significance of brand names
as a factor directing competition into nonprice channels is usually
limited. In addition, there is possible a substantial degree of substi-
tution of one material for another; thus lumber, steel, and reinforced
concrete ma}^ all be used for similar purposes. Consequently com-
parisons of delivered prices play an important role in competition.
CONCENTRATION OF ECONOMIC POWER
311
This has been reflected in the case of most building materials in the
development of more or less elaborate systems for equalizing freight.
The following discussion is concerned with building materials other
than steel and lumber which, because of their major economic im-
portance, have been accorded separate treatment.
Lime. — Lime is sold at delivered prices which are determined on
the basis of a system of freight equalization. The price at any locality
is the lowest sum of any applicable plant price plus freight from that
plant. Plant prices and freight rate schedules are both published,
so that it is possible for each seller to quote the same delivered price
in any market in which he chooses to compete. In general, sales Will
not be rftade when the amount of freight absorption required is con-
sidered excessive. According to members of the industry, price cut-
ting below the accepted level is approved only in "cases of emergency."
Such an "emergency" is described, for example, as a situation in which
a carload of lime is misdirected through an error in the traffic depart-
ment, with the result that a lower price must be accepted in order to
avoid the necessity of paying freight or storage.
The following table indicates the extent of variation of the delivered
prices of hydrated lime in the major geographic regions of the United
States, as reported to the Bureai. of Labor Statistics. For each region
the highest and lowest prices recorded are sho^\Ti.
Lime {hydrated, Mason's) — Variations in delivered prices for selected destinations
within major geographic regions
Region
Price per ton
1
Region
Price per ton
High
Low
High
Low
New England..
$11. 69
9.70
10.50
13.30
$10. 81
9.55
9.60
11.30
South / tlantic
$14. 89
13.40
13.80
19.70
$8.00
Middle Atlantic
East Soi th Central- .
10.35
East North Central
West So ath Central..
11.80
West North Central.
Mountain and Pacific
15.50
Cement. — Cement is sold in accordance with a multiple basing point
system. The delivered price is determined in each instance by the
usual method of taking the lowest sum of any applicable base price
plus freight.
The system as it now exists represents a gradual evolution from a
single basing point in the Lehigh Valley, which was once thought to
constitute the only acceptable source of raw material. As new plants
were established in other areas, there was a tendency for additional
basing points to be added, though the process of readjustment often
involved severe price wars. At the present time a fairly large number
of territories has become recognized, each of which is permitted to
determine its own basing point structure; mills from outside of this
area do not usually cut under this price structure when they ship
into it.
The basing point structure is modified by the existence of a few
arbitrary points, such as New York City, in which the delivered price
is adjusted to meet the competition of imports and is not directly
related to the price prevailing at the nearest basing point.
Variations in delivered prices are shown below.
-4711!!— 41 — No. 1-
-22
312
CONCENTRATION OF ECONOMIC POWER
Cement (portland)-
-Variation in delivered prices for selected destinations within
major geographic regions
Ecglon
Price per barrel
(in cloth)
Region
Price per barrel
(in cloth)
High
Low
High
Low
New England and Middle At-
$2.25
1.94
2.16
$1.72
1.55
1.81
South Atlantic. --.
$2.36
2 35
2.93
2.40
$1.81
lantic
South Central-
1.76
East North Central
Mountain . ..
1 40
West North Central -.
Pacific
1.40
Brick. — Brick manufacture and distribution is purely local, except
for certain very high grade face brick, because the high cost of trans-
portation precludes shipping the product over any considerable dis-
tance. It is usually sold on the basis of delivery to the job, with
prices uniform within any locality.
Sand and gravel. — Geographic pricing practice is the same as for
brick.
Building tile. — Building tile is also largely a local item, though the
radius of its distribution is somewhat greater than for brick. It,
too, is usually sold delivered to the job, with prices uniform within
each local it3^
Floor tile. — Floor tile is sold on a freight-equalized basis with each
seller equalizing freight with his most advantageously located com-
petitor. However, full freight equalization is applied only to certain
products such as the standard T inch wide hexagon tile; for other
items the amount of freight which a manufacturer will absorb is
limited.
Sewer pipe. — Sewer pipe is also sold on a freight equalization basis.
The method of quotation is f. o. b. destination in carlots and the ele-
ment of equalization is introduced in calculating this destination price.
Gypsum plaster. — The geographic price structure for gypsum
plaster is very similar to that for lime. F. o. b. prices vary from
plant to plant, even for the same company, and the delivered price
at any point is the lowest sum of plant price plus freight. In some
large metropolitan markets, such as New York City, prices are
quoted "flat"; that is, on a delivered basis. Control in this industry
is highly concentrated and the leading producer is in a position to
determine and police the price structure very effectively. The extent
of variation in delivered prices in important cities in each major
geographic region is shown below.
Gypsum^ plaster (Neat)-
-Variation in delivered prices for selected destinations within
major geographic regions
Region
Price per ton
Region
Price per ton
High
Low
High
Low
New England
$12. 20
9.50
13.80
17.00
15.00
$9.50
8.50
11.50
13.00
9.75
East South Central
$16. 80
17.40
17.40
17.00
$14.20
Middle Atlantic
West South Central
14.40
East North Central....
12.50
West North Central
Pacific
13.40
South Atlantic
CONCENTRATION OF ECONOMIC POWER
313
Insulation board. — Insulation board is sold on a zone-price system,
with most of the large companies delivering in three or four zones.
Prices are quoted f. o. b. shipping point with full freight allowed to
destination. On straight carlot and half carlot shipments, delivery
is made to customers on private rail siding or to the freight station
or public team track nearest destination or, in the case of water trans-
portation, to the steamship dock nearest destination. No allowance
is made for trucking from these points to the buyer's warehouse.
On 1. c. 1. shipments, if delivery is made by truck to the customer's
regularly estabUshed warehouse, trucking charges are allowed to
point of delivery; on rail shipments the allowance is to the nearest
rail destination. In no instance is delivery made to a specific job
site. Although the customer can apparently select his own method
of delivery, he cannot profit by using cheaper methods of transpor-
tation such as water carrier, because the freight allowance wiU be
reduced correspondingly and the delivered price remains the same.
Prepared roofing. — The geographic price structure for prepared
roofing is quite complex. Most companies publish detailed price
lists for the various products and include a detailed description of
their terms of delivery.
Prices are quoted on an f. o. b. shipping point basis. For certain
defined areas surrounding a manufacturer's factories and warehouses,
full freight is allowed. Beyond these "factory point" zones, freight
will be equalized to the nearest published competitive shipping point.
Freight in each instance is paid by the buyer who deducts the amount
of the applicable freight allowance in paying the seller Quotations
include provision for adjusting prices in case a price decline is an-
nounced during transit.
Not all companies equalize fully, nor on all products. For example,
several manufacturers limit their freight absorption to not more than
30 cents per hundred pounds. East of the Rocky Mountains the
dealer plant price is usually the same for each plant operated by a
company. In the West, however, prices are higher and vary be-
tween plants.
The extent of price variation for certain roofing products for the
major geographic zones in the United States is shown below.
Prepared roofing (asphalt strip shingles, 12 inches, 210 pounds per .square) —
variation in delivered prices for selected destinations within major geographic
regions
Region
Price per square
Region
Price per square
High
Low
mgh
Low
New England
$4.56
4.29
4.39
4.71
5.03
$4.25
4.25
4.25
4.25
4.25
East South Central
$4.76
6.05
5.93
4.66
$4.24
Middle Atlantic
West South Central
4.53
East North Central
Mountain
5.03
West North Central
Pacific .
4.14
South Atlantic.
Heating boilers and radiation. — rOeographic pricing structure for
these products varies for different States. Throughout most of the
Northeast a uniform delivered price prevails; quotations are f. o. b.
manufacturing or assembling plants, with full freight allowed to rail-
road points at destination.
314 CONCENTRATION OF ECONOMIC POWER
Throughout most of the rest of the United States prices will be
equalized with competitive points of manufacture or distribution.
Where competing plants are not a factor freight not to exceed 30
cents per hundred pounds is in any event allowed on shipments
f. o. b. manufacturing pomts, but no freight allowance is granted under
such circumstances from assembling points.
No freight allowance is made on shipments of less than 100 pounds.
Plumbing fixtures, closets, lavatories, sinks, and bathtubs. — Three
leading manufacturers in this industry sell in carlots at uniform
prices throughout the United States; that is, full freight is allowed to
every wholesaler. However a plumbing contractor who is located
outside a recognized "jobbing center" must pay freight on shipments
from*the wholesaler.
Paint materials — linseed oil. — Linseed oil is marketed on a zone
price system with each seller maintaining uniform delivered prices
within each zone. Zone 1, comprising the North Central States
including Minnesota, is generally the base zone from which differentials
to other zones are calculated. The position of this zone may be
explained by the fact that Minnesota is the largest linseed oil producing
State. Delivered prices in other zones rise progressively with the
smallest advances in the East and Northeastern States, and the largest
advance in the Pacific and Mountain States. Neither base prices nor
zone differentials are the same for all sellers. The maximum difter-
ential between the base zone and zone 8 (the area last described) is
0.6 cents per pound.
Paint materials — white lead. — The largest companies sell through
retail dealers on a consignment basis, thus exercising direct control
over retail prices. Prices vary on a zone basis. Areas nearest ware-
house or manufacturing points are "freight free" and this is called the
"par zone." Beyond this area, freight charges are added in small
increments; thus there is a one-fourth-cent zone, a one-half-cent zone,
etc. It is understood that much of the white lead sold is marketed in
the "par zone."
Prepared paints. — There is no uniformity of geographic pricing
practice in the sale of prepared paints. This may be partly due to the
fact that there are material quality differences between the product of
rival producers with resultant emphasis upon nonprice competition.
Several of the larger paint manufacturers who distribute on a
national basis use a 4-zone system. Zone 1, comprising most of the
Northeast, is the base zone; prices in zone 2 range from 4 cents to 6
cents higher, in zone 3 from 8 cents to 12 cents higher, and in zone 4
from 13 cents to 18 cents higher. In each zone full freight is allowed
to every jobbing center, and transportation costs from these jobbing
centers must be paid by the purchaser.
The usual practice of medium-sized producers, operating on a
regional basis, is to quote f. o. b. destination prices or f. o. b. plant
prices with full freight allowed or prepaid. In some cases, however,
freight will not be allowed on shipments of less than a hundred pounds.
Some small plants with limited sales areas quote a straight f. o. b.
plant price and make no attempt to equalize delivered costs.
Of 29 companies from which data were obtained, 7 operate on the
multiple-zone basis with freight allowed to job or warehouse points
CONCENTRATION OF ECONOMIC POWER 315
in each zone; 17 quote an f. o. b. price with full freight allowed to every
jobbing destination, and 5 quote straight f. o. b. plant.
Wiridow glass. — Window glass is sold on a full freight equahzation
basis. The basis of quotation is a discount from a published list price.
The latter is purely nominal and changes rarely, modifications in
price being made by altering discounts. Thus the nominal list price
was unchanged from 1913 to 1938. There are two list prices in effect
in the United States, one applying to the territory east of the Rockies
and the other to the west coast. It is said that the west .coast differ-
ential reflects the pressure of foreign competition in that area.
Summary. — The prevailing geographic price structure for the build-
ing materials which have been described are summarized below:
Lime. — Full freight equalization.
Cement. — Multiple basing points.
Brick. — Purely local, with uniform prices, delivered to job.
Sand and gravel. — Local, with uniform prices, delivered to job.
Building tile. — Local, with uniform prices, delivered to job, but
shghtly greater radius than brick.
Floor tile. — Limited freight equalization.
Sewer pipe. — Limited freight equalization.
Gypsum plaster. — Full freight equalization.
. Insulation board. — Uniform delivered price, nation-wide.
Prepared roofing. — Limited freight equalization from pubUshed
shipping points.
Heating boilers and radiation. — F. o. b. plant, limited freight allow-
ance.
Plumbing fixtures. — Full freight allowance, uniform delivered prices,
anywhere in the United States.
Linseed oil. — Zone system, with uniform delivered prices in each
zone.
White lead. — Uniform delivered zone prices, on consignment.
Prepared paints. — 1. Companies selling on national scale: Uniform
delivered zone prices. 2. Companies operating in limited region:
Full freight allowed. 3. Small plants: F. o. b. plant.
Window glass. — Full freight equahzation.
FURNITURE INDUSTRY
There are two major divisions of the furniture industry — household
furniture, and oflfice furniture and fixtures. In 1935, according to the
Census of Manufactures, the total value of household furniture pro-
duced was $336,000,000, of which $301,000,000 was made of wood,
$32,000,000 of metal, and $3,000,000 of fiber, reed, etc. Office furni-
ture and fixtures were considerably less important; their total value
was $72,000,000, of which $45,000,000 was wood and fiber, and
$27,000,000 metal. ^"^ Household furniture is usually sold on a straight
f. o. b. factor}^ basis, while business furniture is quoted on a zone
basis.
Household furniture. — Household furniture is sold on an f. o. b.
factory basis with virtually no freight allowance or equalization.
The principal exceptions follow:
(1) Prices for furniture are usually "crated" prices. Sometimes,
however, furniture is shipped by private or contract carrier "un-
•' Bureau of Census, Biennial Census of Manufactures, 1935, p. 456.
316 CONCENTRATION OF ECONOMIC POWER
crated." In the latter case, the manufacturer frequently assumes
the cost of shipping up to 50 or 100 miles "in lieu of crating."
(2) In some cases the buyer may not wish to assume title until
furniture is set up. In such cases sales may be on a contract basis and
the price quoted will be a delivered and set-up price.
This difference applies only to the forna of quotation, however,
and the delivered price is arrived at by adding shipping and handling
costs to the plant price.
(3) Certain minor geographic and product subdivisions of the indus-
try apparently sell their products on the basis of systematic delivered
pricing practices, involving freight absorption. Some of the largest
furniture producers on the west coast quote uniform delivered prices
to all retailers throughout their trading area. Cedar chests, a special-
ized item, the bulk of which is produced by four large mills located
in different sections of the East, are sold freight equalized.
(4) There is occasional sporadic unsystematic freight absorption
to meet special competitive conditions or in order to make a desired
sale.
The general observance of uniform plant p^rices occurs despite the
fact that freight is by no means a negligible element. According to
Interstate Commerce Commission figures,*^ the ratio of freight
revenue to value at destination on carload shipments of furniture, other
than metal, during 1936 was 10.6 percent. For metal furniture this
ratio was 6.8 percent. Presumably the ability to maintain uniform
plant prices reflects the fact that the product is highly differentiated
so that competition. is largely on a nonprice basis.
Business furniture. — Business furniture is generally sold on a basis
of three uniform delivered price zones; the East, the Midwest, and the
far West. In general, prices in the far western and middle western
zones are about 20 percent and 10 percent, respectively, higher than
in the eastern zone.
These relationships may be partly explained by the fact that all
manufacturers doing business on a national scale are located in the
eastern zone which, moreover, accounts for about 70 percent of total
consumption. Presumably, smaller manufacturers located in the
Midwest and West and doing business on a regional or local basis
find it expedient to conform generally with the prices set by their
larger rivals. The difference in structure between office and house-
hold furniture may reflect to some extent the fact that the former is a
more standardized product, in the sale of which, therefore, price is a
major market factor.
CHEMICALS
The chemical industry includes an extremely wide variety of
products sold under many conditions and to many dift'erent kinds of
buyers. Competition differs widely in form and in intensity for differ-
ent products and in different markets. Thus the price structures of
some chemicals must be adjusted to meet the competition of imports;
in the case of others, substitute products offer a serious problem. For
many iterns production is concentrated in a narrow geographic area,
for others it is widely scattered.
"Op. cit.. p. 11.
CONCENTRATION OP ECONOMIC POWER 317
Under such circumstances, it is only natural that the geographic
price structures encountered should show a similar diversity. Differ-
ences in practice appear not only between products but extend also
to the sales of the same products under different forms or different
conditions. One practice may be followed in one section of the coun-
try and a totally dift'erent one in another. The size of the shipment
is important; thus there are variations as between carload and 1. c. 1.
lots. Differences may be introduced by the method of packaging, as
between products sold in bulk, tank cars, drums, cylinders, and other
kinds of containers. For example, the distribution of a product in
cylinders involves problems distinct from those encountered in its
shipment in drums or carboys, since transportation costs are much
higher and the problem of returning the cylinder and often of servicing
is added.
There is, moreover, a major distinction between spot and contract
markets. The bulk of heavy chemicals, such as sulfuric acid and soda
ash — 90 percent or more in the case of many important products —
moves on the basis of contract agreements. According to some mem-
bers of the industry, however, both price and geographic structure is
the same for many products for contract and for spot sales, the only
important Hifferonce being that contracts guarantee the purchaser
against pr'^e increases for the period specified. However contract
prices are g merally materially under the spot market for most chem-
icals.
Before describing the extent to which particular types of geograph-
ical price practice are observed, it is useful to consider briefly the
pattern of variation for a few important products, in order to indicate
some of the considerations which influence the choice of practice.
One product whose price structure is quite complex is carbon black,
production of which is concentrated in Texas. About 95 percent of
carbon black is sold in carload lots. The buyer may purchase either
on a delivered basis, for which purpose the country is divided into
five zones, or else he may buy f. o. b. Gulf ports. On November 13,
1939, for example, the price f. o. b. Gulf ports for delivery in North
America was $0.0275 per pound for the standard grade, packed in
bags. Zone delivered prices varied from $0,031 per pound in Texas
and adjoining States (Arkansas, Colorado, Kansas, part of Missouri,
and New Mexico) to $0.0375 in the most distant zone, which includes
New England, the Middle Atlantic States, Virginia, and the Carolinas.
The high concentration of production in Texas apparently makes it
possible to maintain this zone sj^stem with delivered prices increasing
in rough approximation to the distance from the Texas area.
A totally different structure is observed in the case of 1. c. I. lots.
Here again the buyer has the option of purchasing on a delivered or
f. o. b. basis. The f. o. b. price was $0.0575 per pound on November
13, 1939, or substantially above the carload price. On f. o. b. sales,
freight is equalized to the nearest competing plant. However, for a
premium of $0,005 per pound, that is, for a total price of $0.0625 per
pound, the product is delivered anywhere in the United States. This
is equivalent to a freight equalization system for the areas immediately
surrounding producing centers, and a postage-stamp system through
the balance of the country.
318 CONCENTRATION OF ECONOMIC POWER
In the case of industrial benzol, which is a basic coal tar product,
the structure varies both with the quantity shipped and the type of
packaging. The great bulk (probably 99 percent) of industrial benzol
is shipped in tank cars. Tank car shipments east of Omaha ar^sold
on an f. o. b. basis with full freight allowed; that is, the delivered
price is uniform throughout the entire eastern part of the United States
where the bulk of the product is manufactured. When the destination
is Omaha or West, a basing point system is used, with prices quoted
f. o. b. Minnequa, Colo., at which point an important plant is located.
On November 13, 1939, the f. o. b. Minnequa price was quoted at the
same level as the freight-allowed price east of Omaha.
Some industrial benzol is sold in drums, obviously a more expensive
method of packaging and shipping. Under such circumstances freight
is not allowed. On carload lots, however, freight is equalized to the
nearest competing plant, while on 1. c. 1. lots there is no equalization.
In the case of these two products alone, therefore, almost every
common variety of geographic structure is encountered. A simple
f . o. b. system is used for 1, c. 1. shipments of benzol ; prices are quoted
f. o. b. with freight equalized for carload shipments of benzol in drums
and for 1. c. 1. shipments of carbon black. Carload lots of carbon
black are sold on a zone basis and the eastern part of the country
constitutes a single zone for tank cars of benzol. A postage-stamp
system applies to carbon black in 1. c. 1. lots except for areas adjacent
to producing centers; tank cars of benzol are sold in the West on a
basing-point system, while Gulf ports constitute optional basing points
for carload lots of carbon blaclc.
Because of the vast number of products involved and the complexity
and diversity of practices encountered, it would be impractical to
attempt to present a comprehensive analysis of price structures in the
chemical industry as a whole. Instead, a limited number of important
and representative products have been selected as illustrative. Infor-
mation regarding the practices for these products was derived in part
directly from the members of the industry and in part from the form
of price quotation in the Oil, Paint and Drug Reporter.
Practically all of these products are standard in character so that
it is almost imperative for each producer to meet the quotation of
more advantageously located rivals in every market in which he
wishes to sell. Consequently it is not surprising that for virtually
every product regarding which information was obtained, some scheme
for equalizing freight or otherwise meeting competitive delivered
prices within each market was encountered.
Simple f. 0. b. plant systems. — Simple f . o. b. plant systems with no
form of freight allowance are uncommon in the chemical industry.
They are encountered primarily in the case of small lots where the
amount involved in the transaction is not large enough to offer the
seller any incentive to absorb freight in order to dispose of his product.
L. c. I. lots of benzol have been mentioned as an example. Another
is cellulose acetate in quantities of less than 100 pounds, at least in
the case of some producers.
This system may also be used when there are substantial quality
differences between products produced in different areas, as in the
case of phosphate rock, an item which will be considered under the
heading of fertilizer materials.
Freight equalization systems. — The practice most commonly en-
countered in the limited group of products covered is simple freight
CONCENTRATION OF ECONOMIC POWER 319
equalization to the nearest competing plajit. Usually f. 0. b. prices
at each mill are identical or nearly so. This is the system used, for
example, in the case of sulfuric acid which is sold f. o. b. works,
freight equalized. Manufacturers report that the same practice is
followed in the case of sodium bichromate, tribasic calcium phosphate,
and aluminum sulfate. Of course, the manufacturer may simply
decline to sell "in territory so remote that excessive freight absorption
is required.
Frequently this form of freight equalization is restricted to certain
kinds of sales, usually to carload lots. This is true, for example, of
soda ash, sodium hydroxide, sodium silicate, and benzol shipped in
drums.
F. o. b. pricing with freight equalization to the nearest plant is also
used for hydrochloric acid, anh3^drous ammonia in tank cars only,
sodium bicarbonate, calcium carbide, tribasic sodium phosphate and
nitrocellulose. In the case of acetic acid, commercial grade, the same
system is used except in States on the eastern seaboard and the
Pacific coast.
Postage stamp and zone pricing. — Although freight equalization to
the nearest competitive plant seems to be the practice most commonly
encountered in chemical markets, many chemicals are sold on some
basis which achieves uniformity of delivered prices within specified
zones or, more rarely, throughout the United States. In some cases
a delivered price is quoted directly, in others the quotation is f. o. b.
plant but freight is allowed or prepaid by the seller.
Among products which are apparently sold on the basis of uniform
delivered prices throughout the United States are cellulose acetate in
quantities of 100 pounds or more, and butyl acetate in drums or tanks.
For the first of these the delivered price is quoted directly, for the
other two the price is f. o. b. plant with full freight allowed. Postage-
stamp systems are also common in the case of coal-tar dyes, which are
usually shipped in 1. c. 1. lots.
A practice intermediate between freight equalization and delivered
price uniformity has been already described in the case of carbon
black, sold in 1. c. 1. lots.*^
For most chemicals sold on a delivered price or freight allowed basis,
zone systems rather than postage-stamp systems are observed. This
may be due to the fact that freight constitutes a relatively important
element in the price of many of these products and the major centers
of production and consumption are often concentrated so that it is
not considered desirable to ship to minor remote markets at the same
rate as to more fortunately located users. In some cases, moreover,
the existence of foreign competition makes it necessary to treat sea-
board areas on a special basis.
For example, acetic acid is sold at a uniform delivered price in
Atlantic Seaboard States (in contiast with the practice of freight
equalization used elsewhere). Benzol in tank cars (by far the most
important means of shipment) is sold freight allowed to points east of
Omaha. Although for normal butyl acetate freight is allowed any-
where in the United States, secondary butyl acetate ** is sold on this
basis only east of the Mississippi River, possibly because its price per
pound is lower so that freight becomes a relatively larger item. Carbon
black in carload quantities is quoted on a delivered basis with prices
" It is understood that less than 5 percent of carbon black is sold In 1. c. 1. lots.
♦* Normal and secondary butyl acetate are different chemicals; not merely different grades of the same
chemical.
320 CONCENTRATION OF ECONOMIC POWER
varying for five zones. There are four zones for synthetic methyl
alcohol. In the case of carbon tetrachloride, four zones are observed'
both for carload and 1. c. 1. quantities, but in zone 4 (Pacific and Moun-
tain States) the price is f. o. b. cars at specified Pacific ports (Los
Angeles, San Francisco, Portland, Seattle). Zone systems are also
used for 1. c. 1. shipments only of caustic soda and soda ash. On June
7, 1940, a leading producer of flake calcium chloride started quoting
prices for that chemical on the basis of a zone sj^stem, involving 10
zones and 3 subzonos. This superseded a postage stamp system which
had been previously observed.
The zone system for anhydrous ammonia in cylinders is in some
aspects a special case. There are two sets of prices quoted for this
product by a major producer. One of these is a series of State-wide
delivered prices for practically every State in the Union for delivery
from base points only, located in Philadelphia, St. Louis, New York,
Newark, Niagara Falls, Detroit, Chicago, and Boston. In addition
there are stock-point prices within various States or areas for deliveries
from stock; these latter prices apply to particular cities only. There
are also a number of zone systems for delivery from stock points in
addition to the State-wide delivered price zones previously mentioned.
The reason for this price structure is probably the fact that the use of
cylinders in the distribution of the product entails very heavy trans-
portation costs both in outgoing and incoming shipments of the cylin-
ders. In addition a certain amount of servicing is necessary. As a
result, zones for this product are smaller in size and much greater in
number than for most of the other products described.
Zone dijfe?mtials and changes in zone systems. — The uniformity
with which zone boundaries and price differentials are maintained
over a period of time is significant in interpreting the significance
of zone systems. Consequently an analysis has been prepared of
zone relationships since July 193G for four chemicals; caustic soda
(1. c. 1.), soda ash (1. c 1.), synthetic methanol (1. c. 1.) and carbon
black (standard, carloads). This is presented in table 2.
It is evident that for some of these products zone relationships are
more persistent than for others. Zone price differejitials have remained
unchanged since July 1936 for 1. c. 1. shipments of caustic soda and soda
ash. In the case of synthetic methanol, prices and price relationsliip
between zones w^ere changed nationally between July 1936 and July
1937 and then remained uniform till April 1940. Prices of carbon
black were drastically revised between July 1937 and July 1938 and
the revision involved some change in zone difi'erentials. In general
there seems to have been no tendency to change zone boundaries as
such during the period covered, but in several instances zones have
been merged since 1936. Thus all Northeastern States were combined
into a single zone for the caustic soda and soda ash markets between
July 1936 and July 1937, while New Mexico, Texas, and Wyoming,
which constituted a separate zone for methanol during 1936, were
quoted on the same basis as other Mountain and Southern States by
1937. If this small group is representative there seems to be a general
tendency for zone relationships in chemical markets to persist over a
period of time, but modifications to meet changing conditions do occur.
Basing-poiiU systems. — Basing-point systems as such are apparently
uncommon in chemical markets. Examples already referred to are
CONCENTRATION OF ECONOMIC POWER
321
benzol in tank carlo ts which is quoted f. o. b. Minnequa, Colo., for
delivery at Omaha and West; carbon black which can be purchased
f. o. b. Gulf ports at the buyer's option, and carbon tetrachloride which
is quoted f. o. b. Pacific ports for dehvery in Pacific and Mountain
States,
Summary. — It is clear that the geographic price structure of the
chemical industry falls into no simple pattern and that practices often
show wide variation for a single product sold under somewhat different
terms. For convenience in reference the geographic structures prevail-
ing for the products discussed are summarized in table 1.
The reasons for the establishment of particular types of geographic
price structure for individual products under specific conditions are
difficult to trace. Undoubtedly many factors enter, including the
historical development of the industry and its present competitive
conditions, the relative importance of the cost of freight, etc. If any
generalization is possible, it may be that simple freight equalization is
most common in the case of heavy chemicals, for which transportation
costs bulk importantly, while delivered or zone systems are more likely
to occur where freight is a less important factor. Thus, such basic
chemicals as sulfuric acid, soda ash, sodium bicarbonate, and hydro-
chloric acid are all sold on a freight-equalized basis, while products
which cost more per pound, such as cellidose, butyl acetate, and coal-
tar dyes are sold on a delivered basis. On the other hand, this is far
from an invariable rule and many of the more expensive products are
also sold on an f. o. b. plant, freight-equalized basis.
Table 1. — Geographic 'price structures for selected chemicals, summarized
Product
F. 0. b.
plant— No
equaliza-
tion
F. 0. b.
plant-
freight
equalized
Uniform
delivered
prices
Zone system
Basing-point
system
X
X
Soda ash
Carloads
L.c.l
L.c.l
L.c.l -
Sodium hvdroxide
Carloads
Sodium silicate
Carloads
X . ..
X
Sodium bichromate
X
Calcium phosphate (tribasic)
X
Calcium carbide . .
X
Calcium chloride (flake)..-
X .
Aluminum sulfate
X
Anhydrous ammonia
Tank cars
Cylinders ..
Seaboard
States.
Acetic acid
Except sea-
board
States.
Cans
Butyl acetate (normal)
Drums or
tanks.
East of the
Missis-
sippi.
100 pounds
or more.
Butyl acetate (secondary)
Cellulose acetate..
Loss than
100 pounds.
Synthetic methyl alcohol
X
Carbon tetrachloride
Except I'a-
cific and
Mountain
States.
Carload lots.
Pacific and
Carbon black .
L.c.l. (buy-
er's op-
tion).
X
L.c.l. (buy-
er's op-
tion).
Mountain
States.
Carload lots
Nitrocellulose ...
(alterna-
tive).
Benzol
Drums—
l.c.l.
Drums-
carlots.
Tank cars
(east of
Omaha).
X
Tank cars
Coal-tar dyes.
(Omaha
and West).
1
322
CONCENTRATION OF EKIONOMIC POWER
Table 2. — Zone prices and zone differentidls — Selected chemicals
CAUSTIC SODA, FLAKE, DJRUMS, L. C. L., PER 100 POUNDS
Delivered prices
Differentials from zone 1
Zone
July 27,
1936
July 26,
1937
July 25,
1938
Nov. 17,
1939
July 27,
1936
July 26,
1937
July 25,
1938
Nov. 13,
1939
1
$4.00
4.05
4.15
4.40
4.80
4.05
$3.45
3.55
$3.55
la
$0.05
.15
.40
.80
.05
2
3
3.60
3.S5
4.25
3.70
3.95
4.35
3.70
3.95
4.35
$0.15
.40
.80
$0.15
.40
.80
.$0. 15
.40
4
.80
5 . -.•..-
SODA ASH, DENSE, 58 PERCENT, BARRELS. L. C. L., PER 100 POUNDS
1 .
$2.37
2.42
2.52
2.77
3.17
2.47
• $2.25
$2.35
. $2. 35
la
$0.05
.15.
.40
.80
.10
2
2.40
2.65
3.05
2.50
2.75
3.15
2.50
2.75
3.15
$0.15
.40
.80
..$0.15
.40
.80
$0.15
3
.40
4 ^....
.80
5
ZONE LIMITS FOR CAUSTIC SODA AND SODA ASH
Zone /.—East of Mississippi River, but including Davenport, Iowa, and St. Louis, Mo., to south bound-
ary rtf Vircinia and Kentucky.
Zone la.— New England (combined with zone 1 after 193R).
Zone '.— Alabama, Florida, Georgia, Iowa (except Davenport), east Kansas (including Wichita), Minne-
sota, Mississippi. Missouri (except St. Louis), North Carolina, Omaha, South Carrlina, and Tennessee.
Zonf -S — .Arkansas, Kansas (west of Wichita), Louisiana, Nebraska (except Omaha), North Dakota,
Oklahoma, South Dakota, Texas (exceprt EI Paso).
Zonr 4-— Arizona, Colorado, El Paso, Idaho, Montana, Nevada, New Mexico, Spokane, Utah, Wyoming.
Zone 6.— California, Oregon, Washington (except Spokane).
METHANOL
SYNTHETIC, DRUMS, L.
C. L., PER GALLON
^one
Delivered prices
Differentials from zone 1
5
July 27,
1936
July 26,
1937
July 25,
1938
Nov. 13,
1939
July 27,
1936
July 26,
1937
July 25,
1938
Nov. 13,
1939
1
$0. 425
.470
.455
.610
.520
$0. 405
.470
.445
.600
$0. 405
.470
.445
.600
$0. 405
.470
.445
.600
2
$0,045
.030
.185.
.095
$0. 065
.040
.195
$0. 065
.040
.195
$0. 065
3
.040
4
.195
5
ZONE UMITS FOR SYNTHETIC METHANOL
Zone /.—Connecticut, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maine, Mary-
land, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee. Vermont, Virginia, West Virginia, Wisconsin.
Zone 2.— Alabama, Arkansas, Colorado, Florida, Georgia, Kansas, Louisiana, Mississippi, Nebraska,
North Dakota, Oklahoma. South Carolina. South Dakota; after lvi36 Texas and Wyoming included.
Zone S.— Los Ansreles and San Francisco, Calif.; Portland, Oreg.; Seattle, Wash.
Zone 4 —Arizona. California (except Los Angeles and San Francisco), Montana, Nevada, Idaho, Oregon
(except Portlan.I), Utah, Washington (except Seattlel: New Mexico, included after 1930.
Zone 5. —New Mexico, Texas, Wyoming for 1936 only.
CONCENTRATION OF ECONOMIC POWER
323
Table 2. — Zone prices and zone differentials — Selected chemicals — Continued
CARBON BLACK, STANDARD. BAGS, PER- POUND, C. L.
Delivered prices
Difierentials from zone
A
Zone
July 27,
1936
July 26,
1937
July 25,
1938
Nov. 13,
1939
July 27,
1936
July 26,
1937
July 25,
1938
Nov. 13,
1939
A .-- - -
$0. 0445
.0475
.0605
.0490
.0505
.0535
.0530
.0700
.0750
.0825
$0. 0445
. 0475
.0505
. 0490
.0505
. 05:'.5
.0455
.0700
.0750
. os:.o
$0. 0275
.0310
.0335
.0325
.0341
.0375
.0300
.0575
.0625
.0700
$0. 0275
.0310
.0335
.0325
.0341
.0375
.0300
.0575
.0025
.0700
B --
$0. 0030
. OORO
.0045
. 0060
. 0090
.0085
. 0255
.0305
. 0380
$0. 0030
.0060
.0045
.0060
. OO'JO
.oo;o
.0255
.0305
.0380
$0. 0035
.0060
.0050
. 0066
.OiOO
.0025
.0300
.0350
0425
$0. 0035
c
0060
D
.0050
E -
.0066
F --
0100
G ...-
L. c 1. f. 0. b. whole-
sale
.0025
.0300
L. c. 1 delivered
Gartens 1. r. 1. de-
livered
.0350
. 042.")
ZONE LIMITS FOB CARBON BLACK
Zone /I.— Delivered rnil (Gulf ports) for delivery in North America (water freights extra)
Zone B. — Arkansas. Colorado, Kansas, part of Missouri, New Mexico, Te.xas (except coastal ports).
Zone C— P-iciflt Coa«t States.
Zone /).— Illinois, Iowa, Wisconsin.
Zone E. — Florida, Oeoreia, Indiana, Kentucky. Michigan, part of New York, Ohio, part of Pennsyl-
vania. Tennessee, West Vrpini .
Zone F.— Maine, Maryland. Massachusetts. New Hampshire, New Jersey, part of New York, North
Carolina, part of Pennsylvania, Rhode Island, South Carolina, Vermont, Virrinia.
Zone G.— Mexico (f. o. b. border 1938-30).
Source: Oil, Paint and Drug ReP'-rter.
DRUGS, COSMETICS, AND TOILETRIES
Most cosmetics, toiletries, and proprietary drugs are sold at uniform
delivered prices throug-hout the United States. In some cases the
price is quoted directly on a delivered basis; in others freight may be
allowed or be prepaid. Wliile this is the general practice, it is not
universal, the most common variant being the provision that the seller
will pay freight only on shipments of a specified minimum quantity.
Thus one toothpaste manufacturer prepays freight only on lots of one
gross or over, while one seller of proprietary medicines sets the mini-
mum limit at orders of at least $70.
This form of price structure reflects a number of characteristics
common to the market for most of these products. In the first place,
the cost of transportation is rarely more than an insignificant element
in the price of the delivered product. In fact, for many of these items
costs of promotion such as advertising so far outweigh the physical
costs of manufacture and shipment that the latter can readily be
ignored by the seller.
Moreover, minimum resale prices both at retail and at wholesale
have been established for many of these products under the provisions
of the so-called fair trade laws in the 44 States having such statutes.
Prices to distributors are usualh' related to retail list prices by a system
of discounts. Distributors are well organized and, have been vigilant
in protecting or expanding their sales margins. Consequently, resent-
ment might be aroused on the part of distributors remote from tJie
seller's plant or warehouse if they were called upon to pay freight and
thereby found their margin reduced below that of more favorably
located wholesalers or retailers.
324 CONCENTRATION OP ECONOMIC POWER
In addition, many of the larger manufacturers maintain warehouses
throughout the country, while some distribute to retailers through del
credere agents in order to retain control over prices paid by retailers.
In these circumstances the adoption of a system of uniform delivered
prices has the merit of simplicity and it has become the general prac-
tice.
In the case of merchandise not bearing an advertised trade-mark,
the same practice is commonly followed, although there is probably
greater tendency to use f. o. b. pricing in some instances. This is
particularly true in the case of standard unbranded drugs and chem-
icals such as cocaine, dextrose, ether, etc. These are quoted in the
Druggists Circular, a standard trade periodical, on the following basis:
These prices are average prices for quantities retail druggists usually buy.
They are f. o. b. New York or St. Louis, and are subject to market fluctuations.
Retailers at points distantly located from market centers may expect to pay
jobbers an advance over the quoted prices to cover transportation costs.
FERTILIZER AND FERTILIZER MATERIALS
The price structure of fertilizer and fertilizer materials is extremely
complex, as regards both geographic differentials and other terms and
conditions of sale. Some of the types of price variation are described
in a report by the National Resources Committee. ^^
Freight constitutes a fairly important element in price; on rail
shipments in 1936 freight revenue averaged 13 percent of delivered
value at destination. *** Producing facilities, at least for mixed
fertilizer, are scattered and, although more fertilizer is used in the
southeastern States than anywhere else in the United States, fertilizer
is sold all over the country. Since brand names are not particularly
important, any differences in delivered price would yield a significant
local competitive advantage. Consequently an extremely detailed
structure for eliminating freight as a competitive element has developed
in the industry.
Insofar as sales to farm users are involved, the basic feature of this
structure is a zone system, but it is subject to many modifications,
which will be described below. Some fertilizer materials, however,
particularly when shipped in carload lots to fertilizer manufacturers
or mixers, are quoted on an f. o. b. or basing point system.
Fertilizer materials. — Fertilizer contains three basic ingredients —
nitrogen, phosphorus, and potassium. These essential elements can
be supplied by a number of different chemicals, which can either be
purchased by the farmer separately or in prepared mixtures suitable
to the requirements of his soil and crops. However, some raw-
materials, such as phosphate rock, are not in form suitable for direct
use and must be processed further in order to render the essential
element available for the soil.
When farmers purchase fertilizer materials directly in less-than-
carload quantities, the price structure is generally similar to that for
mixed fertilizer, described below. On sales of these materials to
fertilizer manufacturers, or to users in straight carload lots, geographic
pricing practices vary with the product. Since it is impractical to
. «» National Resources Committee, Structure of the Americr.n Economy, pt. I, pp. 175-176.
<" Interstate Commerce Commission, op. cit.
CONCENTRATION OF ECONOMIC POWER 325
describe the geographic structure for each material in common use, a
few of the more important will be presented as illustrations.
The first basic ingredient of fertilizer is nitrogen. One common
source of this element is ammonium sulphate, about one-fifth of which
is imported; the balance is produced in domestic ovens. Despite the
relatively small proportion supplied from outside sources, the price
structure apparently reveals the effect of this competition. Prices
are quoted either f. o. b. Atlantic or Gulf ports, or f. o. b. cars at the
nearest inland producing oven with inland prices regularly $1 below
prices at the ports. Freight is equalized so that the buyer pays the
lowest combination of port or plant price and freight to destination.
An important alternative source of nitrogen is cyanamid, but the
amount of cyanamid that can be used in a mixed fertilizer is limited
by technical considerations. The great bulk of this product is manu-
factured in Niagara Falls, Ontario. Price quotations in the United
States are on a uniform delivered basis. The reason for this form of
quotation is uncertain, but it may be because cyanamid must always
face the competition of other nitrogen carriers and the uniform price
permits itr to compete over a wider area than would otherwise be
possible.
The primary original source of the second basic fertilizer ingredi-
ent— phosphorus — is phosphate rock. There are two major sources
of thiB product, Tennessee and Florida. Apparently the Tennessee
product is somewhat superior in purity to that in Florida, but its cost
of extraction is materially greater. Consequently, the Tennessee pro-
ducers make little effort to compete with the Florida pebble in most
markets but confine their sales to superphosphate producers located
in Tennessee. Selling to this restricted market, there is no need for
freight equalization and they can operate on a straight f. o. b. basis.
The Florida pebble mines are themselves located within a fairly
narrow geographical area, and most of the product is shipped north
by boat. Variations in the locations of individual mines do not affect
freight charges appreciably and can be ignored. As a result there
seems to be no pressure for any form of freight equalization, and prices
are quoted on a straight f. o. b. basis.
In order to be rendered available as plant food, the phosphate rock
must be transformed into superphosphate. A large proportion of
superphosphate is produced in Baltimore, and published quotations
are usually f. o. b. that city. However, there are many superphos-
phate plants in other areas, as in Tennessee, which also quote f. o. b.
their own plants with an effort to equalize freight.
The third primary element — potassium — can be supplied by muriate
of potash. There are two primary domestic sources of this product,
New Mexico and California. However, the price structure has been
governed not by the domestic product but by foreign imports arriving
at Atlantic, Gulf, and Pacific ports. Moreover, a substantial portion
of the domestic product is also shipped by water, either through the
Panama Canal from California or via the Gulf from New Mexico.
As a result the price has been quoted c. i. f. ports plus freight to the
inland destination. There are 40 ports which are recognized as basing
points, and the base price at each is the same. This is true even
though much domestic potash is shipped from Carlsbad, N. Mex.,
326 CONCENTRATION OF ECONOMIC POWER
or Trona, Calif, at a freight rate entirely unrelated to the rate which
determines the price structure. While this is equivalent to f. o. b.
pricing for the foreign product, it has all the characteristics of a basing
point system insofar as domestic potash is concerned. As a result
it is estimated that buyers in the Mississippi and Ohio Valleys pay
several dollars a ton more for potash under the port basing system
than they would pay f. o. b. Carlsbad plus freight to destination.
This method of quoting prices for potash has recently been the
subject of investigation by the Department of Justice and the Depart-
ment of Commerce. During May 1940 the latter agency issued a
report embodying the results of its analysis. Recommendations
included the recognition of domestic producing centers as f. o. b.
pricing points, and the establishment of a fixed differential between
prices f. o. b. these producing points and c. i. f. port prices. ^'^
Mixed fertilizer. — Companies selling mixed fertilizer use two pri-
mary methods of distribution, dealers and agents. In recent years
there has been a marked tendencj'^ to abandon the use of independent
dealers in favor of the agency relationship, largely because the latter
permits direct control over resale prices by the producer. Conse-
quently, manufacturers are in a position to determine the delivered
price structure to farmers directly. Large companies issue detailed
price lists for the guidance of their agents (or dealers), which indicate
precisely how transportation charges are to be treated.
For the purposes of the fertilizer market, the United States is
divided into some 19 zones or districts which are, in turn, subdivided
into many subzones. These subzones may themselves be split into
minor divisions.
Not only the prices, but also the products ofi'ered for sale, vary
between these different areas. The ingredients of mixed fertilizer
must be adjusted to the type of soil and the crop, and in addition
state regulations may prescribe the composition of the product which
may be marketed within the state. Thus most of the mixes offered
for sale in South Carolina are quite different from those offered in
Ohio, though a few may be identical in both areas.
Conditions of sale vary to some extent between areas, but the basic
structure is similar. In each zone or subzone there is a basic price
quotation for each mix which applies to delivery at any factory or
company controlled distributing warehouse, or at any railroad station
or boat landing, within the designated area. A standard trucking
allowance of 75 cents per ton is granted to cover hauling expenses
to the farm. However, this is not equivalent in practice to a uniform
delivered price within the zone because it is subject to many stated
exceptions. ^^
In the first place the basic quotation is for delivery at buyer's
railroad station or boat landing only in carload lots, unless there is
an agent's warehouse at such station or landing in which case the
price applies to any quantity. Otherwise, on 1. c. 1. lots, the customer
must pay an added amount equal to the difference between the carload
and 1. c. 1. rates from the nearest designated distributing point.
" The Potash Industry, a report submitted to the Department of Justice by the Department of Com-
merce, prepared by Willard L. Thorp and Ernest A. Tupper, May 1, ]940.
<' Of course the quotation is also suliject to numerous terms related to factors other than geographic
such as time of payment, method of packing, etc., but these do not pertain to the subject under di.scu'=sion
CONCENTRATION OF ECONOMIC POWER 327
Moreover the customer can, if he chooses, accept delivery at a
plant or company warehouse. Under such circumstances he is
granted a trucking allowance which varies with the length of haul
to his farm. In some areas detailed schedules indicate the exact
allowance per ton based upon the actual shortest Irighway mileage,
ranging from a mimimum allowiince of 75 cents up to and including
40 miles, to a maximum of $4.70 for 400 miles. In other areas the
trucking allowance is determined by the actual carload rate of freight
from factory to consumer's nearest railroad delivery point. At
times, various combinations of these principles are followed.
In some areas there are further modifications designed to benefit
consumers who happen to be advantageously located with respect
to certain ports. For example, in the South Carolina area, if the
carload freight from Wilmington (N. C), Charleston (S. C), or
Savannah (Ga.) to destination is less than $3.50 per ton, the difference
between the published freight rate from these ports and $3.50 is
deducted from the list price for the zone.
Apparently this price structure can be resolved into the following
elements:
(1) On carload shipments the price is f. o. b. port until the freight
ratfe reaches a prescribed limit, beyond which point freight is absorbed
by the seller throughout the balance of the zone or district.
(2) On 1. c. 1. shipments the company will absorb only the carload
rate and the buyer mu'st pay the difference between that and the rate
actually paid.
(3) The buyer has the option of accepting delivery at plant or
warehouse, and receiving a trucking allowance which is related to the
carload freight rate or to the highway mileage.
(4) In all cases a fixed discount of 75 cents is applicable as an
allowance for trucking from railroad station or landing to farm.
Since this allowance is apparently granted on all transactions, it does
not, strictly speaking, constitute an element of the geographic struc-
ture but is equivalent to a simple standard discount off list.
In general, the price structure applicable to sales of fertilizer
materials by fertilizer companies to farmers follows the same general
pattern as that for mixed fertilizers. There are, however, certain
exceptions on carload shipments of specified materials direct from
the point of production or importer's storage warehouse. Thus
nitrate of soda in some areas is quoted ex vessel at designated ports or,
at the buyer's option for a small premium, f. o. b. storage warehouses
at the same ports. Sulfate of ammonia and cyanamid are quoted on
the same basis as that earlier described in connection with commercial
sales. In other areas special terms may be made to meet competitive
conditions. Thus nitrate of soda in one area is currently quoted
delivered to the farm in straight carload lots.
As might be expected in connection with any structure so complex,
it is subject to frequent variation to meet local competitive conditions.
Either the list price or the terms of delivery may be changed as a
means of inducing sales. Thus one company is at present (Spring,
1940) allowing special freight differentials for designated delivery
points in south Alabama and in Florida. Regular price schedules
are often supplemented by special schedules for limited periods in
order to meet competition.
247149 — 41 — No. 1 23
328 CONCENTRATION OF ECONOMIC POWER
PAPER AND PULP INDUSTRIES
Pulp and paper are bulky items. Freight is an important factor
in the delivered price. Since the product is standardized, it is not
surprising that geographic price structures have become somewhat
conventionalized. In general a multiple basing point system is char-
acteristic of pulp markets and a zone system of the markets for paper.
Pulp. — The market pattern for pulp reflects the pressure of imports
from Canada and Europe. Prices for most grades of pulp are quoted
ex dock, ocean, or lake ports. Base prices are usually uniform at
Atlantic, Gulf, and west coast ports. Quotations at lake ports are
usually $2 per ton higher than these base prices east of the Straits of
Mackinac, and $3 per ton above base prices west of the Straits of
Mackinac. These differentials are approximately equal to the added
cost incurred in shipping pulp through the St. Lawrence River to the
Lakes.
At inland points pulp is usually sold on a delivered basis with the
price computed by adding the appropriate amount of freight to the
base price ex dock at the most advantageously located port. Most
foreign pulp and a substantial amount of domestic pulp actually
passes through the ports which serve as basing points. This includes
European pulp, some pulp originating in eastern Canada, and domestic
pulp from the west coast which is shipped by water to the East.
Much domestic and Canadian pulp does not actually pass through
these basing points, but its price follows that which applies to the
bulk of the water-borne product.
While the practices described are generally characteristic of the
industry, the basing-point system is not strictly adhered to by all
mills on all sales. All foreign pulp (using the term "foreign" to
exclude both domestic and Canadian) follows a basing-point structure,
as does domestic and Canadian bleached sulfite. However, domestic
and Canadian unbleached sulfite, bleached and unbleached kraft
and ground wood pulp are imderstood to be quoted on a simple de-
Uvered-price basis.
Paper. — Most paper products are sold at delivored prices on a
zone basis. In the case of a considerable number of items, however,
the zone system applies to the resale of merchandise by distributors
rather than to its initial sale by paper mills; prices on the latter
transaction vary in an imsystematic way. The number of zones and
their relationship varies for different products.
Newsprint. — There are 10 zones in the newsprint market. This
number is materially larger than that for any other paper product,
probably because the cost of transportation constitutes a major
element in the price of newsprint. Dm-ing 1936 according to the
Interstate Commerce Commission,*^ freight revenue amounted to 22
percent of the delivered value of newsprint shipped by rail, in contrast
with ratios of from 4 to 6 percent for printing paper, wrapping paper,
and paper bags.
I|n the operation of the system, the fourth zone, which includes the
western border of the Great Lakes, is the base zone and prices in other
areas are computed by means of more or less fixed differentials. The
lowest prices are not quoted in the base zones but in zones 1 and 10,
*• Interstate Commerce Commission, op. cit.
CONCENTRATION OF ECONOMIC POWER 329
the former of which includes metropolitan New York and the latter
the Pacific coast and the southern tip of Florida. The bulk of news-
print consumption occurs within territory in which the price is either
the base price or less,*"
Although the zone system is generally observed, departures, are
apparently not infrequent. These may occur either through direct
price reductions or by ignoring zone boundaries on particular sales.
It is understood that price cutting of this kind is most frequent in
the case of mills selling newsprint in their immediate vicinity. Zone
boundaries themselves are also subject to some change from time to
time in adjustment to changing competitive conditions.
Wrapping paper, tissue paper, and paper towels. — Price quotations
for wrapping paper, tissue paper,- and paper towels are all apparently
on a zone basis. In the case of wrapping paper the price is f. o. b.
plant, freight allowed; for the other two items the quotation is on a
delivered basis. Information is not available regarding the number of
zones observed in the case of wrapping paper. Current quotations
for unbleached roll toilet tissue and paper towels, both bleached and
unbleached, are sold on the basis of three zones. Zone differentials
vary for different items and there seems to be no regular relationship
between the prices in different zones. For example, cases of 1,000-
sheet rolls of toilet tissue were quoted at $3.50 in zone 1, $3.65 in
zone 2, and $3.75 in zone 3, while for 650-sheet rolls the lowest quota-
tion was for zone 3 at $2.85 a case. Zone 1 was next at $3.10 a case
and zone 2 at $3.20 a case.*^
Paper board. — There are two main price zones observed in paper
board markets, the eastern and the central. The eastern territory
extends to the Alleghany Mountains and the central territory includes
most of the Middle West. In addition to these two main. zones there
are a number of other zones of minor importance. Thus there is a
small zone in the Southeast in which prices are usaally at the same
level as in the eastern zone. There is also a small zone on the west
coast but the product is apparently not marketed to any appreciable
extent in that area. The minor importance of these zones is suggested
by the fact that oflficial reporting journals " do not quote prices for
them. For most types of paperboard, prices in the central territory
are somewhat higher than in the eastern, but the differential varies
from t me to time and is not the same for all products. In some cases
at least, prices in the eastern territory are higher than in the central.
Apparently there is no base zone which, is comparable to that existing
in the case of newsprint.
Fine paper. — Most varieties of fine paper are sold on the basis
of distributors' resale zones. Mill prices paid by distributors ap-
parently do not vary in any clearly defined or systematic fashion.
For the purposes of resale by distributors, however, the United States
is divided into four zones, and prices in these four zones for the many
different types of paper products sold through distributors are gener-
'" A tabulation prepared bv the traffic department of the Chicago Tribune, for use in connection with an
Interstate Commerce Commission case, showed that in 1928, 80 to 85 percent of the total newsprint con-
sumption in the United States was at ports or In zones which take a base price or less. The secretary of
the code authority of the newsprint industry speaking in 193}, expressed the opinion that the situation had
not changed very much as of that time. Hearings on Proposed Recommendations in Respect of the Stabil-
ization of the Newsprint Industry and the Elimination of Unfair Practices and Destructive Competitive
Prices, February 1, 1934.
>' The Paper Mill and Wood Pulp News, January 27, 1940, p. 45.
»' Official Board Markets and Fiber Containers.
330 CONCENTRATION OF ECONOMIC POWER
ally uniform. There are probably a number of factors making this
type of price structure possible. Paper distributors are well organized
into effective trade associations. Moreover a substantial, though
undetermined, amount of paper is distributed by manufacturers on a
del credere basis ^* so that manufacturers can exercise direct control
over resale prices. In some ways this system resembles that used in
the case of refrigerators where distributors buy f. o. b. mill and resell
on a zone basis.
Paper products. — Folding paper boxes, which are one of the most
important converted paper products, are sold on a zone basis. It is
understood that there are 12 zones. This zone system is one of the
practices attacked as violating the antitrust laws in an indictment
which has recently been issued in the Federal courts. It is alleged
that it constituted one element in a "conspiracy to restrain unreason-
ably interstate trade in corrugated and solid fibre board shipping
containers by unlawfully supressing and restraining competition
among association members * * * " 64
PASSENGER AUTOMOBILES
The geographic price structure for the distribution of motor vehicles
is usually thought of as an f. o. b. plant system, yet it includes man}*
features commonly associated with the use of basing points. The
delivered price at any locality is arrived at by adding all-rail freight
from the manufacturer's central plant or headquarters to a uniform
f. o. b. plant price.
The significance of this practice should be interpreted in the light
of the known characteristics of the industry. In the first place, there
are only one or two manufacturers of passenger automobiles whose
main plants or offices are located outside of Michigan and these
exceptions are not among the largest producers. Consequently prices
"for the bulk of the product are computed on the basis of all-rail
freight from Detroit or some other point in Michigan. On the other
hand, a large and probabl}^ increasing proportion of cars are at present
being assembled at points outside of Michigan and many of the parts
entering into the finished vehicle are also being manufactured at
places other than the nominal point of shipment. Under these
circumstances it is unlikely that the actual cost of shipping parts to
the assembly plant and then transporting the finished vehicle to the
point of delivery will be the same as the all-rail freight from the central
plant to destination. Moreover a substantial and probably increasing
proportion of the total number of automobiles produced is shipped to
destination either entirely or part way by truck or water; yet, the
delivered price is always computed on the basis of all-rail freight.
Consequently the price structure, at least for passenger automobiles,
has many of the characteristics of the single basing point system, with
the exception that instead of all companies charging freight from some
single agreed point, such as Detroit, each company quotes from the
location of its own home plant or office. In view of the high concentra-
tion of all producers in Michigan, however, this variation is not of
w The distributor acts as the manufacturer's agent in making the sale, but assumes the added function of
guaranteeing the credit of the buyer.
« U. S. V. National Container Association et al. (District Court for the Southern District of New York,
Aiieust 1939 terra, returned August 9, 1939).
CONCENTRATION OF ECONOMIC POWER 331
major significance; for all practical purposes prices paid by buyers
vary in much the same way as they would if an orthodox basing point
scheme were used.
AGRICULTURAL IMPLEMENTS AND MACHINERY
The general basis of quotation in this industry is f . o. b. plant. A
few large producers, however, maintain factories in a number of
difTorent places. One of these is usually the headquarters plant,
producing a wide line of equipment, while the others may be more
specialized. As a result the customary practice is to charge freight
either from the main plant or from the actual plant of shipment,
whichever results in a lower price to the dealer. This seems to be
equivalent to a system of intra-company freight equalization.
The system described is generally adhered to on all transactions west
of the Rocky Mountains, and also east of the Rocky Mountains on
sales of tractors, harvester-threshers, binders, mowers, cream sepa-
rators, milkers, and belt-power machines. In the case of plows,
harrows, cultivators, and other ground-working implements, however,
some manufacturers, including at least one very large producer,
adhere to the f. o. b. factory or headquarters basis, while others sell
f. o. b. established Missouri River points (or MinneapoUs) for
central western territories and f. o. b. branch houses in eastern terri-
tories. This latter practice probably reflects the historical develop-
ment of the industry. Originally implements were usually distributed
through local wholesale jobbers, who, in pricing goods, added their
freight cost to the price which they paid to manufacturers. For
practical purposes this was usually equivalent to f. o. b. Missouri
River points and Minneapolis, which were the centers of wholesale
distribution for the Middle West. As distribution gradually shifted
from jobbers to company-owned branch houses, the practice of quoting
f. o". b. Missouri River points and Minneapolis was retained by some
concerns for the types of product for which this had been the tradi-
tional practice. Implements which were introduced after the change
in distributive practice, including much of the newer, heavier, me-
chanical equipment, are quoted by all concerns on the f. o. b. plant
basis.
In order to reduce freight charges to a minimum, dealers may avail
themselves of the storage-in-transit privilege (giving the dealer most of
the advantage of through rates) on goods shipped to dealers through
branches. In this way the delivered price to the dealer will be based
upon the through rate from the plant and not upon the sum of the
straight haul rates from factory to distributor and from distributor to
dealer. Pool car shipments can also be used to permit several dealers
to combine their requirements into full carloads and thus to avoid the
extra cost of 1. c. 1. freight. The general practices which have been
described are apparently modified to some extent by unsystematic
freight absorption to meet competition in individual cases.
MACHINERY AND RELATED PRODUCTS
(Other than automotive and agricultural)
In general the market for machinery (other than automotive and
agricmtural) may be considered to embrace two distinct types of
332 CONCENTRATION OF ECONOMIC POWER
transaction; those in which the product is made to order to the
specifications of the buyer and those in which the product is a standard
item regularly stocked and distributed by the seller.
In transactions of the first sort, relating to made-to-order equip-
ment, each sale constitutes essentially a separate contract, all terms
of which are subject to direct bargaining. The cost of shipment
merely comprises one of the terras which must be considered by the
seller in determining his offer and which the buyer will take into ac-
count in deciding whose offer to accept. It is understood that the
bulk of these contract sales are on an f. o. b. plant basis, in which case
the price quoted by the seller undoubtedly reflects the availability
of competing offers from more advantageously located plants. If the
terms of the contract contemplate installation, then the element of
freight is, of course, included directly in the quotation or bid. In
either event, since each transaction of this kind is in a sense unique,
it cannot be strictly said that any geographic price structure exists
in the ordinary sense. While no accurate figures are available, it
has been estimated that the majority of industrial machinery in terms
of dollar volume is sold on a contract basis.
' The second major type of transaction involves standard items
which are produced in suJQBcient quantity to warrant the seller in
quoting a regular list price. Items of this kind are frequently called
"catalogue items" to indicate that they are described and quoted in
a catalogue or other list issued by the producer. This group includes
most of the smaller varieties of machinery such as electric motors of
moderate size, standard pumps, and similar types of equipment which
are not made to order to meet the needs of the individual buyer.
Apparently most products of this kind are sold on a delivered basis,
using the postage stamp or the zone system, though at least one large
manufacturer adheres to straight f. o. b. plant pricing. The practice
followed varies for different branches of the industry and is not always
standardized even as between competing companies manufacturing
similar products. The following information is the best available
regarding the practices encountered in the sales of different kinds of
machinery.
Electrical machinery and apparatus. — A comprehensive study of
pricing practices in the electrical machinery and apparatus industry
was conducted by the Division of Review of the National Recovery
Administration during the latter part of 1935. This survey related
largely to standard, small items and little data were compiled regard-
ing heavier industrial machinery. According to this report —
Inasmuch as most manufacturers of electrical products sell their products over
a wide geographical area, the problem of transportation enters into the price
contract. The manufacturer frequently includes freight as part of the total
sale. The extreme forms which the price structure may take is sale f . o. b. factory
or a delivered price regardless of the customer's location.- Other variations are
the use of basing points, i. e., freight charged from some point other than the
factory, and the use of zones, the most usual being some variant on the theme of
east and west. Perhaps the most unusual is the pole line hardware group, having
three ^ones, one of which is the single State, Arizona. In several groups, the
treatment of freight varies among the classes of customers, while in many the
character of the freight charge or allowance varies with the size of the order, a
iorm of quantity discount.
It has usually been assumed that the freight element in the price structure
changes but little from time to time. It is possible, of course, that such changes
were largely the result of the new information suddenly made available about
CONCENTRATION OF ECONOMIC POWER 333
the practices of others in the industry, and that it was inevitable that there would
be numerous changes in the first year of price-filing. This would argue that the
record of change was merely temporary. Certainly, the filings for the groups
studied show that freight terms are by no means inflexible. However, changes
were not merely along the line of the development of uniformity. The outstand-
ing (sic) is that of the rubber-covered building wire group, whose price structure
changed from an elaborate system of freight charges to a delivered price basis
during the period. This is not an isolated case of structural change, for other
groups also recorded revised freight structures.
One form of price change under this head relates to the companies which charge
freiglit from various warehousing points. Since they abandon or add warehouses
from time to time the result is an unrecorded change in prices.'*
Specific information is available in this report with regard to geo-
graphic pricing practices used for the following branches of the in-
dustry during National Recovery Administration,
(1) Wire, including rubber covered building wire, magnet wire, and
flexible cords. ^®
For all these products, the general practice at the end of the code
period was to quote a uniform delivered price on all shipments of
100 pounds or more but to sell shipments of less than 100 pounds on an
f. o. b. plant basis, purchaser paying full freight. There were some
variations in this practice, as, for example, in the case of certain manu-
facturers of flexible cords who relaxed the 1 00-pound minimum require-
ment for freight absorption in the case of individual sales to a few
large distributors.
(2) Electric fans."
The general practice was to quote prices f . o. b. destination on orders
of 100 pounds or more when the point of destination was a city in which
a distributor's warehouse was located. Smaller orders were f. o. b.
point of shipment. Apparently the practical effect of this type of
structure for orders exceeding 100 pounds would be to make each city
in which a distributor's warehouse was located a basing point, with
prices uniform at each basing point. Toward the latter part of the
code period, it became the practice to quote all Government inquiries
f. o. b. destination regardless of weight.
(3) Fractional horsepower electric motors and electric arc welding
apparatus.^*
Price quotations were f.o. b. factory, fuU freight allowed to destina-
tion.
(4) Dry cells and flashlights.^^
There was a wide variation in the practices used in this branch of
the industry. Sales to toy manufacturers were apparently sold f. o, b.
factory in all cases; mail-order houses and chain stores were quoted
f. o. b. destination in carload lots and f. o. b. warehouses on 1. c. 1.
, sales. In the case of one product — the number 6 dry cell — there
seems to have been a zone system with a higher delivered price west
of the Rocky Mountains than in the East. For the radio B-battery,
however, prices were uniform throughout the country.
(5) Radio receiving tubes. ^'^
w A Study of Open Price Filing in the Electrical Manufacturing Industry by W. L. Thorp and A. H.
Caesar, with the assistance of F. W. Powell, Work Materials No. 78, National Recovery Administration,
vol. I, p. 177.
M Ibid, pp. 10-53.
" Ibid., pp. 71-79.
«« Ibid., pp. 56-64, 82-88.
M Ibid., pp. 96-108.
^Ibid., pp. 111-117.
334 CONCENTRATION OF EXX)NOMIC POWER
The freight structure for this product seems to have been so con-
fused that it was impossible to derive any generalization. According
to this report, "Freight is usually f. o. b. destination or f. o. b. plant.
There are in addition numerous exceptions such as 'freight allowed to
destination on shipments to set manufacturers', 'prepaid 50 tubes or
more', 'prepaid any quantity New York area', 'prepaid on 100 or
more', and others based on order or customer class involved."
(6) Sockets."
On orders of 100 pounds, f. o. b. freight was allowed to any point in
the United States; smaller orders were f. o. b. plant; special treatment
on some sales was allowed to syndicate stores by certain companies.
(7) Domestic electric heating appliances. ^^
The general practice was to quote prices f. o. b. factory. There
were, however, some companies which quoted delivered prices on
orders of 100 pounds or more, orders sent to Metropolitan New York,
or orders f. o. b. warehouse.
(8) Food service equipment.*^
This branch of the industry included "electrically operated or heated
counter appliances, bake ovens, dish washers, meat choppers, coffee
mills, potato peelers, drink mixers, slicers, silver burnishers, and other
similar appliances." According to the report this diversity in product
was reflected in a similar diversity in type of structure:
Durir^ the period of open price filing, at least 28 varying sets of delivery terms
were us^d. * * * These terms varied from a simple statement, such as f. o. b.
factory, to delivered prices on a zone basis. No trend toward simplification or
uniformity is evident.
(9) Laminated phenolic products.**
These products are plastics, usually referred to as bakelite, and are
widely used for the purpose of insulation. They were sold on the
basis of a zone system. Freight was allowed on shipments east of
the eastern boundary of Montana, Utah, Wyoming, and Arizona.
On shipments west of this line, 5 percent was added to the net price
and freight was prepaid.
(10) Nonremovable plug fuses.**
Freight was allowed to destination on sales to very large buyers,
wholesalers, syndicates, chains, and the United States Government;
quotations to other buyers were f. o. b. factory or warehouse.
(11) Fanelboards.««
This branch of the industry used a two-zone system, with the line
of demarcation at 102 degrees west longitude. There were numerous
variations for specific points.
(12) Pole line hardware.*^
There were three distinct zones; the western division and eastern
division, and one division comprising only the State of Arizona. Not
only prices but other terms of sale varied in each of the three geo-
graphic areas. The reason for the special treatment of Arizona, in
which prices were higher than in either of the two other divisions, is
not clear.
I
« Ibid., pp. 120-128.
« Ibid., pp. 133-140.
M Ibid, pp. 142-148.
** Ibid, pp. 153-162.
•• Ibid, pp. 168-169.
•• Ibid, pp. 170-171.
« Ibid, pp. 171-173.
CONCENTRATION OP ECONOMIC POWER 335
Since this study of practices under the National Recovery Adminis-
tration Codes was made in 1935, numerous changes have undoubtedly
occurred, but it has been impractical, within the time limits for this
study, to make a detailed inquiry. Evidence of some change is in-
dicated by the fact that cease-and-desist orders, issued by the Federal
Trade Conunission, have been directly concerned with geographic
pricing practices in the electrical machuiery industry. The first of
these, which was issued on December 29, 1936, directed the National
Electric Manufacturers' Association and others to cease and desist
from maintaining uniform delivered prices either throughout the
United States or by zones for power cable and "safecote" rubber-
covered building wire.^ The second, which was issued on April 2,
1937, ordered the General Electric Co. and the Westinghouse Electric
& Manufacturing Co., and other respondents, to stop selling turbine
generators and condensers at uniform delivered prices.®®
More current information regarding geographic pricing practices in
this branch of the industry is generally limited. However, according
to Mund,^° the system of granting full freight allowance for electrical
equipment is still conunon. Thus, rubber-covered building wire,
electric lamps, cable accessories and magnet wire, turbines, lightning
arrestors, and switch gear are all quoted f. o. b. plant with freight al-
lowed and prepaid to destination. Arc welding electrodes, power
cable-, street-lighting equipment and distribution transformers are
sold with freight allowance within specified zones. Portable electric
tools, dry-cell batteries and flashlights, electric fans, and many other
varieties of electric merchandise are quoted freight allowed to dis-
tributors. In most of these cases, some minimum shipment (usually
100 pounds) must be ordered in order to receive the allowance.^^
Milling , machines, grinding machines, screw machines, etc. — There
is some conflict in evidence as to the geographic structure most com-
monly observed in the sale of catalogue items falling into this category.
One leading producer quotes. on a straight f. o. b. plant basis, with no
provision for equalization and explains this policy on the ground that
diflFerences in design, often protected by patented features, make pos
sible a substantial degree of nonprice emphasis. There are, however,
some reports of the use of freight equalization by other sellers.
Engines, turbines, water wheels, and windmills. — The heavier items in
this group are contract items which do not fall into any clear category
as regards geographical pricing practice. It is understood that lighter
standard products, such as light diesel and gasoline engines, are sold
at dehvered prices which tend to be uniform throughout the United
States.
Pumps. — Pumps are usually sold on a uniform delivered price basis
throughout the country, but practice is not uniform. In some cases
the same practice is followed on sales of combinations of pumps and
pumping engines, probably because both these products are frequently
manufactured by the same companies. On the other hand, one
manufacturer of windmiU type pumps, which can be operated either
by a windmill or an engine, is reported to be selling on an f. o. b.
factory basis.
•• F. T. C. Docket No. 2565.
•• F. T. C. Docket No. 2941.
'"Op.-oit.
" Ibid, pp. 232, 237.
336 CONCENTRATION OF ECONOMIC POWER
ExcavatiTig and road machinery. — In discussing industrial plant
machinery it was pointed out that cheaper items were usually standard
in design ^while more expensive products were made to order on the
basis of individual contracts. In the case of excavating and road
machinery, such as steam shovels, although the individual product is
usually quite expensive, it is nevertheless more or less standardized.
Consequently, there is a tendency for prices to be adjusted to the
needs of the' individual transaction, even though the item may be of
standard design. According to the best information available, sales
are usually on an f. o. b. factory basis, but the seller is likely to adjust
his offer on any unsystematic basis in order to compete with other
sellers located nearer the point of destination.
Business and trade equipment. — Although the Census of Manu-
factures includes such items as business machines, scales, and balances
in the general category of machinery, they are, of course, essentially
different in market characteristics. Since freight is a smaller relative
element in the cost of these products than for machinery generally,
there is apparently a greater tendency for the maintenance of uniform
delivered prices. Typewriters are generally sold on a uniform delivered
price basis anywhere in the United States. The same is probably true of
conmiercial scales and balances, comptometers and calculating
machines, accounting machines, and similar office equipment. How-
ever, at least one manufacturer of industrial scales sells on a zone basis
through the use of varying discounts from list prices for different
parts of the country.
ELECTRICAL HOUSEHOLD EQUIPMENT
Electric refrigerators. — The geographic price structure of the
electrical refrigerator industry presents a combination of an f. o. b.
factory system at the wholesale level and a zone price system at the
retail level.
The most common' channel of distribution for this product is from
manufacturer to wholesale distributor to dealer to consumer. Sales
by manufacturers to wholesale distributors are on a simple f. o. b.
plant basis; there is no evidence of the use of any scheme of freight
absorption or equalization.^^ Consequently, the delivered prices paid
by distributors vary with their distance freightwise from the plant.
According to the price list of one manufacturer, the approximate
average carload freight from his plant in the Middle West to points on
the west coast is $1.55 per hundred poimds. This is equivalent to
between $6 and $7 for a typical 6-cubic-foot refrigerator weighing
about 400 pounds and quoted at slightly over $100^ f. o. b. factory.
This point-to-point variation in delivered prices paid by distributors
is not reflected in a similar pattern in retail markets. This is probably
due in part to the merchandising policy of most manufacturers which
contemplates some degree of control over the retail price level. In
addition, retail prices are affected to some extent by the practice of
price lining which is described in detail in another chapter of this
report.^*
Since freight constitutes a substantial element on shipments to
areas remote from the plant, national uniformity of retail prices would
" These comments refer to current practice. However, In 1937 at least one company allowed carlot freight
to the distributor's city.
)i Appendix II, p. 249.
CONCENTRATION OF ECONOMIC POWER
337
be difficult to maintain, and a zone system has been adopted as a
compromise. The general practice divides the country into four
zones, though at least one manufacturer uses only three and, since 1940,
one concern has combined the entire region east of the Rockies into a
single zone. Price variations between zones correspond roughly to
the average cost of shipment into the zones. The zone system applies
to sales by distributors to retail dealers as well as on retail sales to
consumers. The variation between the point-to-point system followed
on sales by manufacturers and the zone price structure is therefore
absorbed by the distributors ; those located in the portion of the zone
nearest the plant are able to obtain a slightly higher mark-up than
those on the outer boundaries of the zone. However, this variation
may not be very important and it probably does not exceed $1 or $2
a unit.
Unlike industries in which zone boundaries have been rigidly fixed
by custom and are universally observed, each manufacturer apparently
adjusts his zoning system to meet his own particular requirements.
Thus, one manufacturer whose plant is in Detroit includes all of New
England in his first or lowest-priced zone; a competitor whose plant
is in Chicago includes only the area immediately adjacent to Chicago
as his home zone, and classes not only New England, but also the entire
eastern seaboard nopth of South Carolina as his third zone. Pre-
sumably these variations are made possible by the fact that refrigera-
tors are differentiated products so that minor price differences between
similar models can readily exist in the same market.
The actual extent of price variation for a typical 6-foot refrigerator
at each marketing level is indicated in the following table. Price
differences at the retail level expressed in absolute figures are some-
what greater than at the distributive levels but, when expressed in
terms of percentage, mark-ups are about the same in all areas. The
influence of "price lines" upon the retail price structure is evident.
Table 3. — Prices of electric refrigerators
Zone
F. 0. b. to
distributor
Average
freight to
zone>
Totnl de-
livered cost
to dis-
tributor •
Cost to re-
tailM «
Retail price
to con-
sumer '
1
$04.31
94.31
94.31
94.31
!i!2.63
4.31
5.25
6.81
$96.94
98.62
99.56
100.12
$111.22
112.47
114. 34
115. 59
$182. 95
2
184 95
8
187. 95
4
189. 95
' Varies from point to point within zone.
• Uniform throughout zone.
Sonrce: Manufacturer's printed price list.
Since the beginning of 1940, there have been substantial price read-
justments in the industry, but geographic price relationships appear to
have been generally retained upon the same basis. However, as men-
tioned above, one large producer now observes only two zones, east
and west of the Rockies.
Electric washing machines and ranges. — The geographic price struc-
ture observed by most manufacturers of electric washing machines and
ranges is similar in all important respects to that described for electric
refrigerators.
338 CONCENTRATION OF ECONOMIC POWER
Vacuum cleaners and fans. — The practices prevailing during Na-
tional Recovery Administration in connection with the sale of electric
fans have been discussed in connection with the general consideration
of electrical machinery and apparatus. The same system is observed
currently and applies also to the sale of vacuum cleaners On ship-
ments of 100 pounds or more, freight is prepaid, resulting in a uniform
nation-wide delivered price. When the shipment is less than 100
pounds, the buyer pays the freight.
NONFERROUS METALS
There are wide variations in the geographic price structures ob-
served in the sale of different nonferrous metals. In some cases
totally different structures . may even apply to different grades of
the same metal. Since it is impractical to describe these price sys-
tems for anything approaching a complete list, a few of the more
important metals have been selected to illustrate the types of vari-
ation which are encountered.
Aluminum. — Aluminum is sold at a uniform delivered price any-
where in the United States. Since this product is subject to a virtu-
ally complete monopoly, the choice of price system presumably repre-
sents a decision as to marketing expediency bythe Aluminum Co. of
America. The reasons for this choice of policy are not obvious, though
it is possible that its simpUcity may be an important consideration.
The relatively minor importance of freight as a cost element is pre-
sumably a factor; according to the Interstate Commerce Commission
freight revenue on shiptnents of aluminum amounted to only 3.24
percent of value at destination for the calendar year 1936.
Zinc. — There are three primary grades of zinc; in order of increas-
ing purity, these are Prime Western. Brass Special, and High Grade
Electrolytic. Approximately 30 percent of production, by volume,
falls into each of the first two grades and the remaining 40 percent is
Electrolytic. The most important use of prime western zinc is for
galvanizing. The Brass grade, as implied in the name, is used for
brass production. High Grade Electrolytic, which is approximately
99.9 percent pure, is used in the electrical and chemical industries.
The Prime Western and the Brass grades are both sold on the basis
of a single basing point at East St. Louis, III. Although a New York
price for these products is regularly quoted in trade publications, this
is arrived at simply by adding freight to the East St. Louis quotation
and does not imply the existence of an additional basing point in New
York. In interpreting this practice, it is of interest that there is no
large concentration of production at East St. Louis, so that the situ-
ation differs from that in the Mec\ industry where Pittsburgh is a
major producing area. There is in fact only one active smelter at
St. Louis. However, the tri-State area of Missouri, Oklahoma, and
Kansas, which is located within three or four hundred miles of East
St. Louis, is the largest producing area in the country. It is under-
stood that transportation costs from the principal producing points to
major consuming centers average out roughly when computed fronv
East St. Louis. The character of the railroad freight structure is a
contributing factor. The freight rate from middle western zinc
smelters (west of the Mississippi River), which account for the bulk
CONCENTRATION OF ECONOMIC POWER 339
of production to the chief consuming centers, is said to be approxi-
mately equal to the sum of the rates from smelters to East St. Louis
and from East St. Louis to destination, although some deviation may
occur. On the other hand, there is one important producer in New
Jersey which, although remote from the basing point, observes the
same geographic structure.
The -actual form of quotation may be either f. o. b. East St. Louis, or
delivered including freight from East St. Louis. Quotations on the
latter basis are sometimes slightly higher than on the former because
a delay is involved in settlement for the purchase so that interest
charges may be added.
As is true m other industries, large buyers are often able to obtam
concessions from nominal quotations, though prices to smaller users
follow the basing point structure quite closely. In general the sys-
tem seems to be more closely adhered to for the Prime Western grade
than for the Brass grades, because the latter are produced largely to
order.
Electrolytic zinc, in contrast to the other two grades, is sold at
imiform delivered prices anywhere in the United States. The
reasons for this difference in practice have not been determined.
Lead. — The price structure for lead is not as well defined as that
for zinc. As in the case of zinc, the general structure is a basing-
point system with St. Louis, Mo., as the base. However, prices are
also quoted at New York and the relationship between St. Louis and
New York prices varies. New York prices are higher than those at
St. Louis but not necessarily by the amount equivalent to the freight
difference. As a result both of these cities are basing points, with
delivered prices determined by a lower sum of base price and freight
from destination. Part of the variation between price trends at
New York and St. Louis is attributed to the competition of imports
at New- York.
The price structure for lead tends to be somewhat flexible because
of the fact that one large producer — the American Smelting & Re-
fining Co. — often quotes prices somewhat lower than those announced
by the acknowledged price leader in the industry — the St. Joseph
Lead Co. Under such circumstances, adherence to the nominal
geographic structure is probably not always close.
Copper. — Copper is almost always sold at delivered prices. For
electrolytic copper, which represents roughly 85 percent of the copper
consumption of the United States, this practice means chiefly de-
livered at the Connecticut Valley, where most of the brass mills, con-
stituting the biggest consumers of this form of copper, are located.
However some copper, mainly that sold for electrical purposes, is
delivered at other points, principally in New York and New England.
On the bulk of all electrolytic copper that is sold, the delivered
prices are arrived at on the basis of an f. o. b. New York price plus
charges for transportation and interest from New York. This situa-
tion arises from the fact that approximately 90 percent of all copper
refining is done in the vicinity of New York City."^ There are said
to be only three refineries located outside this area — one at Great
Falls, Mont., from which the copper is shipped mainly to the Con-
'* The smelters for the copper ore are all located in the West. The product of the smelters, blister copper^
is shipped to the refineries and generally is refined under a toll arrangement. Very little blister copper,
as such, is sold.
340 CONCENTRATION OF ECONOMIC POWER
necticut Valley, one at Baltimore where the copper is mostly consmned
by a local rolling mill, and one at Tacoma, Wash., which refines copper
primarily on toll for the foreign trade. On the copper coming into
the Connecticut Valley from refineries other than those" located in the
New York area, prices are arrived at by adding freight and interest
from the New York basing point.
A number of years ago there is said to have been an exception to the
practice of adding freight and interest charges to f. o. b. New York
prices in arriving at delivered prices. Delivery was made in the
general area sm-rounding the refineries free of charge, and transporta-
tion was included only when the freight costs amounted to a sub-
stantial figure. Whether or not this practice still prevails is not
known.
The practice of selling refined virgin copper f. o. b. New York basing
point has generally been imitated in the sale of secondary copper.
Secondary copper is produced by collecting and remelting scrap
copper and is not as pure a product as refined copper. However, it is
•directly competitive with virgin copper in the manufacture of brd,ss,
for which purpose minor impurities are not objectionable, and is sold
delivered at the Connecticut Valley on the basis of the f. o. b. New
York price for virgin copper plus transportation and interest charges.
The price for secondary copper is largely influenced by trading in the
organized futures market in NeW York City.
While the refineries are highly concentrated in the vicinity of New
York, the remelting plants are widely scattered over the country.
For that reason, freight absorption is typical or general in the sale
of secondary copper while, because of the high concentration of re-
fineries in the New York area, it is exceptional in the case of refined
or virgin electrolytic copper. Consequently net realizations to the
seller on secondary copper vary widely, depending on the location of
the remelting plants, while realizations in the case of refined copper
are generally uniform.
Lake copper. — Lake copper is found in the natural state in the form
of the metal rather than the ore, and its production involves separation
rather than a refining process. It is produced mainly in Michigan
and consumed principally in the Detroit area. It represents only
about 15 percent of the total copper produced in the United States.
While the geographic price structure for lake copper has not been
definitely ascertained, it clearly differs from that of the electrolytic
metal. Price quotations for lake copper delivered in the Midwest are
the same as for delivery in the Connecticut Valley, while electrolytic
copper is 0.125 cent higher in the former than in the latter area because
of the difference in freight from the New York base. As a result, lake
copper and electrolytic copper are quoted at the same level in the
Connecticut Valley, but the price of lake copper is slightly lower
than that of the electrolytic in the Midwest.
Scrap metalJ^ — Scrap metal is an important factor in most metal
markets. Prices for scrap metal, however, are apparently quoted by
buyers rather than by sellers, presumably because the former are in a
stronger economic position and can exercise an important direct
influence upon the market. Prices for scrap are quoted in the Daily
Metal Trade on the following basis:
" Nonferrous metals.
I
I
CONCENTRATION OF ECONOMIC POWER 341
In lots of 100 pounds or more, order basis, f. o. b. point of shipment. Actual
freight allowed not exceeding $1 per hundredweight for complete shipment at any
time on an order basis in lots of 100 pounds net or more. Additional one-half
cent per pound allowance for shipment of 10,000 pounds or more at one time.
The result of this form of quotation may be to equalize the bids of
competing buyers at the point of shipment and thus to prevent prices
from being raised by competition for supplies.
PETROLEUM AND ITS PRODUCTS
The geographic price structure for petroleum and its products is
not as well defined nor adhered to as that for most of the other non-
agricultural commodities which have been described. Constantly
changing competitive conditions due partly to the frequent discovery
of new producing fields probably prevents practice from crystallizing.
In general, crude oil is sold f. o. b. producing field, while gasoline is
usually quoted on a delivered basis. Methods of marketing these
products were described in detail at hearings before the Temporary
National Economic Committee held during October 1939, and conse-
quently only the outstanding characteristics of these practices will be
described here.
Crude oil. — Prices for crude oil at each field are nominally based
upon a "posted" price set by one or more purchasers. The number of
refiners obtaining crude oil from any one field is usually quite limited,
and some one of these commonly acts as the leader in posting prices,
or as a witness for the industry phrased it, "the interpreter of market
conditions." ^* According to the same witness this posted price is
said to reflect "so far as competitive conditions will permit, the relative
value of the crude at the refinery." " Of course, competition for
supplies between differently located refiners is an important factor in
determining the posted price in any field and the system itself, insofar
as it is adhered to, may have some effect in preventing prices from
being "bid up" by this kind of competition between buyers.
Although prices posted by all refiners in any single field at any one
time for oU of a designated specific gravity are usually identical, this
does not mean that all transactions take place at this price. If the
market is weak some sales will be made at a discount; if the market
is strong some oil may move at a premium. Of course, when the
posted price comes to be honored in the breach more than in the
observance it is adjusted, and over any long period of time it is prob-
able that the bulk of crude oil moves at the posted price level. Accord-
ing to one witness for the industry, "at times as much as 20 percent,
at Umes practically none" is sold at levels below the posted price.^*
Gasoline. — The geographic price structure for gasoline varies in dif-
ferent sections of the country. There are 10 basic refining districts
in the United States, of which 3, the Gulf (including the Louisiana
and Texas refining districts), "group 3" (comprising primarily Okla-
homa, Texas, and Missouri), and the Pacific coast, are the most impor-
tant. Of these the Gulf district shipping by water, supplies most of
the Atlantic seaboard. "Group 3" governs prices through much of
the Midwest, and the Pacific coast supplies part of the Rocky Moun-
'• See Temporary National Economic Committee Hearings, Part 17, p. 0845.
" Ibid, p. 9944.
'• Temporary National Economic Committee Hearings, Part 15, p. 8358.
342 CONCENTRATION OF ECONOMIC POWER
tain area in addition to the west coast. There is some competition
between these districts in border areas, in which gasoline from different
som-ces meets; thus parts of Ohio may be served by the Gulf district
via the east coast as well as by the "group 3" refineries. In addition
minor refining districts affect the price structure in many sections ; this
is true, for example, of the Appalachian area in Pennsylvania, of the
Illinois area, etc.
Quotations for each of these refinery districts are published daily in
Piatt's OHgram and usually indicate a range of prices obtained from
a number of buyers and sellers.
In most districts other than "group 3" delivered prices vary with
shipping costs from the refinery, subject, however, to a great deal of
unsystematic freight equalization to meet competition. For example,
some of the Gulf crude oil is refined along the Gulf and shipped as
gasoline at Atlantic ports, but some is transported in the form of
petroleum to be refined at various points along the eastern seaboard.
Gasoline for sale at inland destinations accessible to more than one
seaport may, therefore, proceed along various routes and competition
is likely to be reflected in a certain amount of unsystematic freight
absorption or equahzation.
In "group 3" area, the nominal price structure is based upon all rail
freight from a single basing point at Tulsa, Oklahoma. The develop-
ment of this structure may be traced to the fact that the raU freight rate
schedules in this area, known as the "group 3" rates, are such that
transportation charges to any given destination in the Midwest are
the same from any point of origin in the midcontinent producing area.
The delivered price at any destination, therefore, will be the Tulsa
price as reported in Piatt's Oilgram plus all rail freight from Tulsa.
Insofar as shipments are actually made by rail and in the form of
gasoline, this result does not differ from what would have been obtained
if the quotation were f. o. b. refinery. However, there are two addi-
tional means of transportation available, shipment of gasoline from
refineries in the midcontinent district by pipe line to destination, and
transportation of the crude oil from this district by pipe line to refin-
eries in consummg areas. Both of these methods of transportation
are cheaper than all rail freight and neither is reflected in the nominal
delivered price structure. Consequently the "Tulsa plus" practice in
the "group 3" territory, to the extent to which it is observed, can
properly be described as a single basing point.
Increasing difficulty is apparently being encountered in maintaining
this price structure in the "group 3" area, primarily because of the
development of new oil fields in Illinois, Michigan, and elsewhere.
For this reason the practice described is probably subject to substan-
tially more variation than is true for such products as steel or cement.
BITUMINOUS COAL
The market for bituminous coal is extremely complex. In any given
consuming center, there may be competition among many different
varieties of coal coming from different mines and shipped by different
means of transpol-tation. In many cities shipments may be received
by rail, truck, and water. Because of the extremely keen character of
competition, producers have generally been willing to grant whatever
I
CONCENTRATION OF ECONOMIC POWER 343
concessions were necessary to make sales. The result can best be
described as an extremely unsystematic process of freight equalization.
The Bituminous Coal Division, in estabUshing TniniTnuTn prices
under the provisions of the Bituminous Coal Act of 1937, has largely
recognized prevailing practice. Price schedules at each mine often
include differentials depending upon both the destiaation and the
method of shipment, and an effort has been made by means of these
differentials to equalize destination prices for similar or competing
fuels.
SUMMARY EXTENT OF MAJOR TYPES OF GEOGRAPHIC PRICE STRUCTURE
The descriptions of the geographic price structures of specific
products and groups of products which have been presented in this
chapter indicate that many of them do not fall into any simple pattern.
Any method of classification is necessarily arbitrary and must ignore
many significant variations of practice. Nevertheless, an attempt has
been made to indicate the extent to which the outstanding major types
of geographic price structure have been encountered in the course of
this analysis.
Uniform f. 0. b. plant pricing. — Uniform f. o. b. plant pricing subject
to minor variations is characteristic of the following kinds of
commodities:
1 . The products of light consumer goods manufacturing industries,
particularly when sold with emphasis upon trade-marks or brand
names, including textile yarns, gray goods, and cloth, except rayon
yam; apparel; leather and leather footwear; certain staple food items
such as wheat flour; bulk chese; canned and dried fruits; canned to-
matoes; lard; black pepper. Other prepared foods when sold in bulk
or under distributor's or unadvertised labels, including corn meal;
crackers; chocolate coating; rice; cocoa; coffee; tea; creamery butter;
processed cheese; canned soup; canned vegetables; canned salmon;
vinegar; vegetable shortening. Certain standard drug items sold
under their chemical names, such as dextrose, cocaine, ether, etc.
2. Some unstandardized products in which competition is primarily
on a nonprice basis: Household furniture; some industrial machinery.
3. Certain items whose production is confined within a narrow
geographic area: Phosphate rock; superphosphate; turpentine;
Philippine mahogany (sold f. o. b. its main port of entry).
4. Some industrial raw materials in which the price structure is
largely controlled by buyers: Nonferrous scrap metal; cottonseed
(at least until 1934).
5. Automobiles, though the structure has some of the elements of a
basing point system.
6. Agricultural implements, subject to occasional freight equaliza-
tion.
7. Lake Superior iron ore (f. o. b. lower lake ports).
8. Imported iron ores (f. o. b. ports).
Uniform delivered prices. — In most cases the term "uniform delivered
price" applies to delivery at railroad destination, but it may also
include delivery to the plant warehouse or retail outlet of the buyer.
All types of pricing practice which arrive at this result have been
included in this category, whether they take the form of a delivered
247149 — 4] — No. 1 24
344 CONCENTRATION OF ECONOMIC POWER
price quotation, a price f. o. b. destination, or a price f. o. b. shipping
point with freight allowed or prepaid.
Uniform delivered prices throughout the United States, subject to
minor modifications, have been observed for the following kinds of
products :
1. Many light consumer goods sold under nationally advertised
manufacturers' brands, particularly where the manufacturer makes
some effort to control resale price: Branded drugs, toiletries, and cos-
metics; cigarettes, cigars, and smoking tobacco. Many nationally
advertised branded foods and groceries, including coffee, vegetable
shortening, ginger ale and club soda, grape juice, corn flakes, wheat
cereal, crackers, macaroni (also private brands), pretzels (also bulk),
condensed milk (also private brands), powdered milk, soap (toilet,
laundry, and flakes — also private brands), canned soup, canned vege-
tables (some brands), jelly (some manufacturers' brands, also private
brands), molasses (some brands, also bulk), oleomargarine (also pri-
vate brands), peanut butter (some private brands), tea, vinegar (some
manufacturers' brands, also private brands).
2. A limited number of additional products, usually in cases where
freight is a relatively minor item in the delivered price: Most hard-
ware, tools, and other light fabricated steel; most electrical machinery;
electric fans and vacuum cleaners; business machines, such as type-
writers; insulation board; plumbing fixtures; aluminum; electrolytic
zinc; rayon yam; manila rope; leather transmission belting; mahogany;
many planing-mill products. Some chemicals, usually with relatively
high value per unit of weight, e. g., butyl acetate; coal-tar dyes.
Zone delivered prices.— The following products are sold on a zone
basis with delivered prices generally uniform within each i:.one:
1. Some food products, including corn flakes, farina, and oatmeal;
bulk powdered milk; evaporated milk; vegetable oil; processed cheese
(nationally advertised); rice (nationally advertised); some brands of
baked beans; jelly (some brands); molasses (some brands); peanut
butter (some brands); packaged starch; packaged sirup in some areas.
2. Paper and most paper products.
3. Snuff.
4. Mixed fertilizer.
5. Some chemicals: Synthetic methanol; carbon tetrachloride (ex-
cept Pacific and Mountain States); carbon black; industrial benzol
(east of Omaha) ; cyanamid ; hydrochloric acid, soda ash, and sodium
hydroxide (in 1. c. 1. lots only); flake calcium chloride.
6. Some building materials: Linseed oil, prepared paints (national
brands), white lead, doors, windows and window frames.
7. Business furniture.
8. Some electrical machinery.
9. Electrical household equipment: Refrigerators (sales to retailers
and consumers only); washing machines; electric ranges.
Freight equalization. — The following list of products comprises those
in the sale of which freight equalization is systematically or at least
r^ularly practiced. In addition, it should be remembered, sporadic
freight absorption to meet competition occurs in many markets in
which some other form of geographic price structure is dominant:
1. Salt.
CONCENTRATION OF ECONOMIC POWER 345
2. Many building materials: Lime; floor tile; sewer pipe; gypsum
plaster; prepared roofing; window glass; heating boilers and radiation.
3. Binder twine.
4. Many heavy chemicals, e. g., sulfuric acid; sodium bichromate;
tribasic calcium phosphate; aluminum sulfate; soda ash; sodium
hydroxide; sodium silicate; hydrochloric acid; anhydrous ammonia;
sodium bicarbonate; calcium carbide; hydrogen peroxide; tribasic
sodium phosphate; nitrocellulose; acetic acid (except seaboard
states).
5. TJnsystematic freight equalization occurs in the sale of: Much
industrial machinery; Douglas fir; Ponderosa pine; gasoline; bitu-
minous coal.
Basing point industries. — The following products are sold in ac-
cordance with a single basing-point system: Maple flooring; zinc
(except electrolytic); copper (except lake copper); industrial benzol
(region Omaha and west); gasoline (group 3 district, subject to
considerable variation).
Multiple basing points. — Multiple basing points are observed in the
following industries: Cement; pulp; southern pine (subject to con-
siderable variation); oak flooring; lead; steel; muriate of potash;
sugar.
Local markets. — The markets for some products are so purely local
that no geographic price structure in the ordinary sense can be said
to exist. Outstanding examples of this situation are: Brick; sand
and gravel; building tile; bread.
Unsystematic variation. — In the case of some products, delivered
prices are so largely determined by local conditions, that there is no
systematic pattern of variation. This is true of: Most agricultural
commodities; meats.
PART III
PRICES AND PRICE MARGINS IN THE
DRUG TRADE
BY
SAUL NELSON and LAURA MAE BROWN
ASSISTED BY
BERNICE M. MONTGOMERY
PART III
PREFACE
Retail prices are of primary importance to the economy. It is
the price charged to the consimier which, in the last analysis, deter-
mines his standard of living and his purchasing power; that is, the
amount and variety of goods and services which he is able to buy on
the market. It is the consumer's purchasing power which, in turn,
governs the demand for labor and material resources used in production
of the goods produced by this great sector of the economy. It was
pointed out in part I of this volume that most recent studies of prices
have concentrated largely upon prices in wholesale markets and have
accorded insufficient emphasis to the importance of retail prices.
Part III is concerned with the behavior of retail prices and with
the price spread between wholesale and retail markets in one selected
field — drugs, toiletries, and drug sundries. The bulk of these products
is sold by retail druggists. They are of particular interest at the pre-
sent time because they afford the outstanding illustration of the eriect
of resale price maintenance legislation upon retail prices and distribu-
tive margins. Some of the economic implications of this legislation
have been discussed in part I of this volume. Part III makes no
further appraisal, but merely presents factual data which may serve as
a guide to poUcy.
Part III consists of three chapters. The first is a brief description
of some of the saUent characteristics of the market for products
handled by the drug trade. It points out that competition in the sale
of these products has for a number of reasons emphasized con-
siderations other than price, such as brand names, advertising, quality,
fancy packaging, and service, and describes some of the rnethods used
by manufacturers to control retail prices and distributive margins,
including particularly the so-called Fair Trade Acts.
Chapter II discusses various characteristics of the retail price
behavior of these products ; in particular the trend of retail prices
over a period of years and the effect of resale price maintenance
legislation upon this trend, the extent to which retail prices vary
between different stores, and comparative prices of nationally adver-
tised merchandise and of similar products sold under less well known or
private labels.
Chapter III presents data regarding the distributive margins or
mark-ups obtained by wholesalers and retailers on the sale of these
articles and describes the price structures for a few selected items
in some detail. This is followed by a more general sunmiary of mar-
gins for a wide variety of products.
The retail price data presented in this study are based largely upon
the records of the Retail Price Division of the Bureau of Labor
Statistics. Some unpublished information regarding retail prices in
349
25Q CONCBl^TBATION OF ECONOMIC POWER
one city — Columbus, Ohio — was also made available by the Marketing
Laws Survey of the Works Progress Administration. The information
regarding wholesale prices and distributive margins was obtained
through the helpful cooperation of various members of the industry,
including both manufacturers and wholesalers. Mr. Wroe AJderson, of
the Curtis PublisLmg Co., rendered material help in the planning of
this study.
Part III was prepared by Saul Nelson and Laura Mae Brown.
Bemice M. Montgomery compiled information regarding marketing
and pricing pohcies and price margins and assisted in preparing the
report.
CHAPTER I
GENERAL CHARACTERISTICS OF THE MARKET
The retail market for products handled by the drug trade— drugs,
toiletries and sundries — is in many respects a peculiar market, be-
cause of the nature of the product, the way in which the industry is
organized, and the operation of Federal and State laws which govern
competitive relations. The very nature of drug products makes it
peculiariy diflBcult for the average consumer to appraise their merits
objectively. Of course, problems of selection exist to a greater or less
extent in the purchase of most consumers' goods, but in the case of
drugs these difficulties are many times multiplied. Thus, while the
initial choice between two alternative makes of, say, canned corn or
clothing may be difficult, the consumer can and does experiment and
judges by his experience. The taste of food products or the wearing
quahties of apparel are not beyond the capacity of the average con-
sumer to measure. In the case of drugs, however, experimentation
is much less feasible and sometimes even dangerous. The physio-
logical effect of a drug is exceedingly difficult for the user to appraise
and even repeated use affords no basis for judgment as to efficacy.
Moreover, most buyers are probably completely unaware of the stand-
ards established in the United States Pharmacopoeia, and the letters
U. S. P. mean little or nothing to, him.
The inability of the average consumer to compare products in-
telligently on a price basis has diverted competition between rival
products largely to other things than price, such as advertising,
packaging, attractive flavor or odor and the offer of inducements to
distributors to stock and push merchandise. Within limits, a low
price may even prove to be a competitive disadvantage, particularly
if it is considerably lower than the level prevailing for similar mer-
chandise, since some consumers may associate an unusually low price
with poor quality. It is sometimes possible to sell more drugs or
cosmetics at a price which is at or only slightly below the prevailing
level for similar merchandise than it would be at prices materially
below that level.
The experience of one large drug chain illustrates this point. A few
years ago this organization placed its own private brand of aspirin on
the market at the price of 19 cents a hundred tablets. The prevailing
price for the best known manufacturer's bran(^ of aspirin ranged from
59 cents to 75 cents a himdred tablets. This very wide differential
in price apparently created suspicion among consumers with regard to
the merits of the chaiu-store brand. As a result volume failed to reach
a satisfactory level. This suggested new tactics, and the price was
raised from 19 cents to 49 cents. Consumers then began to accept it,
appearing to decide that it afforded a legitimate opportunity to econ-
omize without any sacrifice in quality. Volume soon expanded to a
profitable level.
351
352 CONCENTRATION OF ECONOMIC POWER
Consequently, in purchasing drugs and similar products, the con-
sumer is forced to rely largely upon advertising claims, or upon the
advice of his physician or druggist. Mere excellence of a product will
not find it a market unless some forms of sales assistance can be en-
listed. Some of the results of this competitive situation have been
described in part I of this volume.^ Wide differences occur between
the prices of drug products which are virtually or abolutely identical,
and retail "prices often bear little if any recognizable relationship to
the physical cost of production.
Moreover, the drug store itself differs in a number of respects
from most other retail stores. At least some of its sales clerks must
conform to certain standards of professional competency. In the
case of most independent drug stores the proprietor is himself a
registered pharmacist. In fact, many pharmacists think of themselves
as professional practitioners first and as retail merchants second;
they believe consciously or unconsciously that they are entitled to a
greater measure of protection in the conduct of their trade than would
be justified for mere lay retailers. The consumer, moreover, usually
attributes considerably more weight to the advice of a pharmacist
concerning his purchase of drug-store products than he would to that
of, say, a grocery clerk, regarding the merits of various food products.
All this serves to emphasize the nonprice aspects of competition.
Another distinct characteristic of the drug trade which affects
operating costs is the exceptionally large number of different indi-
vidual items handled. For example, a survey conducted by the De-
partment of Commerce showed that 6, out of a total of 7 independent
drug stores studied, carried between 4,500 and 8,200 distinct items.^
As a result, the turn-over of individual products is slow and, for the
same reason, the independent retailer frequently purchases in very
small lots. Thus he will often buy only one or two packages of each
item at any one time from his supplier, although in order to give
such dealings the dignity of wholesale transactions, they are usually
referred to as "1/12 of a dozen lots" or "1/6 of a dozen lots." The
only possible effect of such a situation is to raise wholesale and retail
operating costs and necessitate wider distributive margins.
RESALE PRICE CONTROLS
Manufacturers of branded drugs, toiletries, and cosmetics, and
trade-mark owners other than manufacturers, have long sought to
exercise some degree of control over the price at which products
bearing their labels were resold on the retail market. The reasons
for this pohcy have been considered in part I of this volume ^ and will
not be repeated here in detail. It is sufficient for the present purpose
to suggest what is probably the naost important of these reasons —
the desire to maintain retail prices at a level which would yield the
druggist a margin sufficient to enlist his active sales cooperation.
The so-called fair-trade laws, which at present afford a very effective
means of maintaining retail prices, will be described subsequently.
The degree and manner of control exercised by trade-mark owners
over retail prices varies considerably. One practice commonly utilized
> See supra, pp. 80-83.
'Bureau of Foreign and Domestic Commerce, Domestic Commerce Series No. 90. Cost, Sales, and Profits
in the Retail Drug Store, table 36, pp. IlO-lll.
» See sapra, pp. 60-62, 89-90.
CONCENTRATION OF ECONOMIC POWER 353
is the establishment of a list price, which may or may not be actually
printed on the package. This list price is usually set at even figures
(e. g., 25 cents, 50 cents, $1). Its significance differs considerably; in
some cases it is desired or anticipated that the Hst price should be the
actual level at which most transactions take place, in others it is
intended to constitute httle more than a nominal quotation and there
is no objection upon the part of the trade-mark owner to moderate
reductions below list. In either case a list price, particularly if it is
actually printed on the package, usually constitutes an effective
ceiling to prices, since consumers will rarely be willing to pay more
than the amount specified. Although the use of a list price is cus-
tomary, it is by no means universal. Thus, according to a study by
the United States Department of Commerce:
Out of 46 commodity groups studied, there are 15 on which list prices are
seldom shown. * * * These are after-shaving lotions, baby powders, dental-
plate brushes, dusting powder, disinfectants, eye medicines, face creams, face
powders, hairbrushes, finger-nail preparations, plasters, shampoos, skin lotions,
talcum powders, and sanitary napkins.^
In addition to, ©r in place of a list price, many trade-mark owners
also seek to establish a definite minimum below which their product
is under no circumstances to be sold at retail. Where there is both
a list and a minimum, the relation between the two varies. In some
cases the minimum may be estabhshed at the full hst, in others it
may be 1 or 2 cents imder list, and, in still others, it may be as much
as 20 to 25 percent below list.
Until recently, trade-mark owners had no legal means of requiring
the observance of such minimum prices. In fact, in 1911 a Supreme
Court decision ruled that any contract between a manufacturer and
his distributors providing for the maintenance of minimum resale
prices was a violation of the antitrust laws.* For the next 20 years
the. only method trade-mark owners could lawfully adopt in order
to maintain minimum resale prices for their products was to refuse
t9 sell to distributors of whose sales poUcy thgy disapproved. More-
over, such "refusal to sell" could only be practiced within certain
limits which impaired its effectiveness. Detailed supervision of dis-
tributors' sales poHcies was held illegal.®
Two major changes in this situation occurred during the last decade.
One of these was only of temporary duration; the National Re-
covery Administration code for the retail drug trade contained a
provision which imposed certain limits upon price cutting. The
second and more lasting change has been the enactment of state laws
permitting trade-mark owners to contract with their distributors for
the maintenance of minimum resale prices and making the provisions
of such contracts binding even upon distributors who are not parties
to the contract.
Although the first law of this kind was passed by California in 1933,
their effectiveness really dates only from December 7, 1936, when the
United States Supreme Court upheld their constitutionality.^ These
decisions greatly stimulated the drive by retail druggists for the enact-
• Bureau of Foreign and Domestic Commerce, Domestic Commerce Series No. 73, Merchandising Re-
quirements of the Drug Store Package, p. 10.
• Dt. Mil's Medical Company v. Parka and Sons (220 U. S. 373).
• Federal frade Commission v. Beech-Nut Packing Co. (257 U. S. 441); and Standard Fashion Co. v. Magrane
Houston Co. (258 U. S. 346 (1921)).
' Pep Boys, Manny, Moe, and Jack, of California v. Pj/royl Sales Company, Inc.: Kunsman v. Max Factor
ond Company, et al. (299 U. S. 198).
354 CONCENTRATION OF ECONOMIC POWER
ment of similar legislation in other States. As of June 1940, resale
price maintenance was pernussible in 44 States, excluding onlj Texas,
Missouri, Vermont, Delaware, and the District of Columbia. The
Federal Miller-Tydings Act, which was enacted on August 17, 1937,
exempts resale price maintenance contracts in interstate commerce
from the prohibitions of the antitrust laws.
The enactment of this legislation and the issuance of price main-
tenance contracts under its provisions by most leading manufacturers
of products handled by the drug trade nas had a very marked effect
upon the pattern of retail prices for the commodities affected. The
nature of this effect will be apparent from an examination of the data
presented later in this chapter.
Before proceeding to an examination of these data, however, it is
useful to consider briefly the significance of brand names and the vary-
ing competitive relationships between different kinds of drug products.
At least three distinct situations exist :
(1) Ther^ is a wide variety of standard drugs such as milk of mag-
nesia, aspirin, etc., which are regularly sold under those designations,
but which carry also the advertised labels of their maker (e. g.,
Bayer's Aspirin, Squibb's Castor Oil, Phillips' Milk of Magnesia, etc.).
There may be considerable differences in the manner of packaging or
compounding, but in the main, the active ingredients of these products
are identical and their composition is as specified in the United States
Pharmacopoeia.
(2) A second group of items is sold alternately imder names recog-
nized in the pharmacopoeia and under proprietary designations. For
example, the standard hypnotic known as barbital may also be pur-
chased under the proprietary designation Veronal; Phenacetin is the
proprietary name for a brand of acetophenetidin; Aristol-Winthrop
is a brand of thymol-iodide, etc. In a case of this sort, a product
sold under the proprietary name is usually priced at a level much
higher than the identical article sold under its standard chemical
nomeuclature. (See pt. I, ch. Ill, table 4, supra, p. 77.)
(3) There is finally the proprietary drug, the formula for which is
not found in the pharmacopoeia and which is, in a sense, a unique
product not precisely duplicated by any other manufacturer. Such a
product is known only by its proprietary name (e. g., Ex-Lax, Alka
Seltzer, Carter's Liver Pills) and cannot be compared exactly with
any other article serving a similar purpose.
CHAPTER II
RETAIL MARKETS
RETAIL PHICE TRBNI>S, 1929-1939
It is in the light of the general characteristics which imve been
described in the last chapter that retail price behavior in the drug
trade must be appraised. The information for this analysis comes
from the Retail Price Division of the Bureau of Labor Statistics
which has collected retail price data for certain drugSj toiletries, and
sundries for many years. For most of the individual items discussed
here quotations have been obtained in recent years from over 130
stores located in 32 cities scattered throughout the United States; 5
quotations are obtained from New York City and Chicago and 4
from each of the remaining cities. This coverage is clearly too small
to be adequately representative of the approxmiately 57,000 ^ drug
stores in the United States. This is particularly true with regard to
independent stores, since convenience of collection made it desirable
to concentrate on outlets of at least moderate size, located centrally
or near good transportation facilities, largely to the exclusion of very
small stores and of stores located in rural or outlying areas. The
group of reporting chain stores is probably more representative, espec-
ially because quotations from one outlet of a chain frequently hold
true for other outlets of the same chain in the same general locality.
To some extent, moreover, the wide geographic distribution compen-
sates for the small number of reporting stores in any given city.
In any analysis of price trends for products handled by the drug
trade, it is essential to consider individual brands separately and this
has further limited the number of quotations available for each prod-
uct since not all stores report prices for the same brand. For all
practical purposes each distinct brand constitutes a distinct com-
modity. The prices of, say, a nationally advertised and a nonadver-
tised brand of toothpaste display no closer relationship to each
other than does the price of toothpaste to that of razor blades.
The data assembled from these records of the Bureau of Labor
Statistics are given in tables 1 to 6, which show the recent trend of
retail prices for six widely used drugs, toiletries, or sundries. Data
are available as far back as 1929 for the product shown in table 1 ; for
all the others comparable information only extends to 1935 and 1936.
Each of these products is chosen to illustrate a somewhat different
type of market situation. In general, the data presented in the tables
indicate that, in the absence of resale price maintenance, there is
usually wide variation between the prices charged by different retailers
for any one article. Some stores will sell at the full list price, others
at moderate reductions below list, others cut prices very deeply.^
However, where minimum prices have been established by contract
' U. 8. Department of Commerce, Census of Business: 1935, Retail Distribution, vol. I, pp. 1-08.
' In the case of most widely advertised items, trade custom sanctioned reductions not exceeding 10 or 20
percent below the list price, but resented any "deep cut" prices below this level.
355
356
CONCENTRATION OF ECONOMIC POWER
the price range is much narrower and, where minimum prices have
been estabUshed at the full Ust price of the article, prices for aU stores
will tend to be uniform. The tables suggest, too, that price cutting
at retail over a period of time may cause progressive readjustments
in the wholesale prices charged by the manufacturer but that the
establishment of minimum prices may make such readjustments
unnecessary.
Table L-
-Retail prices of nationally advertised analgesic tablets, June 1929-June
1939
Number of stores reporting specified prices
TO
55
to
t^
rm
O!
05
Price
h
CO
o>
05
35
p
a
B
i
3
X3
a
Q
a
>
•g
2
a
o
O
3
s
>>
5
J2
0
S
P
a
g
o
p
i
>->
X3
a
p
JS
05
Q
$0.08
2
1
$0.10
1
1
1
7
5
9
5
4
1
3
1
1
$0 11
$0.12
3
1
1
1
32
3
3
3
2
3
2
1
1
58
1
2
2
1
4
2
1
21
1
6
28
24
29
32
37
35
37
38
42
1
6
1
30
40
1
5
2
31
46
1
6
1
25
50
$0,125
$0.13
5
3
3
1
39
2
1
39
3
1
37
3
1
37
5
1
35
5
1
34
fi
$0.14
3
45
"64"
?
$0.15
60
62
44
41
43
21
$0 17
$0.18
9
5
25
?,
4
4
17
3
3
14
3
3
7
2
2
8
2
1
6
$0 19
$0 20
$0.25
Total
79
79
79
79
79
79
79
79
79
79
79
79
79
79
79
79
79
79
79
Source: Bureau of Labor Statistics.
Analgesic tabids. — Table 1 is for l, widely used nationally advertised
brand of analgesic tablets. It Ulustratds the tendency for the price
of products of this kind to break away from the nominal list price in
the absence of legal controls, as well as the change in the situation
which occurs after such controls are imposed, bringing more uniform
and rigid prices to consumers.
Between June 1929 and May 1934, the nominal list price of this
product was 20 cents. During the latter month, both the wholesale
price and the list price were reduced, the latter dropping to 15 cents.
This was reflected in the sharp change in the prevaUing prices charged
between June and November 1934. (Retail prices in June 1934 did
not yet show the full effect of the change in the wholesale level during
May.) Between June 1929 and June 1934 there was a gradual break-
down of the retail price structure, though wholesale prices were not
reduced. At the beginning of this period more than one-third of the
reported quotations were at full list price and two were actually above
list. The number of quotations at 20 cents declined steadily and by
the time the wholesale price was reduced, only six of the quotations
remained at full list. In the meantime, 15 cents, which had been the
typical cut price in 1929, became more and more the accepted price,
accounting for over three-fourths of the quotations during 1933 and
the first half of 1934. In addition there was a considerable and in-
creasing number of outlets quoting prices substantially below the
CONCENTRATION OF ECONOMIC POWER 357
15-cent level — 12 cents and two for 25 cents. During the latter part
of this period, one or two quotations were recorded as low as 10 cents,
or 50 percent below the nominal list. To some extent, therefore, the
reduction of wholesale prices during May 1934 merely represented a
readjustment to a change which had already taken place in the retail
market. The sequence of events is of interest because a decline in the
retail market preceded that in the wholesale market, and may have
been a factor in inducing the manufacturer to announce his reduction.
The drop in wholesale prices was not appreciably reflected in retail
quotations until November 1934. The new list price, 15 cents, now
became the maximum price, and 12 cents, which had earlier been
quoted by only a few outlets, became the common "reduced" price.
Outlets which wanted to cut deeply below the prevailing market and
which had earlier been charging 12 cents or two for 25 cents now came
down to 10 cents.
Between November 1934 and January 1936 there were indications
that the sequence of changes which had occurred between 1929 and
1934 might be repeated. The number of quotations at full list de-
clined, those at the usual cut price of 12 cents increased rapidly, and
an appreciable number of stores charged a "deep cut" price of 10
cents or even 8 cents.
In the absence of resale price maintenance, it is entirely possible
that this would have led eventually to a new reduction at wholesale
prices and a further drop at retail. From the point of view of the
manufacturer such a change might well have been feasible because the
cost of the ingredients of this pharmaceutical, as in the case of most
widely advertised proprietary medicines, is quite small in relation to
its wholesale price.
However, resale price maintenance was held constitutional by the
United States Supreme Court during December 1936 and minimum
price contracts for this product are now in effect in 44 States. As a
result, sales below the 12-cent minimum became less frequent after
1936 and have now been completely discontinued by retailers report-
ing to the Bureau of Labor Statistics, including even those located in
areas in which price maintenance legislation is not in effect. The
most common price at the present time is the minimum price and the
number of quotations at the full list price has continued to decline.
In this last respect, however, it is questionable whether the establish-
ment of the legal minimum at 12 cents did more than confirm a trend
which had been evident since 1934. The evidence available is insuflfi-
cient to indicate whether the establishment of a legal minimum either
retarded or accelerated this trend; it did, however, set a limit beyond
which it cannot go, and possibly obviated the need for a periodic
readjustment of the wholesale level to compensate for the progressive
break-down of the retail price structure,
A drug sundry. — Table 2 is for a nationally advertised brand of drug
sundry and shows how the establishment of contractual minimum
prices tends to narrow the range of price variability. During August
1935 the manufacturer "suggested" the retail price of 18 cents. On
June 29, 1936, this was increased to 19 cents. Since May 1937, min-
imum prices have been established by contract at 20 cents, or two
for 39 cents. Between 1935 and 1939, wholesale prices were increased
in about the same proportion.
358
CONCENTRATION OF ECONOMIC POWER
During 1935 and 1936, while the prices su^ested by the manufac-
turer (18 cents and later 19 cents) were the quotations most com-
monly reported, there was considerable variation both above and
below this suggested level. After price maintenance became effec-
tive, the number of stores quoting the minimum increased rapidly.
As of March 1939, 102 of 107 stores reported prices of either 20 cents
or two for 39 cents,^ three stores reported slightly higher prices, and
two, both located in non-"fair-trade" States, charged slightly low^er
prices.
Of course this does not imply that the establishment of minimum
resale prices necessarily eliminates all the influences making for peri-
odic downward readjustment of the wholesale price structure, but
merely that it impairs one of the processes leading to such readjust-
ment. Where similar rival products offer effective price competition,
manufacturers must still adjust their price policies in order to avoid
loss of volume. However, there are many widely advertised drugs
and toiletries which are not subject to any effective price competition
from rival merchandise and for these the ability of the manufacturer
to stabilize the retail price structure may considerably increase his
degree of control over the wholesale price structure also.
A shaving article. — Table 3 represents a very different situation.
The product in this case is a nationally advertised shaving article.
The full list price is 25 cents and the minimum price has been estab-
lished by contract at this same level in aU "fair-trade" States except
New York, where the minimum is 24 cents. Before resale price main-
tenance became effective, there was a substantial number of quota-
tions well below list, most commonly at 19 cents. These reduced
prices have all had to be discontinued and all quotations are now at
the legal minimum of 25 cents, with the exception of a few stores, all
located in New York State, where the minimum is 1 cent lower.
This uniformity, which required substantial price advances by a num-
ber of stores, seems inevitable when the minimum price and the full
list price coincide.
Table 2.-
-Retail prices of nationally advertised drug sundry, March 19S5-March
19S9
Number of stores reporting specified prices
Price
March
1936
July
1935
October
1935
Janu-
ary
1936
July
1936
Decem-
ber
1936
June
1937
Decem-
ber
1937
June
1938
Decem-
ber
1938
March
1939
$0.14
6
5
2
1
6
1
47
1
1
1
$0.16
$0.16
2
44
$0.17
1
2
62
2
7
66
2
2
31
6
2
2
7
6
2/$0.35
1
2
1
1
$0.18
2/$0.37
1
3/$0.56
1
25
7
64
6
f
1
i
2
6
91
2
1
1
1
1
1
8
93
1
$0.19
2/$0.39
28
23
19
20
44
71
95
$0.20
$0.21
$0.23
12
6
2
16
3
2
18
1
2
18
1
1
17
2
3
15
2
2
94
$0.24
1
1
$0.25
2
1
1
1
Total.
107
107
107
107
107
107
107
1 107
107
107
107
Source: Bureau pf Labor Statistics.
'The fact that a store reported 20 cents as Its price did not mean that It would not sell two for 39 cents,
t)ut merely that most of Its sales were in single units.
CONCENTRATION OF ECONOMIC POWER
359
Table 3. — Retail pricesof a nationally advertised shaving article, March 1935- March
1939
Number of stores reporting specified prices
Price
March
1935
July
1935
October
1935
Janu-
ary
1936
July
1936
Decem-
ber
1936
June
1937
Decem-
ber
1937
June
1938
Decem-
ber
1938
March
1939
$0.14
1
$0.16
2
1
3
1
2
1
1
' i"
10
1
1
1
1
$0.17..
$0.18
.?0.19
9
10
11
4
2
6
1
2
2
2
2
102
i
1
$0.21
$0.23
i
2
2
$0.24
5
103
5
104
4
105
4
$0.25
97
94
94
96
103
101
106
Total-
110
110
110
110
110
110
110
110
110
110
110
Source: Bureau of Labor Statistics.
Table A.-r-Retail prices of a nationally advertised dentifrice, March 1936-March 1939
Number of stores reporting specified prices
Price
March
1935
July
1935
October
1935
Janu-
ary
1936
July
1936
Decem-
ber
1936
June
1937
Decem-
ber
1937
June
1938
Decem-
ber
1938
March
1939
$0.24... ..
1
1
1
2
1
1
1
$0.27
$0.28
$0.29. .
1
$0.30...
1
10
1
9
$0.31
13
2
3
11
3
10
8
1
1
17
6
i
15
7
1
$0.33
18
5
1
1
1
24
2
1
1
25
1
1
1
25
$0.34..
$0.35
3
3
1
8
1
1
$0.36
1
1
$0.37
1
2
3
1
$0.38... .
5
6
1
7
2
1
1
4
1
6
4
1
$0.39
2
1
3
2
$0.41
Total-
28
28
28
28
28
28
28
28
28
23
28
Source: Bureau of Labor Statistics.
Table 5. — Retail prices of a nationally advertised liquid laxative, March 1935-March
1989
Number of stores reporting specified prices
Price
March
1935
July
1935
October
1935
Janu-
ary
1936
July
1936
Decem-
ber
1936
June
1937
Decem-
ber
1937
June
1938
Decem-
ber
1938
March
1939
$0 27
1
1
5
1
2
2
1
7
$0.28
1
6
1.
7
1
1
1
1
1
1
3
i'
$0.29
$0.30...
4
1
1
1
2
12
2
1
2
1
2
1
5
1
3
1
$0 31
1
$0.32
$0.33-.- ..
3
15
3
15
3
15
2
13
2
12
1
1
2
23
2
11
1
1
2
23
2
$0.34
$0 35
9
1
3
1
21
1
1
1
1
1
3
9
1
3
1
21
._
2
1
2
12
2
$0.36.
$0.37.
$0.39
$0.40
$0.43.......
$0.44
$0.45
$0.48
$0.50.
1
1
22
1
1
1
1
1
2
1
2
21
1
1
"i"
1
2
1
2
21
1
2
19
1
2
1
1
1
2
1
2
20
1
1
1
2
3
21
1
1
1
1
2
24
1
1
1
1
2
1
1
3
1
3
1
3
1
2
Total. -
51
51
51
51
51
51
51
51
51 51
61
Source: Bureau of Labor Statistics.
247149— 41— No. 1 25
360
CONCENTRATION OF ECONOMIC POWER
A dentifrice. — Table 4 shows price changes since 1935 for a nation-
ally advertised dentifrice. The minimum price fixed by contract is
at present 33 cents; the full list price is 40 cents. Prior to the
issuance of price-maintenance contracts, there was a substantial
degree of price variation, with 31 cents being the most common price
and a considerable number of outlets charging both more and less
than this figure. Since 1936 there has been a steady concentration
of quotations at the minimum level, and at the present time only
three stores are reporting prices above the minimum.
A nationally advertised liquid laxative. — Table 5 is for a nationally
advertised liquid laxative which is sold under the provision of the fair-
trade laws in only one State — California — where the minimum ha&
been established at 39 cents. The full list price is 50 cents.
The difference in the distribution of price quotations for this prod-
uct and for the four price-maintained articles previously described is
striking; 23 of the 51 quotations are below the 39-cent level which
has been established as a minimum price in California; only 4 were
at or near the full list price. The California minimum of 39 cents,
however, is also the modal or most commonly quoted price. The
most frequent deep-cut price is 34 cents, which is approximately 31
percent below list. The distribution of prices as of March 1939 wa&
not markedly different from that for March 1935. It is evident that
were this product placed under price maintenance nationally, with
the minimum the same as that now in force in California, substantial
price increases would be necessary.
A standard, unhranded, liquid laxative. — The quotations in table 6
are for a standard liquid laxative (unrelated to that shown in table
5), which is not sold under a brand name but bottled directly by the
retail druggist. There is, of course, no minimum nor list price for
this item. The same laxative is sold frequently under a manufac-
turer's label and a comparison between the prices of the branded
and the unbranded product will be presented subsequently. (See
table 25, p. 374.)
Table 6.—
-Retail prices of a standard liq
Mid laxative, July 19S6-March 1939
Number of stores reporting specified prices
Price
July
1936
December
1936
June
1937
December
1937
June
1938
December
1938
March
1939
$0.15
8
3
5
7
6
3
7
8
6
3
7
8
6
3
6
10
1
3
1
50
3
1
7
3
4
11
1
2
7
3
4
11
1
2
7
$0.17
3
$0.19
4
$0.20
11
$0.21
1
$0.23
6
6
6
3.
$0.24
$0.2fi
51
I
50
3
2
49-
4
2
52
3
1
63
2
1
53-
$0.30
$0.36
Total
84
84
84
84
84
84
84
^oroe: Bureau ol Labor Statistics.
This table illustrates the effect of custom and common practice in
bringing about uniform quotation where -a minimum is not set.
Fifty-three of a total of 84 outlets all charge 25 cents for a 4-ounce
bottle. Moreover, prices for this nonadvertised item are predomi-
CONCENTRATION OF ECONOMIC POWER 3gl
nantly quoted in even figures (25 cents, 20 cents, 15 cents), in con-
trast with the odd figures (12 cents, 39 cents, two for 39 cents),
which have been estabUshed as fair-trade minima for the products
previously discussed and which were favored even before price-main-
tenance contracts had been issued. There has been a slight tendency
toward lower prices since 1936; the number of quotations above 25
cents has decreased while the number of stores reporting 20 cents has
increased.
PRICE TRENDS CHAINS COMPARED WITH INDEPENDENTS
The -foregoing analysis indicates the price trends for these drugs
and sundries in aU stores reporting to the Bureau of Labor Statistics
regardless of whether they were independently owned or were members
of chain organizations, in order to indicate what kind of general price
situation the consumer faces. Prices quoted by chain stores and by
independents for the same products are now shown separately, in
tables 7 to 12. Certain differences in price behavior between these
two types of outlet are apparent although the general pattern is much
the same.
On the basis of this very limited group of commodities, it appears
that prices charged by chain drug stores for nationally advertised
items are on the average somewhat lower than those charged by
independent drug stores, even when minimum prices are in effect.
However, where the minimum price is identical with the list price,
there is no room for any difference in pricing practice and all outlets
are likely to quote the same figure.
On the otJier hand, there are many independent drug stores which
charge prices as low as those charged by any chain store and the
price ranges clearly overlap. It can only be said, therefore, that
a larger proportion of chain stores than of independents tend to
charge low prices for nationally advertised merchandise and that,
in the case of price-maintained products, where the minimum price
has been established below the list price, a larger proportion of
independents than of chains will be foimd charging the full list price.
However, for the one standard nonadvertised product for which data
were available, there was no significant difference between prices
quoted by chain stores and those quoted by independents.
In the case of the nationally advertised analgesic tablets shown in
table 7, for example, 20 independent stores were charging the full list
price of 20 cents in 1929 and the same number were charging the
regular cut price of 15 cents. Only one independent quoted less than
15 cents. During the same period 5 chain stores reported a price
of 20 cents, 12 reported 15 cents and 5 charged 12 cents or 13 cents.
By June 1934, 7 independents but only 2 chain stores continued quoting
prices exceeding 15 cents; two independents and 6 chain stores were
charging less than 15 cents. Subsequent to the wholesale price reduc-
tion which took place during 1934, the chain stores again took the
lead in reducing prices. From November 1934 on, 12 cents was the
price most commonly charged by chain stores while, with the excep-
tion of the last period shown — June 1939 — 15 cents was the price most
frequently reported by independents. As of June 1939, 27 of a total
of 30 chain stores were charging the fair-trade minimum, while more
than half of the independents were quoting more than this minimum.
362
CONCENTRATION OF ECONOMIC POWER
Table 7. — Retail prices of a nationally advertised analgesic tablet, June 1929-
June 1939
NUMBER
OF INDEPENDENT STORES SELLING ST DESIGNATED PRICES
Retail price
§
3
1-5
i
d
M
0
3
1-5
0
5
>
s
i
1
3
1
0
0
0
a
0
2
3
t-s
0
i
a
5
1
0
§
3
00
2
0
1
a
3
$0.08
1
1
11
1
1
12
$0.10
2
8
1
3
1
11
4
7
1
13
1
14
1
13
1
13
$0.12
1
1
1
1
1
1
1
1
1
1
16
1
4
1
27
14
1
4
2
28
19
1
5
1
23
?3
$0.12>i
$0.13
2
2
2
1
33
1
1
33
2
1
32
2
1
31
3
1
31
4
1
30
5
$0.14
1
20
2
28
1
$0.15
33
37
1
3
1
5
38
40
35
35
36
?n
$0.17
$0.18
6
1
20
1
I9"
3
3
2
1
6
2
$0.19 .•
.$0 20
14
11
5
$0 25
Total
"49"
~49"
"49"
49
"49"
"49"
I9"
"49"
l9~
49
IT
49
49
"49"
Ig"
49
"49"
~49
NUMBER OF CHAIN STORES SELLING AT DESIGNATED PRICES
$0 08
1
4
.. -
$0.10
■
1
5
4
5
3
2
$0.11 . . ..
$0.12
3
1
1
2
2
2
1
2
1
1
1
21
3
1
1
13
17
17
18
20
24
21
24
25
26
26
27
?7
$0.12Vi
.$0.13
3
3
1
1
1
1
1
2
1
1
1
1
1
$0 14
1
17
1
4
3
21'
1
$0.15
12
3
4
5
1
30
22
22
9
6
7
6
6
5
6
4
4
3
3
2
1
$0.13
$0 19
3
3
2
2
1
2
1
1
$0.20
$0.25
Total
30
30
~W
IT
30
'W
30
30
30
"so"
"so"
30
~30~
lo~
"so"
'W
'W
30
Source: Bureau of Labor Statistics.
Table 8. — Retail prices of a nationally advertised drug sundry — March 1935 to
March 1939
NUMBER OF INDEPENDENT STORES REPORTING SPECIFIED PRICES
Retail
Price
March
1935
July
1935
Octo-
ber 1935
Janu-
ary 1936
July
1936
Decem-
ber 1936
June
1937
Decem-
ber 1937
June
1938
Decem-
ber 1938
March.
1939
$0.14
1
1
14
21
12
2
2
2
1
15
19
12
3
2
$0.17
26"
17
14
1
2
20
17
14
2
14
23
13
1
2
1
5
34
11
2
2
$0.18
$0.19
$0.20.
$0.21
$0.23
2
16
32
3
..
1
1
2
47
2
1
1
1
50
1
1
51
1
1
1
51
1
$0.24
1
1
$0.25
2
1
1
Total-
55
55
55
55 1 55
55
55
55
55
55
55
NUMBER OF CHAIN STORES REPORTING SPECIFIED PRICES
$0.14
4
3
2
1
5
1
32
1
1
1
$0.15
$0.16
$0.17
5
2
30
1
2
42
1
7
36
2
17
5
1
2
2
6
2/$0.35 or
$0.17^4...
1
1
$0.18
2/$0.37 or
$0.18h...
3/$0.56 or
$0.28
1
9
7
32
2
1
1
$0.19
7
4
2
3
21
37
2/$0 39 or
$0.19^...
6
■ 44
8
43
8
44
s
$0.20
4
4
4
4
1
1
4
43
1
$0.21
4
$0.23
Total..
52
52
52
52
62
52 1 52
52
52
52
52
Source: I
3ureau 0
Labor S
tatistlcs.
CONCENTRATION OF ECONOMIC POWER
363
Table 9. — Retail prices of a nationally advertised shaving article, March- 19S5-
March t939
NUMBER OF INDEPENDENT STORES SELLING AT DESIGNATED PRICES
Retail
Price
March
1935
July
1935
Octo-
ber 1935
Janu-
ary 1936
July
1936
Decem-
ber 1936
June
1937
Decem-
ber 1937
June
1938
Decem-
ber 1938
March
1939
$0.14
1
$0.16
1
3
1
3
1
3
1
3
1
1
1
$0.19
1
1
1
$0.21 .
$0.23
1
2
2
1
1
2
$0.24
1
57
1
56
$0.25.
53
52
52
52
56
56
65
57
58
Total..
58
58
68
68
58
68
58
58
68
68
58
NUMBER OF CHAIN STORES SELLING AT DESIGNATED PRICES
$0.14
$0.16
1
1
2
1
i
1
i'
7
1
1
$0 17
$0.18
$0.19
$0.21
6
7
8
3
1
6
1
2
1
1
$0 23
$0.24
2
47
4
46
4
48
4
48
4
$0.25
44
42
42
44
47
45
48
Total..
52
52
62
62
52
52
52
52
52
62
52
Source: Bureau of Labor Statistics.
Table 10. — Retail prices of a nationally advertised dentifrice, March 1935-March 1939
NUMBER OF INDEPENDENT STORES REPORTING SPECIFIED PRICES
Retail
Price
March
1935
July
1935
Octo-
ber 1935
Janu-
ary 1936
July
1936
Decem-
ber 1936
June
1937
Decem-
ber 1937
June Decem-
1938 ber 1938
March
1939
$0 30
1-
$0.31
$0.33
4
4
3
2
1
2
1
1
3
2
1
4
2
5
2
6 6
6
$0.34 . .
1
1
1
1
$0 35
1
1
1
1
1
$0 36
1
1
$0.38
$0.39
$0.41
1
3
1
2
2
1
1
3
1
2
3
1
2
3
2
1
2
1
I . . 1
Total..
9
9 9 ! 9
1
9
9
9 j 9
9
9
9
NUMBER OF CHAIN STORES REPORTING SPECIFIED PRICES
$0 24
1
1
1
2
1
$0 27
1
1
$0 28
$0 29
1
$0.30
i
6
$0.31
$0.33..
9
6
3"
10
2
8
7
1
14
4
11
6
1
13
3
1
18
1
19
19
$0.34.
$0 35
3
3
1
8
$0.36
$0 37
1
1
1
1
$0.38..:....
$0.39
4
2
5
l"
4
1
.
1
1
Total..
19
19
19
19
19
19
19
19 ! 19 19
19
Source: Bureau of Labor Statistics.
364
CONCENTRATION OF ECONOMIC POWER
Table 11 — Retail prices of a nationally advertiaed liquid laxative, March 19S5-
March 19S9
NUMBER OF INDEPENDENT STORES REPORTING SPECIFIED PRICES
RetaU
Price
March
1935
July
1935
Octo-
ber 1935
Janu-
ary 1936
July
1936
Decem-
ber 1936
June
1937
Decem-
ber 1937
Jime
1938
Decem-
ber 1938
March
1939
$0 27
$0 28
$0.29
$0 30
3
3
1
2
1
2
3
2
1
1
1
1
1
$0 31
$0 32
$0.33
1
2
1
4
I
6
1
6
1
6
1
5
1
4
1
1
3
1
1
$0.34
$0.35
$0.36
$0.37
$0.39
$0.40
$0.43
$0 44
2
16
3
1
1
1
15
i
4
1
1
17
1
1
1
16
1
1
1
17
1
1
1
15
1
2
1
16
1
1
1
17
1
1
18
18
19
1
1
$0.45
$0.48
$0.50
3
2
1
2
1
1
2
1
1
2
1
1
1
1
1
2
1
1
2
1
1
3
1
3
i
3
1
2
Total-
31
31
31
31
31
31
31
31
31
31
31
NUMBER OF CHAIN STORES REPORTING SPECIFIED PRICES
$0.27
1
1
2
$0.28
1
3
1
4
1
1
1
1
$0.29
$0.30
2
2
2
2
2
1
1
1
$0.31
1
1
2
2
1
1
1
8
1
$0.32
$0.33
2
9
2
9
2
9
1
8
1
8
1
8
1
$0.34
$0.35
7
6
5
8
1
$0.36
$0.37
2
2
1
1
1
5
1
1
4
1
1
4
1
1
4
2
2
4
1
2
5
1
2
5
1
2
$0.39
$0.40
5
6
5
5
$0.43
$0.44
1
1
1
1
1
1
$0.45
$0.48
$0.50
Total..
20
20
20
20
20
20
20
20
20
20
20
Source: Bureau of Labor Statistics.
A somewhat similar comparison is indicated for the other price
maintained products shown in tables 8, 9, and 10. Before the ad-
vent of price maintenance, price cutting was more pronounced among
the chains than among the independents; after minimum prices were
prescribed, practically all chains adhered to these minima, while a
few independents continued to quote prices above these minima. In
the case of the shaving article shown in table 9, all independent
stores charged the full list price even in New York where the mini-
mum was 1 cent lower, but all the chain stores in New York charged
the reduced price. No minimum price was fixed by contract for the
nationally advertised liquid laxative shown in table 11, except in
California. As mentioned earlier, the full list price of this product
is 50 cents and the California minimum 39 cents. Four independents
but no chain stores charged more than this Cahfomia minimum.
More than half of the independent stores quoted 39 cents, while
three-fourths of the chains charged less than 39 cents.
There is much less difference evident in the case of the nonadver-
tised laxative shown in table 12. The price distribution is much the
same for both chain stores and independents.
CONCENTRATION OF ECONOMIC POWER
365
Table 12. — Retail prices of a standard liquid laxative, July 19S6-March 19S9
NUMBER OF INDEPENDENT STORES REPORTING SPECIFIED PRICES
Retail price
July 1936
December
1936
June 1937
December
1937
June 1938
December
1938
March
1939
$0.15
$0.19
3
1
6
1
3
1
6
3
2
5
1
3
2
6
1
1
29
1
3
2
6
3
2
6
3
2
$0.20
6
$0.23
$0.24
$0.25
31
1
32
1
31
1
31
1
31
1
31
$0.35
1
Total.
43
43
43
43
43
43
43
NUMBER OF CHAIN STORES REPORTING SPECIFIED PRICES
$0.15
5
3
4
1
3
3
6
2
3
3
5
3
3
3
4
4
1
2
21
3
4
3
2
5
1
2
21
3
4
3
2
5
1
2
22
2
4
$0.17
3
$0.19 ...
2
$0.20
5
$0.21
1
$0.23
4
20
3
1
5
18
3
1
4
18
4
1
3
$0.25
22
$0.30
1
$0 35
Total
41
41
41
41
41
41
41
Source: Bureau of Labor Statistics.
Retail prices as reported by the Marketing Laws Survey. — The rela-
tively small number of drug stores reporting to the Bureau of Labor
Statistics limits the degree to which the foregoing comparisons can
be considered generally representative, particularly for independent
outlets. Some light may be thrown upon this question by the re-
sults of a field study conducted by the more comprehensive Market-
ing Laws Survey of the Works Progress Administration in Columbus,
Ohio, during August 1938. Although this was confined to one city,
it covered many more drug stores than the Bureau of Labor Statistics
reporting list.
The results of this survey show that prices charged by independent
Columbus drug stores for these products were somewhat higher than
those of independent stores reporting to the Bureau of Labor Statistics
and that the foregoing analysis, confined largely to stores of at least
moderate size located near convenient transportation facilities, may
indicate a greater degree of price uniformity than, in fact, exists.
The only exception was the case of the shaving article (table 15),
where the minimum price and the hst price coincided. This is shown
in tables 13 to 17 inclusive, which compare the distribution of prices
as reported to the Bureau of Labor Statistics during Jime 1938 with
those obtained by the Marketing Laws Survey in Columbus for the
first five of the products which have been described. (The only item
omitted was the standard liquid laxative shown in tables 6 and 12.)
It is beheved that the group of stores visited during the course of
the Marketing Laws Survey was adequately representative of all
types of independent retail drug stores in Columbus. However, the
number of chain store quotations obtained was less adequate.
In the case of the analgesic tablets for example, (table 13), 74 percent
of the Columbus stores charged the full Hst price and only 10 percent
charged the minimum as compared with 55 and 33 percent respectively
for Uie Bureau of Labor Statistics group. In the case of the drug
366
CONCENTRATION OF ECONOMIC POWER
sundry (table 14), only three of the 55 independent stores reported
prices above the minimum to the Bureau of Labor Statistics, while
almost half of the Columbus stores charged more than the minimum;
the highest price reported to the Bureau was 25 cents, while prices in
Columbus ranged as high as 32 cents. Almost half the Columbus
stores charged 39 cents for the dentifrice (table 16), a price higher
than any reported to the Bureau of Labor Statistics for the same
period. In the case of the liquid laxative (table 17), the same con-
trast is evident; the price most commonly reported was 45 cents, while
that most frequently recorded by the Bureau of Labor Statistics was
39 cents.
The same general situation holds for a widely advertised proprietary
cold remedy (table 18). Bureau of Labor Statistics data for this
article were available only for Jirne 1939. The full list price was 35
cents and the minimum fair-trade price was 27 cents. Eighty-four
percent of the chain outlets reporting to the Bureau of Labor Statistics
quoted the minimum price with the remainder evenly divided below
and above the minimum. (The prices below the minimum were
reported for States in which there was no price-maintenance legis-
lation.)
Table 13. — Retail prices of a nationally advertised analgesic tablet
Chain drug stores
Independent drug stores
Price
B. L. S.
data 32
cities
W. P. A.
data
Columbus,
Ohio
B.L. S.
data 32
cities
W. P. A.
data
Columbus,
Ohio
$0.12..
26
4
16
5
2/$0.25 ...
1
$0.13
1
1
4
1
27
5
$0.14
3
$0.15
3
37
Total
30
5
49
60
Source; Bureau o( Labor Statistics (June 1938) and Marketing Law Survey, W. P. A. project, Columbus,
Ohio (August 1938).
Table 14. — Retail prices of a nationally advertised drug sundry
Chain drug stores
Independent drug stores
Price
B. L. S.
data 32
cities
W. P. A.
data
Columbus,
Ohio
B. L. S.
data 32
cities
W. P. A,
data
Columbus
Ohio
$0.18 ..
1
3/$0.5e
1
$0.19 "
1
X
2/$0.39
8
43
2
4
$0.20
50
1
12
$0.21
2
»r,.23
4
$0.24 "
1
1
2
$0.25
$0.29
1
$0.30 "
1
$0.32 "
1
Total
62
6
66
24
.. —
Ohlo"(AuSieM)°' ^^^^ statistics (June 1938) and Marketing Law Survey, W. P. A. project, Columbus,
CONCENTRATION OF ECONOMIC POWER 3^7
Table 15. — Retail prices of a nationally advertised shaving article
Chain drug stores
Independent drug stores
Price
B. L. S.
data 32
cities
W. P. A.
data
Columbus,
Ohio
B. L. S.
data 32
cities
W. P. A.
data
Columbus
Ohio
$0.14
1
1
56
$0.24
4
48
$0.25
3
16
Total
62
3
58
10
Source: Bureau of Labor Statistics (June 1938) and Marketing Law Survey, W. P. A. project, Columbus,
Ohio (August 1938).
Table 16. — Retail prites of a nationally advertised dentifrice
Chain drug stores
Independent drug stores
Price
B. L. S.
data, 32
cities
W. P. A.
data,
Columbus,
Ohio
B. L. S.
data, 32
cities
W. P. A.
data,
Columbus,
Ohio
$0.33
18
1
2
6
1
1
1
7
$0.34
$0.35
1
$0.36 ..
1
$0.39 -
7
Total
19
2
9
16
Source: Bureau of Labor Statistics (June 1938) and Marketing Law Survey, W. P. A. project, Columbus,
Ohio (August 1938).
Table 17. — Retail prices of a nationally advertised liquid laxative
Chain drug stores
Independent drug stores
Price
B. L. S.
data, 32
cities
W. P. A.
data,
Columbus,
Ohio
B. L. S.
data, 32
cities
W. P. A.
data,
Columbus,
Ohio
$0.28
1
1
1
1
8
$0.29 . . .
2
$0.31
$0.33
1
2
1
4
1
$0.34
$0.35
$0.36
1
2
5
$0.37
1
$0.39
3
18
15
$0.41
1
$0.43
1
5
$0.45 . .
20
$0.47
4
$0.48
1
3
$0.50...
4
Total .. .
20
6
21
50
Source: Bureau of Labor Statistics (June 1938) and Marketing Law Survey, W. P. A. project, Columbus,
Ohio (August 1938).
368
CONCENTRATION OF ECONOMIC POWER
Table 18. — Retail prices of a nationally advertised cold remedy
Price
$0.24.
$0.25.
$0.27.
$0.28.
$0.29-
$0.30.
$0.31.
$0.32.
$0.33.
$0.35.
Total.
Chain drug stores
B. L. S.
data, 32
cities
50
W. P. A.
data,
Columbus,
Ohio
Independent drug stores
B. L. S.
data, 32
cities
W. P.A
data,
Columbus,
Ohio
55
Source: Bureau of Labor Statistics (June 1938) and Marketing Law Survey, W. P. A. project, Columbus,
Ohio (August 1938).
Of the independent drug stores reporting to the Bureau, 62 percent
were at the minimum and the remainder were above the minimum.
Independent drug stores in Columbus, Ohio, according to the W. P. A.
Survey, showed a tendency to charge somewhat higher prices than did
independent drug stores in the Bureau of Labor Statistics reporting
group. Eighty percent quoted more than the minimum and the price
most frequently charged was 29 cents rather than 27 cents.
The small number of quotations available for chain drug stores in
Columbus precludes any adequate comparison with prices reported to
the Bureau of Labor Statistics. To the extent to which data are avail-
able, however, the distribution of prices does not differ greatly. More-
over, since prices reported by chain stores to the Bureau of Labor
Statistics are often representative of prices charged by all outlets of
the given chain in each locality, it seems probable that chain-store
prices reported to the Bureau are fairly representative of general
practice.
Apparently, therefore, prices reported to the Bureau of Labor Sta-
tistics by independent retail drug outlets are somewhat lower than is
true for independent drug stores generally. This is probably due to
the fact that small independent druggists, and especially those who
are not located adjacent to good transportation facilities, charge some-
what higher prices for nationally advertised merchandise than do the
larger and more conveniently located stores from which the Bureau
compiles data. Consequently, the difference between prices charged
by chain stores and by independent drug stores generally is probably
somewhat wider than indicated in tables 7 to 12 above.
ADVERTISED AND SUBSTITUTE BRANDS
The importance of brand names and advertising in influencing the
prices of products handled by the drug trade has already been dis-
cussed.* In general, widely advertised products command a substan-
tial premium over less well-known or unbranded commodities of the
same general kind ; frequently these differences exist when the branded
« See supra, pp. 80-83.
CONCENTRATION OF ECONOMIC POWER 3g9
and imbranded commodities are identical except in name. Particu-
larly wide price differentials are encountered between articles sold
under proprietary names and the same articles bearing their standard
chemical designations. Part I of this volume includes a table show-
ing that for 1 1 standard drug products the aggregate cost per ounce
totaled $28.95 under the proprietary designations and only $4.59 when
sold under their standard chemical names.*
The existence of these wide price differentials may also have fur-
nished retail druggists with an additional means of persuading drug
manufacturers to issue price maintenance contracts guaranteeing mar-
gins which the retailers deem satisfactory. An example of this sort of
argument is described by Ewald T. Grether in a recent book on the
subject:"
Added to the threatened refusal to cooperate with manufacturers who did not
meet the demands of retailers, there was a growing complaint that the pharma-
cists had allowed too much manufacturing to leave their own establishments.
John Culley, in a lengthy paper presented -before the Northern California Retail
Druggists' Association, November 2, 1935, appealed to pharmacists to return to
their former professional status. He contended that retail druggists "are tired of
acting as a manufacturer's distributor without pay and many time? paying for
the privilege." He pointed out that as a result of the increase in trade-marked
proprietary products the retail druggist:
"* * * must increase his investment without any additional output. He is
obliged to keep in stock a dozen or more varieties of trade-marked brands of
proprietary remedies having a similar fanciful coined name, all containing the
same ingredients, claiming as having the same extravagant medical virtues and
all outrageously overpriced, all of which is detrimental to the interests of the
pharmacist, the physician, and to the public."
He argued that if it is ethical for manufacturers to duplicate and imitate each
other's products, it is equally so for the pharmacist, and strongly advised him to
manufacture and introduce many of his own products, thus giving him both a
manufacturing and retailing profit. The paper concluded with the following state-
ment and a number of examples to illustrate his contention.
"For your information and convenience 1 will quote a few cost prices on some
types of preparations that can be easily and quickly made by the retail pharmacist
and quote Also the cost price he will have to pay for a similar product from the
large manufacturer. It is interesting to note that the New Jersey State Pharma-
ceutical Association, by means of a standing professional committee recognizes
the facts expressed in this paper and have selected and placed before their mem-
bers many formulae for remedies that are similar to well known but drastically
overpriced proprietary trade-marked articles. I have attached to this paper
several formulae with working directions some of which are those recommended
by the N. F. Ph. A. and will be pleased to furnish them to those interested:
Elixir amidopyrine:
Cost to buy 1000 cc $5. 44
Cost to make do 1. 25
Elixir phenobarbital :
Cost to buy the proprietary pint__ 2. 50
Cost to make with theUSP chemical do .35
Syrup potassium guaiacol sulphonate:
Cost to buy. . 1000 CC- 3. 00
Cost to make do . 80
Ephedrine inhalant:
Cost to buy ._. do 17. 00
Cost to make do . 80
Ephedrine inhalant compound:
Cost to buy --- -do 17. 00
Cost to make do 1. 35
• See supra, p. 81.
• Price Control Under Fair Trade Legislation, by Ewald T. Grether, pp. 94-86.
3yQ CONCENTRATION OF ECONOMIC POWER
Ephedrine solution 3 percent:
Cost to buy pint-- 4. 80
Cost to make do 1. 25
Solution ephedrine and epinephrine:
Cost to buy-- 1000 cc- 28. 00
Cost to make do 3. 80
Capsules ephedrine sulph. % grain each:
Cost to buy 100.. 2. 12
Cost to make do . 34
Capsules ephedrine sulph. % grain:
Cost to buy do 3. 50
Cost to make do . 60
The following represent just a few of the USP and NF preparations that
can be made much cheaper and easier than to buy ready-made:
Brown mixture:
Cost to buy pint.. $0. 55
Cost to make do . 31
Rhubarb and soda mixture:
Cost to buy do . 55
Cost to make do . 30
Elixir sodium bromide:
Cost to buy do . 70
Cost to make do . 27
Elixir potassium bromide:
Cost to buy do . 80
Cost to make do . 30
Elixir terpin hydrate:
Cost to buy gallon.. 7. 68
Cost to make do 3. 36
Elixir terpin hydrate and codeine:
Cost to buy do 8. 50
Cost to make do 5. 36
Elixir simple:
Cost to buy do 5. 40
Cost to make.- do 2. 10
Syrup hydriodic acid:
Cost to buy pint.. . 78
Cost to make do . 18
Syrup wild cherry:
Cost to buy or make from Fluidextr do . 45
Cost to make do .20
Dobells solution:
Cost to buy gallon.. 1. 25
Cost to make do .25
Calamine lotion:
Cost to buy do 1. 50
Cost to make ^..do . 73
Ointment white precipitate:
Cost to buy pound.. 1. 26
Cost to make ; do . 60
Ointment sulphur:
Cost to buy . do . 67
Cost to make do . 35
Fehlings solution:
Copper A:
Cost to buy do 1. 00
Cost to make do . 10
Alkaline B:
Cost to buy do 1. 00
Cost to make ..^ do . 40
Benedicts solution:
Cost to buy pint.. . 60
Cost to make do . 25
CONCENTRATION OF ECONOMIC POWER
371
Price spreads between different brands of articles sold under the
same generic name (e. g., aspirin, toothpaste, codliver oil) are usually
not quite as wide as those between drugs sold under their chemical
and their proprietary designations, but they may still be very con-
siderable. For example, a nationally advertised brand of aspirin
sells at the minimum fair trade price of 59 cents per 100 tablets; other
advertised brands of aspirin commonly sell for 39 cents per 100 tablets,
and private or unadvertised brands may be obtained regularly for 19
cents and sometimes for as little as 8 cents. One chain store has two
private brands of aspirm, both presumably identical except for name;
yet one is sold for 39 cents per 100 tablets and the other for 19
cents per 100. In general, clerks in this chain do not offer the 19-cent
article except upon demand and even then they have been known to
sell it reluctantly. The cheaper product is what is usually known in
the trade as a ''fighting" brand: that is, it is offered to meet the price
competition of cut-rate outlets.
Ordinarily the Retail Price Division of the Bureau of Labor Statistics
collects prices only for the brand most commonly sold in each store.
During March and June 1939, however, agents were instructed to
collect prices not only upon the best selling brand — usually a nationally
advertised product — but also for substitute or private brands of the
same commodity. Tables 19 to 26 inclusive compare the prices quoted
for advertised and substitute brands as of June 1939.
Table 19. — Retail prices of analgesic tablets, nationally advertised brand and substi-
tute brands, in chain and independent stores, June 1939
Number of stores reporting specified prices
Retail price
Total
Chain stores
Independent stores
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
$0 02
1
2
1
1
1
4
103
1
1
2
1
1
1
3
50
1
$0 03
$0 05
$0 07
$0 08
$0 09
1
$0.10
53
$0 12
77
1
6
3
27
55
22
1
5
1
25
2/$0 25
$0 13
1
2
2
$0 14
$0 15
Total . -
114
114
60
60 54
54
Source: Bureau of Labor Statistics.
372
CONCENTRATION OF ECONOMIC POWER
Table 20. — Retail prices of drug sundry, nationally advertised brand and substitute
brands, in chain and independent stores, June 1939
Retail price
Number of stores reporting specified prices
Total
Nationally
advertised
brand
Substitute
brands
Chain stores
Nationally
advertised
brand
Substitute
brands
Independent stores
Nationally
advertised
brand
Substitute
brands
$0.09...
$0.11...
$0.12...
2/$0.25.
$0.13...
2/$0.27.
$0.14--.
$0.16...
2/$0.31.
$0.16...
$0.17...
$0.18...
$0.19...
2/$0.39.
$0.20...
Total.
82
82
52
30
30
Source: Bureau of Labor Statistics.
Table 21 . — Retail prices of shaving article, nationally advertised brand and substitute
brands, in chain and independent stores, June 1989
Number of stores reporting specified prices
Retail price
Total
Chain stores
Independent stores
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
$0.10
25
2
4
2
13
1
5
1
3
2
9
20
$0.12
1
$0.15
1
$0.17
$0.19
4
$0.20
1
$0.21
2
2
$0.23
6
6
$0.24
4
63
2
32
2
31
$0.25
14
1
1
9
5
$0.35
1
$0.39
1
Total
69
69
36
36
33
33
Source: Bureau of Labor Statistics.
I
I
\
CONCENTRATION OF ECONOMIC POWER
373
Table 22. — Retail prices of liquid laxative "A," nationally advertised brand and
substitute brands, in chain and independent stores, June 19S9
Number of stores reporting specified prices
Price
Total
Chain stores
Independent stores
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
$0.11
1
2
2
1
1
1
$0.19
1
$0.23
1
$0 24
1
$0.25 ■ -.
4
3
X
1
3
3
$0.27 .
$0.28
11
31
1
t
35
1
7
1
3
1
3
23
1
1
4
15
1
4
$0.29
49
35
14
$0 30
$0 31 . ..
1
1
14
2
1
1
1
1
8
1
1
$0.32
1
10
1
$0.33
4
$0.34
1
$0 35
1
$0 36
$0.37
2
20
1
i
6
1
20
1
$0.39
14
$0 40
1
$0 43
1
1
1
$0 45
$0 50
Total .-
103
103
61
61
42
42
Source: Bureau of Labor Statistics.
Table 23. — Retail prices of cold remedy, nationally advertised brand and substitute
brands, in chain and independent stores, June 19S9
Price
Number of stores reporting specified prices
Total
Nationally
advertised
brand
Substitute
brands
Chain stores
Nationally
advertised
brand
Substitute
brands
Independent stores
Nationally
advertised
brand
Substitute
brands
$0.19.
$0.21.
$0.23.
$0.24.
$0.25.
$0.27.
$0.28.
$0.29.
$0.30.
$0.31.
$0.33.
$0.36.
$0.60.
Total.
60
Source: Bureau of Labor Statistics.
60
42
374 CONCENTRATION OF ECONOMIC POWER
Table 24. — Retail prices of vitamin product, nationally advertised brand and substitute
brands, in chain and independent stores, June 1939
Number of stores reporting specified prices
Price
Total
Chain stores
Independent stores
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
$0 23 . -
1
1
8
6
8
2
20
1
9
4
1
1
1
3
4
6
$0 49 . ---
$0.59
■5-
$0.65
1
$0 69
2
$0.75
2
$0.79
67
36
16
21
4
$0 80
1
$0.89
3
3
2
3
6
$0.98
2
$0 99
1
Total
60
60
36
36
24
24
Scarce: Bureau of Labor Statistics.
Table 25. — Retail prices of liquid laxative "B", nationally advertised brand and sub-
stitute brands, in chain and independent stores, June 1939
Number of stores reporting specified prices
Retail price
Total
Chain stores
Independent stores
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
$0.10
1
7
2
1
5
5
1
4
37
1
$5.15
5
2
1
2
4
1
3
16
2
$0.17
$0.18
$0.19
3
$0.20
1
$0.21
$0.23
41
21
1
24
9
1
17
12
1
$0.25
21
$0.26
Total
63
63
34
34
29
29^
Source: Bureau of Labor Statistics.
I
CONCENTRATION OF ECONOMIC POWER
375
Table 26. — Retail prices of oral antiseptic, nationally advertised brand and substitute
brands, in chain and independent stores, June 1939
Number of stores reporting specified prices
Retail price
Total
Chain stores
Independent stores
Nationally i c!.,K,.tit.,t„
advertised ^^l'^,!'^."*^
brand ^"^^^^^
Nationally
advertised
brand
Substitute
brands
Nationally
advertised
brand
Substitute
brands
$9.19. _
3
1
6
1
1
1
20
2
1
1
1
67
5
1
1
1
1
2
1
$0.25 -.
1
$0.29 ,
2
1
4
S0.32
$0.33
1
$0.37 -.-.
1
.$0.39
6
2
1
1
1
49
14
$0.40 . .. -.
$0.44
.$0.45
.$0.48 . - -
.$0.49 ... . ...
18
$0.,'iO
5
$0.59
112
2
66
1
46
2
.$0.69 "
1
$0.88
1
$0.89 . ..
1
Total
114 114
66 66
48
48
Source: Bureau of Labor Statistics.
Although the nationally advertised merchandise and the private
brands were in each case very similar, it should not be assumed that
there were no significant differences in quality which might account in
whole or in part for the price differentials. The analgesic tablets,
shown in table 19, and the liquid laxative, in table 22 are both stand-
ard commodities described in the pharmacopoeia but the other item.s
tabulated were less uniform in character.
In the case of the analgesic tablets (table 19), the price most com-
monly quoted for substitute brands both by chain stores and inde-
pendents was 10 cents, in contrast to the 12-cent minimum price
fixed for the nationally advertised commodity. Nine of the 60 chain
stores charged less than 10 cents for their substitute brands; in one
case the quotation was as low as 2 cents for a dozen tablets. Inde-
pendent stores, on the other hand, quoted the 10-cent price almost
uniformly and only one of the 54 independent outlets went below this
ievel.
The remaining tables in this group are generall.y similar in character.
In the case of the drug sundry, the typical price (the rnodal price)
for the substitute brands was 17 cents as compared with the l^Yi
cent and 20 cent minima established for the advertised variety. The
price most com.m.only quoted for the unadvertised brand of the shaving
article was 10 cents, as compared with 25 cents for the nationally
known brand. Differences of this kind are not merely the results of
resale price maintenance; the price most commonly charged for 16
ounces of the unadvertised brands of liquid laxative was about 25
percent less than the 39-cent level at which the nationally advertised
brand is generally quoted. (See table 22.)
The remaining tables in this series tell a very similar story. In
each case the range of prices as well as the price most frequently
247140—41 — No. 1-
-26
376
CONCENTRATION OF ECONOMIC POWER
charged is materially higher for the nationally advertised than for the
substitute brand. However, since the data relate to products for
which quality is quite variable, the significance of these comparisons
should not be exaggerated. This should not be taken to mean that
the nationally advertised item is necessarily superior in quality to
that of the unbranded product, but simply that the articles are not
in all respects identical in content or utility, and that technical analysis
which is beyond the scope of this discussion would be needed in order
to appraise the full significance of price differentials. What these
figures do emphasize is the difficulty confronting the consumer in
choosing intelligently among rival commodities of this character and
the vii'tual impossibility of translating differences of price into terms
of intrinsic utility.
It may also be observed that chain stores report prices for substitute
brands more frequently than do independent stores. This is only
natural because the promotion of a private brand often requires
resources beyond the command of the individual druggist.
An additional comparison may be made of the prices and price
trends of nationally advertised and private label merchandise quoted
by mail order houses in their catalogs. Tables 27 to 30 are for the
same products as those shown in tables 1, 2, 3, and 4 respectively,
except that the analgesic tablets (table 27) are quoted in units of 100,
rather than per dozen.
Table 27.
-Retail prices of analgesic tablets, nationally advertised brand and
distributors' brands, charged by two mail-order houses
« Tin of 12 free.
Source: Mail-order catalogs.
Retail prices listed for designated periods
Date of catalog
Mail-order house "A"
Mail-order house "B"
Nationally
advertised
brand
Distribu-
tor's brand
Nationally
advertised
brand
Distribu-
tor's pri-
mary brand
Distribu-
tor's secon-
dary brand
192*— spring and summer
$0 98
$0.59
.59
.61
.58
.58
.58
.58
.58
.49
.44
.44
.38
.38
.19
.19
.19
.19
.19
,17
.16
.16
.16
.16
1929-30— fall and winter..
97
98
98
98
98
95
95
73
69
69
59
59
44
49
49
59
59
59
59
59
59
■in
1930— spring and summer
1930-31— fall and winter ..
1931— spring and summer
1931-32— fall and winter
1932— spring and summer.^. >::.'
$0.95
$0.58
1932-33— fall and winter ..
1933— sprine and summer
.73
.69
.69
.59
.59
.44
.49
.59
.59
.59
.59
.59
.59
.59
.59
.49
.44
.44
.44
1.38
1.38
>.38
».38
.29
.29
.29
.29
.29
.29
.29
1933-34— fall and winter. ... ..
1934— spring and summer
1934-35— fall and winter .
$0.28
19
1935— spring and summer
193.'>-3»>— fall and winter...
.19
1936— spring and summer
.19
1930-37— fall and winter .
19
1937— spring and summer
19
1937-38-fall and winter
.19
1938— spring and summer.. ..
.18
1938-39— fall and winter..
16
1939— spring and summer
16
1939-10— fall and winter .. ..
16
1940— spring aad summer..
16
CONCENTRATION OF ECONOMIC POWER
377
Table 28.
-Retail prices of a drug sundry, nationally advertised brand and
distributors' brands, charged by two mail-order houses
Retail prices listed for designated periods
Date of catalog
Mail-order house "A"
Mail-order house "B"
Nationally adver-
tised brand
Distributor's
brand
Nationally adver-
tised brand
Distributor's
brand
1929 — spring and summer
Each $0.37
do
Each $0.27
1929-30— fall and winter _
Each $0.28
1930 — spring and summer
Each $0.39
Each $0.35
do
Each $0.27 . .
1930-31— fall and winter
Each $0.29
1931 — spring and summer
do
1931-32— fall and winter..
.do. .
-..do. .
1932 — spring and summer . .
3 for $0.78 -.
3 for $0.79 _
3 for $0.63
3 for $0.59
3 for $0.54
3 for $0.47
3 for $0.49
2for$0.35
.. .do--
3 for $0.59
3 for $0.54
3 for $0.70
5 for $0.98.
1932-33— fall and winter
1933 — spring and summer ...
3 for $0.39
do
3 for $0.44
3 for $0.42
3 for $0.39
2 tor $0.28
.. .do.
3 for $0.79
3 for $0.59
3 for $0.54
3 for $0.47
3 for $0.49
2 for $0.35
do
.do-- . .
3 for $0.48.
1933-34— fall and winter
3 for $0.45.
1984 — spring and summer.
Do.
1934-35 — fall and winter
3 for $0.39
1935 — spring and summer
3 for $0.25.
1935-36 — fall and winter
2 for $0.28.
1936— sprine and summer. ..
Do.
1936-37— fall and winter
. do.-
do
Do.
1937 — spring and summer
2 for $0.37. .
..do
2 for $0.37.
2 for $0.39 -
do
Do.
1937-38— fall and winter..
2 for $0.39.
do
2 for $0.29
2 for $0.23
2 for $0.29.
1938 — spring and summer
2 for $0.28.
1938-39— fall and winter
do
.. do
2 for $0.21
do..
Do.
1939 — spring and summer
2 for $0.24...
do
Do.
1939-40— fall and winter .
. .do
2 for $0.23
....do.
Do.
1940 — spring and snmmfir
do
2 for $0.26
do
2 for $0.29.
Source: Mail-order catalogs.
Table 29. — Retail prices of liquid laxative "A," nationally advertised brand and
distributors' brands, charged by 2 mail-order houses
Retail prices listed for designated periods
Date of catalog
Mail-order house "A"
Mail-order house "B"
Nationally
advertised
brand
Distribu-
tor's brand
Nationally
advertised
brand
Distribu-
tor's pri-
mary brand
Distribu-
tor's secon-
dary brand
$0.38
.38
.42
.39
.39
.39
.39
.39
.39
.37
.39
.36
.36
.29
.29
.29
.29
.34
.34
.34
.34
.34
.34
1929-30 — fall and winter
1931-32 — fall and winter
$0.39
1932-33 — fall and winter
$0.24
.22
.29
.24
.24
.27
.27
.27
.27
.27
.21
.21
.21
.24
.27
.39
.37
.39
.36
.36
.29
.29
.29
.29
.34
.34
.34
.34
.34
.34
$6.31
.28
.29
.29
.29
.27
.27
.27
.27
.27
.27
.27
.24
.24
.27
1934-35 — fall and winter
$0.24
1935 — spring and summer
.24
1935-36 — fall and winter
.19
.23
1936-37— fall and winter
.23
1937 — spring and summer
.23
1937-38— fall and winter
.23
.23
1938-39— fall and wintrr
.21
1939 — spring and summer
.21
Source: Mail-order catalogs.
378 CONCENTRATION OF ECONOMIC POWER
Table 30. — Retail prices of liquid laxative "B," nationally advertised brand and
tstributors' brands, charged by 2 mail-order houses
Date of catalog
Retail prices listed for designated periods
Mail-order hoa'^e "A"
Nationally
advertised
brand
Distribu-
tor's brand
Mail-order house "B'
Nationally
advertised
brand
Distribu-
tor's brand
1929 — sprin? and
1929-30— fall and
1930— spriu^; and
1930-31— fall and
1931— spring and
1931-32— fall and
1932— spring and
1932-33— fall and
1933— spring and
1933-34— fall and
1934— spring and
1934-35— fall and
1915— spring and
1935-36-fall and
1936— spring and
1936-37— fall and
1937— spring and
1937-38— fall and
1938— spring and
1938-39— fall and
1939— spring and
1939-40— fall and
1940— spring and
summer..
winter..:
summer,
winter...
summer.,
winter...
summer,
winter...
summer,
winter...
summer,
winter...
summer,
winter...
summer,
winter...
summer,
winter...
summer,
winter. ..
summer,
winter...
summer.
$0.42
.42
.42
.42
.39
.39
.34
.34
.34
.34
.34
.34
.47
.47
$0.25
.25
.29
.31
.31
.31
.31
.31
.31
.29
.31
.27
.27
.27
.29
.29
.29
.29
.21
.21
.21
.21
.23
$0.42
$0.31
.31
.2£
.31
.29
.27
.27
.29
.27
.29
.29
.29
.29
.29
.29
.29
Source: Mail-order catalogs.
In each case the items sold under the private label are materially
cheaper than the nationally advertised brand. The contrast is
particularly striking for the analgesic tablets which contain, as has
been stated, the identical active ingredients. It is also noteworthy
that the price of the private-label tablets has declined much more
sharply since 1929 than has that of the nationally advertised item and
that this difference in trend became particulariy marked after the
introduction of resale price maintenance.
Table 31 shows the relationship between the prices charged for a
nationally advertised and a substitute brand of liquid laxative (the
one shown in table 5 above) by individual stores. This product is
the onlv one suitable for comparison of this kind because of the effect
of resale price maintenance in limiting the price variability of the
nianufacturers' brands for all the other products which have been
discussed. The nationally advertised brand is in a 12-ounce package,
while substitute brands are quoted in 16-ounce quantities. This
table indicates a wide diversity of practice between stores. For
example, there are 15 chain stores quoting 39 cents for the nationally
advertised brand; one of these offers a substitute for as httle as 11
cents, and three charge the same price for the substitute brand as for
the advertised product. Seventeen of the chain stores which quote
a 34-cent price for the national brand, charge 29 cents for the sub-
stitute, but the other six charge prices ranging from 19 cents to 39
c^nts. Eight of the stores actually charge more for the substitute
than for the advertised brand, but it should be remembered that the
latter contains three-;fourths of the quantity of the former. There is
no apparent correlation between prices for the two varieties; thus it
CONCENTRATION OP ECONOMIC POWER
379
happens that the lowest price reported for a substitute brand is by a
store which charges the top price for the national brand.
Independent stores show a slightly greater correlation between
prices for the national and the substitute brands. Stores charging
low prices for the former usually also charge low prices for the latter
and vice versa. In general, however, there is little uniformity of
practice, and the price charged by a store for nationally advertised
merchandise affords no guide to the prices at which substitute brands
are offered.
Table 31. — Retail prices of liquid laxative "A", nationally advertised and substitute
brands, in chain and independent stores — June 19S9
CHAIN STORES
Retail prices
for nation-
Retail prices for substitute brands— 16 ounc s
ally adver-
tised brand—
12 ounces
$0.11
$0.19
$0.23
$0.25
$0.27
$0.29
$0.32
$0.33
$0.34
$0.37
$0.39
Total
^.39 .-
1
8
1
1
2
1
3
1
15
$0.37 ....
1
4
$0.36 . .
1
1
$0.35
1
2
1
$0.34
1
1
17
3
1
1
23
$0.33.
3
$0.32
1
1
■$0.31
2
1
3
$0.30
1
2
1
$0.29
3
1
2
7
$0.28
1
$0.25
1
1
Total...
1
1
1
1
3
35
1
10
1
1
6
61
INDEPENDENT STORES
Retail prices
for natioot
Retail prices for substitute brands— 16 ounces
ally adver-
tised brand—
12 ounces
$0.19
$0.23
$0.25
$0.29
$0.31
$0.33
$0.34
$0.35
$0.37
$0.39
$0.40
Total
10.50 .- ..
1
$0.45
1
$0.43
1
9
1
1
1
i'
$0.39
1
7
2
1
21
$0.37
$0.35
$0.34
1
4
1
1
1
8
$0.33
$0 32
1
$0 31
i
$0 29
2
1
$0 28
1
$0 24
1
Total...
1
1
3
14
1
4
1
1
1
14
1
42
Source: Bureau of Labor Statistics.
Substitute brands and resale price maintenance. — During the past
few years, the relationship between nationally advertised merchandise
and private label or substitute brands has been affected by the spread
of resale price maintenance legislation. When minimum resale prices
are established for manufacturers' advertised brands, it is evident
that retailers who depend largely upon price appeal must shift their
price-cutting emphasis to articles which are not subject to such
QgQ CONCENTRATION OF ECONOMIC POWER
restrictions — either to their own private brands or to other kinds of
products. Some of the larger distributors, who had always featured
a policy of offering low prices, apparently seized the opportunity to
stress the savings available to the consumer on purchases of their own
brands. For example, a large New York City department store and
some of the leading mail-order houses have published advertisements
comparing the prices of nationally advertised products with those of
their own brands, coupled with reports of analyses purporting to show
that the two are, in fact, identical in quality. More recently this
policy of comparative advertising has been somewhat modified,
possibly because of pressure from the manufacturers of the nationally
advertised articles.
On the other hand, there is also some evidence that the availability
of wide guaranteed margins on nationally advertised price-maintained
products has lessened the interest of some large distributors in pushing
their own private brands. During September 1939, for example, the
Nevins Drug Chain in Philadelphia announced a major reversal in
sales policy and instructed its clerks to refrain from attempting to
"switch" customers from nationally advertised brands to private,
brands. Thus, according to the Drug Trade News of September
25, 1939:
Because a month's test proved, statistically, that switching from nationally
advertised brands to private brands does not pay, the Nevins Drug Co. of this
city, operator of 63 stores in Pennsylvania, Maryland, and New Jersey, has just
instituted an iron-bound policy rigorously prohibiting the practice of switching
in its stores.
*******
"Under our State fair-trade law," Mr. Sylk (a partner of the firm) also pointed
out, "it does not pay us — and we imagine the same thing would hold true for
others — to go to all the trouble of switching customers. Our present figures eshow
conclusively that less profit is made today on private brand goods than on
nationally advertised items. We find that, when switching is resorted to, there is
an immediate reduction in sales volume."
Similar considerations apply even more forcibly to independent
retailers. During the past few years retail trade associations and
manufacturers of well-known' brands have sponsored an annual
"National Brands Week" featuring a concerted drive to sell widely
advertised brands, particularly those which were selling under price
maintenance contracts. The issues involved in this alliance are
suggested in two articles which appeared simultaneously in the
July 1939 issue of the American Druggist, a recognized organ of the
drug trade.
The first of these articles described the results of a survey conducted
by the students of Mississippi State College to determine the attitude
of drug sales clerks toward advertised and substitute brands. Quoting
from this article: ^
Out of 568 retail salespersons in the drug field, only 187, or 33%, believe that
nationally-advertised brands are worth their higher prices.
This was the outstanding fact brought to light by the marketing survey of
students of Mississippi State College in one of their recent surveys. These
students had been studying the attitudes of manufacturers, distributors, and
consumers toward fair-trade laws, but could find little about the retail salesperson.
So, an investigation was planned to find out just what this individual thinks about
price dififerentials. After all, the sales clerk in the store is the salesperson who
deals directly with the consumer.
' American Druggist, July 1939, vol. C, No. 1, p. 40.
CONCENTRATION OF ECONOMIC POWER
381
During the spring holidays, students went into 568 drug stores in 96 cities and
towns. Mississippi localities dominated, yet seven other States were repre-
sented, Alabama, Louisiana, Tennessee, Georgia, Florida, Texas, and Arkansas.
Of the 568 stores, 284 were independent and 284 were chain stores.
Upon entering a store, each student established the fact, in conversation with a
salesperson, that a price differential existed between some nationally advertised
brand and a lesser-known brand (private, regional, or nonadvertised). Products
compared were always of identical quantity.
The student then asked the sales clerk in a single question, using these exact
words, "Is X (the nationally advertised brand) worth the higher price?"
In the following tabulations, "No" means that the salesperson said the
nationally advertised item' wag not worth the higher price, but offered no explana-
tion or amplification. The second group, "No — advertising," covers answers in
which the clerk said that advertising expenditures caused the nationally known
products to be higher priced. "No — quality same" needs no explanation. The
fourth group, "No — container" consists of replies that attributed the higher
price of the nationally advertised brand to a container. The final negative group
is made up of answers that side-stepped the question.
Affirmative answers are of two types. "Yes" means that the clerks said
merely that the nationally advertised brand was worth the higher price. Answers
which contained justifications for higher prices were put in the "Yes" group.
This listing is for 568 replies
Independent and chain answers split
this way
Negative replies for each of 6 products
mentioned in survey
Answer
Number
of
replies
Answer
Inde-
pendent
Chain
Item
Negative replies
from—
Inde-
pendent
Chain
"No" . .
110
85
139
2
45
"No".
49
41
59
61
44
80
2
24
Aspirin^ .. .
Percent
58
82
73
44
50
64
Percent
84
"No" (advertis-
ing).
"No"" (quality
same).
"No" (contain-
"No" (advertis-
ing).
"No" (quality
same).
"No" (contain-
er).
Evasive
Total "No".
"Yes"
"Yes" (quality) -
Total "Yes"
Total
Milk of mag-
nesia.
Mouthwash
Shaving cream..
Soap
87
69
76
55
er).
Evasive
21
Toothpaste
75
Total "No"..
381
170
211
"Yes"
"Yes" (quality)..
64
123
43
71
21
52
Total "Yes".
187
114
73
Total
568
284
284
The second article was an editorial comment upon the situation
disclosed in the survey.
It is a startling and unexpected peril to the cause of fair trade that Dr. A. C.
Kirkpatrick, assistant professor of business administration at Mississippi State
College, exposes in his special article appearing on page 40 of this issue of American
Druggist.
Mississippi State College students of marketing conducting an importial survey
among retail drug sales clerks in eight Southern States, have brought to light the
appalling fact that two-thirds of these sales people — those individuals who come
in direct contact with the ultimate consumer— are belittling nationally advertised
products by word of mouth "over the counter."
Whether in individual cases this destructive propaganda has been deliberate
or whether it has been the result of indifference or plain ignorance on the part
of clerks, the significant point is that a majority of retail drug sales people in the
area covered ,by the surv6y have been telling customers that costs of prornotion,
exploitation, containers, and other extraneous factors boost the prices of nationally
advertised brands which intrinsically are of no better quality than 'ess well-known
pi-ivate, regional, or nonadvertised products.
2g2 CONCENTRATION OF ECONOMIC POWER
Under any circumstances, such statements on the part of a large number of
retail sales clerks over so wide a region would constitute an alarming threat to the
drug industry as a whole, particularly to manufacturers and distributors of
nationally known brands. Right now, with fair trade in a precarious position,
they constitute a menace to the retail pharmacist himself,, as well.
Fair trade is the independent retail pharmacist's own baby. It was the retail
pharmacist, through his own State and national organizations, who fought tooth
and nail for a law that would enable him to compete on an equal footing with his
cut-rate and other competitors. Today manufacturers and wholesalers are allied
with the retailer in battling for the preservation of fair trade where it has been
enacted and for its extension into States where it has been so far denied.
*******
Here is a real — and perhaps the most vital — danger to what pharmacy has
accomplished with such an heroic effort and is defending so doggedly at this
moment. The drug clerk and his influencp op public and consequently on legis-
lative opinion has been overlooked. Do you know what your clerks are telling
your own customers about fair-trade prices these days?
It is up to the owners of pharmacies to see that their clerks are instructed in
the beneficial facts of fair trade" so that they may buil-d goodwill among your
voter-customers instead of destroying it. It is up to State and national pharma-
ceutical organizations and associations to impress upon their members the neces-
sity of getting their own employees into line behind fair trade.
That is — unless pharmacy has made up its mind to let the fair-t >ide ship sink
ai\d to wallow again in the murky turmoil of unregulated, cut-throat competition
which formerly engulfed the independent retailer. American Druggist aoes not
believe pharmacy is willing to give up the ship so readily.
But a ship cannot sail without the loyalty of the crew — and clerks who sell
your goods over the counter are the crew of the ship of fair trade.
Is it good business to tolerate mutiny on the "Bounty" — whether deliberate or
unintentional? *
PRICE LINES
Retail prices charged for drugs, toiletries, and sundries are to some
extent affected by the institution of price lines which was described
in detail in part I of this volume.® Price lines for this group of prod-
ucts are much less uniformly observed than in the case of such arti-
cles as women's apparel; nevertheless they do have a certain broad
effect upon the market.
As mentioned earlier, the retail list prices of these products are
usually in even figures. For items selling for $1 or less, list prices
are usually in multiples of 25 cents, i. e., $1, 75 cents, 50 cents, or 25
cents. In addition, 35 cents is an important intermediate line.
In contrast, contractual minimum prices, except when these are
set at the full list, are almost invariably at odd figures. The char-
acter of the relation between full list and minimum prices is illus-
trated in ta,ble 32 below. This table is based upon the published
list and minimum prices of a leading drug manufacturer. For
example, 7 of the items in this manufacturer's line have full list
prices of $1 and contractual minima of 89 cents; four have list prices
of $1 with minima of 79 cents; 18 have list prices of 25 cents and
minima of 23 cents, etc. , For 82 of the 121 items, list prices are at
the five lines which have been described as most common — $1, 75
cents, 50 cents, 35 cents, and 25 cents. For no single item selling
above 10 cents, on the other hand, has the minimum price been
established at an even multiple of 5 cents.
• Ibid., p. 25.
• See supra, pp. 242-261.
CONCENTRATION OF ECONOMIC POWER
383
Table 32. — Comparison of full list prices with contractual minimum prices
[Full list prices, in dollars]
Contractual
minimum
(in dollars)
1.00
0.90
0.85
0.75
0.70
0.65
0.60
o.to
a 46
0.40
0.35
0.30
0.25
0.20
0.16
0.12
0.10
Total
0.89
7
4
7
0.79
1
6
0.74
1
1
0.69
8
4
g.
0.59
— -
1
1
3
5
0.57
3
4
0.53
3
0.49 -
1
3
1
6
7
1
2
5
0.47
6
0.43-
7
0.41
1
2
0.39
1
....
3
0.37
2
2
0.33
4
4
7
1
4
0.31
3
7
0.29
1
1
8
0.27 ..^^...
.
2
0.23.. „..-.
18
2
3
3
18
0.22
2
0.21
3
0.19
5
2
1
8
0.17. .
2
0.16
1
0.13
4
4
0.10-
1
3
4
Total........
11
1
1
12
1
6
6
17
1
5
16
2
26
8
4
1
3
121
Source: Published price list of a well-known drug manufacturer.
The difference between the list prices and minimum prices of in-
dividual items varies considerably, depending, at least in part, upon
the character of the item and the extent to which it is used as a price
leader. The maximum differential is usually 20 percent plus 1
cent. This is the exact relation existing between the following
combinations of list and minimum prices:
Number of items
List price
Minimum
price
Number of items
List price
Minimum
price
4
$1.00
.75
.50
$0.79
.59
.39
3
$.40
.35
.25
$0.31
4
1
.27
2
3 -
.19
In only two cases, a 70-cent it«m with a minimum of 49 cents and a
65-cent item with a minimum of 39 cents, Was the difference between
the full list and the minimum price wider than 21 percent. Both of
these items are toiletries of a kind which are particularly subject to
severe price cutting.
For the bulk of the items sold by this manufacturer, however, the
differential between the full list price and the minimum price was much
narrower, in many cases ranging from 1 to 3 cents. The most frequent
single situation was in the case of 18 items whose full list price was
25 cents and for which the minimum price was 23 cents.
In the case of expensive cosmetics — those selling for $1 and rnore —
minimum prices are usually fixed at the full list. For these items,
334 CONCENTRATION OF ECONOMIC POWER
therefore, price lines are usually at even figures: e. g., $1, $1.50,
$3.75, $5, etc. In the range below $1, minimum prices for cosmetics
are also often at the full list, or else 1 to 3 cents below it.
With regard to the prices actually charged by retailers, as distinct
from the list prices or minimiun prices established by manufacturers,
there is no very consistent tendency toward the observance of any
definite price lines. Table 33 indicates the frequency with which
particular prices were reported to the bureau of Labor Statistics for
14 different drug store items during June 1939. The frequency dis-
tribution is shown separately for chain stores and independents and
for nationally advertised and substitute brands. The table is limited
to items selling between 10 cents and 50 cents because there are not
enough quotations above or below these levels to provide any satis-
factory indication of the practices observed. However, it may be
mentioned that a great majority of the quotations between 50 cents
and $1 were at three prices, which were, in order of frequency, 59 cents,
55 cents, and 79 cents.
The distribution of price quotations in the table is, of course, in-
fluenced by the particular items for which these prices were reported
and does not necessarily represent actual pricing practices for all articles
sold by drug stores within this price range. Nevertheless, certain
inferences seem warranted.
For all items and outlets combined, there are only two prices —
25 cents and 39 cents — which accounted for more than 10 percent of
the total number of quotations. Six other lines — 10 cents, 20 cents.
23 cents, 29 cents, 49 cents, and 50 cents — each represented more
than 5 percent of the total number of quotations. These eight price
line&, together, accounted for 69 percent of the total number of prices
quoted in the 10-cent to 50-cent range. Chain stores appear to quote
prices in odd figures somewhat more frequently than do independents,
both for nationally advertised and for substitute products. For
example, chain stores report more quotations at 49 cents than at 50
cents, while for independents the relation is reversed. The 25-cent
price line is also more commonly observed by independents than by
chain stores, whereas the former reported more quotations at 23 cents.
In summary , price lines evidently play some part in the retail pricing
practices of drug stores. Price lines at odd figures seem to be some-
what more characteristic of chain stores and of nationally advertised
brands, while even figures are more commonly quoted by independent
stores and for substitute or unadvertised brands. (Prescriptions are
almost invariably priced at even figures.) However, these tendencies
are by no means consistent and undoubtedly reflect the choice of items
included in the tabulations, so that no clear generalization seems war-
ranted.
CONCENTRATION OF ECONOMIC POWER
385
Table 33. — Distribution of retail prices quoted by drug stores for 13 items selling
between 10 and 50 cents
Nationally advertised brands
Substitute brands
Price (in cents)
Total
Chain stores
Independent
stores
Chain stores •
Independent
stores
Num-
ber of
quota-
tions
Per-
cent
Num-
ber of
quota-
tions
Per-
cent
Num-
ber of
quota-
tions
Per-
cent
Num-
ber of
quota-
tions
Per-
cent
Num-
ber of
quota-
tions
Per-
cent
10
167
4
107
6
14
2
6
72
6
3
2
41
23
121
10
157
39
3
172
16
497
1
110
5
210
9
15
8
64
41
34
4
23
6
(')
4
(')
(')
(')
(')
3
(')
(')
(')
1
(')
4
(>)
6
1
(')
6
(')
18
(')
4
(')
8
(')
(')
(')
2
1
1
0)
o
2
(')
27
4
72
4
10
4
6
2
3
20
4
9
(')
1
(0
(■)
(')
(')
3
(')
66
12
11,..
12 .
62
9
33
4
2
2
1
f)
(')
(')
2/25
13
1
(')
6
(')
2/27
14
2
5
(')
(')
1
30
4
15
17
2
1
2
8
3
26
3
16-.
(')
2/33
1
(')
1
(')
(')
3/50
(')
17
2
9
9
8
63
6
1
55
8
101
1
60
3
42
2
6
1
19
26
2
2
7
(0
1
1
1
9
(')
(')
8
1
15
(')
9
(')
6
(')
(')
(•)
3
4
(')
0)
1
1
6
22
1
74
2
(')
(')
3
(')
10
(')
30
5
64
1
9
8
2
53
5
137
4
(•)
8
0)
1
1
(')
7
(')
17
1
18
(')
19
5
2/39 ..
20
ii
23
2
21 -.
4
22
^
48
3
147
6
(')
20
16
3
24
25
112
20
26
27
43
2
35
5
6
4
18
9
10
1
11
6
0)
5
(')
(')
(')
2
1
1
(')
1
6
(')
1
(')
28....
29
88
11
45
2
1
8
30
(')
31
2
3
21
3
8
(')
(')
3
" (')
1
(')
32
33
6
3
14
1
2
1
34-
(')
35
3
36 ..
(')
37
3
(')
(')
38
39
348
6
7
4
9
6
19
13
(>)
(')
(')
(')
(')
(')
120
1
5
2
1
1
3
18
(')
(')
(')
(')
(')
0)
116
16
47
1
6
(')
65
4
12
40 --
(')
41
2
(•)
42
2
3
3
1
(')
(')
(•)
(')
43
4
1
7
(')
(')
(')
1
1
8
(')
44
(')
45
1
46
47
7
3
172
178
(')
6
6
1
(')
4
1
26
41-
(')
(')
3
5
1
2
90
64
(')
(')
11
8
1
(')
48
49
20
5
3
36
68
7
50
12
Total.
2,751
665
748
787
551
' Less than 1 percent.
Source: Bureau of Labor Statistics.
CHAPTER III
DISTRIBUTIVE MARGINS
METHODS OF DISTRIBUTION
Methods of distribution in the drug trade are fairly well defined.
The independent retailer buys typically from a full service wholesaler
who extends credit and delivery service and maintains a complete
stock. The wholesaler, in turn, buys directly from the manufacturer
without the intervention of other middlemen, such as brokers or com-
mission merchants. Large retailers such as chain stores, mail-order
houses, and department stores buy most of their products directly
from the manufacturers but in some cases they, too, must purchase
through wholesalers.
The precise function of the wholesale merchant varies somewhat
for different products. A number of manufacturers of widely adver-
tised merchandise employ their own salesmen to obtain orders from
retailers but such orders are almost always filled by the local whole-
saler. Some manufacturers do not sell their merchandise outright to
the wholesaler but employ him in the capacity of a del credere factor,
that is, as an agent who is empowered to sell only under terms specified
by the manufacturer but who also assumes any credit risks on the
transaction.
Many drug manufacturers seek to exercise control over resale prices
at the wholesale as well as at the retail level. Some accomplish this
through the machinery provided under the price-maintenance laws;
they issue contracts specifying the exact terms and conditions under
which the wholesaler may sell to retailers. Other manufacturers
utilize the factorship arrangement which has just been described,
which relegates the wholesaler to the role of an agent. Still other
manufacturers adopt a somewhat more flexible policy; they suggest
resale terms and may refuse to deal with wholesalers who do not con-
form to these suggestions. In addition, of course, many manufac-
turers make no effort at all to control the prices charged by whole-
salers.
One of the major problems confronting the drug wholesaler has
already been suggested in the preceding discussion of retailing prac-
tices. The variety of items handled by the retailer is so great that
the druggist of limited capital must often purchase in very small quan-
tities. Thus the Department of Commerce conducted a careful survey
of the operations of one full service wholesale merchant during 1931.
This survey showed that purchases of individual commodities by
retailers averaged about $2 per line. The actual figures were:^
Prescription department $1, 91
Proprietary remedies 1. 73
Sundries -_ 2. 12
Surgical and sickroom supplies 1. 62
Toilet preparations 111."/. I 1. 46
' U. S. Department of Commerce, Domestic Commerce Series No. 86, Wholesale Druggists Operations,
386
CONCENTRATION OF ECONOMIC POWER 3§7
A survey conducted by the National Wholesale Druggists Associa-
tion, reflecting the operations of two wholesale drug houses, showed
that about 45 percent of all transactions involved sales of less than
$1 per line and that 70 percent involved line extensions of less than $2.^
This situation obviously entails high-cost operation. According to
the Census of Wholesale Distribution, operating expenses for full-line
drug wholesalers in 1935 averaged 13 percent of sales; for drug retailers
operating expenses were about 24 percent of sales.^
The gross margin or mark-up actually obtained by the distributor
on the sale of any product will, of course, depend upon the terms at
which he purchases and the price at which he resells. In the case of
some products handled by the drug trade, a one-price system is ob-
served at each stage of distribution. The wholesaler pays the same
price, regardless of the quantities he purchases, and is bound by con-
tract or perhaps by a factorship arrangement to resell to all retailers
at a single specified price. The price to consumers is also fixed by
contract, with the minimum established at the full list price, so that
again there is no room for variation. In most cases this policy will
be modified somewhat, insofar as wholesalers and retailers are con-
cerned, by the availability of optional cash discounts, but these are
usually limited to 1 or 2 percent.
In the case of most items handled by the drug trade, however, the
situation is far less simple. Discounts on quantity purchases are
available both to wholesalers and retailers. Minimum resale prices
are established at levels below the full list price 'of the article, so that
the prices charged by different retail stores will vary substantially.
Moreover, the determination of the gross margins received by dis-
tributors in the drug trade is complicated by the many special forms
of allowances which are granted to stimulate qu.antity buying. In
addition to the regular quantity discount, so-called "deals" are avail-
able continuously or at intervals for a wide range of products. These
deals involve delivering varying amounts of free goods for purchases
of a specified amount. These free goods may or may not be of the
same kind as those involved in the purchase; often they are supple-
mentary articles. For example, it is common to use toothpaste as a
free deal in connection with the sales of toothbrushes, razor blades
with razors, etc.
In general, free goods are made available to the retailer directly by
the manufacturer, so that while they mean a saving to the retailer,
they do not imply any reduction in the margin of the wholesaler.
Price reductions may also take the form of advertising allowances
in which the manufacturer recompenses the dealer who advertises his
product either by allotting display space, by advertising in local news-
papers, or through other means. Prior to the Robinson-Patman Act
these advertising allowances were often merely disguised means of
granting special price concessions to large buyers. At present the law
prohibits this practice; the allowance must represent a recompense
for services actually rendered and must also be available on propor-
tionately equal terms to all buyers. As a result, while allowances for
store display are still essentially equivalent to price reductions, this
is not generally true of allowances to compensate the retaUer for
advertising placed in local newspapers.
• National Druggists Association, Statistical Division, Bulletin No. 12, June 1930.
» U. S. Deoartment of Commerce, Census of Business: 1935, "Wholesale Distribution," vol. I, p. 57.
3§§ CONCENTRATION OF ECONOMIC POWER
WHOLESALE AND RETAIL MARGINS
The range oj margins. — In calculating distributive margins for par-
ticular products it is necessary to take all these terms into account.
It is evident that there will be no single wholesale or retail margin for
most products, but a range of margins. Since most wholesalers buy-
in large enough quantities to take advantage of all regular quantity
and cash discounts the prices they pay for any article will be fairly
uniform. However, the mark-ups which they realize may vary ma-
teriall}'- on different sales, since some of their customers will be in a
position to buy in substantial quantities and for cash and thus to take
advantage of all available discounts, while others — often the ma-
jority— can buy only from hand to mouth and must pa}?- substantially
more. The wholesaler's mark-up will obviously be wider on the latter
than on the former transaction. It should not be inferred, of course,
that his net profit will vary correspondingly, since the higher price
paid by the small retailer may less than cover the added cost of serving
him.
As between retailers, the situation is even more complex. It was
shown in the preceding chapter that the independent retailer, espe-
cially the small independent, is likely to charge the consumer some-
what more than the chain store, particularly for popular, nationally
advertised merchandise. At the same time he will usually also pay
more because of his inability to take full advantage of quantity and
cash discounts, deals, and allowances. The large retailer, including
the chain store, ^^^ll generally both pay less and charge less; where
price-maintenance contracts have been issued his selling price is usually
the minimum allowed. Retailers who can buy directly from the
manufacturer can purchase many products even more cheaply than
those who buy in similar quantities through wholesalers. The policy
of the manufacturer is important in this regard, some seek to encour-
age direct buying, others discourage it, a few will sell only to whole-
salers and refuse any form of direct dealing. Differences in the prices
paid by retailers for merchandise are probably narrower today than
they were a few years ago, partly because of the Robinson-Patman
Act which limits the extent to which manufacturers and wholesalers
may discriminate in price among their customers, and partly because
of the advent of resale-price maintenance.
In order to obtain information regarding the margins actually
prevailing, a field survey of a number of representative manufacturers
and wholesalers was conducted during November 1939. The results
of this survey, which are summarized below, illustrate the varietj' of
practices encountered. Except as otherwise stipulated, the data in
each case relate to conditions as of November 1939.
Pharmacevtical "A". — The dealer's list price (distinct from the
consumer's list) for a nationally advertised pharmaceutical is $14.40
per gross, or 10 cents per unit. The wholesaler receives a 15 percent
trade and 1 percent cash discount which brings his price down to
8.4 cents. Price maintenance contracts stipulate the wholesaler's
maximum discounts to retailers on the following basis:
Percent
Purchase of — discount
Under $2 _ ... 2
$2to$5.99._ 5
$6 to .$15.99 7H
$16 to $43.19 10
$43.20 and oyer no stipulation
CONCENTRATION OF ECONOMIC POWER
389
On this basis the retailer's purchase price and the wholesaler's gross
margin * will be:
Retailer's order
Retailer's
Whole-
purchase
saler's
price (per
gross
gross)
margin
Percent
$14. 11
14.1
13.68
11.4
13.32
9.0
12.96
6.5
Under $2 00-...
$2.00 to $5.99...
$6.00 to $15.99..
$16.00 to $43.19
This means that the wholesaler's gross margm on sales of this
product will vary from 14.1 percent to 6.5 percent, depending upon
the quantity sold; on large orders it may even be considerably less
than 6 percent.
In the first place, large retailers may purchase direct from the manu-
facturer if they buy in quantities exceeding $43.19 and can show a
satisfactory credit standing. The direct retail account receives the
same discounts as the wholesaler; that is, 15 percent off list and 1
percent off net for cash.
In addition, there are various free deals and display allowances
available to retailers purchasing through wholesalers which are
equivalent to a substantial reduction in price. These deals arc made
available by the manufacturer and do not affect the wholesaler's
margin. The deals are granted at the rate of 6 percent of the retailer's
total purchase from the manufacturer's representative, payable in
free goods. Advertising allowances to wholesaler's customers are
based on 5 percent of the retailer's total purchase, also in free goods,
and are granted on orders of $6 and over. Direct buyers can obtain
a discount of 5 percent of their annual net purchases if they display the
product on a basis stipulated by contract.
By taking advantage of all these allowances, the purchaser of a
$10 order thi'ough a wholesaler can obtain 111 units for a net cost
of $9.25, equivalent to a cost per unit of 8.33 cents. On a $16 order
the cost per unit will be reduced to 8.11 cents. The direct buyer
taking advantage of the display allowances will pay only 7.99 cents.
This product sells at retail between 12 cents and 15 cents, the former
being the fair-trade minimum and the latter the full retail list price.
The gross margin to the retailer will varj , depending both upon the
price charged and upon his methods and quantities of purchase. To
the very small buyer who pays 9.8 cents for each unit, the minimum
resale price of 12 cents will allow only an 18.3 percent margin, while the
full retail price of 15 cents means a 34.7 percent margin. To the
retailer who buys in $16 quantiti(^s, on the other hand, even the mini-
mum price will allow a 32.4 percent gross margin, while the full retail
price is equivalent to a 45.9 percent margin. For the direct buyer who
takes advantage of the display allowance even the minimum con-
sumer's price affords a 33.4 percent gross margin, while the full retail
price means a 46.7 percent margin.
It is obvious that no generalization with regard to distributive
margins for this product is possible or significant. The very small
retailer, who usually sells at the full list price, will in fact obtain a
* Margins are computed as percentages of the selling price in each case. This is the customary practice.
OQQ CONCENTRATION OF EX:;ONOMIC POWER
gross margin slightly larger tlia,n the chain store which buys directly
and sells at the fair-trade minimiun.
Table 34 summarizes wholesale and retail margins under various
conditions of purchase and sale.
Table 34 — Wholesale and retail margins for nationally advertised pharmaceutical
"A"
Manufacturer's price to wholesalers per gross. - $14. 40
Manufacturer's price to wholesalers, less discounts (including
cash) per gross.. $12. 12
Net cost to retailers purchasing through wholesalers do $12. 96-14. 11
Wholesaler's mark-up percent.. 6. 5-14. 1
Wholesaler's price to retailers, with minimuDQ discount, and ex-
clusive of free deals and display allowances per gross.. $14. 11
Full retail list price..- each.. $0. 15
Retailer's mark-up on full retail price percent. _ 34. 7
Minimum retail price each.. $0. 12
Retailer's mark-up on minimum retail price percent. _ 18. 3
Wholesaler's price to retailers, with maximum discount, and ex-
clusive of free deals and display allowances per gross.. $12. 96
Retailer's mark-up on full retail list price ..percent.. 40. 0
Retailer's mark-up on minimum retail price do 25. 0
Net cost to retailers buying through wholesalers, with maximum
trade discount, with free deals and display allowance (on $16
order) per gross. . $1 1. 68
Retailer's mark-up on full retail list price percent. . 45. 9
Retailer's mark-up on minimum retail price do 32. 4
Manufacturer's list to direct customers per gross. . $14. 40
Manufacturer's price to direct customers, less trade and cash dis-
counts per gross.. $12. 12
Retailer's mark-up on full retail list price percent. . 43. 9
Retailer's mark-up on minimum retail price. do 29. 9
Net cost to direct customers, less trade and cash discounts and
display allowances per gross... $11. 51
Retailer's mark-up on full retail list price percent. . 46. 7
Retailer's mark-up on minimum retail price do 33. 4
Pharmaceutical "B." — Another nationally advertised pharmaceuti-
cal is sold outright to jobbers. The manufacturer's hst price is $4 per
dozen or 33.3 cents per unit, and all prices are on a delivered basis.
The company has no manufacturer-jobber price maintenance con-
tracts. Jobbers, who must order in 'quantities of at least $40, receive
a 15 percent trade discount and a 2 percent tash discount, which
reduces their cost per dozen to $3.33, and unit cost to 27.8 cents. TJie
jobber may grant dealers any discount he cares to make. The manu-
facturer reports that these range ordinarily from 5 to 10 percent,
depending upon competition. On this basis, the jobber's gross margin
varies from 12.4 percent to 7.5 percent.
To the dealers purchasing through jobbers, free deals and display
allowances which result in a substantial decrease in the dealer's costs
are available on orders ranging from $6 to $21. As free deals, addi-
tional quantities of the same product are offered; these are given at
the rate of one unit for each $6 order. Display allowances are granted
in the form of free goods of a somewhat different article and the value
CONCENTRATION OF ECONOMIC POWER 391
of these allowances varies according to the quantity of the order and
the duration of the display. By taking advantage of the free deals,
the purchaser of a $6 order can obtain 19 units for a net cost of $5.40
to $5.70, depending on the discount granted by the jobber, with a
resulting cost per dozen from $3.41 to $3.60 and a unit cost from
28.4 cents to 30 cents. Sufficient price data are not available to make
an estimate of the value of display allowances to these buyers. If
such a purchaser does not take advantage of these free deals, his
unit cost varies from 30 cents to 31.7 cents, again depending on the
jobber's discount.
Large retailors, whose minimum order must be $40 list, receive the
same discounts as do jobbers; that is, a 15-percent trade discount from
list and a 2-percent cash discount from net. These purchasers are
granted no free deals, but display allowances up to 5 percent are given
provided the retailer displays the merchandise in a manner acceptable
to the manufacturer. Taking into consideration the cash and trade
discounts, but not the display allowance, cost per dozen is reduced to
$3.33 or 27.8 cents per unit.
The manufacturer has established manufacturer-retailer contracts
in only one State; in that State the minimum retail price is set at 39
cents. The full list price is 50 cents. The 51 retail prices on this
product reported to the Bureau of Labor Statistics as of March 15,
1939 (including 3 quotations for the State in which minimum prices are
in force), ranged from 29 cen^s to 50 cents. Thirty-one of these
quotations were from independent stores and 20 from chain stores.
The range of prices reported from chain stores was from 29 cents to
39 cents, with 34 cents the modal price; the range in independent stores
was 29 cents to 50 cents, with 39 cents as the modal price. For an
independent store which purchases this product through a jobber, and
takes advantage of the free deals, the modal price of 39 cents affords
a gross margin of 23.1 percent to 27.1 percent, depending upon the
discount granted by the jobber. On this same basis the full retail
price of 50 cents afford margins ranging from 40 percent to 43.2
percent. For a chain store which buys dire tly, and takes advantage
of the cash discount but not the display allo»/ance, the modal price of
34 cents affords a margin of 18.4 percent and the highest retaU price
reported by any chain, 39 cents, means a margin of 28.8 percent.
It is obvious that the dirept buyer of this product does not receive
price concessions from the manufacturer great enough to account
fully for the lower price at which he sells the product, and the average
small retailer apparently obtains a larger mark-up than does the
chain store. The considerably lower modal price charged for this
product in chain stores is probably due to the fact that it is very
commonly used as a price leader.
Table 35 summarizes retail and wholesale margins for this phar-
maceutical. For the reasons mentioned above, no account has been
taken of the value of display allowances to retailers purchasing through
jobbers. Since these allowances represent an appreciable reduction of
the net price' to these retailers, the margins shown in the table should
be interpreted accordingly.
247149— 41— No. 1 27
392 CONCENTRATION OF ECONOMIC POWER
Table 35. — Wholesale and retail margins for nationally advertised pharmaceutical
"B"
Manufacturer's list price dozen. . $4. 00
Net cost to jobbers — list, less 16 percent trade, less 2 percent cash, .do 3. 33-
Netcosttoretailerspurchasingthrough jobber8(5percentofif list)--do 3. 80-
Jobber's gross margin percent. _ 12. 4
Net cost to retailers purchasing through jobbers (10 percent ofif list)
dozen.- $3. 60
Jobber's gross margin percent.. 7. ^
Net cost to retailers purchasing through jobbers, list less"5 percent, exclu-
sive of free deals dozen.. $3. 80'
Net cost to retailers purchasing through jobbers, list less 6 percent, with
free deals dozen.. 3. 60
FuU retail list price. each.. . 50
Retailer's mark-up, exclusive of free deals percent. . 36. 7
Retailer's mark-up, with free deals do 40. 0=
Minimum retail price, where prescribed each.. $0. 39
Retailer's mark-up, exclusive of free deals percent. . 18. 8
Retailer's mark'-up, with free deals do 23. 1
Net cost to retailers purchasing through jobbers, list less 10 percent, exclu-
sive of free deals dozen. _ $3. 60
Net cost to retailers purchasing through jobbers, list less 10 percent, with
free deals dozen.. 3. 41
Full retail list price each. . . 50-
Retailer's mark-up, exclusive of free deals percent. . 40. 0
Retailer's mark-up, with free deals do 43. 2"
Minimum retaQ price, where prescribed each.. $0. 39
Retailer's mark-up, exclusive of free deals percent. . 23. 1
Retailer's mark-up, with free deals do 27. 1
Manufacturer's list to direct customers, less 15 percent trade, less 2 per-
cent cash , exclusive of display allowances dozen.. $3. 33
With display allowances do 3. 16
Full retail list price . — . each.. . 50
Retailer's mark-up, exclusive of display allowance percent. _ 44. 5
Retailer's mark-up, with display allowance do 47. 3-
Minimum retail price, where prescribed each _ . $0. 39
Retailer's mark-up, exclusive of display allowance percent.. 28. 8
Retailer's mark-up, with display allowance do 32. 5
Modal price, Bureau of Labor Statistics data for chain stores. .each.. $0. 34
Retailer's mark-up, exclusive of display allowance percent. _ 18. 4
Retailer's mark-up, with display allowance do 22. 5
Lowest price reported to Bureau of Labor Statistics for chain stores
each. . $0. 29'
Retailer's mark-up, exclusive of display allowance . . .percent. . 4 3
Retailer's mark-up, with display allowance do 9. 2
Drug sundry. — A widely advertised drug sundry affords an illus-
tration of the factorship principle. The wholesaler acts to all intents
and purposes as the manufacturer's agent and receives a specified
commission on all sales. In addition, a bonus is paid to the whole-
saler for handling a designated quota of merchandise. Direct sales
to retailers are made only in single shipments amounting to at least
100 pounds of the two major products of this company, and it is also
required that the net purchases of such retailers be not less than $500
each 6 mcmths.
At the present time the factor's conmiiSsion, including his bonus,,
ranges from 17 percent for sales in lots of a dozen packages to 15.4
percent for sales in lots of one gross. These commissions have varied
only fractionally since 1935. It is evident that the gross margin to
the wholesaler on this item is fairly uniform, regardless of the size
of the sale. The prices paid by retailers are also -little affected by the-
CONCENTRATION OF ECONOMIC POWER
393
quantity of purchase. At the present time, for example, the price pn
dozen lots on sales through factors is $2.06 per dozen less 10 percent,
while on gross lots the price per dozen is $2.02 less 10 percent, repre-
senting a quantity discount of only about 2 percent. Direct buyers
are granted a slight advantage, paying $2.02 less 14% percent, less
1 percent off net for cash. In other words, the smaller retailer buying
in dozen lots pays 15.4 cents per imit while the large direct buyer
I>ays 14.25 cents, representing a total advantage to the large customer
of only about 7.5 percent. At the retail price of 20 cents, which is
the price usually charged by both chain and independent outlets, this
is equivalent to a gross margin varying from 22.9 to 28.8 percent.
Since 1935 there have been a number of changes in both the whole-
sale and retail price structure of this product. The price to con-
sumers was advanced twice during this period. The wholesale price
to direct buyers was also advanced but not in the same proportion.
On the other hand, the price paid by small retailers was actually re-
duced. As a result, the gross margin received by the small retailer
on sales of this product more than doubled, while the margin of direct
buyers increased slightly. Changes in factor's commissions and
retailer's gross margins for this sundry are summarized in table 3C
below. Retail margins are computed on the basis of the minimum
fair trade price which is also the price most frequently charged by
both chain and independent drug stores.
Table 36. — Wholesale and retail margins for nationally advertised drug sundry
Aug. 15, 1935,
through June
28, 1936
June 29, 1936,
through Jan.
1, 1937
Jan. 2. 1937,
through Apr.
30, 1937
May 1, 1937,
through Dec.
31, 1938
Jan. 1, 1939,
through Nov.
16, 1939
Manufacturer's commission
to factors, percent
14.0-17.1
14. 1-17. 1
15.4-17.0
15.4-17.1
16. 4-17. 0
Manufacturer's list to fac-
tor's customers, per dozen.
Manufacturer's list to fac-
tor's customers, less trade
discount, per dozen
$1. 87-$l. 94
$1.87-$1.94
$1. 78-$l. 88
$0.19
17. 5-21. 9
$1. 90-$l. 94
$1. 81-$1. 88
$0.19
17. 5-20. 6
$2. 02-$2. 06
$1.32-$1.85
$0.20
22.9-24.2
$2.02-$2.06
$1. 82-$l. 85
Usual retail price, each
Gross mark-up to factor's
customers, percent
$0.18
10. 2-13. 4
$0.20
22. *-24. 2
Manufacturer's list to direct
buyers, per dozen
$1. 84-$l. 92
$1.64-$1.71
$0.18
20. 8-24. 1
$1.59
26.4
$1. 87-$l. 92
$1. 67-$l. 71
$0.19
25. 0-26. 8
$1.62
28.9
$1. 92-$2. 02
$1. 70-$l. 72
$0.19
24. 6-25. 4
$1.63
28.5
$2.02-$2.04
$1. 71-$1. 73
$0.20
27. 9-28. 8
$2.02
Less trade discount, less
cash discount, per zen...
Usual retail price, each
Gross mark-up to direct buy-
ers, percent
$1.71
$0.20
28.8
Less trade discount, cash
discount and carload quan-
tity discount, per dozen
Gross mark-up to direct buy-
ers, percent.
Toiletry "A". — A nationally advertised toiletry is also sold on
the factorship basis. The wholesaler's list price is $3.20 per dozen,
or 26.7 cents per unit. The factor receives a 15 percent commission
from this list, less 2 percent of net for cash received within 10 days of
invoice. In addition, a bonus of 5 percent from net (before the 2
percent is deducted) is given for satisfactory performance in accord-
ance with the factorship agreement. If all these discounts are
received, they bring the factor's price down to 21.1 cents per unit.
394 CONCENTRATION OF ECONOMIC POWER
Retailers purchasing through factors are granted the following
discounts:
Quantity purchased: Peremt ditcount
Less than 6 units 3
6 units 8
$24.00 order or more of any of manufacturer's products 10
On this basis the retailer's purchase price may vary from 25.8 cents
per unit to 24 cents. The factor's gross margin, including his bonus,
can vary from 18.4 percent to 12.2 percent, depending upon the
quantity purchased by the retailer.
Retailers purchasing a minimum of $100 of any of this manufac-
turer's products in a single shipment may purchase direct from the
manufacturer. On such purchases, the retailer is allowed a deduction
of 15 percent from list, less 2 percent from net for cash received
within 10 days of invoice.
The dealer purchasing through a wholesale factor has a unit cost
of 24 cents to 25.8 cents, depending on whether he purchases less than
one-half dozen units, or as much as $24. Direct purchasers obtain
their goods at a cost of $2.67 per dozen and a unit cost of 22.3 cents.
Advertising allowances amounting to 5 percent of net purchases
for the previous 6-month period are available to all retailers on a
contractual basis to compensate for the actual cost of the advertise-
ments inserted. The advertisements must appear in established daily
newspapers and tear sheets must be submitted as evidence. No deals
were ofifered during 1939.
ThiSj product sells at retail between 33 cents and 40 cents, the
former being the fair-trade minimum and the latter the full list price.
Of the 20 quotations reported to the Bureau of Labor Statistics on
this product as of June 1939, 18 were at 33 cents, 1 at 36 cents, and
1 at 39 cents. However, data supplied by the manufacturers indicate
that the average retail price during the period 1937-40 has been
about 36 cents. The retailer's gross margin depends, therefore, upon
the retail price he charges and the quantity he purchases at a given
time. To the retailer whose unit cost is 25.8 cents, the minimum
resale price of 33 cents allows a 21.7 percent margin, while the full
list price of 40 cents aUows a 35.4 percent margin. To the retailer
who buys the manufacturers' products through a factor in $24 lots,
the minimum retail price affords a margin of 27.3 percent, and the
full list a margin of 40 percent. The minimum price allows the direct
buyer a gross margin of 32.6 percent and the full hst, 44.4 percent.
"The retailer receiving the minimum discounts and selling at full
list obtains a slightly higher gross margin than does the large pur-
chaser who receives the maximum allowances and resells at the
minimum.
These data are summarized in table 37.
CONCENTRATION OF ECONOMIC POWER 395
Table 37. — Wholesale and retail margins for nationally advertised toiletry "A"
Manufacturer's list price dozen. . $3. 20
To wholesale-factors, list, less 15 percent trade, less 2 percent cash, less
5 percent bonus dozen.. $2. 53
To retailers purchasing less than 3^ dozen — Ust, less 3 percent-do $3. 10
Wholesaler's mark-up percent.. 18. 4
To retailers purchasing % dozen to $24 assorted order — list, less 8
percent dozen _ . $2. 94
Wholesaler's mark-up percent.. 13. 9
To retailers purchasing $24 order of manufacturer's products — list,
10 percent dozen.. $2. 88
Wholesaler's mark-up percent.. 12. 2
To retailers purchasing through wholesale-factor — list, less 3 per-
cent dozen. _ $3. 10
Full retail list price each. _ $0. 40
Retailer's mark-up on full retail list price percent.. 35. 4
Minimum retail price each. . $0. 33
Retailer's mark-up on minimum retail price percent. _ 21. 7
To retailers purchasing through wholesale-factor — list, less 8 per-
cent dozen. . $2. 94
Retailer's mark-up on full retail list price. _•. percent.. 38. 8
Retailer's mark-up on minimum retail price do 25. 8
To retailers purchasing through wholesale-factor — list, less 10 per-
cent dozen. _ $2. 88
Retailer's mark-up on full list retail price percent. . 40. 0
Retailer's mark-up on minimum retail price do 27. 3
To retailers purchasing from manufacturer — list, less 15 percent, less 2
percent dozen . . $2. 67
Retailer's mark-up on full retail list price percent. . 44. 4
Retailer's mark-up on minimum retail price do 32. 6
Toiletry "B". — The manufacturer of another nationally advertised
toiletry maintains his own sales organization for supplying retailers,
and by far the larger volume of sales is made direct. This product is
offered in three package sizes; small, intermediate, and large. Of
these, the small accounts for the largest number of unit sales. The
list price to jobbers for the small size is 75 cents per dozen, or 6.25
cents per unit. No trade discount is given, but a 2 percent cash
discount is available which reduces the retailer's cost to 73.5 cents per
dozen. The manufacturer has no contracts with jobbers stipulating
the price they must charge the retailer, but the manufacturer "sug-
gests" a price of 85 cents per dozen which affords a 13.5 percent gross
margin to the jobber.
Several possibilities as to methods of purchase are available to the
retailer. Retailers buying direct pay 75 cents per dozen, and are
allowed a 2-percent discount for cash received within 10 days of
delivery.
The suggested price to retailers buying from jobbers or wholesalers
is 85 cents per dozen, or 7.1 cents per unit. No free deals are offered
on this product. The minimum retail price is 10 cents, which is also
the full retail price. Assuming a retailer buys through a jobber and
thus pays 85 cents per dozen, this price affords him, a margin of 29.2
percent; for a retailer purchasing direct and taking advantage of the
cash discount affords a margin of 38.8 percent.
On the two larger sizes the jobber's margin is 15.1 percent and 14.4
percent respectively as compared with his 13.5 percent margin on the
small size. In contrast, retailers obtain a much smaller margin on
the larger sizes which they sell at the minimum retail price, although
396 CONCENTRATION OF ECONOMIC POWER
the large size affords a greater margin than does the intermediate size.
Direct buyers obtain a margin of 27.3 percent and 30.8 percent on the
larger sizes as compared with 38.8 percent on the small size; indirect
buyers receive a margin of 14.4 percent and 19.2 percent on the larger
sizes, 29.2 percent on the small size. If the full list price is charged
for the two larger sizes, the direct buyer obtains a margin of 31.1
percent and 34.8 percent, as contrasted with the 18.9 percent and 23.8
percent obtained by the indirect buyer.
No advertising allowances are available on the small size, but they
are granted on the two larger sizes as reimbursement for actual expen-
ditures made for advertising. The amount of these allowances is
varied from time to time, but they are usually 5 percent of net sales
for a 3 months period.
These data are summarized in table 38.
Table 38. — Wholesale and retail margins for nationally advertised toiletry "B"
Small
size
Tntermedi'
ate size
Large
size
Manufacturer's list to jobbers - dozen.
Manufacturer's list to jobbers, less cash discount -- do...
"Suggested" price to jobbers' customers - do.-.
Jobber's mark-up. _- - . percent -
"Suggested" price to retailers dozen.
Retailer's mark-up on full retail list price .percent-
Retailer's mark-up on minimum price.- ---- do...
Manufacturer's list to direct buyer.. dozen.
Less cash discount do...
Full retail list price ^ each.
Retailer's mark-up on full retail list price .per<jent.
Minimum retail sale price each.
Retailer's mark-up on minimum price ...percent.
$0.75
.735
.85
13.5
$1.60
1.57
1.86
15.1
$2.80
2.74
3.20
14.4
$.85
29.2
29.2
$.75
.735
.10
38.8
$.10
38.8
$1.85
22.9
14.4
$1.60
1.57
.20
34.6
$.18
27.3
$3.20
23.8
19.2
$2.80
2.74
.35
34.8
$.33
30.8
Toiletry "C" — This product is sold either through wholesalers or
directly to retailers. Orders from wholesalers, as well as direct sales
must be in minimum quantities of $48, but may include any com-
bination of the manufacturer's products. Minimum resale prices for
both wholesalers and retailers are set by contract.
The list price to wholesalers or jobbers is $2 per dozen. They
receive a trade discount of 15 percent and a cash discount of 2 per-
cent, which reduces the price per dozen to $1.67, and per unit to 13.9
cents. The manufacturer-wholesaler price maintenance contracts
stipulate a 1 percent cash discount to indirect buyers on orders of
less than $2, and a 5 percent discount inclusive of cash for orders of
$2 or more. On this basis the indirect buyer's cost varies from $1.90
to $1.98 per dozen, and the wholesaler's gross margin varies from 12.1
percent to 15.7 percent, depending upon the size of the order.
Direct customers receive the same discounts as wholesalers and
jobbers; that is, 15 percent off list, less 2 percent for cash. This
reduces the cost to $1.67 per dozen an"d 13.9 cents per unit.
As previously shown, retailers purchasing through wholesalers pay
$1.90 to $1.98 per dozen, depending upon the quantity purchased at
any one time. During 1939^ two units of this toiletry were offered
with each $6 order (list prices). .This offer was available only to
retailers purchasing through wholesalers or jobbers. Considering the
value of this deal, the unit cost is reduced to 15 cents. Deals involv-
ing other of the company's products were also offered during 1939.
CONCENTRATION OF ECONOMIC POWER 397
Some advertising allowances are made from time to time, available
to all retailers, but no detailed data regarding these have been com-
piled.
This product retails between 19 cents and 25 cents. The former is
the minimum allowed under resale price maintenance contracts, the
latter is the full list price. The gross margin to the retailer varies
with the method of pm-chasing and the quantity of the order. To
the small retailer who buys in quantities under $2, the minimum
retail price allows a margin of 13.2 percent, and the full list price a
mark-up of 34 percent. If his order is from $2 to $6, the minimum
retail price affords a margin of 16.7 percent, the full list a margin
of 36.7 percent. In 1939 if his order was $6 or more, he could take
advantage of the "free deal" and receive 38 rather than the custom-
ary 36 units. In this case the minimum retail price yielded a
margin of 21.1 percent, and the full Ust a margin of 40 percent.
To the large retailer who purchased directly from the manufacturer
and took advantage of the cash discount, the minimum retail price
afforded a 26.7 percent margin, and the full list price 44.3 percent.
In other words, the large retailer normally obtains a 10 percent
larger mark-up than the small retailer when the two sell at the same
retail price, but this differential was reduced to approximately 5
percent by the "free deal" offer in 1939.
These data are summarized in table 39:
Table 39. — Wholesale and retail margins for Toiletry "C"
Manufacturer's list price — dozen. _ $2. 00s
To wholesalers and jobbers — list, less 15 percent, less 2 percent cash
discount dozen. _ $1. 67
To retailers buying through wholesalers and jobbers, less 1 percent
for orders less than $2 dozen. . $1. 98
Less 5 percent for orders of $2 or more .do $1. 90
Wholesalers' mark-up on orders of less than $2 ...percent.. ^15. 7
Wholesalers' mark-up on orders of $2 and over do 12. 1
Net cost to retailers purchasing through wholesalers, exclusive of free
deals, on orders less than $2 dozen.. $1. 98
Minimum retail price .each.. $. 19
Retailer's mark-up on minimum retail price percent.. 13. 2
Full retail list price i each.. $. 25
Retailer's mark-up on full retail list price percent. . 34. 0
Net cost to retailers purchasing through wholesalers, exclusive of free
deals, on orders of $2 io $6 - dozen.. $1. 9a
Retailer's mark-up on minimum retail price percent.. To. 7
Retailer's mark-up on full retail list price do 36. 7
Net cost to retailers purchasing through wholesalers, on orders of $6
or more, with free deals dozen.. $1.80
Retailer's mark-up on minimum retail price percent.. 21. 1
Retailer's mark-up on full retail list price , do 40. 0
Net cost to retailers purchasing directly from manufacturer — list, less 15
percent, less 2 percent ...dozen.. $1. 67
Retailer's mark-up on minimum retail price percent. . 26. 7
Retailer's mark-up on full retail list price do 44. 3
Cosmetic. "^."— The manufacturer of a nationally advertised
cosmetic employs the wholesaler in the capacity of a del credere
factor. The wholesale Ust price is $8 per dozen, or 66.7 cents per
unit. The manufacturers allow the factor a commission of 5 percent,
and a cash discount of 1 percent from net, plus an additional 10
398 CONCENTRATION OF ECONOMIC POWER
percent off net. This brings the unit cost down to 56.3 cents. The
price to a retailer purchasing through a wholesaler is 33% percent
from Ust. The wholesaler is allowed to use his own discretion as to
whether or not a cash discount is granted, but, according to the
manufacturer, the wholesaler usually grants the retailer a 2 percent
discount. This means that the wholesaler's gross margin is 13.8
percent, from which his freight costs must be deducted.
Retailers whose net purchases amount to $300 per year, and who
have a good credit standing, may purchase directly from the manu-
facturer. The list price to direct buyers is $12 per dozen, less trade
discounts of 33 K percent and 5 percent, and a cash discount of 1
percent from net. The cost per dozen is thus reduced to $7.52 and
the unit cost to 62.7 cents. The retailer purchasing from the whole-
saler is granted a trade discount of 33}^ percent, and is usually allowed
a 2 percent cash discount by the wholesaler. His cost per dozen is
then $7.84, and his unit cost 65.3 cents. No free deals have been
granted on this cosmetic.
The manufacturer's resale price contracts fix the minimum retail
price at the fuU list of $1, which is therefore the price charged uni-
versally, at least in fair-trade States. This affords the retailer buying
through a wholesaler a mark-up of 34.7 percent aUowing for a 2
percent cash discount. The direct buyer obtains a gross margin of
37.3 percent.
Advertising allowances are on a cooperative basis, with manufac-
turer and retailer sharing equally the costs of advertising a combina-
tion of manufacturer's products.
These data are summarized in table 40 :
Table 40. — Wholesale and retail margins for nationally advertised Cosmetic "A"
Manufacturer's list to wholesalers, per dozen $8. 00
Less trade discount of 5 percent, less 10 percent, less 1 percent cash,
per dozen $6. 76
List to retailer, less 33H percent trade discount, per dozen $8. 00
Wholesaler's margin, percent 15. 5
List to retailer, less 33)4 percent trade discount, less 2 percent cash,
per dozen. . _ $7. 84
Wholesaler's mark-up, percent 13.8
Manufacturer's list to retailer purchasing through wholesaler, per dozen. $12. 00
Less trade discount of 33}i percent, less 2 percent for cash, per
dozen $7. 84
"Minimum" retail price, each $1.00
Retailer's mark-up on minimum retail price, percent 34. 7
Manufacturer's list to retailers buying direct, per dozen $12. 00
Less trade discounts of 33)4 percent, less 5 percent, less 1 percent
cash, per dozen * $7. 52
"Minimum" retail price, each $1. 00
Retailer's mark-up on minimum retail price, percent 37. 3
Cosmetic "-5". — The manufacturer of another brand of cosmetic
sells outright to jobbers and wholesalers, and also to direct customers.
Both manufacturer-wholesaler and manufacturer-retailer contracts are
in effect.
The retail list price is 55 cents per unit or $6.60 per dozen. The
wholesaler receives trade discounts of 33 K percent off list, making the
wholesale Ust price $4.40 per dozen. The wholesaler also receives 10
percent off this wholesale list, 5 percent off net (provided he purchases
CONCENTRATION OF ECONOMIC POWER 399
in lots of $50 or more) and 1 percent off net for cash. This reduces
his cost per dozen to $3.72 and the unit cost to 31 cents. Price main-
tenance contracts stipulate the wholesaler's price to retailers as retail
list, less ZS% percent, regardless of quantity. The wholesaler may,
at his discretion, allow an added 1 percent off net for cash. On this
basis the retailer's cash purchase price will be $4.36, or 36.3 cents per
unit, and the wholesaler's gross margin 14.7 percent. (If the retailer
does not receive the cash discount, the wholesaler's margin will be
15.5 percent.)
Direct retail purchasers receive 33% percent discount off retail list,
less 5 percent off net on orders of $25 or over, less 1 percent cash dis-
count. This reduces the cost per dozen to $4.14 and unit cost to 34.5
cents.
The manufacturer pays one-half the cost of newspaper advertising,
up to 5 percent of the retailer's annual net purchases. No free deals
are given.
The minimum retail, as well as the list price on this product, is 55
cents each. To the direct buyer who takes advantage of the cash dis-
count, this price affords a gross margin of 37.3 percent. The retailer
who purchases through wholesalers, obtains a margin of 33.3 or 33.9
percent, depending upon whether a cash discount is offered and
received.
This manufacturer packages the same powder in a larger container
than that described above. The following table shows that the mark-
ups stipulated by the manufacturer on these two sizes are identical.
These data are summarized in table 41:
Table 41. — Wholesale and retail margins for nationally advertised Cosmetic "B"
Manufacturer's retail list price, per dozen $6. 60
To wholesalers and jobbers — list, less 33>^ percent, less 10 percent, less
5 percent, less 1 percent, per dozen $3. 72
To retailers purchasing through wholesalers — list, less 33 J^ percent,
less 1 percent cash, per dozen $4. 36
Wholesalers' and jobbers' gross mark-ups, percent 14. 7
To retailers purchasing through wholesalers — list, less 33 )i percent,
less 1 percent cash, per dozen $4. 36
Minimum retail price, each $0. 55
Retailer's mark-up on minimum retail price, percent 33. 9
To retailers purchasing directly from manufacturer — list, less SSyi per-
cent, less 5 percent, less 1 percent, per dozen $4. 14
Minimum retail price, each $0. 55
Retailer's mark-up on "minimum" retail price, percent 37. 3
Cosmetic "C". — In the case of some products, deals and terms are
so complex that it is difficult to translate them into definite percentage
margins. For example, the manufacturer of another nationally adver-
tised cosmetic also produces many other related articles. Display
allowances and free deals are generally offered in terms of combina-
tions of several of these products. In addition, price maintenance
contracts have been issued in five western States only and terms of
sale in these States vary from those in other parts of the country.
The largest volume of sales is through wholesalers, although some
sales are made directly to retailers. Only chain stores with three or
more units and department stores can qualify for direct accounts.
In those States in which price maintenance contracts are in effect, it is
400
CONCENTRATION OF ECONOMIC POWER
also specified that a direct buyer must order either an 18-dozen
assortment or $40 worth of goods in each shipment. The manu-
facturer's price Hst is the same in all States, but discounts and deals
offered to wholesalers and to indirect buyers in the five States in which
contracts have been issued are more liberal than in *'non fair trade"
States. However, while indirect buyers in "non fair trade" States do
not generally receive as liberal discounts as those in "fair trade"
States, the former are granted display allowances and more libera] free-
deal terms than are the latter. Discoimts to direct buyers are the
same everywhere. It is not possible to show comparative mark-ups
because adequate retail price data in the "non fair trade" States are
not available.
Table 42 summarizes the terms granted by the manufacturer:
Table 42. — Terms of sale for Cosmetic "C"
"Non fair trade" States
"Fair trade" States
Manufacturer's list pric6
$4.65 per dozen
$4.65 per dozen.
Discounts to wholesalers and
15 percent trade, less 1 percent
15 percent trade, less 10 percent
jobbers.
cash.
trade, less 1 percent cash.
Discounts to retailers buying
Not fixed by manufacturer—
Orders under $6—10 percent.
through wholesalers.
usually varies from 5 to 10 per-
Orders $6 to $12— 12J^ percent.
cent.
Orders $12 and over— 15 percent.
$2 order— choice of 1 unit of 2
$3 order— choice of 1 unit of 2
other products.
other products.
Display allowance to retailers buy-
5 percent discount from list, or free
None.
ing through wholesalers '.
goods.
Discounts to direct account
15 percent trade, less 1 percent
15 percent trade, less 10 percent
cash; and free goods or an addi-
trade, less 1 percent cash.
tional 10 percent from net.
' Offered only periodically, and items purchased must be in specified ratio to one another.
Summary for eight products. — Margins for the products described
(with the exception of the last, for which data are inadequate) are
summarized in table 43. It is evident that, despite differences in
detail, practice is fairly consistent. Margins to wholesalers on small
sales, which probably constitute the bulk of their business, average
about 15 percent in all cases. Wholesalers' margins on large sales
vary, falling into two groups. In the case of the two pharmaceuticals,
and toiletry "A," they are substantially lower than on small sales,
ranging from 6 to 8 percent. For the drug sundry, toiletry "C" and
cosmetic "A," the wholesaler's mark-up is only slightly lower on large
sales than on smaU, and for cosmetic "B" and toiletry "B" the
mark-up is the same regardless of the size of the transaction. In
general, therefore, a 15-percent margin for products of this kind may
be considered the norm.^
Retail mark-ups also fall into a fairly well-defined pattern. Re-
tailers, particularly independents, have usually regarded 33% percent
of the selling price as a satisfactory mark-up and have at times stated
this position through their trade associations. This is the desired
margin without any allowance for cash discounts, of which many small
retailers are unable to take advantage. Including one or two percent
for cash, the desired mark-up would range from about 34 to 36 percent.
The table shows that the mark-up to the small retailer, buying at
maximum cost and selling at the full list price falls into precisely this
> It is significant In this connection that manufacturers' discounts to wjioiesalers (exclusive of cash) are
usually expressed as 16 percent directly or as 10 and 5 which is equivalent to 14H percent.
CONCENTRATION OF ECONOMIC POWER
401
range for six of the eight products, is slightly lower for toiletry
"B," and is significantly lower only in the case of the drug sundry.
Where wholesalers allow— or are permitted to allow — quantity dis-
counts, retailers who can take advantage of these extra allowances can
obtain mark-ups of about 40 percent by selling at full list.
Table 43. — Wholesale and retail mark-
ups for 8 nationally advertised products
Pharma-
ceutical
A
Pharma-
ceutical
B
Toiletry
A
Toiletry
B
Cosmetic
A
Cosmetic
B
Toiletry
C
Drug
Sundry
Margin to whole-
salers:
Buying at mini-
mum, selling
Percent
Percent
Percent
Percent
Percent
Percent
Percent
Percent
at maximum--
14.1
12.4
18.4
13.5
15.6'
14.7
15.7
17.0
"Buying at max -
mum, selling
at minimum...
6.5
7.5
12.2
13.5
13.6
14.7
12.1
15.4
Margin to retailers
buying through
wholesalers:
Selling at full
retail list:
Buying at
minimum..
45.9
43.2
40.0
29.2
34.7
33.9
40.0
24.2
Buying at
maximum.
34.7
36.7
35.4
29.2
34.7
33.9
34.0
22.9
Selling at mini-
mum retail:
Buying at
minimum_
32.4
27.1
27.3
29.2
34. 7
33.9
21.1
24.2
Buying at
maximum.
18.3
18.8
21.7
29.2
34.7
33.9
13.2
22.9
Margin to retailers
buying directly
from manufac-
turer:
Selling at full
retail! ist:
Buying at
minimum..
Buymg at
maximum.
46.7
47.3
44.4
38.8
37.3
37.3
44.3
28.8
43.9
44.5
44.4
38.8
37.3
37.3
44.3
28.8
Selling at mini-
mum retail:
Buying at
minin^um^
33.4
32.5
32.6
38.8
37.3
37.3
26.7
28.8
Buying at
maximum -
29.9
28.8
32.6
38.8
37.3
37.3
26.7
28.8
Source: Bureau of Labor Statistics.
Contractual minimum prices, on the other hand, when these are
below list, allow substantially narrower margins to the indirect buying
retailer. For those who can take advantage of full quantity discounts
and deals, the mark-ap averages about 25 percent; for those who buy
at maximum cost, the range wias from 13 to 23 percent.
Retailers buying direct from the manufacturer are generally able
to buy more cheaply than those who buy through wholesalers. The
full Ust price yields mark-ups ranging as high as 47 percent. However,
it is probable that most direct buyers sell at or near the minimum
price, when that is below the list price, and actual mark-ups are
consequently somewhat narrower. For the eight products shown the
range of mark-ups based upon the minimum price was from 27 to 39
percent, with an average of about 33 percent. In other words, the
mark-up of the small retailer, buying in small quantities at maximum
402 CONCENTRATION OF ECONOMIC POWER
cost and usually selling at or near the full list price, is about the same
as that of the large direct buyer who typically resells at the minimum.
Margins allowed by a large drug manufacturer. — There is evidence
that these conclusions are generally applicable to a fairly wide range
of products. For example, a large drug manufacturer prescribes
terms of sale to consumers and to retailers in detail and divides his
line of merchandise into three groups. One of these three groups
contains somewhat over one hundred different items, including
primarily household remedies and toiletries. Most of these items are
relatively "fast selling" and are often featured on a price basis. The
retailer who purchases an assortment of $10 or more of this manu-
facturer's products is entitled to a 10 percent quantity discount from
the price charged retailers who buy in smaller quantities, while
retailers who purchase $25 or more on a single order obtain a 15 percent
quantity discount. In addition a one percent cash discount is also
offered. Consequently, the retailer who purchases in large quantities
can obtain merchandise at about 15.9 percent below the cost to the
retailer who buys in minimum quantities. Minimum prices have
been set by contract for all this range of products and in practically
all cases the minimum pnce is somewhat below the full list price.
The gross margins available to retailers for each product in this
group have been computed under four conditions:
(1) Purchases at maximum cost and resale at the minimum contract
price.
(2) Purchases at minimum cost and resale at the minimum price.
(3) Purchases at maximum cost and resale at the full list price.
(4) Purchases at minimum cost and resale at the full list price.
Table 44 indicates the number of items under wliich specified
mark-ups can be obtained under each of these four conditions. It
is evident that the gross margins for these items fall into much the
same pattern as that observed for the more limited list of products
which has been described above. The small retailer who buys in
minimum quantities and resells at the full list price and the large
retailer who purchases in large quantities and resells at the contrac-
tual minimum will typically obtain between 30 and 35 percent as his
mark-up. (The range for all of the manufacturers' products in this
group is considerably wider but these are the most common or "modal"
margins.) On purchases at maximum cost and resale at the minimum
price, the typical mark-up is considerably lower, ranging from 20 to
25 percent, and on purchases at minimum cost and resale at- the full
list price, the typical mark-up is between 40 and 45 percent. "^'
The second group into which this manufacturer divides his prod-
ucts is composed largely of vitamin products. Quantity discounts
are somewhat smaller and mark-ups materially more liberal. The
maximum quantity discount for this group is only 10 percent instead
of 15 percent. The mark-ups available to the retailer for 28 articles
are summarized in table 45. On purchases at maximum cost and
resale at the full list price and also on purchases at minimum cost and
resale at the contractual minimum, the typical range is between
35 and 45 percent. The small retailer purchasing in minimum
quantities will typically obtain between 30 and 35 percent as his
mark-up even on sales at the contractual minimum. The large
retailer taking advantage -of full quantity and cash discounts and
selling at the full list price can obtain as much as 45 to 50 percent
mark-up on sales of most of the items in this group.
_ CONCENTRATION OF ECONOMIC POWER
403
Table 44. — Maximum and minimum retail mark-ups for 1S2 products sold by a
large drug manufacturer — Group I
Number of items yielding specified mark-ups
Mark-ups (in percentages)
Ttems .<?nlf1 at. minimum
resale price-
Items sold at full
retail price-
To retailers
purchasing at
maximum
cost
To retailers
purchasing at
minimum
cost
To retailers
purchasing at
maximum
cost
To retailers
purchasing at
minimum
cost
10 to 14.9....
7
16
69
26
9
2
3
15 to 19.9
20 to 24.9..
4
10
66
48
9
2
2
1
2
36
67
13
7
6
2
25 to 20.9.
30to34.9
J
35 to 39.9
10
40 to 44.9.
84
45 to 49.9
24
50 to 54.9
g
55 to 59.9 -
4
Total
132
132
132
13'>
Source: Manufacturer's Price List.
Table 45. — Maximum and minimum retail mark-ups for 28 products sold by a large
drug manufacturer — Group II
Number of items yielding specified mark-ups
Mark-ups (in percentages)
Items sold at minimum
resale price-
Items sold at full
retail price-
To retailers
purchasing at
maximum
cost
To retailers
purchasing at
minimum
cost
To retailers
purchasing at
maximum
cost
To retailers
purchasing at
minimmn
cost
20 to 24.9
2
5
21
25 to 29.9
30 to 34.9
2
15
11
3
10
13
2
35 to 39.9
1
40to44.9
7
45 to 49.9
18
50 to 54.9
2
Total
28
28
28
28
Source: Manufacturer's Price List.
The third group of products offered by this manufacturer comprises
primarily standard pharmaceuticals and biologicals often sold on
prescription. Price competition for items of this character is rarely
an important factor. As a result, no minimum prices have been estab-
lished by contract. In all cases the retailer receives a 40-percent
discount from the full list price, plus an additional 1 percent for cash.
The practice is to sell most products of this kind at the full list price,
so that the retailer's mark-up will usually be about 40 percent on all
sales.
Mark-ups for cosmetics. — Among the products discussed in the
detailed analysis of terms of sale, above, were two brands of cos-
metics. The mark-up on these items to retailers buying through
wholesalers is between 34 and 35 percent in both cases. For both
these items no quantity discounts were offered and the minimum price
was established at the full list price, so that gross margins were uni-
form to all retailers who purchased through wholesalers.
These two articles appear to be generally representative of the
situation with regard to most widely advertised cosmetics, particularly
404
CONCENTRATION OF ECONOMIC POWER
for those in the higher-priced lines. This is indicated by table 46,
which summarizes the mark-ups available under different conditions
of sale and resale. (No allowance has been made for cash discounts,
but these are never large.) For the products of a number of important
manufacturers, 33 to 34 percent appears to be the standard mark-up
under ordinary conditions. Quantity discounts are available for the
products of some of these manufacturers but they are usually limited
and rarely raise the mark-up above 40 percent. In a few cases,
however, mark-ups are considerably lower, but these appear to form
the exception rather than the rule.
Table 46. — Maximum and minimum retail mark-ups allowed by 12 cosmetic manu-
facturers on their various price lines
Number of items yielding specified mark-ups •
Mark-ups (in percentages)
Items sold at minimum
resale price-
Items sold at full
retail price-
To retailers
purchasing at
maximum
cost
To retailers
purchasing at
rainlmum
cost
To retailers
purchasing at
maximum
cost
To retailers
purchasing at
minimum
cost
10 to 14 9
1
5
5
14
38
15 to 19 9
1
3
17
19
15
8
20 to 24.9
10
13
39
1
2
25 to 29.9 ---
17
30to34.9
23
35 to 39.9
11
40 to 44.9 --
2
12
45 to 49.9 ---
50 to 64 9
2
........
2
Total..- -
65
65
65
65
I The "minimum" retail and the "full list" retail price were identical for 52 of the 66 items.
Source: Wholesaler's Price list, September-October 1939.
Mark-ups in California. — Tables 47 and 48 are taken from a recent
study of the effects of resale price maintenance in California.'' These
indicate the percentage mark-ups for different kinds of drug products.
Table 47 is for all kinds of products, both advertised and unadvertised,
while table 48 is for well-known advertised drug products only. It is
again evident that, despite considerable variations among different
kinds of products, there is a marked tendency for retail margins to con-
centrate in the range between 30 and 35 percent. Mark-ups for
well-known advertised products, however, are somewhat below the
average for all products.
Summary. — The data which have been presented indicate that
despite considerable variations in detail and for particular products,
there is a substantial degree of uniformity of mark-up policy in the
drug trade. Wholesalers usually obtain a gross margin slightly
exceeding 15 percent on the sale of most transactions. In the case of
some products, wholesalers' mark-ups are narrower on sales of large
quantities than on sales of small quantities, but this is far from the
universal rule. Moreover, it has been pointed out that the average
small drug retailer usually buys on a hand-to-mouth basis, so that
any quantity discounts are only applicable to the minority of transac-
tions.
• Price Control Under Fair Trade Legislation, by Ewald T. Qrether, pp. 94-96.
CONCENTRATION OF EXIJONOMIC POWER
405
For the drug retailer the typical gross margin seems to be between
30 and 35 percent of the selling price. The figure is probably some-
what below this range for popular fast-selling merchandise on which
there is active price competition, and somewhat higher for slow-
mpving articles such as standard pharmaceuticals and biologicals.
It seems probable, moreover, that the difference between the prices
at which large and small retailers can purchase is reflected not so
much in a corresponding difference in their gross margins as in their
resale price policies. The sm^all retailor pays more, but usually sells
for more, with the result that liis rrark-up is probably much the same
as that of his larger competitor.
Table 47. — Retail margins ' on products in the drug trade in California under the
California fair-trade law, July 19S6
Classes of products
Num-
ber of
items
Percent of minimum margins in percentage intervals
0-10.9 11-20.9 21-30.9 31-10.9 41-50.9 61-60.9 61-70.9
Aggre-
gate
mini-
mum
margins
Aggre-
gate
maxi-
mum
margins
Ant, fly. and in-
sect supplies
Antisppiips
Atomizers and va-
porizers.
Baby specialties
Cigars
Cod liver oil
Contraceptives
Cosmetics
Cough and cold
preparations
Dentifrices
Deodorants
Dog and bird pre-
parations
Effervescent salts. .
Eye preparations...
Films
Foods and tonics...
Foot remedies and
preparations
Hair preparations . .
Hospiial supplies...
Household reme-
dies
Household supplies.
Laxatives
Liniments.
Mineral oils
Mineral waters
Nose and throat
preparations
Ointments
Patents
Pharmaceuticals . . .
Pilbs and tablets
Poison oak and in-
sect lotions
Razors and blades.
Rubber goods
Salts
Shaving supplies...
Soaps..
Sundries
Suppositories
Tooth and gum
treatments _.
Tooth brushes
Vaseline (petrole-
um jellies)
Watches and clocks.
Total'
32
61
29
7
43
120
74
359
63
45
20
30
15
21
76
43
99
62
37
27
91
25
30
3
50
55
23
64
161
11
47
20
10
88
24
46
10
24
16
26
37
2,112
4.92
2.51
1.89
22.22
5.00
21.87
18.03
2«.57
37.21
10.83
1.35
18.10
13.21
35.56
30.00
.3.33
33.33"
6.67
14.28
14.29
6.58
14.47
2.32
6.06
46.47
12.90
5.40
7.41
18.62
1.10
8.79
4.00
20.00
6.67
23.33
2.00
1.82
10.91
8.69
1.66
14.06
10.60
6.38
10.64
3.41
52.27
25.00
10.00
"25."66"
7.69
15.63
39.35
24.14
71.43
58.14
67.60
27.03
31.75
39.62
22.22
45.00
12.50
33. 34
3.3.33
71.43
55.26
26.68
30.30
6.45
18.92
22.22
42.86
62.00
26.67
66.67
40.00
40.00
82.61
42.19
41.72
9.09
29.79
5.00
30.00
26.14
29.17
6.52
40.00
.54.17
37. .50
65.38
70.27
34.37
19.67
4.66
16.67
31.08
38.44
26.42
6.67
20.00
87.50
16.67
26.67
11.84
20.93
14.14
80.65
40.54
48.15
18.68
12.00
30.00
33.33
38.00
29.09
8.70
31.25
30.46
27.27
53.19
50.00
50.00
3.41
20.83
45.65
30.00
20.83
18.75
23.08
27.03
16.48 36.60 28.66
25.00
18.03
3.13
6.90
10.83
24.32
7.80
15.09
4.17
10.81
.56
3.77
4.44
13.33
33.33
10.63
48.84
3.03
27.03
20.88
8.00
13.33
16.00
18.18
9.38
16.23
63.64
40.00
10.00
10.23
20.83
19.67
20.00
16.67
18.76
3.85
2.70
1.32
2.33
6.41
3.70
6.69
4.00
4.00
1.56
5.00
10.00
2.27
4.17
28.26
2.56
5.41
.84
2.70
1.10
1.99
4.16
.71
31.31
27.60
33.38
22.62
24.40
29.25
40.59
32. 74
29.14
21.60
24.26
35.64
26.40
32.94
20.74
30.63
38.16
23.28
34.29
38.06
28.56
36.83
26.96
27.73
31.64
30.88
30.46
24.97
31.51
31.07
40.48
29.76
42.14
39.95
29.12
37.18
38.30
31.47
31.16
28.63
27.23
32.48
31.73
37.04
33.66
39.32
29.38
27.60
31.89
48.01
36.11
36.54
26.41
29.56
41.96
30. 52
38.99
29. .51
34.13
44.02
28.76
39.16
42.61
34.41
39.38
36.39
27.31
38.43
37.83
36.65
33.62
33.93
36.82
45.54
30.63
47.83
42.25
33.06
40.22
42.28
38.93
37.91
38.27
29.96
35.53
35.84
' Margins are computed as percentages of contractual prices.
' Total percentages are aggregates, not averages of the class percentages.
Source: Table VII, Price control under fair-trade legislation, by Orether, appendix B, pp. 48^-483.
406
CONCENTRATION OF ECONOMIC POWER
Table 48. — Minimum retail margins ' on 8electe4 well known advertised drug
products in California under the California fair-trade law, July 19S6
Number
of
items
Percent of items in percentage intervals
Class
averages
of
selected
items
Total
class
Classes of products
0-10.0
11-20.9
21-309
31-40.9
41-60.9
61-60.9
averages
(see table
vn)
Antiseptics
12
7
28
6
14
4
3
1
4
1
8
2
4
1
3
2
4
2
2
3
17
""7."i4'
50 00
28.58
42.86
4L67
28.58
17.86
80 00
21.42
60.00
66. 67
100.00
76.00
8.33
14.28
25.00
20.00
20 67
31.36
26.21
28.68
15.63
20 82
25.00
23.50
24.25
33.00
20.29
23.95
26.52
19.70
25.87
30 00
20.97
25.50
28.15
27.73
17.95
27.60
Cod-liver oil
14.28
7.14
14.28
29.25
HOSTTlBti'*-''
32.74
Cough and cold prep-
arations
29.14
Dentifrices
28.68
60.00
50.00
33.33
21.60
Deodorants
24.26
Effervescent salts
26.40
Eye preparations
32.94
Foods, tonics, etc
25.00
30.63
Foot remedies
100.00
38.15
Hair preparations
12.50
37.50
50 00
100.00
75.00
23.28-
Household remedies. .
38.06
Laxatives
"33.33"
26.00
100.00
35.83
Liniments
26.67
Mineral oUs
33.33
50 00
76.00
100.00
60.00
66.67
17.66
"50.06'
33.34
27.73
Nasal preparations
30.88.
Oiatments
25.00
30.46
Patents
24.97
Pharmaceuticals-
50.00
33.33
31.16
puis, tablets, and
capsules..
31.07
Shaving supplies
82.34
29.12
Total'
127
7.05
■39.41
38.62
11.01
3.13
.78
22.76
30 9»
1 Margins are computed as percentages of contractual prices.
> Total percentages are aggregates.
Source: Table Xin, Price control under fair-trade legislation, by Orether, appendix B, pp. 494-495.
None of these figures take account of any special privileges granted
to very large buyers such as the national chain stores, but data
regarding such special concessions are very difficult to obtain, especi-
ally since the Robinson-Patman Act became law. Where such special
concessions are available, margins may be correspondingly wider,
especially for commodities for which resale price maintenance contracts
have been issued.
It has also been impossible to obtain any information regarding
margins for private brands. The very marked differences which have
been demonstrated between the cost of widely advertised products to
distributors and the cost of producing similar items from their chemical
ingredients may make it possible for the owners of private brands to
resell them to the consumer at levels considerably below those for the
correspondingly nationally advertised merchandise, h,Ad yet to recover
a very substantial margin on the transaction.
INDEX
ADVERTISING: Pag&
Allowances __ _ _. 100
Brand. (»See BRANDS AND TRADE-MARKS.)
Consumer guides, criticism of 106
Mass demand created may affect costs of manufacture 106-
Nonprice competition 75
Price rigidity and; comment and chart 61 . 84
AGRICULTURAL COMMODITIES: Geographic price structures. """ 287
AGRICULTURAL IMPLEMENTS AND MACHINERY: Geographic
price structures 33I
ALUMINUM: Geographic price structure __ . __ 338
AMERICAN RETAIL FEDERATION: Congressional inquiry '" 100
APPAREL. (See WEARING APPAREL.)
AUTOMOBILE INDUSTRY:
Geographic price structure 33O
Replacement rate of passenger cars; obsolescence factor versus dura-
bility 150
Trade-in allowances..^ _ _ _ __ 150-151
Cash value, 1933-38; table 23 ' 163
AUTOMOBILE TIRES: Wholesale price and average life of, 1913-38;
chart 8 and table _ 65 258
BAKELITE. (5ee PLASTICS.) "" '
BASING-POINT PRICING:
Benzol 3,J8
Cement 311
Chem icals 320
Flooring, maple and oak 309
Gasoline 341
Lead 339
Products subject to 345
Southern pine 309
Steel 305
Sugar 295
Systems 279
Tactics 8
Zinc - 338
BLAIR, JOHN M., joint avthor (See KEIM, WALTER G.).
BOOMS. (See RECESSION AND RECOVERY.)
BOOTS AND SHOES, Geographic price structure . 303
BRANDS AND TRADE- MARKS:
Advertised and substitute brands 368
Brand prestige 7
Canned foods, prices and quality grades, brand comparison; table 4-- 77
Consumer brand preference questionnaire, T. N. E. C 78
.National Brands Week, drug trade . 380
Nonprice competition, trade-marks 75
Price at wholesale of identical substances sold under proprietary and
nonproprietary names, brand comparison; table 6 ' 81
Price flexibility, relation to brand preference; table 8 and chart 11 86-87
Price rigidity and advertising relationship; comment and chart 9 84
BREAD: Geographic price structure 295
BREAKFAST CEREALS: Prices, 1926^37, cents per pound, retail, whole-
sale, and margins, farm value; chart 10 85
BRICK: Wholesale price index; chart 1 and table (by months), 1926-39__ 24, 252
247149 — 41 — No. 1 28 407
408 INDEX
Page
BROWN, LAURA MAE, Conventional Price Lines, appendix II, prepared
by 242
Joint author. (See NELSON, SAUL.)
BUILDING CONSTRUCTION: Interrelated character of interests, ma-
terials producers, labor, financial agencies, cause of inertia in incentive;
proposal _.__. 52
BUILDING MATERIALS:
Geographic price structure . 310
Lumber products. {See LUMBER.)
Steel products. (See STEEL INDUSTRY.)
BURNS, ARTHUR R. Decline of competition; cited (n.) 5
BUSINESS CYCLE. (See also RECESSION AND RECOVERY.)
Price policy, effect upon recession and recovery 10
BUSINESS FURNITURE AND EQUIPMENT:
Geographic price structure 316, 336
Small versus large manufacturers' confiicfr-over price and/or nonprice
competition 92
BUYERS:
Individual. (See CONSUMER ECONOMY.)
Institutional, industrial, or governmental, expertness of ; 75
CALIFORNIA: Minimum resale price law of 1933 353
CANADA: ROYAL COMMISSION ON PRICE SPREADS, report
cited (n) .; 17
CARBON BLACK:
Price structure 317
Zone prices and differentials; table 321
CATTLE: Geographic price structure 290
CEMENT: Geographic price structure 311
CHAIN DRUG STORES. (See DRUG TRADE.)
CHEMICALS: Geographic price structure -_. 316, 321
CHOCOLATE BARS: Price lining; change in size of bar; table 3 73
C [GARETTES : Geographic price structure 304
COAL; ANTHRACITE: Wholesale price index, 1926-39; comment,
chart 3 and table (by mos.) 26-27, 254
GOAL; BITUMINOUS: Geographic price structure 342
COFFEE: Geographic price structure 298
COLUMBUS, OHIO: Drug trade study, by Marketing Laws Survey 365
COMPETITIVE STRATEGY:
Emphasis shifting to nonprice channels 19
Nonprice competition. (See NONPRICE COMPETITION.)
Price competition. (See PRICE COMPETITION.)
Redirection of 59
Sales. (See SALES STRATEGY.)
COMPTOMETERS. (See BUSINESS FURNITURE AND EQUIP-
MENT.)
CONCENTRATION IN INDUSTRY: Electrical household equipment;
comment and table 22 134, 163
CONSUMER ECONOMY:
Average expenditures for household electrical equipment, by income
levels; table 13 130
Brand preference questionnaire, Temporary National Economic
Committee 78
Buyer preference: complicated by nonprice competition 56
Role of ^^ 6
Consumer purchases study, by Bureau of Labor Statistics and co-
operating agencies ; cited ' 120
Effect of consumer movement on character of information regarding
retail commodities 57
Expenditures by wage earner and clerical worker families for electric
refrigerators, washing machines, vacuum cleaners and electric
stovcs and hot plates, by economic level of families; table 24-. 164
Government program for consumer education 108
Household equipment ownership by income groups; charts 17-24,
tables 122-129, 263^-264
Income residual after primary expenditures, by income groups, 1935-
36; table 265
Income residuals, budgeting of, comment and charts 25-26 130-33
INDEX 409
CONSUMER ECONOMY— Continued. Page
Organized consumer movement reflects dissatisfaction with adver-
tising reliability 106
Organizations supplying technical guides; cited (n.) 77
Purchasing guides, criticism of 106
Price lines ; consumer accommodation 70
Price lining consumers' durable goods 249
Quality v. price criteria and consumer demand 66
COPPER: Geographic price structure.^ 340
COPPER REFINERIES: Location of 340
COSMETICS: Geographic price structure 323
COST ACCOUNTING:
Uniform cost accounting and price control 9
COST DATA:
Distribution cost:
Electrical equipment industries 143
Food distribution by farmer; index (1910-14=100), 1913-38;
table ---- 49
Washing machines 144
Freight costs. {See FREIGHT COSTS.)
Production cost:
Electric-equipment industries 143
Production, Transportation, and Distribution Costs:
Estimate, 1929 271
COST RELATIONSHIP: Cost-price relation 34,50
COTTON GOODS: Wholesale price index, 1926-39; comment, chart 2
and table (by months) 23, 25, 253
COTTONSEED: Geographic price structure 292
COTTONSEED OIL: Geographic price structure 295
CREDIT. {See NONPRICE COMPETITION.)
DEMAND FACTOR:
Inelastic versus joint demand :
Inelastic 51
Mass demand created by advertising may affect cost of manufacture. 106
Price relationship and 42
Quality versus price criteria and consumer demand ._ 66
DEPRESSIONS. {See RECESSION AND RECOVERY.)
DIFFERENTIATED PRODUCTS: Standard products v 7
DISTRIBUTION:
Cost. {See COST DATA.)
Legislation for protection of desirability questionable, certain con-
ditions under : 14
DOORS : Geographic price structure 309
DOUGLAS FIR : Geographic price structure 308
DRUG TRADE:
Chain-store retail price trends compared w^ith independents 361
Distributive margins ■ — 386
Columbus, Ohio, marketing laws, survey study 366
Geographic price structure 323
National Brands Week 380
Price differentials:
"Cost to buy versus cost to make" 369-71
Nationally advertised versus substitute 371
Price lines, retail 382
Resale price maintenance legislation, effect on relationship between
nationally advertised and substitute merchandise 379
Retail market, general characteristics 351
Retail price trends:
Chains versus independents 361
Six selected products 355
DURABILITY FACTOR:
Automobile tires. {See AUTOMOBILE TIRES.)
Refrigerators, electric 149
EGGS: Wholesale price index, 1926-39; comment, chart 2 and table (by
months) 23, 25, 253
ELECTRIC FANS : Geographic price structure 333
ELECTRIC FARM AND HOME AUTHORITY: Function of 159-60
410 INDEX
ELECTRICAL HOUSEHOLD EQUIPMENT: Page
Concentration of industry; comment and table 22 134, 163
Cost data:
Distribution cost 143
Production cost, paucity of information 143
Geographic price structure 33&
Ownership by family income groups, 1935-36; refrigerators, washing
machines, vacuum cleaners, radios; charts 17-24, and tables 122-129,
263-264
Price and sales policy analysis 109
Purchases by families participating in Rural Electrification Admin-
istration programs 160
Radios. {See RADIOS.)
Refrigerators. (See REFRIGERATORS.)
Statistics:
1925-38 market saturation; percentage of wired homes owning
each of four tvpes of equipment, table 11 118
1929-37, average retail value and sales, 1929, 1932, 1937; table 10. 112
Vacuum cleaners. (See VACUUM CLEANERS.)
Washing machines. {See WASHING MACHINES.)
ELECTRICAL MACHINERY AND APPARATUS: Geographic price
structures 332
ENGINES: Geographic price structure, Diesel and gasoline engines 335^
EXCAVATING MACHINERY: Geographic price structure 336
FAIR TRADE ACTS:
Desirability questionable under certain conditions 14
Effect on nonprice competition 56
Effect on retail price competition 8&
Effect on system of distribution 52
Independent retailers versus manufacturers attitude 90
Price maintenance contracts between trade-mark owner and dis-
tributors 86
States in which not operative 354
FAMILY ECONOMY. {See CONSUMER ECONOMY.)
FARM PURCHASING POWER:
Effect of shift in 47
Statistics:
1913-38. Selected indexes of prices paid by farmers, farm wage
rates, costs of distribution, farm taxes, and mortgage interest;
table 2
FEDERAL HOUSING ADMINISTRATION. Modernization loans in 49
effect 1934-37 159
FEDERAL TRADE COMMISSION:
Agricultural income inquiry ; cited (n.) 289
Price base inquiry, the basing-point formula and cement prices;
cited (n.) 273
Report on certain phases of the fertilizer industry; cited (n.) 99
FERRO-ALLOYS : Geographic price structure 308
FERTILIZERS:
Geographic price structure 324
Prices, nominal versus actual; Federal Trade Commission report
extract 99
Zone pricing 283
FLOOR TILE: Geographic price structure 312
FLOORING : Geographic price structure. -. 309
FOOD PRODUCTS: Geographic price structure 294
FOOTWEAR. (See BOOTS AND SHOES.)
FREIGHT COSTS: Freight bill data inadequate 271
FREIGHT EQUALIZATION STRUCTURE:
Binder twine 302
Chemicals 318
Floor tile 312
Gasoline 34 1
Gypsum plaster 312
Lime 311
Operation of ' 276
Products subject to 344
INDEX 411
FRENCH, WILLIAM C, JR., joint author. (See NELSON, SAUL.) Page
FRUITS : Geographic price structure 292
FURNITURE: BUSINESS. (See BUSINESS FURNITURE AND
EQUIPMENT.)
FURNITURE, HOUSEHOLD:
Electrical equipment. (See ELECTRICAL HOUSEHOLD EQUIP-
MENT.)
Geographic price structure 315
GALBRAITH, J. K.: Monopoly power and price rigidities: cited (n.) 16
GARMENT INDUSTRY. (See WEARING APPAREL.)
"GARY DINNERS" 279
GASOLINE : Geographic price structure 341
GENERAL MOTORS CORPORATION: Dynamics of automobile de-
mand; cited (n.) 64
GEOGRAPHIC PRICE STRUCTURES: Buyer and seller dominated- . 284
GLASS CONTAINER INDUSTRY: Price control 8
GOVERNMENT NONREGULATORY ACTIVITY:
Credit activities of Federal agencies 141
Electrical equipment purchases facilitated by various agencies 159-160
Expansion of potential electrical appliance market by Rural Electri-
fication Administration 111
Financing sales of electrical equipment by Electric Home and Farm
Authority 111
Insurance of loans for purchase of electrical equipment by Federal
Housing Administration 111
GOVERNMENT REGULATION:
Combating food and drug misrepresentation and mislabeling 58
Commodity standardization development 108
Informative commodity labeling 108
Price, effect on nonprice competition ■_ 56
Price competition 62
Price maintenance, effect on system of distribution . 52
Standardization of commodities and materials. National Bureau of
Standards 58
GRETHER, EWALD T.: Price control under fair-trade legislation; ex-
tract 369
GYPSUM PLASTER: Geographic price structure 312
HANDLER, MILTON: Unfair competition; cited (n.) 107
HARD FIBERS AND PRODUCTS: Geographic price structure 302
HARDWARE: Geographic price structure 308,334
HEATING EQUIPMENT: Geographic price structure, boilers and ra-
diation 313
HOUSEHOLD FURNITURE. (See FURNITURE.)
HUMPHREY, DON D.: Nature and meaning of rigid nrices; cited (n.).. 18
INDUSTRIAL BENZOL: Geographic price structure 318
INSULATION BOARD: Geographic price structure 313
INVESTMENT: Price relationship 43
IRON ORE: Geographic price structure 308
KALOCKI, MICHAEL: Theory of commodity income and capital taxa-
tion; cited (n.) 59
KEIM, WALTER G. and JOHN M. BLAIR: Electrical equipment in-
dustries— an illustrative case, chap. IV; prepared by 109
Joint author. (See NELSON, SAUL.)
KENNEDY, STEPHEN JAY: Profits and losses in textiles; cited (n.).._ 73
KREPS, T. J.: Economic problems in a changing world; cited (n.) 36
LADDERS: Geographic price structure 309
LAMINATED PHENOLIC PRODUCTS. (See PLASTICS.) 334
LEAD: Geographic price structure 339
LERNER, A. P.: Concept of monopoly and the measurement of monopoly
powers ; cited (n.) 59
LIFE EXPECTANCY OF COMMODITIES:
Automobile tires 65, 258
Refrigerators, electric 149
LIME: Geographic price structure 311
LINSEED OIL: Geographic price structure 314
LUMBER: Geographic price structure 308
MACHINE TOOLS: Geographic price structure, milling, grinding, screw
machines, etc 335
412 INDEX
Page
MACHINERY: Geographic price structures 331
MAHOGANY: Geographic price structure 309
MANILA ROPE: Geographic price structure 302
MARKET SATURATION:
Income-group relationships 120
Replacement-sales significance 148
Sales and —
Refrigerators, washing machines, vacuum cleaners, and ranges;
number sold, percent of homes using, 1925-38; table 11 118
Refrigerators, washing machines, vacuum cleaners, ranges; num-
ber sold, percent homes using, 1927-38; chart 16 and table.- 119, 262
Refrigerators, washing machines, and vacuum cleaners; percent
saturation change, 1937 of 1929; percent sales, 1937-38 of
1932-33; table 12 118
MARKETING-LAWS SURVEY, W. P. A.: Columbus, Ohio, drugstores. 365
MAANS, GARDINER C:
Industrial prices and their relative inflexibility; cited (n.) 17, 31 37
Notes on inflexible prices; cited (n.) 18
MEATS: Geographic price structure .. 294
MILK: Geographic price structure 290
MILLER-TYDINGS ACT:
Effect on system of distribution 52
Interstate price- maintenance contracts 86
Provisions of 354
MOISE, IRWIN S., AND GEORGE B. HADDOCK: Manufacturers'
control of distribution; cited (n.) 297
MUND, VERNON A.: "Freight allowed" method of price quotation;
cited (n.) 282
NATIONAL INDUSTRIAL CONFERENCE BOARD: BuUetin 5, vol.
13. Price flexibilitv and change in production; cited (n.) 38
NATIONAL RECOVERY ADMINISTRATION:
Codes :
Retail drug trade .' 353
Types of concessions to influence sales as dealt with by codes. _ 94
Division of Industrial Economics: Minimum price control, staff
study ; extract 91
Division of Review: Work materials. No. 62. Moise and Haddock,
Manufacturers' control of distribution; cited (n.) 29?
Most comprehensive regulation of trade practices by Government 62
Price reduction alternative schemes devised by industry 56
NATIONAL RESOURCES COMMITTEE: Structure of the American
economy; cited (n.) 30
NELSON, SAUL:
Nonprice competition, chapter III, prepared by - 54
Price flexibility, chapter II, prepared by 11
-. — AND LAURA MAE BROWN. Prices and price margins in the
drug trade ; part III, prepared by 348
AND WILLIAM C. FRENCH, JR. Geographic pMce structures,
Part II, prepared by 267
AND WALTER G. KEIM. Measures of price flexibility; Appen-
dix 1, prepared by 165
. Price behavior and business policy, written by XVII
NONFERROUS METALS. Geographic price Structure 338
NONPRICE COMPETITION:'
Advertising criticism of consumer guides 106
Borderline transactions 63
Brand emphasis, net effect of ^^- 106
Brands a major aspect 90
Business furniture, small versus large manufacturer's conflict over
price and/or nonprice competition 92
Credit terms ; electrical-equipment industries 141
Garment trades 9
Guaranties ; electrical-equipment industries 140
Market position maintenance through nonprice v. price competition. _ 59
Quality criteria 66
INDEX 413
NONPRICE COMPETITION— Continued.
Quality emphasis: Page
Net effect of lOa
Refrigerator industry 138
Small V. large concerns' escape devices 90
Techniques i 54
Types of concessions to influence sales as dealt with by N. R. A.
OFFICE FURNITURE 'aND EQUIPMENTV ' {See BifsiNESS 'FUR-
NITURE AND EQUIPMENT.)
PAINTS: (Geographic price structure 314
PAPER: Zone pricing 283
PAPER AND PULP INDUSTRIES: Geographic price structure 328
PATENT POOLS. Price control and .. 8
PATENTS: Importance of in electrical equipment industry 134-135
PETROLEUM AND PRODUCTS: Geographic price structure 341
PHOSPHATE ROCK: Wholesale price index, 1926-39; comment, chart 3
and table (by months) 26-27, 254
PITTSBURGH-PLUS SYSTEM 279
PLASTERBOARD INDUSTRY: Price control 8
PLASTICS: Geograohic price structure -._ 334
PLUMBING FIXTURES: Geographic price structure. 314
PLYWOOD: Geographic price structure 310
PONDEROSA PINE: Geographic price structure 309
"POSTAGE STAMP" PRICING 282
Chemicals 319
POTASH: Geographic price structure 326
POTASH SALTS: Wholesale price index, 1929-38; comment, chart 3 and
table (hv months).. 26-27, 255
POTATOES:
Geographic price structure ^ 290
Wholesale price index, 1926-39; comment, chart 3 and table (by
months) 26-27,254
PRICE COMPETITION:
Border-line transactions 63
Business furniture, small versus large manufacturers, conflict over
price and/or nonprice competition.' 92
Cutting prices versus nominal quotation 36
Eff'ect of fair-trade legislation on retail-price competition 88
Electrical household equipment industry 134
Market position maintenance through price versus nonprice competi-
tion 59
Techniques 7
PRICE CONTROL:
Basing point systems. (See BASING POINT PRICING.)
Glass container industry 8
Licensing agreements 8
Open-price systems 9
Patent pools 8
Plasterboard industry 8
Price leadership. (See PRICE LEADERSHIP.)
Tactics 6
Uniform cost accounting 9
PRICE DATA:
Published quotations versus deviations on basis of long-term contracts. 99
Wholesale versus retail, relative availability and comparability 49-50
PRICE DIFFERENTIAL:
Branded versus nonbranded chemical products of identical composi-
tion ; table 81
Retail price of drugs, cosmetics, and foods compared with cost of
ingredients; table 82-83
PRICE DISPERSION:
Industrial production and; indexes; chart 7 (1928-40) and table (1928-
39) . 46,258
Industrial production and reciprocals of price dispersion, wholesale
prices of 30 basic commodities, 1926-39, index; comment, chart 6
and table (by months) 43-44,257
References to literature on_. 45
W. P. A. study •---- - 45-
414 INDEX
PRICE LEADERSHIP: Page
Lead industry 339
Salt industry - .^ 297
Tactics 8
PRICE LINING:
Chocolate bars; change in size of bars; table 3 73
Consumers durable goods 249
Consumer purchase problems simplified by 102
Drugs, toiletries, and sundries 382
Retail markets:
Wearing apparel, women's and girls' and men's shirts 243
Yard goods 248
Undesira'ble features of 102
Wholesale markets:
Wearing apparel 242
Wholesale v. retail markets 70
PRICE MAINTENANCE:
Drug trade:
Resale price controls 352
Substitute brands and resale price maintenance 379
Legislation :
Effect on nonprice competition 56
Effect on retail price competition 88
Effect of on system of distribution 52
Miller-Tydings Act provisions 354
States in which Fair Trade Acts are not operative 354
Trade-mark owner-distributor contracts 86
PRICE RELATIONSHIPS:
Brand preference to price flexibility ; table 8 and chart 11 86-87
Cost-price relation 34, 50
Demand and 42
Durability and price; wholesale price of automobile tires and average
life of tire, 1913-18; chart 8 and table 65, 258
Production and 38
Changes in average wholesale price and quantity available for
consumption for 111 named durable, semidurable, and nondu-
rable commodities; percent change 1929-33; table 255
Farm products, 1926-38; index; comment, chart 5 and table 41, 256
Median change in price and quantity available for consumption,
1922-33, durable, semidurable, and nondurable goods; com-
ment, table and chart 4 38-39
Spending and investment 42
PRICE RESPONSE TO MARKET CONDITIONS: Literature on 16
PRICE RIGIDITY AND/OR FLEXIBILITY:
Advertising and; comment and chart 9 84
Correlation tables of wholesale price flexibility; tables 27-58 211-241
Expansion of rigidity sector in price universe 19
Flexibility measures; Appendix I, prepared by Nelson and Keim 165
Flexibility of commodity prices measured by various criteria;
table 25 172-189
Flexibility of commodity prices measured by various criteria ranked
in order of increasing flexibility; table 26 190-210
Flexibility, provocation of 11
Flexibility relation to brand preference; table 8 and chart 11 86-87
Measurement of flexibility 27
Rigid or insensitive v. flexible or sensitive- 11
Rigidity:
Effect of technological change on 11
Effect upon economy during depression and boom periods 12
Provocation of 11
Sensitive and insensitive 1926-39, index; comment, sulphur, brick,
wheat; chart 1 and table by months 20-24,252
PRICE SPREADS:
Commodity types; manufactured v. agricultural goods 11
INDEX 4]^5
PRICE STRUCTURES: Page
Basing-point: products subject to 345
Flexible and/or inflexible. {See PRICE RIGIDITY.)
Freight equalization: Products subject to 344
Geographic price structures; part II, by Saul Nelson and William C.
French, Jr 267
Geographic, type analysis 343
Rigid and/or nonrigid. (-See PRICE RIGIDITY.)
Sensitive and/or insensitive. {See PRICE RIGIDITY.)
Uniform delivered price:
Products subject to 343
Zone delivered pl-ice:
Products subject to 344
PRICE TRENDS:
Types of movement casual, seasonal, cyclical, and secular, role of each. _ 20
PRICE WARS:
Causes 8, 56, 91
Salt industry 100, 297
PRODUCTION:
Price dispersion and; index industrial production and reciprocals of
price dispersion, wholesale prices of 30 basic commodities, 1926-39;
comment, chart 6 and table (by months) 43-44, 257
Price dispersion and; indexes, chart 7 (1928-40) and table (1928-39),
by months . 46, 258
Price relationship 37
PUMPS: Geographic price structure 335
PURCHASING POWER, FARMER. {See FARM PURCHASING
POWER.)
RADIOS:
Ownership by family income groups, 1935-36; charts 23 and 24 and
table.... 128-29,264
Price lining 249
Statistics :
1929-37, average retail value and sales, 1929, 1932, 1937_. 112
RADIO TUBES: Geographic price structure, receiving tubes 333
RANGE AND HOT PLATE INDUSTRIES:
Average expenditure per income level by wage earner and clerical
worker families; table 13 130
Expenditures by wage earner and clerical worker families for electric
stoves and hot plates ; amount and percent of family income ; table 24^ 1 64
Geographic price structure 337
Market saturation. {See MARKET SATURATION.)
Sales. (See MARKET SATURATION.)
Statistics:
1925-38. Market saturation; percentage of wired homes owning
ranges; table 11 118
1927-38. Market saturation, percent, and number of sales;
chart 16 11^
1927-38. Number sold and retail value; average realization at
retail and wholesale price index; chart 15 and table 116, 262
1929-37. Average retail value and sales, 1929, 1932, 1937;
table 10 - 112
RAYON, wholesale price index, 1926-39; comment, chart 2 and table
(by months) 23,25,253
RECESSION AND RECOVERY. {See also BUSINESS CYCLE.)
Commoditv price response variation, 1929-33 depression 11, 16, 23, 40
1933-37 recession 16
Rigid versus flexible price structure upon economy during periods of. . 12
Sales policy response, 1937-38 recession, refrigerator industry 137
REFRIGERATORS, ELECTRIC:
Average expenditure per income level by wage earner and clerical
worker families; table 13 . 130^
Concentration, production first four companies, 1937; percent of total,
total production, number of companies; table 22 163
Distributive margin: typical standard brand sales organization; mass
distributor - — -. 145
416 INDEX
KEFRIGERATORS, ELECTRIC— Continued.
Durability of electric refrigerators: life expectancy in years by year Page
of manufacture, 1920-38 149
Expenditures by wage earner and clerical worker families for electric
refrigerators, average amount and percent; table 24 164
Geographic price structure 336
"Leader" selling 136, 142
Market expansion sales effort 138
Market sq,turation. {See MARKET SATURATION.)
Ownership by family income groups, 1935-36; charts 17 and 18 and
table 122-123,263
Price lining 249
Price structure, 1940 change 154
Prices, 1938, table 21, list, by companies 162
Prices, 1939 and 1940, retail published list prices; table 20 155-156
Reconditioning plans, Crosley and Philadelphia 152-153
Replacement sales, ratio, 1929-38; table 18 148
Sales. {See MARKET SATURATION.)
Seasonal sales promotion 137
Statistics:
1925-38. Market saturation; percentage of wired homes owning
electric refrigerators; table 11 118
1927-38. Market saturation, percent; sales in thousands;
clmrt 16 119
1927-38. Number sold and retail value, realization and whole-
sale price (1932-38); chart 12 and table 113,261
1928-37. Distributive margin: Average factory price, retail price;
actual and percent margin; table 14 144
1928-37. Factory price; comment, chart 3 and table 26-27, 255
1929-37. Average retail value and sales, 1929, 1932, 1937;
table 10 . - .-. 112
1929 and 1937-8. Market saturation, percent of wired homes,
1929 and 1937; percent change in sales, 1929 to average
1932-33 and 1937-38; table 11 118
"Stripped" lines 142
Trade-in allowance statistics, 1933-38, cash values; table 23 163
REPLACEMENT MARKET:
Automobile industry, outstanding example of shift from original to
replacement market 148
Obsolescence:
Automobiles, electric refrigerators, washing machines, and
vacuum cleaners 149-150
Trade-in allowance:
Automobiles, refrigerators, washing machines, and vacuum
cleaners 150
Cash value on trade-ins: Electric refrigerators and automobiles,
1933-38; table 23 163
RESALE PRICE MAINTENANCE. {See PRICE MAINTENANCE.)
RICE: Geographic price structure 298
ROAD MACHINERY: Geographic price structure 336
ROBINSON-PATMAN ACT 62
Desirability questionable under certain conditions 14
Effect on system of distributid/n 52
ROOFING: Geographic price structure 313
RURAL ELECTRIFICATION ADMINISTRATION: Surveyte on extent
of use of electrical appliances in Administration territory 160
SALES: Market saturation and {See MARKET SATURATION).
"lALES STRATEGY: Electrical household equipment 131
Expert buyer versus untrained consumer _ 68
"Leader" selling - 136
Refrigerator industry 142
Nonprice competition . 56
Replacement market:
Electtical equipment industry 148
Seasonal modifications:
Refrigerator industry 137
Set-back method (n.) --- - 142
INDEX 417
SALES STRATEGY: Electrical household equipment— Continued.
"Stripped" lines: Page
Refrigerator industry 142
Techniques 5
Types of concessions to influepce sales as dealt with by codes 94
■SALT:
Geographic price structure 296
Prices, nominal versus actual 100
SCRAP METAL: Geographic price structure. 340
SEASONALITY: Price movement 20-22
Sales policy:
Refrigerator industry 137
SECULAR PRICE TRENDS: Significance 20
SIMONS, PROF. HENRY C: Positive program for laissezf aire; cited(n.)- 17
SMALL VERSUS LARGE ENTERPRISES: Ba^es of competition, viz,
quality service, prestige, large; price inducement small 91
SOUTHERN PINE: Geographic price structure 309
SOYBEAN OIL : Geographic price structure 295
■SPENDING : Price relationship 42
STANDARD PRODUCTS: Differentiated products versus 7
STEEL INDUSTRY : Geographic price structure 305
■STEVENSON, .CHARLES R.: Price control and the allotment of busi-
ness; cited (n.) ._. 61
SUGAR : Geographic price structure 295
SULFUR: Wholesale price index; chart 1 and table (by months), 1926-39. 24, 252
SULFURIC ACID:
Price data:
Quoted price and price paid by large buyer 1928-37; table 99 99
TECHNOLOGICAL CHANGE:
Effect on price rigidity .. 11
Stimulated by nonprice competition 56
TEMPORARY NATIONAL ECONOMIC COMMITTEE: Consumer
brand preference questionnaire 78
THOMAS, JOHN F.: Varying functions in distribution; cited (n) 115
THORP, WILLARD L., AND A. H. CAESAR: Open price filing in the
electrical manufacturing industry ; cited (n.) 333
AND ERNEST A. TUPPER: Potash industry; cited (n.) 325-326
TIRE MANUFACTURING INDUSTRY:
Small versus large manufacturers; conflict over price and/or nonprice
competition 93
Wholesale price, and average life of automobile tires, 1913-38; chart
Sand table . 65,258
TOBACCO : Geographic price structure 304
TOILETRIES: Geograiphic price structure 323
TOOLS, STEEL: Geographic price structure 308
TOULMIN, H. A., JR.: Patents and the public interest; cited (n.) 139
TRADE ASSOCIATIONS:
Anti-price-cutting campaigns of 61
Price competition propaganda 8
Price cutting undesirability propaganda 36
TRADE-MARKS. {See BRANDS AND TRADE-MARKS.)
TRANSPORTATION COSTS: Freight-biU data inadequate 271
TUCKER, RUFUS S.: Sensitive and administered prices; cited (n.) 18
TURBINES: Geographic price structure 335
TURPENTINE: Geographic price structure 310
TWENTIETH CENTURY FUND: Does distribution cost too much;
cited (n.) 271
TWINE: Geographic price structure 302
TYPEWRITERS: Geographic price structure 336
UNFAIR PRACTICES ACT:
Desirability questionable under certain conditions 14
Effect on system of distribution 52
Use of by trade associations for price-control vehicle 62
UNIFORM DELIVERED PRICING 282
418 INDEX
UNITED STATES BUREAU OF FOREIGN AND DOMESTIC COM- ^*^*
•MERGE:
Domestic Commerce Series No. 73. Merchandising requirements of
the drug store package; cited (n.) 355
Domestic Commerce Series No. 90. Cost, sales, and profits in the
retail drug trade ; cited (n.) SS^
UNITED STATES HOUSE COMMITTEE ON COINAGE, WEIGHTS
AND MEASURES: Hearings on H. R. 6964, Standard Metal Con-
tainer Act of 1937, 1938; cited (n.) 77
VACUUM CLEANER INDUSTRY:
Average expenditure per income level, by wage-earner and clerical-
worker famiUes; table 13 130
Concentration, production first four companies, percent of total,
total production, number of companies, 1937; table 22 leS'
Distributive margin 145
Expenditures by wage-earner and clerical- worker families for vacuum
cleaners; amount and percent of family income; table 24 164
Geographic price structure 337
Market saturation. {See MARKET SATURATION.)
Ownership of cleaners by family income groups, 1935-36; charts 21
and 22 and table - 126-27, 26»
Price living 249^
Reconditioning exchanges 15S
Sales. (See MARKET SATURATION.)
Sales techniques 140
Statistics:
1925-38. Market saturation; percentage of wired homes owning
vacuum cleaners; table 11 118
1927-38. Market saturation, percent, and number of sales; chart
16 119'
1927-38. Number sold and retail value; average realization at
retail and wholesale price index; chart 14 and table 115, 261
1929-37. Average retail value and sales, 1929, 1932, 1937 112
1929-38. Market saturation, percent of wired homes, 1929 and
1937-38; percent change in sales, 1929 to average 1932-33 and
1937-38; table 11 118
VEGETABLE OILS: Geographic price structure 294
VEGETABLES : Geographic price structure 292
WARE, CAROLINE F., AND GARDINER C. MEANS: Modern econ-
omy in action; cited (n.) 18
WASHING-MACHINE INDUSTRY:
Average expenditure per income level, by wage-earner and clerical-
worker families; table 13 130
Concentration, production, first four companies, percent total, total
production, number of companies, 1937; table 22 163:
Distributive margin 144, 145
Expenditures by wage-earner and clerical-worker families for washing
machines; average amount and percent family income; table 24 164
Geographic price structure 337
"Leader" selling 142
Market saturation. (See MARKET SATURATION.)
WASHING MACHINES:
Ownership by family-income groups, 1935-36; charts 19-20 and
table 124-125,263
Price lining .^ 249
Replacement sales ratio ' 149
Sales. (See MARKET SATURATION.)
Sales techniques 139'
Statistics :
1925-38. Market saturation; percentage of wired homes owning
electric washing machines; table 11 118
1927-38. Number sold and retail value; wholesale price -and
realization; chart 13 and table 114, 261
1927-38. Market saturation, percent, and number of sales;
chart 16 - 119
INDEX
419
WASHING MACHINES— Continued.
Statistics — Continued. Page"
1929-37. Average retail value and sales, 1929, 1932, 1937 112
1929-38. Market saturation, percent of wired homes, 1929, and
1937-38; percent change in sales, 1929 to average 1932-33 and
1937-38: table 11 US
WEARING APPAREL INDUSTRY:
Cash discount 250
Geographic price structure 301
Price lining:
Consumer problems simplified ^ 102
Wholesale market 242
WHEAT:
Geographic price structure 289
Wholesale price index; chart 1 and table (by months), 1926-39 24, 252
WINDOW GLASS: Geographic price structure 315
WORK PROJECTS ADMINISTRATION: Price dispersion and indus-
trial activity, 1928-1938; cited (n.) 45
ZINC: Geographic price structure 338
ZONE PRICING:
Chemicals 31 9-323
Products subject to 344
o
•«=-lf
g-SX, „2 6
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11