CHAPTER 28

THE PROBLEM OF INDUSTRIAL MONOPOLY

REFERENCES.

_Bolen, G. L._, Plain facts as to the trusts and the tariff. 1902.

_Collier, W. M._, The trusts. 1900.

_Cotter, A._, The authentic history of the United States Steel Corporation. 1916.

_Hobson, J. A._, The evolution of modern capitalism. Ed., 1912. Ch. V.

_Jones, Eliot_, The anthracite coal combination in the United States. 1914.

_King, W. I._, The wealth and income of the people of the United States. 1915.

_Meade, E. S._, The economics of combination. J. P. E., 20: 358-372. 1912. Trust finance. 1903.

_Montague, G. H._, Trusts of to-day. 1904.

_Ripley, W. Z._, Industrial concentration as shown by the census. Q. J. E., 21: 651-658. 1906-1907. (Ed.), Trusts, pools and corporations. Ed., 1916.

*_Source Book_, 255-264. (Extract from United States Commissioner of Corporations, Report on the transportation of petroleum.)

_Stevens, W. S._, Classification of pools and associations. A. E. Rev., 3: 545-575. 1913.

_Stevens, W. S._, (Ed.), Industrial combinations and trusts. 1913.

_Stevens, W. S._, A group of trusts and combinations. Q. J. E., 26: 593-643. 1911-1912.

_Stevens, W. S._, The powder trust, 1872-1912. Ibid., 444-481. 1911-1912.

_United States Commissioner of Corporations_, Report on the transportation of petroleum. 1906.

_Willoughby, W. F._, The integration of industry in the United States. Q. J. E., 16: 94-115. 1901-1902.

QUESTIONS.

1. What large trusts have recently been formed?

2. State the motives for forming trusts, separating those which are socially beneficial and those which are anti-social.

3. Enumerate the advantages possessed by a "trust" over a small competitor, and indicate which of these are the results of large scale production and which are due to the possession of monopoly power.

4. Are there any conditions under which a combination would be a more economical unit of production and distribution than a single plant large enough to secure all advantages to be obtained from mere quantity of output? If so, state them clearly.

5. Explain carefully the causes and limits of the advantages of large production. Give three examples of industries in which the advantages are seen.

6. Have you observed the growth of any local industry from a small beginning to large proportions? If so, how do you account for it?

7. What is the largest manufacturing establishment in your home town? Would a number of smaller establishments of the same sort and with the same aggregate capacity succeed as well? Why?

8. What relation has improved transportation and other means of communication to trusts?

9. What are the chief methods by which trusts or combinations have sought to make economies in management?

10. Describe the characteristic features of the pool, the trust and the holding company.

11. Describe any agreement of which you know, made between merchants or manufacturers for the purpose of regulating prices. Did prices go up or down as a result?

12. What is a simple price agreement? How does it differ from a pool? Is there any difference in the matter of legality? Reasons.

13. What are the limits to the price-fixing and profit-earning powers of monopolies? Are there any other conditions which will tend to check the indefinite growth of combinations?

14. Explain and illustrate by a concrete example the circumstances relating to cost of production which tend to make a monopoly price lower than the previous competitive price for the same article. No reference is here intended to local or temporary cuts in price by monopolies which are intent by such means on capturing a local market.

15. If all trade is exchange, do not the members of a trust reduce their income when they raise the price of their products by artificial agreement?

16. Five plants engaged in the production of a given article in different parts of the United States are combined under the ownership of a single corporation formed for this purpose. Before the combination these five plants produced 75 per cent. of the total output of the article in question, each producing approximately 15 per cent.; the remaining 75 per cent. was produced by seven plants, no one of these turning out more than 5 per cent. of the total output. Each of the first five plants was large enough to secure all known economies in the costs of transforming the raw material into the physically finished product, and each was running to its full capacity. The aggregate net earnings of the five plants were $1,000,000 a year. The cost of reproducing these five is $14,000,000. The new corporation issues and pays to the owners of the properties taken over $10,000,000 in 5 per cent. first mortgage bonds, $6,000,000 in cumulative preferred stock, and $8,000,000 in common stock.

What will determine whether this combination possesses monopoly power?

Is the corporation overcapitalized? If so, to what extent? State clearly what you mean by overcapitalization?

Is it probable that the earnings of the new corporation will be greater than the aggregate earnings of the five plants, if the price of the product is not increased? If so, how will this increase be gained?

If there is an increase in earnings, how will the price of each of the three kinds of securities of the corporation be affected?

17. Suppose that the effective demand for a certain kind of goods in the country as a whole will vary in the following manner with the price changes indicated:

$1.00 1,000,000 units 1.10 900,000 units 1.20 800,000 units 1.30 700,000 units 1.40 600,000 units 1.50 500,000 units 1.60 400,000 units 1.70 300,000 units 1.80 200,000 units

There are ten companies each producing 100,000 units at a cost of 90 cents (including all costs but an allowance for dividends on investment) this giving just enough of a margin to each company to cause it to continue in the industry. What immediate effect on prices could a combination consisting of six firms have, assuming that the cost per unit of product and that the output of the independents remain unchanged? Show for each of the prices indicated what the amount of the margin made by the four independent competitors (altogether) and by the combination would be. What less immediate effects would be likely to follow, and why?

18. Is granting patents an interference with trade similar to tariffs?

19. Is it right that the lucky inventor of a popular toy should make $100 a day from it?

20. Is it right that an inventor should by patent laws be able to keep the profits of his business high?