Economic THE FACT-FINDING and economic reporting functions of the Federal Trade Commission and its predecessor agency have constituted, within the limited range made possible by the resources available for such reports, one of the Nation's most important instruments of antimonopoly action for almost half a century. This is indicated (1) by the diversity and quality of reports issued under the enabling legislation, and (2) by the contribution these investigations have made in the enactment of new legislation and in the improvement of business practices. Current trends and pressures toward business concentration are increasing the importance of the Commission's reporting powers. The need is obviously greater than when the Federal Trade Commission was created in 1914. Increased concentration of business was recognized by the Hoover Commission in a report by its task force which stated: "Our industrial organization is more complex, larger concerns have grown in size and importance, trade practices in many industries form an intricate network of controls." Economic Reporting in 1952 During the fiscal year of 1952, five economic reports were completed in the Commission. 1 The "Report to the Federal Trade Commission by its Staff on the International Petroleum Cartel" 1 was published by the Subcommittee on Monopoly of the Senate Select Committee on Small Business. This report describes the activities of seven major oil companies and their control over the international oil industry. The study includes descriptions of the world's oil reserves, production and marketing agreements among the international companies, pricing practices and interlocking directorates. 1 It appears that a bitter propaganda attack against the report is now being launched. Editorials and articles in petroleum periodicals and speeches by petroleum executives have attacked it repeatedly. One of the petroleum trade journals has reported that one of the oil companies is distributing about 8,000 copies of a 32-page booklet to government officials, editors, and "molders of public opinion" in 67 countries in which the company operates. This booklet is a compilation of reprints of critical newspaper and magazine articles about the petroleum report. It states that there are four separate and distinct divisions of the international oil industry. However, by vertical integration, the operations in all four divisions are controlled by the large integrated companies. Outside of the United States and the Soviet Union, the seven major companies control the bulk of production and marketing of oil moving in international commerce. Many pairings and groupings of these seven companies and their affiliates conduct joint operations in most parts of the world. The seven international companies operate through layers of jointly owned subsidiaries and affiliated companies. Through this corporate complex of companies, they control not only most of the oil but also most of the world's foreign petroleum refining, cracking, transportation, and marketing facilities. Thus, control of the oil from the well to the ultimate consumer is retained in one corporate family or groups of families. These groups have extended their spheres of potential influence over the United States oil industry through indirect interlocking directorates. This high degree of concentration facilitates the development and observance of international agreements regarding price and production policies. Control over foreign reserves has been achieved through the use of two techniques: (1) joint ownership and (2) long-term contracts for the sale of crude oil. In the Middle East, the interests of seven international oil companies have been woven together by joint ownerships of subsidiary companies, each holding interests in one or more of these joint enterprises. In Venezuela, three international oil companies own the bulk of that nation's oil reserves and production and are closely bound together through long-term contracts for the sale of crude oil. Closely allied to these agreements, which in effect bind the three companies together in a partnership, are other agreements designed to impose restrictive controls on the production of two of these companies. Production and marketing of petroleum have been controlled by four international oil agreements, dated from 1928 to 1934. The primary movers in all of these international agreements, and in efforts to implement them, were the three major international groups of the oil industry, namely, the Standard Oil Co. (New Jersey) group, the Royal Dutch-Shell group, and the Anglo-Iranian Oil Co., Ltd. (formerly Anglo-Persian Oil Co., Ltd.) group. Each of these consists of a central controlling company and its subsidiary and affiliated producing, refining, transportation, and marketing interests. In addition, each of these groups is associated in interest with each of the others and, in some instances, with outside interests, (1) through joint ownership of reserves, (2) through control of producing, re fining, and marketing facilities, and (3) through agreements for the purchase and sale of crude oil and refined products. The report also discusses the use of the Gulf-plus basing point system, both in its original and modified forms. This staff report states that the use of this system to price crude oil and refined petroleum products has served two basic purposes of the major international oil companies: 1. It has eliminated differences in delivered prices among the various sellers at any given point of destination, thereby making the selection of one seller over another a matter of indifference to the buyer insofar as price was concerned. 2. It has made the relatively high United States Gulf prices the basis for both crude oil and refined prices throughout the world. Control of Iron Ore The second major report completed during the year was a study of the concentration of iron ore supplies, entitled The Control of Iron Ore. The study begins with an analysis of the amounts of iron ore consumed in 1948 and the sources of that ore, whether derived from owned mines or purchases. There is (1) an estimate of the ore reserves held by the major companies and (2) an estimate of their competitive relationships in terms of those vital ore supplies. For comparative purposes, there is a section on the iron ore position of the smaller unintegrated companies. The study indicates (1) that the big companies are not likely to feel the shortage of iron ore supplies as keenly as the small companies, and (2) that consequently the effect of the ore shortage probably will be to increase economic concentration unless offsetting measures are taken. One such measure, to which the report gives attention, is the development of new technological processes that might permit the use of small local ore bodies. Distribution of Steel Consumption The Commission's report entitled Distribution of Steel Consumption, 1949-50, compares steel distribution in 1949 with that in the fourth quarter of 1950. It points out that 1949 was a year of relatively free supply, while the final quarter of 1950, following the invasion of South Korea in June 1950, was a period of scarcity. The study is concerned with four matters: (1) changes in the amount of steel consumed by the different steel-using industries; (2) changes in the proportion of steel which was used by the four largest consumers in each industry; (3) changes in the proportion of steel shipments to warehouses which went to those warehouses that are affiliated with the steel companies; and (4) changes in the relative importance of hot- and cold-rolled steel. The report shows substantial increases in steel consumption in five major industries: (1) heating and cooling apparatus, (2) bolts and nuts, (3) metal stamping, (4) wirework, and (5) metal barrels and drums. One of these industries, metal barrels and drums, is largely owned by the steel industry itself and steel producers have important interests in two of the other industries-wire-work and bolts and nuts. With respect to change in consumption of steel by the four largest steel consumers relative to the rest of the industry, the report shows changes that appear to be significant in 15 industries. In general, the size of the percentage decreases was greater than that of the percentage increases. With respect to the relative importance of hot- and cold-rolled steel, the report shows a slight increase in the proportion of coldrolled sheet and bars and a slight decrease in the proportion of coldrolled strip. The part of the report dealing with the position of the warehouses affiliated with steel producers suggests that the emergency has created special difficulties for independent warehouses and for those small consumers of steel who rely upon such warehouses. Monopolistic Practices At the request of Senator John Sparkman, Chairman of the Senate Select Committee on Small Business, the Commission's staff prepared a report on Monopolistic Practices and Small Business. The report describes business practices which have the most immediate and significant impact in jeopardizing small concerns, particularly denial of supplies, price squeezes, price discrimination, and coercive and predatory practices. Denial of supplies involves refusal by the integrated firm to sell its smaller, nonintegrated competitors raw materials which the latter must have in order to compete with the former in the sale of finished products. Generally, the importance of this practice rises and falls with business activity, becoming of greatest significance during periods of business prosperity and short supply. The practice of price squeezing is somewhat similar to denial of supplies except that the weapon used against the small, nonintegrated firm is the narrowing of the margin between the price of the raw material which it must purchase from its integrated competitor and the price of the finished goods which it sells in competition with the integrated firm. The practice of price discrimination is particularly destructive to small firms. When discriminatory price concessions are made, they are seldom, if ever, granted to the small buyer. Having to pay a higher price for his merchandise than his large competitor, the small buyer is handicapped at the very beginning of the competitive race. Price discrimination is also a handy and effective instrument by which small sellers are disciplined and brought into line by their larger rivals. The report includes an analysis of changes in the degree of concentration of economic power within individual industries. It identifies some factors which appear to be associated with increases and with decreases in the level of economic concentration. Rates of Return A report on Rites of Return (after taxes) for 512 Identical Companies in 25 Selected Manufacturing Industries, 1940, 1947-51 was also issued by the Commission. Like similar reports for earlier postwar years, it compares prewar and postwar rates of return on stockholders' investment after taxes for identical companies in 25 narrowly defined and homogeneous manufacturing industries. The industries covered by the study constitute a substantial segment of the economy, with their combined assets in 1940 accounting for about half the total assets of all manufacturing industries. The report shows that for the companies studied rates of return (after taxes) on stockholder investment were higher in 1951 than in the prewar year of 1940 in 19 of the 25 industries. The industries in which the profit of reporting companies were lower in 1951 than in 1940 were (1) cigarettes, (2) cigars, (3) plug, smoking and snuff; (4) wool carpets and rugs; (5) soap, cleaning and polishing preparations; and (6) motor vehicle equipment. The industries in which the reporting companies showed the most substantial increases in their rates of return from 1940 to 1951 were: (1) paper and allied products, from 9.6 to 15.1 percent; (2) petroleum refining, from 6.7 to 15.7 percent; (3) tires and inner tubes, from 9.0 to 16.3 percent; and (4) matches, from 5.3 to 11.7 percent. Rates of return for the reporting companies for 1951 were lower than those for 1950 in all but 2 of the 25 industries-petroleum refining and engines and turbines. The rate of return for the reporting companies engaged in petroleum refining increased from 14.3 percent in 1950 to 15.7 percent in 1951. For the companies in the engines and turbines industry, the rate of return increased from 13.5 percent in 1950 to 14.0 percent in 1951. Other Reports Considerable time was devoted to two economic studies which were not completed during fiscal 1952. The first is a survey of the value of shipments of each important type of commodity produced in 1950 by about a thousand of the largest manufacturing companies. This is a spot inquiry and is not intended to be the beginning of an annual collection of similar figures. The data secured from this survey will be used by the Commission in checking the importance of industrial |