alleged in the petition. It denies that said meetings or any of them, or the manufacturers assembled thereat, went further than the mutual exchange of information and of views with regard to the business situation, or that what they accomplished showed any great or dangerous power achieved by the Steel Corporation either through unlawful combination exercised over the trade and commerce of the country or otherwise. It denies that concerted action was taken by said manufacturers to prevent either fluctuations in prices or competition or that any action taken at said meetings has produced any such result. It says that the first of said meetings was held on November 20, 1907; that the country was then suffering from a severe financial panic and that the steel manufacturers came together for mutual counsel and advice as to the best means of averting disastrous consequences to their industry such as had followed nearly every other panic that had theretofore occurred in this country. It says that said meeting was largely attended; that there was a full exchange of information as to the condition of the various businesses represented and a frank interchange of views with regard to the business situation; that similar meetings with similar objects followed, but that neither then nor at any other time was there any attempt to reach any agreement or understanding with respect to output or prices nor was there anything said or done which was calculated or intended to suppress competition or restrain trade. It says that said meetings did not prevent frequent changes and fluctuations in prices or competition in steel products, but that they did tend to prevent the misunderstandings and unfair practices out of which had grown nearly all the trade wars of the past. These meetings have come to be known as the Gary dinners. 290. TRADE ASSOCIATIONS1 The remarkable growth of trade associations makes this form of co-operation of especial importance in the consideration of legislation. against restraint of trade and unfair competition. A trade association is an efficient means by which those engaged independently in a particular line of trade may redress wrongs and improve conditions through collective action. It is capable of symbolizing the highest ideals in trade, or of expressing that which invites the odium of public censure and legal penalty. Directed within legal limits and along 1 Adapted from United States Bureau of Corporations, Trust Laws and Unfair Competition, 1915, pp. 705-14. proper lines, it may accomplish much good, but, if ostensibly formed for a legitimate purpose, when in reality designed to accomplish illegal or questionable ends, it will result in much harm. As employed in this chapter the term "trade associations" comprises associations of manufacturers, dealers (wholesale or retail), and producers of raw materials, such as mining companies and agricultural enterprises, in so far as their activities relate to the promotion of the commercial aspects of the business. Occasionally a mixed association includes both manufacturers and dealers in the same industry or in related industries. Associations may be further classed into local, state, and interstate or national. The few associations which are international in their scope are here classed with interstate and national associations. The members of some of these associations are individual business concerns; others, particularly those of national scope, have as members other associations. The National Federation of Implement and Vehicle Dealers' Associations, for instance, is composed of delegates from state and interstate associations of implement and vehicle dealers. The first and most general object of most trade associations, as stated in their by-laws or constitutions, is to advance the general prosperity of the industry. "This association," says one, "is formed for the purpose of promoting the welfare of the flour millers of the United States." Another aims, among other things, "to promote fellowship among members and advance the welfare of trade and commerce." The objects of an association of retail jewelers are "to unite the retail jewelers of the State in a sentiment promotive of the highest welfare of the trade; to cause the elimination of unmercantile methods and practices; to encourage the supremacy of standards of truth and honesty in all jewelry and related products; and in general to promote measures calculated to redound to the material and moral advantage of retail jewelers." In actual practice, the advancement of the general welfare of the industry has been interpreted to cover a wide field of activities, from promoting the widest use of the product to "safeguarding legitimate profit" in various ways. The following is a partial list of their activities: 1. Publicity of product-co-operative advertising. 3. Fixing the channels of trade; opposition to "direct selling"; the "irregular" dealer. 4. Uniform terms. 5. Marketing and other co-operative associations. 6. Standardizing materials, processes, or products. 7. Standard cost accounting. 8. Improving processes or product; technical activities. 10. Collection agencies. 11. Traffic matters. 12. Labor matters. 13. Employment bureaus and clearance cards. 14. Apprenticeship and trade education. 15. Legislative activities. 16. Supplying insurance to members. 17. Foreign trade. 18. Publications. See also 254 B. Concentration in Marketing. 386. Control by Voluntary Associations. 291. SOME METHODS OF CONSOLIDATION AMONG It is important to consider some of the methods by which these consolidations have taken place. These may be denoted as, first, actual purchase or ownership in fee; secondly, acquisition by lease; thirdly, stockholding control; and fourthly, minority representation in directorates. Actual purchase. As illustrative of the method of consolidation and extension by actual purchase, we may instance particularly the cases of the Chicago, Burlington & Quincy sale to the Northern Pacific and Great Northern railroads jointly; of the Lake Shore to the New York Central; of the Central Railroad of New Jersey to the Reading; and of the Mobile & Ohio to the Southern Railway. In the first three of these we have the purchase effected by an exchange of bonds of the purchasing company for the stock of the road acquired. Thus, for instance, stockholders of the Burlington road receive for their holdings twice the value at par in 4 per cent bonds, guaranteed jointly by the Northern Pacific and the Great Northern railroads. The same 'Adapted from the Final Report of the Industrial Commission, 1902, XIX, 310-14. proportion, namely, twice the par value, was given in the case of the Lake Shore road, the New York Central issuing, in place of the old stock, 3 per cent bonds. The terms of purchase of the Central Railroad of New Jersey did not differ in principle from this. In the case of the purchase of the Mobile & Ohio by the Southern Railway, the policy was slightly different, inasmuch as new bonds were exchanged for the old, while the stock of the Southern Railway was issued under a guaranteed dividend for the stock of the road absorbed. The peculiarity of this method of consolidation is that it often involves a great expansion in the capitalization of the parent company; in at least two cases above mentioned there having been an issue of bonds equal to twice the volume of the stock retired. Consolidation by lease.-One fundamental objection to consolidation by purchase is to be found in the hostility of state legislatures. For this reason most of the consolidations in New England, and particularly the recent absorption of the Boston & Albany Railroad by the New York Central, and of the Fitchburg Railroad by the Boston & Maine Railroad, have been by means of lease. Such acquisition by lease has one marked advantage. The transaction involves no issue of new securities and consequently no opportunity for an undue increase of capitalization. The rental is fixed as a dividend, which is a matter of public record. Such leases, moreover, do not involve the sacrifice of the identity of the subsidiary company. Of course, where they are made for long periods, as in the case of the West Shore lease to the New York Central for 475 years, or of the Chesapeake & Ohio by the Pennsylvania for 999 years, such a lease practically amounts to entire consolidation. But where public supervision is enforced, as in the recent lease of the Boston & Albany Railroad in Massachusetts, the term is expressly limited in this case to 98 years. Such a policy opens the way, consequently, to a readjustment of financial and traffic burdens under the changed conditions which may prevail at the expiration of that term. Control by holding of stock.-A third method of expansion, more elastic than either purchase or lease, is that of control by means of the purchase of capital stock. Among the recent consolidations effected by this means may be instanced the control of the various soft coal roads by the Pennsylvania Company, and the acquisition of the Southern Pacific system by the Union Pacific Railroad. Such ownership of the stock or bonds of one railroad by another may accomplish either one of two objects. It may be intended to secure corporate control, or it may serve merely for purposes of investment. The distinction between actual purchase or absorption of one road by another and of mere control by stockholdings lies in the fact that in the latter case a bare majority of the stock, and in some cases even less, is necessary. It is a well-known fact that a relatively small but compact minority of stockholders can exercise a disproportionate influence upon corporate policy. For this reason the investment necessary by one road in the securities of another may be very considerably diminished, at the same time all purposes of control being effectually attained. Community of interest.-The consolidations of 1899-1900 have given rise to a new phase of railroad policy, novel alike both in this country and in Europe. This policy, denoted as either community of interest or community of ownership, is nothing more nor less than efficient representation by one railroad upon the directorate of another. This representation, intended to affect the policy of the junior company, may represent actual control or merely a minority interest, as the case may be. Its objects at the same time may vary all the way from the entire elimination of the disturbing element of a rate-cutting road, to the maintenance of harmonious railroad policy between a number of rivals. 292. UNFAIR METHODS OF COMPETITION1 Since the methods of competition are of infinite variety, it is obviously impossible to specify all that may be regarded as unfair. The following list is believed, however, to cover most of the methods that have been so condemned by economists and publicists and have thus far attained any considerable importance. Not every method listed will seem unfair to all people, or perhaps to most. Sometimes, indeed, complaint is noted of two lines of conduct, one of which is the opposite of the other. Fixing resale prices and cutting fixed resale prices, defining the channels of trade and refusal to observe defined channels, each is felt as injurious by one group or another, and is therefore condemned by it as unfair. Local price cutting.-The buyers of most articles are more numerous than the sellers, and a reduction of the price seems to benefit more people than it injures. In general, therefore, it is naturally regarded 'Adapted from United States Bureau of Corporations, Trust Laws and Unfair Competition, 1915, pp. 310–31. |