1. The urgency of the need which the commodity satisfies determines the height of the price which the monopolist can charge. Where a community is dependent for its life upon some single commodity, the monopolist is able to obtain a high price for the whole of a supply which does not exceed what is necessary to keep alive the whole population. Thus the monopolist of corn in a famine can get an exorbitant price. But if the supply is more than sufficient to enable everyone to satisfy the most urgent need of subsistence, the urgency of the need satisfied by any further supply falls rapidly. The monopoly of a necessity of life is, therefore, more dangerous than any other monopoly, because it not merely places the lives of the people at the interest of traders but makes it of interest to such monopolists to limit supply to the satisfaction of the barest necessities of life. Next to a necessity will come what is termed a "conventional necessity," something which by custom has been firmly implanted as an integral portion of the standard of comfort. This differs with different classes in the community. Boots may now be regarded a "conventional necessity," and a monopolist could probably raise their price considerably without greatly diminishing the consumption. As we descend in the urgency of wants we find that the comforts and luxuries form a part of the standard of life of a smaller and smaller number of people. Since they satisfy intrinsically weaker needs, the demand for them is more likely to fall with a rise in price. 2. Closely related is the possibility of substituting another commodity for the one monopolized. This everywhere tempers the urgency of the need attaching to a commodity. There are few, if any, even among the commodities on which we habitually rely, that we could not and would not dispense with if their price rose very high. The incessant competition between different commodities for the satisfaction of the same need cannot be gotten rid of by a monopoly of one of them. Though to a modern society artificial. light is much more important than cane sugar, a Sugar Trust may have a stronger monopoly than an Oil Trust, because the substitutes for cane sugar, such as molasses and beet-root, are less effective competitors than gas, candles, and electricity with oil. The reverse consideration, the possibility of extending consumption and securing a wider market for an article by substituting an article of monopoly for other articles, has quite an important influence on price. The possibility of substituting oil for coal in cooking has a great deal to do with the low price of oil. A Trust will often keep prices low for a season to enable their article to undersell and drive out a rival article. When natural gas was discovered in the neighborhood of Pittsburgh, the price was lowered sufficiently to induce a large number of factories to give up coal and burn gas. After expensive fittings were put in and the habit of using established, the gas company proceeded to raise the rates 100 per cent. When we ascend to the higher luxuries, the competition between different commodities to satisfy the same generic want, or even to divert taste or fashion from one class of consumption to another, is highly complicated, and tempers considerably the power of a Trust over prices. In like manner the power over prices possessed by a company whose monopoly rests upon patent rights is limited by the ability of consumers to substitute other articles for the article in question. For instance, the price-control of the manufacturer of a patented corkscrew is qualified very largely, not only by competition of other corkscrews, but by screw-stoppers and various other devices for obtaining access to the contents of bottles. 3. There is also the influence of potential competition of other producers upon monopoly prices. The ability of outside capital to enter into competition will, of course, differ in different trades. Where the monopoly is protected by a tariff the possibility of new competition from outside is lessened. When the monopoly is connected with some natural advantage or the exclusive possession of some special convenience, as in mining or railways, direct competition of outsiders on equal terms is prohibited. Where the combination of large capital and capable management is indispensable to the possibility of success in a rival producer, the power of the monopoly is stronger than where a small capital can produce upon fairly equal terms. If the monopoly is linked closely with personal qualities and with special opportunities of knowledge, as in banking, it is most difficult for outside capital to compete effectively. These considerations show that the power of the Trust over prices is determined by a number of intricate forces which react upon one another with varying degrees of pressure. D. TYPES OF UNFAIR COMPETITION 209. Competitive Methods in the Tobacco Business19 BY MEYER JACOBSTEIN The most familiar as well as the most effective device employed for stifling competition has been that of "local competition"-underselling a competitor in his own limited market while sustaining prices elsewhere. This device is feasible only for large companies. that can make temporary sacrifices for the possibility of greater gains in the future. In the early nineties, to check the sale of "Admiral" cigarettes manufactured by an independent concern, the American Tobacco Company offered its leading brand, "Sweet Caporal," at cost, but only in regions where the Admiral was being successfully marketed. The independent concern surrendered soon afterward. In 1901, the American Tobacco Company was selling "American Beauty" cigarettes for $1.50 per thousand, less two per cent discount for cash, when the revenue tax alone was $1.50 per thousand. This was done, however, only where an independent company had succeeded in marketing its most popular brand, the "North Carolina Bright." New York jobbers found that by purchasing their cigarettes from North Carolina jobbers, after paying a slight premium in addition to freight charges, they would pay less for them than by buying direct from the Trust in New York City. The local competition which helped to build up the Cigarette Trust was practiced in the sale of other products. During the struggle for the plug market between the Continental and Liggett & Myers, the former was offering its "Battle Ax" brand for thirteen cents a pound, which was below the cost of production, since the tax was six cents and the raw leaf seven cents a pound. After the independent concern was absorbed, "Battle Ax" rose to thirty cents a pound. By similar methods the trust has won extensive markets in England and Japan. An instrument frequently employed to make local competition effective is the "Factors' Agreement," whereby the jobber is offered special rebates for agreeing to handle Trust goods exclusively, or to boycott independent brands. While a 21⁄2 per cent commission was allowed jobbers who did not discriminate against Trust goods, 72 per cent was given to those who handled Trust goods exclusively. Frequently orders from concerns carrying in stock independent goods were not filled. The Factors' Agreement is especially potent "Adapted from The Copyright by the author. Tobacco Industry in the United States, 117-121. in crushing any new competition in markets already controlled by the Trust, for the jobber is loath to risk his assured profits, derived from the sale of established Trust brands, in exchange from the doubtful income from new, independent goods. A closely allied device is that known as "Brand Imitation." This is a most direct form of destructive competition: it consists of selling at reduced prices brands which are apparently imitations of popular brands of independent manufacturers. An instance of this is the marketing at a low figure by the Trust of the "Central Union" smoking tobacco in direct competition with the "Union Leader” of an independent concern. The Trust distributed its "Central Union" free to jobbers in order to ruin the "Union Leader." It was not until the reputation of the independent brand had been seriously damaged that the courts enjoined the Trust from further free distribution. Similarly the Trust marketed at a low price a brand ir imitation of the "Qboid" tobacco manufactured by Larus & Brothers. As value of a brand is one of the important assets in the tobacco trade, these methods are very ruinous to independent manufacturers who cannot withstand a persistent attack from the Trust. Another device is the use of the coupon system, whereby the consumer receives a premium certificate equivalent to a 10 per cent rebate. The coupon system is especially valuable in the tobacco trade because it serves as a substitute for the cutting of prices, the latter being difficult, owing to the existence of conventional and convenient prices, five cents and multiples of five. It is more feasible to give coupons than to reduce a five-cent cigar to four cents. Since much of the tobacco trade is transient, the successful operation of the premium plan depends upon a wide distribution of stores that offer the coupons, as through a chain of retail agencies like the United Cigar Stores. 210. Competitive Methods in the Cash Register Business 20 BY HENRY ROGERS SEAGER The specifications in the indictment against the National Cash Register Company, on the basis of which twenty-seven of its officers were found guilty by a jury in February, 1913,21 indicate in a concrete 20 2o Adapted from The Principles of Economics. 453-455. Copyright by Henry Holt & Co. (1913). "In June, 1915, the Supreme Court of the United States refused to sustain an appeal from the decision of a higher federal court reversing the decision of the lower court referred to in the text, and acquitting the officers of the National Cash Register Company. This closes the case against them.-EDITOR. way the kind of practices in which some of the trusts engaged. They were: 1. It bribed the employees of competitors to reveal the secrets. of the competitors' business. By this means it obtained knowledge of prospective buyers of cash registers, of those who had purchased them but had not fully paid for them, of the volume of business being done by the competitors and the places in which it was being done, of inventions and applications for patents by the competitors, and of their financial condition and connections. 2. It bribed the employees of truckmen, express companies, railways, telegraph and telephone companies to reveal information in regard to the shipping of cash registers by competitors, and in regard to the communication between the competitors and their agents and customers. 3. It used its influence with banks and other institutions, sometimes going to the extent of making false statements to injure the credit of competitors in order to prevent their securing money for carrying on their business. 4. It required its sales agents to interfere in every way with the sales of competitive cash registers. The means used included the making of false statements with regard to the registers themselves, as well as false statements reflecting injuriously upon the business, character, and financial credit of its competitors. 5. It offered to sell to prospective purchasers of competitive cash registers the National's machines at much less than the standard prices and upon unusually favorable terms. 6. It induced persons who had already ordered competitive cash registers to cancel their orders and purchase from the National, by making further reductions in the price of National registers equivalent to the amount already paid in on the purchase of the competitive cash registers. It induced persons who had already bought other registers to exchange them for the machines of the National, whereupon it exhibited in the windows of stores where National machines were for sale these machines with placards containing the word "Junk," or the words "For Sale at Thirty Cents on the Dollar." 7. It offered for sale to prospective purchasers of other machines cash registers made in imitation of those others at prices even lower than manufacturer's cost. These thus offered for sale were known as "knockers." The manufacture of a particular type of "knocker" was discontinued as soon as its use was no longer necessary. 8. It sometimes offered for sale "knockers" having weak and defective mechanism. This practice had two purposes. It enabled the sales agent to point out the weak and defective mechanism and |