contact takes the form of a struggle for something of which each competitor must have less as the others have more. The points of contact with outsiders are chiefly connected with the hiring of labor, the purchase of raw material or goods, and the sale of the product or commodity. Usually the competitor appears to be not so keenly aware that his supply of raw material or goods and of labor is limited by the purchases or the hirings of others. At the selling end, however, the demand almost always appears limited, and each competitor feels sharply that his sales will tend to be less as his neighbor's are greater. At this point, therefore, competition is usually most conspicuous. At any one of these stages the methods of competition may be fair or unfair.

INEQUALITIES IN SIZE AND OTHER CIRCUMSTANCES OF COMPETITORS.Mere differences in size may also make competition one sided, even where no competitor works in more than a single stage of the process of production and distribution. A company of ample capital, large plants, extensive credit, experimental departments, and an elaborate selling organization may be able, in some cases, to buy more cheaply its raw materials, to manufacture its products more economically, and to undersell its competitors. Mere size, however, does not necessarily create serious inequality of competitive conditions. Some of the larger "trusts" are notoriously inefficient, and their independent competitors do a large and increasing business.

The possession of unusually good supplies of raw materials, the location of plants close to raw materials, or to markets, often give special advantages to some competitors. Unusually capable workmen or particularly able management, newer or better machinery, the ownership or control of patents or special processes, are also factors which may give a concern special advantages.

Such special advantages in competition have usually been regarded as fair, except perhaps where monopolization exists with respect to natural resources, or where advantage has been taken of large capital resources to extend credits abnormally.

Section 2. Fair and unfair methods of competition.

Some methods of competition are universally recognized as proper and legitimate, such as supplying goods of better quality for the same price or goods of the same quality at a lower price, and more prompt or more satisfactory service. Dishonest methods are condemned by most persons not immediately profiting by their employment, such as false weights and measures or passing off one commodity for another. There is a great intermediate field of practices which lie, in varying degrees, under the shadow of general disapproval, and the shadow is slowly shifting. For instance, in the early days of railroads it may have generally seemed right that the shipper of 10 carloads

should have a lower freight rate than the shipper of 1, as it now seems to most people that the shipper of a carload should have a lower rate than the shipper of a hundredweight. To most people the reduction for 10 cars seems just no longer. Such an advantage is now generally conceived as unfair where the shipments are in carload lots, and to attempt to get it is condemned as an unfair method of competition. A thing which may have once seemed fair is now deemed unfair, because it has been found to lead to the inevitable destruction of the less favored, and hence to monopoly and to the oppression of producers of raw materials, manufacturers, and con

sumers.

Competition does not necessarily involve any direct dealings with competitors. It consists largely in dealings with other persons. Since every act of competition affects persons who are not competitors, it follows that every such act, while it may be judged as either fair or unfair toward competitors, may also be judged as either fair or unfair toward others. For instance, selling cotton goods for woolen or imitating a competitor's trade-mark may be unfair both to the competitor and to the consumer. In its relation to the consumer it may be called fraudulent. In its relation to a competitor it may be called unfair competition.

That is, when any act is viewed as an act of competition it is usually viewed in its relation to competitors, and to call it unfair competition is to call it unfair to competitors. Yet the conception of fairness in competition which prevails at any given time is largely determined by the prevailing conception of what is good for persons other than the competitors. Indeed, it seems likely that, among us and at the present time, the fairness of a competitive method is judged chiefly by what is believed to be its ultimate effect on consumers of the products which the competitors sell or on producers of raw materials which the competitors buy.

The seller who reduces prices has long been viewed with approval by general public opinion and by the law. Agreements of sellers to keep up prices have long been, and still are, in those situations where trade is restrained, illegal. Sellers, wholesale or retail, used generally to make different prices, as a matter of course, to different customers. The price was reached by a process of bargaining, and depended largely on skill in bargaining. These methods seemed good largely because they seemed advantageous to the consumers. Yet price making by bargaining is now in many fields looked at more or less askance, and in some fields it is condemned by law, and both bargaining and price reductions are under some circumstances called unfair competition. While the cry of unfair competition in such cases is sometimes raised by the competitors themselves, or in

their behalf, it is as often used by persons whose chief interest is in the consumers.

Price making by bargaining was first strongly condemned in the field of railway transportation. Transportation prices had often been fixed by bargaining, like other prices, for the larger shippers and for the better bargainers. Here bargaining began to be felt as unfair, primarily to those shippers that paid the higher rates, and it was forbidden by law some years ago. More recently the notion of unfairness has extended to some kinds of reduction in the prices of commodities. Manufacturers who fix resale prices for their branded and trade-marked goods, and some dealers in such goods, protest that dealers who cut the prices so fixed are unfair to their competitors and to the manufacturers. On the other hand, many view this fixing of resale prices by manufacturers as itself unfair. The price reductions that are more widely condemned are those that are conceived as temporary and for the purpose of later charging prices based on monopoly, and so unduly high. In the special railway rates referred to, the persons first thought of as injured are the weaker shippers, who have to pay the higher rates; but the popular feeling of injustice, while based partly on the injury to such shippers, relates perhaps more to the damage which the consumers will suffer when the strong shippers have the field to themselves and can fix the consumer's price at a high level. Of similar origin is the condemnation of local price cutting, where the apparent purpose is to destroy a relatively weak competitor. The elimination of weak competitors has been regarded as a normal incident of competition, but their elimination by prices lower than cost is felt to be a public calamity and a wrong as soon as it is found to be followed by prices higher than before.

On this point Prof. W. H. S. Stevens says:1

"Fair competition," in an economic sense, signifies a competition of economic or productive efficiency. On economic grounds an organization is entitled to remain in business so long and only so long as its production and selling costs enable it to hold its own in a free and open market. As the productive and selling efficiency of competitors increases, marginal concerns which are unable to keep pace will gradually lose their market and ultimately discontinue business. But in such an elimination there is nothing not economically fair to all concerned. If all have an equal chance to survive, it is economically proper that those failing through lack of efficiency should be destroyed. The community is entitled to the most efficient service that can be given. Inefficient organizations constitute a burden to the community, and no justification can be found for their continued existence.

Unfortunately competition is not always conducted under such conditions of equal opportunity in a free and open market. Productive and selling efficiency alone do not always permit an organization to survive, owing to the introduction

1 Political Science Quarterly, June, 1914, pp. 282, 283.

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of methods and practices which destroy the freedom of the market, which hamper the productive or selling efficiency of other units, and which prevent efficient potential competitors from becoming actual rivals. Such artificial restrictions are clearly unfair, since they hinder or prevent other organizations from competing to the extent which their productive and selling efficiency may warrant. If there be a sound basis for competition, it lies in the preservation of the economically efficient and the destruction of the inefficient. It follows that methods which destroy the efficient along with the inefficient are economically unjustifiable and must be regarded as unfair.

This bases the distinction of fair and unfair competition on considerations of economic advantage to the public. Prof. John Bates Clark takes the same view:

The victory of the efficient is something society can not afford to do without, however much it might wish to spare the vanquished. So that in this case it is, after all, the means used and not the purpose that tilts the scale of judgment from approval to condemnation, and "unfair competition" comes to mean virtually any practice whose natural result is to make survival depend on other qualities than industrial efficiency.1

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To the same effect also speaks Prof. Henry Rogers Seager. After enumerating certain advantages of the trusts-saving in selling expense, saving in cross freights, and others—which he declares to be legitimate, he enumerates three lines of policy (the obtaining of discriminating railroad rates, local price discrimination, and exclusivedealing contracts), which, he says, critics of the trusts charge "are squarely opposed to the general interest and therefore illegitimate. USE OF THE TERM UNFAIR COMPETITION AND OTHER LIKE TERMS.The phrase "unfair competition," used at first in a merely descriptive way, has gradually come to a quasi-technical employment in economic discussion. In the index of volume 1 of the Reports of the Industrial Commission, published in 1900, it is used to cover statements of witnesses on "destructive competition" in the sense of severe and continued price cutting; on "illegitimate competition," in the sense of "cutting of prices below the cost of production"; and on local price discrimination. The exact phrase "unfair competition" appears to have been used in only one case by a witness reported in that volume, and then on the suggestion of a member of the commission.5

1 The Control of Trusts, by John Bates Clark and John Maurice Clark (1912), p. 103. 2 Introduction to Economics (third ed., 1905), p. 491.

3 In a letter of Apr. 18, 1879, to the chairman of the special committee on railroads of the New York Assembly (Hepburn Committee), signed by W. H. Vanderbilt, president of the New York Central & Hudson River R. R. Co., and H. J. Jewett, president of the New York, Lake Erie & Western R. R. Co., the phrase "unfair competition" was applied to the action of the Grand Trunk Ry, in making through rates between Liverpool and Chicago less than the ordinary water and rail rates combined. In the same letter the phrase "unfair dealer" was applied to " anyone who offers his goods at or below cost." (Proceedings of the Special Committee on Railroads of the New York Assembly (1879), Vol. I, pp. 50, 57.) Report of the Industrial Commission, vol. 1, p. 1275.

Ibid., p. 623.

In the passage quoted above from Prof. Clark's book, which was published in 1912, the phrase "unfair competition" is put in quotation marks to indicate its quasi-technical use. But Prof. Seager, writing some years earlier, says "illegitimate"; and this and like descriptive and explanatory words "unfair practices," "destructive competition," "predatory competition," etc.-have till recently been often used in place of "unfair competition."

Few attempts have been made by economic writers to define "unfair competition," or to enumerate fully the kinds of conduct they consider it to include. Only incidentally and by illustration have such writers usually indicated the meaning they give to such a term. Francis Walker, in a paper read at the meeting of the American Economic Association in 1909, mentioned as illustrations of "unfair competition" or "unfair methods of competition": Local price cutting, preventing competitors from getting supplies and facilities, bogus independent companies, espionage by corrupting employees, and "certain kinds of exclusive contracts." 1

Prof. F. W. Taussig, in his Principles of Economics (1911), speaks of "the devices of 'unfair' competition-railway favors, discriminations in prices, factors' agreements, advertising devices."2 Under "discriminations in prices" Prof. Taussig includes local price cutting and cutting the price of one article of a combination's line "in order to bankrupt a rival who produces that one." Apparently he also meant to include, or at least to bring under the same degree of censure or question, simple "cutthroat competition" for the purpose of eliminating rivals-"sales at prices ruinously low, designed to force the rival into bankruptcy or absorption." The factors' agreement Prof. Taussig defines as "a contract with a dealer (wholesale or retail) by which he agrees to sell only goods produced by the combination." Of "advertising devices" Prof. Taussig says: "Mere effrontery in puffing your wares is an important factor in modern trade." Advertising "is often a means of useful competition. But sometimes it is a weapon of destructive competition. * Plentiful cash is the sine qua non of an effective advertising campaign. The large producer, or would-be monopolist, has here again a tactical advantage. The same is true of other devices for popularizing your goods-prizes, premiums, gifts, pictures, what not. These delude the purchaser into the belief that he is getting something for nothing. Like mendacious advertising, they rest on the gullibility of mankind and are effective in proportion as they are carried out on a large scale." 4

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1 Publications of the American Economic Association, third series, Vol. XI, No. 1 (Papers and Discussions of the Twenty-second Annual Meeting), pp. 291, 308-310, 319.

2 F. W. Taussig, Principles of Economics, vol. 2, p. xv; contents of ch. 63.

2 Ibid., vol. 2, p. 427.

Ibid., vol. 2, p. 428.