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entitled to the proper return, whether manufacturer or distributor. But beyond that lies what is called an inside price, lower to some than to others, the conditions of which are not open but secret, or within the reach of few enough to exclude competition. This is the discriminatory element, which Prof. Paul H. Neystrom of the University of Wisconsin, calls "the greatest evil in modern merchandising." His inquiries lead to the conclusion that the mailorder houses are the chief exponents of this practice. Probably they would say that if they do not get that part of the output of a given factory at the price they offer they would have to build a factory of their own or buy out a rival. Such kinds of coercion, or competition, require no threat to make them effective. But against this method of enforcing discriminatory trading the ordinary retailer is but a fly on the wheel. His remedy is to be sought in some form of legalized price protection recognizing the equity of the manufacturer in the marketing methods of his own trade-marked output.
(3) Fraudulent advertising is a case in which the evils are curable mainly by outside pressure. Not all advertisers are liars, but too few of them handle the truth carefully enough to indicate any intent to avoid misleading the public. Fairness here is to be attained by three means:
*On Competitive Unfairness of Quantity Price, AntiTrust Hearings, House Committee on the Judiciary, 1912.
Cooperation by honest advertisers, good laws against misrepresentation, and the vigilance of advertising associations.
6. Price-Making Forces in Big Business
How far can combinations dominate the prices of materials and products? The Industrial Commission's Report on Trusts and Industrial Combinations, Vol. XIII, 1901, probably carried investigations into this subject as far as is necessary for our purpose. Substantially all witnesses identified with trusts agreed "that unless a combination has either some natural monopoly of the raw material, or is protected by a patent, or possibly has succeeded in developing some very popular style or trade-marks or brands, any attempt to put prices at above competitive rates will result eventually in failure, although it may be temporarily successful." Yet it was admitted that competitive forces worked out their results more slowly under largescale production or combination (page 21). Strong faith was expressed in the self-correcting capacity of the industrial system for most abuses, unaided by legislation. Edward Atkinson reasoned: Competition cannot be suppressed by combinations or other devices. Through competition the volume of product is augmented, and the cost of each unit is diminished, the rates of wages are raised, and the margin of profit is lessened." The low prices
for oil and sugar, he asserted, were only possible through the combination of the ablest possible men working on a very big scale for the lowest margin of profits.
Yet it must be remembered that the essential goal of big-scale production is not minimum profit, but maximum net income from minimum cost per unit of production on a progressive enlarging scale of output. The trusts have been charged with systematically selling at lower prices abroad than in the domestic market. In most cases this is admitted, but the fact is due to several causes. In 1900 the steel corporation sold abroad at $23 a ton grades of steel for which home consumers paid $26 to $28. The reason was that to keep the mills running and the men employed continuously the price had to be made low enough to sell the output. Had the plants run only part time or less than full capacity the cost to home consumers would have been increased. The competition was keener in the foreign market as a rule, and lower prices were necessary to secure orders enough for steady operation.
But why does not the domestic consumer also get the benefit of lower prices? This failure has been attributed to (1) group control or community of investment interests among industrial and railway trusts; (2) to the exclusion of foreign competition by protective tariff. To which it is properly replied that the tariff,
"instead of helping to give them a monopoly, it is the one thing that prevents them from having a monopoly, because it sustains their smaller competitor who could most easily be driven out by free foreign competition." * As for domestic prices, the larger combinations are the price-making force in the home market, and the smaller concerns adapt themselves to their quotations. The combinations pursue a let-live attitude toward the smaller industries, as the more prudent price policy. The prices at which the smaller industries can live are extraprofitable to the combinations. An import duty so low as to eliminate these smaller industries by foreign competition would simply divide the domestic market between foreign competitors and domestic combinations. Given fair competitive relations between combinations and the smaller concerns, prices, on a somewhat higher than the competitive level, tend to that degree of normality which is just to the producer and that measure of elasticity to which the consumer is entitled by progressive conditions of producing efficiency.
Industrial combinations are also charged with destroying competition by lowering prices in certain market areas, and maintaining them at a higher level elsewhere, or later to recoup themselves. Part of the difference in prices in differ
* United States Industrial Commission Report, Vol. XIII, p. xxviii.
ent localities equally distant from the source of supply may be due to higher or lower freight rates. This species of unfairness is easily corrected under the amendments to the anti-trust act. There is no doubt that combinations were formed to put up prices and that the vast gains of invention to costs of production are appropriated by them as fully as is possible without inviting competition or restricting consumption. In other words, whatever reduction in prices to the consumer have ensued under big business is the result (1) of competition actual or potential, and (2) of the policy to expand consumption wherever the margin of profit per unit of product can be increased by reducing the cost of production. Under the system the combination can and does tend to appropriate the residual gains of progress. Hence the necessity of keeping competition free and fair as the sole condition on which just prices can ensue to the consumer, under the régime of big business.