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other hand, plants are numerous. The individual plant has but a comparatively small fraction of the total capacity. Under such conditions no one plant can by price cutting expect to increase its share of the business in any such proportion as the railroad can.

For these reasons, competition of a really destructive kind is much less likely to arise in manufacturing industries than in railroad transportation. It follows that the motive for combination is less powerful in the former than in the latter. There are many manufacturing industries today in which we find neither destructive competition nor combinations in restraint of competition.

In any case, even tho the desire to suppress competition be strong among business men in manufacturing industries, it is very difficult effectively to suppress it when combination is under the ban of the law. Informal agreements and tacit understandings are far less effective in stopping competition than the more formal and definite combinations which it is proposed to prohibit. It is not easy for a group of separate concerns to act in harmony, to refrain from competition. This is particularly the case when prices are at a high level. If each concern could be sure that its competitor was maintaining prices and not seeking to get a larger proportion of the business, tacit combination might go on peacefully. But the temptation to shade prices and get business away from others is always strong. The mere unfounded suspicion that competitors are pursuing this policy often leads the business man to seek to protect his trade by lowering prices, or by other competitive

If once the bars are let down anywhere, the whole trade is likely to rush into the field of active competition.

measures.

The history of combinations in the past is full of efforts to make them more binding, more cohesive, to prevent more effectively the internal competition that would ever break forth. Agreements as to prices were found ineffective without systematic measures for dividing output or profits. Agreements for such pooling of business or profits broke down unless there was efficient machinery for enforcing them, backed by heavy penalties. Despite even such vigorous methods, many of the pools were not strong enough to prevent competition among their own members. It was largely for this reason that the original trust form of organization, and later the corporate combination, became popular. The difficulties which the railroads in the earlier days encountered in their efforts to suppress competition among themselves are well known; and this despite the fact that their managers knew the peculiar risk of heavy losses from rate wars.

The conditions which made competition so disastrous, which offered such an incentive to combination, themselves rendered the prevention of competition peculiarly difficult. No doubt,

No doubt, a large majority of business men would prefer to combine with one another in order to exact high prices from the public. It has already been suggested that if combination were freely permitted, competition would very likely be eliminated in large degree. But combination under the ban of the law is a very different thing from combination with its sanction.

Those who hold that it is impossible to maintain competition as a general basis of business are called on to explain the fact that competition does exist today in a large proportion of the field of production and trade. Many as are the more formal combinations,

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perhaps even more numerous the informal understandings among business concerns, there are wide fields in which real competition exists. Can any one deny, for example, that the mining of bituminous coal, or the manufacture of cotton goods, of boots and shoes, of automobiles, is conducted under essentially competitive conditions ? Is not the same true of a large part of the wholesale and retail merchandizing ? The advantages of combination to its members are so well known that we should expect to find competition practically eliminated everywhere, were it not for the real difficulties of eliminating it.

There is, therefore, no occasion for despair as to the suppression of trusts and pools. Monopoly is not inevitable. Competition in manufacturing and mercantile business is not so destructive as to force combination. The failure of some of the so-called trust dissolutions to restore competition is no proof that more rational and more vigorous methods of enforcing the law would also fail to do so. Competition has been restored in some cases where monopoly once reigned. In many important industries competition has never succumbed.

Hence we can consider on their merits the relative advantages of trust prohibition and trust regulation. Our choice is not foreclosed by the impracticability of the former. Is a trust régime superior from the stand- X point of efficiency to a régime of competition ? Is it possible effectively to regulate the prices and profits of trusts? What would be the ultimate consequences of a policy of regulation ? These questions remain to be discussed.

CHAPTER III

DIFFICULTIES OF REGULATING COMBINATIONS

In the preceding lectures we have undertaken to show that it is necessary either to prohibit and destroy the trusts and pools or to regulate their prices and profits. Merely to prohibit unfair competitive methods and to deprive combinations of special privileges would not, in all probability, remove their power to extort monopoly prices. We further sought to show that it is possible to prevent the formation of combinations having effective monopoly power, and possible also in large

measure to break up such combinations as already -- exist. The American people, therefore, are in a position

to choose between the policy of regulating permitted trusts and pools, and the policy of prohibiting and destroying them. In making this choice they must first consider what would be the difficulties and what the probable results of a policy of regulation. They must then consider whether the advantages of combinations from the standpoint of efficiency and economy are great enough to justify permitting them to exist despite the difficulties of regulating them.

Few of those who have advocated the policy of permitting combinations to exist subject to regulation by the government seem to have given much thought to the magnitude of such a task, its difficulties, or its ultimate outcome. They have had in mind the comparatively few closely knit trusts of the present time, or possibly only a part of those trusts. They have had

in mind particularly the so-called “good” trusts with their alleged superior efficiency and their more or less reasonable policy toward the public.

In the first place, it would be difficult to limit the number of trusts under such a policy. It is, of course, conceivable that the government should undertake to suppress combinations in general, while permitting a few particular trusts to exist. A limited number of trusts might be tolerated, not because of the good motives or exceptional ability of their managers, but because of special economic characteristics of the industries concerned which tended to make combination particularly economical or to make the maintenance of competition peculiarly difficult. Such a plan would not necessarily lead to unreasonable discrimination between individuals and classes, tho to determine what were the extraordinary conditions justifying the existence of a trust would be extremely hard. If, however, the people once concede the right of a monopolistic combination to exist, independently of extraordinary conditions, a sense of justice should apparently compel them to permit combinations ad libitum. What is sauce for the goose is sauce for the gander. Under no theory of justice could all the trusts heretofore organized be permitted to continue without granting permission to organize trusts in every other field. Moreover, if the government permitted trusts freely to organize, it would have to permit pools also, at least until it was demonstrated that the trusts had material economies and other advantages and that the pools had no such advantages.

In the second place, it would seem that if combinations having power to restrain trade are to be permitted

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