Chapter 28: The Problem of Industrial Monopoly

REFERENCES.

_Bolen, G. L._, Plain facts as to the trusts and the tariff. 1902.

_Collier, W. M._, The trusts. 1900.

_Cotter, A._, The authentic history of the United States Steel
Corporation. 1916.

_Hobson, J. A._, The evolution of modern capitalism. Ed., 1912. Ch.
V.

_Jones, Eliot_, The anthracite coal combination in the United
States. 1914.

_King, W. I._, The wealth and income of the people of the United
States. 1915.

_Meade, E. S._, The economics of combination. J. P. E., 20: 358-372.
1912.
Trust finance. 1903.

_Montague, G. H._, Trusts of to-day. 1904.

_Ripley, W. Z._, Industrial concentration as shown by the census.
Q. J. E., 21: 651-658. 1906-1907.
(Ed.), Trusts, pools and corporations. Ed., 1916.

*_Source Book_, 255-264. (Extract from United States Commissioner of
Corporations, Report on the transportation of petroleum.)

_Stevens, W. S._, Classification of pools and associations. A. E.
Rev., 3: 545-575. 1913.

_Stevens, W. S._, (Ed.), Industrial combinations and trusts. 1913.

_Stevens, W. S._, A group of trusts and combinations. Q. J. E., 26:
593-643. 1911-1912.

_Stevens, W. S._, The powder trust, 1872-1912. Ibid., 444-481.
1911-1912.

_United States Commissioner of Corporations_, Report on the
transportation of petroleum. 1906.

_Willoughby, W. F._, The integration of industry in the United
States. Q. J. E., 16: 94-115. 1901-1902.

QUESTIONS.

1. What large trusts have recently been formed?

2. State the motives for forming trusts, separating those which are
socially beneficial and those which are anti-social.

3. Enumerate the advantages possessed by a "trust" over a small
competitor, and indicate which of these are the results of large scale
production and which are due to the possession of monopoly power.

4. Are there any conditions under which a combination would be a more
economical unit of production and distribution than a single plant
large enough to secure all advantages to be obtained from mere
quantity of output? If so, state them clearly.

5. Explain carefully the causes and limits of the advantages of large
production. Give three examples of industries in which the advantages
are seen.

6. Have you observed the growth of any local industry from a small
beginning to large proportions? If so, how do you account for it?

7. What is the largest manufacturing establishment in your home town?
Would a number of smaller establishments of the same sort and with the
same aggregate capacity succeed as well? Why?

8. What relation has improved transportation and other means of
communication to trusts?

9. What are the chief methods by which trusts or combinations have
sought to make economies in management?

10. Describe the characteristic features of the pool, the trust and
the holding company.

11. Describe any agreement of which you know, made between merchants
or manufacturers for the purpose of regulating prices. Did prices go
up or down as a result?

12. What is a simple price agreement? How does it differ from a pool?
Is there any difference in the matter of legality? Reasons.

13. What are the limits to the price-fixing and profit-earning powers
of monopolies? Are there any other conditions which will tend to check
the indefinite growth of combinations?

14. Explain and illustrate by a concrete example the circumstances
relating to cost of production which tend to make a monopoly price
lower than the previous competitive price for the same article. No
reference is here intended to local or temporary cuts in price by
monopolies which are intent by such means on capturing a local market.

15. If all trade is exchange, do not the members of a trust reduce
their income when they raise the price of their products by artificial
agreement?

16. Five plants engaged in the production of a given article in
different parts of the United States are combined under the ownership
of a single corporation formed for this purpose. Before the
combination these five plants produced 75 per cent. of the total
output of the article in question, each producing approximately 15 per
cent.; the remaining 75 per cent. was produced by seven plants, no one
of these turning out more than 5 per cent. of the total output. Each
of the first five plants was large enough to secure all known
economies in the costs of transforming the raw material into the
physically finished product, and each was running to its full
capacity. The aggregate net earnings of the five plants were
$1,000,000 a year. The cost of reproducing these five is $14,000,000.
The new corporation issues and pays to the owners of the properties
taken over $10,000,000 in 5 per cent. first mortgage bonds, $6,000,000
in cumulative preferred stock, and $8,000,000 in common stock.

What will determine whether this combination possesses monopoly power?

Is the corporation overcapitalized? If so, to what extent? State
clearly what you mean by overcapitalization?

Is it probable that the earnings of the new corporation will be
greater than the aggregate earnings of the five plants, if the price
of the product is not increased? If so, how will this increase be
gained?

If there is an increase in earnings, how will the price of each of the
three kinds of securities of the corporation be affected?

17. Suppose that the effective demand for a certain kind of goods in
the country as a whole will vary in the following manner with the
price changes indicated:

$1.00 1,000,000 units
1.10 900,000 units
1.20 800,000 units
1.30 700,000 units
1.40 600,000 units
1.50 500,000 units
1.60 400,000 units
1.70 300,000 units
1.80 200,000 units

There are ten companies each producing 100,000 units at a cost of 90
cents (including all costs but an allowance for dividends on
investment) this giving just enough of a margin to each company to
cause it to continue in the industry. What immediate effect on prices
could a combination consisting of six firms have, assuming that the
cost per unit of product and that the output of the independents
remain unchanged? Show for each of the prices indicated what the
amount of the margin made by the four independent competitors
(altogether) and by the combination would be. What less immediate
effects would be likely to follow, and why?

18. Is granting patents an interference with trade similar to tariffs?

19. Is it right that the lucky inventor of a popular toy should make
$100 a day from it?

20. Is it right that an inventor should by patent laws be able to keep
the profits of his business high?