CHAPTER IV

CONTROLLED PRODUCTION AND SALES-TRADE

ASSOCIATIONS AND CARTELS1

Preceding chapters have explored the incidence of competition and monopoly and the concentration of production in American industry. This chapter is concerned with the place of the trade association and the cartel in our economy, since through these media control is frequently achieved in fields where firms are numerous and none is dominant.

TRADE ASSOCIATIONS

A trade association or industrial institute is an agency through which many or all of the sellers of a like commodity unite to promote their common interests. It exists solely to serve its members; it does not itself engage in the production or sale of goods. An association may be incorporated or unincorporated. It is usually governed by a board of directors elected by its members and financed by dues which they contribute in proportion to their output, pay rolls, capital, or sales. Its activities are administered by a salaried secretary and carried on by a paid staff. The members of such an association retain their legal independence. They are free to enter or to withdraw from it at will. They cannot even be compelled to pay their dues. An association, therefore, may be strong or weak, according to the force of circumstances making for voluntary cooperation within the trade. In 1940 there were more than 8,000 trade associations, local, regional, and national, in the United States, some 2,000 of them national in scope.

Association Activities.

The functions performed by trade associations for the benefit of their members are numerous and diverse. Many of them do not appear to be inconsistent with the preservation of competition; many others involve the imposition of restraints. Typical association activities include cooperative industrial research, market surveys, the development of new uses for products, the provision of traffic information, the operation of employment bureaus, collective bargaining with organized labor, mutual insurance, commercial arbitration, the publication of trade journals, joint advertising and publicity, and joint representation before legislative and administrative agencies-all undertakings that may serve a trade without disservice to its customers.

They also include the establishment of common cost accounting procedures, the collection and dissemination of statistics, the opera

This chapter is based largely on Temporary National Economic Committee Monograph No. 21, Competition and Monopoly in American Industry, by Dr. Clair Wilcox, professor of economics, Swarthmore College. It was digested and arranged by members of the Temporary National Economic Committee staff, following which it was criticized by Dr. Wilcox and Dr. William N. Loucks, professor of economics, Wharton School of Finance and Commerce, University of Pennsylvania. For more detailed discussion, see Temporary National Economic Committee Monographs No. 6, Export Prices and Export Cartels (WebbPomerene Associations), by Milton Gilbert and Paul D. Dickens, Department of Commerce, and members of the Federal Trade Commission staff; and No. 18, Trade Association Survey, by C. A. Pearce; also Hearings before the Temporary National Economic Committee, Part 25, Cartels.

tion of price reporting plans, the standardization of products, terms of contracts, and price lists and differentials, the provision of credit information, the interchange of patent rights, the administration of basing point systems, the joint purchasing of supplies, and the promulgation of codes of business ethics, each of them practices which may operate to restrain competition in quality, service, price, or terms of sale.

Table 5 gives in compact form not only an idea of the scope of trade association activities but also of the number of associations engaging in each type of activity. Some of the activities, such as organized research, development of new uses for products, and the operation of employment bureaus, are of direct or indirect benefit even to the consumers of commodities sold by members of the associations.

Trade associations in general have manifested less interest in those activities which are designed to enable the members of a trade, without sacrificing their essential independence of action, to cooperate in increasing efficiency, reducing costs, and improving their service to the public, than in those which are calculated to secure their adherence to a common policy governing production and price.

It is impossible to measure the extent to which members of trade associations are actually engaged in cooperating to serve the public or conspiring against it. The line between cooperation and conspiracy is not an easy one to draw. The courts, to be sure, must attempt to draw it. Price reporting, for instance, is held to be legal if reports are confined to past transactions. It is of uncertain legality if they cover current or future transactions and if members are required to adhere to the prices they have filed. It is illegal if essential information is withheld from buyers, if sellers are identified, if members agree upon the prices they will file, and if adherence to these prices is enforced by detailed supervision and by the imposition of penalties. But no one can say with confidence how many of the price-reporting systems now in operation fail to overstep this line. And so it is with many other phases of association work.

TABLE 5.-Number and percent of total number of national and regional trade associations engaged in specified activities, 1938–391

1 Based on returns from 1,244 of approximately 1,404 national and regional trade associations, exclusive of those in the insurance field, that were active in June 1938. For a statement of the nature of the items and the limitations of the data see Temporary National Economic Committee Monograph No. 18, pp. 21-25.

TABLE 5.-Number and percent of total number of national and regional trade associations engaged in specified activities, 1938-39-Continued

Source: Temporary National Economic Committee Monograph No. 18, Trade Association Survey, table 25, p. 373.

There are some 2,000 national trade association offices in the United States. In each of them a secretary with his staff is working, presumably 6 days in every week, 52 weeks in every year, to administer activities in which at times competitors do not compete. Upon occasion, the Federal Trade Commission or the Department of Justice makes an investigation and certain practices of an association are proscribed by the Commission or the courts. But no such sporadic action can be expected to disclose each of the cases in which competition is restrained.

Limitation of Competition Through Trade Associations.

The fact that trade associations have frequently succeeded in bringing prices and production under common control is revealed by the results of economic inquiries published by the Federal Trade Commission and by independent investigators, by cease and desist orders issued by the Commission, and by decisions handed down by the courts. It is also suggested by numerous complaints issued by the Commission and by indictments returned by grand juries in proceedings which are still open. A partial list of the instances has been compiled, involving some 200 groups in more than a hundred different trades, in which it has appeared at some time during the past 20 years that a trade association, industrial institute, or other common agency was exercising some form of control over production, price, and terms of sale in national or regional markets. Among the trades represented are manufacturers of agricultural implements, aluminum cooking utensils, brick, brooms, brushes, candy, cigars, carpets and rugs, elevators, glass containers, dresses, household furniture, steel, copper, and bituminous coal; dealers in wholesale. groceries, wholesale hardware, retail jewelry, life insurance, liquor, wholesale optical goods, wholesale tobacco, dry goods, and notions; distributors of flowers, glass, lumber, paper, plumbing supplies, surgical instruments; jobbers of automobiles and accessories, bakers, canners, distillers, flour millers, fur dressers, music publishers, oil refiners, and photoengravers.2

The list includes no suits instituted by private parties. It includes only one of the cases decided under the antitrust laws of the several States. It includes no case in which the Federal Trade Commission dismissed a complaint and, with but few exceptions, none of those in which the Government either dropped a suit or suffered a reversal at the hands of the courts.

It is obvious, however, that the area in which the economist will find effective competition to be superseded by common control must be much larger than that in which the courts will hold such control to constitute a conspiracy in restraint of trade. The number of cases involving the elimination of competition through common agencies has, therefore, probably been greater than the list reveals.

Table 6 lists 206 associations which have been named as defendants in antitrust proceedings by the Department of Justice. Many of these associations have been defendants in more than 1 proceeding. One hundred and twenty associations have been defendants in 1 or more cases since March 24, 1938. It is probable that this list does not exhaust the instances in which unlawful restraints of trade have developed among trade associations. The personnel of the Antitrust Division has been insufficient to investigate and prosecute all substantial complaints which have come to its attention. There is reason to believe that a broader program of investigation would have resulted in cases against additional associations.

2 For the complete list, see Temporary National Economic Committee Monograph No. 21, Competition and Monopoly in American Industry, pp. 235-240. See pp. 405-408, infra.