arrangements. Especially may one fairly make this assumption when specific cases of favoritism that are illegal in form as well as in spirit have been openly acknowledged both by the railroads and by shippers.

The distinction should not be overlooked between the proper and legitimate advantages derived by large shippers and combinations through better facilities for handling, adaptation of trade to circumstances and markets, savings in cross freights, etc., and those arbitrary discriminations, whether technically illegal or not, by which a railroad may at will build up or ruin a special locality or any single shipper without regard to his care or skill.

CHAPTER V

COMBINATION AND MONOPOLY

HERE is much difference of opinion as to whether or not the large combinations of capital

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of the present day are to be considered monopolies; and since the decisions of the courts regarding combinations are based largely on their views regarding monopoly, the question has a decidedly practical aspect. When a monopoly is found to exist, there seems to be also a difference of opinion as to the force by which the monopoly is retained. Of course circumstances are likely to differ in the different cases. Some of the larger combinations have succeeded in obtaining control of practically all of the valuable patents in certain lines of manufacturing, thus giving them a legal monopoly which would be protected by the courts. Practically all of the barb wire made in the country at the present time, as well as the wire fencing, is in the hands of the American Steel and Wire Company, a subsidiary of the United States Steel Corporation, because that company owns all of the valuable patents, with one or two exceptions, in those lines of manufacturing.

No one questions the fact that the so-called "industries of increasing returns" or "natural monopolies," such as the railways, the telegraphs, the telephones, the street railways, gas and electric-lighting plants, etc., do, as a matter of fact, in most cases possess a real

monopoly. It is, of course, true that this monopoly is probably in no instance entirely without some competing force in operation against it. A gas company may supply all of the gas used in a city, but some of the more thrifty individuals will use wax candles or kerosene lamps instead-a kind of competition which may often materially affect the dividends of the gas companies. There may be but one street railway company in a city, but if its prices are high, or if they are even at the ordinary rate, there is always more or less competition from carriages, omnibuses, and bicycles. In all of these instances, however, the fact that there is more or less business carried on by others does not prevent the existence of what is properly called a monopoly.

Most of the instances which have been cited of the savings of the wastes of competition which come from the combination of different establishments, have dealt with organizations that are neither "legal monopolies" nor "natural monopolies," as those expressions are ordinarily understood, but are simply combinations with a very large capital; although in some cases, like the Standard Oil Company, which controls pipe lines, there may be united with them some natural monopoly, or they may own important patents or they may receive some special favors, such as those previously mentioned of freight discrimination or of favorable tariffs, which may aid them in maintaining their position. The advantages of freight discriminations and tariffs are to be found also in the case of nearly all large manufacturers or shippers, even though they have not been able to secure what may be considered a monopolistic control of the market.

It is even sometimes asserted that the possession of very large capital is in itself never sufficient to secure a monopoly in any industry, while the popular opinion clearly is that practically all of the so-called Trusts, whether recipients of these special favors or not, possess monopolistic power, and are properly called monopolies. Any differences of opinion that arise over such a question are usually differences coming from misunderstandings regarding terms. Late decisions of the courts and the common usage of later days justify the use of such expressions—which, strictly speaking, are often selfcontradictory-as "partial monopoly," "temporary monopoly," "virtual monopoly," etc. It should be kept in mind that these expressions themselves call attention to the difference between those conceptions and that of, let us say, a legal monopoly. In the case of the legal monopoly that comes, let us say from a patent right, the monopolist has absolute control of the market, and may forbid under penalty of law any competition whatever. The monopoly price, then, may be fixed on the basis of the greatest net returns to the manufacturer. In determining this price, the cost of production for our purpose here being assumed to be constant, the manufacturer takes into account mainly two factors, the number of sales that can be made, and the price, or, to put the matter in another way, the effect of price upon the demand. Will the net returns be greater with more numerous sales at lower prices, or with fewer sales at higher prices? The question of competition does not enter into the problem. Only the demand need be considered.

On the other hand, it seems to be generally conceded

(at any rate the courts and popular usage concede it) that it is proper nowadays to use the word "monopoly" even when the element of competition is not entirely eliminated. A manufacturer who controls, let us say, 90 per cent. of the output of any product is enabled to put prices considerably higher, for the time being, than could any one of ten active competitors, each one of whom controlled not much more than 10 per cent. of the output, or than fifty competitors, no one of whom controlled more than 3 or 4 per cent. of the output. The manufacturer with 90 per cent. of the output must, for the time being, supply a very large majority of would-be purchasers. If he puts his price above former competitive rates, even to a considerable degree, it will still be true that a majority of the customers must buy from him, since the other sources of supply are not sufficient to meet their needs. To be sure, exorbitant prices cannot be held for any great length of time without calling competitors into the field; but, in many instances, a rival powerful enough to make really effective competition could not build and equip a new plant, costing possibly some millions of dollars, short of two or three years. While one may grant that under those circumstances the monopoly would be only temporary, it clearly seems proper, as it certainly is common, to say that the manufacturer possesses, at least temporarily, a monopoly. He certainly is exercising and can exercise for a considerable length of time a really monopolistic power. It is also, however, true that in fixing prices so as to secure under the circumstances the greatest net returns, he has to take into consideration a third factor-that of potential