« AnteriorContinuar »
tries, be secured in approximately equal measure
2. Elimination of that part of the cost of selling goods which results from the effort to secure business at the expense of competitors.
3. Elimination of waste due to irregularity of operation, and of the losses of so-called destructive competition.
Let us take these up in order:
1. It is contended that competition leads to excessive investment of capital, to the erection of plants with a capacity in excess of the needs of the country. This is true only in a very limited degree of ordinary mining, manufacturing, and commercial business. Such business differs radically from the so-called industries of increasing returns, such as transportation. In order that there shall be any rail transportation between two points, it is necessary to build a track which may have more than capacity enough for all the traffic. Under such conditions, the one railroad can increase its business without corresponding new investment. In fact, up to a certain limit, even the operating expenses of a railroad do not increase proportionately with volume of business. The building of a second railroad under the conditions mentioned would mean unnecessary duplication of capital and perhaps also of the operating expenses.
In the case of the ordinary manufacturing industries it seldom happens that a single plant, however large, can supply the entire demand of the territory to which it has natural access. The construction of a second plant usually does not mean needless duplication of investment. The aggregate capacity of all plants is not likely to exceed materially the demand in times of prosperity. The desire of each competitor to be ready to get as large a share of the trade as possible may lead to some excess in plant capacity, but not to a great
Moreover, in manufacturing industries, even if there be some excess of plant capacity, operating expenses are not likely to be materially augmented. The plant working at less than full capacity can lessen its force more or less proportionately. Operating expenses vary fairly closely with output.
the industries of the country are steadily and rapidly growing. In industries where trusts are powerful, as well as in other industries, additional plant capacity is constantly being constructed, and additional working force taken on. Even if it were not for the growth of demand, the improvements in methods of production would necessitate the construction of new plants. The older and less efficient plants in a manufacturing industry ought not to be taken into account in judging the relation of plant capacity to demand.
The reasoning as to duplication of plant capacity which applies to manufacturing industries applies as well to mining and to mercantile business. There are a few manufacturing industries in which it is customary for the manufacturer to conduct also some special form of transportation. Ecomony in such transportation
may demand that duplication of plant be avoided, that there be monopolistic operation. If the transportation business cannot be divorced from the manufacture, or subjected to separate regulation, monopolistic operation of the manufacturing business as well may be unavoidable or at least advantageous. For example, the Standard Oil Company and other leading refiners of petroleum operate pipe-lines for transporting crude oil and also tank cars and tank wagons for delivering refined products. Needless duplication of plant and of operating expenses may be involved in competition. in these two branches of the oil industry. Unless they can be divorced from the refining business proper, it may prové necessary to tolerate monopoly in petroleum refining. It has been proposed to require the owners of pipe-lines, be they refiners or others, to transport oil as common carriers at reasonable charges to be fixed by the government. There are serious technical difficulties in the way, but it is probable that they could be overcome by special methods of government regulation. Whether it would be possible to manage the tankwagon delivery business in a similar way is more doubtful. Were it not for the extraordinary difficulty of regulating the prices of refined petroleum products, arising from the fact of joint cost, a simpler way of avoiding the evils of monopoly in the oil industry might be through such regulation of prices. Regulation of profits may be the most feasible plan of meeting the situation.
The Steel Corporation is also engaged in transportation. It operates railroads which to a large extent are patronized by its competitors, and it operates steamships. To require the Steel Corporation to divest itself
of its railroads, at least the more important lines which competitors may have occasion to use, — would not materially lessen the efficiency of the integration secured by that corporation. Nor would there be any serious difficulty in effectively regulating the charges of such railroads if left in the control of the Steel Corporation. At any rate, the element of transportation in the steel industry is not a factor necessitating or justifying a combination of steel manufacturing plants of sufficient size to possess any approach to monopoly power.
2. It is contended further that competition means large waste in selling expenses, due to the endeavor of business concerns to wrest trade from one another through solicitation and advertising. This is doubtless true in some industries, but it is by no means. equally true in all. Where the products of an industry are standard in character, are in steady demand, and are marketed through large middlemen or to large individual consumers, even the most vigorous competition in pushing the sale of goods involves no very great expense. In the case of certain other industries, heavy selling and advertising expenses are considered necessary by business men merely for the purpose of stimulating demand and regardless of competition. Concerns which have virtually a monopoly often spend great sums in advertising their wares. However, it must be ad mitted that in a good many industries competition in selling does mean some economic waste. The advantage of eliminating such waste can properly be set against the disadvantages of monopolistic control.
However, needless expense in selling goods is likely sooner or later to be reduced by informal understandings
not amounting to monopolistic agreements. As the competing concerns become larger and more efficient in production, their managers are likely to see the absurdity of trying to get all the trade away from one another.
3. Finally, it is contended that uncontrolled competition results in irregularity of consumption and consequently in irregularity of the operation of plants, which tends to increase costs as well as to injure the working classes and to disturb business generally. The most common illustration used to support this contention is that of the steel industry. It is urged that when by reason of active competition, prices are particularly low, the consumers of iron and steel and their cruder products buy excessive quantities and so discount their future needs as subsequently to result in very light demand. The plants in the industry, after being worked to their utmost capacity, may have to drop a large part of their force or even close altogether. Such irregularity in production is uneconomical. It has been maintained that the greater steadiness of prices since the organization of the United States Steel Corporation not only has tended to cheapen production but has been beneficial to consumers and to business generally.
It may well be questioned whether competition is as important a factor in causing irregularity of consumption of steel products as is sometimes supposed. The consumption of many of the more important products of iron and steel is necessarily variable. Those products are used primarily in the creation of new capital goods. The desire of men to invest in new capital goods varies greatly with the general conditions of prosperity or depression in business. The policy of