Discount from list prices to large quantity buyers is a legitimate discount policy. The coöperative retail purchasers mentioned above were anxious to buy in large quantities so that they might take advantage of quantity discounts. With regard to the effect of trade or quantity discounts upon fairness of competition, it may be observed in general that such policies are fair if they are applied uniformly to all buyers. If there is no discrimination between customers in applying discounts, the practice is legitimate. The third form of legitimate discount is cash discount. If cash discounts are uniformly allowed to all buyers of the same class, competition is fair. The three main forms of discount, trade, quantity, and cash, are fair and competitive if there is no discrimination. between buyers of the same grade and class.

(7) Uniform nominal prices are often vitiated by rebates and inside reductions. Railroad rebates have long been branded as illegal and unfair. Rebates of insurance commissions are unethical and in many states illegal. Splitting commissions is frequently practiced by salesmen in order to clinch the order of a difficult buyer. Inside prices as special favors are unfair and illegal, although doubtless often practiced in the trades. Inside prices are often effected by giving the regular price but presenting the buyer with a bonus of extra goods. Such concessions are the equivalent of outright price reductions. Discriminations of these types tend to handicap the small buyer and to favor the large buyer. A careful authority has stated: "As matters now stand, the inside price problem is the most disturbing element in business. More of the evils of unfair trade can be traced to this as a cause than to any other single item." 8

(8) Uniform price information may be supplied all members of a trade association. Such information may be legitimate if it applies to prices of closed transactions and refers to unidentified parties. It is illegitimate, however, if it applies to quoted prices, or to identified parties. Knowledge of prices at which sales have been consummated is one thing. Exchange of prices proposed to be quoted is quite a different matter. Prices of the latter type would result in elimination of competition, according to the theory of the courts and the law, since each dealer would try to raise his prices to the highest level attained by any dealer. The quoted prices might be higher than actual prices and the effort to rise to the quotations would result in prices above the competitive point. Compulsory secrecy on prices which business expects to ask on sales in the future is held to be essential to free and fair competition. Information on costs, production, and other matters of common interest to members of trade associations, may be collected and disseminated, provided it does not have the result of price fixing and lessening of competition. The information as such is legitimate; the purpose for which it is used is the criterion of its fairness.

Abstract Competitive Price versus Reasonable Price. The trend of economic and legal opinion has been toward an approval of competi8 Paul H. Nystrom, Economics of Retailing, p. 299.

tion as a cure-all for economic ills. The effort of legislators has been to frame laws which would require an abstractly competitive price. It has been assumed that the goal of trade policy should be to guarantee competition as such, and that once competition is enforced, all consequences are bound to be beneficent. Competition has been overrated perhaps, as a magic wand which could bring about universal good. A tendency has appeared more recently to aim at a reasonable or fair price, somewhat regardless of its purely competitive quality. Reasonableness of price is a concept recognized in rate making for public utilities, and in price fixing for government purposes. Reasonable value and marginal and bulkline costs enter into the calculation of reasonable price. If courts, commissions, and legislators go back of an abstractly competitive price and inquire into the reasonableness of the price, it is likely that material differences will appear in the regulation of price discrimination and unfair competition. The loose assumption that abstract competitive price is in the very nature of things reasonable price is now open to some question. To secure reasonableness of price it may be necessary to go beyond the mere guarantee of free and fair competition. An evolution of economic and legal opinion in the direction of a demand for reasonableness as well as competitive qualities appears to be in process.

Price Policies and the Tendency Toward Monopoly. The nature and extent of competition must be viewed as an evolutionary process. Competition is not the same yesterday, today, and forever. It is an institution susceptible to change, development, and extension. The modern market is neither freely competitive nor completely monopolistic. Whichever of the hundreds of branches of industry and trade may be chosen for investigation, it is quickly found that there is both an element of competition and an element of monopoly. Partial competition and partial monopoly are inextricably intermingled. Monopoly, like competition, is always a question of degree. One hundred per cent monopoly and one hundred per cent competition are equally hard to find. It is always a question of more or less, and the proportions vary from month to month and year to year in each field of trade. The nearest approach to full monopoly occurs in such fields of natural monopoly as railroads, anthracite coal, and municipal water, gas or electricity supply. But even in these branches of natural monopoly, there are limits to monopolistic power, and if these limits do not always

The following statement of the Comptroller of the Currency, D. R. Crissinger, in April, 1921, is interesting in this connection: "Manufacturers, jobbers, wholesalers, retailers, laborers-are all in some sort of combination to frustrate this fundamental law of economics (i.e., supply and demand). Each is out to 'get his' first. These combinations,―gentlemen's agreements, or what not-have gotten prices of things to the point where there is no relation between cost of raw materials and cost of production; no relation between cost of production and cost to the consumer; in short, where there is no relation between value and selling price." Due allowance must of course be made for the sweeping character of such a generalization. See also F. W. Taussig, Quarterly Journal of Economics, Feb., 1919, p. 238.

appear in terms of potential competition, they then present themselves in terms of public regulation.10 After a detailed examination of many forms of business, C. R. Van Hise draws the broad conclusion: "The foregoing description of the situation cannot but convince any man who will look the facts in the face that the blind faith that prices are adequately controlled by competition in the United States is no longer justified, if indeed it ever was justified. Unrestrained competition does not as a matter of fact exist for many articles, except to a very limited degree at the present time. Everywhere there is restraint of trade by agreement or combination, either lawful or unlawful." A comprehensive view of the new economic situation is given by Woodrow Wilson as follows: "There is one great basic fact which underlies all the questions that are discussed on the political platform at the present moment. That singular fact is that nothing is done in this country as it was done twenty years ago. We are in the presence of a new organization of society. We have changed our economic conditions absolutely from top to bottom."

Monopoly in all forms and degrees is typically characterized by a control over prices, and this price control is made possible by control of supply. "A partial monopoly exists," says Carver, "whenever an organization exercises sufficient control over the supply of anything to enable it to fix its prices, even within a narrow zone, independently of competition."' 11 Concentrated business estimates the price at which a certain quantity of goods can be sold to yield the highest net profit, and proceeds to produce or contract for only that limited supply. Large businesses, like small businesses, aim ordinarily to charge "all that the traffic will bear.” But large businesses are in a position usually to heighten the figure which "the traffic will bear" by refusing to sell the supply which it controls except at its fixed price. If the monopoly uses discretion in setting its price, and avoids overdoing the priceraising policy, it will ordinarily be successful in selling its goods at the increased figure. In weak monopoly organizations the limits within. which monopoly price can be held up are especially narrow. In some of the stronger monopolies, price exactions for short periods of time can often be pushed up surprisingly high. The degree of price control will vary widely from industry to industry, and the variation is in fairly close proportion to the degree of control over supply.

Theoretically, monopoly, complete or partial, should be able to elevate prices, and in the popular mind, monopoly suggests profiteering prices more vividly than anything else. It is a moot question therefore: Has monopoly, as a matter of historical fact, actually raised prices? The answer has to be two-sided: some monopolies have taken full advantage of their price fixing powers and have reaped exorbitant harvests; some have effected large savings and economies in production, and have

10 A. Marshall, Industry and Trade, pp. 394-402.

11 Carver, Principles of Political Economy, p. 291. See also Ely, Outlines of Economics, pp. 200-201; Haney, Business Organization and Combination, p. 141.

thereby made possible reductions in consumers' prices without themselves suffering inroads upon profits. Some concrete evidence on the issue is available in the studies of J. W. Jenks, based largely upon the findings of the United States Industrial Commission,12 and of subsequent government records on industry. His reports show the margin between costs and selling prices both before and after monopoly powers existed. This spread indicates whether the public was given full advantage of economies of business combination, and whether prices were maintained for any length of time at monopoly levels. The following extracts and digests from his conclusions are highly valuable:

1. Sugar Monopoly.-"The sugar combination has beyond question had the power of determining for itself, within considerable limits, what the price of sugar should be, low or high, with or without competitors. .. On the whole, the chart seems to make it perfectly evident that the sugar combination has raised the price of refined sugar beyond the rates in vogue during the period of active competition before the formation of the Sugar Trust, and the two competitive periods during its existence.

"From the time of the organization of the Trust in 1887, for twelve or thirteen years the Trust kept the margin high for more than threequarters of the time. Since that period, the margin, it will be noted, has steadily remained considerably higher than during the period of most vigorous competition in the few years preceding the organization of the Trust, and during the two periods of vigorous competition since that time. . . . Although they have made excellent profits during the last few years, the margin certainly during the last three or four years can hardly be said to be abnormal." However, in relation to the general price level of all commodities, sugar prices are not higher. Prices of other commodities from 1900 to 1914 show a greater increase than do sugar prices. "The total result seems to indicate that if the sugar combination in the United States has had any direct influence upon the price of sugar, it has been rather to reduce that price than to increase it."

2. Petroleum.-"The Standard Oil Trust was formed in 1882. From that time on for a period of eight or nine years, there was only a slight decrease in the margin." From 1892 to 1894, the margin fell considerably lower, and up to 1916, the prevailing margin was not up to the low point of 1894. "Taking the period as a whole, . . . from 1900 to date (1916) it will be seen that this great combination, as practically all of the others, seems not to have raised the price of its chief product to an amount that corresponds to the rise in the price of general commodities." These facts of themselves do not adequately tell the story of monopoly in petroleum. The dividends paid on the outstanding capital stock were in the neighborhood of 30 to 48 per cent annually, and the charges brought against the Standard Oil Company which resulted in its dissolution by a decision of the Supreme Court in 1911 mentioned "enormous and unreasonable profits." The Bureau of Corporations in an 12 The Trust Problem, Chapter VII. Published, 1900; Revised, 1912.

investigation in 1904 and 1905 found that "The Standard discriminates greatly in fixing prices in different sections and in different towns, charging extortionate prices where there is no competition and cutting prices sharply where competition is active. . . . The profits of the Standard Oil Company, particularly on its domestic business, are altogether excessive, and they have been higher during recent years than formerly. The real source of the Standard's power is not found in the rendering of superior service to the public, but in the long continued use of unfair methods of competition." After the dissolution, Standard Oil stock quickly rose more than three hundred points, indicating the faith that the dissolution would not impair the industry's power to earn large profits. Federal Trade Commission reports indicate that oil profits during and after the war were highly liberal.

3. Steel. The United States Steel Corporation was formed in 1901. According to Jenks, "After the formation of the United States Steel Corporation. . . a new policy seems to have been adopted-that of seeking good profits, but not extraordinary ones. . . . The effect of the United States Steel Corporation seems to have been primarily to steady prices and to maintain more nearly a rate of prices of the finished product dependent upon the costs of the leading raw materials so far as that can be readily determined." Steel prices have not moreover risen as much in the period 1900-1914 as the prices of commodities in general. In spite of these facts, a study of earnings and prices of the Steel Corporation seems to warrant the brief conclusion stated by Van Hise: "Excessive prices; these have resulted in enormous earnings.'' 13 The war years brought generous profits to the steel combination. The Federal Trade Commission found that the profits of the United States Steel Corporation rose from about $77,000,000 in 1912 to over $478,000,000 in 1917.

These brief comments indicate a wide variety of effects of business combinations on prices and profits. In many cases, the lines of industry in which a high degree of combination has prevailed have maintained prices lower relatively than the average prices of all commodities. Nevertheless, the predominant fact has been liberal profits, often excessive profits, made possible in large degree by the ability of leading corporations to influence prices. Jenks concludes that "The result has been to establish fairly generally the business policy of not attempting to secure anything like a complete monopoly of the market, but rather for the combination to fix its prices at such a rate that it may secure under normal conditions substantial profits while its competitors are still able to live and prosper. 14 Court decisions have generally confirmed the charges of unwarranted price policies and industrial investigating commissions have reported to the same effect. Economists for the most part take a stand essentially similar to that of J. A. Hobson when he declares, "But a trust is always able to charge prices in excess of

13 Concentration and Control, p. 140.

14 The Trust Problem, p. 178.