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Exclusive-dealing arrangements.

Local price cutting.

In other places Dr. Van Hise mentions as "unfair practices" the following:1

Misrepresenting competitor's goods.

Selling machines which resemble those of competitors "at a very low figure."

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Purchase [and suppression] of patents and preventing inventors from putting their inventions on the market."

Unjustifiable suits and threats of suits, to intimidate competitors. Distributing, for purposes of intimidation, statements regarding the number of competitors who have failed.

As "unfair methods," without which, "it is asserted, with the support of a pertinent array of facts, that the great combinations. could not exist," Senator Theodore E. Burton, in "Corporations and the State" (1911), names local price cutting, one-commodity price cutting, and exclusive-handling requirements.2

Prof. Edward Dana Durand, in his recent book, The Trust Problem,3 mentions railroad discriminations, price discriminations, bogus independents, and exclusive patronage requirements as types of unfair competition. He expresses the opinion, however, that "in by no means all industries is it possible for a combination, however comprehensive, to add much to its power by unfair competitive methods." On this point he is at odds with those who hold that the power of a monopolistic combination "rests mainly on unfair competitive methods or on special privileges.5 He says:

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The Tobacco Trust, I feel sure, was far from owing the whole of its power to unfair competitive methods or to special monopoly privileges. Freight charges on tobacco are such a small element in cost that, even if the trust had special favors in this respect, they could have counted but little in competition. The trust did make considerable use of price discrimination as a method of warfare against competitors. It maintained bogus independent companies. It sought to make exclusive contracts with dealers. The conditions of the trade, however, are such that these practices could not wholly account for monopoly power. The ability of the trust to maintain its dominant position was largely due to its readiness to buy up competitors at good prices, and to the readiness of competitors to submit to the amalgamation process.

Prof. J. W. Jenks, in "The Trust Problem," applies the phrase "destructive competition" to local price cutting."

Prof. Lewis H. Haney, in "Business Organization and Combina

1 Charles R. Van Hise, Concentration and Control, p. 190.

Theodore E. Burton, Corporations and the State (1911), p. 110.

Edward Dana Durand, The Trust Problem, 1915, pp. 17, 19, 20, 21, 22.

• Ibid., p. 21.

Ibid., p. 11.

Ibid., p. 20.

J. W. Jenks, The Trust Problem (rev. ed., 1909), p. 66.

tion" (1913), lists certain methods of "illegitimate" competition as follows:

Bribery of the employees of competitors.

Abuse of patents.

Secret control of so-called competitors.

Price discrimination.

Discrimination in granting credit.

Preventing purchasers from dealing with competitors.

At another place Prof. Haney says:

Re

But competition may also be legally or ethically illegitimate. bates, bribery, secret control of nominally competing plants, and the like, have existed under a system of "unrestrained" competition, and such practices are not only wrong but unlawful. Refusing to sell to retailers who also buy of competitors and cutting prices on certain special articles or certain grades of product may or may not be unlawful, but the common sense of the community or society regards such practices as wrong. Competition by terrorism is no beneficent thing. It is piracy.1

A list of unfair competitive methods was given in a recent article by Prof. William S. Stevens, as follows:2

Classified according to their elementary characteristics, it is possible to distinguish the following 11 forms of unfair competition:

I. Local price cutting.

II. Operation of bogus "independent" concerns.

III. Maintenance of “fighting ships" and "fighting brands,”

IV. Lease, sale, purchase, or use of certain articles as a condition of

the lease, sale, purchase, or use of other required articles.

V. Exclusive sales and purchase arrangements.

VI. Rebates and preferential contracts.

VII. Acquisition of exclusive or dominant control of machinery or goods used in the manufacturing process.

VIII. Manipulation.

IX. Blacklists, boycotts, white lists, etc.

X. Espionage and use of detectives.

XI. Coercion, threats, and intimidation.

Section 3. List of methods of competition which have been regarded as unfair.

Since the methods of competition are of infinite variety, it is obviously impossible to specify all that may be regarded as unfair. The following list is believed, however, to cover most of the methods that have been so condemned by economic writers and publicists and have thus far attained any considerable importance. Not every method listed will seem unfair to all people, or perhaps to most. Sometimes, indeed, complaint is noted of two lines of conduct, one of which is the opposite of the other. Fixing resale prices and cutting fixed resale prices, defining the channels of trade and refusal

1 Lewis II. Haney, Business Organization and Combination, pp. 366, 371-372.
Political Science Quarterly, June, 1914, p. 283.

to observe defined channels, each is felt as injurious by one group

or another, and is therefore condemned by it as unfair.

Local price cutting.

One-commodity price cutting.

Price reductions in general.

Use of trading stamps, coupons, and the like.

Excessive credits.

Reductions of price for quantity.

Special advantages in transportation (rebates, etc.).

Fixing resale prices.

Bogus independents.

Exclusive-dealing requirements.

Full-line forcing.

Inducing breach of contract.

Enticement of competitors' employees.

Espionage by corruption and bribery.

Secret commissions.

Misrepresenting competitors.

Abuses in advertising.

Passing off goods for those of another.

Shutting off competitors' credit.

Shutting off materials, supplies, or machines from competitors.

Acquiring stock in competing companies for purpose of reducing or destroying competition.

Wrongful and malicious suits.

Intimidation.

Fixing channels of trade.

Section 4. Local price cutting.

The buyers of most articles are more numerous than the sellers, and a reduction of the price seems to benefit more people than it injures. In general, therefore, it is naturally regarded as a public benefit. But a large corporation may cut its prices below cost till its competitors are destroyed and then recoup its losses by making its prices higher than before. It may make its reduction only in localities reached by a certain competitor which cover but a small part of its own field, and so may constantly secure a profit on its total business, while the competitor meets ruinous losses. The ultimate result of such a process is high prices, based upon a practical monopoly. When this result is observed the process is often felt to be injurious to the general interest. At the same time sympathy for the outmatched competitors reenforces the dislike of consumers for the final high prices, and this method of competition is frequently pronounced

unfair.

The criticism does not usually extend to sales of damaged or defective stock, nor to the "special sales" which merchants advertise, nor to price cutting which is not conceived to be directed toward establishing a monopoly.

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Speaking of local price cutting, Louis D. Brandeis says: "With the exception of the railroad rebate, cutthroat competition was the most powerful of all the weapons which the Standard Oil Co. employed. It was the most powerful of all weapons employed by the Tobacco Trust. The Standard Oil Trust would cut the price in the districts where a competitor established himself, and thus destroy him, meanwhile reimbursing itself for the cut in that region by charging high prices elsewhere." In a report on the petroleum industry, a former Commissioner of Corporations criticized the Standard Oil Co. on account of "startling discriminations in prices," and said: "It is evident that the Standard charges a price which is proportionate to the extent of its monopoly in a given place and reduces prices in proportion to the degree of competition which it may meet.” According to this report the Standard's prices for medium-grade illuminating oil, after deducting freight, in December, 1904, varied in cities of more than 100,000 inhabitants from 6.4 cents at Cincinnati to 14.4 cents at Denver. The price in New York City, less freight, was 4 cents higher than in Cincinnati and 2 cents higher than in Philadelphia.2

In its suit against the United States Steel Corporation the Government sought to prove unfair competition by putting in evidence the following extract from the minutes of the Carnegie Steel Co. (subsidiary of the United States Steel Corporation) under date of September 23, 1902:

The Tin Plate Co. are covered by contracts up to the 1st of December. At that time they anticipate making a heavy cut in prices, which they think will put 90 per cent of their competitors out of business. If this move proves as successful in securing business as is expected the Sheet Steel Co. will probably reduce to an equivalent basis. Both companies figure that they can then run full for at least the first half of next year.”

A complementary practice is that of bidding up prices of materials in localities where competitors appear as buyers. Such a practice was complained of by a former Commissioner of Corporations with respect to the Standard Oil Co., which was alleged to have forced several independent pipe lines out of business by paying extravagant prices for crude oil in the territories where they operated. Crude-oil producers have also complained that when the Standard had got hold of

1 To Prevent Discrimination in Prices and to Provide for Publicity of Prices to Dealers and the Public Hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, 63d Cong., 2d and 3d sess., on H. R. 13305, pp. 4. 5.

Report of the Commissioner of Corporations on the Petroleum Industry, Pt. II, pp. xxxviii, xxxix, 451.

* United States r. U. S. Steel Corporation and others. In the District Court of the United States for the District of New Jersey, October term, 1914. Brief for the United States, Pt. II, p. 354.

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* Report of the Commissioner of Corporations on the Petroleum Industry, Pt. I, p. 25.

the competing lines, the "premiums" on crude oil in their territory were taken off.1

Section 5. One-commodity price cutting.

A company that sells several articles or several brands can cut the price of one article or brand and still make a large profit on its business as a whole, while destroying the profits of competitors whose line is less varied. A brand on which the price is cut in this manner is often called a "fighting brand." In a report on the tobacco industry a former Commissioner of Corporations complained of certain competitive practices, which may be concisely summarized as follows: The American Tobacco Co. dominated the cigarette business in the early nineties, but its plug business was comparatively small. It set about securing a dominating position in this line also. As a weapon in this campaign it used one brand of plug tobacco, Battle Ax, the retail price of which was cut from 50 to 30 cents a pound, and, the wholesale price of which, less internal-revenue tax, was put at one time as low as 7 cents. In territories where certain well-known rival brands, such as Lorillard's Climax and Liggett & Myer's Star, were favorites, men were sent through the country distributing samples; they presented a plug of Battle Ax to every man they saw. During the four years 1895, 1896, 1897, and 1898, the company made a net loss on its plug business of $3,300,000. But it effected its purpose by obtaining during these years and the years immediately following a substantially monopolistic control of the plug-tobacco market.2

In the suit of the United States against the American Tobacco Co., the court was asked by the independent tobacco manufacturers to restrain the new corporations after the dissolution

From giving away, selling at or below the cost of manufacture and distribution, any of its products, or adopting any other method of cutthroat competition for the purpose of destroying or of acquiring the business or trade of a competitor.

Louis D. Brandeis refers to this and other restraints asked for by the independents as "restraint upon unfair competition."3

Dealers in a commodity sometimes complain of its use as a "leader" by other dealers, of whose trade it is a comparatively unimportant part. Thus, the president of the American Surgical Trade Association said in 1914: "One member has complained very bitterly of pharmaceutical houses making a practice of selling sur

1 Report of the Industrial Commission, vol. 1, p. 394, 395.

Report of the Commissioner of Corporations on the Tobacco Industry, Pt. I, pp. 96, 365-375.

* Control of Corporations, Persons, and Firms Engaged in Interstate Commerce: Report of the Committee on Interstate Commerce, United States Senate, 62d Cong., Pursuant to S. Res. 98, with Hearings, Digest, and Index; pp. 1221, 1222.

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