The fairness of many competitive practices has been, and remains, in dispute. As to certain other practices, however, agreement is general. It is considered to be unfair to take customers away from a competitor by misrepresenting the quality or the price of one's goods; to interfere with the sales of a competitor by defaming him, disparaging his products, harassing his salesmen, obstructing his deliveries, damaging his goods, intimidating his customers, bribing their purchasing agents, or inducing them to break ther contracts with him, by organizing boycotts against him, or by entering into restrictive contracts with distributors which are designed to exclude him from the market; or otherwise to handicap a competitor by spying on him, stealing his trade secrets, involving him in false litigation, or inducing his employees to go out on strike, by persuading the producers of materials to discriminate against him, or by entering into exclusive contracts with them in order to deprive him of a source of supply. These and similar practices have been denounced by the legislatures and the courts and forsworn by business itself. In general, they fall within the category of acts designed to give a competitor an advantage unrelated to his productive efficiency.
In recent years the concept of unfairness has been applied to a radically different sort of behavior. The codes of fair competition approved by the N.R.A. condemned such acts as cutting a price without first informing one's competitors and waiting for several days in order to give them an opportunity to follow suit, selling at a price below some average of the costs of all the firms in one's trade, cutting a price indirectly by giving larger trade-in values, discounts, premiums, or guaranties than those given by one's competitors, expanding one's productive capacity, operating one's machines beyond a fixed number of hours, or producing a larger quantity of goods than that allowed by a quota fixed in conference with one's competitors. The unfair trade laws condemn the practice of selling goods at a price below their cost plus a fixed mark-up. The fair trade laws condemn the practice of selling goods at a price below that specified by their producer in a contract with a single distributor. In specific cases the recent employment of the concept has completely reversed its previous application. The basing-point price practice in the steel industry, condemned by the Federal Trade Commission, was required by the code of fair competition approved by the N.R.A. Resale price maintenance, repeatedly condemned by the Commission, is approved by the fair-trade laws of 44 States. The tendency appears to be toward denouncing as unfair any effort to compete on the basis of price. The effect is to rob the concept of unfairness of whatever significance it may once have had.
The terms cutthroat, destructive, predatory, and unfair have been applied almost exclusively to situations in which business units compete as sellers. They might be applied with equal logic to situations in which such units compete as buyers. Producers who were few in number might conceivably bid the prices of raw materials up to a point where no one of them could cover his costs and earn a fair return. One producer might temporarily bid up such prices for the purpose of eliminating another. Any producer, in purchasing materials, might resort to practices which others would regard as unfair. Application of these concepts to competition in buying, however, would involve the same difficulties as does their application to competition in selling. The general failure to attempt such an application may he attributed to the fact that practices objectionable to competitors have made their appearance less frequently on the buyers' than on the sellers' side of the market.
ment required for entry into many fields, the fixed character of much existing equipment, high costs of transportation, restrictive tariffs, exclusive franchises, and patent rights constantly operate to destroy the threat of competition. Science, invention, and the development of technology constantly operate to keep this threat alive. Potential competition, insofar as the threat survives, may compensate in part for the imperfection characteristic of actual competition in the great majority of competitive markets.
Effective or workable competition among buyers cannot obtain in the case of specialized products, produced on specialized equipment, to meet the particular specifications of a single buyer; it can appear only in connection with the exchange of goods which are in general demand. It depends upon the availability to sellers of information concerning the offers made by buyers. It requires the presence in the market of several buyers, each of them strong enough to survive and grow, and the preservation of conditions which permit new buyers to enter the market and enable sellers to make sales elsewhere. It requires substantial independence of action on the part of every buyer to the end that sellers may be afforded genuine alternatives in policy among their sources of demand.
The concept of effective or workable competition, though less definite, is more generally useful than that of perfect competition. It fulfills, in part, at least, many of the conditions requisite to perfection. It includes all of the area of pure competition and much of that of imperfect, monopolistic and nonprice competition. It requires the preservation of the threat of potential competition. It may even exist under the conditions of oligopoly and oligopsony. It may be difficult to distinguish from cutthroat or destructive competition, but it is inconsistent, in general, with those forms of competition that may properly be defined as cutthroat, destructive, or predatory, and with many of the competitive practices that have usually been condemned as unfair. In brief, competition may be said to be effective or workable whenever it operates over time to afford buyers substantial protection against exploitation at the hands of sellers and to afford sellers similar protection against exploitation by buyers. For this is the social function which competition is supposed to perform.