The economies in the matter of distribution to be achieved by associations and combines need little demonstration. Critics of the competitive system have often pointed out the wastefulness of the "five milkmen in one street." The economic waste of numbers of rival travellers, each seeking to frustrate the efforts of the rest, and of competitive advertisements which cancel each other out, has long been a subject of comment. But only by some form of understanding or concerted arrangement of monopoly can such wastes of competition be eliminated. Moreover, for a coun try carrying on a large export trade, representation in foreign markets is a matter of primary importance, and it has become increasingly apparent that independent manufacturers, if they combine for nothing else, must combine for the purpose of pushing their wares abroad if they wish to keep and extend their foreign connections.
With these advantages that combination alone holds out goes another—the freer exchange of knowledge. Under competition, every one of a host of small manufacturers works out his own problems, evolves his own methods and processgs, and "keeps what he knows to himself." When a combine or a consolidation is formed, this secrecy is ended, and anything worth imitating at one branch is available for all the others. Associations do not always adopt the policy of "open doors" as between the members, but many of them go a long way in that direction, and the regular meetings conduce to a friendly atmosphere in which ideas are exchanged. The two essentials of the healthy rivalry which ad vances, as distinct from the jealous competition which obstructs, are a common basis of comparison and the pooling of data. With combination it is possible to arrange for a uniform system of records throughout an industry and for the circulation of cost-sheets showing what has been achieved by the most efficient firms. With such a sheet before him the less efficient member can see precisely where his methods are faulty and can set to work to improve them.
Probably the most serious objection to combinations and con solidations is that they tend to establish rigidity in the prices of their products. When, after a boom, optimism gives way to pes simism and, as a result, demand slackens greatly, most highly con centrated industries follow the policy of maintaining their selling prices at boom levels. The great holding company finds it feasible to follow this policy because it is in a strong financial position. Unfortunately, the result of maintaining selling prices in the face of weakening demand is to reduce sales volume, and such a reduc tion almost inevitably leads to the discharge of workers, a reduc tion of their buying power, and intensification of the forces leading to depression.
However, popular opposition to trusts, combinations, and holding companies arises mainly from the belief that they will acquire monopolistic powers and will then raise the prices of their products far above the levels prevailing under free competition. It is un doubtedly true that concentration of control in any industry brings in its train the danger of monopolistic power being used to exact monopolistic prices and conditions from the public. The problem for all industrial communities is therefore one of how to leave business concerns free to achieve the economies and other advan tages of combination in so far as they are consistent with the general interest, and at the same time to provide means of curbing any tendency to use monopolistic power in a manner detrimental to the public and of penalizing those who do so use it. (See RATIONALIZATION OF INDUSTRY.) Monopolistic Power.—Size is an important element in com bination, but mere bigness is not disconcerting so long as competi tion remains effective as a curb upon the operations of the mam moth organization. The problems with which industrial communi ties are faced arise when the proportion of an entire industry cov ered by a great amalgamation is so large as to give it some degree of monopolistic power. It has sometimes been laid down as a rough working rule that any consolidation or association which covers 8o% of the output of an industry can dictate the prices at which the other 2o% shall sell its competing products and so may be .described as having an effective monopoly; but that formula cannot be applied indiscriminately, inasmuch as the limiting con ditions of control vary greatly from industry to industry and in some industries very effective monopolies of merely local range may exist. Confidence that the fear of competition can be relied upon to restrain tendencies to extortion on the part of even the most complete monopolies rests upon the belief that no associa tion, combine, or consolidation, even though it has a monopoly, can for long put up prices above what is fair and reasonable, be cause, if it does, it will only "invite competition": new people will come into the industry, competition will start afresh, and prices will fall. But a powerful monopolistic firm or group can make it extremely difficult for any new entrant to get a footing. It can monopolize raw materials, put pressure on merchants and retailers, or scare investors by hints of an under-selling campaign. It can tie the distributing trade to it with deferred rebates and condi tional commissions. It can make conditions such that no one will enter the field against it except at great risk. It can in fact, if so inclined, build a stockade round its industrial territory. These are the instruments and devices by which a monopoly which is not complete and which is always in peril of a recrudescence of com petition can maintain its dominance. For a fuller statement of the history, nature and significance of monopoly the reader should consult the article MONOPOLY. The practical outcome of the principles there expounded, as evinced in the case of the great consolidations and powerful associations, are dealt with in this article.