This transference of work from the less to the more efficient firms does in fact take place to a considerable extent, and it can not be doubted that as a result production is carried on to greater advantage, but it is not so clear that much of the ad vantage accrues to the general public, since the greater part of the gains of increased efficiency go in the form of compensation to the less competent producers. Similarly with amalgamations. It may he essential to the attainment of an effective monopoly that all the firms in a line of industry, inefficient and unprofitable, shall be brought within the amalgamation. But the inefficient concern will not sell out at a knock-down price; the fact that its non-existence is needed by the amalgamation gives it a new value. Many a trust and combine, therefore, has had to acquire properties already over due for dissolution and has had to choose whether to keep them in being or close them down. It will be observed that in both types of combination the cost of providing for the elimination of the units that have shown themselves least fit in the industrial struggle falls not upon the owners of the derelict business but upon the more efficient survivors. Questions as to what shall happen in an industry to the least profitable concerns the capacity of which ex ceeds foreseeable demand are among the most difficult of all that confront attempts to "rationalize" such industries and were the main obstacle in 1927 and 1928 to rationalization in the coal and cotton industries of Great Britain.
Limitations of Powers.—What are the limiting conditions within which combinations can wield their monopoly powers? It is clear that the distance to which a combination can go in the di rection of extorting monopoly prices depends on the elasticity of the demand for the goods it handles, and in particular upon whether there is some other article, not very inferior, upon which the consumer can fall back in the event of prices being raised against him. In so far as its goods are sold to manufacturers in other industries, the undue exercise of monopoly power is likely to produce a corresponding degree of combination among its cus tomers, resulting in prices being a matter of negotiation. bargain ing, and agreement between parties of the same order of strength. Where the combination is of no more than national ranee foreign competition or the fear of such competition may act, in the ab sence of high import duties, as a check upon any tendency to abuse of monopoly power in some branches of manufacture, but the safeguard of foreign competition is apt to be rendered inoperative by international agreement or consolidation just when its influ ence is making itself most felt.
It is evident that a combination representing an entire branch of industry, and charged with the best present and future interests of that industry, will not seek to raise prices to a level which will cause the volume of trade to shrink, the plant to be idle, and net earnings to fall. Another reason why it will be loath to run
up prices is that the existence of unduly high prices furnishes a strong inducement for potential rivals to enter the field. Last, but by no means least, the maintenance of prices believed by the public to be materially above the competitive level is almost cer tain to bring about a demand either for governmental control or for the destruction of the combination.
Effect upon Prices.—One of the most important trade associ ations in Great Britain, the National Light Castings Association, declared in its original rules, "The object the Association has in view is that of raising and keeping up the price of the buyer. . . ." Most associations, however, would repudiate the suggestion that they aimed at raising prices; and would describe their policy as being directed towards "preventing price-cutting," "securing fair and reasonable prices," "providing a fair return on capital and energy," or, most probably, "stabilizing prices." Clearly, regularity of output, with continuity of returns, is a desirable condition for any industry, a condition much preferable to one of violent alternations of good times and bad. Steadiness of prices has cer tain advantages for the consumer. Contractors and buyers of semi-manufactures and components find it satisfactory to be able to depend, in sending out estimates or in planning ahead their own developments, on a reasonable stability in the price they will have to pay for their wares. Again, in so far as the stabilization of prices is accompanied by the standardization of prices, i.e., the charging of uniform prices or prices regulated in accordance with a known scale to all purchasers, there is some advantage in each contractor or retailer knowing that his rival is buying on the same terms as himself. In a few industries, associations have done much to prevent prices falling, at times of slack demand, to ruinous levels, and there can be no doubt that, during the war-scarcity and post-war boom periods, the prices of goods controlled by as sociations were not in general allowed to rise to the heights reached by goods not so controlled. While, as has just been pointed out, such price stabilization is, in some respects, socially beneficial, its net results are usually inimical both to the industry itself and to the nation at large. The combination which maintains prices in the face of shrinking demand thereby insures a curtailment in the volume of its sales and production, and thus makes it inevitable that employees will be discharged. This policy of price mainte nance, encouraged both by custom and monopoly, is then one of the prime causes of cyclical unemployment.
The effect of actual amalgamations of business concerns upon the trend of the prices of their products depends upon a multitude of factors—the circumstances of the businesses before the amal gamation, the thoroughness with which the economies of combina tion are carried out, and the extent of the monopoly power pos sessed by the amalgamation. At the beginning of the loth century when the trust problem was much discussed, many students of the subject felt that it would not be long until all industries would be controlled by monopolies which would ruthlessly force up prices to exorbitant levels. Forty years later, it was found that industries were rare in which combinations had succeeded in establishing any effective control over prices. Just as some combination had seemed to gain virtual control of an industry, a virile rival had appeared to offer new competition. When an association had forced up the price of one product, a lower-priced substitute had swept the mar ket and nullified all the efforts of the monopolists. Only the public utilities, protected by exclusive franchises, had been able to exer cise any considerable degree of monopoly controls, and they had been subjected to rigorous governmental regulation.