Profits the Reward of Management 1

monopoly, price, monopolist, control, business, corporation, company and expenses

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10. Monopoly political and the indus trial worlds have been very busy during the last two decades, discussing monopolies. Congress has en acted legislation, and the public mind has been filled with the difficulties of regulating monopoly powers. The stories of the Standard Oil Company, the United States Steel Corporation, the Tobacco Trust, the amalgamation of electric corporations and the domina tion of gas companies, stirred up the popular feeling and carried legislative bodies over into the business of regulation. It is to be noted that the form of monopoly that most disturbs the people is a ment of the joint stock company and the corporation.

Gigantic capital has come to be the great influence in present-day monopoly ; it stands amazingly large beside the monopolies of resources, patents, franchises and brands. It is not to be forgotten that the com mand of great masses of capital means great power, and in view of the representative character of the corporation, its power to act as an individual, and its continuous. existence, the problem of the monopoly is more far-reaching than it was in the earlier days of the partnership and the joint stock company, when the larger application to industry of the corporate form of organization was not dreamed of.

The essence of monopoly is the suppression of production on the part of others, in order that.the monopolist producer may sell his products to better advantage. The monopolist is, therefore, both a producer and a preventer of produc tion.' In the complicated ,industrial system of our day it is rather difficult to determine monopoly profits. The mere fact that a business concern is very large is not an evidence of its being a monopoly, nor is the fact that a small business makes large earnings sufficient reason for calling that enterprise a monopoly. Es sentially, true monopoly is that control of supply which makes it possible to determine price. Com plete control exists only in rare instances.

In one of the back streets of London there was once a shop occupied by a cutlery-maker of the old fashioned sort. He had invented an exceedingly in genious and effective safety-razor. Its fame grew slowly but sufficiently to attract a steady stream of customers each of whom paid two pounds for a razor. The inventor did no advertising, but held on to his product. When asked why he did not organize on a larger scale, he said: "I would be driven out by the low price of the competitors whom I would have to face, as well as by my higher costs of manufacture."

This man could be said to have a lii-nited monopoly of excellence.

Patents, franchises and copyrights are essentially monopolistic, since they give complete control. The list of these is a long one, and includes such striking inventions as the telephone, the sewing machine, the Mergenthaler linotype machine and the electric light. There are a few rare instances of absolute control of natural resources. The diamond mines of South Africa are the best example of such cases. Occa sionally a public utility corporation may resemble an absolute monopoly, but in every instance there are ele ments of competition and substitution which make the control incomplete.

11. Monopoly monopolist is under no such compulsion as the enterpriser producing for a competitive market, to produce at a cost below the market price. The owner of the monopoly is in a position to fix his own price within limits, and this lie will do in such a way as to secure the largest pos.sible net return. Still the monopolist must meet many conditions.

The determination of the price depends upon the laws of demand. If the commodity is one for which a substitute can be readily•made, the monopolist can fix a price little higher than the normal. On the other hand, if his article is one in general use, like tobacco or coffee, he can force the price to a high level without causing much falling off in demand, because the use of these products is fixed in the habits of the people. The monopolist can force men either to give up a commodity which affords them such satisfaction or to pay the price he has fixed.- In a competitive market the supply is forthcoming so long as the expenses of production are paid; but in the case of the monopoly, the supply is under con trol and the monopolist can determine, by a bit of shrewd figuring, just what profits he will receive. Long ago, the Dutch East India Company regu larly destroyed part of their products in order to force up the price. It is well known that in the conduct of an industry thqe are some expenses which change but little as the business grows larger, and that there are others which vary a great deal. In fixing the price the monopolist can afford to ignore the fixed expenses, but must give his attention to those that vary.

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