great mass of producers remained vigorously competing with one another, some making larger, others smaller profits, but all except a few at the lower margin making at least a living. Under modern business conditions competitors are often, relatively speaking, few in number, of substantially equal ability, and controlling substantially equal facilities for managing the business economically. Consequently, in such circumstances, modern competition differs greatly from that form which was familiar to the earlier economists. Among competitors of such great resources, the struggle may last long after the business has become unprofitable to all before any will fail. Among competitors so nearly equal in strength, the entire industry may be very seriously injured by competition before enough are forced out to affect materially the severity of the competition.
The dictum of Stephenson, that “where combination is possible, competition is impossible,” has a much wider application now than in the early days of railways. The modern facilities for the transportation of goods, for the rapid transmission of intelligence by fast mail, and especially for the instantaneous exchange of information by the telegraph and telephone, have made it possible to manage easily a large business, however widely separated its different plants or establishments may.be. In the middle of the 19th century or thereabouts, on account of the lack of these facilities, management of such institutions would often have been impossible. Many of the advantages of combinations are entirely dependent upon these modern facilities, and on that account these facilities may be said to be an occasion, if not a cause, of the trusts.
If the product of an industry is of such a nature that its
quality is substantially uniform and can be readily tested by
purchasers, especially if the goods are such that
they are ordinarily sold in large quantities, the
competition between rival establishments must
almost of necessity be a competition in price. Sugar refining,
Two Kinds
of Trust Industries.
oil refining, the distilling of spirits, the manufacture of salt,
are such industries. The standard quality is readily tested,
and the manufacturer who can offer the standard product
at the lowest price effects a sale. Industries manufacturing
comparatively inexpensive articles for the retail trade, put them
up in packages which become well known to customers; and those
industries whose goods are sold under brands or trade-marks,
or in some other form so that they are familiar to buyers, afford
an example of competition of an entirely different kind. When
the reputation of a certain brand of goods of this nature
becomes established, consumers make no further efforts to test
its quality, and the retail price often becomes a customary
price. If a manufacturer of such goods finds his trade injured
by a rival, his most effective means of competition will often be,
not a lowering of the price, but an increase of the outlay on
advertising. Soap, baking-powder, photographic cameras for
general use, and of late years certain brands of coffee, patent
medicine, and other drugs of similar nature, are examples
of this class. Those industries in which the competition becomes
a matter of cutting of prices can by combination remove rivals
from the field, and then put prices up to a remunerative rate.
Competitors in industries of the second class by combination can
save many of the costs of selling, and thus without any increase
in the price of the product may save enough of the cost to make
the business profitable.
Some of the advantages of combination over competition which have led to the organization of trusts may be enumerated:—
1. The cost of selling may be greatly lessened. As has been intimated, competition in the case of industries of the second class named above leads to very expensive advertising in order to effect sales. An examination of the pages of any of the American magazines, with a thought as to the amount charged for the use of these advertising pages Savings from Combination. (from one hundred to as high as even four hundred dollars, or from £20 to £80, per page for a single insertion in some of the magazines with the largest circulation) will convince one of the cost of such competitive advertising. The expense involved in making attractive show-windows in stores or shops, and in calling the attention of the public to popular wares by posters scattered about the country and by legends painted on rocks, on buildings along the lines of railways, &c., are other common examples.
2. The salaries of commercial travellers, together with their hotel and travelling expenses, are of a similar nature. This competitive advertising in many cases does not increase to any noteworthy extent the consumption of the products in question, but merely attracts customers from one manufacturer to another. Combination among establishments that do this costly advertising saves a large part of the expense without lessening materially the quantity of goods sold.
3. If different manufacturing establishments, scattered throughout the country, are brought under one management, it will be possible for orders for goods to be received at one central office, and then to be distributed to the federated establishments, so that goods can be despatched to customers in each case from the nearest establishment. In this way freight expenses may be very greatly lessened, cross freights over the same territory being substantially eliminated. A single establishment supplying all of its customers would often be compelled to deliver much longer distances at greatly increased expense.
4. The entire profit of an establishment frequently depends upon the skill of the manager. When many different establishments are organized into one, it is possible to select the most skilful manager of all and Jo put him in charge of the combination, thus securing in many cases, if the trust includes practically all of the establishments in the entire industry, the ablest manager in the country for them all. It is of course true that as an establishment increases in size, or as a combination increases the number of its branches, especially if they are widely scattered, it becomes impossible for the manager to give his personal supervision to the details of management of each institution. An executive officer of the highest skill, however, will so select his subordinates, so direct their work, and so infuse into them his own spirit, that, under careful inspection, comparatively little will be' lost from his inability to be present personally in each separate establishment. In the larger combinations frequent reports, often daily, are made from each concern, giving in detail the quantity of the output, the quality of the goods, the exact cost of the different processes of manufacture; so that it is possible to compare continually each of them with all of the others; to detect the special weakness of each, and in this way to remedy any slight defects in any one establishment, and to bring all nearly up to the highest level of productive capacity.
5. Each business manager is likely to have some special excellence in his methods of management. One will be particularly skilful in the technique of manufacturing; another in the organization of the business; a third in selling goods, and so on. By combining many establishments into one, it is possible so to distribute this managerial skill that each superintendent will be given the department for which he is peculiarly fitted, and the whole establishment will thus get the benefit, not merely of the best executive ability at the head, but also of the best managing skill at the head of each separate department. In many cases it is probable that as much is saved in this way as in any other.
6. Besides this distribution of skill of the managers, it is sometimes equally beneficial to distribute the various products of the combination among the different plants. For example, in the manufacture of hoop and bar iron the products are turned out in great varieties of size, probably from seventy-five to a hundred. Wholesale dealers in sending their orders to the mills are likely to call for from ten to fifty different kinds. If these orders go to an establishment which has but one large mill, it may be necessary, in order to execute the order, to change the rolls in the mill several times, causing thus a waste of power, of time and of energy. If several establishments are combined, each can be equipped for certain sizes. When, in these circumstances, a large order is received, to each establishment will be sent that part of the order which it is especially equipped to fulfil, and thus, without any changes of rolls or stoppage of machinery, the separate sizes can be made. The same principle holds of course in nearly all lines of work, in some to a greater degree than in others; but in the manufacture of hoop and bar iron a saving from this source amounting to from a dollar to a dollar and a half, or from 4s. to 6s., per ton is sometimes made.
7. The advantage of unifying in one establishment the manufacture of products somewhat allied in nature appears also in selling goods. If customers can buy all of the various kinds of related goods in one establishment, much of their time and energy will be saved. Some of the larger combinations, therefore, in order to make this saving for their customers and thus to be sure of retaining their orders, add to their plant facilities for making products which a smaller establishment could hardly manufacture. For example, the Distilling Company of America, which controls probably 90% of the entire product of corn spirits, found it to its advantage to add to its plant several rye distilleries, and to purchase a number of the leading brands of whiskies for consumption as beverages, in order that they might supply the needs along different lines of practically all dealers in spirits and whiskies, in this way saving for themselves many customers who otherwise might have been lost.
8. The mere size of an establishment and its ability to supply at any time on short notice any order, however large, gives it also an advantage in retaining custom. A concern that controls only