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STUDY OF MONOPOLY POWER

WEDNESDAY, JULY 20, 1949

HOUSE OF REPRESENTATIVES,

SPECIAL SUBCOMMITTEE ON THE STUDY OF MONOPOLY POWER OF THE COMMITTEE ON THE JUDICIARY, Washington, D. C. The special subcommittee met, pursuant to adjournment, at 10:15 a. m., in room 346, Old House Office Building, Hon. Emanuel Celler (chairman) presiding.

Present: Representatives Celler, Bryson, Denton, Wilson, Keating, and McCulloch.

The CHAIRMAN. The committee will come to order.

I wish to state that permission has been granted to the committee to sit during the general debate on the Pace bill, the so-called farm bill. When we adjourned on Monday we were in the midest of a statement being given by our good friend Dr. John Blair, who is here this morning and will continue that statement.

Mr. BLAIR. Yes, sir.

The CHAIRMAN. The Chair wishes to state also that there are, in addition to Dr. Blair, other statements which we will have this morning personally from Hon. Adolph Berle, Jr., former Under Secretary of State, and it is hoped that we might be able to sit this afternoonat least resume at 2 o'clock, and hear the former Governor of Georgia, Ellis Arnall.

We will now hear you, Dr. Blair.

STATEMENT OF DR. JOHN M. BLAIR-Resumed

Mr. BLAIR. Mr. Chairman and members of the committee, when I stopped testifying day before yesterday I was trying to emphasize the existence of a fundamental paradox with which we who try to administer the antitrust laws are confronted.

This committee will be confronted with it increasingly as it goes further and further into this monopoly problem.

The paradox is simply this, that the attainment and achievement of monopolistic ends, control of the market, price-fixing, restriction of production, allocation of territories, division of markets, and so forth, is prohibited by the antitrust laws if attained through collusive action by independent producers.

If, however, the same objective, the same control of the market, the same price-fixing, the same restriction of production, the same allocation of territory is achieved not by collusive action of independent producers, but rather through the size and power of one or a few large corporations, if it is achieved through size and power rather than

through conspiracy, it may well be immune or exempt from actions under the antitrust laws.

Now, I used the verb "may well be" for this reason: On the one hand, such control of the market through size and power was, for all intents and purposes, exempt from actions under the antitrust laws from 1911 up to the mid 1940's, but on the other hand, as I pointed out in my testimony the day before yesterday, some of the more recent Supreme Court decisions in the mid 1940's have given rise to the impression among some legal experts that perhaps today the Supreme Court is beginning to view the problem of size and power in a different light than was indicated by its statements in the old Steel case and in the old International Harvester case to the effect that size and power, no matter how great, if unaccompanied by unlawful practices, did not constitute a violation of the Sherman Act.

The CHAIRMAN. You think then-do you mind interruptions?
Mr. BLAIR. No, sir.

The CHAIRMAN. You think then that the tendency of the Supreme Court might well be to dissolve, if suitable action is brought, a Big Three or a Big Four or a Big Five?

Mr. BLAIR. Well, Mr. Chairman, I am an economist and not a lawyer. I have heard lawyers who are really legal experts in this field of interpreting the decisions of the Supreme Court argue on both sides of the matter.

I have heard some legal experts state that on the basis of the Supreme Court decisions in the Aluminum case, the recent tobacco case, the Yellow Cab case, and a few others, that there is now sound reason for believing that the Court may well move not only against monopoly but also against what has been described before the committee as "oligopoly," the control of the market by a few large corporations.

Mr. DENTON. You think then that would be under the Sherman Act! Mr. BLAIR. That would be dissolving existing size, not preventing future mergers, not preventing future accretions. There would be Mr. DENTON. Under the Sherman Act.

Mr. BLAIR. Under the Sherman Act-dissolution of existing size and power, as contrasted to future mergers and acquisitions, the problem toward which section 7 of the Clayton Act is directed.

The CHAIRMAN. In other words, if we amend section 7 of the Clayton Act, as is contemplated, that would prevent setting up in the future these big entities.

Mr. BLAIR. Yes, sir; to some extent.

The CHAIRMAN. Do you know whether or not there are any suits pending to get after these so-called "oligopolies"?

Mr. BLAIR. Yes, sir. There is definitely one in the Meat Packing case, where the Department of Justice has instituted a suit against the four largest meat packers and is directing its energies toward seeking a dissolution of the four largest meat packers into 14 companies.

The CHAIRMAN. Well, is it dissolution aimed against their acting in concert, or is it aimed against each individual member of the "oligopoly," so-called?

Mr. BLAIR. As I recall the details of that case, Mr. Chairman, the Department of Justice charges conspiracy and collective action among the four.

The CHAIRMAN. That is different.

Mr. BLAIR. But in order to achieve relief from that, it is seeking dissolution. It is stating, in effect, that only

The CHAIRMAN. To get down to concrete cases

Mr. BLAIR. Yes, sir.

The CHAIRMAN. Does it seek dissolution of Armour & Co., and Swift & Co., and Cudahy & Co. ?

Mr. BLAIR. Yes, sir.

The CHAIRMAN. And to break those individual companies into individual units?

Mr. BLAIR. Yes, sir. That case was instituted, oh, I think, about 8 or 9 months ago.

Mr. McCULLOCH. Did I understand you to say that the basis of that suit was collusion between the three or four meat packers, or is the reason other than collusion to fix prices?

Mr. BLAIR. It is my recollection, sir, that it is both; that the Department of Justice is charging that there exists a control of the market through the great size and power of the four large meat packers in and of itself, and then they are further charging that that control of the market has been implemented and facilitated by collusive agreements.

Mr. MCCULLOCH. Let me ask you this: If there is control of the market in any line of endeavor, and if the consumer gets the benefit of the lowest possible price under our capitalistic system, do you think that that is wrong in itself?

Mr. BLAIR. Mr. Chairman, my views on whether I think size and power are wrong in and of themselves, if I were to describe them. at all adequately would take much more of your time than you would probably desire, at least, for the purpose of this present inquiry. I personally subscribe very wholeheartedly to the view of the Council of Economic Advisers as expressed in the Economic Report of the President as of January of this year, in which it was pointed out that there is reason to believe that in many fields, size has far transcended the point required for optimum efficiency, and when size passes beyond that point there remains little economic justification for size. Mr. McCULLOCH. Well, let me ask you this: When we reach that point in any industry in America, with the ability and initiative of the American people, will not small businesses start and compete successfully with that size, when it is no longer efficient?

Mr. BLAIR. I do not know exactly how I could answer that question quantitatively. I do know that many experts in the field believe that it is very difficult for a small company to get started in the face of great size, even though that size has passed beyond the point of optimum efficiency.

These experts hold that the unexerted but nonetheless latent power of the giant corporation is such that the small firm will have very great difficulty in making those strides which are essential if it is going to be at all successful.

Small-business men have testified before committees of the United States Congress that in the face of great size, even though that size does not exert itself through unlawful practices, they find it very difficult to secure such items as credit from bankers.

The bankers, in effect, say, "You mean to tell us that you, a small firm, are going to try to compete with this giant combine? Why.

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that is ridiculous. You cannot possibly do it. We won't lend you the money."

Now, I do not know whether or not that is a true expression of fact. I do not know to what extent it is characteristic of small business throughout the country.

I do know that it has been expressed, and it is felt by many experts in the field that in the face of great power, latent power, it is very difficult for small businesses because of such factors to make much competitive headway.

I would like to continue, Mr. Chairman.

The CHAIRMAN. To be concrete, would you be willing to risk your money in entering the field of soap manufacturing and thereby compete with the Big Three-Procter & Gamble, or Colgate-PalmolivePeet, or Lever Brothers-despite the fact that those concerns may or may not have reached a point of bigness where there has developed inefficiency?

Mr. BLAIR. I do not know too much about that particular field. I do know that there are a great many small soap companies. Apparently a great many small businessmen have thus risked their money. The CHAIRMAN. There are about 1,500 soapers-that is what they call themselves, soapers-doing about from 8 to 10 percent of the business, and the Big Three doing something around 90 percent.

Mr. BLAIR. I think it all would depend upon the circumstances of the individual market. I would have to know a lot more about the industry in order to give you any intelligent categorical answer to your question.

Generally speaking, if you asked me that question as an individual, I would say that I would probably tend to place my total capital, that is both dollars, in an industry which was not dominated by a few large corporations more quickly than in one which was so dominated.

Mr. WILSON. May I ask a question there, Mr. Chairman?
The CHAIRMAN. Yes.

Mr. WILSON. Can there be a standard set-up, or do you have one in your own mind, at which point to determine as to various industries where an optimum of efficiency would be reached?

Mr. BLAIR. Mr. Congressman, I am glad you asked that question. We, in the Federal Trade Commission, have made repeated requests

Mr. WILSON. I mean with regard to the cheapness of products to the consumer.

Mr. BLAIR. Precisely.

Mr. WILSON. Not just because some party believes they are inefficient.

Mr. BLAIR. That is right, in terms of actual dollar figures.

As I say, we, in the Federal Trade Commission, have made requests to the Bureau of the Budget and to the Congress of the United States for what we thought were relatively small amounts of dollars, appropriations, money to make studies of that very type, and we have had a consistent 100-percent record of denial all the way down the line. In the absence of facts we are unable to provide the answers to the question that you asked.

Mr. WILSON. In other words, there has been no extensive study made of the subject?

Mr. BLAIR. No, sir, and we are going to renew our request again. Mr. WILSON. How long would it take to make such an investigation?

Mr. BLAIR. I think a great deal could be done in 1 year with an appropriation of about $100,000 which is the general order of magnitude of the amounts that we have requested.

Mr. WILSON. In the absence of that investigation or some standard being set up, all talk is just based on opinion in regard to when a company reaches that standard of efficiency or inefficiency.

Mr. BLAIR. Not completely all talk, but a great deal of it.
Mr. WILSON. I mean a great portion of it.

Mr. BLAIR. There are some fragmentary data which can be brought together, consisting of information originally collected for other purposes which would shed light on the problem. But no definite answer to the question can be obtained, industry by industry, without a study of that kind.

Mr. WILSON. Now, with regard to this bill that the whole Judiciary Committee is presently dealing with, and I believe is going to read, with which you are familiar, that is, section 7 of the Clayton ActMr. BLAIR. Yes, sir.

Mr. WILSON. Do you feel that the outlawing of any corporation buying the assets of another corporation should be limited with regard to amount or size? Let me have your thinking on the matter. Do you think it is more or less a dangerous thing to our economy to say that no corporation can buy the stock or assets of another corporation? Mr. BLAIR. I would be extremely opposed to any law of that kind. Mr. WILSON. At what point could a law safely be passed in that direction?

Mr. BLAIR. Congress, I believe, in passing the law in 1914, thought that it had established a reasonable standard by enabling the Federal Trade Commission to prevent mergers which "substantially lessen competition or tend to create a monopoly."

Mr. WILSON. Could you not follow that to its logical conclusion and apply that to two filling stations on opposite corners in any locality, if they were both corporations?

Mr. BLAIR. Now, under the bill as it was originally worded and passed in 1914 such an interpretation would have been theoretically possible. But it would have been highly unlikely that any such opinion or decision by the Federal Trade Commission, if ever made, would have ever been upheld by the courts. Nevertheless, it would have been a theoretical possibility.

It would have been a theoretical possibility for this reason. The original language in that bill prohibited acquisitions and mergers where the effect may have been to substantially lessen competition between the acquiring and the acquired company.

Now, if one little filling station bought up another little filling station, although that acquisition may have had no real effect on competition generally or even in that section, nonetheless the acquisition of the one company by the other would not only have substantially lessened competition between the two, the acquiring and the acquired, it would have completely eliminated such competition.

That problem was one which was confronted and faced by this committee in both the Seventy-ninth and the Eightieth Congresses, and

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