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the committee in devising the bill accordingly struck out the words "between the acquiring and the acquired firms," and, in effect, by so striking them out, made it quite clear to the Commission and to the courts that it is not the intent of Congress to regard every acquisition as a violation of law even though it, of course, not only substantially lessens but completely eliminates the competition which had formerly existed between the acquiring and the acquired firm.

I think that the elimination of that phrase "between the acquiring and the acquired firm" meets the very problem that you have in mind, Congressman Wilson.

Mr. WILSON. Now, notwithstanding all that, it does give the Federal Trade Commission the power to investigate and to stop the transfer in that small instance given, does it not? It is unlikely, as we both admit.

Mr. BLAIR. Given the facts as you have set them forth, I do not think that it does give the Commission that power.

I do not think, under that set of circumstances, that there is a substantial lessening of competition.

The CHAIRMAN. I think the Supreme Court has held that the Federal Trade Commission would have no such power in the union of such small units, and the report offered by the Judiciary Committee under date of June 17, 1947, in connection with the bill having for its purpose the amendment of section 7 and section 11 of the Clayton Act, whereby acquisitions of assets would be precluded as well as acquisitions of stock, contains this statement:

The objection that the suggested amendment would prohibit small companies from merging has strangely enough been put forward by representatives of big business. This would seem almost like "Greeks bearing gifts."

Incidentally, several small-business associations interested in the welfare of small business and the maintenance of free enterprise testified very vigorously in support of this bill. No small business group appeared against it.

There is no real basis for this objection.

In the first place, the present language of section 7 as it relates to mergers by sale of stock is more restrictive than the language in the amended bill. Yet no case has been found where a small corporation had any difficulty or was criticized by the Federal Trade Commission for selling its business by selling its stock to another small corporation. The small corporations have not had to avoid the present language of section 7 by selling their assets in place of their stock, when they wanted to dispose of their business. Furthermore, the evidence shows that it is only in large acquisitions by large corporations, which would have a tendency to create a monopoly, where resort is had to the device of purchasing assets in lieu of capital stock when a merger is planned.

Furthermore, the Supreme Court and the Federal courts have not applied the present strict language of section 7, even in cases of stock acquisition, so as to prevent a small corporation from selling its business or of merging with another small business. The Supreme Court has only applied the present language of section 7, even in case of stock acquisitions, to large transactions which would substantially lessen competition, or tend to create a monopoly. In the case of International Shoe Company v. Federal Trade Commission (291 U. S. 234) decided January 26, 1930, the International Shoe Co., having a Nationwide business, purchased the stock of McElwain Co., a smaller shoe company also having a Nation-wide business. As to a part of the business of the two corporations, they were not in direct competition. The Federal Trade Commis sion sought to order a divestiture of the stock and prevent the merger. The Supreme Court held that the merger was not of sufficient size or importance, even though there was some competition between the two corporations, to substantially lessen competition or to create a monopoly.

Then the report goes on to state a portion of the decision in the case, which I need not take the trouble to read now.

Mr. WILSON. Mr. Chairman, I was not urging that that had been done. My question presumed that they would have the power to do it in the future. The Supreme Court could change its opinion in 2 minutes, and we have seen them do it many times in the past.

Mr. BLAIR. I can only repeat the answer that I have given before, Congressman, namely, that in my humble and completely uninformed legal opinion, I should imagine that the act of this committee in striking out the words "between the acquiring and the acquired company," would meet the very problem that you have in mind.

It would be quite clear to the Court that this action of the comEmittee was not capricious, that it had some intent, and that the intent was to meet the very problem that you are stressing.

The CHAIRMAN. Dr. Blair, I think it is appropriate at this time to ask this question: Would you advise that section 7 and section 11 be transferred from the Clayton Act to the Sherman Act? That has been suggested.

Mr. BLAIR. I came up here, Mr. Chairman, prepared to testify on the economic phases of this problem.

The CHAIRMAN. I will withdraw the question.

Mr. BLAIR. I would much prefer if you would ask that question of our general counsel or someone who has more legal knowledge and is more conversant with the legal aspect of the problem.

Mr. McCULLOCH. I would like to ask Dr. Blair another question, if we may return to that general question of the establishment of small businesses in competition with businesses of great size and power.

I wonder what your opinion is in the matter of other deterrents, that may be as powerful or more powerful than court decisions, to the establishing of small businesses at this time and over the past 25 years. I particularly refer to the tax policy, for instance. I would be glad to have your expression on that question.

Mr. BLAIR. There are a multitude of reasons behind the growth in economic concentration. Among these are certain types of tax problems which have certainly acted as a deterrent to the growth of small business.

I believe, however, that some tax experts feel that the adverse effects of the tax laws on small business have been exaggerated. There are others who feel that their effects can hardly be exaggerated.

In this connection, I wish to repeat, sir, the suggestion which I have previously advanced to this committee, inasmuch as the question of the effect of taxes on small business and on this whole monopoly problem, is one of the most fruitful fields of inquiry to which the committee could direct its attention, I have made the very specific suggestion that the staff of tax experts and economists under the direction of Mr. Colin Stamm in the Joint Committee on Internal Revenue Taxation, be called upon to make a study of this problem for this committee. They possess a great body of knowledge and information which could readily be organized and brought to bear on this very thorny and important question.

Certainly, I am not trying to duck my job, but they would be infinitely better equipped to provide the answers to this problem than we at the Commission.

Mr. McCULLOCH. We appreciate that suggestion, and I feel sure that they will be called upon.

Mr. BLAIR. Returning to my original point I would like to cite here the way in which the Federal Trade Commission itself in an official report-its last report on mergers-has described this paradox that I have been discussing.

In the report of the Federal Trade Commission on The Merger Movement, à Summary Report, 1948, page 8, the Commission states:

The antitrust laws, the Sherman Act and the Federal Trade Commission Act condemn attempts to control the market by means of mutual understanding or agreement among competitors, but if the same objective is achieved through the purchase of physical property it is lawful, in the absence of monopoly, and the antitrust agencies are powerless to act. The existence of the loopholein section 7 of the Clayton Act

thus places a premium upon the attainment of monopolistic ends by the completely final method of consolidation as against the more vulnerable method of conspiracies among independent firms. In other words, the weaker, the less effective cooperative methods of eliminating competition are prohibited, but the permanent and more effective method of consolidation under a single management is permissible. Moreover, the more effective is the enforcement of the law against collusion among competitors, the greater is the incentive to achieve the same ends through purchase, consolidation and merger.

Mr. DENTON. Let me ask you this: Do you know of any particular industry by way of example, outside of the Aluminum Co., where through control of the industry's buying up other companies, they have been able to control the market and fix prices and production? Do you know any concern where that has happended?

Mr. BLAIR. The Blue Book issued by the Commerce Clearing House provides a listing and a brief digest of the antitrust actions by the Department of Justice. It contains digests of some nine hundred to a thousand cases. I think many of those cases will reveal the type of situation that you have in mind.

Mr. DENTON. The thought I had in mind was, take automobiles, for example, there are three big companies.

Mr. BLAIR. Yes, sir.

Mr. DENTON. In steel you have Big Steel and Little Steel.

Mr. BLAIR. That is right.

Mr. DENTON. And so on down the line. There is not one company. but there are three and four.

Mr. BLAIR. That is right; that is what the chairman referred to as "oligopoly."

Mr. DENTON. I am sorry I was not here when that reference was made.

Mr. BLAIR. That is really the heart of the monopoly problem, as I see it. It is not a problem of conspiracy, it is not a problem of control by one company. The heart of the problem is control of the market for all practical purposes by the Big Three, the Big Four, the Big Five, and the Big Six.

In that connection I might cite an interesting statistic: The Temporary National Economic Committee in one of its monographs, TNEC Monograph No. 27, measured for each of 1.807 different manufacturing products, constituting a representative cross-section of manufactur ing activity, the degree of concentration, represented by the proportion of the total output of each product accounted for by the four largest companies, not plants, producing that product.

In other words, they computed for 1,807 products, the proportion of the value of product accounted for by the four largest producers of

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each product. I might express their findings in terms of the wellknown institution of betting odds. They found that if you took any product, any one of those 1,807 representative products at random, there was a 1-to-1 chance that the four largest companies produced 75 percent or more of its output. Just pick any one of the 1,807 products at random and there was a 1-to-1 chance that the four largest companies accounted for 75 percent or more of its production.

Mr. DENTON. In what way would amending section 7 of the Clayton Act prevent that?

Mr. BLAIR. It would prevent the odds from rising. It would have no effect upon the existing level of concentration. It would only operate to prevent further increases in concentration, and would not prevent all further increases.

Mr. DENTON. You take the position then, of course, as to any one Big Three and Big Four in a particular industry, if they bought up another company, that would substantially tend to lessen competition, and it would be within the prohibition of that section of the act.

Mr. BLAIR. Well, that would all depend upon the facts and circumstances of the acquisition. I can conceive of many instances wherein a company among the Big Three or Big Four could buy up another firm, where the effect of that acquisition would be to promote rather than lessen competition.

The Federal Trade Commission has taken the position, and I think it is absolutely right, that the question of whether or not an individual acquisition is desirable or undesirable in the public interest has to be determined on the basis of the facts in that individual case. There is such a tremendous variety of circumstances surrounding acquisitions and mergers

Mr. DENTON. Let me ask just one other question.

Mr. BLAIR. Yes, sir.

Mr. DENTON. You have at least three or four companies in an industry. For them to control prices and production and so forth, there would have to be some kind of implied agreement, would there not? There is competition between them.

Mr. BLAIR. The problem, the phenomenon I think you have in mind is what is referred to as price leadership.

Mr. DENTON. Is what?

Mr. BLAIR. Price leadership, where there is no collusion, there is no agreement, there is no conspiracy, but the three or the four or the five large companies all follow the same policy by in effect adopting the price and production policies of the price leader, who is usually, but not always, the largest company in the field.

Now, "oligopoly," coupled with price leadership can result in the same degree of market control, the same undesirable economic effects in terms of prices, production, sales, and so forth, as conspiracies, and yet be perfectly legal within the antitrust acts as they now stand. Mr. WILSON. May I ask a question there?

The CHAIRMAN. Certainly.

Mr. WILSON. Certainly no one would deny that there is intense competition between Ford and General Motors?

Mr. BLAIR. Well, I certainly would not.

Mr. WILSON. But you find that that is true in many of the other big threes and fours and fives, whatever you call them?

Mr. BLAIR. Precisely. That is why I said that the effects have to be determined on the basis of the facts in the individual case. Any arbitrary ruling would cut both ways and would probably do harm in many cases.

To proceed with this paradox

The CHAIRMAN. I hope, Dr. Blair, you will get to those very interesting charts that you have. I have seen some of them, and they are very revealing.

Mr. BLAIR. I will do my best, Mr. Chairman.

The CHAIRMAN. I do not desire to hurry you, but I do want to get to those charts, because we have another witness this morning. Mr. BLAIR. Yes, sir.

The CHAIRMAN. We have Mr. Berle, who is present now.

Mr. BLAIR. I would just like to call your attention to specific cases on record where the Antitrust Division of the Department of Justice and the Federal Trade Commission have moved against conspiracies, against this collective action, against this collusion, and have effectively broken it up, only to find that their labors were more or less in vain, because the same economic objectives were subsequently attained and accomplished through consolidation, merger, and acquisition.

In other words, in many cases we find that we are, in effect, chasing avanishing will-o'-the-wisp, getting nowhere, accomplishing nothing. We break up a conspiracy that controls a market, and we find it replaced by a consolidation. We find it replaced by a control of the market by two or three or four companies, which embrace many of the numerous companies that were formerly independent firms involved in the conspiracy. That is the essence of the paradox from the operating point of view.

A lot of the antitrust actions are waste motion, and I say that flatly and categorically. They are waste motion, Mr. Chairman, if the result of the antitrust action against collusion is negated by the attainment of the same economic objective through consolidation, merger and acquisition.

Mr. BRYSON. In other words, we attain the same objectives by going through either one of two routes.

Mr. BLAIR. That is exactly the point. You have expressed the thought in almost the very words used by the Commission itself, which I would like to quote to you.

After citing on pages 10 to 14 some specific examples which ! would like to call to the attention of the committee-of the practical negation of antitrust actions by subsequent consolidation, acquisition, and merger, the Commission states on page 14 of this report:

These various examples-and many more could be cited-underline the fundamental principle that any antitrust policy to be effective must prohibit the achievement of monopolistic ends regardless of whether they are attained by collusive agreement among independent firms or by consolidation, acquisition, and merger. To block off one of these two roads to monopoly, while leaving the other open, merely increases the traffic on the latter.

That is, in effect, exactly what you said, Mr. Congressman.

Now, this first chart that I have to present illustrates this paradox which I have been describing. It shows in one place the companies which were brought together in the consolidation and formation of the United States Steel Corp. in 1901.

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