Senator KING. Well, after all, did not those trade practices, and the codes, make for monopoly rather than competition? Did they not crystallize at an unjust and too high level the prices which they were charging the consumers? Wasn't that the purpose? I wouldn't have gone into this, except for my interpretation of your remarks.

Dr. THORP. I hope you will just interpret my remarks as indicating the points at which industry felt that its problem existed, the sort of situation in which it wanted assistance from the Government, and my intention in putting this in is to show the variety rather than intent.

Senator KING. It wanted to be freed from antitrust prosecution, or the charge that they had violated the letter and spirit of the Federal Trade Commission Act.

Dr. THORP. On nearly all of these points, any agreement on the part of the industry to deal with it would be a violation of the antitrust laws had there not been the exemption provided by the N. R. A. Mr. ARNOLD. May I just, for the sake of the record add a word, that according to the antitrust laws as I see them, had the agreement been consistent with efficient or orderly marketing, it might conceivably have been held reasonable. In other words, I wouldn't like the record to show that these agreements would necessarily be in violation. I don't think you mean they would.

Dr. THORP. No; I think that is a very correct addition. Then there was a series of provisions designed to preserve or modify channels of distribution, another to preserve or modify geographical relationship

Representative SUMNERS (interposing). What does "modify geographical relationships" mean to somebody doing business? What would that be?

Dr. THORP. That has to do with cases in which there may be price structures in which certain regions are established.

Representative SUMNERS. You mean somebody is going to trade in one region, and somebody else in another region?

Dr. THORP. One case of this type would be to require that people selling beyond the Rocky Mountains shall have a certain relationship in their price structure to the price at which they sell in the East. There are a number of different ways in which the codes were used in the hope of improving the position of this or that geographical group. Representative SUMNERS. We can ask some questions later about that, can't we?

Dr. THORP. Yes, surely. Standardization, simplification, and labeling; limiting coercive and predatory devices; limiting deception and misrepresentation; regulating bidding and awarding practices.

Mr. Chairman, I might submit this list rather than taking your time reading it, and it could go in the record.

The CHAIRMAN. That will be quite acceptable and it is so ordered. (The list referred to "Analysis of Trade Practice Provisions in N. R. A. Codes" was marked "Exhibit No. 73" and is included in the appendix on p. 236.)

NRA CODES ILLUSTRATE DIFFERENCES IN PROBLEMS

Dr. THORP. To make certain this point is clear, I would like to take the first 10 codes and in 2 minutes' time, if I can do it, indicate the different points at which these industries seem to feel that their problem appears.

Senator KING. May I inquire, you are not presenting this, are you, and I am not criticizing you if you are, for the purpose of urging or recommending or having this committee approve of or recommend the restoration of the codes, or something similar to them, in order to avoid the antitrust laws or the Federal Trade Commission Act?

Dr. THORP. Senator, I am introducing this just as the best evidence that I know in brief space to show how different the industries are, how different their problems may be.

The CHAIRMAN. And this is merely a list of the problems as developed by industry itself, and not by you.

Dr. THORP. That is correct. This is an analysis from the codes. I take the first 10 for this reason. After that patterns began to develop and industries began to follow other industries.

The CHAIRMAN. In other words, you are not trying to develop any state of opinion with respect to the desirability of any particular procedure toward these problems; you are merely analyzing the problems.

Dr. THORP. That is correct. I think this indicates what industry thought was the problem, at any rate.

In the first code, the cotton textile code, the heart of the code so far as trade practices was concerned was restricting machinery operation to two shifts. The cotton textile industry evidently felt that its problem was essentially centered around the use of the third shift.

The shipbuilding and repairs industry chose to outlaw sales below reasonable cost, rebates, discounts, service, and other things which might nullify the effort. In other words, its code centered around the price problem.

The wool textile code also had the shift problem.

Representative SUMNERS. How would you get at whether somebody was selling below a reasonable price?

Dr. THORP. That always was one of the problems. I think it would be appropriate to ask Mr. Henderson that.

Representative SUMNERS. I will ask Mr. Henderson that.

Dr. THORP. The electrical manufacturing industry code had a much more elaborate problem of control over the merchandising activities of its members, proscribing sales below cost, detailing the accounting methods to be used, fashioning an elaborate price filing system.

The coat and suit industry manifested an intense concern over high-pressure production methods, and used niachine-hour limitations, though later they came in for additional limitations on style piracy. The lace industry left the problem of fair-trade practices for later consideration.

The seventh code, however, the corset and brassiere code, foreshadowed N. R. A.'s eventual large-scale development of trade practice regulation, because it went in for selling below cost, advertising allowances, supplying advertising programs, free demonstrations, delivery charges, returned merchandise, credit on worn garments, discounts and terms, rebates, extra datings, P. M.'s-P. M.'s are cases

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in which the manufacturer gives bonuses to sales people who sell his products, sales people in the retail store-merchandise exchange and consignment, standard containers, standard cost systems. All this just had to do with Division A of the industry, those selling to resellers, and they had an entirely separate and quite as long a list of rules for those manufacturing for stock.

Then the legitimate, full-length dramatic and theatrical industry was apparently not even aware of the trade practices of its predecessors, because it was concerned with problems such as booking agreements, offices, contracts, ticket scalpers, and standard forms of contracting. The lumber and timber products industry, which struggled not only in its initial code but for 2 years to deal with is problems under N. R. A. went in for allocation of production quotas, the establishment of minimum prices and a whole series of supporting provisions with regard to prices.

Finally came the petroleum industry, whose code had an even more comprehensive program of distribution and sales control.

There you have the first 10 industries which came into the N. R. A. with such different problems and with concern about such different aspects of the total activity that I think it does demonstrate the fact that we have to think about these industries in considerable measure in terms of their variety rather than in terms of their similarity.

MEASURES OF CONCENTRATION

Dr. THORP. Now I come to the question of concentration in industries. That is different from the problem of size. It is essentially a problem in terms of individual products. One can have a large enterprise which may not be important in any industry or in any product if its activities are scattered widely. On the other hand a very small enterprise may be the dominant one for some individual product, so that it is important. As one thinks about the problem of concentration, and by that I mean influence or control over the production and marketing of the particular product, it is important to realize that that is not identical with size.

Of course, it is true that in many of our large industries you can't have concentration unless you have size. But I do want to emphasize the point that it is perfectly possible and probably true in many cases that we have small enterprises whose position in their own market is stronger than that of many of the larger enterprises in their market. Obviously we have a group of cases in the patents field where, by definition and with Government aid, you have complete dominance of a particular product by the holder of the patent, if it happens not to have been licensed so that others can produce it. In that case your single enterprise is the sole producer as a result of its patent right.

We have by no means completed our study of this problem of the degree of concentration. For the purpose of indicating something about the kind of problem it is, I have gathered together from various Government sources the measurements for a number of particular products. Again let me emphasize the fact of the importance of measuring this by products.

The figures which I am going to read will give the product, the number of companies which produce a given percentage of the output, and then the year and the Government authority. These are arranged alphabetically.

We start with virgin aluminum, one company, 100 percent of the output, 1937, authority, Federal Trade Commission.

Automobiles, three companies, 86 percent of the output, 1937, Department of Commerce.

Beef products, two companies, 47 percent of the output, 1935, Federal Trade Commission.

Bread and other bakery products, three companies, 20 percent of the output, about 1934, Federal Trade Commission.

Cans, three companies, 90 percent of the output. This is a recent figure; I don't know the exact year. Federal Trade Commission. Senator KING. Is that the American Can Co?

Dr. THORP. That might be one of the companies. The Federal Trade Commission did not supply me with the names of the individual companies.

The cement industry, five companies, 40 percent of the output, 1931, Federal Trade Commission.

Cigarettes, three companies, 80 percent of the output, 1934, Federal Trade Commission.

Coal (bituminous), four companies, 10 percent of the output, 1932, Bureau of Mines.

Copper, four companies, 78 percent of the output, 1935, Bureau of Mines.

Corn binders. That happens to be an agricultural implement. Four companies, 100 percent of the output, 1936, Federal Trade Commission.

Corn planters (perhaps that should have come first), six companies, 91 percent of the output, 1936, Federal Trade Commission.

Flour, three companies, 29 percent of the output, 1934-35, Federal Trade Commission.

Plate glass, two companies, 95 percent of the output, 1935, Tariff Commission.

Safety glass, two companies, 90 percent of the output, 1935, Tariff Commission.

Iron ore, four companies, 64 percent of the output, 1935, Bureau of Mines.

Oil wells, four companies, 20 percent of the output, 1935, Bureau of Mines.

Steel, three companies-this is a measure of capacity rather than production-60.5 percent, 1935, Tariff Commission.

Whisky, four companies, 58 percent, for the year September 1937 to August 1938, Federal Alcohol Administration.

Women's clothing, four companies, 2 percent of the output, 1935, Bureau of the Census.

Wood pulp, four companies, 35 percent of the output, 1935, Tariff Commission.

Zinc, four companies, 43 percent of the output, 1935, Bureau of Mines.

These happen to be figures that were available, and I introduce them to show first the variety in the record, running all the way from 100 percent down to 2 percent, a number of cases in the 30's, 40's, 50's, and 60's. I think that is one important thing to realize.

A second important thing to realize is that there are a number of industries in which we have several large enterprises in what might be described as a dominant position. I spoke somewhat earlier about

the fact that it seemed to be true that the large enterprises had emerged in clusters. It is not so much a matter-as a general matter at any rate it doesn't seem to be true-of one enterprise dominating the picture, but rather that there are several large enterprises.

Of course, that changes the whole competitive situation as one envisages it, because in a situation with several large enterprises the action of any one is a matter of extreme importance, and affects the whole market situation and permits certain further concentrations, of which I am going to speak in a moment.

EXTENT OF CHAIN ORGANIZATIONS

Dr. THORP. It is necessary, now, to carry this picture on to retail trade. So far as retail trade is concerned, the general picture of development of chain stores is that in 1935 we had slightly over 6,000 chains in the United States with about 140,000 stores. They did 22 percent of the total volume of business. I have in this chart the volume of business done by chains in certain of the more important industries. (The chart referred to was marked "Exhibit No. 74" and appears on this page.)

EXHIBIT No. 74

IMPORTANCE OF CHAIN STORE SALES
BY SELECTED TYPES OF OUTLETS, 1935

Dr. THORP. The industry in which the chains do the largest volume of activity is variety stores, more usually called the 5-and-10-cent stores, where they do about 90 percent. Next come shoe stores, 50 percent; grocery stores, 38 percent; drug stores and fountains, 28 percent-varying degrees of chain operation.

Representative REECE. Do variety stores include such stores of which J. C. Penney, for instance, is representative?