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Combines Policy: An Economist's Evaluation*
Published online by Cambridge University Press: 07 November 2014
Extract
The object of combines policy is to preserve effective competition by reducing the monopolistic attributes of markets, industries, or industry-market complexes. Neither effective competition nor monopolistic attributes can be measured without ambiguity. Efforts to protect the former and dispose of the latter cannot be evaluated by the customary criterion of economic efficiency, namely, the ratio of the quantity of competition preserved–or of monopolistic elements removed–to the quantity of resources devoted to the purpose.
The following, then, is a collection of qualitative comments, rather than an evaluation. The amount of resources devoted to combines policy is taken as given. The manner in which they have been used is considered on the premise that there are always some markets in which competition can be made more effective by public intervention. The resources in question are those of the Combines Branch of the Department of Justice. While the entire policy includes also the work of the Minister of Justice, of the Attorneys General of the several provinces, and of the courts, in this paper attention is mainly directed to some of the reports prepared under the authority of the Combines Investigation Act since the end of the Second World War. The choice of markets where the threat to competition must be checked, and of remedies by which the threat is to be reduced, has a bearing on the effectiveness of combines policy.
- Type
- Research Article
- Information
- Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 22 , Issue 1 , February 1956 , pp. 38 - 45
- Copyright
- Copyright © Canadian Political Science Association 1956
Footnotes
*
This paper was presented at the annual meeting of the Canadian Political Science Association in Toronto, June 2, 1955.
References
1 A market may be co-extensive with an industry which produces physically distinct goods or services by technical processes common to firms within it; it may, however, comprise a part of an industry, or parts of several industries, or several industries. Therefore, it is convenient to speak of a “market” in connection with attempts to control the supply of a good or service.
2 Chamberlin, E. H., “Measuring Monopoly” in Chamberlin, E. H., ed., Monopoly and Competition and Their Regulation (London, 1954), 267.CrossRefGoogle Scholar
3 See Report Concerning an Alleged Combine in the Distribution and Sale of Gasoline at Retail in the Vancouver Area [hereafter cited as Gasoline Report] (Ottawa, 1954)Google Scholar; Report Concerning an Alleged Combine in the Manufacture, Distribution and Sale of Wire Fencing in Canada [hereafter Wire Fencing Report] (Ottawa, 1954)Google Scholar; Report Concerning an Alleged Combine in the Distribution and Sale of Coal in the Timmins-Schumacher Area [hereafter Coal Report] (Ottawa, 1954)Google Scholar; Rubber Products: Investigation into Alleged Combines in the Manufacture, Distribution and Sale of Mechanical Rubber Goods, Tires and Tubes, Accessories and Repair Materials, Rubber Footwear, Heels and Soles, Vulcanized Rubber Clothing [hereafter Rubber Report] (Ottawa, 1952)Google Scholar; Matches: Investigation into an Alleged Combine in the Manufacture, Distribution and Sale of Matches [hereafter Matches Report] (Ottawa, 1949)Google Scholar; Fine Papers: Investigation into Alleged Combines in the Manufacture, Distribution and Sale of Fine Papers [hereafter Fine Papers Report] (Ottawa, 1952)Google Scholar; Optical Goods: Investigation into an Alleged Combine in the Manufacture and Sale of Optical Goods [hereafter Optical Goods Report] (Ottawa, 1948)Google Scholar; Electrical Wire and Cable Products: Report of H. Carl Goldenberg, Q.C., Special Commissioner, of an Investigation into an Alleged Combine in the Manufacture, Distribution and Sale of Electrical Wire and Cable Products [hereafter cited as the Wire and Cable Report] (Ottawa, 1953)Google Scholar; Coarse Papers: Investigation into an Alleged Combine in the Supply, Distribution and Sale of Coarse Papers in British Columbia (Ottawa, 1953)Google Scholar; Flat Glass: Investigation into an Alleged Combine in Ontario and Quebec in Connection with the Distribution and Sale of Flat Glass (Ottawa, 1949)Google Scholar; Flour-Milling Industry: Investigation into an Alleged Combine in the Manufacture, Distribution and Sale of Flour and Other Grain-Mill Products (Ottawa, 1948)Google Scholar; Bread Baking Industry in Western Canada: Report of H. Carl Goldenberg, Special Commissioner, of an Investigation into an Alleged Combine in the Bread-Baking Industry in Saskatchewan, Alberta and British Columbia (Ottawa, 1948)Google Scholar; Dental Supplies: Investigation into an Alleged Combine in the Manufacture and Sale of Dental Supplies in Canada (Ottawa, 1947)Google Scholar; Investigation into an Alleged Combine in the Manufacture and Sale of Paperboard Shipping Containers and Related Products, Report of Commissioner (Ottawa, 1939).Google Scholar
The outstanding recent exception is the Matches Report.
4 Rosenbluth, G., “Industrial Concentration in Canada and the United States,” this Journal, XX, no. 3, 08 1954, 335 Google Scholar: “… in 50 of the 56 industries for which a comparison of firm concentration can be made, concentration is higher in Canada than in the United States. This proportion is sufficiently high to establish clearly a definite tendency towards higher concentration in Canada.” (italics added)
5 From a letter from Rt. Hon. Stuart Garson, Minister of Justice and Attorney General of Canada, to Fowler, R. M., President of the Pulp and Paper Association, reported in the Globe and Mail, Toronto, 11 29, 1952 (italics supplied).Google Scholar
6 On the attitude of the British Monopolies Commission toward price agreements see Howard, J. A., “British Monopoly Policy,” Journal of Political Economy, LXII, no. 4, 08, 1954 Google Scholar; Cohen, R. G., “Official Papers: The Reports of the Commission on Monopolies and Restrictive Trade Practices,” Economic Journal, 03, 1953.Google Scholar
7 Clark, J. M., “Competition and the Objectives of Government Policy” in Chamberlin, , ed., Monopoly and Competition and Their Regulation.Google Scholar
8 Bain, J. S., “Conditions of Entry and the Emergence of Monopoly” in Chamberlin, , ed., Monopoly and Competition and Their Regulation, esp. 222–3.Google Scholar
9 Silberston, A. and Solomons, D., “Monopoly Investigations and the Rate of Return on Capital Employed,” Economic Journal, 12, 1952.CrossRefGoogle Scholar
10 If it is true that organized labour tends to share in monopolistic gains, then the use of employment figures in choosing markets for investigation tends to direct combines policy into channels where resistance is likely to be high. See Dewey, Donald, “Romance and Realism in Anti-Trust Policy,” Journal of Political Economy, 04, 1955, 98.Google Scholar
11 Director of Investigation and Research, Combines Investigation Act, Annual Report, 1954, Dept. of Justice, Ottawa.Google Scholar
12 Different also from markets for dental supplies, optical goods, bread-baking in Western Canada, flour-milling, flat glass in Ontario and Quebec, and wire fencing.
13 One of them, for instance, seeks to protect the right of the “individual merchant to exercise his independent judgment in the determination of the prices at which he will offer his goods to the public” ( Restrictive Trade Practices Commission, Report Concerning Alleged Instances of Resale Price Maintenance in the Sale of China and Earthenware, Ottawa, 1954, 78 Google Scholar). Another concludes that “the success of experiments in merchandising should be dependent upon the degree to which they can meet the public need for economical distribution” ( Restrictive Trade Practices Commission, Report Concerning Alleged Instances of Resale Price Maintenance in the Sale of Certain Household Supplies in the Chicoutimi–Lake St. John District, Quebec, Ottawa, 1953, 29).Google Scholar
14 See Machlup, F., “Monopoly and the Problem of Economic Stability” in Chamberlin, , ed., Monopoly and Competition and Their Regulation, 385.Google Scholar
15 Knight, F. H., “An Appraisal of Economic Change—Discussion,” American Economic Review, Papers and Proceedings, 05, 1954, 65.Google Scholar
16 For example, the Gasoline Report suggests the dissolution of a trade association or, failing this, an order prohibiting its activities and the activities of a second trade association (pp. 126–8); the Wire Fencing Report contains a recommendation for a similar order against the firms concerned (p. 109); the Coal Report recommends, at least by implication, a restraint on coal-dealers who have conspired to maintain prices (p. 56); tariff protection is mentioned as a significant element in the market structure in the Rubber Report (p. 683) and the Fine Papers Report (p. 407); in the Matches Report there is a recommendation for reduction on tariff protection (p. 128); the same Report also draws attention to difficulties which a dominant firm creates for new entrants (p. 125); the Optical Goods Report describes the place of patents in a monopolistic market structure (p. 98 ff.) but makes no recommendations.
It is interesting to note that the 1952 amendment has made the need for recommendations quite explicit, as seen in the following quotation from section 19 (1) of the amended Act: “such Report shall review the evidence and material, appraise the effect on public interest of arrangements and practices disclosed in the evidence and contain recommendations as to the application of remedies provided in this Act or other remedies” (italics supplied). Before amendment the need for recommendations was implicit in section 27 (1) which required the Commissioner's report to “set out fully the conclusions reached, the action, if any, taken, and any other material which may be required by regulation under this Act.”
17 Report of the Committee to Study Combines Legislation [MacQuarrie Report] (Ottawa: Queen's Printer, 1952), 9–10.Google Scholar
18 This assumption is clearly stated by a former Combines Investigation Commissioner. See McGregor, F. A., “Preventing Monopoly–Canadian Techniques” in Chamberlin, , ed., Monopoly and Competition and Their Regulation, 360 Google Scholar: “… it should be recognized that an individual decision not to compete can be carried out only if the others in the field adopt the same policy. Such individual decisions are not likely to last long, particularly if there are many sellers, without some type of agreement, and there are ways and means of discovering and preventing such agreements.” (italics supplied)
19 Chamberlin, , ed., Monopoly and Competition and Their Regulation, 522 Google Scholar: “The other point on which Mr. McGregor laid great stress [the first being the need for “constant vigilance” to “guard against … selfish government by the industry, of the industry, for the industry”] was the value of publication and publicity. He said that many firms feared being pilloried in public more than they feared the financial penalties which might be inflicted upon them.” These sentences were uttered before the statutory limit on fines was removed (p. 361).
20 Ibid., 369–70.
21 Gasoline Report, 58 ff., and Wire Fencing Report, 102–6.
22 Gasoline Report, 76–8; Coal Report, 52–3. For an excellent example of the Commission's economic, rather than legal, reasoning, see the following quotation from the Gasoline Report: “Nothing in the evidence indicates that the public interest or efficient gasoline distribution at the retail level in the Greater Vancouver area require that all the present service stations be maintained in operation. Surely, the fact that a given number of service station operators have entered upon this business as their way of earning a living does not impose any moral or economic duty on the gasoline users in the Vancouver area to support the burden of any general increase in markup which may have become expedient in order that all these service station operators may earn what they consider proper revenues. Retailing being a service to the public, it should be remunerated, not on the arbitrary basis of the collective needs of all those who have decided to enter the market, but rather on the basis of relative efficiency, utility and public demand.” (p. 106) See also Friedmann, W., “Monopoly, Reasonableness, and the Public Interest,” Canadian Bar Review, 02, 1955, 160.Google Scholar
23 MacQuarrie Report, 35.
24 Chamberlin, , ed., Monopoly and Competition and Their Regulation, 374–5Google Scholar; also Combines Investigation Act, as amended, s. 20.
25 Adams, Walter, “The Dilemma of Antitrust Aims,” American Economic Review, 12, 1952, 907.Google Scholar See also Chamberlin, , ed., Monopoly and Competition and Their Regulation, 521–2.Google Scholar There remains, of course, the problem of securing from the courts sentences which give effect to structural remedies that may be suggested in the reports. Section 2 (e) of the Combines Investigation Act defines an illegal combine in broad terms as a “merger, trust or monopoly [which operates[ to the detriment of the public.” Upon conviction, the court may “direct the person convicted or any other person to do such acts or things as may be necessary to dissolve the merger, trust or monopoly in such a manner as the court directs” (s. 31, ss. 1). Perhaps prosecutions under section 2 (e) provide a way.
26 Wire and Cable Report.
27 Ibid., 243.
28 Globe and Mail, Toronto, 03 26, 1955.Google Scholar
29 Idem.
30 Wire Fencing Report, 106–7.
31 Ibid., 109.
32 Globe and Mail, Toronto, 03 8, 1955.Google Scholar
33 Wire Fencing Report, 8 and passim, 19–21, 22–3.
34 For instance: the study of loss-leaders; the recently announced investigation of an “octopus” firm ( Globe and Mail, Toronto, 01 14, 1955)Google Scholar; and the many examples given in this paper (see notes 16 and 22).
35 Edwards, Corwin D., Discussion, American Economic Review, Papers and Proceedings, 05, 1948, 203.Google Scholar
36 “Competition: Static Models and Dynamic Aspects,” American Economic Review, Papers and Proceedings, 05, 1955, 450–62.Google Scholar
37 Mason, E. S., “Price Policies and Full Employment,” in Friedrich, C. J. and Mason, E. S., eds., Public Policy (Cambridge, Mass., 1940)Google Scholar; D. H. Wallace, “Monopolistic Competition and Public Policy” in American Economic Association Committee, Readings in the Social Control of Industry (Philadelphia, 1942)Google Scholar; Bain, J. S., “Price and Production Policies” in Ellis, H. S., ed., A Survey of Contemporary Economics, I (Philadelphia, 1948).Google Scholar