I do not believe that United States Steel is the outcome of any natural forces, unless it is counted natural to desire to own a monopoly. All the largest steel firms, and most of the oligopolies in other industries, are the product of mergers. Not one steel company has been able to add to its relative size as much as 4 percent of the ingot capacity of the industry in 50 years by attracting customers. Every firm that has gained four or more percent of the industry's capacity in this half century has done so by merger.

I wish to emphasize again that bigness means different things to economists and to engineers. To an engineer, I suppose, a big production unit is one which uses the most elaborate technological methods. To an economist, a big company is one that has control over a substantial fraction of the output of an industry. One can be opposed to economic bigness and in favor of technological bigness in most basic industries without inconsistency, because our economy is so large that we can have companies large enough to operate efficient plants and numerous enough to be competitive.

3. Revisions of antitrust policy: I have argued, first, that there is no way of eliminating objectionable practices in oligopolistic industries such as steel except that of increasing the number of independent companies and reducing the power of dominant companies, and second, that this policy will not generally force any alteration in the methods of production. The implication of these arguments is that we should expand the Sherman Act to permit the dissolution of oligopolistic companies, and I accept the implication. This policy eliminates the futility of convictions for conspiracies and the economic and political dangers of detailed regulation.

Here explicitly, we should strengthen both the preventive and the corrective elements of the antitrust law:

1. On the preventive side, we should prohibit the formation of oligopolies by mergers of competitive firms.

2. On the corrective side, we should make dissolution the normal method of eliminating restrictive practices in oligopolistic industries. The first policy merely implements the Clayton Act, and introduces no fundamental extension of antitrust policy.

The second policy, the dissolution of existing oligopolies, is also relatively straight-forward in industries in which the oligopolies possess numerous plants, for these plants are natural successor companies. When the oligopolies are single-plant companies, the difficulty in prescribing policy is greater. Even in this case dissolution will often be possible without any increase in production costs. Often big plants consist merely of the multiplication of processes carried on in small plants. When there are successful small companies in these industries we may be reasonably sure that larger plants are not more efficient. Yet sometimes we shall face the hard choice between oligopoly with lower production costs and competition with higher production costs. In these cases, for reasons I shall come to soon, I should still favor dissolution.

But it is wholly misleading in perspective to place this question of costs of production at the forefront of monopoly policy. In the basic industries which have oligopolistic structures, the leading companies are usually the product of mergers and usually possess several plants, so dissolution requires no change in production methods. We should formulate our antitrust policy with respect to this typical

problem, not with respect to the peripheral issue of the occasional possible inefficiency of smaller companies.

This proposal represents an important extension of policy, and the committee will naturally seek to estimate its effects on our economy. What kind of policy will we be embarking on? Must every large business concern in the United States be broken up, and must we multiply many fold our antitrust agencies?

I think not. The problem of oligopoly is real and it is large, and it is not overwhelming. This type of monopoly organization is common in America, but it is far from universal. How common it is, we do not know precisely. That depends on the extent of international competition, the ease with which new firms can enter an industry, the possibilities open to consumers of substituting one product for another. I have made rough estimates (in a book, Five Lectures on Economic Problems) which indicate that, if we disregard the regulated industries, about 15 percent of the labor force of the country was in oligopolistic or monopolistic industries in 1939. (Steel is the most important oligopoly in manufacturing, and accounts for almost a fourth of the oligopoly in manufacturing.) The gradual dissolution of monopolistic and oligopolistic industries would not turn the economy upside down.

Even without this desirable legislation, competition has been about holding its own in America in recent decades. With only the power to prevent new mergers, the industrial picture would gradually improve. If in addition we should eliminate the important oligopolies which have so far accumulated, monopoly would become a minor problem in the American economy.

In short, I believe that these proposals are part of a policy ofgradual reform.

4. Concluding remarks: My own thinking on the oligopoly problem is partly political. I state it explicitly, not because I am an expert in politics, but for the opposite reason. I am not an expert, and the members of this committee are-I say this with envy-so they may properly appraise it. The steel industry is no longer a very private industry. It must defend every price increase in Congress; it must have a Presidential board in labor disputes. It has recently been threatened with both governmental steel plants and public utility status. The proposed New England steel plant is to enjoy tax exemp tion: witnesses call for RFC loans. As I see it, the question is not whether something will be done with industries like steel, but what and when. The attitude of the leading firms seems to be that it doesn't matter much what is done, provided it is not done now. From the viewpoint of the major officials of these companies, this view has merit. But from the Nation's viewpoint it has none. If the leading companies are trading a few years of sporadic supervision for public regulation or ownership, they are making a very bad bargain with the Nation's interests. For the Nation's interest is in a strong, independent system of private enterprise.

This leads me to my final observation.

Who are the radicals and who are the conservatives in the field of monopoly policy? Perhaps this is not a very important question, because one of the most striking of all American traits is the desire to improve on the past. I will not pass over in silence, however, the

96347-50-ser. 14, pt. 4a-64

proposition so frequently heard in recent weeks that those who believe in competitive private enterprise are wild radicals and those who believe in gentlemanly cartels are admirable progressives. The traditional American policy is that of fostering competition. It is based on the sound historical judgment that our progress and our prosperity-and I think also our liberties-depend upon the free play of the ingenuity and resourcefulness of many men, not on the benevolence and wisdom of a handful either of corporation presidents or public officials. Competition cannot be painted as a radical utopian proposal of economic theorists-who, by the way, are much better at theorizing on economic problems than businessmen. Competition was the policy of England during its majestic nineteenth century, and it. has been the fundamental policy of the United States for two centuries of unmatched economic growth. Neither the old-fashioned monopolists nor the new-fashioned oligopolists are going to be able to make us forget this.

Mr. WILSON. What other country in the world could compare with this country in production of anything that you know of?

Mr. STIGLER. No other country produces even half as much. Mr. WILSON. And yet you think we ought to tear down a lot of businesses in this country because they have not been doing so good? Mr. STIGLER. No. I would say the reason we have done so well is because we have had as little monopoly as we have had, instead of having an economy saturated with monopoly, like Germany with its cartels, as England with its trade associations, cartels, and the like.

We have had a relatively free economy, and I would argue that our fundamental growth and expansion has come in the free areas. I feel that the policies I am proposing are those which foster the industrial progress which has made this country great.

Mr. WILSON. Well, with particular regard to the steel industry, United States Steel, I believe the fact is that we have heard disclosed that it occupies and owns and operates a lesser percent of the production of steel than it did at one time?

Mr. STIGLER. That is right.

Mr. WILSON. What is the reason for that?

Mr. STIGLER. Partly it was due to antitrust proceedings during and immediately after World War I. I would say that if United States Steel's declining relative size, roughly from 66 percent of the ingot output in 1901 to around 33 percent at present, had been the only change in the industry, steel would be a considerably more competitive industry than it was in 1901 and than it is now; but the decline of United States Steel has been offset by the mergers among other steel companies, the chief of which has been Bethlehem Steel, so we now have an industry with three or four giants. If we merely looked at United States Steel, I would say, unquestionably, the industry is more competitively organized than it used to be.

Mr. WILSON. Well, what other industries do you have in mind that are not as competitive as they once were?

Mr. STIGLER. Industries in which competition has declined seriously over time? The answer depends a great deal on the base period you want to pick.

For example, if you take shoe machinery, that industry was transferred from a competitive into a tightly monopolized industry

roughly at the turn of the century, but since then there has been some decline in the control by the United Shoe Machinery Co.

Mr. WILSON. The shoe business is a relatively small business compared to many businesses in this country, is it not?

Mr. STIGLER. Aluminum has shown a decline in concentration in recent years.

Mr. WILSON. That is due to Government action, because it was a complete monopoly at one time; was it not?

Mr. STIGLER. That is right. I would say the most striking examples of the growth of concentration have been in industries like dairy products.

Hundreds of independent companies were swept up into great national chains. The great national chains such as Borden and National Dairy, General Foods, and the like, each was a merger somewhere between 1 and 400 firms.

Mr. WILSON. But they are still relatively small as compared to the total industry?

Mr. STIGLER. No. Well, that will vary from case to case. I would say that concentration is high in the major milk markets, taking them one at a time, because you cannot ship milk between markets.

Mr. WILSON. As compared to the total industry in the United States, though, no one company has a considerable portion of the business in the dairy industry, do they?

Mr. STIGLER. No. As I say, unfortunately the United States is not one market. I could be a monopolist in an isolated place, although I controlled only a tenth of 1 percent of the Nation's capacity.

Mr. WILSON. What business do you think of now? You say that steel has declined-United States Steel has, in its proportionate part of the business-what other businesses other than dairy products? Mr. STIGLER. Has shown declines in concentration? Mr. WILSON. Oh, no, that have increased. Mr. STIGLER. Increased in concentration?

The CHAIRMAN. How about whisky?

Mr. STIGLER. There have been important mergers in whisky.
The CHAIRMAN. How about cigarettes?

Mr. STIGLER. Well, cigarettes-that depends on the date.
The CHAIRMAN. And soap?

Mr. STIGLER. Also soap, and copper mining.

The CHAIRMAN. Tin cans and tinware?

Mr. STIGLER. Again, the trend depends on the dates one chooses. American Can is less dominant than it was in 1916, but if you take the two or three largest firms, concentration has not changed much. I think that, primarily out of fright of the Sherman Act, the largest company in such industries has quit merging and the second and third companies have taken over the task of merging and maintaining the dominant position of big firms in the industry.

Mr. McCULLOCH. Well, has that not resulted in many instances in very keen competition on the part of the second and third and fourth largest corporation with the largest?

Mr. STIGLER. That is true. Unfortunately, there seems to be no important cases where that competition took the form of price. The tobacco companies have engaged in incredible rivalry to provide radio comedians to the public but never competed by cutting the price of a pack of cigarettes.

The CHAIRMAN. Their competition is primarily advertising?
Mr. STIGLER. In that field, yes.

The CHAIRMAN. And in whisky and soap?

Mr. STIGLER. The same is true.

Mr. WILSON. How much did the price on cigarettes rise when everything rose 200 or 300 percent in this country during the war?

Mr. STIGLER. The price rose less.

Mr. WILSON. Very little, if any?

Mr. STIGLER. That is right.

Mr. BRYSON. The biggest portion of the retail price of a package of cigarettes is taxes.

Mr. STIGLER. Roughly half, I believe.

The CHAIRMAN. Would the price of cigarettes be appreciably lower if you did not have the oligopolies in the cigarette field?

Mr. STIGLER. Appreciably? I would say yes. The price might fall a cent a package.

Mr. BRYSON. Would they be as good or would they be like all the other cigarettes in the other parts of the world, not worth anything?

Mr. STIGLER. There are two ways in which a saving could be made, if we make the tobacco industry more competitive, without altering the quality of the product. One way is to substitute price for advertising competition, and the other way is to reduce the very large profits of the tobacco companies.

Mr. BRYSON. What percentage of the cost of tobacco is tax and what percentage is advertising?

Mr. STIGLER. The tax is about half the retail price. My guess is that advertising and selling costs run roughly to 1 cent a package.

Mr. McCULLOCH. I would like to ask a question there, since this question of advertising has entered the discussion. Do you think generally that advertising is harmful?

Mr. STIGLER. No. I have no dogmatic position on the advertising industry. I think it is harmful when it becomes the forced expression of the rivalry of firms which dare not ever engage in outright price competition.

Obviously, advertising serves important social functions, such as introducing new products to consumers and new firms to consumers.

Mr. McCULLOCH. I would like to go back to this tobacco and cigarette problem again. Is it your opinion that the major tobacco companies have realized an excessive profit on their investment over a period of two decades?

Mr. STIGLER. Yes. I do not recall the precise figures, but it has been an extremely profitable industry. It is one of the few large industries, for example, which in 1932, showed considerably higher profits than in immediately preceding years.

Mr. DENTON. How do you put automobiles in that category?

Mr. STIGLER. Automobiles are strictly an oligopolistic industry. They seem to have a kind of a sheltered position in the sentiments of economists as well as of the public at large. I think that this favored position is partly due to the obviously great improvements they have inade in the quality of their product and in the long, downward sweep of their prices from roughly 1900 to 1925.

Mr. BRYSON. Well, how do these little people like Studebaker survive when 95 percent of the automobiles are sold by three or four big companies, and yet Studebaker does well?