STUDY OF MONOPOLY POWER

THURSDAY, APRIL 27, 1950

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 a. m., in room 346, Old House Office Building, Hon. Emanuel Celler (chairman) presiding.

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

Also present: Edward H. Levi, counsel to the subcommittee.

The CHAIRMAN. This committee will resume its hearings this morning. We will continue with the witness who was with us yesterday, Mr. Fairless, president of United States Steel Corp.

The Chair wishes to announce, however, that the exhibits that were in the corridors yesterday were the subject of considerable comment on the House floor yesterday. I was informed by the Superintendent of Buildings that the exhibits were in violation of the rules of the House Office Commission and would have to be removed.

I indicated that to a member of the legal staff of the United States Steel Corp., Mr. Blough, and they have been removed. I understand that these exhibits are now in the caucus room.

I had no knowledge prior to their being removed to the caucus room that they would be so removed, but they are there now, and I hope that they are not still in violation.

If they are in violation of any rules, they will have to be removed again, but anyone who is interested in viewing these exhibits might presently do so by going into the caucus room.

Mr. Levi, you may resume your examination of Mr. Fairless.

STATEMENT OF BENJAMIN F. FAIRLESS-Resumed

Mr. LEVI. Mr. Fairless, yesterday there was testimony indicating that on semifinished products the corporation charges its subsidiaries the market price, even though in a way the sale is just to another part of the corporation, but nevertheless it does charge itself the market price.

Now, this testimony might seem to be inconsistent-I do not think it is, but it might seem to be-with something you said before the Joint Economic Committee; and so I would like to read to you what you said there and have you clear up any apparent inconsistency. It is reported on page 19 of the March 1948 hearings that you said, speaking about the rise on semifinished prices:

We have advanced the price on semifinished steel that we sell. How could we advance the price on semifinished steel that we use?

And then you went on to say, I think, something about how you cannot increase the price of a potato if you eat it.

I do not think it is inconsistent with what you said yesterday, but it might seem to be.

Mr. FAIRLESS. It is not inconsistent. What I was attempting to point out by example-Carnegie-Illinois Steel Corp., who is the largest producer of semifinished steel either for use or for sale within the steel corporation's subsidiary companies, advanced the price of this product, and when I said it could not advance the price to itself, that is a true statement.

However, the semifinished steel that Carnegie-Illinois Steel Corp. furnishes to other subsidiaries of the steel corporation, the price was exactly the same as the price that it sold to the consuming public for that product.

Mr. LEVI. Then, would this be a fair summary: That while the subsidiaries were charged a higher price, the purchasing subsidiaries were charged a higher price

Mr. FAIRLESS. They were charged the price.

Mr. LEVI. They absorbed the increase, so it did not reach the public. Mr. FAIRLESS. At that point that is a correct statement.

Mr. LEVI. Do you not think that absorbing the increase is like charging the subsidiary less? Apparently you do not think so, and I wondered if you could explain.

Mr. FAIRLESS. Your question, please?

Mr. LEVI. Do you not think that absorbing the increase is just like charging the subsidiaries less?

Mr. FAIRLESS. Why, of course not. There is no comparison.

It is simply properly pricing a commodity which is sold to the users of that product, and, likewise, sold to the users of the same product by the subsidiary companies. It is consistent all the way through.

Mr. LEVI. You say what happens is that the loss appears in the finishing subsidiary rather than in the subsidiary selling the semifinished.

Mr. FAIRLESS. There is no loss at all. The facts are that the price of that product at that time represented a loss, and the reason that the price of semifinished steel was raised was to correct that very thing. Also, our studies show that the selling prices, the existing selling prices of the finished products that were made from that product could absorb the increases in cost and leave a satisfactory profit.

Mr. LEVI. But what happens when there is an absorption of the increase is that the subsidiary selling the finished products makes less money due to the absorption; is that not right?

Mr. FAIRLESS. Obviously; obviously.

Mr. LEVI. So that looking at the corporation as a whole, what you do when you absorb the increase is to take that item of less money on the finishing subsidiary as opposed to taking it on the selling subsidiary, which you would do if you sold it for less.

Mr. FAIRLESS. But that is not the reason for making the change in price. That was not the reason for doing it.

The reason for changing the price was that the product was being sold at a loss and it was to correct that situation and not go into this devious route that you are leading us through here.

Mr. LEVI. I did not mean to suggest a devious route.

Mr. FAIRLESS. It is just as simple. I see no reason for complicating

a very simple situation.

Mr. LEVI. But the effect is just the same in terms of the ultimate selling price, is it not?

Mr. FAIRLESS. The effect is simply this: That if the finished product resulting from the semifinished steel provided carried with it a satisfactory profit, which our studies indicate that it did, no one was injured.

Mr. LEVI. But the effect as to the finished price is exactly the same, is it not, in these two cases: One, where the price rise is absorbed by the finishing subsidiary and, secondly, where you give a deduction to the subsidiary?

You do not give a deduction, but if you did it would have the same result?

Mr. FAIRLESS. No. You apparently lose sight of this entire picture. Now, what will you suggest? That we should have raised the price of the finished product?

Mr. Levi. I am not suggesting anything. I am asking whether in terms of the ultimate selling price the result of the subsidiary absorbing the price is not the same as giving a price reduction in the semifinished to the finishing subsidiary.

Mr. FAIRLESS. I can only recite the facts, what was done, why the action was taken, and you are permitted to make any deductions that you care to make, naturally.

Mr. LEVI. Now, would you say, Mr. Fairless, that the one crucial question on a rise in the rate on the transportation of iron ore would be the effect on the customers of the Oliver Iron Mining Co.-that is, customers who are not subsidiaries of the steel corporation, but are your competitors?

Mr. FAIRLESS. Will you please repeat that, Mr. Levi?

Mr. LEVI. Would you say, Mr. Fairless, that the one crucial question on a rise in the rate on the transportation of iron ore would be the effect on the customers of the Oliver Iron Mining Co.-that is, customers who are not subsidiaries of the steel corporation, but are your competitors?

Mr. FAIRLESS. I do not know what you mean by "crucial." The rates on the iron ore, whether they are increased or decreased, affect everyone or anyone who may ship that product over the rails. So any increase or decrease in the rates governing iron-ore shipments would affect everyone, the subsidiaries of the steel corporation to the same extent as any other customer of the Oliver Iron Mining Co. or any other oreproducing company.

Mr. LEVI. Is it fair to say that what you are saying now is it would affect your competitors, but you think it would affect your subsidiaries in the same way?

Mr. FAIRLESS. Definitely in the same way. I want to correct that. You say affect our competitors. You must realize, of course, that we do not have control over these rates. Our railroad does not have control over the rates.

Mr. LEVI. But you do have control over the price of the iron ore, do you not?

Mr. FAIRLESS. Certainly. We have control over the price of the iron ore that we sell. We do not have control over the price of iron ore as a whole.

Mr. LEVI. Now, as long as you sell ore to your competitors, you can affect your competitors by the price you charge them for ore, can you not?

Mr. FAIRLESS. The price we charge our competitors for ore is the price set by competition.

Mr. LEVI. In any event, that price will affect your competitors, will it not?

Mr. FAIRLESS. Well, I assume that the price that anybody pays for anything affects them.

The CHAIRMAN. What portion of the Mesabi Range do you control percentagewise?

Mr. FAIRLESS. Is this ore you are talking about?

The CHAIRMAN. Ore.

Mr. FAIRLESS. I gave those figures yesterday. The figures are as follows

The CHAIRMAN. I think it is 51 percent.

Mr. FAIRLESS. That is only for the Lake Superior district and that is the present ores, now in use.

The CHAIRMAN. I am referring to the Mesabi Range.

Mr. FAIRLESS. I will give you the figures. Ores presently in use in Lake Superior, the steel corporation controls 51 percent, but if you take all the Lake Superior ores now that are usable, the steel corporation owns or controls 19 percent of the Lake Superior ores.

The CHAIRMAN. But having that leverage of 51 percent on the ores presently in use and 19 percent on the usable ore gives you considerable leverage, does it not, as to the price that may be charged for that ore! Mr. FAIRLESS. I attempted to answer that, Mr. Chairman, in my statement, if you want to refer to it.

The CHAIRMAN. You mean the statement that you made yesterday! Mr. FAIRLESS. Well, I have a very short statement here on iron ore, and it is not a long statement. If we are ready for iron ore, I would like to have the permission to present it.

The CHAIRMAN. We will come to it and let you read it in just a few moments. We have no objection to your reading it; we just have one or two questions further and then you may read it.

Mr. BRYSON. Is that statement embodied in the printed statement? The CHAIRMAN. No; it is an additional statement.

Mr. LEVI. Mr. Fairless, if your company did control the transportation rate in the same way that it controls the iron-ore productsthat is, its selling price-if it did that, I take it that your answer now is that that still would have no effect on your competitors.

Mr. FAIRLESS. I have tried to make clear, and I want to make it emphatically clear, so there can be no further question about it, that the United States Steel Corp. does not control the price, the selling price, of iron ore.

The CHAIRMAN. Does not the steel corporation affect the selling price of iron ore because of its leverage of 51 percent?

Mr. FAIRLESs. No; it does not.

The CHAIRMAN. Has that 51 percent no effect whatsoever on the selling price?