"Any corporation, no matter how big, may swallow up another if it has 'good business reasons' for doing so, e. g., 'to expand,' and if the Government is unable to show that competition has been so restricted that others are 'foreclosed' from a substantial market. This rule is in substance supported by the majority ✶✶ ✶” This would be important if it were true. But not only is it contradicted, as he himself indicates, by section 1 of the report. It is mightily revealing that nowhere in his dissent will Mr. Schwartz undertake any analysis of section 3 (the merger section) of the report; he will not even refer to its existence. He prefers to talk about, of all things, the United States Steel decision of 1920; Columbia Steel and Transamerica, which we will more conveniently deal with later; and a highly inaccurate account of Pillsbury Mills. When Pilisbury (which is not the "leading firm") acquired a competitor, which gave it among other things 45 percent of one particular submarket (not "the relevant market") this did not constitute a prima facie case to the hearing examiner. The Commission held that it did. They not only gave an accurate account of the statistics, but also pointed out that entry was unlikely; that concentration had been increasing; and that the merging firm had been purchasing competitors. What reader would guess this from Mr. Schwartz' recital? Still less would they suspect that the report asks for nothing less and something more than the Pillsbury doctrine. When Mr. Schwartz is so interested in mergers, and so studiously avoids the section of the report which dealt with mergers, one may be forgiven the suspicion that any account of that section would jar painfully with the general picture of the report which he is trying to build up." Per se rules and rule of reason.—According to Mr. Schwartz, "one of the major issues" was that he calls "a powerfully supported proposal"-which has a pleasantly sinister sound-"to expand the rule of reason." Despite the powerfully suported proposal, it seems that the report does not call for any such general expansion; but he is displeased with its general drift. It is puzzling why Mr. Schwartz discusses at length what the report does not say, and why he does not discuss what the report does say. Very briefly and baldly it is this. The rule of reason is universal, with no exceptions. Every antitrust case demands an analysis of the relevant market situation. But even the most disinterested kind of economic investigation considers only enough facts to confirm or refute a hypothesis, and in an antitrust case one needs only enough evidence to prove or disprove the existence of a restraint. Anything more is a waste of time. Certain kinds of practices, e. g., price fixing, even standing alone, imply the power to control the market, since without this power reasonable men would not try to fix prices. And that settles the matter. Other industry practices are more difficult to identify as price fixing or not. Still others may have restrictive effects or not, depending on the circumstances. Hence Mr. Schwartz' statement that the rule of reason "makes relevant the entire history of the industry, all evidence bearing on the good and bad purposes and consequences of the restraint," etc., is incorrect, and beside the point. In any kind of case "inquiry should stop when the restraint has been identified." The question is, when have we identified the restraint? Mr. Schwartz is attempting to persuade us that the rule of reason, or the majority's version of it, embraces some kind of lengthy exculpatory proceedings. There is nothing at all in this. Now we can better appraise the suggestion "that certain practices should be illegal per se when engaged in by companies dominant in their fields." If "dominant" means simply large size, then Mr. Schwartz ought to say so. If "dominant" means possessing certain power, then the only way to find the existence or nonexistence of power is by analyzing the market to see whether any such power exists. The idea that dominance is an obvious easily identifiable trait, like the belief in Santa Claus, is nice if you can retain it through the vicissitudes of adult life. Although it is of only incidental interest, strong objection must be registered to the way in which Mr. Schwartz persistently imputes to the report positions the contrary of what it has taken. His long discussion of the Timken case stresses the futility of requiring intracorporate "competition." The suggestion is adroitly conveyed that the report favors this. In point of fact, the report at p. 36 recognizes its futility and calls for dissolution. The same kind of misleading reference is to the Du Pont case at p. 7. The district court, rightly or wrongly, found that the "obvious power" did not exist, nor that if unexercised it was proper. Still less does the report say any such thing. In fact it lays emphasis throughout on monopoly power being the economic content of the offense. Let us now draw the threads together to demonstrate, by using Mr. Schwartz' own examples, that his suggestions would mean not more but less antitrust enforcement: Columbia Steel.-Mr. Schwartz has nothing to say about the market situation as affected by this merger, except for rhetoric about "the great steel trust." His objection is nothing more than this: That the acquisition would mean exclusive dealing as between acquiring and acquired firms. Of course this is correct of every single vertical merger. And this was precisely the ground upon which the case was argued. The Government did have at its disposal a competent economic presentation; but this was largely disregarded because they had the rule of law, Mr. Schwartz wants: U. S. v. Yellow Cab Co. The evidence was nothing, the decisional gimmick was everything: vertical integration was illegal per se. Of course this sort of thing can get by the courts once. The second attempt met the fate it deserved. Transamerica.-Here the Board made a finding that the relevant market was local. And then they provided not a single finding that any local market was in any way affected. The third circuit was quite as aware of the percentages as Mr. Schwartz, and went out of their way to suggest that something be done about them. But as conscientious judges, they had to decide on the record, and the record simply had no basis on which they could act. And why did the Board let it go up in so defective a state? Because they too needed no facts; they had their decision ruling mergers illegal per se-in this case Standard Oil Co. of California v. U. S. This was logical enough: if requirements contracts covering a small part of the market were illegal per se, then a fortiori any merger visible to the naked eye must also be illegal per se. And again the courts threw it out. The urge for per se rules in such cases is much like the desire to abolish friction in order to proceed more freely. It is not required by even the most uncompromising opposition to size. It produces a few empty legal victories--Dead Sea fruit. It is simply a nuisance and a distraction to any reasoned discussion or any useful body of law, and so long as we waste time on it we will have no excuse for lack of progress in any direction, whichever one we happen to perfer. A note on Robinson-Patman.-Perhaps I may be allowed one brief foray off the general topic of bigness. Mr. Schwartz' one case reference illustrates so well the looking-glass quality of the argument: the facts of the case are in mirrorimage contradiction to the way Mr. Schwartz has them. There was gross discrimination, all right, but it was against the most efficient customer who received the lowest price, since the differential in his favor was well short of the cost saving. This customer was a manufacturer of oil burners who started with nothing and went to the top by drastically cutting the price and omitting the razzledazzle and service that the public showed it didn't want. His discomfited rivals learned that printing derogatory stories in the trade press only furnished him with free advertising. So the FTC went out to harass his principal supplier. The report may rescue us from this kind of thing, and if it does not, then a repeal of the act is in order. Hon. EMANUEL CELLER, AIR TRANSPORT ASSOCIATION OF AMERICA, Chairman, Judiciary Committee, United States House of Representatives, Washington 25, D. C. DEAR MR. CHAIRMAN: In the course of my testimony before the subcommittee on June 17, 1955, a question arose regarding Pan American's interest in and relations with the Intercontinental Hotels Corp. I indicated that I would supply some additional material to supplement the discussion that took place during my testimony. It is a fact that not 1 penny of Government airline subsidy goes into Intercontinental Hotels Corp. (IHC) or ever has. The Civil Aeronautics Board determines in judicial-type proceedings what subsidy, if any, is needed, "together with all other revenue of the air carrier" under honest, economical, and efficient management, to maintain and continue the development of air transportation to the extent and of the character and quality required for the commerce of the United States, the postal service, and the national defense (Civil Aeronautics Act, sec. 406, Reorganization Plan No. 10 of 1953, sec. 1). Examination of any CAB final mail rate decision will confirm that the justifiable costs, recognized investment, and rate of return for the air transportation operation alone are determined. The need for subsidy, however, is then determined not only in consideration of revenues from the air transport operation, but also taking into account all other income. Thus, under CAB policy, no investments in, advances to, or expenses of affiliated companies are in any way underwritten by Government subsidy for airline operations, but on the contrary, earnings in excess of a limited rate of return realized by Pan American from its investment in IHC, as well as in other affiliated companies, are claimed by the CAB in full in reduction of subsidy. (See Transatlantic Final Mail Rate Case, Docket No. 1706, decision of December 20, 1954, pp. 59-70; also Reopened Transatlantic Final Mail Rate Case, transcript of hearings, pp. 393-395; House hearings, appropriations for 1956, pp. 391-393.) IHC is a wholly owned subsidiary of Pan American, formed in 1946 for the purpose of promoting tourist travel and the flow of tourist dollars abroad, with the backing of the Export-Import Bank including a $25 million credit, and with the support of local governments and investors. It assist local groups in arranging, financing, and providing technical assistance in the planning, design, construction, and management of overseas hotels (annual reports: 1946, pp. 6, 9; 1948, p. 15; 1949, pp. 11, 14; 1950, pp. 6, 7; 1951, p. 5; 1952, pp. 5, 6; 1953, p. 5; 1954, p. 6). The accurate nature and extent of Pan American's investment in IHC is shown in PAA's annual reports and verified by notes to financial statements in certified audits by independent certified public accountants (e. g., annual reports: 1951, p. 14; 1952, pp. 13, 14; 1953, p. 14; 1954, pp. 13, 14). Subsequent to Pan American's original investment of $1 million in capital stock and surplus, in July 1953, Pan American invested an additional $2 million of its stockholders' in IHC for the sole and sound purpose of liquidating a bank loan of that amount, and thereby eliminating interest charges. Net expenses (losses) during the entire development period, completed in 1953, were $2,320,000, which were capitalized at the end of 1953, including the 1953 net loss of $340,000 (PAA annual report, 1953, p. 14). Net advances made by Pan American to IHC from its beginning to a recent date are now being converted into preferred stock. As shown by certified audits by independent certified public accountants, copies of which have been furnished to the Civil Aeronautics Board, IHC realized a net profit of $234,856 for 1954 and is continuing to operate at a profit (see also PAA annual report, 1954, p. 6). I trust that this clarifies the problem. Respectfully yours, STANLEY GEWIRTZ, Executive Assistant to the President. INDEX A Page (See ACCO (Atlantic Commission Co.), sales organization for A. & P. 285-292, 304–308b 2668-2672 Adelman, Morris A., professor of economics, Massachusetts Institute of mergers Advertising: Allowances: As indirect price discrimination__. 494 120-121, 678 Secretiveness of, H. R. 567, 84th Congress, to eliminate___. Federal Trade Commission, investigation of advertising practices in 2294 2296-2297 Government suit against advertising representatives and newspaper Place in national economy. 281, 1774-1778 58-59, 321 Aero Sales Co. et al. v. Columbia Steel Co. et al. (N. D. Calif., S. Div., 1726-1730 686 Aged workers, position taken by National Association of Manufactur- 1828-1829 ers- Agricultural cooperatives (see also Equity Cooperative Exchange; Farmers A. & P. domination of farmers' cooperatives, prices__ Functional discounts, effect of interpretation of------ 290, 1736, 1750, 1751 1524 1522-1535, 1737-1739 Agriculture (see also Agricultural cooperatives; Farmers): Favorable actions instituted by Federal Trade Commission___ 645, 659–660 661-662, 1738 Agriculture, Department of, policy regarding cooperatives, Memorandum Agriculture, Secretary of: 158-159 1523 Cease-and-desist orders under Capper-Volstead Act--- 1524 of.. 1527 Aeronautical field. (See Air traffic.) Aircraft industry. (See Air traffic.) Airlines. (See Air traffic.) |