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period, thus having zero price changes. On the whole the items tend to fall fairly close to one end or the other of the frequency scale. Of the 617 items covered, 111, or 18 percent, changed 84 times or more, while 193, or 31 percent, changed less than 12 times. This bunching at the extremes gives the distribution shown in the chart a more or less U-shaped character which is usually associated with two distinct types of behaviour. For convenience the prices which changed more than 77 times in the 8-year period will be referred to as marketdominated prices, although in the case of several there were short periods when the prices took on the character of an administered price, while there are others which would show themselves to be administered prices if weekly or daily price data were employed. In these cases, even though the prices were administered, the market appeared to dominate the price behaviour. Similarly, prices which averaged less than 23 changes a year will be referred to as administration-dominated prices since their infrequency of price change indicates an appreciable degree of price control in the hands of individual producers. These two groups of prices include 71 percent of the items represented by the chart. The remaining 180 items which showed between 23 and 78 changes are not clearly dominated by either the market or administration. In the next chapter, which deals with the price structure, the difference in the behavior of these groups will be examined.

It is generally recognized that a producing unit acting alone can operate on the basis of administered prices only where it supplies a significant proportion of all the particular market or can narrow down the scope of the market by emphasis on special brands, trade names, and similar devices for differentiating the product of one producer from that of another in the minds of buyers. When the independent producer is so small in relation to the market that he can sell all that he can produce without having a significant effect on prices,28 then he cannot administer the price of his product. If all the producers supplying a particular product are in this situation, the price is made in the market and cannot be administered by the producers except through collusion on the part of the producers or the interposition of some higher authority.29 Only where the producer is large in relation to the market can he administer the prices of his product.

The size of a single producer in relation to the market should not be confused with the absolute size of producing units for which data were given in the preceding section. The possible market for the products of a single producer may be Nation-wide or even worldwide as in the case of wheat and automobiles. The

28 I. e., when he, as an independent producer, faces a horizontal demand curve for his product within the range of his capacity to produce.

29 Prices administered by consuming units are sufficiently infrequent to be disregarded in outlining the structure of the national economy.

market may be only regional as in the case of cement. It may be local as in the case of bread baking and ice manufacture or extremely local as in the case of the retailing of food where even a few city blocks may be sufficient to delimit for a particular store the circle of its possible customers. This means that the importance of a particular producer in relation to the market must be measured in terms of the proportion of the market which he supplies. The single grocery store in an isolated country town is in a position to dominate the local market. Except for locally grown food products, it must supply the bulk of the community's food. The grocer is in a position to administer his own prices. On the other hand a huge company employing thousands of workers in producing standard cotton goods would be producing a product which has a world market. Such a company would be likely to be supplying only a very significant proportion of the total and would not be in a position to dominate the market even to the extent of administering its own prices.

The markets for particular products or services are seldom sharply defined. Geographically, the market which can be reached from a particular plant is likely to taper off gradually with distance, as transportation costs become greater, or delay in delivery becomes more important. In terms of function, also, products do not fall into sharply defined categories with separate and distinct markets. If products are defined narrowly, the markets for particular products are largely overlapping. Perhaps the market for 36-inch cotton sheeting of a particular quality might be discussed as a definite thing, but actually the market for 36-inch sheeting overlaps that for 54-inch sheeting of the same quality. For many uses one could be substituted for the other. Yet, for some uses they are not adequate substitutes for each other so that their markets are not exactly coterminous. Similarly, sheeting of the same width but of different quality or construction may be interchangeable with each other for some purposes and sufficiently different for other purposes to be inadequate substitutes. The same difficulty arises when markets for broader categories are discussed. Cotton sheeting as a whole overlaps with linen sheeting for some purposes, with silk and rayon sheeting for some purposes, with sheet rubber for still other purposes. Thus, the market which any particular producer is supplying is not a sharply determined market but one that ramifies in different directions with no precise geographical or functional limits.

Concentration in Relation to Major Markets

Though markets cannot be sharply delineated, it is possible to obtain a rough indication of the degree of concentration in relation to the market by adopting the industrial or other categories generally employed

and measuring concentration in these terms.30 This is done in the following sections which take up successively the degree of concentration in each of the major markets-goods, labor, and securities. The results of such measurement can, of course, give only a crude approximation to market concentration, but such a crude picture is of value in outlining the general structure of the American economy.

Concentration in relation to the market for goods.— In the market for goods, including both commodities and services, the vast bulk of consumers are unorganized so that there is little concentration on the part of the ultimate buyers of consumer goods. For particular types of consumer goods the effective demand may be limited to a relatively small number of ultimate buyers, and in particular localities consumers may have developed effective cooperatives or collective bargaining associations for particular commodities, but for the bulk of consumers goods the number of potential buyers tends to be large, often ranging into the millions so far as particular producers are concerned.

In contrast to lack of concentration among consumers, a great deal of concentration in relation to the market is evident among producers. For commodity after commodity produced for consumption, the number of separate producers is small so there are only a small number of sellers in relation to the large number of ultimate buyers. Likewise, for many services rendered to consumers, the number of enterprises in a position to supply the particular service is small. This same concentration of production in some fields leads to conditions in which the intermediate buying is concentrated and the selling is unconcentrated. This is particularly true in the case of farm products. Farmers sell the bulk of their cigarette tobacco to a handful of cigarette manufacturers who in turn sell the finished cigarettes to millions of consumers through the retail channels. The bulk of cattle and hogs is sold to a few meat packers, and a major part of the wheat used in this country is sold to a few flour milling companies. In other cases, the concentration of producers leads to concentration of both buying and selling, as when a few steel producers supply most of the heavy steel rails and the bulk of the purchases is made by a small number of railroads. It is primarily the concentration of production in many lines of activity that provides the small number of sellers or buyers which characterize the market for so many goods and limit the operations of the market as an organizing influence. This section will therefore be concerned only with concentration in rela

30 The term "concentration in relation to the market" is used throughout this chapter to refer to concentration in buying or selling, i. e., a large proportion of the sales of a particular goods made by a small number of sellers or purchased by a small number of buyers.

tion to the market as it is reflected in the concentration of production.

Government-operated enterprise and the regulated public utilities probably constitute the area of greatest concentration in relation to the market. In the case of the bulk of the services rendered by government units for which specific charges are made, such as postal services, water supply, and other utility services, the government unit is the only agency supplying the particular service to the particular market. Likewise in the supplying of electric power, gas, and local telephone service, relatively few communities are served by more than one utility company supplying each of these services. Local transport is usually supplied by one or a few traction or bus companies and many small taxi units. The railroad transportation service between particular points is usually restricted to one or a very few railroads, though truck and bus service has cut into the market for certain types of transport service. Long-distance communication, other than that through the mails, is mostly divided between the telephone company and two telegraph systems. Thus, in supplying services in most of the government and utility fields, there is a high degree of concentration in relation to the market, and prices are administratively determined either by government or through a regulatory process which involves both government and private business. Only to a negligible extent are the services rendered by government or the utilities supplied in a free market and at prices determined in the market.

In the field of manufactures, concentration in relation to the market runs all the way from a high degree of concentration in the supplying of automobiles, cigarettes, and agricultural implements to the relatively small concentration in the production of cotton textiles, knit goods, and clothing. This variety is shown in chart II, which indicates for each census industry the proportion of the industry's product, measured in value terms, which was produced by the largest four and the largest eight producers in the industry in 1935. The different industries are divided into three groups: First, the 21 big industries, each of which employed 100,000 persons or more in 1935; next, the 44 mediumsized industries, each employing between 25,000 and 100,000 persons in 1935; and, finally, the 211 smaller industries, each of which employed less than 25,000 persons. Within each group the industries are arranged in order of declining concentration as measured by the relative value of the products of the four largest producers.

In reading this chart it is important to keep in mind three weaknesses, each of which tends to minimize the actual degree of concentration in relation to the market. First, the Census in grouping individual plants

CHART II

CONCENTRATION, MEASURED BY VALUE OF PRODUCTS,
IN MANUFACTURING INDUSTRIES 1935

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INDUSTRIES EMPLOYING UNDER 25,000 PERSONS

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MUSICAL INSTRUMENTS & MATERIALS, N.E.C.

PIANO & ORGAN PARTS & MATERIALS
WALL PAPER

THE DATA FOR THE LARGEST FOUR ENTERPRISES ARE COMBINED WITH THOSE FOR THE LARGEST EIGHT ENTERPRISES IN ORDER TO AVOID APPROXIMATE DISCLOSURES OF INDIVIDUAL DATA

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