HOW BIG IS TOO BIG?.

A New Yardstick for Monopoly

NOBODY is henceforth going to be afraid of or suspicious of any business merely because it is big." With these words, spoken after the passage of the Clayton Antitrust Act in 1914, President Woodrow Wilson thought he had laid to rest, once and for all, the question of how big a business should be. He could not have been more wrong. Time and time again, the nation's industrial giants have been haled into court on antitrust charges that smacked of prosecution for bigness alone. The problem has been raised again by the roadblock against the Bethlehem-Youngstown steel merger (TIME, Oct. 11), although Bethlehem claimed that the merger would have permitted it to expand in the Midwest markets, thereby increasing competition. Thus, at issue is the old question: Can the size of a business be limited?

In the 1945 decision that restricted Alcoa's further expansion, Federal Judge Learned Hand tried to set up a percentage chart. Said he: "[Over 90% of the market] is enough to constitute a monopoly; it is doubtful whether 60% or 64% would be enough, and certainly, 33% is not." But many another judge and businessman have disagreed. The confusion over bigness and monopoly started in 1890 with the Sherman Act, the forerunner of all antitrust legislation. Although the act clearly stated that any person "who shall monopolize" is guilty of a crime, it failed to define monopoly. Thus every merger in the early trustbusting days was a calculated risk. Industry breathed easier after the Supreme Court in 1911 adopted the flexible "rule of reason," which held that only "unreasonable restraints on commerce" violated the Sherman Act. The question was further clarified when the Supreme Court, in its 1920 decision on U.S. Steel, ruled that "the law does not make mere size . . . or the existence of unexerted power an offense." But in the Depression-ridden '30s, when "economic royalists" were fair game, the Democratic Administration again held that mere size and power were the dangers. The Supreme Court, in its 1946 American-Tobacco decision, agreed, ruling that monopoly exists when "power exists to raise prices or to exclude competition." In effect, a business did not have to restrict competition to be guilty; it merely had to have the power.

The old rule of reason returned early last year when Boston's Federal Judge Charles Wyzanski brought forth a new, clear-cut doctrine, and won the Supreme Court's endorsement. Said

Judge Wyzanski: "The defendant may escape statutory liability if it ... owes its monopoly solely to superior skill, superior products, natural advantages . . . low margins of profit maintained and without discrimination, or licenses."

One big reason for the great shift in legal opinions is that the economic yardsticks by which bigness is measured have been constantly changing. When the antitrust acts were first passed, few companies were in the $100 million class; today there are more than a dozen in the billion-plus class. Yet nobody raises a serious complaint that these companies are too big. They and other giants have proved that big companies can not only be more efficient in many industries (e.g., autos), but only big companies can afford the research often needed to develop new industries. For example, RCA spent $50 million on black and white TV, another $12 million on color.

Furthermore, economists now recognize that competition is not just between corporations in one industry; it is also between rival industries, e.g., coal competes with oil and gas. Last week the General Services Administration itself argued this when the Justice Department turned down a GSA plan to sell the Government's biggest magnesium plant to Dow Chemical Co. on the ground that the sale would give Dow a complete monopoly in magnesium. But GSA argued that such a monopoly would not hurt consumers because Dow would be held in check by competition from other metals.

Businessmen themselves now recognize that efficiency sets its own limit on bigness unless the company, in effect, breaks itself up into smaller corporations, i.e., nearly autonomous units that actually compete with each other in the way that General Motors' Buick competes with G.M.'s Oldsmobile. Thus, the industrial giants have actually intensified competition. In the auto industry, for example, competition has grown so fierce that the smaller independents feel they can survive only by combining into new giants. The consumer has benefited by better cars at lower prices.

Actually, the only test of bigness and monopolistic power under the new rule of reason proposed by both courts and businessmen is whether the consumer benefits. If he does, then no corporation is too big. If he does not, then the corporation may be too big to be efficient. As a result, it may eventually be put out of business by a smaller, more efficient producer.

This file is automatically generated by a robot program, so reader's discretion is required.