of securing high profits by what are considered unfair means, or of extending his trade by lowering prices, the tacit understanding will no longer hold but will develop into vigorous hostility, shown by actual cutting of prices to rates ruinous for the less skilful.

These understandings are not so common among wholesale traders or manufacturers; neither is there so great a probability of widely varying prices for certain classes of goods being secured by different dealers in one community. The margin of profit is less in the wholesale trade; purchasers and salesmen both are much better informed regarding the state of the market; each separate sale being, relatively speaking, large, is more important. For these reasons and others, the competition is much more nearly free, but the element of combination suggested still exists.

Among manufacturers, the nature of the industry itself is of much importance in determining the character of the competition and the trend toward combination. If the goods manu

factured are of a kind whose quality is uniform and may be easily tested, competition becomes almost solely a matter of price. Especially is

this true if the article is one which is sold in large quantities. Salt in many States has its quality tested by a government inspector, and is always sold under the grades thus fixed. The quality of sugar is easily determined by the polariscope test, and all large buyers have the test made. Spirits, in like manner, are sold on the basis of proof spirits or of pure spirits, as the case may be, and the test of any special stock is easily made. Similar statements may be made regarding refined petroleum. Among such goods, if competition exists, it must be a competition in price.

On the other hand, if the quality of goods cannot be easily tested, and especially if the goods are sold in small quantities, which can readily be put into packages for the use of retail customers, brands and trade-marks are usually adopted by manufacturers. In such cases, competition does not become necessarily one which forces prices down, but may readily be simply a contest in advertising. Most buyers do not test the quality of Pears' soap to see whether it is better than that of a rival brand. Its manufacturers are not likely to cut the price in order to increase its sale. It pays better to in

Standard ako cut costs.

The Royal

crease the expense of advertising. Baking Powder may be perfectly pure, but the housewife who insists upon using it has probably never tested it in comparison with other brands. She has been attracted by the advertisement, has found the baking powder satisfactory, and insists upon buying it. It is a noteworthy fact that the largest of the earlier industrial combinations in the United States were those among the manufacturers of petro- leum, salt, sugar, and spirits, goods of which the quality is uniform, and is tested by large buyers. Combinations among manufacturers of articles sold chiefly under trade-marks known by retail buyers are of comparatively late development. In the first case, a combination would be made to prevent a cut in prices; in the second, to save the costs of advertising.

If the amount of capital which must of necessity be invested in a fixed plant for the successful production of any class of goods is large, the nature of the competition differs materially from that of an industry in which a small amount of fixed capital is sufficient to enable one to work to good advantage. In the first instance the number of competitors is likely to be much

smaller than in the latter. The loss arising from a temporary suspension of manufacture is very much larger, both absolutely and relatively, since it usually involves greater loss to machinery, more of a break in a complete organization of workingmen in different departments, which it may take much time to bring together again into harmonious working order, a break with a larger circle of customers who are more difficult to regain; and, in consequence, competition in these industries, if it becomes fierce, is likely to bring disaster to the industry as a whole.

From three to five millions of dollars are required to build and run satisfactorily a sugar refinery. In the whole United States, only some forty sugar refineries were in existence before the formation of the Sugar Trust in 1887. It was not easy for a sugar refiner who felt the pressure of competition to close his establishment for the time being and later to start up again. He might better for an interval carry on the business at a loss. Competition among the refiners finally became so fierce that some eighteen of them had gone into bankruptcy before combination into the Trust finally abated for the time the fury of the contest.

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An industry which requires but small capital to carry it on, will encourage hundreds, or more likely thousands or tens of thousands, of individuals to engage in it. The great variety of circumstances surrounding them, and the great differences in individual skill of the numerous competitors make it likely that some few will be continually on the verge of bankruptcy, and that from time to time individuals will be falling over under the pressure of competition. The elimination of these least skilful or least fortunately situated competitors, whose manufacturing is carried on at the greatest cost, does not produce any wide-spread depression in business, but serves rather to elevate the general average of skill in the industry. While the individual unfortunates may perhaps be sympathized with in their misfortunes, their loss is, after all, a gain to industrial society, since thereby the plane of production is raised. It is the consideration mainly of industries of this type that has given rise to theories of normal price, a marginal price, etc., as a safe basis for economic reasoning, and many writers in speaking of competition think of this kind only. Attention will be called later to differences of