The genesis of the trusts - ScienceDirect

International

Journal

of Industrial

Organization

12 (1994) 245-267.

North-Holland

The genesis of the trusts Rationalization Abagail

in empty core markets

McWilliams

Business Programs, Arizona State Unioersity, 85069-7100, USA

Kristen University

West 4701 W Thunderbird Road, Phoenix, AZ

Keith* of Alaska Fairbanks, Fairbanks, AK 99775, USA

Final version

received June 1993

Motivated by a desire to understand the origin of the great consolidation movement at the turn of the last century, this paper examines the unique history of the American trusts and proposes a new interpretation of the motives and consequences of these consolidations. It is hypothesized that the same demand and supply conditions that made multiplant organization more efficient in these industries also made it impossible to obtain in a competitive environment. The theory of the core as applied to small numbers situations is used to show why competition had to be restricted before efficient industry configurations could be achieved and supportive historical data are presented. Key words: Trusts; JEL classification:

Rationalization;

Cutthroat

competition;

Empty

core

LlO; L40; N41; K20; D43

1. Introduction

The U.S. consolidation movement of the late nineteenth century is one of the most widely studied phenomena in industrial history.’ In fact the field of Industrial Organization traces its origins to the events of this time period. The current study was motivated by a desire to add to our understanding of this phenomenon by tracing its source - the trusts that were formed from 1882 to 1887. Besides being the earliest, the trusts were among the largest consolidations of the era. Their importance may have been underestimated Correspondence to: A. McWilliams, Business Programs, Arizona State University, West 4701 W. Thunderbird Road, Phoenix, AZ 85069-7100, USA. *The authors thank Howard Marvel, Ben Baack, Pat Reagan, and Bill Sjostrom for many helpful comments. The usual caveat applies. ‘For example: Conant (1901), Moody (1904), Stevens (1913), Jones (1924), Watkins (1927), Seager and &lick (1929), Livermore (1935), Markham (1955), Nelson (1959), Bittlingmayer (1985), Lamoreaux (1985). 0167-7187/94/%07.00 0 1994 Elsevier Science B.V. All rights reserved SSDI 0167-7187(93)00418-N

246

A. McWilliams

and K. Keith,

The genesis of the trust.s

previously because they have been studied as a part of the larger consolidation movement that followed, rather than as a separate, distinct phenomenon. Upon examination it is clear that the trusts were in fact a separate phenomenon and one worthy of examining in light of recent developments in industrial organization economics. The theory-of-the-core analysis developed by Telser (1972, 1978) and Sharkey (1977, 1979) sheds new light on the motives behind and the consequences of the trusts. This analysis is used to develop the main hypothesis of this paper, namely that the trusts were an efficient and innovative solution to a market failure that was caused by indivisible supply and variable demand. The paper is organized as follows. Section 2 offers a brief history of the trusts. Section 3 reviews some of the previous literature on the consolidations. Section 4 proposes an efficiency perspective based on the theory of the core as applied to small numbers situations. Section 5 presents empirical evidence on the effects of the trusts. This evidence includes: (1) changes in output (2) changes in price and price variation, and (3) changes in the size distribution of plants in the trust industries. Section 6 contains the summary and conclusions drawn. 2. A brief history of the trusts The trust era lasted from 1882 to 1887 and involved eight industries: petroleum, sugar, linseed oil, cottonseed oil, lead, cordage, cattle, and whiskey. Of the eight trust industries, the six that were successful, petroleum, sugar, cottonseed oil, lead, cordage, and whiskey, had several common features.* All were processing industries and all had recently developed or adopted large batch technologies. All produced products for which demand was variable (seasonal or inherently uncertain) and storage was costly. As their technologies developed and demand fluctuated, all were subject to recurring periods of cutthroat competition caused by the imbalance of demand and capacity. All tried, by trial and error, to find a way to stabilize their markets. Simple collusive agreements to restrict output were attempted and failed. Pools were formed to formalize and enforce collusive agreements. These also failed, as did central selling agencies. Despite the attempts to stabilize the markets, competition continued to be cutthroat in these industries whenever demand changed more rapidly than supply could adjust. The varied, unsuccessful attempts to solve the problem made it clear that there remained two seemingly insurmountable obstacles in the path to cooperation. The first was that U.S. common law restricted cooperation (including partnerships) between independent firms. The second *Both the Linseed Oil Trust and the Cattle unable to achieve sufficient market control.

Trust

(a consolidation

of cattle

ranchers)

were

A. McWilliams and K. Keith, The genesis of the trusts

241

was that cheating on cooperative agreements was attractive to independent firms. In 1882 the Standard Oil Company devised a way to overcome both of these obstacles through an innovative use of the trustee device. ‘A trust is a fiduciary relationship concerning property in which one person, known as the trustee, holds the legal title to property for the benefit of another, known as the beneficiary’ [Corley et al. (1981, p. 184)]. In the case of the Standard Oil Trust, the stock of more than 30 firms was turned over to nine trustees who gained the voting rights of all the stocks, effectively establishing centralized control. In return for the firms’ stocks, the previous stockholders received shares in the trust. This gave them a share in the profits of the new organization, the Standard Oil Trust. Standard Oil’s legal counsel advised the formation of the Trust because it enabled the firms to overcome what had seemed to be intractable difficulties. First, the use of the trustee device allowed the firms to overcome legal obstacles to cooperation. They could centralize control without prior legislative approval and without the necessity of forming (illegal) partnerships between the joining firms. This use of the trustee device was an innovative step in the evolution of the corporation, necessary because contemporary corporation law did not allow an easy route to consolidation. No general corporation laws of the time allowed one corporation to hold the stock of another and common law forbade corporations to form partnerships. Application to a state legislature, expensive in terms of time and money, would have been required to seek a special charter to accomplish what was accomplished through the trust agreement [Jones (1924, pp. 19-22)]. Second, the use of the trustee device eliminated the incentive to cheat on cooperative agreements. The creation of the trust and the allocation of trust certificates gave each firm owner a share in the profits of the group, rather than a share of the profits of any one company. With these problems solved, the Standard Oil Trust was in a position to eliminate the recurrent periods of cutthroat competition and to rationalize the capacity configuration in the petroleum refining industry. Industries with similar demand and supply difficulties were quick to recognize the effectiveness of Standards solution and to follow suit, forming their own trusts. These trusts were the prototype for the large, multiple plant firm that continues to dominate industrial structure in the United States, yet the motives behind and consequences of the trusts are still open to debate. 3. Previous perspectives on the genesis of the trusts There have been many interpretations of the turn-of-the-century consolidations [cf. Jones (1924), Thorelli (1955)]. Most interpretations rely on a combination of causes including historical events [Lamoreaux (1985) technological change [Chandler (1977)], and monopolization [Stigler (1950)].

248

A. McWilliams

and K. Keith,

The genesis

ofthe trusts

Lamoreaux (1985) ties the consolidations to specific historical events of the 1890s. According to this interpretation, usually rapid growth in some industries, followed by an economic depression in 1893, led to the consolidations of the 1890s. To the extent that this theory is tied to the specific historical events of the 189Os, it is not helpful in explaining the trusts. Chandler (1977) examined multiplant firms, including the trusts, from 1840 to 1920. He proposed that the multiplant firm emerged to take advantage of advances in transportation and new production technologies that involved extensive economies of scale. This theory was tested by Atack (1985), O’Brien (1988) and Nelson (1959). Atack, using the survivor technique, found some support for the importance of scale economies, particularly in processing industries. However, O’Brien found that most of the technologically feasible economies of scale had been exploited by the end of the trust era, while Nelson found no support for the hypothesis that lower transportation costs led to consolidation in this period. Taken together, these empirical studies offer only slight support for Chandler’s hypotheses about the role of transportation and technological change in the consolidations. In contrast to Lamoreaux, Chandler and others, Stigler (1950) concluded that the late nineteenth century consolidations were carried out to capture monopoly returns. Because, according to his interpretation of the events, supranormal returns from monopoly power should have been available ‘well before’ the 189881904 merger wave began, Stigler suggested that these consolidations were held back by the lack of efficient capital markets and facilitating corporation laws. Stigler’s explanation of the timing of the turn-of-the-century merger movement has two substantial limitations. The first is that it underrates the importance of the trusts. The trusts were among the largest of the consolidations and all were formed before corporation laws were amended to facilitate their formation. The organizers of these early consolidations were able to use the trustee device to fill in the gap in corporation law. It seems likely that, if they had not made innovative use of the trust form of organization, these large firms could have induced the legislatures to pass facilitating laws.3 That the trustee devise was preferred does suggest that it had its advantages, such as secrecy, low cost, and minimal reorganization requirements. The second limitation is that there is evidence that the organizers of the trusts were able to find a market for their trust certificates and that these certificates played a crucial role in the development of the capital market [Navin and Sears (1955)]. While all of the studies mentioned have something to tell us about the 3The large corporations did just this when they instigated a competition among the states to pass liberal incorporation laws. In the 1890s New Jersey won the race to attract large firms that sought to legitimize existing cooperative arrangements following the passage of state and federal antitrust laws.

A. McWilliams

and K. Keith, The genesis of the trusts

249

consolidations of the late 1800s none offers a satisfactory explanation for the trusts. This may be partly because contemporary investigators lacked the tools to address the question in a satisfactory manner. And it may be partly because later investigators lumped the trusts with the later mergers, and therefore did not examine the unique characteristics and histories of the trusts. 4. An efficiency perspective

As early as the 1890s some economists were defending the trusts and other consolidations as a means to protect firms from destructive (inefficient) competition. These economists, including Hadley (1896), Seligman (1909), Fisher (1912) and Davenport (1919), did not believe that competition was desirable or even feasible in all market situations. Jones (1920, p. 519) concluded that ‘Tho competition is not generally ruinous in industry, yet there may be particular industries in which it does lead to disaster’. Reading these early economists it is clear that they had an intuitive understanding of a phenomenon for which there was no theoretical support, but that their intuition was based on anecdotal evidence [Wyman (1914), Knauth (1915)]. Extensions of game theory have allowed contemporary economists to theoretically examine what these early economists intuitively sensed about competition and the existence of a competitive equilibrium. Consistent with this early view of destructive competition, the unique nature of the problem that faced the trust industries has been clarified by the recent work of Telser, Sharkey, Sjostrom, Bittlingmayer and Pirrong.4 This body of work develops and tests the theory of the core as applied to small numbers situations. The result of the theoretical work of Telser (1972, 1978, 1987) and of Sharkey (1977, 1979, 1982) is that there are markets in which there is no competitive equilibrium when supply is indivisible and demand is variable. There is no competitive equilibrium in markets with these characteristics because the core of the market is empty. The results from the work of Bittlingmayer (1982), Sjostrom (1989) and Pirrong (1992) show that in empty core markets institutional, that is non-market, solutions will develop that stabilize such industries by imposing an equilibrium. This study hypothesizes that the trusts were an institutional solution to an empty core problem. A simple diagram can be used to illustrate why some markets have empty cores. Fig. 1 depicts such a market, in which demand is variable and supply is a discontinuous function. The supply function is discontinuous because the technology involves indivisible capacity and fixed avoidable costs. Capacity is 4Telser (1972, 1978, 1987) and Sharkey (1977, 1979) developed the theory of the core as applied to small numbers situations. Sjostrom (1989) developed tests for comparing monopoly and empty core models. Bittlingmayer (1982) applied the analysis to batch production technology and Pirrong (1992) applied the analysis to ocean shipping markets.

250

A. McWilliams

and K. Keith,

The genesis of the trusts

P

S

S \

\

Fig. 1

D

Q

indivisible if it can be incremented only in large units, for example, oil tankers. Fixed avoidable costs are costs that are fixed for any level of output, but avoidable if no production takes place. An example is the cost of flying a commercial passenger airplane. The costs (fuel and crew) are largely fixed and do not depend on the number of passengers, but can be avoided by cancelling a flight. Indivisible supply will cause the supply curve to have gaps and the larger the fixed avoidable costs relative to variable costs, the steeper the supply function (in fig. 1 variable costs are assumed to be insignificant, resulting in the vertical supply function). The traditional market assumed in IO economics has an equilibrium, that is, a price at which the quantity supplied equals the quantity demanded. The market in fig. 1 has no such equilibrium for any demand curve that falls in the gap between the segments of the (discontinuous) supply curve. Therefore, for most levels of demand the core of this market is empty. The empty core stems from the lack of supply price for every level of quantity. It is easy to see that the likelihood of an empty core depends on the size of the gap between the segments of the supply curve and the elasticity of the demand curve. Less obvious implications were derived and tested by Sjostrom (1989). He shows that an empty core situation is more likely (1) the more homogeneous the firms, (2) the larger is a firm’s capacity relative to the market demand, (3) when the industry is in a slump, and (4) the more variable the demand or the supply. Empty core markets are chaotic. Loosely speaking, as long as buyers and sellers are allowed to compete (move between coalitions) without restriction,

A. McWilliams


251

quantities offered for sale fluctuate incessantly, and therefore so do prices5 And, the potential for a market to have an empty core is greater than we might suspect. Pirrong (1992, p. 93) concludes that ‘if the cost functions of individual plants contain regions of both increasing and decreasing returns, demand is variable, and if plants serve several customers simultaneously, the core is almost always empty’. This can lead to inefficient industry configurations. When demand is variable, an efficient industry configuration would include both large plants with low minimum average avoidable costs and small plants with higher minimum average avoidable costs. Such a configuration would allow supply to be adjusted to demand at minimum cost [Sharkey (1977, pp. 135-136)]. When demand was higher than average, both large, efficient plants and smaller, less efficient plants could be supported. With low demand, the small plants could be closed to economize on avoidable fixed costs, and the sunk, or unavoidable, fixed costs that would be incurred by the closed plants would be lower than those that would be incurred if large plants were closed. This would reduce the potential shortages associated with high levels of demand and the excess capacity associated with low levels of demand [Sharkey (1977, p. 136)]. However, such a situation may not be supportable without restrictions on competition. Installing larger, more efficient plants would create market chaos (cutthroat competition), thus risking the investment (installation cost) in the larger plants. So, while there is an incentive for a firm to install a large, efficient plant, there is also a disincentive to risk capital in such a market. If competition is forced on industries which have an empty core, it is quite possible that small-scale firms will persist even though economies of scale are technically feasible. Owners would tend to install plants that were smaller than socially optimal for two reasons. First, the unavoidable cost would be lower than with large plants (lowering the cost of idle plants during low demand periods). Second, the likelihood of an empty core would be reduced (Sjostrom’s implication no. 2). When the participants in an industry choose to retain small plants rather than risk cutthroat competition, the empty core problem will not be manifest. However, a high price (in terms of social inefficiency) is paid for the contrived stability of such markets [McWilliams (1990)]. Telser shows that another way to achieve an equilibrium in an empty core market is to restrict competition. Placing either all supply or all demand under the control of a single agent will allow that agent to impose an equilibrium and achieve an optimal industry configuration [Telser (1972, p. ‘When empty core markets arose in the United States in the late nineteenth century, the situation was described as cutthroat competition. The historical accounts of industries, e.g. railroading, steel, and petroleum and sugar relining, are rife with descriptions of the chaotic conditions [Vogt (1908) Tarbell (1936), Kolko (1965), Lamoreaux (1985)].

252

A. McWilliams

and K. Keith,


65)]. Our explanation of the trust movement is that the trusts were formed so that the gains from lowering production costs could be achieved without bearing the costs associated with empty core markets. This explanation is, therefore, an efficiency explanation. Efficiency was enhanced when the trust industries were able to install and use plants of (socially) optimal capacity, but they were able to do so only after they eliminated a potential market failure (the absence of an equilibrium) by restricting competition. In the trust industries rapid technological change had led to vast changes in plant capacities, returns to scale, and the relative size of avoidable fixed costs.6 But, as larger plants were built, it became apparent that excess capacity was a problem during the recurring periods of low demand. Because of the nature of the cost structures in these industries (the dominance of avoidable fixed costs), capacity was brought into and taken out of production in large increments, leading to wide fluctuations in output and price. These fluctuations kept plants in the industries, but also kept average profits low (often negative), making the prospect of adding capital unattractive. This prevented the installation of larger, more efficient plants as these became technically feasible. Instead of moving toward more efficient configurations over time, the industries continued to be made up of many small, (socially) ineflicient plants [McWilliams (1987)]. As the potential gains to scale economies increased, firms in these industries increased their efforts to overcome the potential losses from cutthroat competition. Standard Oil conceived of a way to effectively control industry output, eliminate cutthroat competition, and realize the gains to increasing plant size through the formation of a trust. The following section examines evidence from the trust era on the consequences of bringing production under the control of a single agent (a group of trustees) in the trust industries.

5. Evidence on the effects of the trusts The information that we have on the trusts allows us to make some judgments on the probable motives of the consolidators. The two opposing views, monopoly and efficiency, have different implications. If monopolization was the only motive, then we would expect to see restriction of output and higher prices. On the other hand, if rationalization of production was a primary motive, we would expect to see a change in the size distribution of plants, increased production, and a smoothing out of production (caused by the elimination of the empty core problem) and therefore price. To support our argument that the trusts were primarily interested in 6A description of the technological changes that occurred sugar refining, and the relation of large batch production functions is available from the authors. upon request.

in the trust industries, particularly processes to discontinuous cost

A. McWilliams

and K. Keith,

253


achieving efficient industry configurations, we offer three types of evidence. These include the effect of consolidation on: (1) output, (2) price and price variation, and (3) the size distribution of plants in operation. 5.1. The effect of consolidation on output If monopolization was the primary motivation for the formation of the trusts, then we would expect to find evidence that the trusts restricted output following consolidation. If rationalization was the motivation for the formation of the trusts, we would not expect to find evidence that the trusts restricted output following consolidation. Thus, a testable hypothesis is that pre trust production did not differ significantly from post trust production. Since data limitations make it impossible to estimate a system of demand and cost equations, we compare the output of the trust industries to the output of industries in general. This controls for such economy-wide changes as population increases and business cycles, although it does not control for industry-specific changes that might have affected demand or supply. To test for structural change in the post trust output of the trust industries, we regressed the log of an index of the physical production of the trust industry on the log of an index of the physical production for manufacturing in general and two interaction terms. The sample period is from 1870 to 1899, which spans a 30-year period surrounding the formation of the trust. The following equation was used: I,=a,+a,X+b,Q,+b,XQ,+e,,

where I, is the log of an index of the physical output of the trust industry in year t, Q, is the log of an index of the aggregate physical output for manufacturing in the year t, and X is a dummy variable, defined as: X = 1 if t is after the formation of the trust, and X=0 otherwise. Our null hypothesis is that no change occurred after the formation of a trust, i.e. a, = b, = 0. Table 1 presents the results for the five trust industries for which pre and post trust quantities were available.’ The first and second columns contain the intercept and the manufacturing index estimates. The third and fourth columns contain the estimates for the two interaction terms. Using these estimates, we conclude that petroleum refining is the only industry in which there is evidence of structural change. The insignificance of the interaction term estimates indicates that neither the intercept nor the slope were affected by the formation of a trust in the cordage, lead relining, spirits, or sugar refining industries. In the cordage and the lead refining industries, output increased at a faster rate than did ‘No output data were available for linseed following the formation of the trust (1888-1895)

oil and data were available for cottonseed oil.

only

for the years


254

Table

1

Results of test for structural change in the trust industries. Log of index of output trust industry regressed on log of index of output for manufacturing (187&1899) (absolute value of t-statistics in parentheses).

Trust Cordage Lead Petroleum Spirits Sugar

(1) Intercept - 1.42 (2.55) - 3.92 (3.70) -6.04 (6.67) 2.52 (3.43) 0.67 (I .90)

(2) Manufacturing 1.28 (11.73) 1.95 (9.41) 2.30 (12.65) 0.41 (2.87) 0.86 (12.74)

(3) Dummy 2.36 (0.65) 2.24 (0.71) 1.95 (5.53)b 2.09 (0.95) 0.89 (0.84)

(4) Interaction -0.38 (0.60) -0.44 (0.80) - 1.55 (5.81)b -0.37 (0.96) -0.14 (0.78)

in

Adj RZ 0.9433 0.8866 0.9303 0.3896 0.9560

“GLS estimates were calculated for all of the industries, to correct for autocorrelation. Petroleum, spirits, sugar, and cordage were corrected for first-order autocorrelation and lead was corrected for second-order autocorrelation. The GLS estimates are virtually the same as the OLS estimates, therefore only the OLS estimates are reported here. %ignificant at the 0.01 level. Sources: Depew (1895, vol. l), Oil City Derrick (1901), Statistical Abstracts (1915), Schultz (1938), U.S. Department of Commerce, Bureau of the Census (1949, 1960, 1975).

manufacturing in general before the formation of the trusts and continued to increase at a faster rate after the formation of the trusts. In the spirits and the sugar refining industries, output increased at a slower rate than manufacturing in general before the formation of the trusts, and continued to do so after the formation of the trusts. Taken together, the insignificant estimates of the interaction terms support the null hypothesis that pre and post trust behavior was not significantly different in these industries. For petroleum refining, both the interaction term estimates are significantly different from zero at the two-tailed 0.01 level. Thus, we can reject the hypothesis of no structural change for the petroleum refining industry. Even though the intercept interaction estimate is positive, we cannot, with confidence, say that the trust increased output, because we are simply comparing the output of petroleum to the output of industry in general. What we can say is that the positive estimate for the intercept term along with the negative estimate for the slope term seems to indicate that the trust smoothed out its production, relative to industry in general. In fact, if we estimate how petroleum output would have compared to output of industry in general for the entire period if the trust had always existed and compare this to how petroleum output would have compared to output of industry in general if the trust had neuer existed [as Telser (1987) did for prices], we find

A. McWilliams


255

evidence of this smoothing out of production. This is weak support for the rationalization theory. In conclusion, for four of the trusts, we cannot reject the hypothesis of no structural change following consolidation. Therefore, there is no support for the monopoly theory and no support for the rationalization theory. For the petroleum refining trust we can reject the hypothesis of no structural change. Because the intercept increased and the slope decreased post trust, there is some evidence that this trust was successful in smoothing out its production, relative to industry in general. Therefore given the limited data we have on the quantity of output, we find weak support for the rationalization theory and no support for the monopolization theory.* 5.2. The effect of consolidation on price and price variations Because the trusts were processing industries, the relevant price to examine for evidence of monopolization or stabilization is the margin between the wholesale price and the price of their raw material, with both the level of price and its variance being important. We would expect a monopoly to increase price and firms seeking to control an empty core market to stabilize price and eliminate cutthroat competition. Sufficient data, i.e. monthly prices, are available for only three of the trusts’ products: refined petroleum, refined sugar, and spirits. The findings on this data are summarized in table 2. For the sugar refining industry, consolidation appears to have achieved both higher and more stable margins. While the mean of both wholesale and raw prices was lower in the years following the formation of the trust, the fall in the raw price was greater than the fall in the wholesale price, leaving a larger margin for the refiners (an increase of one-fifth of a cent per pound). Notably, while raw and wholesale prices were subject to considerably more variation in the years following the formation of the trust than they were in the years before consolidation, the coefficient of variation for the margin actually declined. While there was a 168% increase in variation for wholesale prices and a 226% increase in variation for raw price, variation decreased by 18% for the margin. Therefore, there is evidence that, despite strong exogenous pressure, the trust was effective in stabilizing its price. For the spirits industry (Whiskey Trust), the average margin was lower, but became less stable following consolidation. The means of the wholesale price, the raw price (of corn), and the difference between them, all fell ‘This is consistent with other findings on output. DiLorenzo (1985) looked at the pattern of output growth in several industries that had been [loosely] termed monopolies in the late 1800s and found that their output increased faster than the output of industries in general and several times as fast as GNP grew. Telser reports that between 1880 and 1890 output of refined petroleum products rose by 393% or almost six times as much as the output of the manufacturing sector as a whole.

256

A. McWilliams

and K. Keith,


Table 2 Monthly

Price

prices, pre and post trust.

Mean (pre)

Mean (post)

t

(me)

C.V.

C.V. (post)

0.083 0.073 0.010

0.068 0.056 0.012

13.21 15.24 4.3 1

6.357 6.464 33.761

17.062 2 1.077 27.606

16.605 5.081 11.524

8.663 2.640 6.023

28.32 14.00 29.62

20.404 41.246 19.552

12.587 27.192 11.318

1.055 0.508 0.547

0.880 0.503 0.377

4.59 0.30 4.28

15.876 12.850 34.266

25.809 23.595 50.772

Sugar ($/lb) Wholesale Raw Margin Petroleum

(c/gal)

Wholesale Raw Margin Spirits ($/gal) Wholesale Raw Margin

Note: All t-statistics for differences of means are significant at the 0.01 level, with the exception of the prices of raw material for spiritis. Source: Monthly prices from the U.S. Department of Labor, Bulletin Volume V (1990), adjusted using price indexes from Cornell University, Wholesale Prices for 213 Years, I720 to 1932.

following consolidation. The average margin fell by 1.7 cents per gallon. The coefficient of variation for all three prices increased substantially, although the increase for the margin was the lowest of the three. The increase in variation for the input price was 84% and the increase for the wholesale price was 63x, while the increase for the margin was 48%. Therefore, the Whiskey Trust stabilized its price relative to input and retail prices. The increases in price variation are not surprising because the industry continued to be subject to changes in tariff restrictions and taxation that caused wide swings in the production of spirits as well as a close substitute for spirits Kentucky Whiskey [Vogt (1908), Eichner (1969)]. For refined petroleum (kerosene), the average margin declined as well as stabilized. The means of the wholesale price, the raw price, and the margin were all lower for the post consolidation period than for the pre consolidation period. The average margin declined 5.5 cents per gallon. The coefficient of variation was lower for all three prices as well, but decreased the most for the margin. There was a 34% decrease in variation for the raw price, a 38% decrease for the wholesale price, and a 42% decrease for the margin.

A. McWilliams

and K. Keith,

The genesis

of the trusts

251

This evidence on petroleum prices is consistent with Telser who found that the margins declined following the formation of the trust and that the prices of refined petroleum products were lower after the formation of the trust than they would have been had no trust been formed [Telser (1987, pp. 37-40)].9 As with output, we have only very limited evidence on the effect of the trusts on prices. What we have suggests that the trusts were somewhat effective in stabilizing prices. This is the only consistent result on prices, since margins fell in two instances and rose in one.

5.3. The effect of consolidation on the size distribution of plants The clearest distinction in behavior between monopolization and efficiency would be in the retention of capacity following consolidation. A monopoly would eliminate capacity. An efficiency-seeking firm would rationalize capacity, that is, retain and build capacity to produce at least cost for the different expected levels of demand. Therefore, the evidence on rationalization in the trust industries, while limited, is particularly enlightening. Because the evidence on rationalization is so central to the question of motivation for consolidation, it is interesting that others examining empty core industries have not looked at this type of evidence. They have, instead, looked for evidence of empty core characteristics [Bittlingmayer (1982) Sjostrom (1989), Pirrong (1992)] or evidence of the effect of consolidation on consumers [Telser (1987)]. The evidence presented in this section complements this earlier evidence by suggesting that the effect of the consolidations on consumers was a result of the trusts rationalizing industry capacity to better serve demand in empty core markets (where demand was highly variable). No rationalization took place in the cordage industry, no information on rationalization in the Lead Trust was found, and only limited information was obtained on the Whiskey, Cottonseed Oil, and Linseed Oil trusts.” The Whiskey Trust was a consolidation of 85 distilleries whose primary product was spirits (unaged whiskey). Sixty-five distilleries entered into the original trust agreement. During the reorganization period, 20 more distilleries joined the trust, bringing the number of distilleries to 85. Following consolidation,

‘Similar evidence prompted Telser to suggest that ‘The oil trust did not charge high prices because it had 90 percent of the market. It got 90 percent of the refined oil market by charging low prices’ [Telser (1987, p. 4)]. ‘ONo rationalization took place in the cattle trust because, unlike the other trusts, this one was formed primarily to counteract the monopsony power of its largest consumer, the meat packing industry, i.e. there were no scale economies to take advantage of [Gressley (1966, pp. 259-266).

258

A. MeWilliams

and K. Keith,


all but 20 of these distilleries were closed, many being permanently dismantled. Only 12 of the remaining 20 were operated on a regular basis. That rationalization did result in considerable cost savings is evidenced by the fact that the trust was able to pay ‘good dividends’ on the capital of 85 distilleries even though the average margin was lower than before consolidation [Jenks (1989)]. Immediately following its formation late in 1884, the Cotton Oil Trust closed more than a dozen refineries. By 1889 it had consolidated production into seven refineries and 52 crude oil mills [Clark (1929)]. The size of its plants increased so dramatically that a relatively small plant in 1890 processed more cottonseed than would have been processed by a relatively enormous plant 20 years earlier [Depew (1895, p. 455)]. Following the formation of a trust in the linseed oil industry in 1885, 21 refineries were closed. However, many firms chose to stay outside the trust and, therefore, it was able to control only about two-thirds of available capacity. The result of this was that instability continued to be a problem for the industry. As an alternative solution, some of the largest consumers of linseed oil, e.g. the Lead Trust and the Sherwin Williams Paint Company, chose to vertically integrate and produce their own oil [Eastman (1968)]. Understandably, more detailed information is available about rationalization in the two most successful trusts: the Sugar Trust and Standard Oil. In 1887, 18 firms, having nearly 80% of the sugar refining capacity in the United States, joined to form the Sugar Trust. Table 3 lists the names and sizes of the original trust members and those plants remaining after consolidation. Following consolidation, seven of the trust’s refineries were closed and dismantled, three were used only during periods of peak demand, and eight were combined, in sets of two, into four larger plants. All of the smallest sugar refining plants disappeared, being either dismantled or combined to create a refinery with much larger capacity. Of these, Oxnard Brothers, Moller & Sierck, North River, Bay State, St. Louis (Belcher), and Forest City were shut down. Planters and Louisiana were combined into one plant, as were Continental and Standard. Dick and Meyer burnt down and was not rebuilt. Plants of intermediate size were kept in operating order to be used during periods of high demand or when larger plants were closed for maintenance. These included DeCastro and Donner, Boston and the Havemeyer’s Greenpoint refinery. The already large plants, Havemeyer & Elder and Brooklyn as well as Matthiessen & Wiechers and Havemeyer’s Jersey City were combined to form two huge plants [Eichner (1969)]. This rationalization of capacity resulted in a total daily capacity for the trust that was 1,700 barrels greater than the combined capacity of the 18 original firms working independently, bringing about a cost saving of approximately one-eighth of a cent per pound [Vogt (1908, p. 104), Eichner

A. McWillinms and K. Keith, The genesis of the trusts

259

Table 3 Plants

belonging

to the Sugar Trust. Plant melting

Name of refinery Original

members

of the Sugar Trust

Havemeyer & Eider Matthiessen & Wiechers Havemeyer-Jersey City DeCastro & Donner Brooklyn S.R. Co. Dick & Meyer Standard S.R. Co. St. Louis S.R. Co. (Belcher) Boston S.R. Co. Continental S.R. Co. Bay State S.R. Co. Louisiana S.R. Co. Moller & Sierck Oxnard Brothers North Rivers S.R. Co. Planters S.R. Co. Forest City S.R. Co. Havemeyer-Greenpoint Plants

remaining

capacity

3,500,OoO 1,600,OOO l,~,~ 800,000 750,000 650,000 600,000 500,000 450,000 400,000 350,000 250,000 200,000 200,000 200,000 200,000 unknown unknown

after rationalization

Operated on regular basis: Havemeyer & Elder plus Brooklyn Matthiessen and Wiechers plus Havemeyer-Jersey Planters plus Louisiana Continental plus Standard

City

Kept in running condition to be used occasionally: DeCastro & Donner Boston Havemeyer-Greenpoint Sources: Vogt (1908) and Eichner

(1969).

(1969, pp. 114-l 16)]. This cost saving was equivalent to over 10% of the average post consolidation margin. Although we know far less about the rationalization of the petroleum refining industry, we can surmise that it was more complicated, owing to the number of refining plants involved. As improvements in refining processes allowed large refineries to take advantage of scale economies, methods were found to transport crude oil cheaply, resulting in changes in the size and the location of refineries. The Standard Oil Trust took a domoinant role in effecting these changes within the industry. Tables 4 and 5 show refineries in Pittsburgh and other locations in Pennsylvania that closed or were purchased by or leased to the Standard Oil Trust. Table 6 shows refineries that

260


Table Partial

Firm name Imperial Atlantic Solar Oil Co. Porter, Moreland & Co. *V.M. Thompson Bennett, Warner & Co. *Cleveland & Co. Octave Oil Co. Easterly & Davis N.W. Hawkins W.L. Elkins *Standard Oil Co. H.L. Holden Pickering & Chambers *Herman Connell & Co. *Dudley & Co. W. King & Co. *Patterson Bros. J.L. Stewart Stewart, Matthews *John Johnson & Co. Hinkley & Barnsdall *Greenwich *scott & co. Eclipse *Ely & Co. *Decker & Co. *M.N. Allen *Thayer Brothers *Union Oil Works *Sanslield & Co. *Donahue & Co. *De Ze Vella & Co. Caison 8~ Culin *Levi Kerr *Bannister *Keystone *Lyons

4

list of Pennsylvania refineries (excluding Pittsburgh).

Weekly capacity 21,ooo 12,000 12,000 6,t)ot3 3,500 3,500 3,500 3,tl@3 2,500 2,ooo 2,ooo 2,000 1,800 1,750 1,690 1,590 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,400 1,400 1,200 1,200 1,050 1,050 l,ooo 1,000 l,flOO l,ofkl l,W 35

crude Firm

name

*Wamsutta Oil Co. *Cassatt *John Johnson *Rochester Oil Co. *Boyce & Tennant *John Wallace *Doe & Co. *U.C. Welton *Rogers & Co. *Laughlin & Co. William Teague Galena *R.J. Straight *D. Kennedy & Co. *D.S. Clarke *Witter & Co. Norristown Teague Bras. *United States Oil Co. National *D.S. Wright & Co. *William Docharty *Perry Oil Co. *Downing & Douglas *J.W. Hammond *J.G. Farwell *Morning Star Oil Works *Everett & Bissell *W.J. Watkins *Ryder & Co. *Crossier & Co. *W.H.D. Chapin *Louis Wertz *J.V. Boyer *Dobbs & Co. *Steele & Co. *Funk & Co.

Weekly capacity

crude

l,flBo l,ooo 1,~ 1,000 875 800 800 800 800 800 750 700 700 700 700 525 500 500 420 300 280 250 219 210 210 210 210 210 175 175 175 175 105 105 _ _ _

_

*Denotes a plant no longer in existence when these data were presented Congress. Source: U.S. House of Representatives, 50th Congress, 1st session, 1887-1888, 9, pp. 2322233.

to the 50th Reports, vol.

A. ~cWilliu~s

261

and K. Keith, The genesis of the trusts Table 5

Pittsburgh refineries taken over by standing oil. Weeklv crude

Weekly crude Firm name capacity ______ ___.._ ___----~Model Refining Co. 3,233 Central Relining 21,867 Lockhart & Frew *David Bly & Co. 2,490 13,078 R.J. Waring *King & Goodman 9,058 2,456 R.S. Waring William P. Logan & Co. 7,394 2,444 *D. Hostettet Standard Oil Co. 2,136 7,250 Brooks, Ballentine & Co. Holdship & Irwin 6,828 2,072 Citizen’s Oil Works J.D. Stockdale 6,072 1,906 *H.S.A. Stewart Standard Oil Co. 1,854 5,538 *Elkins & Flack J.A. McKee & Son 5,498 1,809 *Warmser, Myers & Co. A.D. Miller 1,103 5,238 *John Speer & Co. Alladin Oil 4,017 1,600 *Lockhart & Frew Central Refining Co. 3,758 1,318 *P. Weisenberger & Co. *E.J. Waring 3,718 1,018 *J.C. Kirkpatrick & Co. *Livingston Brothers 3,624 564 -__. .___ ~_~.. *Closed after takeover by the Standard Oil Group. Source: U.S. House of Representatives, 50th Congress, 1st session, 1887-1888, Reports, vol. 9, p. 234. Firm name

Tabie 6 Refineries built in or near New York City (all but one of which were controlled by Standard Oil). Firm name Bayonne Kings County Long Island Charles Platt Lombard, Ayers & Co. Bergen Point Wallabout Newtowne Creek Peerless Empire Oleophene Brooklyn Franklin

Weekly crude capacity -60,ooo 28,005 28,ooo 21,000 18,000 17,500 14,000 10,ooo 8,400 7,ooo 7,ooo 7,ooo 5.600

Weekly crude Firm name capacity l___~ .-..~Vesta 5,600 Queens County 5,600 Wickes’s 3,500 Greenpoint 2,700 Washington 2,450 Locust Hill 2,100 Atlantic I&@ Somer’s 1,050 Harron 700 Ran’s 700 Meyer’s 700 American 700

Source: U.S. House of Representatives, 50th Congress, ist session, 1887-1888, Reports, vol. 9, p. 235.

were subsequently built in New York City to replace the capacity eliminated in Pennsylvania.~’ Table 4 is a list of Pennsylvania refineries, excluding those located in “The raw data for tables 4, 5, and 6 are found in: U.S. House of Repr~entat~v~, Congress, 1st session, 1887-1888, Reports, vol. 9, 232-235.

50th

262

A. McWilliams

and K. Keith,


Table ‘I Size of establishments Percent distribution

among establishments

All industries Average for trust industries Cordage, twine, jute and linen Liquors, distilled Oil, cottonseed Oil, linseed Petroleum, relining Smelting and refining, lead Sugar, refining Source:

1910 Census

in 1909.

with specified product

$5,000

$5,00& 19,999

$20,ooo99,999

$lOO,OO& 999,999

34.8

32.4

21.3

10.4

1.1

6.1

7.5

16.4

35.9

34.1

7.3 31.2 0.2 0.0 0.7

12.2 22.2 4.4 3.4 10.2

29.3 15.0 43.0 0.0 17.0

43.9 25.3 50.3 62.1 48.3

7.3 6.4 2.1 34.5 23.8

3.6 0.0

0.0 0.0

10.7 0.0

10.7 10.5

75.0 89.5

of Manufacturing,

$l,OOO,OOO and over

pp. 196-199.

Pittsburgh, that either disappeared or came under the control of Standard Oil. Of 75 plants, 53, with a total weekly capital of nearly 43,000 barrels, were eliminated. The remaining 22 were purchased by or leased to Standard. The average capacity of the surviving plants was nearly 3,600 barrels a week, four times the average capacity of the plants that disappeared. Along with the largest plants, Standard kept several that varied considerably in size, from a small 300 barrel1 plant to a relatively large 21,000 barrel plant. Table 5 shows the Pittsburgh refineries, all of which were taken over by the Standard Oil Trust. After consolidation, Standard closed 12 of these refineries, eliminating the capacity to refine 24,290 barrels per week. Of the plants that were closed, all had below average capacities, including the seven smallest plants. Table 6 shows the refineries that were subsequently built in or near New York City, all but one of which was controlled by Standard Oil. These refineries, with a combined capacity of over 258,000 barrels, varied in size from small 700 barrel plants to one huge 60,000 barrel plant. The Bayonne plant alone, with its 60,000 barrel capacity, could process almost as much crude petroleum per week as all the plants eliminated in Pennsylvania, including those in Pittsburgh. The average size of the later-built New York refineries was three times the size of the surviving Pennsylvania refineries and twelve times the size of the non-survivors. The data show that the trusts were responsible for the disappearance of many small plants, the survival of plants of a wide variety of sizes, and the introduction of very large plants and multiplant firms. While this evidence is far from complete, it is clear that the size distribution of plants in the trust industries underwent marked change following consolidation. This is what

A. McWillinm.9 and K. Keith, The genesis of the trusts

263

we would expect of firms with rigid capacity constraints and uncertain demand, if the goal of consolidation was efficiency through rationalization. If we look at the size distribution of plants in the trust industries in 1909, it is evident that these industries continued to have a distribution of plant sizes that was not representative of industry in general. Table 7 shows the distribution of plant sizes as measured by the value of output. The aggregate distribution shows that over two-thirds of all industrial establishments produced less than $20,000 worth of output in 1909. For the trust industries, however, only about one-eighth of the establishments were this small. Large plants, those with output in excess of $l,OOO,OOO, made up only about 1% of all establishments. By contrast, on average, over one-third of the trust industries’ establishments fell into this category, with a maximum of nearly 90% for the sugar refining industry. Table 8 shows the average product of plants in the trust industries before and after the formation of the trusts (all of which were formed in the 1880s). The increase in average product for the trust industries varied from 14% to 481% with an average increase of 261%. Excluding the Cottonseed Oil Trust, for which the data are misleading because they include raw seed processing mills as well as refiners, the increase in average product varies from 151% to 481% for an average increase of 310%. For all industries (including the trusts) the average increase was only 46%. Clearly, the increase in size of plants was dramatically greater in the trust industries than in industry in general during this time period. 6. Summary and conclusions This study was motivated by the desire to examine the genesis of the consolidation movement that occurred in the United States at the turn of the last century. It was found that the consolidation movement began with the formation of the trusts in the 1880s. Because the trusts represent a distinct and important phenomenon, a re-examination of the trusts, in light of recent developments in industrial organization economics, was undertaken. It was found that empty core theory [Telser (1972, 1978), Sharkey (1977, 1979)] could be used to analyze the motives behind and the consequences of the early consolidations. Telser (1972, 1978) and Sharkey (1977, 1979) prove that no competitive equilibrium exists for some markets. These markets are said to have an empty core and are characterized by indivisible supply and variable demand. In such markets, institutional arrangements will evolve to enforce an equilibrium [Sjostrom (1989), Pirrong (1992)]. Consistent with this body of work, this paper hypothesized that the trusts were an innovative and efficiency-increasing institutional solution to a market failure, the absence of an equilibrium in markets in which demand

264

A. McWilliams and K. Keith, The genesis of the trusts Table 8 Change in plant size (average product in constant dollars). ___Industry Cordage Cottonseed Oil Lead Linseed Oil Petroleum Sugar Whiskey All industries

1880 757 10 170,909 190,047 508,200 3,173,161 48,654 21,152

1900

% change

439,601 194,086” 5,486,751b 690,659 2,255,722 13,085,719’ 122,075 30,960

481 14 263 344 312 151 46

“Unfortunately, the data are for raw processing mills as well as refiners. The trust was a consolidtion of retiners. ‘No earlier data were available for the lead industry. ‘Data for 1910 were used because the census reported an error in gathering the data for the sugar refining industry in 1900. Sources: U.S. Bureau of the Census Bulletin Nos. 5562 (1906), U.S. Bureau of the Census, 1870, 1900 and 1910 Census of Manufhcturing. Warren-Pearson wholesale price index numbers from Wholesale Pricesfor 213 Years, 1720 IO 1932, p. 9, were used to adjust nominal prices.

was very unstable and supply was discontinuous. That is, these consolidations were motivated primarily by the desire to achieve efficient plant configurations within their respective industries. Evidence on the rationalization of industry capacity, output rates, and price stabilization were offered in support of the hypothesis that the early large consolidations, the trusts, were primarily interested in securing market control so that efficient industry configurations could be achieved. The alternative hypothesis in each case was that the trusts were primarily interested in securing market control to capture monopoly rents. The evidence is far from conclusive. Much of the data that would be necessary to run conclusive tests are not available, either because the data were never recorded or because the data did not survive. We used the available data to examine the different implications of rationalization and monopoly. While the results are not overwhelming, there is some support for the hypothesis that the trusts were primarily interested in stabilizing their markets in the face of very chaotic market conditions. The first evidence presented related to quantity of output. A test of structural change was performed to see if (1) the trust restricted output following conclusion and (2) the rate of growth of the trusts’ output, relative to the rate of growth of industrial output in general, after the consolidation

A. McWillinms

and K. Keith,


265

differed from the relationship prior to consolidation. For only one trust, Standard Oil, was there a significant change in behavior following consolidation. Standard Oil appears to have been responsible for a smoothing out of the production of relined petroleum. There was no significant change for any of the other trusts. The results are inconclusive for monopolization, but consistent with rationalization. The second type of evidence was on prices and price variation. Useful data were found for only three of the trusts: petroleum, sugar, and spirits. For all three there is some evidence that the trusts stabilized their prices, although the evidence on monopolization is less clear. The Sugar Trust seems to have resulted in higher prices, while for the petroleum and spirits industries, consolidation appears to have resulted in lower prices. The third type of evidence is more directly associated with rationalization. This evidence concerns the size distribution of plants in operation in the trusts pre and post consolidation. We would expect a monopoly to have eliminated capacity and ristricted output and we would expect an efliciencyseeking firm to have rationalized capacity, that is, to have retained and built capacity that would have allowed it to produce at least cost for the different expected levels of demand. The extant evidence, though again limited, supports the second motivation and not the first. The anecdotal evidence we have shows that the Oil Trust, the Sugar Trust, and the Cottonseed Oil Trust all quickly rationalized industry capacity after consolidation. For each, many small plants were eliminated, but many larger ones were built or were created by the combination and modification of existing plants, resulting in increased capacity. Also, in each of these industries, plants of several different sizes were retained as would be predicted in an industry with variable demand. Looking at the size distribution of plants in the trust industries in 1909, it is evident that these industries continued to have a distribution of plant sizes that was not representative of industry in general. The trust industries continued to have more large plants (and they were relatively larger) than other industries. Also, the average size of plants had grown much more rapidly in the trust industries than in most other industries. Large, multiple plants firms emerged in the trust industries, and continued to dominate there for some time. Since the large, multiplant firm emerged in the 1800s it has continued to diffuse and evolve. While we have learned much about its contribution to growth and efliciency from Chandler (1977) and others, many have clung to the perception of the trust organizers as Robber Barons. It may be time to consider less corrupt motives. If in some markets no equilibrium will exist without restrictions on competition (that is, some markets have an empty core), then restricting competition may be in the best interests of consumers as well as producers (McWilliams (1990)]. In that vein, the trusts may have

266

A. McWilliams

and K. Keith,


been a very innovative solution to a market method to achieve efficient market structure.

inadequacy

and

an effective

References Atack, Jeremy, 1985, Industrial structure and the emergence of the modern industrial corporation, Explorations in Economic History 22, 29-52. Bittlingmayer, George, 1982, Decreasing average cost and competition: A new look at the Addyston Pipe case, Journal of Law and Economics 25, 201-229. Chandler, Alfred D. Jr., 1977, The visible hand: The managerial revolution in Amercian business (Harvard University Press, Cambridge, MA). Clark. Victor. 1929. Historv of manufacturers in the United States. Vol. 2. 186G1893 (McGrawHill, New’York) 519-523. Conant, Luther, 1901, Industrial consolidations in the United States, Publications of the American Statistical Association 53, l-20. Corley, Robert, et al., 1981, The legal environment of business (McGraw-Hill, New York). Davenport, Herbert, 1919, The economics of enterprise (Macmillan, New York). Depew, Chauncey, ed., 1895, One hundred years of American commerce, Vols. 1 and 2 (D.O. Hayes & Co., New York). DiLorenzo, Thomas, 1985, The origins of antitrust: An interest-group perspective, International Review of Law and Economics 5, 73-90. Eastman, Whitney, 1968, The history of the linseed oil industry in the United States (T.S. Denison and Co., Minneapolis, MI). Eichner, Alfred, 1969, The emergence of oligopoly - sugar refining as a case study (JohnsHopkins Press, Baltimore, MD). Fisher, Irving, 1912, Elementary principles of economics (Macmillan, New York). Gressley, Gene, 1966, Bankers and cattlemen (Alfred A. Knopf, New York). Hadley, Arthur, 1896, Economics: An account of the relation between private property and public welfare (G.P. Putnam’s Sons, New York). Jenks, Jeremiah, 1889, The development of the whiskey trust, Political Science Quarterly 6, 296319. Jones, Eliot, 1920, Is competition in industry ruinous? Quarterly Journal of Economics 34, 473-519. Jones, Eliot, 1924, The trust problem in the United States (Macmillan, New York). Knauth, Ottis, 1915, Competition and capital, Political Science Quarterly 30, 5788590. Kolko, Gabriel, 1965, Railroads and regulation 187771916 (Princeton University Press, Princeton, NJ). Lamoreaux, Naomi, 1985, The great merger movement in American business, 1895-1904 (Cambridge University Press, Cambridge). Livermore, Shaw, 1935, The success of industrial mergers, Quarterly Journal of Economics 49, 68-96. Markham, Jesse, 1955, Survey of the evidence and findings on mergers, Business concentration and price policy (Princeton University Press, Princeton, NJ). McWilliams, Abagail, 1987, The consolidation of American industry: A new perspective on the trust era, Ph.D. dissertation, The Ohio State University, Columbus, OH. McWilliams, Abagail, 1990, Rethinking horizontal market restrictions: In defense of cooperation in empty core markets, Quarterly Review of Economics and Business 30, 3-14. Moody, John, 1904, The truth about the trusts (Moody Publishing, New York). Navin, Thomas and Marian Sears, 1955, The rise of a market for industrial securities, 18871902, Business History Review 29, 1055138. Nelson, Ralph, 1959, Merger movements in American industry 18951956 (Princeton University Press, Princeton, NJ). O’Brien, Anthony P., 1988, Factory size, economies of scale, and the great merger wave of 18981902, Journal of Economic History 48, no. 3, 639-649. Oil City Derrick, 1901, Pure Oil vs. Standard Oil Company (Derrick Publishing Co., Oil City, PA).


261

Pirrong, Stephen, 1992, An application of core theory to the analysis of ocean shipping markets, Journal of Law and Economics 35, 89-131. Schultz, Henry, 1938, The theory and measurement of demand (University of Chicago Press, Chicago, IL). Seager, Henry and Charles Gulick, 1929, Trust and corporation problems (Harper and Bros., New York). Seligman, E., 1909, Principles of economics (Longmans, Green, and Co, New York). Sharkey, William, 1977, Efficient production when demand is uncertain, Journal of Public Economic 9, 369-384. Sharkey, William, 1979, Existence of the core when there are increasing returns, Econometrica 41, no. 4, 869-876. Sharkey, William, 1982, The theory of natural monopoly (Cambridge University Press, Cambridge). Sjostrom, William, 1989, Collusion of ocean shipping: A test of monopoly and empty core models, Journal of Political Economy 97, 116&l 179. Stevens, William, ed., 1913, Industrial combinations and trust (Macmillan, New York). Stigler, George, 1950, Monopoly and oligopoly by merger, Papers and Proceedings American Economic Review 40, no. 2, 23-34. Tarbell, Ida, 1936, The nationalizing of business 1878-1898 (Macmillan, New York). Telser, Lester, 1972, Competition, collusion and game theory (Aldine-Atherton, Chicago, IL). Telser, Lester, 1978, Economic theory and the core (University of Chicago Press, Chicago, IL). Telser, Lester, 1987, A theory of efficient cooperation and competition (Cambridge University Press, Cambridge). Thorelli, Hans, 1955, The federal antitrust policy-origination of an American tradition (Johns Hopkins Press, Baltimore, MD). U.S. Department of Commerce and Labor, Bureau of the Census, 1906, U.S. Bureau of the Census Bulletin Nos. 55-62 (Government Printina Office. Washington. DC). U.S. Department of Commerce; Bureau of the Cen&s 1949, HistorGal statistics of the United States (Government Printing Office, Washington, DC). U.S. Department of Commerce, Bureau of the Census, 1960, Historical statistics of the United States (Government Printing Oflice, Washington, DC). U.S. Department of Commerce, Bureau of the Census, 1975, Historical statistics of the United States (Government Printing Office, Washington DC). U.S. House of Representatives, 50th Congress, 1st session, 1887-1888, Reports, Vol. 9. Vogt, Paul, 1908, The sugar relining industry in the United States (University of Pennsylvania, Philadelphia, PA). Watkins, Myron, 1927, Industrial combinations and public policy, a study of combination, competition and the common welfare (Houghton MilIlin, New York). Wyman, Bruce, 1914, Control of the market (Moffat, Yard, and Co., New York).