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same for all products and all markets. Some products are sold at higher than domestic prices, some are sold at the same as domestic prices, and some lower. There is a similar variation from market to market. In other words, it is often impossible to give a simple description to a firm's price policy by saying that it exports at lower or higher prices or at prices identical with domestic quotations. For it may be doing all three things at the same time. A comparison of average prices in export and domestic trade would often, therefore, conceal the details which are of primary interest in this study. For this reason an attempt at two comparisons between domestic and export business was made-one concerns prices, the other profits.

The cases examined in the field survey have been divided into three groups, on the basis of price policy. The prices compared in all cases were adjusted prices-not invoice prices. Group I includes those for which all or some export prices are higher than domestic prices, but no export prices are lower than domestic prices. Some export prices may be equal to domestic prices, either for certain products or to certain countries, but none are lower. Group II includes all cases for which export prices are equal to domestic prices; none are higher and none lower. Group III includes those cases for which some export prices, adjusted as indicated above, are lower than domestic prices. In these cases export prices may be in part equal or higher than domestic but some prices are lower. The details of price policy are given according to the various types classified under each group.

The comparison of the profitability on export and domestic sales was made in order to indicate the overall or average relation of export and domestic prices. It is clear that if adjusted export prices on a particular product to a particular country are lower than domestic prices then the profit margin on those export sales is lower than on domestic sales. The process of adjusting prices is a process of allowing for significant differences in costs. Hence, a net difference in price is a difference in the margin of profit on that portion of exports.*

The comparison of profit margins on United States sales with all export sales measures the difference between the average of all domestic prices (adjusted) and all export prices (adjusted). It indicates, however, two things which are neglected by the price comparison. First, it may show that there are some small differences in costs which could not be considered large enough to warrant a price adjustment. For this reason a case in group II of export and domestic prices equal may have a higher or lower margin of profit on export sales. All the cases in group I, however, have a higher margin of profit on exports. Second, it can show that lower export prices for a portion of a firm's exports may be offset by higher prices for other portions. Thus, some of the cases in group III which have some lower export prices also have higher profits on export sales.

In the comparison of profits, all direct costs of doing domestic or export business were to be charged against those sales to which they applied and overhead or joint costs strictly allocated on the basis of sales. Each sales department, domestic and export, was to be charged with its full costs including overhead.

The margin of profit refers to average profit, of course, not marginal profit.

CHAPTER V

COMPARISON OF EXPORT AND DOMESTIC PRICE

POLICIES

In this chapter will be presented a summary of the price policies and comparative profitability of domestic and export sales for the 76 business enterprises covered by the field study. This summarization is necessarily an oversimplification of the facts since there are peculiarities in the selling practices of every business organization which in one way or another make it an individual case. The cases are classified into three main groups and subclassified into various types, according to the predominant characteristic of the export price policy. In this way, the pledge not to disclose the identity of any business organization which supplied this information is not violated as it would be if complete descriptions of products and practices were given case by case. Such a classification of the cases based upon the dominant characteristic of the price policy, which, so to speak, stressed the rationale of the price policy, reduces the data to manageable form and more clearly reveals the essential facts.

The primary classification of the 76 cases has been made on the basis of the comparison of domestic and export prices as defined in chapter IV. Thus, the cases fall into three groups-those with export prices higher than domestic prices, export prices equal to domestic prices, and export prices lower than domestic prices. The cases are further subdivided into 13 types, according to the dominant feature of the price policy. This essential feature of the export price policy may be either the guiding principle behind the price policy, or an expression of the conditions or results achieved by the price policy or both. One or more examples of each type will be given in order to show the details of price policy.

If export prices are higher than domestic prices after the adjustment, then export sales are presumably more profitable than domestic sales and vice versa. However, the following distinction must be made between the comparison of prices and the comparative profitability of domestic and export sales as a whole. Where a business organization makes some of its export sales at net prices identical to domestic prices and some of its export sales at net prices higher than domestic it has been put into group I-export prices higher than domestic prices. Where the business organization consummates any significant portion of its export business at net prices lower than domestic prices so that its net profit on that portion of its sales is lower than the net profit on its domestic sales it has been classified into group III-export prices lower than domestic prices. In some of these

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cases the profitability of export business as a whole may be just as great as the profitability of domestic business and in some cases the export business as a whole may be more profitable. Moreover, as the price comparison is based upon an approximation of the factory net on domestic and export sales while the profit comparison is based upon a precise computation of factory net including all selling and incidental costs, the results of these two comparisons are sometimes different. The number of cases which have these various profit experiences will be indicated in the discussion to follow.

The reader will remember that in the comparison of the net profit on domestic and export business all costs must be allocated with no special preference given to either the domestic or export sales. That is, per unit factory costs for identical products must be the same and where the products are not identical the exact factory costs must be determined on a rational basis. For example, all factory overhead cannot be charged against domestic sales. The direct costs of selling and distribution in the domestic market must be charged against domestic sales and the same procedure followed for export selling costs. Furthermore, general administration overhead must be divided on a reasonable basis.

In the case histories, it will be indicated whether the business organizations have actual profit and loss statements prepared separately for domestic and export sales. Where the profitability of export and domestic sales are not computed separately the comparison that will be offered represents the best judgment of the management. It should also be added that when a case is noted as not preparing separate profit statements for domestic and export sales, it only means that the profitability is not measured in the manner indicated above. The company may keep its records in some other form not suited to the needs of this study.

The distribution of the 76 cases among the three groups and 13 types of price policies is shown in Table 1. The explanation of the various types of price policies is given in the text of this chapter.

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Out of the total of 76 cases, 9 were found to have higher export than domestic prices for either a significant part or for all export sales and to have no class of export business on which prices were lower than domestic prices for a similar class of customer. That is, in these 9 cases, after invoice prices are adjusted for differences in terms and conditions of sale or for significant differences in selling costs, export prices are higher than domestic for at least a part of export sales and no less than equal to domestic prices for the remainder of export sales. Of necessity, export business as a whole is more profitable than domestic in all these cases.

Type 1. Export Monopoly.

The distinguishing characteristic of export price policy in cases of group I, type 1 is that export prices are admittedly monopoly prices regardless of the competitive or noncompetitive nature of domestic prices. The United States producers account for a dominant share of world production. In the cases of this type which fell in our sample, they (or most of them) have organized an export corporation under the Webb-Pomerene Act which enables them to agree upon and fix export prices. Thus, control over a major portion of world supply is the economic factor which dominates export pricing policy. Two

cases out of the 9 in group I were of this type. A case of this type is described in the following example:

Example 1.-This company produces various qualities of a single chemical product of which the United States is the predominant source of world supply. The bulk of the output is sold direct to large industrial users in both domestic and export markets in carload lots while smaller quantities are parcelled out to dealers or smaller users from regional warehouses.

In the domestic market the company sells carload lots on an f. o. b. factory basis at a uniform price to all buyers of that quantity. To its export customers the company always quotes c. i. f. prices which are substantially the c. i. f. prices established by a Webb-Pomerene export corporation representing most of the industry but of which the company interviewed is not a member. The c. i. f. export prices have been set according to a zone or regional system with differentials corresponding in part to the larger differences in ocean freight costs which are included in the c. i. f. price, but also giving those regions which contain the larger industrial users a somewhat lower price. Within any region, however, and as among the several regions the ocean freight costs from the usual port of export from the United States do not vary identically with the c. i. f. prices. The company, therefore, sells abroad at any one time at a number of f. o. b. mill prices.

These f. o. b. mill export prices are all higher than the f. o. b. mill domestic price. On the average the mill net or export sales, less the extra costs of export packing, is about 20 percent higher than the domestic price.

The management states that in its experience selling costs for export business are a little higher than for the domestic market and export credit terms must be adjusted to the greater distances involved. However, export business is still considerably more profitable than domestic. Example 2.-One other case in the sample was of this general type, also involving a single chemical product. It might be well to give a description of the price policy in this case also, so that the reader can observe the individual differences in price policies among various cases, even though classified as being of the same type. The American industry in this case, while the major source of world supply, does not possess a large enough share of world output to dictate world prices, but prices in foreign markets are fixed through agreements with the important foreign producers.

The enterprises involved include a Webb-Pomerene export corporation and the several domestic producing companies which own its stock. The domestic producing companies sell only in the domestic market, while the export corporation sells only in foreign markets. This commodity is sold in the domestic market at uniform delivered prices, and as the freight costs to various destinations differ there are a variety of f. o. b. prices. Export prices are always quoted c. i. f. and have been set with small differences from one geographical area to another. These c. i. f. prices are much more similar than would be the case if actual insurance and freight costs for each shipment were added to a uniform f. o. b. or f. a. s. price as there has been a conscious attempt to approximate a uniform delivered price, equalizing the price to foreign buyers who are in competition with each other. Therefore,

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