necessitating a lower export price. In some cases it is locally made products and in others it is imported products from other countries competing with United States merchandise in third markets. It was frequently stated that while the American product is of superior quality and can command a higher price than foreign-made goods the differential cannot be as great as would be required if the products were exported at domestic prices.

(b) A few firms have lower export prices for particular foreign markets in order to meet the price competition of other United States producers who are attempting to enlarge their share of the market. United States competition was cited much less often than foreign competition as the reason for lower export prices.

(c) Quite similar to the existence of lower-priced competing products are the cases in which the producer lowers his price to particular markets in order that his product may be sold in the conventional price class in the currency of those markets. This is an important marketing consideration for many types of novelty consumers' goods. A product is made to sell for 10 cents, 50 cents, or a dollar in the domestic market regardless of the fact that there are somewhat similar products selling at other prices. The vagaries of the consumer are such that many quite similar products are sold in the same store at a variety of prices. The American producer might know that his (say) 25-cent seller would go over better in foreign markets if the price in local currency was (say) 5 pesos (Chilean), 1 krona (Swedish), and 5 milreis. He, therefore, lowers the export price to those countries to enable the foreign dealer to sell at those prices.

(d) Lower export prices are often established because the high landed costs to the importer would otherwise raise the price in the foreign country above a salable level. High tariffs is the cost item most frequently cited, but ocean freight costs is also an important factor. These factors can be operative even if there is no local competition with lower prices which must be met.

(e) Export prices are often lowered to put the product within the reach of a people with low purchasing power. The relatively high average income level in the United States allows the firm to sell at the domestic price, but that price would put the product beyond the means of most of the consumers in countries with a much lower average income.

(f) Price concessions are given in order that the foreign distributor or dealer might have a gross-profit margin large enough to keep him in business. This is often necessary in markets where the volume of sales is low in comparison with the sales volume of a dealer or distributor in the American market. The retail price cannot be any higher abroad than it is here, so the American producer must absorb some of the foreign agent's high unit costs of operating in his market, his high unit costs being due to small volume.

(g) Another form of essentially the same situation is found in cases where a company gives an allowance to its foreign representative to cover his costs in supplying services required in the marketing of the product. The small volume of sales in the foreign market raises the service costs per unit much above the company's own costs in the domestic market so that the allowance given is equivalent to a price reduction.

(h) A factor very frequently cited as requiring lower export prices is the depreciation of foreign currencies. Such depreciation would automatically raise the local currency price if the same dollar export price were maintained. Since the market cannot stand the higher price, because the prices of locally made goods do not rise, or the product has become established in the market at a certain local currency price, or the rise would take the product out of its price class, etc., the dollar export price must be lowered.

(i) The general business situation is not the same in all countries at the same time. While business is depressed and prices low in some markets, trade is active and prices strong in other markets. A producer selling in many markets must adjust prices to meet local business conditions. This is particularly the case where the bulk of producers in each market do only a local business while a few firms are active on an international scale.

3. Why Domestic Prices Are Higher.

It is evident that the factors in foreign market conditions cited above as the reasons for United States firms selling in export at lower than domestic prices could all be reversed to explain why they sell at higher prices in the domestic market. That much is implicit in the factors themselves; they do have importance in foreign markets and they do not have importance in the domestic market. The domestic price is higher because these factors are not present to induce the producer to make them lower. The question at issue then becomes: What enables these producers to maintain price differentials, to get higher domestic than export prices?

A. Monopoly aspects of the problem.-This leads to the fundamental problem of our study. Does the existence of lower export than domestic prices imply that competition in the domestic market is in some way restricted, that the producer to some extent is in a monopolistic position? Can competition and price differences exist side by side, or are the two conditions incompatible?

In order to answer this question it is necessary to reach an understanding of the meaning to be attached to the term competition. The business practices implicit in competition must be distinguished from those associated with monopoly in order to decide whether a business or an industry is competitive or monopolistic.

The popular conception of competition, held by most business men and by the general public, may be defined as the independent rivalry of a number of producers of a rather similar product for the business patronage of the consumers of that product. The essential elements of this conception are that there are several producers engaged in the production of the commodity and that they act independently in setting their price, production, and selling policies. Each uses his own judgment as to how much to produce, what price to charge, and how to reach the consumer. Each tries to get as large a share of the market as he profitably can.

As opposed to a condition of competition, there is generally conceived to be a condition of monopoly in which the essential elements of competition are not operative. Either the total production of the commodity is in the hands of one business organization, or else there is an agreement-tacit or explicit-among the several producers of the commodity to maintain prices, limit production, or

allocate market areas. Competition and monopoly are looked upon as alternative forms of business activity and mutually exclusive categories of business behavior; an industry is either competitive or monopolistic. To a large extent, antitrust legislation is based upon this conception. It seeks to prohibit actions by business which limit independent rivalry for trade except insofar as those limitations arise from patents, copyright, or regulated monopolies.

A little reflection will convince one that this dichotomy does not accurately describe the price-making process. It is evident that many kinds of marketing procedures and situations are possible under such an all-embracing competition; the competition may be more or less severe and may take many different forms. The monopoly, too, may be more or less restrictive.

For this reason the economist attempts to be more analytical in defining competition. As his interest is in describing the price-making process as accurately as possible, he seeks all the gradations in competition and the differences in degree from one type to another. He tries to get at the essence of competition by describing the competitive process in its purest form.

A condition of unrestricted competition may be called pure competition. An examination of the few productive areas in our economic system in which competitive forces are almost entirely unimpeded reveals that two conditions are necessary for pure competition. The first is that there be a large number of buyers and sellers in the market. The second is that the product be highly standardized.

What constitutes a large number of buyers and sellers? In this context a large number of buyers and sellers is one large enough to deny to the sales or purchases of anyone a significant influence on price. The amount demanded or amount offered by each buyer or seller must be so small with relation to the total market that whatever decision he makes as to buying or selling will not affect the market price. Thus, for each, the market price is an objective fact. When is a product highly standardized? That condition is fulfilled when the output of any producer is so similar to that of other producers that the buyers are indifferent as to which they get. They will not pay a higher price for any particular seller's product.

Under these conditions no one producer or buyer can influence the market price. Although the decisions of the sellers and buyers collectively determine the price, that price is beyond the control of any one of them. The producer has many decisions to make under these conditions, but in all of them he takes the market price as an objective fact over which he has no control. Regardless of how much he decides to produce (within extremely wide limits) he knows that he cannot materially alter the market price.

There are, in our economic system, only a few commodities produced and sold under conditions that resemble perfect competition. Such competition is restricted practically to a few grains and fibers which are sold on organized commodity exchanges.

In the production and sale of most commodities these conditions are not fulfilled and competition is not pure, particularly over short periods of time. Either the number of producers supplying a given market is relatively small or the product is not highly standardized or both. In either case the individual producer has the power by his decisions to influence the price of the product. If the number of pro

ducers is relatively small but the product homogeneous then the producer can influence the price by the quantity he produces. If the product is not standardized the producer may influence the price of his product by catering only to those consumers who have a preference for his product. It should be observed that in the case of nonstandardized products it makes little difference whether each producer is considered to have a monopoly over his output or whether the competition in the industry is considered to be imperfect or monopolistic competition.

Thus, from an objective standpoint, it is the ability of a single producer to influence the price of the product that is the essence of monopoly. Whenever a producer must include in his calculations the effect of his decisions upon price he is not operating under conditions of pure competition. He is to a greater or lesser extent in a monopolistic position. There is no essential difference between his having to calculate the quantity he will sell at the various prices he can quote or the market price which will result from the various quantities he can produce. In either case he recognizes that the quantity of his output and the price he can get are interrelated-he is able to recognize the slope of the demand curve for the products of his firm.

It will be evident that the departure from conditions of pure competition is a gradual one; that is, that the monopoly element is present to a greater or lesser extent in actual economic life as the conditions of perfect competition are more or less relaxed. Other things being equal, the fewer the number of independent producers and the more distinctive the product of each, the greater is their possible effect upon price and the greater their monopoly position. Likewise, the larger the number of producers and the more homogenous the product, the more nearly is the condition of pure competition approached. In other words, competition or monopoly is a matter of degree. Starting from pure competition market situations may be less and less competitive as the powers of the individual producer over price increase.

On the other hand it must be recognized that there is no such condition as perfect monopoly at the other end of the scale opposite pure competition. The monopoly power is the power to affect price and there is no producer who has that power to an absolute degree. That power is always circumscribed by competing products, by other means of satisfying the same wants, or by the consumer's alternative desires. There is no single economic good that we cannot do without if the price is set too high. Therefore, even if one producer controls the output of a commodity his monopoly power cannot be infinitely great. Monopoly, or competition for that matter, is purely a question of degree. The greater the power to affect price the greater the monopoly power and the less the competition.

Now under conditions of or even closely approximating pure competition it would obviously be unprofitable for a producer to export at prices below the domestic market price. For he is in a position to sell as much as he can without perceptibly lowering the domestic price. If a part of the domestic output were being exported at the domestic price and the foreign price declined then the producers would immediately shift their sales to the domestic market until the two prices were again equal. It would not pay any one of them to continue exporting at less than the domestic price. It can be said, there

fore, that under conditions of pure competition price discrimination among markets by a single producer is impossible.

But once the degree of competition is somewhat restricted, once an element of monopoly is introduced, then exporting at less than the domestic price may be profitable and, therefore, is apt to arise. It is precisely this and only this that should be implied by saying that monopoly is a necessary condition for dumping (selling for export at lower prices). Dumping and pure competition are incompatible conditions and cannot exist side by side. The existence of dumping is thus prima facie evidence that competition is somewhat restricted, that some element of monopoly from an economic standpoint is present. This does not mean that competition in the popular or legal sense of the term is not present. There may be independent rivalry for trade among the producers of a given commodity and yet the condition in the industry be far from pure competition. That is, lower export prices do not imply necessarily that either a single producer controls the output of a commodity or that the several producers in the industry have an agreement as to price and production policies. The mere fact that competition is not perfect is no indication that there is not independent action by all producers in the industry.

This distinction between pure competition in the economic sense and competition in the "independent rivalry for trade" sense is not always clearly distinguished in discussions of the dumping problems. The following statement shows the confusion that can arise on this point.

"A necessary condition (for dumping) is monopoly upon the home market. If price competition in the strict theoretical sense is present-that is to say if no one producer can perceptibly influence the price of his product so that each producer is confronted with a practically horizontal demand curve-the home price must be forced down. The monopoly may take several forms. One concern may have a monopoly, either because it is so large relative to the market that no other concern can profitably enter or because it alone has some secret process of production or possesses a patent or some similar legal knowledge. Several producers may have a tacit agreement or may be explicitly united in a cartel for the purpose of limiting the amount produced." 1

In the first part of this statement it is implied that monopoly is a situation in which a producer can perceptibly influence the price of his product. Price competition in the strict theoretical sense is perfect competition, and anything except perfect competition is monopoly. When "a single producer is confronted with a practically horizontal demand curve," it means that he can dispose of all his output without affecting the price of the product.

But the second part of the statement implies that monopoly is a situation in which either one producer controls the entire output of the product or the several producers of the product have an agreement to limit production. The implication is that if there is more than one producer and the several producers do not have an agreement to limit production, there is competition in the industry.

The point is that these two definitions of competition and monopoly are not the same; a part of what would be classed as monopolistic

1 Gottfried Von Haberler, The Theory of International Trade, New York, 1936, 301-302.

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