conditions under the one would be competition under the other. For whenever there is not pure competition there is not necessarily an absence of independent rivalry for trade. There can be restrictions to competition without total output being controlled by a single producer or without any agreement on the part of the several producers. While industry situations of this type have been described adequately in earlier economic literature, they have been given more prominence in current writing. These situations which are not pure competition and not monopoly (in the popular sense of the word) have been called imperfect competition or monopolistic competition. The terms are used to describe situations in which a producer has some power (however limited) to affect the price of his product without having entered into a tacit or explicit agreement to fix prices or limit production with other producers of the product.

To convince himself that this is quite possible the reader need only consider the position of the producer when the conditions of pure competition are relaxed; when monopolistic competition prevails. Those conditions were (1) that there be a large number of producers and (2) that the product be highly standardized.

Consider the second condition first. When a product is not standardized a single producer may have some control over the price of his product if some consumers have a preference for it. The introduction of brand names, trade-marks, style differences, packaging, quality differences, the reputation of the firm, the type of appeal used in advertising and so on may all differentiate one producer's goods from that of another and result in different prices for rather similar products within the same marketing area. That means that some of the producers have some power to influence the price of their product. For one reason or another some consumers have a preference for the product of a particular firm and that gives the firm the power to get a higher price in that market.

This phenomenon is too familiar to require much comment. It is well known that in many consumer goods fields the products of the various firms are differentiated in the minds of the buyers. A large variety of brands, more or less well known, are available at quite different prices. A producer is often in the position of having to decide upon a price and marketing policy rather than, as in pure competition, merely selling at the market price.

A distinction is drawn in law between a patent and a brand or trade-mark. A patent is conceived as conferring a monopoly right whereas a brand name is held by its very nature to imply competition as it merely differentiates one's product from that of his competitors. This distinction may be important for certain purposes but from an economic standpoint it is not important. A brand name may make a product just as distinctive in the mind of the consumer and thus as little subject to price competition as a patented product for which there are many substitutes. And, as has been pointed out, it is just as logical to say that each producer of a branded product has a monopoly of his brand as to say that there is monopolistic competition among brands. Of course, this does not mean that the mere branding of a product will differentiate it in the mind of the consumer. But it may, and very often does.

2 Particularly E. Chamberlain, The Theory of Monopolistic Competition, and J. Robinson, The Economics of Imperfect Competition.

Under a condition of monopolistic competition of this type there is no reason why the domestic and export prices of any particular producer must be equal. Even though the producer has competitors making somewhat similar products and even though he is not in collusion with them to maintain domestic prices his export price may be lower than his domestic price. He may have a reputation in the domestic market that enables him to get a higher price than his competitors and not have a superior reputation in foreign markets. He may be directing his appeal to a higher income group in the domestic market while in certain foreign countries there is no such income group large enough to constitute a market. The American consumer may be willing to pay a premium for the higher quality he offers but the foreign consumer may value that quality less highly. His styling may be particularly designed for American tastes and that may enable him to get a higher price at home than abroad. In all these circumstances it is economically correct to say that the producer has a monopolistic position in the domestic market which he does not have (at least to the same extent) in the foreign market.

A somewhat similar situation results when the other condition of pure competition is relaxed; that is, when there is a small number of producers in relation to the size of the market. The number of producers is small when each of them or some of them are able to influence the price by a change in the scale of their operations. Quite often product differentiation and fewness of producers are present together and supplement each other in injecting a monopolistic element in the market situation. But there are many cases where the products of the various firms are very similar and the fewness of producers alone creates an imperfectly competitive situation.

Under monopolistic competition of this type the producer must calculate the effect upon price of any change in the scale of his operations and hence the effect upon his total profit. He cannot merely produce to the full extent of his resources and expect that the price will remain unchanged. The products of all the firms will sell in the market at the same price but each or some of the firms are able to affect the price by deciding to produce more or less.

When, under such circumstances, several producers in the industry have unused capacity, they may recognize that an attempt on their part to increase production will lower prices and that the price reduction necessary to take the larger volume off the market may make their entire operations unprofitable. Each one knows that if he lowers his price in an effort to get more business his competitors must lower their prices. They produce whatever quantity they can. sell at the existing price but they may or may not produce additional quantities which will lower the price. That will depend upon how much the price must be lowered to absorb the increased quantity and whether or not and how much unit costs will decline as production is increased. But because each knows that increased production will lower the price the individual producer may restrict his output and leave some of his capacity idle without entering into any agreement with his competitors to affect the market price.

In general it can be stated that the more producers there are competing for a particular market, the more competitive will the market price be. As the number of producers increases it becomes more difficult for any one of them to influence the market price and to

take into account the effect that his actions will have upon his competitors until a point is reached where the individual producer disre-gards his own influence upon price. The fewer the number of producers the less likely is it that any one of them will pursue any course that will seriously disturb the market price. Thus there are degrees of monopolistic competition. Some cases are very close topure competition in that any single producer has little ability to affect the price. In other cases, however, the number of firms is so small and each one is so reluctant to initiate price changes that the situation is very similar to that in which a single producer controls the entire output.

It is easy to see that when competition is imperfect because of the small number of producers it can be profitable to export at less than the domestic price. A firm which is selling all it can at the market price may have unused capacity that it can utilize in supplying foreign markets at a lower price. After producing all it needs for the domestic market it may be able to produce additional output at the same or even lower costs. To sell this output in the domestic market would force down the price not only for the additional output but for the volume of sales it is already making in the domestic market. By selling this additional output for a lower price in the foreign market it does not disturb the existing price in the domestic market. Under monopolistic competition it may, therefore, be profitable to export at lower prices because an attempt to force that output on to the domestic market would lower the domestic price. Under pure competition, however, there would be no incentive for the individual producer to export at lower prices because that output could be sold in the domestic market without materially lowering the price.

Hence, it may be said in summary that lower export than domestic prices cannot be accepted as prima facie evidence of monopoly in the usual sense of the term. That is, if one defines monopoly as a condition where one producer controls total production of a commodity or the several producers are acting together to control production and prices then monopoly is not a necessary condition for dumping. It can take place under competition. But two kinds of competition must be distinguished; pure and monopolistic competition. Dumping can take place under conditions of imperfect competition as well as under monopoly. Therefore, the most that can be proven by the existence of lower export than domestic prices is that competition is monopolistic in character. This does not mean that an actual monopolistic situation may not exist, but merely that lower export prices alone cannot prove that it does.

This theoretical conclusion is completely supported by the facts brought out in the field survey. There were 46 cases in which at least some export prices were lower than domestic prices. A wide diversity of products and industries are represented by this group. Most of them are usually held to be competitive industries and have never been charged with monopolistic practices in the legal sense. Whatever price policies these firms have, they have adopted them independently. They represent instances of monopolistic competition rather than monopoly. Any one who scans the list of products included in these 46 cases will be convinced of this conclusion. There are undoubtedly some cases of monopoly in the list but the majority

are surely what are generally conceived of as competitive industries. It would be interesting to know how many of the 46 cases in group III are instances of monopoly as distinguished from monopolistic competition. Of course, this is a difficult question to answer because proof of monopolistic practices is not readily available. But this much can be said. In 7 of the cases the holding of important patents certainly puts those firms in the category of monopolies. In several other cases certain peculiarities of price behavior, or the opinion of specialists in the industry concerned, or the confidential admission by the firm itself suggests that the firms in the industry are not acting with complete independence. We doubt that the most critical person would put that number higher than 8 although our conviction is not very strong in more than 6 cases. The rest are cases of monopolistic competition. On the other hand there appear to be 5 cases among the 30 in groups I and II where monopolistic practices seem likely. B. The influence of tariffs.-The existence of tariff protection is often considered to be a necessary condition for a continued policy of lower export than domestic prices. This is not strictly true. All that is necessary is that the exported goods be prevented from reentering the country of origin and underselling the domestically offered goods on the home market. A tariff can be the means of blocking such reentry but it is not the only means. In most cases the exporter has enough control over the foreign buyer to prevent him from reshipping to the exporter's home market. The foreign buyer is usually dependent upon the exporter for the continued supply of the commodity which enables him to stay in business and he would not jeopardize a profitable business relationship for a temporary gain. Besides this the transportation costs both ways would often be high enough in relation to the price concession given to prevent reshipment.

The tariff does, however, play a significant role in many instances of lower export prices in that it limits the competition which foreign firms may inject into the domestic market. In many cases it was stated that lower export than domestic prices are necessary in order to meet low-priced foreign competition. A tariff which intentionally excludes such competition from the domestic market thereby creates the economic conditions under which prices may be higher in the domestic market than abroad. Competition is less intensive with tariff protection (provided that protection is effective) than it would be in the same industry without tariff protection.

Of all the major products represented among the 46 cases of group III only one is on the free list. All the others have a greater or lesser degree of tariff protection against foreign competition. In export markets the firms must meet this competition on an equal footing and in many cases they must meet it by price concessions.

It cannot be said that the tariff is the decisive factor in all cases of lower export prices. Products which do not have protection may be exported at lower prices and products which have protection may be exported at identical or higher prices. Even among the cases of group I and II there is only one major product on the free list. It is generally true, however, that the products in these cases do not have as much foreign competition in foreign markets as those in group III. Many industries have tariffs which are largely meaningless because

there would be no significant foreign competition even if there were no tariff. In these cases there is no significant foreign competition facing United States products in foreign markets.

Among the 46 cases of group III, therefore, there are some in which the tariff is of no importance as a factor in lower-priced exports and many more in which it is of little importance. While it is difficult to assess the precise role of the tariff in every case or to determine what the price situation would be without it, it is probable that the tariff is a factor of significant importance in 22 cases out of the 46 which are exporting at lower prices. In those 22 cases a removal of the tariff might considerably influence the domestic price and thus bring export and domestic prices more clearly into line. In the other 24 cases it would appear that the condition of monopolistic competition in the domestic market would not be seriously disturbed by the removal of the tariff. Therefore, there would be exporting at lower prices even without the tariff.

The relation of the tariff to our problem may be summarized as follows: International price discrimination is due to the existence of a condition of monopolistic competition or a condition of monopoly. Either of these conditions can arise independently of tariff protection. In many cases, however, approximately half in our sample, the protective tariff is of prime importance in the maintenance of a high degree of monopolistic competition or a monopoly position.

C. The selling problem in the domestic and foreign markets. In the cases of imperfect competition arising from product differentiation the selling problem is an important factor which often leads to higher domestic than export prices. The individuality of one firm's products which is developed in the domestic market can not be developed in many cases in foreign markets. The marketing procedures and competitive weapons which are available to a firm in the domestic market are often not available to it in foreign markets.

The average American firm entered business and is in business today primarily to produce for and sell in the domestic market. If it develops an export business it is usually only as a supplement to its domestic business. By and large, it develops its reputation in and designs its products for the domestic market.

A typical firm, let us say, sells 90 percent of its output in the domestic market and 10 percent in a hundred or more foreign markets. The domestic market is a highly concentrated market with a rather homogeneous population. It has somewhat similar tastes and it has a relatively high per-capita income. The foreign markets are spread to all parts of the world; the populations are extremely diversified in language and modes of living; standards of living are markedly different and income is generally much lower than in the United States.

These differences give ample evidence that the selling problem of the export manager is much different than the problem of the domestic-sales manager. Having a large volume of sales concentrated in one market in which it is usually necessary to maintain a oneprice policy makes it imperative that domestic prices over the years cover full costs. But it also allows much greater latitude in the methods by which sales are obtained and profitable prices maintained.