What Is Competition?

To wind up its three-month investigation of steel-pricing policies, the Senate Antitrust and Monopoly Subcommittee last week put on the stand former Treasury Secretary George M. Humphrey, now chairman of National Steel Corp., the country's sixth largest steelmaker. Subcommittee Chairman Estes Kefauver had a thorny question waiting: Since National Steel is operating at 80% capacity v. 98% early in the year, could it not melt customer resistance, push up the operating rates and still maintain profits by cutting prices? Answered Humphrey: "That is what you think. I do not think so."

Yet such a drop, persisted Kefauver, "would give the economy a shot in the arm." Then Kefauver lashed out at the steel price hike made last July to balance the 21-c- hourly boost for steelworkers. Prices went up by an average of $6 a ton, Kefauver noted, but manufacturers admitted that the wage increase cost them only $3.15 a ton. Furthermore, some other manufacturing costs are down. Charged Kefauver: "Steelmen cannot justify the continued existence of a price increase in view of the fact that the price of scrap used in a ton of steel is down around $3.85 fr,om the average price a year ago." (The average price of No. 1 heavy melting grade scrap has plummeted in the past year from $57 a ton to $35 a ton.)

Profit Slump. Humphrey argued back that National Steel's other goods and services, e.g., freight rates, have crept up so much that its- manufacturing costs are at least $7.88 a ton higher than last spring. Yet National's July price increase averaged only $4.58 a ton because it specializes in certain steels on which there was a smaller-than-average rise or none at all. Humphrey felt that any price rise "tends to be inflationary," but. he thought the steel rise was necessary. So hard have higher costs nipped National that its third-quarter profits slid to $8,041,074 from $12,607,341 in the second quarter. As for profits, said Humphrey, "we can't go up because competition has set a limit, and we certainly are not going to go down. It is not going to help the country if we go down to a point where the industry does not make any money, and it will hurt the Government very seriously if that should occur. We will not change our prices now, so let us just let that one rest."

Far from letting the question rest, Wyoming's Democratic Senator Joseph C. O'Mahoney wanted to know why all steel makers generally set the same prices. Humphrey said that National's policy is to "quote prices as near the prices of our competitors as we can learn so that we will get at least as much as they do, and we ought to be ashamed if we do not." Would National then follow a price rise set by U.S. Steel or any other competitor, asked Kefauver. Answered Humphrey: "Of course we would attempt to get that price, if it were reasonable." But would National charge as much as U.S. Steel if National were more efficient than U.S. Steel, asked O'Mahoney. Said Humphrey: "So long as U.S. Steel's was a fair general price, yes."

O'Mahoney noted that this means that prices are not always set by the most efficient producer. While U.S. Steel is the biggest steelmaker, O'Mahoney and Kefauver contended that National makes steel at less cost, and that the return on stockholder's investment is higher than U.S. Steel's.

In Defense. Nevertheless, Humphrey and the other top steelmen who testified in recent months staunchly backed uniform prices. Bethlehem Steel President Arthur B. Homer told the subcommittee that Bethlehem is reluctant to charge less than its competitors for fear of driving out marginal producers and thus stirring up trustbusters. U.S. Steel Chairman Roger Blough offered another defense, which would appeal to all lovers of Alice in Wonderland, and which seemed to defy the basic principle of a competitive economy. If all steel prices are the same, he contended, then the customer is free to buy from any producer he chooses. But if prices are different, then the buyer has no real freedom of choice because he must buy from the company that sells the cheapest. Said Blough: "A price that matches another price is a competitive price."

Such price rigidity seemed strange to the subcommittee as it might to many a U.S. businessman who feels that prices should fluctuate, depending on demand and the efficiency of the producer. It also gave Chairman Kefauver a chance to fire off a concluding broadside. Said he: "It is clear that the law of supply and demand does not set price in the steel industry. Price is made and maintained by management and, in my judgment, by U.S. Steel. All others then follow suit. I feel we need to look at the antitrust laws to see whether they should be amended."

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