69K INFLATIONARY IMPACT OF PRICING BY CONCENTRATED INDUSTRIES HEARINGS BEFORE THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES .NIYE'rY-THIED CONGRESS SECOND SESSION (Pursuant to S. Con. Res. 93) SEPTEMBER 4 AND 9, AND OCTOBER 7, 1974 Printed for the use of the Joint Economic Committee 0* U.S. GOVERNMENT PRINTING OFFICE 47-103 WASHINGTON : 1974 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 -Price $2.35 JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.) WRIGHT PATMAN, Texas, Chairman WILLIAM PROXMIRE, Wisconsin, Vice Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri JOHN SPARKMAN, Alabama HENRY S. REUSS, Wisconsin J. W. FULBRIGHT, Arkansas MARTHA W. GRIFFITHS, Michigan ABRAHAM RIBICOFF, Connecticut WILLIAM S. MOORHEAD, Pennsylvania HUBERT H. HUMPHREY, Minnesota HUGH L. CAREY, New York LLOYD M. BENTSEN, JR., Texas WILLIAM B. WIDNALL, New Jersey JACOB K. JAVITS, New York BARBER B. CONABLE, Ji., New York CHARLES H. PERCY, Illinois CLARENCE J. BROWN, Ohio JAMES B. PEARSON, Kansas BEN B. BLACKBURN, Georgia RICHARD S. SCHWEIKER, Pennsylvania JOHN R. STARK, Executive Director JOHN R. KARLIK, Senior Economist LOUGHLIN F. MCHUGH, Senior Economist COURTENAY M. SLATER, Senior Economist RICHARD F. KAUFMAN, General Counsel ECONOMISTS WILLIAM A. Cox Lucy A. FALCONE ROBERT D. HAMRIN SARAH JACKSON JERRY J. JASINOWSKI L. DOUGLAS Lim CARL V. SEARS GEORGE R. TYLER LARRY YUSPEH MINORITY LESLIE J. BANDUR GEORG3 D. KRUMBH[AAR, Jr. (Counsel) WALTER B. LAESSIO (Counsel) (W) CONTENTS WITNESSES AND STATEMENTS WEDNESDAY, SEPTEMBER 4, 1974 Proxmire, Hon. William, vice chairman of the Joint Economic Committee: Page Opening statement -1------------------------------- I Scherer, Frederic M., Director-designate, Bureau of Economics, Federal Trade Commission 2 Weston, J. Fred, professor, Graduate School of Management, University of California, Los Angeles - Mueller, 13 Willard F., Vilas Research Professor, University of Wisconsin --- 30 MONDAY, SEPTEMBER 9, 1974 Proxmire, Hon. William, vice chairman of the Joint Economic Committee: Opening statenment--61 Metzenbaum, Hon. Howard M., a U.S. Senator from the State of Ohio - 62 Kauper, Hon. Thomas E., Assistant Attorney General, Antitrust Division, Department of Justice, accompanied by George A. Hay, Director of Economics ------------------ 73 Dirlam, Joel B., professor of economics, University of Rhode Island -81 MONDAY, OCTOBER 7, 1974 Proxmire, Hon. William, vice chairman of the Joint Economic Committee: Opening statement - 119 West, Frederic W., Jr., president, Bethlehem Steel Corp., accompanied by Charles W. Ganzel, senior vice president, commercial; Bruce E. Haslett, assistant vice president, accounting, and assistant comptroller; and Curtis H. Barnette, assistant general counsel and assistant secretary 121 Jaicks, Frederick G., chairman, Inland Stcel Co., Chicago, Ill - 137 Speer, Edgar B., chairman of the board, United States Steel Corp., accom- panied by David M. Roderick, chairman, finance committee, and M. G. Heatwole, general counsel -149 SUBMISSIONS FOR THE RECORD Mueller, Willard F.: WEDNESDAY, SEPTEMBER 4, 1974 Prepared statement -- 35 Scherer, Frederic M.: Prepared statement --- Weston, J. Fred: 5 Prepared statement - 16 Paper entitled "An Anti-Inflation Program"-22 MONDAY, SEPTEMBER 9, 1974 Dirlam, Joel B.: Prepared statement -85 Kauper, Hon. Thomas E., et al.: Prepared statement -76 Response to Senator Proxmire's request to supply for the record both civil and criminal cases terminated by the Antitrust Division of the Department of Justice during the period 1972-74 -93 Response to Senator Proxmire's request to supply for the record the pretrial order on International Business Machines Corp -109 Response to Senator Proxmire's request to supply a breakout of the Antitrust Division's budget figures from the consolidated budget of the Department of Justice - 117 (II) IV Metzenbaum, Hon. Howard M.: Page Table showing selected oil company profits -64 Table showing oil industry control of coal production -66 showing interlocking directorates between selected oil companies Table 67 and financial institutions - MONDAY, OCTOBER 7, 1974 Speer, Edgar B., et al.: Prepared statement -154 24, Letter to Senator Proxmire from Edgar B. Speer, dated October 1974, in response to Senator Proxmire's request to supply for the record information regarding unfair foreign competition in steel as evidenced by subsidized and dumped imports -188 West, Frederic W., Jr., et al.: Prepared statement -126 POINTS OF INTEREST WEDNESDAY, SEPTEMBER 4, 1974 Conable, Hon. Barber B., Jr.: Colloquy and interrogation: Frederic M.: Scherer, 42 Nature and role of conglomerates - Subsidization of steel industry -46 Weston, J. Fred: Defining a concentrated industry -43 World markets and the steel industry -44 Mueller, Willard F.: Nature and future of concentration -54 Javits, Hon. Jacob K.: Colloquy and interrogation: Mueller, Willard F.: __ 51 Antitrust approach slow -__-------- Need to increase productivity -52 Mueller, Willard F.: Oral statement: Return to oldtime religion -30 Cannot rely solely on monetary and fiscal policy -30 Arguments on inflationary impact of market power -31 Methods of dealing with market-po~cr induced inflation -33 Proxmire, Hon. William: Opening statement: 1 Price increases in concentrated industries- Colloquy and interrogation: Scherer, Frederic M.: No excessive demand - 38 Fred J.: Weston, 40 The role of oil -_---- _---------- __---- Future of prices -- ------------------------------- 46 Mueller, Willard F.: Programs against inflation -47 Chances for depression -58 Scherer, Frederic M.: Oral statement: behavior of concentrated and atomisticallv structured Different 3 industries … Role of antitrust- 5 V Weston, Fred J.: Oral statement: Page- Wages and productivity in concentrated industries -13 Interpretation of cause and effect -13 Policy implications- 15- MONDAY, SEPTEMBER 9, 1974 Conable, Hon. Barber B., Jr.: Colloquy and interrogation: Kauper, Hon. Thomas E., et al.: Size of the antitrust division's budget -99 Concentration in the food industry -101 Dirlam, Joel B.: Steel and imports -102 Dirlam, Joel B.: Oral statement: Steel industry and inflation -83 Expansion of capacity and profits in the steel industry -84 Kauper, Hon. Thomas E.: Oral statement: Conflicting views on impact of administered pricing on inflation. 73 Directing antitrust enforcement toward concentrated industries-- 75 Problems of regulated industries -75 Metzenbaum, Hon. Howard M.: Oral statement: Oii price rollback essential to controlling inflatiomi -C Oil companies move into alternate energy sources -65 Oil companies invade other industries -66 Proxmire, Hon. William: Opening statement: Outrageous price and profit increases in concentrated industries- 61 Colloquy and interrogation: Metzenbaum, Hon. Howard M.: Nature and need for high oil company profits -69 Impact of oil prices on inflation -71 Kauper, Hon. Thomas E.: Effectiveness of antitrust action -106 IBM case -------- 108 Sale to Lockheed of surplus plant -110 Strengthening the antitrust laws -113 MONDAY, OCTOBER 7, 1974 Jaicks, Frederick G.: Oral statement: Origin of the steel shortage -137 Inland's experience under price controls -139 Current profitability -14ta Economics of new investment -140 Need of the Nation for improved capital recovery in steel -141 Summary ----------------------------------- 14Z Proxmire, Hon. William: Colloquy and interrogration: West, Frederic W., et al.: Projected sources and uses of funds -174 Steel price outlook -175 R. & D. in the steel industry -192 Historical versus replacement-cost depreciation formulas ---- 194 Summary and conclusions -194 Speer, Edgar B., et al.: Demand pull versus administered inflation -177 Measurement and expansion of steelmaking capacity- 180 Return on sales versus return on equity ----- 191 Jaicks, Frederic G.: Phaseout of "voluntary restraint agreements" on imports and new anti-dumping provisions -186- VI Speer, Edgar B., et al.: Oral statement: Page Expansion of U.S. steelmaking capacity -150 Industry return on sales since 1954 -151 Experience under price controls - 152 Needs for investment capital -153 West Frederic W., Jr., et al.: 6 ral statement: Efforts to contain cost increases -121 Production capacity and its limitations -123 Summary and recommendations -125 APPENDIX Letter to 13 steel corporation chairmen from Senator Proxmire, dated October 1, 1974, informing them that the Joint Economic Committee is conducting an emergency study of the current state of the American economy and requested the steel companies to furnish specific data- with responses from various steel companies -197 Press release entitled "Senator Proxmire Reveals Steel Capacity Data," Joint Economic Committee, November 29, 1974 -211 Letter to Chairman Patman from Lester S. Jayson, Director, Congres- sional Research Service, Library of Congress, transmitting a report entitled " Recent Steel Prices and Pricing Practices in the United States: Background and Issues"-212 Memorandum entitled "Steel: How Many Years of Grass Does the Mas- todon Have Left? by Mitchell, Hutchins, Inc., September 10, 1974---- 240 INFLATIONARY IMPACT OF PRICING BY CONCENTRATED INDUSTRIES WEDNESDAY, SEPTEMBER 4, 1974 CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITrEE, Washington, D.C. The committee met, pursuant to notice, at 10:05 a.m., in room 1202, lDirksen Senate Office Building, Hon. William Proxmire (vice chair- man of the committee) presiding.