CHAPTER III. KINDS OF MONOPOLIES. Natural and Artificial Monopolies.-All the above described means of keeping strong competition out of a monopolized field may be resorted to by trusts, or artificial monopolies-those formed by buying up all the valuable patents and plants in one industry. Competition is thus prevented from removing imposition on the public.1 But without these a natural monopoly may often hold its field securely. Railroads and Street Car Lines.-A railroad company occupying the best route between two cities possesses a natural monopoly of the best means for supplying transportation, especially when it has also in each city the most central station. No other company can compete for business with equal chances-can offer the same grade of service. It has an absolute monopoly of rail transportation at stations not reached by other lines. A street car company in a city possesses a similar monopoly. Its franchise gives it exclusive use of the best routes; and its service can not be supplied from elsewhere, but must be used in connection with its plant. The latter 1A Capitalistic Monopoly is another name for a trust or artificial monopoly, meaning that it keeps down competition by its possession of larger capital, finer equipment, better established business, and abler management. The trusts, though artificially combined, are usually strengthened by connection with legal or patent monopolies, and with natural monopolies in ownership of mines and in discrimination by railroads. As to whether a capitalistic monopoly can long exist entirely unaided by natural or legal monopolies, will be considered in Chapters VII. and IX. is a characteristic of other service monopolies. A large city may have non-competing street car lines, occupying different districts. A Gas Company also has a natural monopoly. In its case there is room for more pipes, in locations perhaps equally good; but, like steam and street railways, it can supply more customers without expense for equipment, while a competitor must make a large investment in a new plant. As there may not be enough business to yield a profit on two plants, and as enlarging the one would be far less costly than building another, a second can seldom be built with advantage to the public. Sometimes a second is built to force the first company to buy it. Real competition rarely lasts long in any of these cases. Sometimes the two companies agree on prices and divide the field; sometimes price cutting by the old company forces the second into consolidation with it, or the new company may build better and absorb the old. The latter outcome has seemed probable in the case of a new telephone system now being established in Jackson. Chicago has had as many as nine gas companies at once, with three sets of pipes in one street. Consolidations have taken place there repeatedly.1 1 The West Shore Railroad, completed in 1883 between New York and Buffalo, which was called into existence by high dividends of the New York Central, was a noted example of the futility of trying to compete with a natural monopoly. Being parallel to the New York Central, it could get no business that the latter might not easily have handled without laying any new track; and having to take second choice of routes, it was unable to offer service fully equal to that of the Central, which was also much stronger in capital and equipment, and reduced its charges to meet the cut rates of its new competitor. The result was that the West Shore soon became unable to continue bearing its losses, and was bought by the Central at a low price. Monopoly in Mines and Forests. Another kind of natural monopoly is one formed by agreement or purchase between the owners of the best mines or best re The Nickel Plate road, paralleling the Lake Shore from Buffalo to Chicago, similarly failed about the same time. Building these two parallel lines was a part of the extravagant speculative enterprise of 1880-83, when the new mileage laid was three times what was needed. Some new roads were built to force old roads to buy them; and others, with all the money raised on bonds (sometimes sold at heavy discount), the stock representing only water, were organized by men who paid the money to themselves as contractors. The stoppage of this excessive building of railroads caused the depression of 1884-85. (Hadley, Railroads, 53.) Waste of Capital.—Besides the loss to the owners of the millions of capital put into the West Shore road and never gotten back, the public must continue to lose from that unfortunate venture. So far as the new line absorbs capital in tracks and buildings above what would have been necessary to handle all the business on the old line, its existence adds to the rates that the Central must charge in order to pay a reasonable dividend on its total investment. The land occupied is kept from agriculture, and there is waste in the decay of unnecessary buildings. Because there are two roads the mileage is doubled, reducing earnings per mile, on which the legislature may fix passenger rates. It is of concern to the public that no losses be incurred by anybody, and that no more capital be invested in any enterprise than is necessary to render its best service. There are always many real needs that capital may be used to supply. Useless Railroads Not Built Now.-The utter failure of the West Shore, and of similar roads, by reason of the natural monopoly involved, will hereafter prevent such waste of capital, investors having learned to investigate better the prospect of earnings. In most states, under a general law, a company can build a railroad anywhere, whether needed or not. Up to 1884 the feeling was that the more railroads the better. In a few states, as in all at first, a special charter must be obtained from the legislature, which, like a city council with a franchise, can refuse it if not designed for the public good, though often a corrupting lobby must then be resisted. In New York and New England the building of a railroad now must first be approved by the state commissioners. Over-building in the West was largely due to the people's zeal in giving bonuses for new lines, though they were often influenced by paid speakers, and by railroad promoters or others who had bought vacant land through which the road was to pass. After the Nebraska board had said the state had a third too many railroads, Lincoln gave $50,000 toward a new line into Omaha, with which it was already connected by four roads. (A. G. Warner, P. S. Quarterly, 1891.) serves of timber. Such sources of wealth are limited. A monopoly price for a scarce mineral, though the mine operators remain competitors, may be maintained by the railroads, through an agreement on freight charges, which must be added to the consumer's price. Such has been the case with anthracite coal, found only in northeastern Pennsylvania. The Standard Oil Company's monopoly is now chiefly maintained by its ownership of a great system of pipe lines between the oil fields and the seaboard, and of many well located refineries, warehouses, and docks. The oil business might not be sufficient to yield a profit on another similar plant, and if it were, the Standard had first choice of locations, placing it at the head, like the best railroad. Besides, the oil monopoly is strengthened by the economies of its large and perfected business. So far as based upon control of natural supply of crude oil, its monopoly has been weakened by the discovery in 1900 of many wells in Texas and California, flowing more copiously than any previously known. Probably stronger competition in refining will now spring up. New corporations to compete with the Standard have been chartered in Texas. Telegraph and Telephone Monopolies.-The Western Union Telegraph Company secured a monopoly by purchase of other systems, though the Postal Company has competed with it during the last fifteen years over some parts of the country. Similar to the gas business, the telegraph business is a natural monopoly because after one system of lines is in operation, connecting all the important cities, another company can not compete in supplying equal service until it has an equal system of lines, in a business field for which the first system would be ample. A telephone system is a monopoly one. for the same reasons, and for the additional reason that with one system a person can talk with every telephone subscriber in the city, or long distance district, while to do this with two systems he must be a subscriber to both, at a greater total cost usually than with Besides, both the telegraph and telephone monopolies, especially the latter as covering the country, have rested partly on purchase of patents, as does the trust or capitalistic monopoly of the American Steel and Wire Company, owning all the important patents, and that of the General Electric Company. The steel trust's monopoly rests on its ownership of mines, ore fleets, railroads, and patents. The express business is a monopoly because the railroad is a monopoly whose lines it has the exclusive right to use. Other Monopolies of Location.-A manufacturer using all of a valuable water power, not equalled elsewhere, would have a natural monopoly of that advantage. A merchant in the best stand has a natural monopoly in location if no other equally good stand can be established. A monopoly of the right to supply meals is sold to the concern purchasing the restaurant concession from an exposition. Such is a natural monopoly of place. Landing places for vessels have long been valuable monopolies, and bridges built in the best locations. A monopoly of the right to solicit business in trains and stations is leased by a news company, and by a baggage transfer company. The lessees are then fairly sure of a paying business, and the railroad company knows the service will be attended to properly. Government Monopolies.-The postal service is a government monopoly in all countries, because it is essential to civilization, must often be carried on at a loss where population is sparse, and must reach every part |