MICHIGAN ACADEMY OF SCIENCE. 39 



does become actual, all that the monopolist need do is to drop the price and 

 drive the competitor out of the field. Consequently, the consumer does not 

 obtain any of the gain from the economies effected by the trust. 



Second, even if potential competition does become actual, the result would 

 be nothing but a waste of capital on the part of the competitor. The reason 

 for this is to be found in the fact that according to Jenks, et altera, the monop- 

 oly in question can make the commodity cheaper than a possible competitor. 

 If, therefore, the price of the goods is advanced so much that potential com- 

 , petition becomes actual, all the monopolist need do is to lower the price and 

 the competitor is driven from the field. The capital of the competitor will be 

 a total loss or else partly wasted. 



In reaffirming the proposition of Professor Bullock that potential compe- 

 tition can not be relied upon as a safeguard against permanent monopoly, I 

 am doing so for reasons quite different from those advanced by him. The 

 argument advanced against the proposition that potential competition per se is 

 a safeguard against permanent monopoly is based upon the idea that such 

 wastes as accrue to the potential competitor when he invades the field where 

 monopoly is superior or more efficient differs from those that exist under 

 modern competitive conditions, not merely in amount as Mr. Bullock has sug- 

 gested, but in kind. The reason for this difTerence in kind is to be found in 

 the difference in the processes of price determination in the two cases. The 

 mere statement of this point will not carry conviction, and so I pass to a 

 defense of the proposition. 



The difference between the two cases can best be brought out by the use 

 of illustrations. Let us assume that the X. Y. Z. Corporation has a complete 

 monopoly of the mining and refining of borax in the United States ; and 

 because of the economies which it is able to effect, it can mine and refine 

 borax at a price of 8 cents a pound. But a competitor being unable to realize 

 these economies can not put the commodity on the market for less than 12 

 cents a pound. The X. Y. Z. Corporation being desirous of obtaining the 

 maximum revenue proceeds to raise the price of borax to 12 cents a pound 

 with the result that the competitor comes on the market. Afer a short period 

 of competition the monopoly, the X. Y. Z. Corporation, reduces the price of 

 borax to 11 cents a pound and the competitor is driven from the field. His 

 capital in the form of tools, machines, buildings it lost. This constitutes a 

 loss of capital such as we are familiar with in the competitive struggle. 



Let us consider what happens imder a regime of perfect competition such 

 as the theorist hypothecates. As an example, let us take the case of the pro- 

 duction and sale of copper. For some reason, say a war, there is a great 

 increase in the demand for copper. And in order to supply this demand, the 

 old mines are using ore of an inferior grade as well as going deeper into the 

 earth and new mines are opened. Let us assume that seven new mines are 



