In highly organised trades, where the natural effects of free competition have been fully manifested, we find that the hope of a profitable business is entirely based upon the possibility that a trade agreement will so mitigate competition as to allow a rate of selling prices to obtain which remains considerably higher than that which free competition would allow.
As the field of competition is narrowed to a comparatively few large competitors, there arises a double inducement to suspend or mitigate hostilities; as the competition is fiercer more is gained by a truce; as the number of combatants is smaller, a truce can be more easily formed and maintained. In most machine-using countries each branch of a staple industry endeavours to protect itself from free competition by a combination of masters to fix a scale of prices. This is the normal condition of trade in England to-day. These combinations to fix and maintain prices are not equally successful in all trades, but they are always operative to a more or less extent in modifying or retarding the effects of competition. Where trade unions of operatives are strong, well-informed, and resolute, or where outsiders have large facilities for investing capital and dividing the trade, the endeavours to maintain prices and to secure a higher than the competitive rate of profits are unsuccessful. The joint operation of both these conditions in the cotton-spinning trade explains why the Lancashire spinners have been unable to check the effects of cut-throat competition. But throughout all branches of textile, metal, pottery, engineering, and machine-making trades strong and persistent endeavours are made by co-operative action of capitalists to limit competition by fixing a scale of prices which should not be underbid.
Where competing railways fix a tariff of rates for carriage, or competing manufacturers fix a scale of prices for their goods, their object is to secure to themselves in higher profits a portion or the whole of the productive and competitive economies attending large-scale production, instead of allowing them by unrestricted competition to pass into the hands of their customers. Suppose that a number of steel rail manufacturers freely competing would drive down the selling price to £1 a ton, but that by a trade agreement they maintain £1 10s. as the minimum price, 10s. per ton represents the economies of production which they divert from their customers into their own possession by a limitation of the competition. Part of the 10s. may represent the actual saving of the labour which would have been spent in competition as prices fell from £1 10s. to £1. Part may represent a taking in higher profits of some of the economies of new machinery or improved methods of production common to the competing firms, and which would inevitably have led to a fall of price if the competitive process had been allowed free play.