Monopoly and Competition
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in Most Commercial Undertakings, Monopoly .and Competition Exist Side by Side: In Transport a True Balance Must be Struck Between Them By Ralph Cropper, M.Sc. (Econ.), B.A., A.M.Inst.T.
MONOPOLY and competition, and the relationship between them, form the basis of Many of the problems confronting us to-day, in the realm of transport as elsewhere. This was clearly brought out in the recent transport debates in Parliament, where the two words were bandied about by both sides, to condemn the policies advanced by their political, opponents.
Much confusion arises from the failure to analyse these words. When one side raises an accusing finger and calls out "monopoly," the other side immediately refutes the accusation, because it claims that competition really exists. Both sides are quite likely to be correct. The position of the Road Haulage Executive is a good example in point. The Conservatives say that it is a monopoly, a claim laughed to scorn by the Socialists who point to the competition offered by Clicence operators. Both sidesare correct, in part.
Indeed, competition and monopoly exist side by side' in most commercial undertakings. The situation is always relative--a question of how much of the one; and how much of the other, exists, in any situation.
Even the most monopolistic bodies are rarely found to possess a complete monopoly. They almost always have fringe areas where they are in competition with other bodies and are always in danger of meeting new developments which offer alternatives for the monopoly's services. They will always face, too, the possibility that some of its buyers may prefer to do without its services and spend their money in some other way. This last aspect is much more real and happens more frequently than is usually assumed.
Variegated Field.
Transport is a peculiarly complicated industry. There are pockets of relative monopoly, and others of relatively free competition. The situation, particularly in road transport, is, constantly being adjusted in step with industrial changes. Mr. Churchill, in the recent debate in the House of Commons, spoke of "the variegated field of road transport, all of which has grown up naturally, responding from day to day to the laws of supply and demand, and corrected by the penalties constantly operative which befall private enterprise when it is unsuccessful."
The growth of 0-licence operation is an interesting example of the play of competition and monopoly. We know that a good proportion of the 800,000 vehicles authorized under C licences are employed on retail delivery work. This is a class of transport not normally regarded as open to competition. But retail deliveries are much less of a monopoly for traders with their own vehicles than might be supposed.
Competition arises in the supply of the vehicles, which can be bought on credit terms, Of on hire purchase, or operated on a long-term C-hiring licence, or hired on a week-to-week basis from an A-licensed carrier. The choice will depend on the financial attractions of the various propositions. Between a C licence, a C-hiring licence, an A-contract licence and an ordinary A licence on regular hire, the difference is slight.
A36 Consider the case of a tinder :with an expanding:. business. When in his early days, his deliveries could be completed in two hours a week, hauliers, would not be too anxious to secure his business, and therefore there is little -competition for the work. ' When his deliveries expand to two or three days a week regularly, there may be considerable competition amongst hauliers to secure the work. When it expands to four days and the trader decides to acquire his own vehicle on C licence possibly partly for publicity and prestige reasons, his operations cease to be concerned with competition and can more fairly be described as nearly monopolistic in character. Thus, competition in retail deliveries varies with the: amountof work involved.
• Impartial Analysis It is undoubtedly true that some of the increase in C-licence vehicle operation during the past few' years hasbeen because of its increasing value for long-distance woik. The part which nationalization has played in promoting this movement, is one of the highlights. 'of current political controversy, and warrants an impartial analysis. Some lOng-distance C-licence transport undoubtedly competes directly with public carriers; nationalized or non-nationalized., But in other casesit is barely, or only remotely, competitive.
In attempting to understand this Situation, two factors must be clarified. First the rate, or the level of the costs incurred, and, secondly, the efficiency of the service offered, or the degree of suitability. The conflict between charges and standards of service is intensified by the wide' satiety of traffic carried by road transport.
With Some -goads, serviee alone Matters. In the extrerhe case, almost 'any rate, will be paid, so long as the consignment is handled exactly as and when required. This occurs 'with replacement parts for ships and machinery, for example. This sort of traffic' normally comes on the market in spasms but a spon taneous response is always required. • Where the public carrier can compete for work of this kind, the individual proprietor is better able to respond with promptness than is the section manager of a large undertaking. He has greater freedom ,of action, and the inducement to augment his profits. He is not tied down by trade union arrangements, such as those concerning starting times. He is free to offer compensatory payment to the driver selected without creating dangerous precedents or dissatisfaction among staff employed in other parts of the organization. He can take on the job himself, if necessary, and drive the vehicle alone—a line of action which a depot manager could hardly be expected to follow.
However, quite a number of C-licence vehicles is held "in reserve" for traffics of this kind. The'vehicles are kept solely for service considerations, despite the comparatively heavy overheads incurred. The importance of having transport available at a moment's notice, is the primary consideration.
These extremes emphasize the importance of the quality of setvice offered. There are many more cases where some better-than-average service is demanded by the trader, whether in the form of punctuality, reliability, safe conduct of the load, or delivery to suit consignee's
whims. All can be obtained—at a price. Traders operating their own vehicles so as to ensure the best possible service, pay, in operating costs, more than a haulier would probably charge for the work concerned.
Now consider the question of cost. With some goods, the lowest possible transport cost is vital. A manufacturer of tiles, for example, might be able to tap a particular market if the sum of his production-plustransport costs is less than that of a rival manufacturer in another town. Let us assume that the manufacturer's prices are being undercut by those of his rival. To offer competition in a particular field, he must reduce his costs so as to lower his selling price.
Transport costs are thus a vital part of market competition. The public carrier cannot be quite as alive to the need for cost-skimming in this situation as the manufacturer himself. Besides, the haulier has to bear in mind the effect of a reduction in the rate for one customer upon the rates accepted by other customers.
The tile manufacturer in this case would undoubtedly consider using his own vehicle for this work. One of the greatest factors in the costing of road vehicles lies in the regularity and continuity of the vehicle's use
over an extended period. If the manufacturer can organize the traffic flow to the area he wishes to serve, possibly in conjunction with some of his other transport requirements, so as to provide a regular and intensive demand for the vehicle, he is almost certain to obtain lower costs than the public carrier can offer. He accordingly buys a vehicle for C-licence operation, or hires one under a long-period agreemtnt.
Low Costs for Traders Numerous cases exist where trading firms can, with their own vehicles, obtain lower transport costs than the lowest the haulier can offer, particularly where traffic flows fairly regularly and a high utilization factor can be obtained. No public carrier, nationalized or not, can compete with the trader picking the cream of thetraffic for his own vehicles.
The conclusion emphasized by this analysis of the value of C-licence operation is that it is competitive with public haulage, whether privately or State-owned, in cost and in the quality of the service achieved. However, a competitive service, bearing in mind that any degree of service can be obtained at a price, will inevitably attract a high rate.
To. compete with the C-licence haulier, the public carrier has sometimes to go all out for a low rate and at other times to claim a high rate so that he can give the quality of service expected of him. Thus, uniformity of transport costs is not a desirable aim.
Caught Between Extremes
The A-licence haulier tends to get caught between the two opposite considerations of rate and quality of service. This dilemma confronts the nationalized and non-nationalized undertakings in somewhat different• ways. Before nationalization, with many different firms in road transport, some hauliers could offer first-class service, naturally charging a higher rate for it, whilst others could aim at keeping rates as low as possible, even though their service suffered. With a large undertaking like British Road Services, there is an inevitable tendency to do things the same way throughout the whole organization.
It is part of the logic of a national undertaking to standardize its practices and to produce a stabilized rate structure. Although this stage has not yet been reached, there is already a marked tendency towards it in B.R.S. The result is that the service is not as good as some traders would wish; so they turn to C-licence vehicles. Nor is the rate level as low as some traders would wish and again they turn to C-licence vehicles for lower costs.
Road transport implies so much inherent competition, with changing traffic movements and changing transport requirements, that the whole theory of integration, or planned monopoly, cannot stand. The integrators themselves, including Lord Hurcomb and the Socialists, knocked the bottom out of integration when they had to withdraw the proposed restrictions on C-licence operations during the passage of the 1947 Act.
The theory of monopoly in transport, known as integration, breaks down under the unceasing ebb and flow of the transport industry. The small integrated sector of road transport, the 41,000 vehicles of the R.H.E., is in a position too vulnerable to attack from the C-licertce user in a constantly changing transport pattern. The only satisfactory answer would seemto lie, to quote the Pcime Minister's words, in "the fertility of regulated private enterprise."