Opinion ID: 1503668
Heading Depth: 1
Heading Rank: 6

Heading: The Price Squeeze.

Text: The plaintiff describes as the Price Squeeze a practice by which, it says, Alcoa intended to put out of business the manufacturers of aluminum sheet who were its competitors; for Alcoa was itself a large  in fact much the largest  maker of that product, and had been the first to introduce it many years before the period in question. The challenged practice ended with the year 1932, shortly after the Department of Justice took up the complaints of several sheet makers, and began to investigate. The plaintiff says that the squeeze had been in operation for a long time before the year 1925, and that by means of it Alcoa had succeeded in eliminating four out of the eight companies which competed with it. However, it will not be necessary to go back of 1925, for the only question before us is whether an injunction shall go, and a test of that is whether the practice in the years 1925-1932, inclusive, was unlawful. If it was, the time when it began is irrelevant; if it was not, it was equally lawful in the earlier years. We shall not describe the manufacture of sheet  sheet rolling  beyond saying that rolling ingot, not notched bar ingot, must be used, and that it is forced between two rollers until it gets to the desired thickness: gauge. It is made as coiled sheet or flat sheet; also the metal may be hardened by various alloys to bring up its tensile strength. The squeeze is asserted to have been exercised upon five gauges of coiled sheet, four gauges of flat sheet and five gauges of alloyed metal  called Duralumin. Between the years 1925 and 1937 inclusive Alcoa's books show the price of all these kinds of sheet for the gauges in question, together with the cost of making it from ingot. They also show the price of ingot, which was of course the same for all gauges and for all kinds of sheet, as it was the same for all uses of aluminum other than sheet. We are accepting as a basis the tables appearing as Section XVII of the Appendix to the plaintiff's brief  which is more favorable to Alcoa than those which the judge used. Except for the years 1925-1928, inclusive, these tables do not include as an item of cost, Unabsorbed Burden; an accounting allowance, computed to cover the expense and loss properly to be attributed to that part of Alcoa's plant which was not being used during each year. We cannot see why it was not a proper item to include in the cost of production, for it was to be expected that other sheet rollers also would be unable to keep their plants fully occupied; and, if so, over a term of years they would have to absorb the ensuing loss in the price of the product. Moreover, as we have said, Alcoa itself so kept its books for the first four years of the period in question. Those were prosperous years during which the item was not likely to have been large, but even though we were to deduct in those years the average for the years in which Alcoa deducted it, the difference this would make in the average cost of sheet for the years before 1933 is trifling. At the expense of logical consistency and in order not to complicate the computations unduly, we have used the tables as they stand. The plaintiff's theory is that Alcoa consistently sold ingot at so high a price that the sheet rollers, who were forced to buy from it, could not pay the expenses of rolling the sheet and make a living profit out of the price at which Alcoa itself sold sheet. To establish this the plaintiff asks us to take Alcoa's costs of rolling as a fair measure of its competitors' costs, and to assume that they had to meet Alcoa's price for all grades of sheet, and could not buy ingot elsewhere. It seems to us altogether reasonable, in the absence of proof to the contrary, to suppose that Alcoa's rolling costs were not higher than those of other sheet rollers; and, although it is true that theoretically, imported virgin was always available, for the reasons we have already given when we were discussing the monopoly in ingot, we think that it could at best be had at very little less than Alcoa's prices. As for secondary, there were a number of uses for sheet for which the trade would not accept such of it as was available in the years in question. Besides, the spread between suitable grades of secondary and virgin was also very small. Compressing into reasonable compass what the tables show, the result is as follows. For all the five gauges of coiled sheet for eight years, 1925-1932, the average profit open to competing rollers was .84 cents a pound, as against 4.7 cents for the five succeeding years, 1933-1937. The corresponding figures for flat sheet were .59 cents and 4 cents; and for Duralumin, 4.9 cents and 11.8 cents. Moreover, in 31 instances out of 112 there was no spread at all; that is, the cost of ingot plus the cost of rolling was greater than the price at which Alcoa was selling sheet. Obviously, there was in the eight years little or no inducement to continue in the sheet business, and Baush, the only roller of Duralumin, gave up in 1931, although Alcoa insists, and the judge found, that this was because of its inefficiency. There can be little doubt that Alcoa changed the price of ingot in 1933 because it feared some action by the Department. True, it dropped the cost of ingot only about two and a half cents, and that advantage did not all inure to the profit of sheet rollers, for the price of the majority of the gauges in all three kinds of sheet fell as well. However, the cost of making sheet also fell for every gauge, and that in some part offset the fall in the price of sheet. There resulted an average net gain in 1933 in all gauges of coiled sheet of 2.84 cents a pound; and the corresponding figure for flat sheet was 4.49 cents, and for Duralumin, 3.14 cents. Moreover, although this advantage necessarily varied during the years 1934-1937, the cost of ingot  the most important factor  continued to be lower than in 1933 for all the following years except 1937, and then it was higher by only a quarter of a cent. The judge held and we agree that the squeeze was eliminated by lowering the price of ingot; and to do so Alcoa had to reduce the price, not only to sheet rollers, but to all customers who bought ingot for any purpose. The drop of two and one half cents in 1933 went along with an actual  though it is true a very small  increase in mill cost, which left a margin of 4.62 cents for overhead expenses. Since 1925 that margin had never been less than ten cents except in 1932, when it was seven and a half cents. It is of course possible that the reduction in the price of ingot was accompanied by a corresponding drop in overhead; the record is silent; but it seems to us unreasonable to make that assumption: sudden changes of such magnitude are not to be expected. Rather we think that the plaintiff made out a prima facie case that Alcoa had been holding ingot at a price higher than a fair price, and had reduced the price only because of pressure. If that was not so, it should have rebutted the inference. In spite of this evidence the judge found that in these years Alcoa had not intended to monopolize the sheet market; or to exclude others; or to fix discriminatory prices, or prices of any kind; or to sell below the cost of production, measuring ingot price as part of the cost. The last of these findings presupposes that Alcoa could not have known the cost of rolling sheet, for obviously it knew the prices at which sheet and ingot were selling. It says that it did not know, because the cost of rolling sheet varied from year to year, and could not be ascertained till the end of the year, so that it could never tell in advance what part of the gross spread between the sheet price and the ingot price would be left as profit. That is indeed hard to believe; but, assuming that it could not, since the judge so found, at least as early as 1930 the complaints charged it with notice of the effect of what it was doing; and yet it kept on until the Department began to move, when it at once found means to cure the situation. Since we have not the question whether competitors were in fact damaged, but only whether there was enough evidence on which to base an injunction for the future, the only doubts are two: first, whether, when Alcoa came to know the effect of the squeeze, as it did, the squeeze became unlawful; and second, whether the issue has become moot, which we will reserve until we come to discuss remedies. That it was unlawful to set the price of sheet so low and hold the price of ingot so high, seems to us unquestionable, provided, as we have held, that on this record the price of ingot must be regarded as higher than a fair price. True, this was only a consequence of Alcoa's control over the price of ingot, and perhaps it ought not to be considered as a separate wrong; moreover, we do not use it as part of the reasoning by which we conclude that the monopoly was unlawful. But it was at least an unlawful exercise of Alcoa's power after it had been put on notice by the sheet rollers' complaints; and this is true, even though we assent to the judge's finding that it was not part of an attempt to monopolize the sheet market. We hold that at least in 1932 it had become a wrong. The same considerations do not apply to cable, of which Alcoa is the only fabricator. The plaintiff charges that Alcoa secured a monopoly of this by setting the price so low that there was no adequate spread. That may be true, but aluminum cable must in any event compete with copper cable, and the plaintiff failed to show that, even though the price of ingot were reduced so as to realize only a fair profit, it would have been possible to compete with copper cable and leave an adequate spread for cable fabricators. Complaints still continued after the squeeze in sheet had ended in 1933. The evidence permitted the conclusion that Alcoa may have had another intent in selling at a loss than to monopolize the market, or to suppress competition; and the finding was that it did. Such relief as the plaintiff can have, if any, upon this feature of the case, must therefore be limited to that against the monopoly in ingot.