There are types of combinations that are not classed as consolidations. Each company involved maintains its own identity by one method or the other joins other companies in a common rather than a competitive effort.
The devices used are less formal than the types just described, but the results obtained are identical. The element of legality is also a factor, as informal methods of combination can result in an undue restraint of trade. Non-consolidated combinations of an organization are described below:
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Non-consolidated combinations of organization
1. Pools
Originally, pools provided another method, in addition to the trusts, for eliminating competition. In this capacity, the U.S. Supreme Court declared them unconstitutional.
In a famous case involving the Addyston Pipe and Steel Company and others, the arrangement by which this manufacturer, together with several more who produced steel pipe, conspired to fix prices was declared illegal.
Pools are usually written agreements among several companies coveting one or more phases of operations such as territories, prices or profits, output, or patents.
The Eddystone Pipe and Steel Company case involved a territorial pool. The companies agreed that each member was to have the exclusive right to sell in certain cities or small areas.
In other regions, the companies might bid among themselves for the business. This was known as a restrictive territory as opposed to the cities reserved for one company.
Still, other areas were free territories in which each company could seek business on a normal competitive basis. Price and profit pools are based on an agreement to charge certain prices or to share profits on a certain percentage in relation to the entire membership of the pool.
2. Cartels
Pools of the types just described, if organized in a foreign country, are known as cartels. Most cartels are international in scope and include such items as zinc, tin, rubber, copper, and diamonds.
In the United States, some producers of export goods were placed at a disadvantage in the world markets because they were forbidden under the antitrust laws to combine in any manner that would restrain trade.
In 1918 this condition was remedied by the passage of the Webb-Pomerene Act, which permits manufacturers to join international cartels just so long as a such united effort is not extended into local markets.
3. Exclusive Selling Agencies
If a number of producers form a single agency to market their products, this is known as an exclusive selling agency. The best examples are cooperative marketing associations.
4. Patent Licensing
Holders of exclusive patent rights have the opportunity, through patent licensing to a limited number of manufacturers or through restrictive use of the patented product, of controlling the output and other uses of such patents.
This differs from a patent pool only to the extent that one company allows others to use its patents or the patented product, whereas in the pool each company in the group contributes its patents for the use of the others.
5. Interlocking Directorates
If the majority membership of the board of directors of two corporations is composed of the same individuals, these men can direct the operations of the two organizations in such a manner that their activities will be coordinated in just as effective a fashion as though the organizations were consolidated.
If the firms involved are in the same business and are in competition with each other, such a board might be illegal under the Clayton Antitrust Act.
If the firms are to compete, interlocking directorates are legal and may promote harmonious working relations between the two corporations.
6. Gentlemen’s Agreements
If representatives of several competing concerns agree that it should be advantageous to raise princes and if such a price increase does take place, this is called a gentlemen’s agreement.
7. The community of Interest
If a few individuals are the dominant stockholders in two or more corporations, a community of interest results.
Each company has its own board of directors, but the stockholders who own a controlling interest in the two or more organizations are responsible for placing and keeping them in their positions.
This means that the actions of the board members will favor the other companies.
8. Collusive Bidding
Government agencies and other business organizations frequently allocate their purchase orders on the basis of bids received.
In some cases, there has been some evidence that one company submitted the lowest bid after agreeing with other so-called competitors that they would submit higher bids.
It is difficult to prove collusive bidding, but sometimes the facts point strongly in his direction.
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