The Corporation and the Twentieth Century

the Sherman Act, Congress “did not condone ‘good trusts’ and condemn ‘bad’ ones; it forbad all. Moreover, in so doing it was not necessarily actuated by economic motives alone. It is pos- sible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few. These considerations, which we have sug- gested only as possible purposes of the Act, we think the decisions prove to have been in fact its purposes” (427).

111. G. D. Smith (1988).

112. Arnold (1940, p. 239).

113. Hawley (1966, pp. 247–69); Levinson (2011); Schragger (2004).

114. Ross (1984).

115. Levinson (2011, p. 232).

116. Hawley (1966, pp. 254–58); Phillips Sawyer (2018).

117. Telser (1960); Marvel and McCafferty (1984).

118. Levinson (2011, p. 210).

119. As those of us of a certain age remember, you can trust your car to the man who wears

the star. The big, bright Texaco star. Brand-name capital is especially valuable to consumers in markets like repair services, where there is asymmetric information between the customers and the providers. Applying brand-name capital from one product (gasoline) to other products (repair and maintenance) in situations of asymmetric information is an example of what Wer- nerfelt (1988) calls “umbrella branding.”

120. Marvel (1982).

632 Notes to Chapter 8

121. Blair and Lafontaine (2006, p. 55) observe that “the main advantage of franchising over vertically integrated operations arises from its unique combination of (1) the chain’s compara- tive advantages in creating brand recognition and capturing economies of scale in production, product development, and advertising with (2) the independent entrepreneur’s drive and knowledge of the local market. In other words, in the ideal franchise relationship, each party is allowed to specialize in what it does best.”

122. Standard Oil Co. v. United States, 337 U.S. 293 (1949).

123. Standard Oil Co. v. United States, 337 U.S. 293 (1949), at 315. For Douglas, the issue was less lack of competition than “the effect on the community when independents are swallowed up by the trusts and entrepreneurs become employees of absentee owners. Then there is a seri- ous loss in citizenship. Local leadership is diluted. He who was a leader in the village becomes dependent on outsiders for his action and policy. Clerks responsible to a superior in a distant place take the place of resident proprietors beholden to no one.” Robert H. Jackson dissented separately, on the grounds that the court had not bothered to consider the economics of the case. The decision was “but a guess in the dark” (322).

124. Marvel (1995).

125. Olney (1989).

126. Still under the hegemony of the real-bills doctrine, the Fed refused to rediscount the

collateral notes of the independent finance companies, giving the in-house operations a lower cost of capital (Olney 1989, p. 388). The manufacturers wanted the dealers to use the in-house com- panies in large part because they wanted to be able to manage the supply of credit for automobiles during economic downturns.

127. GMAC had its own board of directors and was not a division of GM. After the suit, com- pany officials toyed with the idea of completely internalizing GMAC as a division, but they finally decided that would merely make the Justice Department even angrier (Freeland 2001, p. 162).

128. United States v. General Motors Corporation, 121 F.2d 376 (7th Cir. 1941). 129. Waller (2005, p. 92).

130. L. J. White (1971, pp. 136–64).

131. Fine and Raff (2002, p. 430).

132. Wallace (1999).

133. Gil and Spiller (2007). This was understood at the time. In 1946, Edgar Sullins Vaught, a district-court judge in Oklahoma, threw out a related case against a local theater chain. “There is a vast difference between ingots and moving picture films,” he declared, referring to Hand’s decision in Alcoa. “Ingots of aluminum are a staple and fixed product. Moving picture films are a fluctuating and uncertain product. Until a film has been exhibited no one knows or can ac- curately estimate its value as a box-office attraction, either as a first-run exhibition or a subse- quent run exhibition. What the demand for its exhibition may be by the public is an unknown factor” (United States v. Griffith Amusement Co., 68 F. Supp. 180 [W.D. Okla. 1946], at 196).

134. De Vany and Eckert (1991); Hanssen (2010).

135. In what remains the preeminent economic account, Kenney and Klein (1983) argued that absent block booking, studios would have had to invest significantly more resources in presorting movies, something in which they did not have the comparative advantage. As we will see, this is essentially what happened. Hanssen (2000) points to the more mundane transaction costs that arose whenever studios tried to lease movies on an individual basis.

Notes to Chapter 8 633

136. Aberdeen (2000); Conant (1960).