The Swedish Pipe- and Tube Market

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The Swedish Pipe- and Tube Market – Attempts to Organize and Resistance. ...... Agreements were also associations, such as Swedish Pipe Convention that ...
Kristoffer Strandqvist SCORE

The Swedish Pipe- and Tube Market – Attempts to Organize and Resistance.

Studying the Pipe- and Tube Wholesalers over the legislation process leading to the New Competition Act of 1953.



Abstract

The Swedish Pipe- and Sanitation market traces its origins to the late 19 century, supplying material to the emerging gas- and water systems in Swedish towns and cities. A cartel was formed in 1909 between the wholesalers. In 1924 the cartel had pricing agreements added and gradually during the interwar years the Swedish Pipe- and Tube Wholesalers cartels evolved and became into several. The 1930s was a jumpy period with the depression but during the war the government crisis planning agencies managed the Pipe and Tube Cartels into form new ones for different products to act as import cartels with responsibilities of official character.

At the end of the war a discussion was started in Sweden about the importance of competition for the market and for its functioning, inspired by the American perceptions of trusts and cartels. In 1946 legislation about cartel monitoring was enacted in Sweden, based on the results of a 1930s investigation. But it didn´t stop there. In the summer of 1946 the Minister of Commerce appointed a committee that would examine "inappropriate methods of competition, such as boycotts, exclusive contract, and price differentiation”, and the need to eliminate private control over entry into the business sectors. Reform of Swedish markets was in the air. The committee would work for over five long years.

The Pipe- and Tube Wholesalers cartels wondered in what direction this would end, and felt some concerns about a too close scrutiny and possible special interventions into their trade. They therefore acted proactively and shut down the cartels with their price collaborations already in 1947. Instead they started a trade association.

The article follows and analyses this development from historical sources and tries to give a picture of ​​what really happened with the Pipe- and Tube Wholesalers cartels, and if they really stopped their previous collaborations, and how the Pipe- and Tube market developed after the new Competition Act - which was the result of the committees investigation - entries into force at the end of 1953/54. A law that among economists in Sweden today has been seen as hopelessly weak and unable to bring more competition to Swedish industry and trade. [1] This article however presents empirical evidence pointing in another direction.

Background

The 1920s witnessed a major upsurge of new construction in Sweden, which combined with modernization lead to widespread demand for pipes and plumbing products. There was lively start-up operation of plumbing wholesale businesses. The almost sleeping pipe and tubes wholesale cartel organization formed in 1909, Svenska Rörkonventionen, also became more active.

In 1925 the cartel introduced price collaboration which, in particular, would discourage competition in tendering. Developments in the field of cartels came in the period to be great. Internationally, the pipe manufacturers introduced a cartel that worked, with some interruptions, during most of the 1920 - and 30s’. Interruptions were periods of severe price war. The Swedish organized pipe and tubes wholesalers managed to reach exclusive agreements with the foreign manufacturers and could to a certain degree stifle supply to outsiders, and maintaining the price level in Sweden.[2]

However, the established iron merchants, firms with high turnover, made their advent into the pipe market during the 1930s, spearheaded by the big company Söderberg & Haak.[3] This, combined with the depression which also made compliance to cartel rules among its members weaker, led to falling prices and some shrinking profitability. Further organizing such as quotas became the response of the organized wholesalers. But such solutions, however, was short-lived.

Already in the 1930s when the international situation tightened up the Swedish National Commission for Economic Defense Preparedness was set up. This prepared the way a crisis management in Sweden would look in the event of war and blockade. In addition it also drafted a contingency legislation for this purpose.[4]

When the war came 1939 a number of boards and commissions was quickly established. And the state was able to organize and control the different markets and thus to uphold what was then commonly referred to as national economy[folkhushållningen]. Two of the major agencies were the National Price Control Board (Priskontrollnämnden), whose function was to monitor and limit price rises, and the State Industrial Commission (Statens industrikommission) that would look better organize and coordinate the production, but also imports and exports.[5]

In order to meet the Swedish demand for pipe- and tube materiel at a situation with the risk of total blockade, which appeared possible immediately after the outbreak of the war, the Industrial Commission worked to achieve two things. One was to ensure that the imports endured and the other to ensure that the production of goods that previously had been imported was founded or expanded in Sweden. The German-Swedish Trade Agreement assured Sweden a large amount of German made pipes and tubes of various kinds. These tubes would also be distributed in a fair and equitable manner and not be assigned a price enabling wholesalers with big supplies earning excessive money on them.[6]

The incentives to kick-start production notably lead to the production of cast pipe and fittings at several companies.[7] This type of increases in Swedish manufacturing would potentially in the longer run be able to provide conditions for better competition. To organize imports and achieve a distribution of tubes the commission interacted with pipe- and tube wholesalers cartel organization and induced it to set up additional import cartels or associations. Three different types of pipes should have their own import association: forged pipes, cast pipes and fittings. Their main task was to allocate import tubes and this was based on the wholesalers’ delivery figures from 1939. The Industrial Commission guaranteed that outsider firms would get their share, so these could not be stifled by the organized wholesalers assisting with the war administration. Problems arose, however, about the prices of the Swedish and German pipes. The latter were significantly cheaper, even though lowest prices to the market were agreed. The solution was a further cartel, a cartel quota, and a firmer connection of the Swedish pipe manufacturers into the organizing. After a few years of war the organized pipe- and tube wholesalers came to have an almost complete control over the market for tubes, despite some lull in demand.[8]



The immediate post-war Swedish Pipe and Tube Market

During the first postwar year, 1946, availability of plumbing products increased markedly in Sweden. The war years had not resulted in totally stalled activity, and now the building sector got a boost. The goods contained within the HVAC sector where produced by firms belonging to various industry sectors; ironworks, machine shops, foundries and porcelain factories. Items could be divided into six groups: pipes, radiators, boilers, bathtubs, bathroom fixtures and fittings, where the former is usually divided into several subgroups. The domestic production responded in 1946 to over 90 percent of the domestic demand in most of the commodity groups, foreseen cast tubes and sleeve pipes where imports were above 50 percent.[9]

A building materials survey noted the good self-sufficiency in Sweden in the 1940s and explains it as a result partly due to the addition of new production units. The production had expanded rapidly during wartime blockade. Late in the war and in the first post-war years large factories for the manufacture of cast pipes and bathtubs had been started. Government regulations and initiatives had had a certain importance for the establishment of the business during the war years.[10]

A relatively large number of cartel agreements were also in operation. The manufacturer level there were nine registered in the official register of cartels (Cartel index. No. 2, 3, 12, 14, 50, 56, 189, 190 and 323). At the wholesale level there were four cartels: Swedish Pipe Convention (Svenska rörkonventionen - cartel index. No. 52), Swedish Society of Pipe Wholesalers (cartel index. No. 55), Swedish Pipe Association (Svenska Rörföreningen upa - cartel index. No. 46) and Normal Pipe Association (Normalrörföreningen upa - Cartel index. No. 53). The latter two were imports compounds formed by the supply commissions’ participation shortly after the outbreak of World War II.[11] Finally, at the Installer level was four cartel agreements registered, (Cartel index. No. 42, 193, 197 and 203). .

Production in Sweden of the main products were divided into about 190 companies, wholesalers was about 40 with about 1,500 employees and installers over 2,800 firms with more than 20 000 employees.[12]

The four wholesale cartels were closely related to each other, they had the same members, the same members of the boards and a single ombudsman. Furthermore, the association agreements follow the same structure: they consisted of two separate agreements on pricing and on quotas. In addition, there was a specific annex on sales and delivery terms.



A changed view on competition.

At the end of the war a discussion was started in Sweden about the importance of competition for the market and for its functioning. Similar trends existed in much of Western Europe at the time, inspired by the American perceptions of trusts and cartels.[13] An initiator in Sweden was the Professor of Economics and Social Democrat Gunnar Myrdal, who took place as Minister of Commerce in the new post-war labour government. As minister Myrdal appointed a committee – the Experts of New Establishment – the summer of 1946 that would examine the need to eliminate private control over entry into the business sectors and "inappropriate methods of competition, such as boycotts, exclusive contract, and price differentiation”. Before the committee was named in 1946, legislation about cartels was enacted in Sweden, based on the results of a pre-war investigation. It did however not include a direct ban on cartels, but rather that these would be recorded in an official register of cartels. The register would be organized by the government body Commerce-College (Kommerskollegium) and it’s newly formed Monopoly Investigation Bureau. This would increase the transparence and knowledge of how the competition situation looked like in the Swedish industry.[14]

Actually this legislation was the result of ideas and proposals emanating from an investigation in the 1930s, The 1936 Professional Body of Commercial Experts with their report from 1940, and further developed by the Commission for Economic Post-War Planning and their report from 1945.[15] At that time, the 1930s, economic nationalism had made cartels poplar among governments that wanted to use them as tools in controlling the economy. So the state also wanted control over the cartels and for that reason registration of cartels became mandatory in some European countries during the 1930s; e g Hungary in 1931 Czechoslovakia and Poland in 1933.[16]

Chairman of the new committee was economics professor Karin Kock, and members were appointed among commerce, trade union and cooperative movement representatives. The directive to the investigation referred to what had emerged in a few previous investigations; The 1936 Professional Body of Commercial Experts (näringsorganisationssakkunniga) (SOU 1940:35), the Commission for Economic Post-War Planning (SOU 1945:42) and the consultation responses to these. The former investigation found practices of private control to entry, including banks' reluctance to lend in industries that required large capital investment or through exclusive contracts, dubious. However, given the war situation waived proposals for action. The latter commission found that start-up control had been strengthened during the war and recommended that the issue of further tightened legislation should be investigated urgently. The new committees mission was to, in collaboration with the Commerce-College Monopoly Investigation Bureau, examine private entry control and submit legislative proposals that "as far as possible eliminate[d]" the same.[17]

Contrary to arguments from commerce about ending up with too many small competitors going bankrupt causing "unnecessary supplier losses", Minister Myrdal thought that "a stronger price competition from more efficient companies would represent, from society's point of view, a far superior method of preventing less efficient companies to subsist in the market and that this method should allow an increase in turnover per company and a general rationalization of the relevant industries ". Thus competition was the theme of the day.[18]

Gunnar Myrdal, resigned as Minister of Commerce in 1947 and the new minister appointed was Karin Kock. On April 30, 1947 Kock resigned as chairman of the committee and was replaced by Richard Stern, the former secretary. One and a half year later, on 12 November 1948, the directives to the committee were extended. Now the investigation would also look into "the need for legislation to prevent socially harmful cartel agreements". The extended mission was preceded by a letter from the Swedish Cooperative Union (KF) to the Government in June that same year, as reported in the open, where the Cooperative Union laid down a thorny problem for the legislature to consider. The Cooperative Union asked that if a party to a cartel agreement violated the same agreement would it be reasonable that the legal system helped enforce the agreement? Should the other parties to a cartel agreement be entitled to through the legal system "bring an action for penalties in the form of damages or liquidated damages due to breach of contract" against a violating party? The Trade Ministry understood the worrying in that "public bodies" appeared to maintain "in the public interest unsuitable cartel agreements."[19]

The Committee noted in their final report that of the 510 cartel agreements "and similar restrictive agreements'” the monopoly investigation bureau had recorded in December 1950, 350 was yet in force.[20] Resale price maintenance was part of the content of most agreements; either horizontal - different vendors coming together on a price to their clients - or vertical - manufacturers set a price that retailers must charge its customers (also known as a gross price system). If prices were to deviate the alleged threat was the stopping of supplies or similar measures. But also a retailer's belief or perception that such penalties could be inflicted led to "effective price linkages" according to the investigators. Discounts advantaged and disadvantaged, exclusive contracts between suppliers and retailers, market sharing agreements, collusive tendering and dominant local firms were among other problematic occurrences the experts listed. They noted that “In different ways, the competition is thus in broad areas of the economy strongly inhibited.”[21]

The committee report also noted that developments in competition in the industry went in the right direction, especially after the investigation had started and the monopoly investigation bureau publishing business had begun. The threat of action against harmful competition, would probably had been capable of “stimulate interest in the elimination of conditions which may be subject to criticism and used as a justification for the legislation”, in many businesses and cartel organizations.[22]

However, the committee did not believe that it was enough with this self- purification. It was inadequate when the measures "do not go any further than just the business, which account for a particular restriction of competition, considered reasonable." Moreover the intensified interest in self-regulation would be significantly reduced if the state declined to take "direct action".[23]

The committee suggested that a Freedom of Trade and Industry Board (Näringsfrihetsnämnd) would be established. A body that would assess the extent to which specific restrictions on competition would be harmful. However the committee was a bit divided in how far to go. The labour majority of the committee, which also came to dictate the final report, suggested that to assist the board it would have a new law which stated competition standards and in the practical work the monopoly investigation bureau would assist. In addition to assessing the harmfulness of agreements and barriers the board would "be empowered to take action with binding force". Negotiations with the parties involved, in order to reshape the way business was done or remove barriers to competition, would however be the first option. Coercive action would take place by injunctions presented by the board which required a party to lift or reshape a restriction of competition. If such an injunction was not followed, it should become a case for court.[24]

The committee also proposed that the board would be assisted by an independent Ombudsman for the Freedom of Trade Issues (Näringsfrihetsombudsman) which would be set up and that could act like a prosecutor, choosing which cases to pursue.[25]

Three cases of competition restrictions would be admissible according to the final report. Firstly when a company or a group of companies, as a result of common ownership interests or other similar grounds, representing a major part of the business within a specific area. This first point is about dominance, but the committee didn´t want to refer to any particular percentage of the market held by some type of monopoly business when competition could be said to be limited. However account should be taken to the effectiveness of the competition that existed both from domestic and foreign operators. The second case was when companies acted together because of a cartel agreement or other arrangements. The investigators wanted to emphasize that it was not only written cartel agreements they focused on. Even when a company behaved "as if an agreement on organized collaboration existed" would such a case be admissible. The third case was when a company in their sales activities provided instructions to retailers about a lowest price of a good to be charged. This is what is also referred to as the gross fixed prices.[26] However, target prices would be allowed.[27]

It was also only societal harmful restrictions of competition that should be eliminated. But what was it that was societal harmful effects (samhällsskadlig verkan)? The committee stipulated a definition in three respects: 1) high prices in relation to actual costs 2) a substantial risk that a cost reduction was prevented, or when technical/economic development was inhibited, 3) when substantial danger for restriction of economic activities of societal importance existed.[28]

The committee also raised the issue that business competition required that various companies would be able to act in the market relative to its effectiveness. And that certain companies would not be arbitrarily discriminated against. It was specifically mentioned refusal to supply some actors, especially one in which providers have come together and stipulated that only certain customers would receive goods. As a particularly difficult case where when discrimination occurred against a client that did not belong to some particular association or represented a specific organizational form. Also severe cases were when competitors were able to exercise influence over a supplier's position or when a seller tried to force a customer to join a restrictions on competition.[29]

The committee also realized that it could be extremely difficult to prove the harmfulness of a restriction of competition. They considered if it wasn´t reasonable to change the burden of proof, that it was a competition restriction that should be justified. The solution they settled on was something they called legal presumption, that in some cases it could be given that adverse societal effects were present. It was particularly three cases where the rule was valid: 1) where a sole supplier disadvantaged some entrepreneurs, 2) when cartels oriented towards price cooperation, submission of bids, market sharing, or the disadvantage of certain businesses were present and 3) when gross fixed pricing existed.[30]

Government Bill 1953:103 introduced a new Swedish Competition Law based on the committee report but also deviating from it. Prohibition of gross fixed prices (§ 2) and of collusive tendering (§ 3) was introduced and in addition a Business Freedom Council (näringsfrihetsråd) was established. The latter would by negotiation attempt to eliminate "harmful effects" of private business restrictions. It was both through its composition, corporate, and its intended form of work, negotiations, in much a child of the Swedish model of cooperation. The bans were also dispositive; exception could be made if cost savings were passed on to consumers or if a better organization of an industry could occur.[31]



The Organized Swedish Pipe and Tube Wholesalers Responses and Resistance

The committees investigation lasted a full five years, members came and went, and the directives changed. In the meantime, businesses and organizations in the industry where impact of a new law could be substantial reasonably understood what was likely to occur, and took initiatives. .

How did the organized pipe and tube wholesalers react to the legislative process and to the development of a potentially tougher competition law? A memo from a general meeting of the pipe associations, dated October 7 1948, is revealing.[32]

After several wholesaler cartel members from the three largest Swedish cities had quitted the price agreement on 17 September, which meant that it would end one month later, the issue of the cartels futures were urgent. The matter of the dismissal had been on the speech for quite a long time, at least since 1947. The question had been discussed by the board who thought that the different cartels should be dealt with at the same time and felt that "the release of prices would be a viable option" for three reasons:

1. At present, prices would be respected for the foreseeable future given the shortage in supply.

2. In times of ample supply of goods cheating with agreed prices would always occur. If prices are maintained, one can expect that unscrupulous members will profit at the expense of loyal members in the transitional period.

3. Currently, the government had ordered an investigation in accordance with §6 of the Act on Competition. According to reliable sources next will also the pipe- and tube business become subject to investigation. Although the current prices could not be challenged, since they are price-controlled, probably a system of bound price rates would be considered to be contrary to the principles of a free economy and possibly lead to pressure of various kinds. We can also fear legislation directly affecting the cartel agreements. [33]

Even a fourth reason seems to have been present; that the Organized Wholesalers seized the opportunity and got rid of Cooperative Companies (KF) among its ranks. This demands some explanation and a small deviation are needed.

The Swedish Cooperative Union; KF, had long been in some opposition to the established Swedish pipe and tube wholesalers and their organizations. Partly because KF wanted to defend the interests of their members and reduce prices in general, but also because it had taken practical expressions in the form of direct KF's involvement in the industry. In 1937 KF acquired Gustavsbergs factory, a big porcelain industry, when that sector was in crisis and diversified it in to sanitation porcelain.[34] In addition, KF had bought two pipe and tube wholesalers: The Sanitation Firm GG in Stockholm and the old firm AB Park & co in Gothenburg.[35] These acquisitions made KF a direct member of the wholesalers organizations, the cartels, even if they refrained from the price collusion. Furthermore, KF made gambit in the press to bring about changes in the plumbing market and produce a pressure of prices. In addition to all the above, they made the famous notification to the committee about the cartels and the dubious in law-enforcing of violations of their statutes in public courts.

When it would be reorganization from cartels to a trade association an appropriate opportunity occurred "to leave the KF-owned companies outside".[36] The inner cabinet of the cartel organizations, spearheaded by its ombudsman Lars Piltz, took careful steps to ensure that the KF owned wholesalers did not became part of the new trade association. And they succeeded.

*

A couple of questions arise regarding the pipe and tube market and the wholesalers after 1948. Did in the abolishment of price-fixing resulted in changed prices? And did the wholesalers tried to maintain some private organization of the market in another form?

Already by the end of the note attached to Lars Piltz letter from September 27, 1948 he touched on these issues. He addressed three questions: 1) product classes and discount schemes, 2) quotas and 3) the relationship to outsiders. Piltz wrote:

Classes and discount system with consequent delivery rules are maintained and contracts should be able to be negotiated so that these would be respected. The right to make deviations is attributable to the extra discounts that could be contemplated. Such a system is natural, for otherwise chaos in the market is resulting.

The quotas have now relevance only as regards the Swedish tube mills and as far as I understand, the works will, as long as the shortage endures, apply quotas in their own interest. The issue is not yet discussed with the works but this will soon take place.

Lastly, as regards outsiders, abolishment of the quotas mean that these may purchase directly from the tube mills, if the mills so wish. If the works is opposed to this, the current system would persist in the form of purchases by the association or its members. It may not be any formal agreement about this, but the works have to unilaterally take a position to do so. . [37]

The quotas were the partition of pipes and tubes manufactured in Sweden between the organized Swedish pipe and tube wholesalers which they bought on an exclusive basis. The organized wholesalers were relatively confident in order to keep the purchasing monopoly as long as there was a shortage of goods. But the risk was, as the third point suggested, that outsiders would now be able to require buying Swedish-made tubes directly from the factories. But that could be prevented if the organized wholesalers managed to persuade the pipe manufacturing works themselves to say no to outsiders. An attitude that hardly could be described as any relaxation to the mind of the frozen cartel structures.

This question of the Swedish pipe manufacturers’ plant sales to members of the organized wholesalers and also to outsiders became a recurring issue in the coming years. Already in 1949 one of the biggest outsider firms, AB Odelberg & Olsen, asked the manufacturer Wirsbo bruk about buying directly from them. When the association's executive committee of forged pipes became aware of this and the circumstances, it is stated in a memo:

[...] that from a consumer point of view the distribution of goods could not be in need of another wholesaler, the wholesalers, which already distributed tubes should be considered satisfying enough. [38]

This, somewhat cartel-like, position would be verbally transmitted to the manager at Wirsbo, director Lagercrantz. The association didn´t neither wanted to grant membership to the firm Odelberg & Olson, considered as an outsider. This would be explained to Lagercrantz on the grounds that the pipe and tube wholesalers saw Odelberg & Olson primarily as iron wholesaler and that the iron wholesalers' associations would be unlikely to allow a pipe wholesaler in if he happened to sell small quantities of iron. (!) In addition Odelberg & Olson could probably cope safely with imported goods. It is difficult not to conclude that the Pipe- and Tube Wholesalers, now through their trade association, continued to try to shut players out and keep down competition. The Chairman Lars Piltz, however, tried to change the organization somewhat. At a big summit with the Swedish pipe association on April 28, 1949 he questioned if not the associations "policies should become more liberal" regarding membership, making the association encompass all firms selling tubes and pipes on a wholesale basis. It was not an opinion that went home among the old wholesalers; a "restrictive policy" would still be observed. All four applications for new membership where turned down.[39] .

*

Already in 1949 could changes in prices actually be noted. It was confirmed at a meeting with the new trade association on 28 April that in some parts of Sweden "price cuts had been noticed in respect of the bath-tubs and water closets". A little concerned about this the association promised to monitor the development of prices carefully and that actions could be discussed later on.[40] In March 1950 the Malmö district wanted to fix the prices of water closets, but the Gothenburg district was "not prone of any fixing of prices" with reference to the existing strong outsider firms at the West Coast. A fixation of prices could only possibly be accepted if even the outsider firms were to respect the prices. A deterioration in the price situation of forged pipes and tubes had although been noticed across the country during 1949. [41]



On the verge of a new legislation

Before the end of 1953, when the new Competition Law would be entered into force 1 January 1954, there were concerns among the organized pipe- and tube wholesalers for what the law would bring. In an internal letter at Ahlsell-Rylander, the biggest wholesaler after the merger in 1951, director Eric Grudin expressed these concerns in an attached memo. The cocerns mainly centered on the issue of retailers and major consumers turning directly to the Swedish manufacturers to receive delivery directly from them and not going over the merchants. Similar concerns like those expressed in 1949 about outsider firms. These retailers and others could conceivably turn to, or threaten to turn to, the newly established Business Freedom Council to get a hearing on their requests for direct deliveries. Grudin writes:

We have seen how downright cowardly some of our suppliers have been over in the past, and how they at the slightest hint that a requestor would go to the authorities [with complains] have chosen the path of least resistance and started to deliver. Once that is made, it will become very difficult if not impossible to get it undone, and also is a precedent established. [42]

Grudin wanted “already in advance carefully to plan our [the organized wholesalers] defense." Both pipes- and tube wholesalers and suppliers ought to act on the same routes and make their views known so that the Business Freedom Council were forced to consider them, to give our opinion on matters affecting "our industry". He then listed arguments for the wholesalers cause: e g that more competitors not necessarily would lead to lower prices for consumers as more players would mean increased distribution costs, that the authorities had examined our industry and come to the conclusion that we work “reasonable effectively" and that wholesalers to some extent functioned as a regulator for the manufacturing sector.[43]

In reality how did eventually the Swedish pipe- and tube market develop in the 1950th? What happened with prices and competition in the subsequent years? Did cooperation between wholesalers, suppliers and others continued in other forms? In the early 1950th the same Eric Grudin was occupied with how Ahlsell-Rylander and other wholesalers would respond to iron wholesalers who also brought pipes and HVAC materials and competed more and more. The problem was that iron merchants were accustomed to lower margins in its operations.

One idea Grudin had to tackle the problem of the iron wholesalers operations in the pipe market was that Ahlsell, perhaps along with the other pipe wholesalers, would begin limited sales in the iron industry through some up started small firm. Such a small company would then operate not primarily to gain profit in the iron industry but as an "insurance" for the pipe sector. They would operate in such a way that as long as the iron merchants respected the customs and practices of the pipe- and tube wholesalers, the "insurance" company would observe the iron industrys´. The company did of course only need a small portion of sales to influence prices, and then a "balance of power" could arise.

"The Insurance Company Idea" is certainly interesting in terms of market, where direct retaliation thinking would help to maintain a market order. 'Custom and practice' is reasonably meaning the pipe wholesalers remaining market sharing, trade practices and pricing.

*

In an undated four page memo the trade association, Svenska Rörgrossistföreningen, gave their perspective on how to deal with the upcoming situation.[44] The idea behind the memo seems to have been to prepare an argumentation directed towards the Business Freedom Council in favor of the present order of the pipe- and tube market in Sweden.

Already in the first sentence of the memo the wholesalers are reminded that at the same time as the new law of competition, referred to as the cartel law, comes into force, the new Business Freedom Council will be installed. A council that could interfere through negotiations and by issuing directives. The council seems to have enjoyed a great deal of respect in the minds of the organized pipe- and tube wholesalers at the time; they almost feared it´s coming actions. [45]

Eight main defensive arguments are listed, they are however somewhat intertwined, overlapping and to some extent also repetitious.[46] The points made in the memo can be summarized as follows:

A main line of argument is to put into question that more competition and an increased number of sellers would lower prices to end-users. The idea is that a larger number of players will lead to higher costs overall and that these costs will in the end have to be paid by the consumers.

Another point made, is that a higher number of sellers would be bad for service levels and inflict higher costs for manufacturers. This due to the fact that the latter would have to expedite a larger number of small orders.

The third point that could be extracted is the claim that the wholesalers contribute in ways that benefit other actors in the chain and even the economy as a whole. With their big assortment and storage facilities the wholesalers offer delivery of different parts at different times when they are needed in a construction project, thereby reducing storage needs for the building entrepreneur. And with their large and almost constant orders from the manufacturers the wholesalers function, to some extent as a regulator of the economy of the country.

A forth point is actually self-critical. The pricing policies traditionally used by the pipe- and tube wholesalers, had not taken into consideration the quantity of orders. No matter how big an order was or what it included the same margins had been applied. This made it easy for outsiders to compete about standard product orders - bulk products - with lower prices. Unprofitable orders for the remaining ‘special’ products, which were also needed, were left to ordinary pipe and tube wholesalers. At the same time the latter gave the impression of having unjustifiably high margins for the standard products. Recently, however, the memo points out, the organized wholesalers have arranged for differentiated prices, making their prices easier to justify. The memo also speaks of the need on the part of the wholesalers to continue this differentiation of prices even further, and to stand by it even if problems should arise.

The argumentation in the memo was also in a sense intended for suppliers and manufacturers. It was necessary to communicate with these groups about how the industry, the whole pipe and tube supply chain, should work, to “get them to embrace the wholesalers objective views”.[47]



Epilogue

In the spring of 1954 additional discounts on the sale of forged pipes and tubes flowed. Apparently some competition had emerged. The organized pipe- and tube wholesalers were not too happy about this. They saw the situation as “very difficult” and business was unprofitable. In May 1954 the wholesalers seem to have managed to agree on what they came to call the "3% rule", an agreement to limit the extra discounts to three percent. This measure resulted in better profitability, at least in Stockholm. The following year Swedish pipe manufacturers raised prices on a couple of occasions and the wholesalers followed. As a result of the price increases outside competitors drove even more extra discounts and gained market share, additionally not all members of the pipe association followed the agreed price increases. It all ended with the largest wholesaler, Ahlsell- Rylander, in October 1955 felt compelled to return all at once to the price list which had been in place in February of that year, ie before the manufacturer increases. The measure, which drew on some criticism from other wholesalers, became known in the industry as the October Revolution.

Price trends for pipes and plumbing market 1947-1954, as measured by the price at the fitting was developed by the following index table shows the starting year 1942 = 100. Year |1947 |1948 |1949 |1950 |1951 |1952 |1953 |1954 | |Price index | 115 | 116 | 119 | 122 | 156 | 174 | 158 | 150 | |[48] The figures in the above table come from another government report, SOU 1955:49, The Construction-Material Cost Investigation, and the special study of the HVAC market conducted by Mr Per Holm. Mr Holm suggests that the sharp price increase between 1950 and 1952 was caused by the Korean conflict in 1950, the war leading to an increased demand for raw materials including iron, as well as a wage increase taking place in the context of a recurring inflation. However, the construction activity during 1951 was low, after which demand increased the following year. But then supply seems "to have largely kept pace with the increased demand" and no more shortage did occur. This unexplained price decline could be related to increased competition caused by the forthcoming legislation. [49]



Discussion

The study of the Swedish Organized Pipe- and Tube Wholesalers during the immediate post-war years has revealed a couple of things and conditions that perhaps could be of more general interest in the writing of cartel history in Sweden and Europe. Here some of them will be presented and shortly discussed.

The Swedish competition legislation from 1953 has essentially been known for introducing prohibition of two things; a gross price ban and prohibition against collusive behavior at tendering. Even though these two things are recognized by the organized pipe and tube wholesalers it was something else they seem to have feared even more: special action from the newly established Business Freedom Council, should attention be drawn to practices that could be seen as abuse within their trade.

The Swedish Organized Pipe- and Tube Wholesalers acted pro-actively and abolished their cartels, and especially their price collusion, already in 1948 in the midst of the Committees work. However, this seems to have been more an act of word than of deeds. The newly formed trade association consisted mainly of the same members, in fact the leadership and core members took the opportunity to throw out the wholesalers that were owned by the Cooperation (KF), and the association in many ways still acted as a cartel. As has been shown, the association calculated prices and partitioned supply internally and tried externally to convince Swedish manufacturers not to sell to outsiders. However prices of HVAC product decreased in Sweden from 1949/50.

There could be different explanations, or explaining factors, to this. At least three explanations have been made visible during this study. The first is that the new legislation, and/or the legislation process, gave rise to greater competition. The organized wholesalers’ quiet early proactive measures are perhaps the clearest example. They shut down price collusion officially. On the other hand it has been argued that they didn´t do this in practice, that they in fact continued their price collusion in the hiding. But they couldn’t enforce a pricing policy with the same intensity and vigor as earlier and individual wholesalers who got into difficult situations could more easily be tempted to lower prices for gaining market shares.

Another coinciding thing that occurred was the opening of world markets after World War II. Not since the early 1930’ had free trade had the same stance in Europe. And free trade is one important thing that makes ”the capacity to effectively restrain market competition (…) very limited” according to Andreas Resch.[50] National cartels “faced foreign competition because of the limited restrictions of foreign trade”. Resch speaks about the early 1900’ and 1920’, but the same argument could be used when discussing the post-war years in Sweden. So competition arrived anyhow, despite Swedish legislation, if just borders were open to trade.

A third factor regarding increased competition is the presence of outsiders in the Swedish pipe and tube wholesale market. These consisted mainly of two types of players: the iron merchants and the Cooperation. The iron merchants had been a problem already in the 1930’ and the largest company, Söderberg & Haak, actually became a member of the pipe and tube cartel at that time. But the rest of them that also sold some pipes and tubes, especially the firm Odelberg & Olson, seem to have revived themselves after the War with the increased foreign trade at reopened markets. The Cooperation also increased their activities within the HVAC sector; e g manufacturing of sanitation porcelain increased and effective production of bath-hubs of molded sheets of steel started. The cooperation also worked closer with the housing company HSB thereby creating better market opportunities for their products.

The factors is probably interrelated, and they encompass greater competition and increased supply. And it is difficult to see that the new legislation would not have contributed to more competition. A revaluation of the new Competition Law of 1953, which have been seen as hopelessly weak, seems needful.



Conclusions

The Swedish Pipe- & HAVC Wholesale Market can be said to have been relatively free from government interference and surveillance at the start of the post-war period. Apart from the Government Price Control Board, started during the war to monitor price formation and regulation of access to various commodities, there was no government control in this sector. Instead of some government body organizing the market there was a number of cartel agreements among producers, between wholesalers and between installers encouraged and supported by the State Industrial Commission. Agreements were also associations, such as Swedish Pipe Convention that handled price agreements of forged pipes and tubes, where a large number of wholesalers were members. This was organization consisting of several organizational elements. Surveillance took place through self-reporting of monitoring data to a central office and intercepted information by other cartel members such as interpretation of ads and by recoveries of business offerings. Trustees on the management board of the cartels decided on penalties and the Chamber of Commerce arbitration panel could also serve as the examining body.

In the examined period a legislation process took place ending up with a new law of competition being enacted in 1953. During this process the cartels act in order to keep some maneuverability. In connection with this the pipe and tube wholesalers’ cartels abolish essential elements of their operations, mainly their pricing agreements. Then the cartel associations ceases entirely, at least officially. Instead they form a trade organization – The Pipe Wholesalers Association. The prices of HAVC materials in Sweden however decline from 1949 onwards and a number of plausible explaining factors to this have been discussed in the paper. A combination of increased supply, including from international markets, and increased competition seems likely. The latter at least in part as a consequence of the new legislation, making a revaluation of this legislation possible.

The market goes in the period from being locked but also relatively unsupervised by the state to become freer and more government supervised. Maybe it can be seen as that during the decade the Swedish economic life goes from organized capitalism against the free market. More interesting is that the driving force behind the process is a Labour Minister who at the same time is a professional academic economist. And this during the immediate post-war years in which a debate with accusations against the social democrats of intentions to create a socialist planned economy in Sweden was raging at its worst.[51] A degree of fragmentation within the Labour movement on issues of competition and market organization is certainly not unknown,[52] but nonetheless interesting.



References

Björnberg, Arne,  ”Andra världskrigets svenska krisförvaltning”, i Hur Sverige ordnade folkförsörjningen under andra världskriget: männen och kvinnorna bakom verket, red Arne Björnberg, Stockholm: IGO-Förlag, (1946)

Centrum för Ahlsells arkiv Näringslivshistoria Svensk Handels arkiv (CfNH)

Chandler, Alfred D. Jr, Scale and scope : the dynamics of industrial capitalism , with the assistance of Takashi Hikino, Cambridge: Belknap Press, (1990)

Djelic, Marie-Laure, Exporting the American Model. The Post War Transformation of European Business., Oxford University Press, (1998)

Fear, Jeffrey, Cartels and Competition: Neither Markets nor Hierarchies, working paper, Harvard Business School, (2006)

Fölster, Stefan, och ”Samhällsekonomiska kostnader av regleringar och bristande kon- Peltzman, Sam, kurrens i Sverige”, i NBER-rapporten: Välfärdsstat i omvandling., red. R. B. Freeman, B. Swedenborg och R. Topel, SNS förlag

Lewin, Leif, Planhushållningsdebatten, Diss., Uppsala, Stockholm: Almqvist & Wiksell, (1970 (1967))

Lundqvist, Torbjörn, Konkurrensvisionens framväxt. Konkurrenspolitik, intressen och politisk kultur, Stockholm: Institutet för framtidsstudier, (2003)

Resch, Andreas, Phases of Competition Policy in Europe, Vienna University of Economics and Business Administration, Vienna, April (2005)

Riksarkivet (RA), Kommerskollegiums arkiv

Riksdagstrycket, Kungliga Maj:ts propositioner

Sandberg, Peter, Kartellen som sprängdes: svensk bryggeriindustri under institutionell och strukturell omvandling 1945-1975, Diss., Göteborgs univ, (2006)

Schröter, Harm, Cartelization and decartelization in Europe, 1870- 1995: Rise and decline of an economic institution, The Journal of European Economic History. Rome: (Spring 1996), Vol. 25, Iss. 1

SOU 1945:42 Betänkande angående övervakning av konkurrens- begränsande företeelser inom näringslivet, Stockholm 1945

SOU 1951: 27 Konkurrensbegränsning. Betänkande med förslag till lag om skydd mot samhällsskadlig konkurrensbegränsning avgivet av nyetableringssakkunniga. Del 1., Stockholm 1951

SOU 1955:49 Värme- och sanitetsbranschen. En ekonomisk strukturanalys med särskild hänsyn till distributionsproblem. På Byggmaterielutredningens uppdrag utförd av Per Holm., Stockholm 1955

Strandqvist, Kristoffer, Kartellernas tidevarv – De svenska rörgrossisterna, staten och marknaden 1899-1965. Manuscript in preparation, (2011 coming)

----------------------- [1] E g Fölster, Stefan, and Peltzman, Sam, ”Samhällsekonomiska kostnader av regleringar och bristande konkurrens i Sverige”, [2] Konkurrensbegränsande samverkan inom värme- och sanitetsbranschen. Del III, Svenska Rörgrossistföreningen, report, Stockholm 1954, Monopolutredningsbyråns arkiv, Kommerskollegiums arkiv, RA, p 15ff [3] Ivar Rosings accounts of Hugo Asplund & co, 15/4 1975, enclosed to Gösta Wallgrens unpublished manuscript ’Ahlsell 100 år’, (1977) [4] Björnberg, (1946), p 9 [5] Ibid. [6] Konkurrensbegränsande samverkan inom värme- och sanitetsbranschen. Del III, Svenska Rörgrossistföreningen, report, Stockholm 1954, Monopolutredningsbyråns arkiv, Kommerskollegiums arkiv, RA, p 34ff [7] Ibid., p 4ff [8] Ibid., p 38f [9] SOU 1955:49 [10] SOU 1955:49, s 31 [11] Konkurrensbegränsande samverkan inom värme- och sanitetsbranschen. Del III, Svenska Rörgrossistföreningen, report, Stockholm 1954, Monopolutredningsbyråns arkiv, Kommerskollegiums arkiv, RA, p 34 [12] SOU 1955:49 [13] Fear, Jeffrey, Cartels and Competition: Neither Markets nor Hierarchies, working paper, Harvard Business School, (2006), Schröter, Harm, Cartelization and decartelization in Europe, 1870-1995: Rise and decline of an economic institution, (1996). Se also Djelic, Marie-Laure, (1998) [14] Lundqvist, (2003), p 14f, SOU 1945:42, Betänkande angående övervakning av konkurrensbegränsande företeelser inom näringslivet; Proposition 1946:264 [15] Lundqvist, (2003), p 14ff [16] Resch, (2005), p 10ff [17] Lundqvist, (2003), p 15f, SOU 1951:27, p 7 and p 39ff [18] SOU 1951:27 [19] SOU 1951:27, p 46, Lundqvist, (2003) [20] Ibid. [21] SOU 1951:27, p 12f [22] Ibid., p15ff [23] Ibid. [24] Ibid., p 17f [25] Ibid., p 18 [26] Ibid., p 19f [27] Ibid., p 20. See also Kjellberg, (2004), passim [28] SOU 1951:27, p 20 [29] Ibid., p 21 [30] Ibid., p 22 [31] Lundqvist, (2003), s 19f, Kungl. Maj:ts proposition nr 103, Bihang till riksdagens protokoll år 1953, Första saml., 9 bd. [32] CfNH, Ahlsells arkiv, Ahlsell okatalogiserade handlingar i mapp, Memo enclosed to a letter from L Piltz to S. Sjölander 27/4 1948 [33] Ibid. [34] Kylebäck, Hugo, Konsumentkooperation i strukturomvandling. Del 1 1946- 1960, (1983), p 168 [35] SOU 1955:49, p 91 [36] CfNH, Ahlsells arkiv, Ahlsell okatalogiserade handlingar i mapp, Memo enclosed to a letter from L Piltz to S. Sjölander 27/4 1948 [37] Ibid. [38] CfNH, Ahlsells arkiv, Ahlsell okatalogiserade handlingar i mapp, Stockholm 15/9 1949, Memo on meeting with the Working Committee for Forged fittings, Tuseday, September 13, 1949 [39] CfNH, Ahlsells arkiv, Ahlsell okatalogiserade handlingar i mapp, Protocol from regular meeting with Svenska Rörgrossistföreningen Thursday, April 28, 1949 at the Stora Hotellet in Örebro [40] Ibid. [41] CfNH, Ahlsells arkiv, Ahlsell okatalogiserade handlingar i mapp, Stockholm 13/31950, Memo on meeting with the Working Committee for Forged fittings, Wednesday, March 8, 1950 [42] CfNH, Ahlsells arkiv, Ahlsell okatalogiserade handlingar i mapp, Memo enclosed to a letter from E. Grudin to S. Sjölander 18/11 1953 [43] Ibid. [44] CfNH, Ahlsells arkiv, A1:2, Protokoll mm från Svenska Rörgrossistföreningen 1950s’, Undated memo found in between acts from 1953 and 1954 [45] Ibid. [46] Ibid. [47] Ibid. [48] SOU 1955:49, p 109 [49] Ibid., p %,-Jijnotwçèéêóõíõá̺¥ÌŽÌ|ncRD4hO6ûhO6û6?OJQJmH sH hÖa±OJ[50]QJ[51]^J[52]mH sH h~hº ²hÖa±mH sH hº ²OJ[53]QJ[54]^J[55]mH sH "hº ²CJOJ[56]QJ[57]^J[58]aJmH sH ,h,jh- #CJNH[pic]OJ[59]QJ[60]^J[61]aJmH sH (h,jh~

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