Collusion and combines in Canada, 1880–1890

Vincent Geloso 1

Abstract: It is a little-known fact that Canada adopted its own antitrust laws one year before the
landmark Sherman Antitrust Act of 1890. The Anti-Combines Act of 1889 was adopted after a decade
in which ‘combines’ (the Canadian equivalent of ‘trusts’) grew more numerous. From their numbers,
Canadian historians, legal scholars and economists inferred that consume welfare was hindered.
However, price and output evidence has never been marshalled to provide even a first step towards
assessing the veracity of this claim. This paper undertakes that task. I highlight that the output from
industries accused of collusion increased faster than national output in the decade before the passage
of the Act and that their prices accordingly fell faster than the national price index. I argue that these
findings militate for the position that the origins of Canada’s Anti-Combines Act were rooted in rent-
seeking processes similar to those that American scholars have found driving the Sherman Antitrust
Act of 1890.
Key Words: Canadian economic history, Competition policy, Anti-Combines Act
JEL Codes: K21, L40, L51.

‘The 1889 law was pious anti-monopoly posturing that had no effect on anything’
Michael Bliss (1987: 362)
1. Introduction
Economists and legal scholars devote significant attention to the topic of competition and
governmental actions designed to deter anticompetitive behaviour. However, only a small portion of
this literature is concerned with the motivations behind the initiation of such governmental actions.
A large fraction of this small literature has been dedicated to the case of the United States’ Sherman
Antitrust Act of 1890 (McGee 1958; Bork 1966; Armentano 1982; Stigler 1985; Hazlett 1992; Libecap
1992; Boudreaux and DiLorenzo 1993; Grandy 1993; Goldin and Libecap 1994; Shull 1996; Troesken
1996; 2000; 2002; Law 2003; Law and Kim 2005; Newman 2016), and most of that argues that rent-
seeking on the part of firms looking to reduce competition explains the origins of antitrust laws. The

1The author is a visiting professor of economics at Bates College and can be reached at vgeloso@bates.edu. All mail can
be sent at: Pettengill Hall, Lewiston, Maine 04240.

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attention is firmly set on the United States probably because of the country’s overall importance and
the fact that it was an early adopter of antitrust laws.

However, it is less well known that the Sherman Antitrust Act of 1890 in the United States was
preceded a year earlier by the Canadian Anti-Combines Act of 1889, thus making Canada the first
country to adopt an antitrust law. The initial Act has been deemed a failure by historians (Bliss 1973;
1987), economists (Baggaley 1991; Gorecki and Stanbury 1984; Ross 2004; Ciurak 2005; Boyer et al.
2017) and legal scholars (Cheffins 1989; Hoffman 2013),2 and has thus failed to have effects as large
as those of its younger American counterpart. But can the insights gleaned from the American
literature be used to explain the genesis of Canada’s Anti-Combines Act of 1889? It is the aim of this
paper to do so. More precisely, I consider the two possibilities that are often highlighted in the
American literature, namely that the Anti-Combines Act was either motivated by the protection of
competitors against more efficient firms (i.e. the rent-seeking hypothesis which is the one with most
support in the literature), or by the desire to improve consumer welfare (i.e. the public interest
hypothesis). Using new and old evidence, I show that there is far more support for the rent-seeking
hypothesis than for the public interest hypothesis.

After providing a brief history of the Act (Section 2), I use new sources of price data showing that
real prices in most industries accused of acting ‘in restraint of trade’ were falling rapidly in the ten
years prior to the adoption of the Act. I also show that output per capita was increasing (Section 3).
This pattern is consistent with the contention that efficiency gains allow larger firms to push smaller
out of the market (DiLorenzo 1985). These smaller firms in turn responded by seeking measures to
hinder the larger firms. I also use parliamentary documents, notably the several hundred-page report
of the Combines Inquiry which shows that displaced producers were the most prominent in seeking
protection (Section 4). Overall, these patterns corroborate in nineteenth century Canada the findings
in the American literature that antitrust laws were initially born out of the need for a vehicle to restrict,
rather than promote, competition.

2. Canada, combines and the 1889 Act

The British North America Act of 1867, which created the Dominion of Canada, owed its passage
in part to the end of the Reciprocity Treaty with the United States in 1866. The end of the Treaty

2 For example, in her recent work, Kemp (2018: 23) uses the adjective ‘failed’ to describe the 1889 legislation. Hoffman
(2013) is the most generous of the critics believing the Act was not the utter failure depicted by Bliss (1973; 1987).

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created the impetus for developing a free trade area that went from east to west rather than from north
to south. As such, it was inevitable that trade would constitute a key political topic of the late
nineteenth century in Canada. In the late 1870s, the Conservatives and the Liberals fought bitterly
over free trade with the United States and, upon winning the 1878 election, the former passed a tariff
increase in 1879 which was meant to protect Canadian firms. As a result, two effects materialised. The
first was that foreign producers had a harder time entering the Canadian market and thus prices surged
upwards. The second was that these higher prices became a lure for certain Canadian firms ‘seeking a
share of the increased profits.’ These firms rushed into the most protected sectors, thus diluting the
rents generated by increased tariffs (Baggaley 1991: 7). In more contemporary writings, one of the first
Canadian economists, W.J. Ashley, corroborates this view for the specific case of the sugar combine
in which there was ‘a marked tendency for the number of stores [engaged in the ‘sugar trade’] to
increase more rapidly than population’ (Ashley 1900: 365).

This is a classic case of resource misallocation induced via rent-seeking (Tullock 1967; Krueger
1974). In an attempt to secure the rents generated by the tariff, businessmen who reallocated resources
towards that end managed only to dissipate the rent. As a result, a recurring political topic in the 1880s
was that certain entrepreneurs could not earn a ‘living profit’ (Bliss 1973). Traditional historians have
argued that this led them, in turn, to organise ‘combines’ in order to reduce competition (Bliss 1973).

The word ‘combines’ can be taken to mean broadly the same thing as ‘trust’ did in the United
States, as it refers to combinations between business owners designed to act in ‘restraint of trade’
(Hoffman 2014). These combinations sought to limit production and raise prices (Baggaley 1991: 8).
As such, their formation was meant to put an end to the dissipation of rents that followed the passage
of the Tariff of 1879. Such combinations became increasingly frequent in the 1880s and they were not
hiding their attempts as they reported their meetings in newspapers. For example, the different cotton
producers reported their price-fixing decision in the widely read French-Canadian newspaper La Presse
(April 22, 1887). Similar adverts were found in the Montreal Gazette and the Sherbrooke Weekly Examiner.
In fact, the outcomes of the cotton producers’ meetings were sometimes also reported in international
newspapers such as the New York Times (June 2, 1888). Most associations seeking to act in restraint of
trade also published in more specific publications such as Le Prix Courant and The Canadian Journal of
Commerce. This brazenness on their part, and their multiplication, led to a growing attention to their
role. This attention was heightened by a scandal which derailed the mayoral election of Toronto in
1888. During the campaign, one of the leading candidates was accused of being a member of a coal

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combine that had increased prices for coal oil—an accusation that may have cost him the election
(Baggaley 1991: 10). It was later revealed that in cities like Ottawa, the national capital, similar
combines in oil existed. The Dominion Wholesale Grocers’ Guild attracted even more attention
because of its agreement with sugar refiners (Baggaley 1991: 10-11). The ‘sugar combine,’ as it was
called, was an arrangement ‘in which wholesalers agreed among themselves to sell sugar to retailers
only at a fixed price and sugar refiners agreed to charge a higher price to non-participating wholesalers,
under threat of a boycott’ (Hoffman 2013: 132). After a series of articles in the Toronto Globe, the
Ottawa Evening Journal and the Montreal Star, it was revealed that this particular combine operated
throughout the two largest provinces (Quebec and Ontario), which accounted for 74.5% of Canada’s
population in the 1891 census (Baggaley 1991: 11).

These events prompted Nathaniel Clark Wallace, a backbench conservative Member of Parliament
(MP), to move for the appointment of a Select Committee to study combines in 1888. The report of
the committee ended up consisting of some 750 pages of evidence. The sugar and coal industries
received a large share of the attention of the committee. Soon after, Wallace introduced a bill on the
floor of the House of Commons which was meant to curtail the combines. However, the bill was
altered to make it less efficient in tackling monopolies. The alterations had the effect of making the
bill toothless (Bladen 1932; Benidickson 1993). The act did not prevent mergers, monopolies, resale
price maintenance agreements and other types of behaviour (Gorecki and Stanbury 1991: 60). Only
combines between players were deemed illegal, and even there the wording was timid as only ‘unduly’
restrictive combines were illegal. This made the 1889 law ‘pious anti-monopoly posturing that had no
effect on anything’ (Bliss 1987: 362), and the only case brought forth under the law ended up in an
acquittal (Hoffman 2013: 136). It was only in the early twentieth century that the Act was gradually
tightened. As such, the combines of the 1880s survived until the 1900s and were able to increase their
profits by raising their prices and crowding out less established smaller players. In essence, this is the
portrait of these events drawn up by Canadian historians, legal scholars and economists. There are
two crucial elements. The first is that combines grew increasingly popular in the 1880s after the passage
of the Tariff of 1879. The second is that consumers were experiencing increasing prices for their goods
and services.

The veracity of the second statement has never been assessed, while the first statement does not
speak to the efficacy of these arrangements in restraining competition. This is a dramatic shortcoming,
as it is of considerable importance to the relevance of the first element. It could be that there were

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attempts to form combines, but that these were unable to reduce competition. It could also be that
some of the seemingly anti-competitive behaviours were actually efficiency-improving strategies that
led to price reductions. Larger firms that are fewer in number may be more efficient (especially if there
are no barriers to entry) such that industrial concentration is not detrimental to consumers (McGee
1971; Demsetz 1973; McKenzie and Lee 2008). Indeed, if that is the case, the level of profits observed
is not a sign of market power, but rather one of improved consumer welfare because real prices
(adjusted for quality) fall as long as barriers to entry and exit are low.

If anticompetitive behaviour ‘is understood in the conventional neoclassical way as an organization

of industry which tends to restrict output and raise prices’ (Boudreaux and DiLorenzo 1993: 93), then
finding rising output per capita and falling real prices would throw into contention the validity of the
portrait drawn by Canadian historians. Such an exercise amounts to a replication of the work done by
DiLorenzo (1985) regarding the American Sherman Antitrust Act of 1890. DiLorenzo used the list of
industries accused of being trusts at the time of the Act and collected price and output data for these
industries. He reasoned that if real prices were falling while output growth was outpacing the growth
of national output, then the contention of anticompetitive practices would be quite untenable (1985:
80). From that basis, he inferred that small businesses that were being driven out by the more
productive larger firms sought protection via antitrust laws. He later reiterated this claim by
considering state-level antitrust laws (Boudreaux and DiLorenzo 1993). This is one form of evidence
that can be marshalled to test the veracity of the portrait made for Canada.

The second form of evidence is that firms may try in the short-run to exploit their dominance, but
that this is a power constrained by the threat of entry into the industry, or by the possibility of
defection within the combine. In support of this possibility, it is quite telling that one of the most
prominent anti-combine publications, The Monetary Times, pointed to the American whiskey trust as an
example of why combines should be feared (Baggaley 1991: 9). The whiskey trust in the United States
has been subjected to a high level of scrutiny by economic historians Karen Clay and Werner Troesken
(1998; 2002; 2003). This literature finds that the actions of the trust ‘failed to deter entry’ (Clay and
Troesken 2002: 999), which led to the collapse of the predatory strategy (Troesken 1998; Clay and
Troesken 2003). Observing this type of situation is another form of evidence that can be used to test
the veracity of the portrait made by historians.

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3. Prices and output

In the report of the Select Committee (House of Commons 1888), the industries that were
considered as operating combinations were the oatmeal milling industry, barbed wire manufacturers,
sugar refiners and wholesalers, coal oil wholesalers and producers, barley dealers, egg dealers, biscuit
confectioners, fire insurance underwriters, watch case manufacturers, agricultural implement
manufacturers, coffin makers and undertakers (House of Commons 1888: 3). Interestingly, the self-
publicizing combine in the cotton sector did not make the list even though it is argued that it operated
as a combine (McCullough 1992; Baggaley 1991: 14). I use these to make the list of industries accused
of operating combines used here, and for good measure, I add the cotton industry. In Table 1 below,
I report the evolution of prices over the period from 1880 to 1890 for all the goods that could be
found on this list. The first two columns of the table show the overall price level as computed in two
studies that cover the period (Barnett 1963; Geloso and Hinton 2018). The change in the overall price
level is then compared with the nominal price change for all the industries in the subsequent columns.
The most important are coal oil, sugar and cotton products. As highlighted above, these were the
industries that received the most scorn. This is not surprising, as these goods represented large
portions of consumer expenditures: coal oil at 3.96% (Barnett 1963: 66), sugar at 4.13% (Barnett 1963:
66) and cotton clothing at 14.85% (Geloso and Hinton 2018: 5). For all of these products, prices fell
more rapidly than both existing measures of overall prices. 3

[Insert Table 1 Here]

[Insert Table 2 Here]

In Table 2, the available data series suggest that while per capita incomes in Canada increased by
somewhere between 14% and 17%, consumption per capita of sugar and cotton rose twice as fast. As
for coal, the pace of increase was more than seven times the increase of income per capita. Combined,
these elements suggest that the experience of the most controversial combines stand in marked
contrast with the account assembled in the literature.

As for the lesser combines, price information was harder to come by. While prices for barley, eggs,
oatmeal and barbed wire were found, price information regarding coffins, watch cases and farm
implements were more elusive. However, we know from the work of Winder (2002) that the output

3 Additional secondary sources such as Kieran Furlong (1997) provide corroboration of the patterns of price changes in
the cotton textile industry.

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of the farm implements industry did rise faster than the overall GNP of Canada which further
reinforces our finding. With regard to the goods for which we could find prices, the case of barbed
wire is the most telling given that nominal prices fell 44% over a seven-year period (see Table 1—no
pre-1883 prices were found). What is more surprising is that most of the price data suggesting a fall
in prices for barbed wire are provided by the testimony of entrepreneurs complaining to the Select
Committee about the combines in the barbed wire industry (House of Commons 1888: 359). The two
exceptions that can be seen in Table 1 are eggs and oatmeal. The latter appears to follow the general
price level or fall a little faster. However, there is very little information available regarding the output
of the oatmeal industry beyond what is mentioned in the Report of the Select Committee. The best
evidence comes from the censuses of 1881 and 1891 which report a mild increase in oats harvested
per capita. Thus, it seems that oatmeal did—at least within a strict neoclassical framework—act in
ways suggestive of collusion. With regard to eggs however, the increase probably has to do with a
significant increase in foreign demand. During the period from 1880 to 1890, the physical output of
eggs produced for export increased 99% (77% on a per capita basis) (Department of Agriculture 1904:
132-133). Using the export values per dozen, and adjusting for exchange rate, shows that the price
series for Canada (where the eggs were exported to) converged towards American prices (Adams
1944).

These facts throw into contention the veracity of the statement regarding the deleterious effects
of the combines on consumers. To explain the dissonance, it is necessary to highlight two important
facts. First, combines did often break down because of defection and were thus ineffective in reducing
competition. Second, seemingly anticompetitive behaviour may in fact be efficiency-improving and
thus allow improvements in consumer welfare.

With regard to the first element, the cotton industry provides a rich illustration. In the 1880s, there
were a series of attempts to create a cartel that would fix prices in the cotton industry. At the behest
of Andrew Gault (a prominent Irish-born cotton mill owner), two associations were formed in the
1880s in order to coordinate a reduction of production so as to increase price: the Canadian Cotton
Manufacturers Association in 1883 and the Dominion Cotton Manufacturers' Association in 1886
(McCullough 1992: 57; Furlong 1997: 156-157). The activities of these two associations were often
reported in newspapers. In 1883, the Montreal Gazette (September 7, 1883) carried news that the
different cotton manufacturers had met in the offices of David Morrice in Montreal and decided ‘to
reduce the production of the mills for a given time and also to enable the mills to turn out other goods

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which are not now manufactured, so as to prevent accumulation.’ The reduction was supposed to be
achieved by having all mills operate at two-thirds time for a few months (the number is unspecified)
(MacDonald, The Montreal Gazette, February 25, 1884). 4However, by November of the same year news
emerged that Morrice was facing financial difficulties (Montreal Gazette, November 19, 1883). Soon
after, Morrice failed, which destabilised the attempt at cartelization (McCullough 1992: 58). Six months
after its formation, the Association had collapsed. McCullough reports that other attempts were made
in 1885 and early 1886, and that they too collapsed rapidly (1992: 58). In August 1886, the Dominion
Cotton Manufacturers Association was formed in order to try once more (Montreal Gazette, August 10,
1886). However, this agreement failed as well because one important producer—Alexander Gibson
of New Brunswick—acted as a free rider (Hinton 1994: 374). Gibson apparently offered discounts
while still being a member of the association, but there are only allegations and very little evidence. 5
However, it is known that Gibson left the organization in August of 1888 (Montreal Gazette, August
30, 1888). When he did, the organization began crumbling immediately. In the same article reporting
his exit from the association, other mill-owners stated that they could not continue while ‘this mill
[Gibson’s] stands out’ (Montreal Gazette, August 30, 1888). By 1890, the ‘Canadian Cotton
Manufacturers’ Association had failed again as an instrument to control prices and production’
(McCullough 1992: 58).

Cartels and anticompetitive coordination between incumbent players are notoriously hard to
maintain. When established, such attempts face internal pressures as output restrictions invite some
members to cheat and offer secret discounts to their clients. They also face external pressures, for as
long as entry and exit costs are low, non-members can join the industry and force a collusive
association to break down. This was well-observed in the United States in the case of the Whiskey
Trust, which crumbled because entry was easy (Troesken 1998). In Canada, the petroleum industry
experienced a similar inability to maintain collusion (Grant and Thille 2001). In the case of the cotton
industry, both forces were present to thwart the collusive behaviour. While the Tariff of 1879 did help
the ability of the Canadian textile industry to attempt collusion, it was not sufficient. This narrative of
events matches the story of increasing output and falling real prices illustrated in Table 1.

4 The most surprising element is that in the article cited it is the Prime Minister of Canada himself, Sir John A. MacDonald,
who lauds the agreement and Morrice’s effort to collude to reduce production.
5 Some like Acheson (1972: 16) claimed that he had refused to join initially, then joined, and then left again. However, the

details are hazy and contradictory across primary sources. Regardless, Gibson was the one who weakened and busted the
cartelization attempt.

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 Secondly, it is often possible to perceive efficiency-improvement strategies as collusive since they
reduce the number of firms. However, as Demsetz (1973) makes clear, firms that end up with large
shares of the market may have been able to do so only because they were more efficient at attracting
clients. The Ottawa coal combine points to the possibility that what are dubbed unfair practices are
actually efficient cost-cutting strategies that allow the price reductions observed in Table 1. This is
particularly well highlighted by the work of Baggaley (1991: 15). Each merchant in Ottawa normally
had to hire agents for each of the stations in the city where coal was delivered. These agents then
needed to carry the coal to the depot operated by the merchant. Only then would they start distributing
to clients. The Coal and Cartage Company, which was the object of the protest, offered an innovative
solution. The merchants would import the coal and sell it to the Company at cost. The Company then
delivered the coal directly to the clients of the merchants at a price it would fix. A portion of the
Company’s profit would go to the merchants. This strategy allowed them to economise on labour and
transport, and thus reduce operating costs (House of Commons 1888: 257, 260). 6 The merchants
merely specialised in securing the best sources of coal and left the Company to concentrate on the
logistics of distribution. Overall, savings represented close to 10 cents per ton (House of Commons
1888: 178).7 While Baggaley (1991: 15) claims that these savings did not return to consumers, the
testimonies in the Report suggest otherwise. The testimonies from both merchants and the secretary
of the Company suggest a fragile equilibrium in which the latter knew that increasing prices to
consumers would incite the dealers to restart their own distribution network. Indeed, the secretary of
the Company reported that there were dealers who refused to deal with them (House of Commons
1888: 178) and they could sometimes undersell the company by 25 cents per ton, but that they
generally sold ‘at the same price’ (House of Commons 1888: 178). Thus, there was a clear threat of
competition that disciplined the Coal and Cartage Company even if it appeared to be a large and
dominant player (and not the sole player as Baggaley [1991] claims). In such a situation, the only way
that the Company’s position could be sustained was by continually improving its services in the eyes
of consumers. This would be more consistent with the evidence of falling prices and rising output.

The more controversial sugar trade offers a similar example of efficiency-improving strategies.
During the inquiry, a member of the Wholesale Grocers’ Association provided descriptions of the

6 One witness stated that he believed that the Coal and Cartage Company delivered ‘cheaper’ than he could ‘which [he]
now believe they can, and do away with the necessity of [he] having weigh masters and all that sort of things’ (House of
Commons 1888: 257) and they relieved him of ‘a great deal of trouble’ (House of Commons 1888: 259).
7 The secretary added that the labour-saving component was most important as ‘one man attends to 35 or 40 horses instead

of attending to only 4 or 5 horses, and there is a saving of a weigh master’ (House of Commons 1888: 179).

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arrangement which seem to amount to a retail price maintenance system in which the wholesalers
requested a greater level of service from retailers, but they also mandated a higher price. This type of
arrangement increased costs for retailers and shifted the supply curve to the left. However, the
increased level of services cause a shift of demand rightwards. The pricing agreement prohibits the
retailer from competing on price, but secures him a profit margin for competing on associated services
that increase the volume of sales. In essence, it solves an agency problem and the movements of both
the demand and supply schedules lead to increases in both the welfare of consumers and producers
(Telser 1960; Blair and Fesmire 1994). The retail price maintenance agreement was enforced by the
fact that refiners would sell sugar to non-association members to retailers who also operated as
wholesalers as well as non-association members. The president of the largest sugar refinery in Canada,
George Drummond, provided an explanation for why he accepted the role of de facto enforcer of the
retail price maintenance system: it reduced his costs significantly. Drummond preferred to deal with a
smaller number of large-volume wholesalers rather than undertake the task of sending samples around
with ‘travelers and peddlers’ as one committee member put it (House of Commons 1888: 36). This
should not be a surprising assertion, as loading, unloading and freight were a small, but not negligible
share of the expenses of sugar producers (Genoseve and Mullin 2001: 385). While it was a small margin
to play, it did offer the possibility of reducing costs and thus allow for price reductions in the future.

4. Producers seeking protection

Studies of the American Antitrust Act of 1890 have revealed that part of the legislative impetus
had little to do with consumer welfare. For example, Werner Troesken (2002) studied the papers of
John Sherman of Ohio, the senator who pushed for the passage of the first antitrust law, and found
few mentions of the interests of consumers. Sherman felt a greater urge to protect small businesses
facing competition from the larger (and, Troesken argues, more efficient) firms. 8 In the case of Canada,
the testimonies offered to the committee seem to fall within that same broad narrative.

The testimonies contained within the Report of the Select Committee can be used as a barometer
of sentiments towards the combines. Thus, it is fitting that not one consumer organisation, or

8 More recently, Newman (2018) argued that the first antitrust act was in fact motivated by political revenge. Senator
Sherman blamed his inability to obtain the 1888 presidential nomination for the Republican Party on Senator Russell Alger
of Michigan. Alger was also involved in a trust which Sherman frequently mentioned on the senate floor to damage the
reputation of Alger. This was meant to hinder Alger’s electoral prospects. Once the damage was done, Newman highlights
that Sherman grew disinterested with the Act and left others to carry the flag. While it is beyond the purview of this paper,
a similar motive appears elsewhere. Senator Clemow was frequently named in the report regarding his involved with the
Coal and Cartage Company in terms that made him appear in a less than favourable light.

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consumer testified. Only alleged members of the combine and discontented firm owners testified. It
is quite telling then that the word ‘consumers’ appears only on 71 of the 750 pages (minus the index
and table of contents) contained in the Report. Most of those mentions are not about consumers
paying more. They offer little to no evidence regarding how much consumers were hurt by the
combines. In some instances, the committee members brush off evidence that prices for consumers
were falling (House of Commons 1888: 16, 335).

More often than not, the witnesses were dissatisfied by the fact that they were being crowded out.
For example, the individuals who contested the agreement regarding sugar were individuals who
refused to join (House of Commons 1888: 58-59) and who wanted to procure the sugar themselves
at the refinery. More tellingly, Le Prix Courant (the magazine for retail and wholesale merchants)
reported that one of the complaints of Montreal retail grocers was that the retail price maintenance
agreement was putting the more ‘experimented’ grocer on the same footing as ‘the new entrant’—an
argument that suggests that there was increasing competition, and which is also consistent with a retail
price maintenance agreement (1890: 7).9 Another witness to the committee was asked if he thought
that the profit of the wholesalers (which he estimated at 5%) was doing ‘harm to the consumer,’ to
which he responded that it ‘does no harm to the consumer’ (House of Commons 1888: 16). He also
recognised that prices were falling, and he did not think that there were restrictions on production
(House of Commons 1888: 16) on the part of refiners. Pressed by a committee member, he stated
that ‘the objection which we take to the combination is that it is an injustice with any merchant
conducting business in any manner that he chooses,’ and further added that he should be free to
‘purchase sugar at seven cents and sell it at six and seven-eighths cents’ without regard to the
wholesalers (House of Commons 1888: 16).

Other examples speak even more plainly. In the case of Ottawa’s Coal and Cartage Company, the
prices mentioned by one of the merchants complaining to the committee for 1888 were all well above
$6 per ton (House of Commons 1888: 256-263). A survey of coal sales advertisements in the Ottawa
Daily Citizen suggests that his prices were superior to those that other merchants offered. For example,
in 1888, McRae & Co. and C.C. Ray & Co. advertised coal prices varying between 5.05$ and 5.30$ per
ton (Ottawa Daily Citizen, May 16th 1888). These prices were well below those observed for 1881 and
1885 for the same types of coal: 6.50$ to 6.75$ per ton in 1881 and between 6.25$ and 6.50$ per ton

9As stated above, a retail price maintenance agreement increases the surplus of both consumers and producers. A greater
surplus would have incited additional players to enter the retail industry.

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1885 (Ottawa Daily Citizen, September 9, 1881; Ottawa Daily Citizen, October 3, 1885). This suggests
that the merchant in question was one of the less efficient players in the market.

The bulk of the questions regarding the welfare of consumers were asked by members of the
opposition liberals rather than by the governing conservatives. The opposition liberals would tie the
existence of combines to high tariffs limiting the entry of foreign goods in order to argue that
combines were an outcome of tariffs. This is where we can see a key element of confusion affecting
contemporary actors. The passage of the Tariff of 1879 created a significant increase in the level of
prices most affected by it. This included sugar, cotton, oatmeal and barbed wire. Most mentions of
the harm done to consumers compared price levels in Canada with those in other countries. The
differences between countries were largely the result of the tariffs. For example, a merchant cited the
price of sugar in Glasgow at 3.38 cents per pound compared with between 6.58 and 6.75 cents in
Montreal (House of Commons 1888: 15). In the same year as the prices reported, sugar imports were
worth $5.2 million and the duty paid on that sugar was $3.4 million (or 61.5%) (Baggaley 1991: 14).
However, attempts at creating combines would have widened the gap with other countries rather than
caused it. This type of confusion is recurrent in the report.

The tariff issue also highlighted by another element, namely that some of the combines had an
easier task as a result of the increases of 1879. In the case of the cotton industry, historians agree that
the tariffs did make the job easier. However, as we have seen, this was not a sufficient condition as
attempts at collusion in the cotton sector often broke down, which allowed prices to keep falling and
outputs to keep increasing faster than the population. Nevertheless, in some industries it is clear that
the tariff was both a necessary and sufficient condition for collusion. The oatmeal milling sector is
one such case. In Table 1, oatmeal was one of the few goods whose real prices did not fall rapidly
during the 1880s (they may have increased in real terms). As there were no output figures to be found,
it seemed reasonable to label it as the main case supporting the veracity of the conventional claim
against the combines. However, the tariff on oatmeal was 0.5 cents per pound which seems to have
been high enough to prevent any imports of oatmeal into Canada (House of Commons 1888: 376).
Given the prices reported in Table 1, this tariff represented 22% of the prices paid by Canadians
during the 1880s. The American response to this tariff was an even larger tariff that amounted to 1.5
cents per pound. The problem was that when the tariff was passed, Canadians were exporting oatmeal
in large quantities to the United States and numerous plants had significant idle capacity. Naylor (1975
[2004]: 180) points out that the combine was formed to coordinate reductions in production and to

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lobby for reciprocity. The combine was meant to adjust to the fall in the market size (and loss of
economies of scale) for oatmeal and thus was a direct product of the tariff.

5. Conclusion

It is little known that Canada adopted its first antitrust legislation, the Anti-Combines Act of 1889,
a year before the United States the more often discussed Sherman Antitrust Act. In the case of the
more intensely studied American legislation, a rich literature has emerged emphasizing that the ability
of industries to collude was not as important as generally believed, that the degree of industrial
concentration was not a sign of deteriorating consumer welfare, and that the Act itself was motivated
by baser views than that of promoting the well-being of consumers (McGee 1958; Bork 1966;
Armentano 1982; Stigler 1984; Hazlett 1992; Libecap 1992; Boudreaux and DiLorenzo 1993; Grandy
1993; Goldin and Libecap 1994; Shull 1996; Troesken 1996; 1998; 2000; 2002; Clay and Troesken;
2002; 2003; Law 2003; Law and Kim 2005; Newman 2016). The Canadian case has been largely
ignored and the accuracy of numerous statements regarding consumer well-being in Canada in the ten
years prior to the adoption of the Act has never been assessed.

In this paper, I have shown that if market power is equated with restricting output to increase real
prices, then the opposite seems to have happened in Canada during the 1880s. While there were clearly
attempts to collude, the testimonies made in the parliamentary report on combines and business
histories of key industries (targeted by the Select Committee inquiring) point to the ineffectiveness of
these agreements. Agreements frequently broke apart. I also found evidence that some business
strategies that did increase concentration also led to significant reductions in costs, allowed for
efficiency gains to be achieved and for real prices to be reduced (following the logic of McGee 1958;
1971; Demsetz 1973).

Most of testimonies made to the committee appear in the same light as the letters sent to Senator
Sherman during debates on the Sherman Antitrust Act (Troesken 2002): as attempts to protect certain
industry players from competition from more efficient players. Future research into the Canadian case
will require important archival efforts notably to collect and recreate price, profit, cost and output
series. However, this initial work suggests that Canada was no exception—at least within North
America.

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 Table 1: Prices of goods for industries accused of being combines, 1880–1890

Overall Overall Price

Sugar Sugar Cotton Grey Cotton Oatmeal Oatmeal
Price Index Index Coal Oil Biscuits Barbed Wire Eggs
(Retail) (Wholesale) Yarns (Retail) (I) (II)
(I) (II)
1880 114.13 117.01 150.00 178.75 10.50 26.00 5.50 10.46 - 70.00 108.32 2.40
1881 119.47 118.77 150.00 185.45 10.00 25.50 6.50 - - 82.50 116.66 2.25
1882 127.11 122.36 150.00 178.75 9.50 25.00 - 12.00 - 107.50 128.87 2.60
1883 129.14 120.97 137.50 178.75 9.00 24.00 4.50 - 8.50 115.00 149.99 3.08
1884 109.98 107.99 125.00 125.00 7.38 22.25 4.00 - 7.00 97.50 102.77 2.45
1885 110.66 106.57 125.00 125.00 7.00 18.25 4.00 - 6.00 95.00 111.10 2.43
1886 110.34 106.34 125.00 125.00 6.13 17.50 - - 5.00 93.75 97.21 2.10
1887 115.86 111.61 112.50 150.00 6.75 18.50 - - 5.00 93.75 113.86 2.00
1888 110.77 109.47 100.00 150.00 7.75 19.00 3.25 - 5.00 117.50 140.54 2.15
1889 112.91 111.21 100.00 150.00 8.00 19.00 3.00 - 5.50 110.00 111.10 2.10
1890 110.64 109.13 100.00 132.50 6.75 18.50 3.50 6.60 4.80 100.00 105.50 2.13
Chang
-3.1% -6.7% -33.3% -25.9% -35.7% -28.8% -36.4% -36.9% -43.5% 42.8% -2.6% -11.5%
e
1891=10 1891=10 Cents Cents Cents Cents Cents Cents
Note: 1891=100 1891=100 1891=100 1891=100
0 0 per pound per yard Per yard per pound per pound per pound
Note: Price Index I is taken from the work of Barnett (1963) while Price Index II is taken from the more recent work of Geloso and Hinton (2018). The price series for
coal oil, eggs, retail sugar, and the first of the two oatmeal price series are taken from the work of Barnett (1963) as well. The price series for cotton goods are derived
from the Canadian Journal of Fabrics (1893: 131). The price series from the Canadian Journal of Fabrics may better seen as an intermediate input price. As such, it is
complemented by a price series for retail grey cotton sold in Montreal at Carsley’s retail store which placed frequent advertisements in the Montreal Gazette. The prices
for biscuits are taken from the Bureau of Statistics of Labor (1901: 431) for the years 1882 and 1890. Additional observations for biscuits were taken in the Sessional Papers
of the Parliament of Canada (1882: unpaginated) for 1880. For 1890, the Bureau of Labour Statistics reports a price of 5 cents per pound in Nova Scotia while another
Sessional Paper points to a price of 8.5 cents per pound (Parliament of Canada 1891: 69). The prices for barbed wire from 1883 to 1888 are taken from the report of the
Select Committee on Combines (House of Commons 1888: 359). Additional price information was found in the debates of the House of Commons for 1889 (1889: 651)
and 1890 (1891: 2088). The second price series for oatmeal was taken from price currents reported in the Montreal Gazette. The wholesale sugar price series was taken
from the work of Davidson (1899:29).

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Table 2: Consumption per capita in industries accused of being combine, 1880-1890

GNP-I, 1900$ per GNP-II, 1900$ per Sugar, pound per Cotton, 1900$ per Coal, ton per
capita capita capita capita capita
1880 $107.61 $100.59 26 2.02 0.50
1881 $120.95 $115.79 31 - 0.53
1882 $124.30 $122.42 30 - 0.62
1883 $122.53 $122.55 34 - 0.69
1884 $131.31 $129.24 38 - 0.79
1885 $122.11 $121.16 43 - 0.75
1886 $121.75 $120.76 38 - 0.78
1887 $124.69 $123.79 43 - 0.91
1888 $131.62 $129.95 43 - 0.94
1889 $131.23 $129.39 47 - 0.96
1890 $137.79 $135.37 35 2.88 1.05
Change 16.9% 13.9% 34.6% 42.6% 99.8%
Note: The first GNP figure is taken from the work of Urquhart (1993) who created a series for Canadian national accounts
from 1870 to 1926. The second series is taken from Geloso and Hinton (2018) who revised the Urquhart series. The sugar
consumption per capita was estimated by Davidson (1899: 27). The cotton consumption figure was taken from the work
of McCullough (1992:255). The coal consumption per capita was taken from Quirin’s chapter in the Historical Statistics
of Canada (1983: Table Q6-12).

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