power of the seller of that product is increased. But if a major function of advertising is to take an article out of competition, to what extent should Congress assist him to capitalize to the fullest on his temporary market advantage by special legislation?

From the standpoint of the protection to the consumer afforded by the “free and open competition" proviso, how far must a product be differentiated in the mind of the public to fall into a class different from that of apparently similar articles? There is no simple economic rule to apply here, and the decisions dealing with this question are not very illuminating. In Eastman Kodak v. FTC it was held that black and white film and color film are sufficiently unique to warrant their being placed in separate classes. On the other hand, best selling novels have been regularly held to be in the same general class with other books, although their substitutability for many readers would appear to be nil. In general, I think that it is fair to say that where there is a significant technological distinction between products, or where there is a considerable difference in the uses to which the products are put, they will be placed in different classes; where they are technologically similar and serve broadly the same purposes, they are likely to be placed in the same general class. If a good is successfully differentiated from very similar goods merely by effecitve sales promotion, this does not place the goods in another class.

In sum, I feel that I have shown that the protection afforded the consumer by the “free and open competition" proviso is very close to nonexistent. He is not protected against fewness of sellers as long as there are two in the market; they do not have to compete in price; there is no requirement as regards ease of entry; and the monopoly power attainable by unlimited advertising is no bar to fair trading. In the light of the inadequacy of this protection, I hope that the Congress will give the consumer a chance to protect himself by refusing to sanction restraints on competition in distribution.

SOME CONSTRUCTIVE PROPOSALS

I am not going to offer any comprehensive program for dealing with the problems of small business, but I do wish to call attention to several avenues of approach that seem to me more consistent with the public interest than fair-trade legislation.

First, a serious decline in income and employment such as we have witnessed in the United States during the past year, is far more destructive of small business than is normal loss-leader selling. Abnormal loss-leader selling such as occurs in a major depression is properly treated by preventing or curing the depression, not by eradicating its symptoms.

Secondly, since there is a high correlation between the entry of new firms and exit during the same or immediately succeeding years, one method of reducing business casualties would be to impose some sort of restraints on entry. This would be neither desirable nor possible by means of direct controls, but there are two other possibilities. One is the provision of information as to the problems and costs that may reasonably be expected to arise in different fields. This may deter some potential entrants who would have come in out of ignorance of known facts. A second deterrent that would be useful would be the repeal of fair-trade legislation. In a recent study of resale price maintenance in England it was stated that "The existence of the resale price maintained commodity with its guranteed margin of gross profit *** indubitably contributes to an important degree to the enticing qualities of distributive trading as a career and must, particularly so far as the retail trade is concerned, be looked upon as a factor of first rate significance. ***" 22

Third, educational activities by governments, trade associations, and other institutions, directed toward the improvement of retail management policiesstore location, layout, product benefit testing, inventory control, purchasing, personnel policies, financing and advertising-are highly constructive activities which combine social and private benefits as fair trade does not. These should be encouraged and expanded.

Finally, in order to better control genuinely predatory activity in the channels of distribution, there are two things that might be considered as alternatives to fair-trade legislation. One is stepped-up enforcement of inquiries and action along these lines by the antitrust agencies-this would require additional appropriations, specific directives, and possibly a special division for work in this

"Kuipers, Resale Price Maintenance in Great Britain (1950), pp. 107-108.

area. The important proceeding against Safeway indicates that even now this is not an entirely neglected area of antitrust action. The other possibility is the passage of a law against sales below net purpose cost, or net purchase cost plus some moderate markup. This would be a genuine loss-leader law; fair-trade legislation is not. If the loss leader is considered so important as to be beyond the control powers of the antitrust agencies and requiring special legislation, a minimum markup law should be considered as a type more suitable for this end.

APPENDIX TABLE

Concentration ratios for 20 high concentration industries in which fair trade contracts have been used, for the year 1954

1 Indicates that figures must be withheld in order to avoid disclosing figures for individual companies in violation of census rules.

Source: Concentration in American Industry, report of the Subcommittee on Antitrust and Monopoly to the Senate Committee on the Judiciary, 85th Cong., 1st sess. (1957), table 37. (Based on 1954 census.)

Mr. DOLLINGER. I guess there are no further witnesses. Without objection I am going to insert in the record the letter from the Department of Agriculture to the chairman and have it take its proper and appropriate place with the other letters of the agencies. Before concluding the hearings, the record will be kept open to permit statements to be filed by some witnesses who have not been able to come here but had expressed an interest in wanting to file statements. Such permission will be granted.

This committee has an open mind and would like to hear all sides of the question. We will not prevent any individual or organization from filing statements.

The hearing is closed.

(The following material was submitted for the record:)

Hon. OREN HARRIS,

HOUSE OF REPRESENTATIVES,
COMMITTEE ON THE JUDICIARY,
Washington, D. C., May 15, 1958.

Chairman, Interstate and Foreign Commerce Committee,

House of Representatives, Washington, D. C.

DEAR MR. CHAIRMAN: It has come to my attention that considerable publicity is being given, particularly among the retail druggists, to a letter from my office which indicates that I support H. R. 10527, a bill which would create

a Federal fair trade law. With your permission I would like to correct any misunderstanding which may have arisen as to my position on this bill.

Through an inadvertence, such a telegram in fact did leave my office. It does not reflect my views. As you know, my position consistently throughout the years has been to oppose fair trade both on a State and Federal level. I remain firm in my opposition to this type of legislation.

In the past fair trade has operated through the type of Federal enabling legislation represented by the Miller-Tydings and McGuire Acts. These bills merely exempted from the provisions of the Federal antitrust laws, and the Federal Trade Commission Act, fair-trade contracts and the exercise or enforcement of rights of action that were created by State law. H. R. 10527, on the other hand, would grant a Federal right of action. Any person damaged by violation of the provisions of paragraph 5 of the bill would be permitted to sue "in any State or Federal court of competent jurisdiction."

A number of States have not enacted fair trade laws. In other States, the courts have held their local fair trade laws to be unconstitutional. H. R. 10527, however, would enable persons to use the courts in these States to enforce resale price maintenance. It seems to me that this would result in a flagrant encroachment on the sovereignty of those States which have refused to allow fair trade within their borders. There is a serious question whether constitutionally Congress can confer a right of action in such a situation.

The most serious effect of enactment of H. R. 10527 would be its suppression of competition at the manufacturing level and at all levels of distribution. The purpose of the bill is to eliminate price competition at the retail level. Although the bill ostensibly prohibits wholesale price-fixing agreements, this result could be achieved under the bill nevertheless if competing proprietors established similar resale prices. The bill facilitates such a result in the provisions which authorize distributors to cooperate with their proprietors in maintaining fixed resale prices.

I believe that the provisions of H. R. 10527 are so broad that its enactment would permit virtually every item used by consumers to be subject to resale price maintenance: Automobiles, appliances, clothing, drugs, trailers, motorboats, and a host of other items. Enactment of the bill would result in rigid price structures that could not adapt themselves to changing economic conditions. It is my firm conviction that this bill is totally inconsistent with the policies of our antitrust laws, particularly the Sherman Act, and is contrary to this country's concept of free competition in a private enterprise system.

In order that my position on fair trade and on this legislation may be absolutely clear, it would be appreciated if this letter could be made a part of the file on the bill and could be included in the record of your hearings on H. R. 10527.

Sincerely yours,

EMANUEL CELLER, Chairman.

KANSAS FArm Bureau, Manhattan, Kans., May 9, 1958.

Congressman WILLIAM H. AVERY,
House Office Building,

Washington, D. C.

DEAR BILL: We are concerned at the implications we see in H. R. 10527, 11216, and 11264, currently under consideration by the House Committee on Interstate and Foreign Commerce. I am sure that I speak for the majority of Farm Bureau members in expressing opposition to any proposal to authorize manufacturers to fix retail prices.

It is a fundamental concept of our private competitive enterprise system that any savings developed by increased efficiency should be passed on to consumers. This basic concept has given us the highest standard of living in the history of the world. If we destroy this concept we minimize the premium for finding new and more efficient ways of doing business.

It seems to me that right now in Europe we have a perfect comparison between France and Germany on what happens under two opposing systems. In France much of the effort of business and Government leadership has been devoted to the development of cartel arrangements and activities to mitigate the effects of competition. Tradition rules paramount over initiative. The necessity for adaptation has been reduced. As a result, the French economy has gotten itself into a state of congealment. I am certain that the present political paralysis

in France can be traced in large measure to an economic climate which has stifled initiative over a long period of years. But in Germany war destroyed most of the institutional arrangements to restrict competition. The government has steadfastly refused to reinstate the old institutional arrangements. I am sure that this wise policy has been a major factor in making Germany the most prosperous country in Europe after complete collapse only 13 years ago. In a search for security, in efforts to eliminate risk, we sometimes blind ourselves to lessons which can be clearly read in the histories of other economic systems. The proposals to authorize manufacturers to fix retail prices as provided in H. R. 10527, 11216 and 11264 are diametrically opposed to the principles on which our economy has been built. I hope sincerely that these proposals do not win congressional approval.

Thank you very much for the opportunity to express what I believe to be the opinion of farm people everywhere.

Sincerely yours,

CLARENCE RUPP, Director of Research.

STATEMENT SUBMITTED BY R. H. MACY & Co., INC., NEW YORK CITY

This statement is submitted on behalf of R. H. Macy & Co., Inc., New York, N. Y. in support of the consumers' right to buy at retail prices set by free and open competition, a right which H. R. 10527 would deny to him. This bill is one to permit private persons to fix and enforce high prices at the retail level without regard to retail competition, and thus discourages consumption. It is tragic that it has been introduced now, at this critical time in the American economy, when it is generally recognized that increased consumption is the key to economic recovery.

H. R. 10527 is a Federal fair trade bill. Fair trade is a misnomer; it is, in fact, nothing but private price fixing at the retail level. Because it automatically destroys competition in distribution-and distribution takes one-half of the retail price charged to the consumer-it automatically results in artificially higher prices and in depriving consumers of the benefit of economies in distribution. Fair trade is, thus, a betrayal of the economic philosophy which made this country great.

And, what makes the situation even more pernicious is that the effect of this bill will be to expand greatly the already vast number of products now marketed under the misnamed fair trade system.

Macy's has, during its entire existence, made it its policy to endeavor to offer more and better products at lower prices to more people all the time. To this end, Macy's has constantly sought to make distribution more efficient and economic, and to pass the savings along to its customers. Our business, now celebrating its 100th anniversary, has prospered by the sale of more products at lower prices, rather than the sale of fewer products at higher prices. This philosophy, which has contributed immeasurably to the strength of the American economy and the raising of the American standard of living, would be the victim of H. R. 10527.

One of the best-reasoned marshaling of the cogent arguments against the misnamed fair trade system was made by Dr. Q. F. Walker, appearing on behalf of Macy's on February 27, 1952, in opposition to H. R. 5767, the bill which later became the McGuire Act amending the Federal Trade Commission Act.1 That statement was, of course, directed to a bill which was designed to permit the enforcement of the retail price fixing laws enacted by the various States against nonsigning retailers by removing the ban of the Federal antitrust laws, whereas the bill now before this committee would adopt retail price fixing as a Federal policy and for the first time make retail price cutting a violation of Federal substantive law; nevertheless, the cogent policy and economic arguments against retail price fixing made and documented therein by Dr. Walker remain valid. We respectfully refer this committee to that statement, as reported in the pertinent hearings.

Indeed, the passage of time has merely confirmed Dr. Walker's analysis. The history of retail price fixing since the passage of the McGuire Act has been all downhill:

1 [July 14, 1952] 66 Stat. 632, ch. 745, 15 U. S. C. 45.

1. Before the McGuire Act, only three States and the District of Columbia resisted the siren call of the retail price fixers and never passed the misnamed fair-trade laws. Since that date, the highest appellate courts in each of 18 other States where such laws had been enacted have determined that the principle of private retail price fixing violates its constitution and has declared such laws unenforceable, thus restoring free competition at the retail level. Those States are: Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Michigan, Nebraska, New Mexico, Ohio, Oregon, South Carolina, Utah, Virginia and West Virginia.2

2. The Attorney General's National Committee to Study the Antitrust laws (1955), after carefully considering this matter, was of the view that the so-called fair-trade system of retail price fixing was "an unwarranted compromise of the basic tenets of national antitrust policy * ** without commensurate gains,"3 and strongly recommended action to repeal the antitrust immunity accorded thereto.

3. Within the recent past, numerous important and prominent proponents of the fair-trade system have taken their products off fair trade-such as, Eastman Kodak, General Electric, Sunbeam, etc., thus restoring free and open competition in the retail pricing of those products.

The proponents of retail price fixing now come to the Congress and ask it to force on the consuming public-including the citizens of the 18 States whose constitutions are violated by this private price fixing—a system which deprives them of competition with respect to one-half of the price they pay for goods. Macy's experiences during the time when "fair trade" has been applicable in New York State confirm and dramatize the fact that (except for the World War II period and the postwar period of scarcity) retail price fixing, wrong in economics and wrong as a matter of public policy, is also wrong as a practical matter, for no matter what the economic climate, whether boom or recession, it simply has not worked. Dr. Walker pointed out in his 1952 statement that in the 1950-51 period, extensive litigation occurred concerning widespread price cutting in the purportedly fair-traded small electrical appliances, camera and photographic, cigar, television receiver, and typewriter fields in the New York City area. Since 1952, extensive litigation has occurred in the New York City area from time to time in the electric train, pen, drug, camera, electric shaver, and cigar lighter fields, among others. And in many other fields, the amount of price cutting was so extensive that no attempt was made to enforce by the very great majority of fair-trading manufacturers, so fair trade in many fields collapsed of its own weight.

In short, the most telling argument against the so-called fair-trade system is that it simply does not work. No one has found a way to force people to ignore the profoundly human trait of shopping for and getting bargains, or to prevent retailers from providing bargains-and since no one can convince the public that this is immoral or illegal, they will do this, on a bootleg basis, if necessary. This ignoble experiment has been a more pronounced failure than prohibition. The proponents of H. R. 10527 seek to do what King Canute could not-but here the tides they seek to roll back are those of human nature. Since the task is monumental, the proposed bill is an H-bomb designed to eradicate price competition at the retail level. It is a hornet's nest of pro-fair-trade excesses. It seeks to reverse the decision in all litigated cases lost by the fair traders; all equities and defenses available to retailers who seek to meet competition are expressly or impliedly removed. Its solution of the enforcement problem is to provide for an avalanche of suits against retailers who fail to comply with the dictated prices of fair trade, with guaranteed success to the plaintiff and with a guaranty that the defendant will pay all court costs and attorneys' fees. The proposed cure is worse than the supposed disease, for this bill would inevitably compound confusion, put retail trade in a straitjacket, provide again a vehicle for discrimination as between retailers, and, by providing an incentive for the bringing of lawsuits, would flood the courts with litigation and provide a lush field for opportunistic troublemakers. The following provisions of the bill are illustrative of its one-sidedness, its unfairness, and its potential harm to the country:

A. The bill carries forward the McGuire Act in the proposed paragraphs (2) and (3) of subsection (5), but in paragraphs (5) through (9) thereof it super

2 CCH Trade Regulation Reporter, vol. 2, par. 10,000.

Report of the Attorney General's National Committee to Study the Antitrust Laws (March 31, 1955), pp. 149-155, at 155.