The study of price behavior was confined to prices established under fair trade. No examination was made of retail prices established by brand owners under direct price maintenance. DRUG PRICES More information is available on the price history of drug products than of any other class of products. The first known study of the effect of fair trade on prices was made in the drug field. Prof. H. J. Ostlund of the University of Minnesota's School of Business Administration, and C. R. Vicklund, of Minneapolis, undertook to determine the effect which the introduction of fair trade had on retail prices. They compared the 1939 fair trade prices of 50 leading drugstore products with the pre-fair-trade depression retail prices of these same products. Their study covered the entire country, State by State. Ostlund and Vicklund found that the fair trade retail prices of these 50 products averaged, in 1939, 1 percent lower than the pre-fair-trade depression prices of these identical products. Period 1939-47 A second study projected retail price behavior in the drug field from 1939 to April 1947. This study was made by the National Association of Chain Drug Stores and covered 7,334 drugstore products, some fair traded and others not. The study found that 1. As to this entire group of products, an overall price increase of 15.4 percent was recorded. By comparison, the overall cost of living increased 59.3 percent during the same period, 1939-47. 2. As to those of the 7,334 products which were fair traded, their fair trade prices rose 3.1 percent over the period, compared with 15.4 percent for the entire group. Period 1947-58 A number of studies have been made since 1947 to determine the effect, if any, of fair trade on the prices of drugstore products. In the absence of reliable data on retail price behavior, McKesson & Robbins, Inc., was asked to examine the movement of wholesale prices-fair trade and nonfair trade-of representative drugstore products. In the opinion of Herman C. Nolen, chairman of the company and a former professor of marketing at the Ohio State University, the movement of these wholesale prices reflects also the movement of retail prices of representative drugstore products. The first McKesson studies covered the period January 1, 1947, to January 1, 1952. Its most recent study, in 1959, covered the period January 1, 1952, to January 1, 1959. Each of the studies covered the same 201 representative drugstore products-some fair traded, others not-except for such few substitutions as the passage of time required. The products were typical items which, in 1959, represented more than 25 percent, or approximately $106 million of McKesson's annual drug sales. Further, the four categories they cover-represented more than 80 percent of the items most frequently sold in drugstores. Recapitulation of these results follows: Increase in wholesale prices (Jan. 1, 1959 over Jan. 1, 1947) No entry is shown in the above table for "pharmaceuticals, fair trade." Over the period 1947-52, fair trade wholesale prices of pharmaceuticals increased 11.3 percent, while non-fair-trade wholesale prices of pharmaceuticals increased 27 percent. Since 1952, fair trading at the wholesale level was discontinued on all the pharmaceuticals covered in the earlier studies. The reason lies in a decision of the U.S. Supreme Court which many pharmaceutical firms selling direct to retailers, as well as through wholesalers, interpreted as possibly applying to them. The findings of the McKesson studies are that over the period January 1, 1947-59: 1. There was an increase of 24.8 percent in the wholesale prices of drugstore products fair traded at the wholesale level, compared with an increase of 41.2 percent in the wholesale prices of drugstore products not fair traded at the wholesale level. 2. In each of the four categories of products, the increase in fair trade wholesale prices was lower than that of non-fair-trade wholesale prices. 1949, 1951, and 1958-Nielsen data This report includes data disclosing what consumers in general, as distinguished from some individual shoppers paid for famous name brand drugstore products which were (a) fair traded in the States having effective fair trade laws, and (b) sold at retail prices fixed by individual retailers in the other States. The data were supplied to the Bureau by A. C. Nielsen & Co. To establish what consumers in general pay for specific brands, it is essential that a price study cover (a) A substantial period of time, rather than individual shoppings; (b) A large number of stores, rather than a relatively few individual stores selected either at random or for reasons known to the surveyor; (c) Not only specific prices paid, but also volume sold at each price, in order to establish weighted average prices. The Nielsen data cover continuous 6-month periods, as follows: (1) JulyDecember 1949; (2) March-August 1951, immediately prior to and during the famous, or infamous, price wars of that year; (3) January-July 1958. The 1949 and 1951 data cover all the drugstores in the United States through a national sample. The 1958 data cover all the drugstores and all the foodstores in the United States through a sample of 2,350 stores (750 drugstores, 1,600 foodstores). These stores include rural and urban, chain and independent, supermarket and small outlet. The price information was gathered in the course of Nielsen's normal activities entirely unrelated to fair trade. As part of its regular service to clients, this market research agency collects a variety of market information, including price information, on the competitive status of items in some 50 product classifications. To obtain the data reported here, it was only necessary to reprocess the price information already recorded. For this purpose, the country was divided into two areas: (a) The fair trade States, as one area, and (b) the non-fair-trade States, as the other area. The retail prices reported are weighted average prices. They are the prices paid by consumers in general, as distinguished from what some individual shoppers paid for one or more of these popular, fast-selling brands when purchasing them in certain stores at certain times. In both 1949 and 1951, the overall weighted average price of famous brand products (included in the studies) was slightly lower in drugstores in the fair trade area of the United States than in the non-fair-trade area. The difference in favor of consumers in general, living in the fair trade area, was perhaps statistically insignificant. It was significant, however, that the weighted average prices in the non-fair-trade area were not lower than those in the fair trade area, notwithstanding the fact that retailers in the non-fair-trade area were not required to respect the minimum retail prices for these products applicable in the fair trade area. Table I, appendix, lists the price data compiled by Nielsen for the period January-June 1958. The famous brands included in the study are identified by number. Examination of the table shows that 1. Most differences in weighted average price in the 45 price comparisions are of the order of one-third of 1 percent to 1 percent-a statistically insignificant difference. 2. The weighted average price of 8 of the 15 brands was slightly lower in the fair trade area; and for 5 of the brands it was slightly lower in the non-fair-trade area. Consumers in general, in both areas, paid exactly the same weighted average price for two brands. 3. Of the 45 price comparisons shown, 22 favor consumers in general in the fair trade area, while 18 favor those in the non-fair-trade area. In five cases, the weighted average price is identical for both areas. 4. Eighteen of the thirty drugstore-foodstore price comparisons show drugstores charging slightly less than foodstores. Nine show foodstores charging slightly less than drugstores, while the weighted average price is the same in the remaining three price comparisons. 1947-58-Consumer Price Index Additional light on the prices of drugstore products is shed by the Consumer Price Index of the Bureau of Labor Statistics, U.S. Department of Labor. The Consumer Price Index covers some 300 goods and services in a number of categories, including medical care. In the medical care category, the index covers such items as physicians' fees, hospital rates and prescriptions and drugs. Taking the 1947-49 average as equal to 100 percent, it is found that the price increases, in percentages, of individual items making up the medical care basket in the general Consumer Price Index are as follows: The item of prescriptions and drugs shows the best performance in the above table. Its rate of increase over the period 1947-58' has been slightly less than that of the Consumer Price Index as a whole (with an even lower rate of increase prior to 1947). Thus, the only full studies of the prices of drugstore products-covering large numbers of items and long periods of time-show that— (a) Prices in the medical care basket in the United States increased between 1947 and 1958 by 42.56 percent while the general price level increased by 29.32 percent. (b) Prices of prescriptions and drugs in the United States increased, between 1947 and 1958, by 25.59 percent whereas medical care increased by 42.56 percent and the overall price level by 29.32 percent. (c) Prescriptions and drugs increased less than any other item in the medical care category of the Consumer Price Index with the exception of surgeons' fees, which increased by 22 percent and optometric examinations, which increased by 14 percent between 1947 and 1958. (d) The above evidence demonstrates that prescriptions and drugs increased less than the general price level of other items in the medical care basket. Summary of findings The Ostlund-Vicklund study showed that the advent of fair trade in the United States did not increase the retail prices of leading drugstore products. This fact takes on added significance because fair trade came into being in 1931, at the bottom of the depression, when overall prices were lower than at any time since. The study by the National Association of Chain Drug Stores covered a period of sharply rising prices. In this period, 1939-47, fair traded drugstore products held the price line better than non-fair-traded drugstore products and very much better than prices generally. The McKesson studies, covering the period 1947-58 inclusive, show that fair trade wholesale prices of drugstore products rose substantially less than nonfair trade wholesale prices of competing products. The Nielsen data, encompassing 6-month periods in 1949, 1951, and 1958, demonstrate that the consumer in general-as distinguished from individual shoppers-whether she lives in the fair trade or non-fair-trade area of the country, pays about the same weighted average prices for typical famous name drugstore products. This is so notwithstanding the use of such brands as price bait 1 See table II, appendix 6. 99-685-63--11 by retailers seeking, through development of a reputation for underselling, te destroy their small, independent competitors. Finally, the Consumer Price Index of the U.S. Department of Labor for the years 1947 and 1958 shows that prices of prescriptions and drugs-a substantial percentage of which were fair traded-resisted inflationary pressures better than most items. Conclusion Insofar as drugstore products are concerned, fair trade has served the American consumer very well. Over the entire period of fair trade, few classes of products or of services have resisted inflation as well as drugstore products. HARDWARE PRICES The only continuing study of hardware prices known to the Bureau has been made by the Salt Lake Hardware Co., Salt Lake City, Utah. The study, which deals with wholesale prices exclusively, began in March 1942, when the company undertook to "determine as nearly as possible the effect increased prices have had upon our total volume of business." The company prepared a stock of staple items which are carried in the average hardware store and which group of items is representative of volume-producing items in each of the principal departments of the company's business. This stock, or "dealer's order," consists of 420 typical hardware items divided into classifications indicated below: Department A: Small tools_. Contractor's supplies and agricultural implements- Steel and heavy hardware___ Department H: Plumbing items (not including enamelware) Department E: Machinery items__. Department G: Automotive accessories and supplies_ Department P: Paints, oil and glass_-_ Department B: Builder's hardware_. Department C: Housewares.......... Department F: Cutlery (excluding pocket knives) Bicycles and supplies Fishing tackle-- Total_--- Items 107 48 9 10 6 13 420 Quantities of the individual items specified, on this typical dealer's order, are as nearly average as the company could accurately determine; and each quantity is in relation to its experienced sales volume. The same quantity of the various items was first priced (at wholesale) as of March 1942, which represents the period when prices were frozen by OPA. The company has from time to time thereafter figured the identical list of merchandise in order to establish the aggregate value of the same order as of the respective dates when the calculations were made. The value of the "order"-i.e., the aggregate wholesale price of the 420 items— was thus established on 29 occasions, beginning March 1, 1942. The value on selected dates follows: To test the price increase of various groups of merchandise according to departments, further price analyses were made, with value on selected dates shown below: In 1959, the Bureau asked the Salt Lake Hardware Co. to isolate from its 420item list those items, if any, which were fair traded, and to record the prices of each of the fair-traded items, by departments, as at January 15, 1948, and April 13, 1959. It was found that the fair-traded items numbered 27, or 6.4 percent of all 420 items. On the basis of wholesale sales value, the fair-traded items represented 12.1 percent of the total at January 15, 1948, and 11.4 percent of the total at April 13, 1959. In other words, the list as a whole had risen in price slightly more than had the fair-trade portion of the list. Here are the results: Comparison of Departments C. F, and G as shown in the table above with those shown in the table on the preceding page discloses that 1. The prices of the fair traded items in two of the departments rose slightly more than did those of all items in these departments, while they rose substantially less than did all items in the third department (G). 2. The aggregate of prices of the fair traded items in the three departments rose 40.1 percent, compared with a rise of 38.7 percent for all items in the same three departments. 3. The aggregate of prices of the 27 fair traded hardware items were 40.1 percent higher in 1959 than in 1948, whereas the aggregate of prices of all 420 items covered by the Salt Lake study were 51.4 percent higher. Conclusion The only continuing and comprehensive history of price behavior of hardware products shows that almost 90 percent of such items are not fair traded at the wholesale level; yet they show a slightly higher percentage of price increase, 1959 over 1948, than the remaining items which have been fair traded at the wholesale level. There is nothing in this price history which suggests in even the remotest degree that fair trade has in any way been responsible for raising the level of wholesale hardware prices. |