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conditions under which the goods are to be resold by jobbers, wholesalers, or retailers. Thus, within prescribed limitations, the right of such a purchaser to resell could be revoked if he resorts to bait merchandising practices or to misleading advertising or if he fails to observe a resale price established by the manufacturer. Appropriate sanctions are embodied in the bill for the enforcement of these provisions.

The outstanding feature of H.R. 3669, of course, is the right of the manafacturer to stipulate the prices to be charged by his customers. At one time such resale price maintenance was permitted by nearly all of the States under statutes enacted by them pursuant to an exemption (Public Law 542, 82d Cong.) from the antitrust laws. In recent years, however, the courts in many of these jurisdictions have invalidated their respective fair trade laws, in whole or in part, on constitutional grounds. Today they are in full force in some 24 States only. The evident plan of the bill is to strengthen the right to practice resale price maintenance by resting it on Federal, rather than State, law.

The demand for such legislation is strong—and we at the Small Business Administration are familiar with the underlying reasons. Small retailers in many lines are being subjected to intensive and relentless pressure from chain organizations. These organizations, with their vast purchasing power and financial resources, can afford to cut prices to levels which their small competitors find impossible or extremely difficult to meet. The magnitude of the resulting problem is not to be underestimated. Many small retailers have already sac cumbed to the pressure and, unless we can find a remedy for the situation, many more will go under.

Some people take the view that this situation, sad as it is for those wbose livelihood depends upon the continuance of small retail shops, is an unavoidable et by pri consequence of the free enterprise system. It is said that, to the extent such stores cannot endure the rigors of free and open competition, they must go. I think we should examine that argument carefully.

It is entirely true that our economy was initially characterized by free and open competition. In the early days of our history, when all businesses were small, when all enjoyed equality of opportunity in the market, we actually had such competition. The forces released by it made us the wealthiest nation on earth, Unfortunately we were not diligent in preserving this system. As huge combinations began to form in one industry after another, at an accelerating pace, we were slow to recognize the danger.

By the time we acted, with the institution of the antitrust laws in 1890, much damage had been done. It has not yet been undone. Despite more than 70 years of antitrust prosecution, the giants are more numerous and larger than ever. They are to be found in nearly all industries. It is to be hoped that, if we continue the vigorous enforcement program now being conducted by the Department of Justice, their grip may eventually be broken or at least weakened. But that day lies in the future, probably the distant future.

Meanwhile the small business community must survive. In the conduct of the antitrust program, as in most other matters, an ounce of prevention is worth a pound of cure. The competitive potential of small business is a force in being which must be preserved as one of the most promising means of restoring free enterprise. If the decline of this vital segment of the economy is permitted to continue, the battle we are waging against monopolies and restraints will be lost or at least greatly prolonged.

During the interim period of which I speak we should not expect small concerns to stand up to the giants unassisted. To be sure, an occasional David mag step out of their ranks and slay a Goliath. In many respects, however, the small man is at a great disadvantage as regards the large. It is misleading, therefore, to speak of “competition" between the two in the sense that each has an equal chance to prevail.

With these considerations in mind Congress established the various assistance activities now being conducted by the Small Business Administration. This policy of the Government is not to be regarded as an interference with the mechanism of competition but, rather, as a program to counteract the restraints which frequently have been imposed upon that mechanism by big business.

It is against this background that the merits of H.R. 3669 should be evaluated By virtue of their size alone the chains and other large retail establishments hold overwhelming advantages over the small retailer. As we all know, they buy at quantity discounts which are not available to him. This, together with the volume of their sales, permits cost savings far beyond his reach, regardless of his management abilities. Many of them, not content with these advantages

, strengthen their position further by extorting illegal concessions from their

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suppliers. Since these latter transactions are conducted under cover, accurate information with respect to them is unavailable. There is reason to believe, however, that such concessions are widespread.

It is not surprising, therefore, that small stores can rarely meet the prices offered by their large competitors. This is a problem they have to live with and, considering the circumstances, they have done well. Except where price differentials assume major proportions, small retailers can be counted upon to attract customers by means of superior services, ingenuity in the display of goods, and other merchandising skills and devices. Their resourcefulness in this respect is attested by the vast numbers of them which have weathered chain competition for many years.

Drastic price slashing is another matter. The leading retail establishments in many industries could, if they wished, price their small competitors out of business. The view bas often been voiced that some of them have, in fact, undertaken to do so. We must ask ourselves whether such predatory price cutting promotes competition or destroys competition. I consider it destructive because it leads straight toward monopoly.

If we accept the premise that our primary goal is to devise a method by which predatory price cutting can be eliminated or at least substantially deterred, we must determine the method by which we can best achieve this goal. In this connection I would strongly advise that the committee give consideration to the possibilities of improving existing remedies against so-called loss leaders. This term, as commonly employed, relates to two distinct practices. In the first of these the proprietor of a store will lower bis prices on leading brands in order to attract customers. The sacrifices he makes on such brands are more than offset by profits on sales made from the remainder of his inventory. In the second type of loss leader a chain organization will lower prices on certain products in one locality, in order to put pressure on competitors there, and at the same time maintain regular prices on such products elsewhere.

Innumerable complaints have been received from small retailers injured by loss leaders. Under existing law, however, it is extremely difficult to cope with these pernicious devices Section 3 of the Robinson-Patman Act makes it a crime to sell goods at "unreasonably low prices" but since conviction cannot be obtained in any case unless Government sustains the burden of proving beyond a reasonable doubt that the sales were made for the purpose of destroying competition or eliminating a competitor, this provision is of little help.

At one time it was supposed that section 5 of the Federal Trade Commission Act, prohibiting unfair trade practices, could be effectively utilized against loss leader sales. However the Federal Trade Commission is of the opinion, based on enforcement experience, that the section cannot be successfully employed except where it can be shown that the sales were made for the purpose and with the intent of injuring or destroying competition. Such proof is, of course, difficult to obtain.

Similar difficulty is involved in utilizing other applicable provisions of the antitrust laws. Their sanctions cannot be imposed without proof in each case that the loss leader sales did, in fact, result in a tendency toward monopoly or that they did, in fact, lessen competition substantially or produce some other forbidden result.

Perhaps the situation could be alleviated by imposing a ban on sales below cost. Admittedly, such legislation would have limited value because there are indications that many loss leader sales, perhaps most, are conducted at prices which, though well below regular levels, are nevertheless above cost. Moreover, I recognize the difficulties entailed in trying to devise a clear and workable statute prescribing all loss leader sales, and it is not my intention at this time to recommend any specific method of dealing with loss leaders or sales below cost. Rather, my purpose is to point out the scope of the problem which these practices present to small retailers and to emphasize its importance. With respect to the form which loss leader action should take, I would be guided by the views of the Federal Trade Commission.

I trust that you will find the foregoing comments helpful in your consideration of H.R. 3669 and related bills.

The Bureau of the Budget has advised that there is no objection to the sub-
mission of this report from the standpoint of the administration's program.
With kind regards, I am,
Sincerely,

JOHN E. HORNE, Administrator.

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can communities he provides the community spirit that builds our towns, the chambers of commerce, Kiwanis Clubs, Lions Clubs. The leadership, the time, the energy, and the money come from him.

Behind this vital community leadership is the wonderful family life that the small store provides. Like the family farm, the family business ofiers an ideal moral climate for the development of the invaluable qualities of character and morality. The energy-demanding work of the family store virtually eliminates juvenile delinquency

. The qualities of thrift, industry, business sense, are developed and nurtured in the family atmosphere. The family store is an immensely valuable American institution. If any economic institution can be said to deserve preservation, certainly the family store is it.

Even if it were an economically inefficient operation, the argument for preserving and protecting the family store would be a strong one. But like the family farm, it is not inefficient. It is efficient. It has proven itself repeatedly. It lacks one important survival asset in our competitive economy, however, and that is capital, just like the family farm lacks capital. This lack of capital means that the large competitor, the chainstore or massive supermarket or big discount house, even if less eficient, can engage in price-cutting operations until the little business is driven out.

Cutthroat competition for the small businessman is increasing. The trend is toward more and bigger discount chains. While the pricing policies of the discount houses have a deceptive attractiveness, the long-range result is almost certain to be reduced competition, greater economic concentration, and higher prices.

The Quality Stabilization Act protects the consumer against higher prices and poor service by encouraging independent retailers and strengthening fair competitive practices. Unfair practices increase the rate of failure of independent neighborhood stores and specialist shops.

The consumer, so far as service is concerned, would lose some convenience in the decline of these neighborhood stores. Also, he would have less of the specialized services he now enjoys from retailers

. In particular, the service and repair facilities at present available for several makes at the same place, the store, or the independent repair shop, would be curtailed.

So far as prices are concerned, almost every study has shown that where fair competitive practices have been abandoned, it has not meant any reduction in the average level of retail prices. There are some indications that average prices decline when fair competitive practices are instituted.

One famous study by H. F. Ostlund and C. R. Vickland compared retail prices in a period of time (March to September 1939) when retail price maintenance was eilective in most States with a date immediately before it was introduced. Their research covered 50 wellknown brands sold in drugstores in 48 stores. The result was an average drop of 0.9 percent in the retail prices of those brands after fair competitive practices became effective. Chainstores tended to raise their prices and other stores to reduce theirs.

In addition to these economic considerations, there are some serious social questions involved. I do not believe that inefficient small businesses should be protected. I do feel very strongly, however, that

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when we look around the world and see the revolutionary results s

which flow from these social practices which concentrate economic
power in the hands of a few gigantic companies or corporations, that
we should be thankful for our small business community.

I am sure every member of this committee is aware of the fact so that in every small town you go, the backbone of the community, the

people who really provide the community responsibility and the lead

ership in the community in every kind of drive and every kind of Jeit

community effort, are the small business people--the local druggist, do the local hardware merchant, the local photo dealer--the local people

who own their stores. These are the people who take pride in their
community and are so tremendously important in that community.

Today, we are concerned with the small business retailer, and I
respectfully suggest that the Quality Stabilization Act is a sound
way to insure that we will continue to have diversification and com-
petition in retailing by strengthening the small business community.

Competition is much more than price competition. There is competition for location, competition for service, competition in all kinds of ways. But price competition can destroy other kinds of competition. This bill's purpose is to continue coinpetition on the basis of availability to the consumer of our honored brand-name products in the broadest possible, yet fair, way;

The New York Times, in its August 19 issue last year, reported that the New York metropolitan area, some 10 years ago, in 1950, had 153,000 shopkeepers; that is, 153,000 people who were classified as managers, corporate officials, and proprietors in retail trade. By 1960, 10 years later, although the population had increased substantially, and although sales had enormously increased, the number of retail merchants had dropped from 153,763 to only 66,474. In other words, there are now fewer than half as many small business retail operators in New York as there were 10 years ago. This is perhaps our greatest retailing area in the country.

It seems to me that this startling, stubborn fact—that small business simply is not surviving in the retail area-should be brought home to the American people and to the Congress.

This quality stabilization bill is not only designed to help eliminate pricing practices that so damage both the brand name owner and the ethical retailer, this bill is also designed for protection of the consumer.

Paragraph 8 is the heart and soul of this bill. Paragraph 8(A) deals with bait-merchandising practices and (C) deals with misrepresentation. Thus, two-thirds of the practices at which this bill is aimed are designed primarily to protect the consumer.

Add to this the further provision of paragraph 8, giving the consumer a right of action where he has been injured as the result of misrepresentations by the manufacturer as to the size, capacity, qualaty, condition, model, or age of the goods, and it should leave no doubt in anyone's mind that this quality stabilization bill is indeed consumer oriented.

I assure you I intend to work hard for the passage of this quality stabilization bill. I urge you to give it favorable consideration in your subcommittee at the earliest possible date.

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I might say, Mr. Chairman, that last year the Senate subcommittee reported this bill to the overall committee by a unanimous vote, 4 to 0. It is my understanding that, as Mr. Madden said, Senate floor action was not taken because it was late in the session, and the bill never did reach the Senate floor. It never did come out of the committee.

Now, if I could be permitted to, I would like to make just one brief statement in answer to our distinguished colleague, Mr. Dingell, for whom I have the greatest respect. He is an outstandingly fine Congressman.

I want to call to your attention, Mr. Dingell, page 2, lines 12 to 15, which say:

If goods usable for the same general purpose are available to the public from sources other than the owner of such brand, name or trademark, and are in free and open competition therewiththen the price may be established.

Now, what this means, it seems to me, is this is not price fixing in the sense that any manufacturer is able to fix the price of all toothpaste or fix the price of one toothbrush or anything of that kind. He can establish his own price, but he can only do that when his commodity is in competition with other goods, and when he does that, it is at his own risk, and he recognizes that if he prices it too high, he is not going to have the market.

I want to thank you, Mr. Chairman, for this opportunity to appear.
I appreciate it very much.

Mr. STAGGERS. Thank you, Senator.
I will ask you this:
Did you introduce a bill on the Senate side?
Senator PROXMIRE. I was a cosponsor; yes, sir.
Mr. STAGGERS. You are a cosponsor?

Senator ProxMIRE. I think Senator Humphrey is the principal sponsor. I have introduced this bill, or a similar bill, in the last three sessions, along with Senator Humphrey and Senator Capehart

, Senator Scott, and others.

Mr. STAGGERS. I notice that you say the chainstores are the ones who are driving small businesses out of business.

Senator PROXMIRE. Well I feel that in recent years it has been the huge discount houses that are, perhaps, responsible to some extent, although you cannot blame them. I think that they are doing a perfectly understandable job and a good job, and, after all, a business enterprise exists under our laws and people can go in and make honest money by competitive action—that is legal, they have every right to do it.

But I feel that in some cases these methods have been very deceptive and people have been lured into these stores with the notion that they are getting a bargain, and if they do very careful, responsible price comparison, they will find that the prices they pay are no lower in many cases than they pay elsewhere.

But you know the old system. There will be an item that is sold at $50 with $88 crossed off, the feeling that you get a big reduction in price, but actually a misunderstanding on the part of the purchaser. Mr. STAGGERS. I would like to clear this

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