1 The population statistics are the estimates of the Bureau of the Census, U.S. Department of Commerce. The number of retail stores and the sales of retail stores are taken from the censuses of business, Bureau of the Census, U.S. Department of Commerce. 3 The merchant bankruptcies are taken from the Federal Administrative Office, U.S. Courts. The merchant bankruptcies include both voluntary and involuntary bankruptcies. For the years 1933, 1935, and 1939 bankruptcies were not recorded on a State-by-State basis. 4 Not available. NOTE.-A. The years used for this study are those years in which a census of business was taken by the Bureau of the Census, U.S. Department of Commerce. B. All figures have been developed on the basis of the States with fair-trade laws and States without fair-trade laws for each year in which a census of business was taken. If a State passed a fair-trade law in the year a census of business was taken, it has been included in the fair-trade area. If a State had its fair trade declared unconstitutional in the year a census of business was taken, it has been included in the non-fair-trade area. Mr. LEE. Thank you. I think probably I should state that I am a teacher of economics at Geneva College, and my dotcoral dissertation was done on the subject of retail price maintenance. Then I would like to skip over to page 2 and run through some items with regard to this subject as I look at it. First, we had the "fair trade" name which at least 25 State supreme courts have ruled unfair, so we then had the name "fair competitive practices" for a proposal which was to place specific limitations on competitive practices. Now we have the term "quality stabilization" with no provision whatsoever in the bill establishing quality standards or standards for quality stabilization and yet the bill states as its purpose, "to promote quality and price standardization." It is important, I believe, to understand that under this proposed bill the manufacturer may reduce price as well as quality if he so wishes, or if he wishes, he may increase price and reduce quality. A manufacturer under this bill can do anything he wishes with regard to quality, and it seems a real misnomer to affix the name "quality stabilization" to this bill. If fixed prices are needed for quality stabilization and confidence in brand names, is one to assume that since most goods have never been fair traded that these goods do not have public confidence and there is quality deterioration? If this is to really be a quality stabilization bill, I wonder if some consideration should be given to an amendment to prohibit manufacturers from deteriorating quality of their products once they sell them under resale price maintenance agree ments. Company after company has specials on its products such as combination sales and cutting the price, or having a special lower price once a year. Apparently the manufacturers in establishing this type of pricing do not feel that it hurts quality or the brand image. But if the retailer cuts price, then it is argued the brand image is damaged and the quality deteriorates. Does the buyer really know who is responsible for price reduction? We have heard some discussion on price fixing here today. There are other types of price fixing which have ben mentioned by the proponents as a defense for resale price fixing, but notice who establishes the prices: A. Public Utilities-price established by government. B. State milk commissions-price established by government. D. Farm price support-price established by government. In addition, we find retail prices fixed by the manufacturer when he sells direct to the consumer and when a retailer has a private brand. Who else could fix the price, when you sell directly to the consumer? We also find price fixing by the manufacturer selling on consignment and sometimes exclusive agreements, but in these cases the manufacturer has assumed additional responsibilities. What this bill does is to give the manufacturers a blank check to write a price. The bill states that only those products which are in "free and open competition" may be "fair traded," and this term is not and has not been defined. The Supreme Court of the Commonwealth of Pennsylvania ruled recently that the burden of proof rests on the company as to whether it is in "fair and open competition." One of the arguments for this bill is to maintain many small retailers. One might ask what is the point of having many retailers if they cannot compete on price? They can compete on things that add to price, such as advertising and promotional schemes, but this bill would prohibit them from competing in an area which would reduce price. This bill also gives the manufacturer a wide latitude when it states: "owner of brand determines marketing area." In Pittsburgh a judge ruled that a product fair traded in Pennsylvania had to be fair traded at the same price statewide. This bill has no qualification. The proponents are frequently stating that legislation is needed to prohibit loss-leader selling. We already have protection from this type of pricing on the national level in the following: The Federal Trade Commission Act, section 5, states: "That unfair methods of competition in commerce are hereby declare unlawful." In addition, most of the States have passed so-called loss leader or unfair practice acts to prohibit the very pricing practices which the proponents of fair trade say they need protection against. In addition, one will find in studying the testimony presented at previous fair trade hearings and the Federal Trade Commission's 1945 Report on Fair Trade, that when loss-leader bills have been introduced to meet this problem of predatory pricing, proponents of fair trade shied away, want ing to have no part of such loss-leader bills. Studies by the Restrictive Trade Practices Commission, Department of Justice, in Canada, and studies by the Federal Trade Commission do not substantiate the fears of loss-leader selling. These studies have indicated that there is very little real loss-leader selling being done. I, along with others, believe that this bill, if enacted, would increase prices on many products. For example, portable electric mixers have been selling around $15, but when fair trade was effective in many more States than today, they were selling for around $20. Today many of us are able to buy over-the-counter drug items and health and beauty products at prices considerably below their former fair trade prices, anywhere from 15 to 20 percent below. Should these prices be forced up by the passage of this bill? A study I made which was presented before the Subcommittee of the Committee on Commerce, U.S. Senate, 87th Congress, 2d session, on Senate Joint Resolution 159, "Hearings on Quality Stabilization, May 1962, presented detailed information on the potential cost to consumers of a Federal resale price maintenance law. The minimum projection was $1.5 billion and the maximum was $14 billion. The middle projection was $5 billion. Let me be the first to admit that these figures are nothing but educated estimates, and until more accurate figures are developed only estimates can be used, but in the testimony of the proponents of a Federal fair trade bill the impression is certainly given that many, many products need the protection of fair trade pricing, and that many retailers need this protection. If those proponents feel that these estimates are very far out of line then they would seem to be defeating their own arguments that fair trade is vital to the survival of small business and to the maintenance of quality products. In reality these figures may well be too conservative on a projected basis, because this bill would make fair-trade pricing applicable to all 50 States and the District of Columbia. This would encourage many manufacturers who have never fair traded their products to fair trade. In a period of possible inflation it is extremely questionable if a bill should be passed which has all the indications of inflating prices even more. For the past two summers and this summer, I have and will be working on a research project in which I am attempting to see what, if any, correlation exists between the number of retail stores, retail sales, retail failures in States with fair trade laws, States which have never had fair trade laws, and States in which the fair trade laws have been declared unconstitutional in whole or in part. The following empirical data have been developed to date. Unfortunately, this is just the first of the many areas where I hope to see what type of correlation, if any, exists. I would like to show now, if I may, a chart which has been developed on this subject. This is found at the end of my statement in appendix A. Looking at this chart, I think we see some rather interesting things. What I was trying to find out was, what is the difference, if any, between the number of retail stores in States with fair trade laws, the number of retail sales in States with fair trade laws, the percentage of 99-685-63-16 merchant bankruptcies in States with fair trade laws, in comparison to those which do not have fair trade laws. And because of the periods of time at which the census of business is taken, I have used those years in which the census of business was taken. So that means 1933, 1935, 1939, 1948, 1954, and 1958. The correlation in this chart, as I ran it through a calculator, amazed me. If we look at 1958, we find that the percentage of population in States with fair trade laws was 82 percent. The percentage of retail stores in States with fair trade laws was 82 percent. The percentage of retail sales in States with fair trade laws was 82 percent. The percentage of merchant bankruptcies in States with fair trade laws was 82 percent. We look at the non-fair-trade areas, and we find an identical correlation, 38 percent of the population in the non-fair-trade States, 38 percent of the retail stores in these States, 38 percent of the retail sales in these States, 38 percent of the merchant bankruptcies in these non-fair-trade States. In the 1954 census of business this same thing follows through. In 1948, the same thing. In 1939, the same thing. Now, this certainly is not an all-conclusive proof of the fact that it really doesn't make too much difference with regard to whether a fair trade law is in effect or not. This is a study of the total United States, what is the situation as you view it? I think I should point out, as my testimony does at the end, that the merchant bankruptcies were developed from the Federal Adminis trative Office, United States Courts. And this is not the only method of developing bankruptcies; this is one method. And this was one where we had good Government figures on voluntary and involuntary merchant bankruptcies. So as we look at this chart and look at these figures, we find that apparently it doesn't make any difference whether there is a fair trade law in a State or whether there isn't, because the population of the State seems to be the important factor in how many retail stores there are going to be. And to me, as I ran this through a calculator, it seems to be a very significant development, because I didn't know what was going to come out. And actually I was interested in what was coming out, but I had no idea what might come out. But these are the figures, the facts, and anyone can do the identical thing by looking at the Census of Business, and looking at the population estimates by the Census in the Department of Commerce, and looking at the administrative courts for their number of merchant bankruptcies, and then they would come up with the identical figures, which to me is a very strong case that apparently the total impact on total retail stores, total retail sales, merchant bankruptcies, was identical in your fair trade areas as your non-fair-trade areas. Certainly we realize that these figures are total figures, that does not break it down. This summer I am hoping to break it down more specifically by particular types of retail stores to see if a correlation continues to follow through here or not. As was stated earlier, price competition reduces prices for the consumer, but this bill would block this type of competition. The promotional type of competition which increases prices would continue. In a recent Pittsburgh court case evidence was admitted showing that trading stamps, equal to as much as 17 percent discount, were being given on fair trade products without legal action, but the manufacturer moved in to block the giving of cash discounts of any amount. In fact, the judge in this case said that it seems rather peculiar that a manufacturer with fair trade products would block a retailer from discounting it even 1 percent, but he wouldn't take action to block the giving away of trading stamps which at times would have a value of up to 17 percent. And exhibits were presented to show that this was the value of the trading stamps given on this company's products a number of times. The judge moved in this case, and gave a temporary injunction restraining the company from giving trading stamps on its products when it said that it wanted to enforce fair trade. In addition to that, as we pointed out before, the judge also made this company quit choosing its marketing area as it wanted to. The judge said this was a State court, and if it was going to fair trade, it had to fair trade at the same price in every area in the Commonwealth of Pennsylvania. And I think that the main point in that case was that the judge in his preliminary hearing said that Gillette was not selling in free and open competition, therefore, the product could not be fair traded in Pennsylvania. And that is still under litigation. That was a temporary injunction, and the final decision has not been rendered there, since the supreme court of the State now has under advisement a petition to rule the act in Pennsylvania unconstitutional. Evidence seems to indicate that resale price maintenance legislation and an effectively competitive system are incompatible. A choice must be made between an economy in which Government regulation becomes more important or an economy which is to be based upon the free enterprise system. The choice does not rest upon the acceptance nor rejection of resale price maintenance legislation, but the passage of such legislation is indicative of a trend away from a freely competitive economic system. I wish to thank the chairman for the opportunity to present this testimony today. I will be back to class tomorrow morning, and one of the subjects in the current economic problems class, as you might expect, is H.R. 3669. Thank you. Mr. DINGELL. It has been a privilege to have had you with us today, and as a personal friend, I am glad that you could be with us. The committee is indebted to you for your kindness and courtesy today. The next witness is Mr. William C. Mashaw. Mr. Mashaw, we are privileged to have you here today. STATEMENT OF WILLIAM G. MASHAW, NATIONAL RETAIL HARDWARE ASSOCIATION Mr. MASHAW. Mr. Chairman, in view of the fact that I have a prepared statement, and in deference to the time situation, and since many of the arguments in support of the proposed legislation that I now have to advance have already been advanced by prior witnesses, and covered to some extent in my prepared statement, I will not read |