but lesser, deficiencies in the bill that should not be overlooked, but which can receive only brief mention here, are the following:

1. The bill would protect all retailers from price competition regardless of need. Many retailers do not need to be sheltered from price competition.

2. The bill gives power to control resale prices to any brand owner, and not only those whose products may be "footballed."

3. The bill will tend to keep small many efficient ambitious retailers that are now small because price inducements are one of their principal methods of achieving growth.

4. The bill provides only relatively weak deterrents against bait advertising and similar misleading practices.

5. The bill would help most those who least require and deserve help-namely the manufacturers and retailers who already possess strong market power and who would employ the resale price maintenance privilege to implement their power over a wider sphere.

6. The bill favors retailers that possess wide assortments, prime locations, expensive fixtures, efficient materials handling equipment, etc.-in general, the large retailers. Other retailers lacking these advantages are nevertheless required to demand the same price from consumers.

7. The higher retail margins permitted by the bill would attract added retailing capacity. Consequently, whatever benefits the bill does offer small re tailers would turn out to be temporary and largely illusory.

OUTLINES OF A CONSTRUCTIVE PROGRAM

As I have mentioned before, the problem of predatory price cutting is a special one and should be dealt with specifically. One way to do this is to give some administrative agency the power to set temporary minimum prices upon establishment of proof that injury is taking place. The system might function as follows. Retailers or manufacturers suffering net losses on their total operations because of harmful price cutting would petition the agency and provide proof of this. It would then issue an immediate preliminary order setting minimum prices for a designated brief period. After a more thorough investigation into the price cutting, the preliminary order would either be confirmed or lifted. The final order would be binding only for a limited period of time. Specific criteria as to what is unfair, what amount of damage is sufficient to merit action, how floor prices are to be set, and how long the order can run should be provided in the bill establishing this administrative agency. Instances of bait or misleading advertising should also be subject to the same type of review. Penalties for violating the orders of the agency would be two:

1. Against predatory price cutting, the manufacturer would be given the right to withdraw his line from retailers who do not comply with the price order.

2. Against bait or misleading advertising, the same penalty for noncompliance would apply. In addition, because of the premeditated nature of this abuse, severe penalties in the form of fines--for those employing these tactics are required. Injured consumers should also be permitted to bring action against this type of retailer and perhaps obtain a portion of the fine. This type of program would go far to eliminate the specific abuses of which proponents of the present bill complain. This approach should also protect the retailer, while at the same time protecting the consumer.

The small businessman faces other problems that are at least as important as those involving unfair competition. To help him, Congress must take action to overcome these problems as well. The small retailer has himself discovered one important way by which these problems can be overcome. This is by forming voluntary chains or co-ops. These co-ops, such as Certified Grocers in California, Super Valu in the Midwest, and Shop Rite in New Jersey, provide their members with many important services. Their members are able to buy as cheaply as large chains; they are helped in finding new locations and money for expansion and modernization; they are supplied with management aids which help them to price intelligently, keep adequate records, and operate more efficiently. They often run common advertisements, making their advertising dollars go almost as far as do those of the chains.

The co-op, or voluntary chain, is proving successful in other lines. is a successful co-op owned by appliance retailers.

MARTA

Its members, in 1960, were

able to earn 11⁄2 to 2 percent net profit against the average profit of 0.02 percent in that line because of combined buying power, more efficient operations, and other similar benefits. Druggists, too, have in many instances banded together to enjoy the advantages of cooperative buying and advertising.

This route could help many more small independent retailers if the Government would actively assist the development of co-ops and voluntary chains, especially by helping them to obtain capital at low rates. They could use this capital to establish the facilities necessary for their operations and to make loans to members for expansion or modernization purposes. The Puerto Rican government already has a program of this type.

The Government can also help small independent retailers by providing them with opportunities to obtain training in retailing methods so that they can learn to operate more efficiently. The Government already does some of this, but present efforts are not enough. The people who take advantage of them frequently are the ones who need them least. Methods must be devised to help those who are kept from obtaining assistance out of fear of admitting their lack of knowledge, or by other reasons.

If a positive program is developed that increases efficiency of small retail businesses and the small retailers are protected against unfair competitive methods, then we will have found an enduring solution for the biggest problem facing them.

WHICH SOLUTION IS BEST?

There thus are two ways to keep the small retailer in business: One is put an umbrella over him, protecting him from most price competition; this is the approach used in the quality stabilization bill. The other is to provide a floor for prices in those isolated cases when needed, accompanied by the necessary help to enable the retailer to operate efficiently.

Earlier in my testimony, I have indicated what are some of the present trends and important characteristics of our distribution system. Since the quality stabilization bill would, if enacted, undermine the competitive presures which mold our distribution system and would change its basic character by dampening price competition, we may expect new development including—

1. Generally higher prices.

2. Slower development of efficient new forms of retailing since new retailers are hampered in using price appeal to gain consumer acceptance. 3. Turnover among retailers would abate somewhat for awhile since "sick" retailers would be shielded against direct price competition.

4. An inflow of additional numbers of retailers into the sheltered trades, adding to facilities that are already excessive and ultimately increasing failure rates in retailing.

5. Much more nonprice competition on the retail level-advertising, drawings, door prizes, etc.

6. Unproductive expenditure of large sums to police price maintenance. 7. Growth in importance of private brands.

8. Slower growth of output for higher prices reduce purchases which means that less will be produced and employment will shrink.

Under a selective, positive program along the lines that I have outlined, we may expect, to retain the benefits of the present system and to gain certain new ones from the elimination of unfair competition and from the strengthening of small retailers. Among the gains would be-

1. Generally lower prices;

2. Continuing development of more efficient forms of retailing;

3. Order and stability in retailing with healthy, well-operated retail stores; and

4. An economy operating at a higher level of efficiency and producing more output.

The decision of the committee on this bill will help determine the future shape of the entire economy. It must, therefore, weigh carefully the bill's long-range implications. When it does so, I am sure it will reject the quality stabilization bill in favor of a constructive program that matches remedies against abuses— one that does not undermine important types of competitive pressure in order to eliminate isolated forms of predatory price cutting.

99-685-63- -20

APPENDIX

(Publications of Alfred R. Oxenfeldt, Ph. D.)

BOOKS

"New Firms and Free Enterprise," American Council on Public Affairs, 1943. "Industrial Pricing and Market Practices," Prentice-Hall, 1951.

"Economic Systems in Action," Rinehart & Co., 1952.

"Economics for the Citizen," Rinehart & Co., 1953.

"Make or Buy: Factors in Executive Decision," McGraw-Hill, 1956, in collabora tion with M. W. Watkins.

"Economic Principles and Public Issues," Rinehart & Co., 1959.

"Pricing for Marketing Executives," Wadsworth, 1961.

"Insights Into Pricing Derived From Operations Research and Behavioral Science," Wadsworth, 1961 (with others).

FORTHCOMING BOOKS (TENTATIVE TITLES)

"Models of Markets," Columbia University Press.

"Behind the Scenes of TV Set Marketing," Columbia University Press.

ARTICLES

"Monopoly Dissolution: A Proposal Outlined," American Economic Review, June 1946. "Businessman's Information About Profitability of Local Enterprises," in collaboration with Gertrude Oxenfeldt, Journal of Political Economy, June 1948. "Guaranteed Annual Wage," Review of Economics and Statistics.

"Consumer Knowledge: Its Measurement and Extent," Review of Economics. "Determinants of Business Success in a Small Western City," Social Forces, December 1951; in collaboration with Gertrude Oxenfeldt.

"Professor Markham on Price Leadership: Some Unanswered Questions,” American Economic Review, June 1952.

"Valuation of Untraded and Closely Held Securities," The Analyst Journal, August 1953.

"Unemployment in Planned and Capitalist Economies," the Quarterly Journal of Economics, February 1954, in collaboration with Ernest Van Den Haag. "What the Gift Market Revolution Means," National Jeweler, January 1956. "Advertising's Role in the Pricing Crisis," Tide, August 23, 1957. "Pricing in a Declining Market," Marketing's Role in Scientific Management edited by Clewett. New York: American Marketing Association, 1957. "Pricing New Products," Establishing a New Product Program. American Management Association Report No. 8 1958, pages 17-29.

"Cyclical Implications of Private Pricing Policies, the Relationship of Prices to Economic Stability and Growth," the Joint Economic Committee, 85th Congress, 2d session, March 31, 1958.

"The Effect of Price Changes During Recession," Purchasing Magazine, June 9, 1958.

"How to Use Market Share Measurements," Harvard Business Review, JanuaryFebruary 1959.

With Abraham Shuchman, "How to Measure and Improve Your Company's Selling Efficiency," American Management Association, February 1959. "The Marketing Audit as a Total Evaluation Program,” in Analyzing and Improving Marketing Performance, June 1959.

"What the Designer Should Do About Product Pricing," Product Engineering, March 7, 1960.

"Multi-stage Approach to Pricing," Harvard Business Review, July-August 1960. "The Retailing Revolution: Why and Whither," Journal of Retailing, fall 1960. "Scientific Marketing: Ideal and Ordeal," Harvard Business Review, MarchApril 1961.

"Approaches to Pricing: Economist versus Accountant," Business Horizons, winter 1961.

"An Analysis of Present Product Pricing," Marketing Series, No. 98, of American Management Association.

"The Special Nature of New Product Pricing," in Developing a Product Strategy, publication of the American Management Association.

"Pricing New Products," management report No. 8, Establishing a New-Product Program, of the American Management Association.

"Can the Small Tobacco Dealer Meet Large Store Competition?" Journal of Retailing, summer 1961.

"Innovation and Public Utility Regulation," Public Utilities Fortnightly, May 24, 1962.

CONTRIBUTIONS TO EDITED VOLUMES

"The Dynamic Element in Consumption: The TV Industry," in Consumer Behavior, edited by Lincoln Clark. Harper & Bros., 1958. "Advertising's Role in the Pricing Crisis," in Managerial Marketing: Perspective and Viewpoints, edited by E. J. Kelly and William Lazer, R. D. Irwin, 1958. "Pricing Principle for Small Business," Management for the Smaller Company, edited by Elizabeth Marting, 1960. Published by American Management Association. "What Is Involved in the Composition of a Marketing Mix?" including in Mangerial Marketing, Kelly & Lazer (editors). R. D. Irwin, 1962. "The Formulation of Market Strategy," in Kelly and Lazer. "How Will Existing Market Models Meet the Needs of Businessmen?" paper presented to Arden House Conference on Assessing the Market Models of Price Theory, April 1962, and to be reprinted in forthcoming volume to be edited by

me.

Mr. DINGELL. Mr. Walter Foulkrod? You are welcome. You may testify to the committee on the bill if you so desire. Do you have a prepared statement?

STATEMENT OF S. WALTER FOULKROD, JR., EXECUTIVE DIRECTOR AND COUNSEL, COUNCIL FOR ETHICAL TRADE PRACTICES

Mr. FOULKROD. Mr. Chairman, I do have a prepared statement. I would like to submit it for the record and then make comments in addition to the prepared statement which will be very brief.

My name is S. Walter Foulkrod, Jr., from Philadelphia, Pa. I am an attorney at law and my office is located in Philadelphia.

It is my privilege to be executive director and counsel for the Council for Ethical Trade Practices on whose behalf I appear and offer for the record the prepared statement and these additional comments.

The Council for Ethical Trade Practices is a nonprofit corporation. dedicated to the advancement of ethical trade practices. The membership consists of retail trade organizations whose members are engaged in retail trade. All members of the constituent organizations of the Council for Ethical Trade Practices are small businessmen.

I would like the committee to know that there was with me yesterday and the day before Mr. Philip Seltzer, president of the Council for Ethical Trade Practices, as well as Mr. Sydney Abrams, the vice president, and Mr. Alan Vogenberg, the immediate past president of the council.

Now, Mr. Chairman, I would like to give you an incident from my personal experience as a lawyer involving an actual case, and in order to reveal to the committee the facts of this case, I would like to substitute names rather than reveal the name of the client or reveal the name of the person with whom he did business.

I have a neighbor who is 70 years of age. He is a friend and he is a client, Ed Wilson. He needed a new power mower. He meticulously took care of over a half acre of lawn. He was proud of it but he was no longer able to push a hand mower.

He saw advertised by a Philapelphia discount house a Toro power mower for $99.50. He could afford that price for a Toro power mower and he went to the discount house. He asked for the Toro mower and he was told that they were sold out, and then there was exhibited to him another mower called Cleancut and the salesman said, "We can sell you this mower for $99.95. It is just as good as the Toro.'

Eddie Wilson bought the power mower and took it home. He had difficulty in starting the motor and when he began to cut his grass he discovered that the revolving blades did not touch the main cutting blade and it would not cut grass. He then took it to a nearby mechanie who specializes in the servicing and repair of power mowers. He was told of its condition, and he said, "But the mower blades need sharpening." He went back the next day and he was told by the mechanic that there is no use in sharpening these blades. The blades are made of soft metal.

As a matter of fact, we think that you ought to cast this one aside and buy another one. This is shoddy workmanship and this is shoddy material.

I believe, sir, that when Eddie Wilson went into this discount house in Philadelphia he was the victim of bait merchandising. He was sold something, possibly because of his own gullibility, which was trash. It was made outside of the United States and, of course, by foreign labor. And the profit on that item for which he paid $99.95 was a greater profit to the discount dealer than had he sold a Toro power mower for Toro's price of $139.95.

Now, I simply want to point out to the committee what happened as a result of this bait merchandising when my friend and neighbor and client, Eddie Wilson, bought an unknown brand. It affected in the first place one of America's producers of quality merchandise. Here was a sale lost to a segment of American industry. Here was a sale gained by an unconscionable manufacturer fabricating power mowers in Japan, exporting them for sale to gullible consumers in the United States.

Now, the effect of that transaction and that sale upon Toro is this. It could be that Toro will have to meet that kind of competition. It could be that Toro will be required to reduce the price at retail of its power mower; in order to reduce it, they will have to cheapen it. They will have to cheapen it in its materials. They will have to cheapen it with regard to the skillful labor that formerly went into the manufacture of it. And witnesses have been asked why is this bill called quality stabilization? And I think here is the reason why it ought to be called quality stabilization because it will stabilize the quality of not only Toro power mowers but the products of America's best quality producers. Then what else happened as a result of this sale of the Japanese Cleancut power mower? If Toro should be required in the future to reduce the quality of its mower, what effect will this have upon the labor that produces Toro power mowers? I think the answer to that is obvious. Toro will employ cheaper labor, fewer laborers, because they will not need the expert skillful labor force in such quantity to produce a cheaper mower, and therefore, Mr. Chairman, I would urge that this kind of malicious practice be abolished because it is bait merchandising, or at best it is the use of a loss leader.