to raise this specter. The fact is, however, that Congress should enact effective legislation, or none at all. The States rights amendment would, in effect, leave the present deplorable legal situation unchanged.

Another matter that is of special interest concerns the relationship of this proposed quality stabilization law to price fixing. At this time, price fixing. as an antitrust epithet, has great potency-similar in impact to a charge of communism during an election campaign. It is also a term of many meanings. To a businessman price fixing may signify the bargaining about terms of sale, between a buyer and a seller. To an antitrust lawyer, price fixing is a term of art, with a much narrower and more technical significance.

Price fixing, as originally employed in an antitrust sense was limited to an interbrand or competitive product situation whereby ostensibly competitive producers were, by acting in concert, availing themselves of monopoly power over prices. By expanding the scope of this classic definition of price fixing to include intrabrand competition-competition among sellers of the same branded product-the opponents then employ their price-fixing epithet.

It was conceded by the Assistant Attorney General in charge of the Antitrust Division, during his oral testimony against the quality stabilization bill, that "price fixing is essentially an epithet, and I suppose the witnesses who have been reluctant to admit the term have been correct in saying you simply should not use names of this sort."

It is not only the emotional and propagandistic nature of the charge of price fixing that causes the difficulty. More to the point is that the term is simply inadequate as an analytical tool.

Judge Loevinger then defends his price-fixing charge on the basis that vertical resale price maintenance practices help to maintain horizontal pricefixing conspiracies. One answer to this is "so does the telephone." Should we outlaw the use of the telephone?

A better answer perhaps is that despite years of experience in antitrust enforcement in fair trade States, Government antitrust investigations and litigated cases simply have not established such a pattern. When the Government attacks a manufacturer's fair trade policy, such a case seldom, if ever. ripens into one involving a horizontal conspiracy. Any fair-minded student of antitrust will acknowledge that such cases are distributive cases only, involving the distribution system of one producer. This was true in Dr. Miles, Parke-Davis, McKesson-Robbins, and Snap-On-Tool, to name but a few.

The Department of Justice treatment of the State court decisions passing on the constitutionality of State fair trade legislation also leaves much to be desired. There can be no doubt that the great commercial States such as New York, Massachusetts, Pennsylvania, New Jersey, Illinois, California-with but one or two exceptions have approved the social policy embodied in fair trade legislative enactment, and despite Mr. Loevinger's contention, the Supreme Court's opinion in the Old Dearborn case unanimously approved fair trade on its merits. This is vital to this committee's study of the matter, for the reason that the present legislative proposal is, in essence, a codification of that unanimous Supreme Court decision.

It has been more than 70 years since our basic antitrust statute--the Sherman Act was enacted. The policy of protecting free enterprise against its own excesses that underlies the Sherman Act has been supplemented by hundreds of additional statutes, administrative decisions, and judge-made case law. Today, because of the confused and conflicting state of the law, anything a businessman does in the conduct of his business affairs is capable of being challenged as an antitrust violation.

For example, under the label "reciprocity," antitrust specialists are today questioning the right of a businessman to purchase a product made by a customer. Tomorrow, it may be illegal per se for a seller to buy anything from a former customer. So if you're a butcher and you sell a steak to a barber, you had better get your hair cut elsewhere.

Extreme and absurd? Yes, but give it an ominous name "reciprocity”— foreclosing a market to competitors-and designate it as an antitrust crime. and we're ready to go to court.

The unplanned growth of antitrust law and its enforcement has been accompanied by several phenomena:

1. Basic decisions relating to economic policy-whether or not a particular business practice should be outlawed-more often than not are made by judges and administrators, based on academic and often obsolete economic theories, and

with but slight recourse to the realities of the marketplace. A current example of this is the present controversy between the Department of Justice and the Federal Trade Commission over whether cooperative advertising by a group of retailers constitutes price fixing under the antitrust laws. Thus the process of lawmaking itself is in the hands of the enforcement agencies. It is still most unusual in other areas of social control to have the police force function as a major participant in the purely legislative process.

2. The development of an a priori school of economic value judgments. The economic "party line" of antitrust law was given its greatest stimulus during the great depression of the 1930's, to which the influential liberal minds of that era contributed heavily. This body of uncritically accepted economic dogma, fashionable in antitrust circles, is a mixture of express rules and unstated prejudices. In the former category are rules such as "price fixing is per se illegal," and "any discrmination between buyers is to be discouraged." As examples of the tacit or unstated content of antitrust economic dogma are: "Bigness itself is bad, or at least suspect, while smallness of size is good, desirable." Also: "Businessmen generally spend much of their time contriving new ways to violate the antirtrust laws with impunity."

It is not the purpose of this statement to attempt to appraise the validity or otherwise of these fixed beliefs in the beneficial workings of our economy. It is important to note, however, that when a Supreme Court opinion is consistent with this school of economic thought, it is enshrined. The 1911 Dr. Miles case is an outstanding example of this process. Although it was a 5 to 4 decision, and contains a brilliant dissent by Judge Oliver Wendell Holmes, the majority decision is now accepted by antitrusters as a fixed and unalterable point of reference in the economic firmament.

Contrast this to the treatment and respect afforded the 1936 Old Dearborn case, a unanimous decision by the Supreme Court that approved of resale price maintenance on its merits. There is no question that Dr. Miles and Old Dearborn are wholly irreconcilable in their treatment of the economics of resale price maintenance. In the 1911 Dr. Miles case, five justices thought that resale price maintenance was undesirable as a matter of basic antitrust policy. Four justices disagreed, led by Mr. Justice Holmes. A quarter of a century later in the Old Dearborn case, all eight justices participating in the case found price maintenance to be entirely consistent with the public good. Thus out of 17 justices participating in these two cases, 12 voted in favor, 5 voted against. Yet antitrusters today enshrine as settled law the decision of the 5, and ignore the advice of the 12. Yes, antitrust has its perplexities and surprises.

I do not believe that Congress is completely aware of the extent to which its power to make antitrust policy has been eroded. Economic policy in this delicate area is now more frequently made by the courts of the Nation and in the offices of the Department of Justice and the Federal Trade Commission. I would suggest that Congress not only has the power, but an affirmative obligation to declare as law that which it finds socially and economically desirable. Congress should not be blinded or confused by epithets, or by false concepts based on unstated and untested assumptions.

For many years our national policy in respect to the law of distributionintraband distribution-has been changing. Both the Department of Justice and the Federal Trade Commission have been moving on a case-by-case basis, persuading courts—always on theoretical grounds—to outlaw business practices that have been held perfectly valid and above reproach by former generations. One lurid example of the judicial-executive encroachment on the area of congressional power and responsibility is found in the Parke-Davis case. The Supreme Court is now split on the question as to whether a seller can select his own customers. At least one Federal court of appeals, after Parke-Davis, has issued an injunction against the seller compelling that seller to deal with a particular buyer.

It is self-evident that the freedom to deal with customers of your own choosing is basic to private capitalism and a free enterprise society. Yet the tempering with and limitation of the right of customer selection by executive-judicial action goes almost unnoticed by Congress.

It is respectfully submitted that the experiences of affected businessmen who are parties in interest to this legislation and who have made their views known to this committee are more persuasive as to the merits of the quality stabilization bill than the abstract theorizing of government spokesmen who are charged only with enforcing the law, and not making policy.

1

SUPPLEMENTAL STATEMENT OF DR. JAMES F. BENDER AND DR. DAVID H. ARBEIT1 OF ADELPHI COLLEGE, GARDEN CITY, LONG ISLAND ON BEHALF OF NATIONAL SMALL BUSINESS ASSOCIATION IN SUPPORT OF H.R. 3669

The following material aims to cover some areas that the hearings to some degree neglected. It will, however, be impossible to skirt around everything that has been stated at the hearings. It seems to us that most of the proponents of the measure shied away from defending it on the grounds that it is very beneficial to the consumer. This apparently is the prime interest of the legislators. Time and again Congressman Dingell seemed to be trying to pinpoint the quality stabilization proposal as a price-fixing device and hence anticonsumer. I think we can make a strong case for the fact that the consumer's position will be considerably improved by the legislation.

Those who feel that this is anticonsumer legislation make certain assumptions about the consumer that had much more validity in the 1930's than they do today. It is incorrect to view the consumer in 1963 as an uninformed low-incomed, helpless economic little man. The consumer is much more sophisticated and economically wise today. He has a much higher real income; he is much more concerned with quality than with price competition that is accompanied with quality deterioration. In the 1960's with an average family income of approximately $6,500 per year the consumer is most concerned with getting better quality merchandise at fair price. The consumer wants the security of knowing that when he is paying fair prices he will get standard quality merchandise. He does not want to be lured by bait advertising stressing unusually low prices for quality branded merchandise. He knows that after the handful of items of top branded but offbeat size, color and style, is exhausted, he is redirected toward nonbranded inferior quality goods. Certainly when the consumer pays the advertised price for substandard merchandise, he is overpaying to a far greater degree than anyone might conceivably have to overpay under the quality stabilization bill.

Authorities in the consumer economic field are convinced that the consumer is very much interested in nonprice competition that stresses quality, service, information, warranties, delivery and credit. They no longer stress price cutting as much as they did during the depression of the 1930's. Under the quality stabilization bill the consumer will be assured that in most lines of merchandise there will be ample supply that is fairly priced and of excellent quality. The middle-incomed consumer is willing to pay a little extra for quality goods. He does not want the cheap, shoddy, inferior, nonstandardized blind merchandise of cutthroating promoters. The consumer is moving toward quality standards and away from price cutting, which is more of a quantity standard. The consumer is facing the economic facts of life. He cannot get something for nothing, he cannot beat the giant merchandiser and some of his unfortunate marketing tactics, bait advertising, sales gimmicks etc.

The consumer has to be convinced that maintenance of a stabilized price is not at all synonymous with monopoly pricing. The monopolist or oligopolist tends to set his pricing at a point where he will receive the maximum net profits. Under this bill, manufacturers of quality stabilized merchandise will have to compete with other such manufacturers and with those who make nonbranded merchandise. Under these circumstances the manufacturer of quality stabilized goods cannot set his price too high or people will turn to another merchandise. At best, his markup wil include a fair profit, not a maximum one.

In summary it might be stated that most consumers favor the elimination of bait advertising and misrepresentation features of the quality stabilization

1 Dr. James F. Bender, professor of marketing and director of graduate business studies at Adelphi College (Garden City, N.Y.), received his B.S. and Ph. D. degrees from Columbia University. Prior to his affiliation with Adelphi College, he was dean of Kimberly-Clark Corp.'s institute of marketing. He is a member of the American Marketing Association, the American Association for the Advancement of Science and many other scholarly societies. Dr. Bender is retained as a marketing and sales consultant by small as well as large business. His biography is listed in Who's Who in America and similar reference works. He is the author of a number of books and has published more than 500 articles in scholarly and trade journals.

Dr. David H. Arbeit, B.S., City College of New York; M.A.: Columbia University: Ph. D.: New York University. Teaching: City College of New York, New York University. Hofstra. C. W. Post, and Adelphi College. Taught in the area of business management. with emphasis on small business management, finance, and economics. Writings and lectures: Economic analysis of the postwar national debt, and evaluation of guaranteed annual wages; lectured on business, banking, financial topics to various business organizations and educational groups.

bill. The vertical price maintenance aspect of the measure will also be supported by the consumer when he recognizes that the prices he pays will only be fair ones and that in return he will receive guaranteed quality, superior service, extra convenience, and that he buttresses the economic power of the small local retailer and manufacturer who are nearby and conveniently at his service.

The quality stabilization bill can be defended by considering its very favorable impact on the businessmen of our economy. The overriding consideration is that the smaller businessman retailer as well as manufacturer is enabled to survive and effectively compete with the many large economic institutions that are characteristic and necessary within the framework of our economy. The manufacturer under the quality stabilization bill is primarily concerned with getting the best possible products at the lowest profitable price to the consumer. In this way maximum quantity may be sold and total profits enlarged. The manufacturer cannot set his price too high because he does not wish to price his article out of the market in order to subsidize wholesalers and retailers unduly. The manufacturer under the quality stabilization bill competes against nonbranded articles, against other manufacturers' brands, against private brands of chainstores and the like. He knows that overpricing or quality deterioration on his part will lead to his own economic demise.

This self-conscious appraisal by the manufacturer under the quality stabilization bill contrasts with the unscrupulous practices of certain ruthless, giant merchandisers whose tactics drive about 150,000 retailers and small manufacturers out of business every year. This prevails during a period that economists characterize as prosperity. Under the onslaught of the price-cutting tactics of discounters, ethical wholesalers and retailers frequently give up the line and occasionally go out of business. Now the discounters dominate the manufacturers and they dictate lowering of quality because they want lower prices. Under these circumstances, quality deterioration is highly elastic in relationship to price decline. A small percentage decline in prices induced by the discounter cause the manufacturer to reduce quality by even a larger percentage.

An assured market at stabilized prices enables the manufacturer to regularize his production and achieve a relatively low cost of production per unit. The manufacturer can, under these circumstances pass on in part the savings of his efficiency to the retailer and the consumer. Is he likely to do so?

Under this measure there will be sufficient competition engendered from off brands and other areas to indicate an affirmative answer to this question. This bill specifically encourages competition between products by prohibiting a monopolist or oligopolist from putting his article under fair stabilization. Competitive products must be available before a manufacturer may avail himself of quality stabilization. The businessman who attempts to practice cutthroating under this law is not necessarily destroyed. He may change his tactics. Не may return the merchandise to the manufacturer at invoice prices. He may sell them as he wishes with due notation that his continued right to sell these goods has been revoked.

This bill will not drive businessmen out of business but will encourage them to continue under more orderly marketing procedures. The quality stabilization bill will help the small retailer survive.. At present the small retailer's share of the volume of business is declining in the face of the aggressive merchandising and marketing policies of discount houses, department stores, and chainstores. The small businessman is caught in a price squeeze today that is on the one hand induced by rigidities, e.g., wages, rent, interest; and on the other hand, but cutthroating prices. As the noose tightens, hundreds of thousands of small independent retailers and manufacturers are eliminated annually. The decline of the independent retailer would be a serious loss to our economy. The bill fosters fair competition between the small unit retailer and the giants in branded merchandise only. The chainstores cannot undersell the unit store. The consumer will be assured of the same quality and price anywhere he buys. The consumer may then fully appreciate the convenience and service of the independent retailer and proceed to patronize him. The importance of the survival of the local businessman may also be buttressed by sociological considerations when one stops to think that today he is the leader in community chests, Red Cross drives, scouting, etc.

This bill has much to recommend it from a quasi-legal economic point of view. It should be stressed that every aspect of coverage under this bill is on a voluntary basis. The manufacturer, wholesaler, retailer may-not must-come under the quality stabilization proposal. It is true, however, that once these institu

tions accept coverage under the bill certain definite responsibilities become theirs. For example, the manufacturer owes a responsibility to the reseller to ferret out those who are misleading, misrepresenting, and are using bait and switch merchandise tactics. The manufacturer must stop these resellers, otherwise a cooperative reseller may break the agreement without any consequences. The wholesaler and retailer have an obligation to the manufacturer in that they must not abuse the manufacturer's property right and his trademark by misrenresenting, by bait advertising, and by price cutting.

This bill compels the cooperative distributor to recognize the manufacturer's existing property rights in his trademark. Behind that trademark is the understanding that the manufacturer has put in a tremendous investment in maintaining quality. Intense bait advertising, loss leaders, and misrepresentation can irreparably damage a quality product's reputation in short order. The good will that a manufacturer may have built up over a generation may be destroyed in a season by such activity. This bill puts a premium on the recognition of the mutuality of interest between the manufacturer, wholesaler, retailer, and consumer. This approach we feel is a very profitable line along which total support for the bill should be found. We might even add the interest of the worker into this harmonious companionship. Manufacturers of quality stabilization items can pay decent wages, accept the responsibility and the cost of collective bargaining without the feeling that they will be destroyed by labor's demands.

There are those who argue that the Federal Trade Commission already has the power to curb misrepresentation, bait advertising, etc. It is apparent, however, to those who explore the morass of marketing misadventures in practice today that the Federal Trade Commission's ability to curb such practices has apparently been subverted. The giant quasi-monopolistic outlets seem to continue their predatory sales promotions with impunity. The new legislation will therefore strengthen the Federal Trade Commission in its attempt to enforce prohibition of unfair methods of competition. It will not add to existing governmentalism; it will not involve another Government agency, it will merely involve a time-honored private judicial remedy.

In addition to cease and desist orders of the Federal Trade Commission which have not been notably successful in curbing misleading advertising and decep tive practices in the resale of goods, manufacturers under the quality stabilization proposal will have the right to institute civil suits against dishonest sellers of branded merchandise. This would be a form of effective industrial self-policing which many believe to be more desirable than increasing governmental regulation.

Private remedial action by manufacturers of branded articles need not be antithetical to Federal Trade Commission action. Too frequently the FTC and the Antitrust Division of the Department of Justice have complained that they have not had enough men and money allocated by Congress to do an effective job. Manufacturers' remedial action can complement Federal Trade action. This bill can be another deterrent to the unscrupulous reseller to beware of bait advertising and deceptive selling practices, because the total dollar liability of his predatory actions may far exceed the illicit profit he hopes to garner. This type of risk calculation is readily understood by the cutthroater and the bait advertiser.

At the present time, in addition to antitrust and Federal Trade Commission action, misrepresentation is being handled by private agencies called better business bureaus. They have been fairly successful in handling fraud in specific instances. They are ineffectual, however, in handling widespread national bait advertising, loss leaders, and misrepresentations that are intended to deceive the general public. Under this law when these are committed by a reseller of a quality brand article, the manufacturer may revoke the reseller's right to continue to market this product, and to use the brand trademark. In addition, he may sue the reseller for damages or injuctive relief. Under this law, the relief will come much sooner than under the quasi-judicial, procedure of the Federal Trade Commission which involves investigation, complaint, cease and desist order, and judicial review. It may take as many as 5 years before the total procedures of the Federal Trade Commission are completed, and in the meantime the predatory tactics go on relentlessly. This bill would enforce the aim and intent of Congress more efficiently than is done at the present time.