Whatever may be said of discount houses as such, they have curbed inflationary prices and afforded the forgotten man, the consumer, the opportunity of purchasing his needs at lower prices. They have also helped relieve manufacturers of surplus stocks. To those who look askance at discount houses as price cutters, I would point out that price cutting is simply good, old-fashioned free enterprise, so long as it is not predatory. Since when, may I ask, has price competition become "unethical"? Most new types of retailing, including the department store, the mail order firm, and the supermarket, have started as price cutters. Therein lies their appeal to the public. The widespread popularity of discount houses, supermarkets, and department stores today shows that the public-your constituents and mine-is vitally interested in the savings to be achieved through price competition.

Last year, the National Appliance & Radio-TV Dealers' Association went on record as favoring this legislation. It is interesting to observe, therefore, a statement made by the president of that association in 1956:

The discount house ** came into being as a counterbalance to distorted retail margins. These margins weren't distorted until we came into volume retailing. The discount house was a natural development, and when you hear a dealer talking about his "rights" he's on his way out, because he hasn't any rights.

And how did the small businessman accept this fair trade bonanza? Well, many fought it and are continuing to fight it. Thus Mead Johnson & Co., in a 3-month period in 1961, brought over 100 fair trade suits. These small businessmen wanted, presumably they still want, to sell at a price which leaves them with a profit and also leaves the consumer with more money to make additional purchases. Parke, Davis not long ago sent out more than 200 warning letters in the New York area and started 123 suits. Yet in a recent case it was shown that in at least 100 instances 89 retailers had refused to be bound by Parke, Davis' fair trade prices.

Out of this natural desire to compete has spouted a veritable torrent of litigation. One has to go back to prohibition days for a comparable number of lawsuits brought to enforce legislation so justly unpopular. To greatly augmented legal staffs of the large manufacturers engaged in policing their resale prices there have been added commercial spies euphemistically called professional shoppers. And the cost of all this is borne, as always, by the consumer. Thus, in 1955, one company is reported to have announced it would spend $750,000 to enforce fair trade in just one of its departments. Sunbeam is reputed to have spent $1 million a year for such purpose.

And who have been the primary instigators of fair trade lawsuits? They have been drug manufacturers recently shown in the hearings of the Senate Antitrust and Monopoly Subcommittee and of the House

4 Compare Wall Street Journal, Mar. 21, 1963. p. 2: "We have shoppers shopping all our dealers to see if they are selling below the agreed limit,' says one distributor.' See also Mead Johnson & C. v. G-E-X Inc., of Albany (N.Y. Sup. Ct., Albany County) 1963 Trade Cases, par. 70.688: "The evidence clearly shows frequent inspection by representatives of plaintiff of the stores of retailers to ascertain if its minimum prices are maintained; if a violation is found it s promptly reported to hgher authority of plaintiff, which sends letters to the offenders, to cease and desist; if such letters do not produce compliance, the matter is referred to local counsel, who employ a private detective agency to shop the offending retailer's store, and if the violation is found to be continuing, actions for injunctions are promptly instituted."

Antitrust Subcommittee to have garnered extortionate profits in many instances. As Senator Kefauver pointed out the other day:

In the ethical drug industry, the rate of return on investment, after taxes, is higher than that of any other industry. Since 1957 it has averaged around 20 percent as compared with 10 percent for all manufacturing. The net profit on sales has also averaged about double that for all manufacturing."

Nevertheless we find Parke, Davis & Co., suing a drugstore in New York City because a professional shopper purchased MYADEC vitamin capsules for $5.75 whereas the fair trade price was 9.67, and ABDEC vitamin preparation drops for $2.65 whereas the fair trade. price was $3.51. Parke, Davis & Co. in 1958 had a 16 percent net profit on drug sales. This case illustrates what the consumer loses by fair trade, the harassment of small business under fair trade, and the unconscionable profiteering which fair trade protects.

The fair trade cases in which an opinion is published are collated in the annual volumes of the Trade Cases series of the Commerce Clearing House. I had my staff review the fair trade cases in the bound volumes of that series covering 1960 through 1962. In most such cases the fair trade violator, by any test, would be considered a small businessman. To mention some of them:

California: John F. Walker, a liquor dealer.

Illinois: Topps of Niles, Inc., and Darby Sales Co.
Minnesota: Playtime Sporting Goods, Inc.

New Hampshire: Max Dichter Co., Inc., operating a retail store in Manchester, N.H., and Man-Bur Sales, Inc., operating the hardware department in the store.

Louisiana: Robinson Wholesale Co., a partnership composed of Robinson, his wife and brother-in-law. Among those alleged to have sold Bulova watches at less than "fair" trade prices were Daniels Jewelry Store, Davidsons Furniture Store, and Sales Jewelry Store. Ohio: Norwood Vitamin & Cosmetic Distributors, Inc.

New York: Janel Sales Corp.; Berner's Pharmacy Corp.: Mr. Less: Mr. Falleta; and the Courtesy Drug Store in Hicksville, N.Y.

Pennsylvania: Wright Motor Sales Co., a gasoline dealer, and Mr. Kostak, another gasoline dealer.

Proponents of the bill assert that the retailer who wants to set his own prices is free to do so by turning to the products of a nonprice fixer. But the very purpose of this bill is to promote price fixing on the part of national advertisers, and the realities of business practice make it impossible for a retailer to shift readily from a nationally advertised fair trade product to a nonnationally advertised, nonfair trade product. Moreover this bill will prevent price competition by grocers, hardware store owners, or druggists who must, as a practical matter, carry a wide selection of similar goods of different manufac

ture.

Proponents of this kind of legislation shift from arguing that it is necessary to protect the brand name of the manufacturer to urging that it is necessary to keep the retailer in business. The short answer to the first claim is that many brand names continue to be held in high

5109 Congressional Record 5614 (Apr. 9, 1963).

Last year this company announced it was no longer going to limits its sales to those observing its suggested prices. The president of Parke, Davis & Co. stated that the company's products would be placed on sale where people were buying them.

repute despite the absence of any attempt to use resale price maintenance for such purposes. The shorter answer to the second is that the retailer in fair trade States has not been shown to have fared any better than the retailer in the nonfair trade State.

There has been a great deal of loose talk about how the loss of fair trade protection would cause the failure of countless businessmen. Let us examine the failure rate per 10,000 concerns in States without fair trade acts:

1 Final report of House Select Committee on Small Business, 86th Cong., 2d sess., p. 17. 2 Administrative office of the U.S. courts, tables of bankruptcy statistics, June 30, 1961, table F3, and June 30, 1962, table F3.

Now, let us take some comparable fair trade States:

1 Final report of House Select Committee on Small Business, 86th Cong., 2d sess., p. 17. Administrative Office of the U.S. Courts, tables of bankruptcy statistics, June 30, 1961, table F3, and June 30, 1962, table F3.

Now let us see the situation in some of the States which had the whole, or the nonsigner provision, of their fair trade law invalidated, 1956-58:

1 Final report of House Select Committee on Small Business, 86th Cong., 2d sess., p. 17.

2 Administrative Office of the U.S. Courts, tables of bankruptcy statistics, June 30, 1961, table F3,

and June 30, 1962, table F3.

These figures demonstrate, I believe, that there is no visible relation between the survival of small business and fair trade resale pricefixing.

Many retail associations, I am sure, will register in support of this bill. They have been pressured to do so repeatedly by the powerful, untiring National Association of Retail Druggists whose representatives are also much in evidence on Capitol Hill. In almost every instance, I believe, these retail associations have been subjected to a onesided argument in favor of such bills. I think it highly significant, therefore, that a poll by the National Federation of Independent Business last year, in which arguments both pro and con were summarized, showed a slight majority opposed to those bills.

I am encouraged to note, moreover, that not only have consumer organizations opposed the counterpart of this bill at hearings last year, but also retailers, retail associations, and wholesale associations.

It has been contended by some of the supporters of this bill that it would not really restrict the retailer because he is free to take off the trademark and sell the unmarked goods at such prices as he pleases. This is a fallacious argument. What does the retailer have left when he tears off the covering on a tin can? If the trade name is imbedded in metal or glass, is he supposed to use a blowtorch? If the price he pays includes the goodwill of a trade name, must he throw away that value?

I would point out to retailers subjected to the propaganda barrage of the proponents of these bills that if legislation of this sort is enacted, they will have given to the manufacturer the right to fix their profit margins, and the greater the demand for a fair traded product, the more likely that the margin will be narrow. To quote from the testimony of a representative of the National Oil Jobbers Council, in reply to a question by Chairman Monroney of the Special Subcommittee on Quality Stabilization of the Senate Committee on Commerce last year:

Do you know what happened to us in Pennsylvania when they tried fair trading up there? They cut the jobber's margin, gross margin, in a normal market, one-half cent per gallon. One-half cent doesn't sound much to you gentlemen, but one-half cent a gallon is the difference between a profit and going out of business. That is a specific instance.

C. WHAT THE FARMER THINKS

Last year, I received a letter from the American Farm Bureau Federation commenting upon H.R. 6245, a bill before the House Antitrust Subcommittee. Pertinent to this hearing are the following passages from that letter:

Since 1947-49, wholesale prices of drugs and pharmaceuticals, as reported by the Bureau of Labor Statistics, have declined 8 percent. This has occurred during a period in which most wholesale prices increased, and in which wages in manufacturing industries increased 80 percent. On the other hand, the retail price of prescriptions and drugs, as reported by the Bureau of Labor Statistics, increased 21.5 percent during this same period *

* 串

The divergence of these price trends strongly suggests that primary attention should be directed to the margins between wholesale and retail prices.

The drug industry has been the major proponent of retail price fixing under the authority of so-called fair trade laws, and the major employer of fair trade pricing programs. We believe that retail price fixing by manufacturers should be regarded as a harmful restraint of trade, contrary to the public interest.

We recommend that Federal laws designed to protect State fair trade laws from antitrust attack be repealed ***.

D. HIGH PRICE DOES NOT INSURE HIGH QUALITY

This bill assumes that high quality is the handmaiden of high price. On this assumption, low prices are the opium of the people. Under this theory, when the price of gasoline goes down, the quality of gasoline goes down and our cars rebel; when the price of gasoline goes up, the quality of gasoline goes up and our cars rejoice.

In the dream world of fair trade, many such a canard passes for reality. To expose this canard—that the highest in price is the best in quality-I have had my staff spot check Consumers Reports, the publication of Consumers Union, a nationally known testing organization. In one striking instance after another, the highest priced product was not the highest in quality.

Testifying, last year, before the House Antitrust Subcommittee, on H.R. 6245, Dr. Martin Cherkasky, Director of Montefiore Hospital in New York City, stated: "A series of tests recently conducted by Drug and Therapeutic Information of New York and published in their Medical Letter confirms the unfortunate fact that price and quality often are in no way related."

There is no necessary correlation between quality and price. Indeed, if high quality and high prices were synonymous the magicians of Madison Avenue would be out of work. It has been said:

In the light of the function of advertising as a creator of value increments of enchantment, it is not surprising to discover, as we have in the consumer-testing field, that there is slight if any correlation between the price and quality of many of the branded goods now offered on the market."

E. THIS BILL IS OPPOSED TO OUR CURRENT NATIONAL POLICY

Proposed increases in the price of steel products last year and actual price increases in the steel industry this year have been a matter of concern to the Nation and to our Government. Yet the inflationary threat represented by a price increase in one industry, important as the steel industry is, is in no way comparable to the inflationary threat represented by this price-fixing bill which would promote and sanction price fixing and consequently price increases throughout all sectors of our economy.

At a time when the administration, with widespread support from all over the country, is seeking tax reductions in order to promote an expansion of our economy and to prevent a recession, it would be anomalous, at the same time, to enact legislation which would have the inevitable effect of insuring that the consumer taxpayer would be able to buy less and less with whatever additional funds a tax cut may provide him. The efforts of the administration to stimulate our economy through the natural interplay of a free market would be thwarted by legislation designed to turn our free economy and our free market into a controlled economy and an artificially controlled market.

7 Warne, Advertising and Consumer Behavior, 10 Cartel 82, 85 (July 1960).