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Statement of-Continued

Hutton, William R., deputy director, National Council of Senior Part
Citizens, Inc.

Jarman, Hon. John, a Representative in Congress from the State of

31 Jehle, Philip F., Washington representative and associate general counsel, National Association of Retail Druggists...

269 Karoll, Sam, director, National Association of Retail Clothiers and Furnishers..

108 Kuntz, Walter N., Jr., president, National Wholesale Druggists' Association.

121 Lee, Stewart M., chairman, Department of Economics and Business Administration, Geneva College, Beaver Falls, Pa.

230 Leichter, Franz, on behalf of National Bellas Hess, Inc.

Loevinger, Hon. Lee, Assistant Attorney General, Antitrust Division,
Department of Justice..

Madden, Hon. Ray J., a Representative in Congress from the State
of Indiana

Mashaw, William G., Vational Retail Hardware Association..... 237
May, Hon. Catherine, a Representative in Congress from the State
of Washington.-

McDonald, Angus, assistant director of legislative services, National
Farmers Union...

Mermey, Maurice, director, Bureau for the Advancement of Inde-

pendent Retailing--
Murphy, Thomas H., president, the Home Shop, Richmond, Va.....

Nelsen, Hon. Ancher, a Representative in Congress from the State of

Nevole, George J., on behalf of National Bellas Hess, Inc.
Newman, Sarah H., general secretary, National Corsumers League.. 346
Nygaard, Hon. Hjalmar C., a Representative in Congress from the
State of North Dakota..

Oxenfeldt, Alfred R., professor of marketing, Columbia University
Graduate School of Business..

Pelly, Hon. Thomas M., a Representative in Congress from the State
of Washington.

Proxmire, Hon. William, a U.S. Senator from the State of Pennsylvania.
Rooke, Ralph E., chairman, committee on national legislation, National
Association of Retail Druggists.

Rothschild, Louis, executive director, National Association of Clothiers

108 Roudebush, Hon. Richard L., a Represertative in Congress from the State of Indiana...

38 Schwegman, John, Jr.

Stubblefield, Hon Frank A., a Representative in Congress from the
State of Kentucky--

Tollefson, Hon. Thor C., a Representative in Congress from the State
of Washington--

Triggs, Matt, assistant legislative director, American Farm Bureau

351 Weston, Glen E., on behalf of American Bar Association

Wheelock, John, Executive Director, Federal Trade Commission.... lil
White, John H., National Oil Jobbers Council...

Additional information submitted for the record by—
Policy resolution on consumer protection adopted December

Policy resolution on fair trade adopted September 1959.-

Statement on Federal resale price maintenance legislation,

February 24, 1959.-
American Pharmaceutical Association, statement of.
American Watch Association, Inc., letter from William H. Fox,

executive secretary -
Anson, Inc., statement of Olof V. Anderson, president.
Automotive Wholesalers Association of New England, Inc., letter

from R. J. Harrison, executive secretary, transmitting statement. 46
Bedell, Clyde, statement of..

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Moreover, the spread of resale price maintenance would substantially facilitate price leadership and uniform pricing in the marketing of similar or substitutable products by competing manufacturers. Such manufacturers, in order to maximize their profits by volume sales, would endeavor to set the price or price range high enough to cover the operating costs and a profit to most of their customer retailing firms. It could be expected that the fixed retail price would be geared not to the profit needs of the most efficient or even the average efficient retail firm, but to the profit needs of the less efficient or marginal firm,

Independent distributors probably would be seriously disadvantaged in a volatile market condition. Under a system of owner pricing, those purchasing for resale would not be free to adjust quickly sales prices of their identified pricemaintained merchandise to meet the competition of vertically integrated firms, which by their nature have instantaneous control over prices of own-brand merchandise at their outlets. Thus many stores that depend on merchandising a variety of brands which they do not own or control would be handicapped, and this group includes many small independent stores.

Competition is the mechanism in a free enterprise system which directs the employment of manpower and investment toward the maximum output and efficiency which in turn contributes both to lower prices and growth in the volume of goods and services produced. A faster economic growth rate for the Nation is universally recognized as necessary to our well-being, and much study and effort are being devoted to the best means of its realization. Resale price maintenance would result in lower rather than higher growth rates.

As a result of the higher prices and price rigidities that would result from a new and more affirmative national resale price maintenance law, consumers would be penalized. Price competition is essential for pricing which is responsive to the play of market forces. Such competition maximizes consumer purchasing power and permits consumers to enjoy higher levels of living.

In purchases in the retail market, the consumer buys not only the physical product itself, but a varying amount of other associated utilities and added values such as those made available to him by location and decor of the establishment, credit, delivery, personal service, etc. When a consumer chooses among the many outlets that may sell a particular product, he has a right to expect that the retail prices will reflect the cost of the particular combination of these utilities which he prefers. Instead, with the passage of an affirmative national fair trade law, he would be faced with uniform and somewhat higher prices for an increasing number of products, regardless of the comparative services ineluded.

The provisions of this bill would constitute an affirmative endorsement and authorization by the Federal Government of resale price maintenance throughout the entire distributive process, rather than acquiescence by deference to State authority under existing laws in States which authorize fair trade.

It is noted that the misrepresentation by the seller with intent to deceive purchasers is already regulated under the Federal Trade Commission Act, so that this provision of the proposed bill is unnecessary.

The Bureau of the Budget advised there would be no objection to the submission of this report from the standpoint of the administration's program. Sincerely,


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Washington, D.O., April 24, 1963. Re H.R. 3669: To amend the Federal Trade Commission Act, to promote quality

and price stabilization, to define and restrain certain unfair methods of
distribution and to confirm, define, and equalize the rights of producers
and resellers in the distribution of goods identified by distinguishing brands,

names, or trademarks, and for other purposes.
Chairman, Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: Further reference is made to your letters of February 22 and March 18, 1963, requesting our comments on the above bill.

In substance the purpose of H.R. 3669 is to provide manufacturers of goods sold under a brand, name, or trademark with a measure of control over the

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Additional information submitted for the record by-Continued

National Association of House to House Installment Cos., Inc., Page

memorandum from Edward L. Sard, executive director.... 439 National Association of Tobacco Distributors, statement of John D. Kelly, executive coordinator

418 National Council of Senior Citizens, Inc., newspaper articles. 365-373 National Industrial Distributors' Association, statement of Robert C.

Fernly, executive secretary -
National Office Machine Dealers Association, letter from Harold

Mann, executive secretary.
National Outerwear and Sportswear Association, Inc., letter from
Jules Goldstein, secretary.

451 National Retail Furniture Association, letter from Derek Brooks, vice president and director of Government relations...

439 National Retired Teachers Association and American Association of

Retired Persons, statement of Dr. Ethel Percy Andrus, president... 331 National Shoe Retailers Association, statement of Edward J. McDonald, executive vice president..

412 National Small Business Association: Letter from John A. Gosnell, general counsel...

Statement of Frank M. Cruger, chairman of the board..

Supplemental statement of Dr. James F. Bender and Dr. David
H. Arbeit und

National Sporting Goods Association, statement of.
Paint & Wallpaper Association of America, Inc., statement of Robert
E. Petit, executive vice president-

413 Palm Beach Co., letter from Elmer L. Ward, chairman of the board

and president Pennsylvania Association of Independent Business, letter from E.

Lynn Carter, executive secretary Phillips-Van Heusen Corp., statement of Lawrence S. Phillips, executive vice president

414 Prince Gardner, letter from H. W. Whiteaker, president. Proprietary Association, statement of Dr. Howard A. Prentice, executive vice president

419 Quality Brands Associates of America, Inc., statement of John W.

Anderson, president.-
Retail Jewelers of America, Inc., letter from James C. Lucas, execu-
tive vice president, transmitting letters from members..

Rubbermaid, Inc., letter from Donald E. Noble, president.
Rust-Oleum, letter from Robert A. Fergusson, president...
Schreiner, J. D., letter from.---
Sears, Richard N., statement of
Seifert, Randolph J., statement of
Simmons Co., statement of John W. Hubbell, vice president.
South Carolina Retail Council, letter from W. A. Collins, president.. 448
Stephen F. Whitman & Son, Inc., letter from J. Harold Roth, vice

president, sales
Tacoma (Wash.) Retail Trade Bureau, letter from Ned McMahon,

acting president.
Trade-Mark Service Corp., letters from Paul Struven, president... 44. 443
Tulsa (Okla.) Executives Association, letter from Roy Roller.
Watch Material Distributors Association of America, letter from

Stanley G, House, executive director...
White Stag Manufacturing Co., letter from Harold S. Hirsch, pres-

Wisconsin Automotive Wholesalers Association, Inc., letter from
R. C. Salisbury, executive secretary.

Zenith Sales Corp., statement of Leonard C. Truesdell, president.... til
Zippo Manufacturing Co., statement of G. G. Blaisdell, president.... 411

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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 his 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,

JOHN E. HORNE, Administrator.

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Mr. STAGGERS. The first witness at this time will be our colleague from Indiana, Congressman Ray J. Madden, who has asked to appear first because he has other matters he must attend to.

Mr. Madden?

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Mr. MADDEN. Thank you.

Mr. Chairman and members of the subcommittee, your cooperation in holding these hearings demonstrates that you are much concerned over the devastating methods of merchandising in recent years that is causing great damage to the manufacturers, retailers, and consumers throughout the country.

This bill last year obtained, after lengthy hearings, a favorable report from both the House Interstate and Foreign Commerce Committee and from the Rules Committee. It also obtained a favorable report from a special subcommittee of the Senate Commerce Committee when our Congress adjourned.

Although the leadership was willing to bring it up on the floor of the House, but, on account of the fact that the subcommittee of the Senate had reported it out, but the full Senate committee, on account of the rush pending adjournment, did not report it out, and that is the reason why we were unable to consummate the legislation last year.

Obviously thorough study has been given this measure. I respect the judgment of my colleagues who have given this bill their approval. It is a question of life or death for hundreds of thousands of small businessmen. Let us do our duty to them by moving quickly and effectively to make the quality stabilization bill the law of the land.

Basically, the quality stabilization bill offers a major step in curbing dishonest practices that are misleading the consumer in merchandise values. It spells out bait advertising, deceptive pricing, and published misrepresentations of the product as reasons why a manufacturer may protect the property rights in his brand name or trademark.

The public will be helped by the enactment of the quality stabilization law, since the established price and quality symbolized by the brand name will be a standard from which it may judge the competitive values of products for sale. The consumer will be guarded against the unscrupulous operator who uses the honored brand name or trademark to build store traffic at the expense of his more honest competitors, while recouping his loss at the same time on overpriced, inferior, and "blind" merchandise.

This legislation will call for no Government bureaucracy or department to supervise or enforce it.

The law will be 100 percent optional with the manufacturer, retailer, wholesaler, and consumer.

It will provide incentives for quality products to be distributed through quality-conserving resellers.

In our long and critical struggle against communism, the American system of free enterprise must be our major weapon. “Business failures in recent years and the growing lack of protection for consumer purchases demand action by this Congress.

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