Mr. JEHLE. As a practical matter, Secatore and really you have to stress the practicalities of some of these situations-Secatore never sold any of those commercial accounts and I don't think he is selling

any now.

Mr. DINGELL. Mr. Jehle, thank you very much.

I want to recognize the distinguished chairman of the committee if there are any questions he would like to ask.

Mr. HARRIS. I don't think I will take the time of the committee, Mr. Chairman, to ask questions. It would be repetitive. We have had it over and over again, and I can see no purpose in continuing to build up a repetitive record.

Mr. DINGELL. Thank you, Mr. Jehle.

Mr. JEHLE. Thank you, Mr. Dingell.

Mr. DINGELL. The Chair will recognize Prof. Alfred R. Oxenfeldt of the Graduate School of Business of Columbia University.

Professor Oxenfeldt, you are most welcome at the committee this morning. We welcome any comments you might give us.

STATEMENT OF ALFRED R. OXENFELDT, PROFESSOR OF MARKETING, COLUMBIA UNIVERSITY GRADUATE SCHOOL OF BUSINESS

Mr. OxENFELDT. Thank you, sir.

May I introduce myself before I summarize my remarks. I realize we are behind schedule and I shall try to be very brief.

My name is Alfred R. Oxenfeldt and since 1956 I have held the position of professor of marketing at the Graduate School of Business at Columbia University. I received my undergraduate degree from the University of Pennsylvania and my graduate degrees from Columbia University.

My teaching has been concentrated in the fields of marketing and pricing, areas in which I have done research, writing and consulting work for industry. A list of my published works is appended to my

statement.

Among those that may be of particular relevance to the bill under consideration are two books, one entitled "Industrial Pricing and Market Practices," published by Prentice-Hall in 1951; "Pricing for Marketing Executives," published in 1961 by Wadsworth Publishing Co.; two articles, one called, "Can the Small Tobacco Dealer Meet Large Store Competition," published in the Journal of Retailing in the summer of 1961, and "The Retailing Revolution: Why and Whither," published in the Journal of Retailing in the fall of 1960.

At present I have two books in press. The research for one, tentatively titled, "Behind the Scenes of TV Set Marketing," has given me considerable information and I hope some insight into a retail sector in which price cutting has been rampant for many years.

I have served as a marketing consultant to many firms such as American Airlines, New York Telephone Co., and Imperial Oil, Ltd., and in addition I am cochairman of the Economics of Distribution Seminar at Columbia, a seminar not for students but for fellow academicians and leaders of the world of business who meet every 2 weeks to discuss important marketing problems.

Appended to my statement is a full list of my publications. These are selected references.

Mr. DINGELL. Professor, without objection, your full statement will be included at this point in the record, and then you are, of course, recognized for further comments. That includes the insertion of your publications.

Mr. OxENFELDT. Thank you, sir. I shall try to single out just a few points from that statement, in view of the shortage of time.

As I understand the bill, it seeks to help small businessmen and owners of trademarks by eliminating price cutting and deception. I think it is essential that you match, as I am sure you have done, the provisions of the bill with its objectives, and consider alternative measures for achieving those objectives.

Since this bill essentially attempts to eliminate price cutting above all else, we must ask who is it that would be helped by this. Frankly, I want to question the assumption that it mainly helps trademark holders on items that are being footballed and small businessmen.

I think it may perhaps be helpful, though somewhat academic, to distinguish many different types of price cutting. I repeat that this bill would eliminate all of them, or attempt to. There are very important differences in the economic effects of these different forms of price cutting that are possibly being overlooked.

Mr. HARRIS. Would you permit an interruption, or do you want to let them go ahead?

Mr. DINGELL. Feel free, Mr. Chairman.

Mr. OxENFELDT. Mr. Chairman, I am very happy to be interrupted, if that would be your desire.

Mr. HARRIS. Well, I am very much interested in your comments and your approach in the discussion of this subject. I really don't know what your position is yet, but you are not overlooking the facts, Doctor, that this is a purely voluntary proposition.

Mr. OXENFELDT. Yes, sir.

Mr. HARRIS. You just made the statement that this bill within itself eliminates all discounts or price cutting whatsoever.

Mr. OXENFELDT. No, I did not mean to say that, sir. I don't believe that. I know that there would be

Mr. HARRIS. I understood you to say that.

Mr. OXENFELDT. I would say the bill moves in that direction. It gives the power to, and I would maintain on the basis both of history and forecasting that this power would be used by, a very large number of firms. It would have this effect over a wide sector of industry. This is my settled, considered judgment.

Mr. HARRIS. Well, I think we should have it in perspective-you are talking now about an option of industry. This bill does not require any manufacturer to take advantage of it.

Mr. OXENFELDT. I am aware of that, sir.

Mr. HARRIS. It is purely a voluntary matter and it does not in any way affect any private brand, trade, article, or anything that some discount house or anybody else might want to develop.

Mr. OXENFELDT. I am quite aware of that fact and I would think that what this bill does is offer an option that is very attractive to many businessmen and they will use it. I would not say on the other hand that every single businessman would use it. I would be hard pressed if you asked me to set a percentage, though I would be interested if you could.

Mr. HARRIS. Yes. I realize that.

Then I wanted to get back to the basic purpose of the legislation, which is to prevent someone who does not have an interest in a trade or brand name article from destroying that article through predatory price cutting against the wishes and desires of the manufacturer or the individual who developed it.

Mr. OXENFELDT. I would say, Mr. Chairman, that if the bill has that as its central purpose, then the provisions of the bill are at variance with that objective. This is precisely my point, and what I was about to do was list a very large number of different forms of price cutting which in the areas where these powers were invoked, would be eliminated beyond the one you are speaking of.

Let me say at the very outset that I agree with you that there are such cases-I might mention, terribly few; the ones that have been cited and have turned out to be unauthenticated. But where they exist, where a trademark holder is injured by the footballing of his item, I think that should be stopped and I think there are ways of doing it without eliminating the benign forms of price cutting.

Mr. HARRIS. Well, that is the purpose of it, and we who have worked on it over the years feel that that is what we are doingmaintaining competitive free enterprise. Don't let me interrupt you any more. Mr. OXENFELDT. I wish you would.

Mr. HARRIS. I wanted to get this basic thing in because your discussion seems to be very appropriate.

Mr. OXENFELDT. I feel that your comments were extremely fitting, sir, and I would like to just mention that the statement I have submitted offers a program, one of a large number that I think would more directly achieve the objective you speak of without running the very considerable risks that I see in this kind of legislation. And with your permission, I will retire to the role of a fuddy-duddy college professor and read you a list of different forms of price cutting which, if one distinguishes them in his thinking, will permit him to see that this bill can do considerable damage and unnecessarily so, even while it gets at, in rare cases, the kind of abuses of which you speak.

These forms of price cutting are, first, cuts in price below the minimum operating costs of efficient retailers for the specific purpose of driving other retailers out of business. This form I would refer to as predatory price cutting, and we know that this is already illegal.

Second, cuts in price far below usual price and possibly even below the minimum costs of efficient retailers for the purpose of building store traffic by the offer of an attractive bargain. These price cuts represent a considered merchandising policy, and such price cuts are often employed as an alternative for other forms of sales promotion.

These types of price cuts I would refer to as loss leaders. (By the way, this material is on page 12 of my statement.)

Now, two types of loss leading price cutting ought to be distinguished. There is an infrequent type of loss leading that is so severe and persistent that many retailers either stop carrying the items whose prices are cut or they sell against these items, thereby depriving the producers of those ite items of market exposure and retailer sales support. This is, I think, the kind that Chairman Harris was referring to before the "footballed" trademarked item whose margins are cut so low that retailers no longer wish to carry the item. They bury it or won't carry it at all.

In the very much more common type of loss leading, the items selected as loss leaders are varied and prices are cut only for short periods, so that these items do not lose, indeed they may gain, sales and sales support in the process. I would say this is a different kind of loss leading and creates no important economic or social problems.

Third, there are cuts in price at the retail and distributor level that are so deep they filter back to the manufacturer, exerting strong downward pressures on his price. Two types of situations can also be distinguished here. In the first and rare case his prices must be cut so low that he is compelled to deteriorate the quality of his product, and this is what I understand to be the rationale behind calling this a quality stabilization act. In the second and more usual case, the pressure on the manufacturer keeps him from charging excessive prices and exerts strong pressure on him to reduce his costs of operation, a type of price cutting I do not think the committee would want to eliminate.

A fourth class of price cutting consists of price cuts that reduce retailers' margins below their traditional level.

Fifth, there are cuts in price below any level that the manufacturer might choose to establish for the resale of his merchandise.

What I trust this list does, as I said before, gentlemen, is distinguish between the many different kinds of price cutting that one finds in the marketplace, suggesting that some are indeed objectionable and others highly benign, and urging that your legislation single out only those that are objectionable for correction, and leave the others intact. Frankly in my opinion, and I think it is shared by economists as a profession, we suffer from too little rather than from too much competition in retailing as well as in other sectors of the economy.

Now, I deal with many other things in my prepared statement that I pass over, like any other author with deep regret, but I would like to make another set of distinctions. I think that there are four types of competition-I am not now speaking of price cutting-that we should separate. Again I find that the bill destroys certain kinds of price competition or would in those areas where invoked, that it is highly desirable that we retain.

First, there is competition among dealers and distributors who handle the same brand of a given product. (I might mention I am here on page 15 of my statement.) An illustration of this would be the retailer of Zenith television sets on First Avenue and the retailer on Third Avenue in any city, or the distributors that carry any given brand of air conditioners, or what have you. This is the most direct and severe form of competition. Where the manufacturer requires that within a single marketing area and I should like to talk to the point that was raised by Mr. Dingell before in a moment-the different retailers that carry his brand should charge the same price, this kind of competition-which is the most direct and forceful-is destroyed.

Then you have competition among dealers and distributors of different brands of the same product. This is not necessarily affected by the bill.

Third, there is competition among manufacturers of different brands of the same product, also not necessarily affected by the bill; and, fourth, you have competition in the form of pressure exerted by distributors and retailers upon manufacturers to reduce price to them on the threat of dropping the brand.

I might mention that in the rationale behind your own bill, gentlemen, this fourth type is the kind of pressure that may compel a deterioration in product quality. This is another form of competitive pressure that would be eliminated by the bill aand one which in most sectors of industry contributes to the intensity of competition which is still insufficient in the opinion of most economists.

My point again is if you distinguish the different forms of competition, the four that I have outlined you will see that this bill does hit at two vital forces that keep our economy vigorous.

May I, in the few minutes that remain, make a few rather disjointed statements?

First, I would urge you not to assume that all small business is in need of protection from price competition. Indeed, there are important segments of small business that owe their very survival and growth to price competition and to the offer of price incentives. I should mention that this bill also helps big retailers quite as well as small ones. The bill helps prosperous retailers as well as those that are profitless. I think this is an essential point and the parallel to agricultural legislation is very close here. Also, I urge you to distinguish between short-term palliatives and basic correctives. A price umbrella generally sets forces in motion that create holes in that very umbrella. The ultimate result of this legislation could very well be an expansion of retailing capacity and an increase in the number of retailers, thereby causing resale price maintenance to become unworkable, and the field of retailing to become even more competitive and profitless than it was before the legislation went into effect.

Also, the bill lacks any provisions that would really strengthen small business and make it better able to compete on equal terms with large firms. My statement contains suggestions of what might be done to strengthen small business, and urges that it be done.

So I arrive at the following kinds of conclusions: rather than protecting the owner of the trademark and the small retailer, the bill greatly enlarges the powers of manufacturers to control price. In the event that this bill should become law, I foresee competition among manufacturers taking the form of offering wider margins to retailers in order to have them push certain brands rather than taking the form of lower prices to consumers. This would reverse the usual competitive process and produce upward rather than downward pressures on prices.

As I said, H.R. 3669 virtually bans all types of price cutting on fairtraded merchandise, even though most of those methods of achieving lower prices are benign and essential to a free enterprise economy.

The bill validly is directed against predatory price cutting and price pressures that result in deterioration of product quality but these are relatively rare and exotic types of price cutting. These abuses can