Quality Stabilization

In the above example, mass distribution's rapid turnover produced a reduction in operating cost from 25 to 3.6 percent, while increasing gross profit by 34 percent. Five-percent markup over cost produced more profit than 50 percent markup over cost.

Obviously, this ideal comparison is based on a fixed dollars-and-cents cost of operation, demanding that fixed costs and overhead produce 10 times as many sales from the same inventory. As a practical matter, this is impossible. However, maximum efficiency in reducing costs bring the volume retailer closer and closer to this dollar-making utopia.

Obviously large volume sales and large inventory will not perform this feat; turnover and productive operating costs are the effective factors.

Price-fixing quality stabilization prevents the small businessman from using this technique, which is his most effective competitive weapon.

Price fixing (quality stabilization) establishes higher prices, as manufacturers compete to give higher profits to each level of distribution

When the power to fix prices is delegated to manufacturers, price increases are inevitable. The result is for the retailer, distributor, and the wholesaler to encourage and coerce manufacturers to fix a price high enough so that all levels of distribution enjoy a big profit. This fact defeats the alleged protective provision that price-fixed quality stabilization items must be in competition with items in the same general class.

For this valuable favor the retailers, distributors, and wholesalers give manufacturers their goodwill and their business. Then different manufactures individually and collectively (by following the leader) begin to compete for the goodwill and business from those in their system or distribution by offering higher fixed fair trade (quality stabilization) prices and more profits for all. There develops a type of competition to determine which manufacturer can offer the highest profits under fair trade (quality stabilization) prices as high as the traffic will bear. The successful manufacturers get the most business and goodwill.

This process results in the practical fixing of prices on a horizontal basis between competitors; actual price competition is eliminated. It also forces prices upward.

Consumer unprotected as lack of competition at broker, distributor, wholesale, and retail levels obscures right price of product especially since 50 to 60 percent or more of the price is in distribution

Under this system, the consumer is lost in the confusion of the same high prices everywhere. Even though the prices are too high because of high distribution costs, she cannot compare; she assumes they must be right, because they are the same everywhere.

This condition permits the manufacturers using administered prices to go higher with their price schedules, giving each level of distribution higher profits to secure goodwill at higher cost to the consumer.

Any price-fixing legislation will result immediately in substantial increases in the cost of distribution and therefore in consumer prices.

If enforced at Food Town Ethical Pharmacies, the Quality Stabilization Act would mean retail increases of from 19 to 50 percent immediately.

NIRA preferable to delegation of price-fixing power to manufacturers

Small businessmen and consumers probably would benefit more by Federal bureaucratic price fixing similar to NIRA.

(a) Consumer pressure could be exerted through representative Government eventually to the appropriate price-fixing bureau.

(b) This process would slowly result in a more just, equitable price than the prices fixed by manufacturers who are under pressure from all levels of distribution to guarantee high profits through price-fixing quality stabilization.

Antitrust acts suspended to permit horizontal price fixing and censorship by manufacturers

The Quality Stabilization Act suspends antitrust acts to permit manufacturers, brokers, distributors, wholesalers, and retailers to fix the same price between competitors and also to censor merchandising practices. There is no prohibition against managed or administered identical prices which have and will result in the whole industry on the same product.

Brokers, distributor, wholesale, and retail prices on the same product, "when the goods usable for the same general purpose are available to the public from other sources," will be fixed by competing manufacturers as a result of the follow-the-leader process.

Identical administered price will result on the same product from other sources and from all sources-past record of price fixing indicates this result The record under price-fixing fair trade also proves that different manufacturers of the same product administer the same price.

Senator Kefauver's Senate Subcommittee on Antitrust and Monopoly defines the "administered price" phenomenon as an identical wholesale and retail price on the same product by different manufacturers, who have followed the leading manufacturers' price in all distributive levels (they fall in line) to prevent future price competition, especially from the leading or most powerful manufacturer.

This actual technique destroys the alleged protection of free and open competition; for example, administered prices which existed under price-fixing fair trade in Louisiana before it was invalidated by the State supreme court and even today are identical as suggested in a non-fair-trade State and mandatory in fair trade States.

Purely administered or managed identical prices are not now illegal, provided there is no agreement between competitors. The above examples are not intended to infer conspiracy or agreement or reflect unfavorably on the manufacturers.

The fact is, administered prices do exist in large numbers. The Quality Stabilization Act would fix these prices legally on a national scale. There would be no free and open competition on products of the same general class produced by others; nor would there be goods usable for the same general purpose available from other sources.

There is insufficient public protection in paragraph 8 of the Quality Stabilization Act-Goods usable for the same general purpose

"When goods usable for the same general purpose are available to the public from sources other than the owner of such brand, name, or trademark (price fixed by manufacturer) ***."

As a practical matter and by court decisions, this alleged public protection has proven useless in many retail areas. The phrase "same general purpose" is too broad and compelling consumer demand eliminates the same general purpose.

Doctors' prescriptions should be excluded

My opposition to quality stabilization price fixing by manufacturers includes all merchandise, but is especially determined as it relates to manufacturers' fixing of prices for doctors' prescriptions.

A recent trade publication reflected the determination of some proponents to include prescription price fixing: "If pharmacy remains united and will tell Members of Congress that it wants prescription drugs covered by the pending

quality stabilization bill that differences between House and Senate versions of the measure probably can be reconciled ***."

It was also reported: "It is the hope of the leadership that this difference between Senate and House bills can be reconciled in joint conference committee in favor of the Senate version."

Simulated prescriptions, to illustrate there is no protection when goods usable for the same general purpose are available to the public from other sources The eight simulated prescriptions on subsequent pages illustrate the absence of protection from other sources in relation to the trademarked monopolies. Four are trademarked; four are generic. Each reflects the price-fixed fair trade price, and the Food Town Ethical Pharmacy price. The generics are not pricefixed fair traded. Note that prices vary in some instances more than 1,000 percent. These comparisons do not infer a recommendation or condemnation of generics, as we do not dispense them except on physicians' specific instructions because most of the physicians in our area prescribe nationally advertised patented pharmaceuticals *** brands which can be trusted, in the physician's opinion.

By nature, a doctor's prescription is a monopoly when he feels compelled to prescribe a medication by trademark. Because only about 1 percent of pharmaceuticals manufactured in this country are inspected by the United States or any agency, doctors usually rely on the reputation of a trusted trademark when they write prescriptions.

The pharmacist legally cannot dispense a prescription except by using the patented, trademarked, and price-fixed pharmaceutical prescribed; he cannot and should not use something usable for the same general purpose manufactured by someone else; he cannot use the same pharamaceutical by its generic

name.

When the patient receives the prescription from the physician, that prescription becomes a monopoly; the consumer protection alleged in "the same general purpose * * *" provision does not exist. The Quality Stabilization Act permits the manufacturer to fix the wholesale and retail prices of monopolies in the prescription field. This is a dangerous suspension of the antitrust philosophy. As a result of this situation

A. The consumer must pay the fixed high price on the patented price-fixed pharmaceutical. There is no free and open competition;

B. The consumer must pay as much as a hundred percent more because of price fixing; and

C. The retailer (the pharmacist) must dispense the patented, trademarked, price-fixed prescription. There is no free and open competition on any patented product. The Quality Stabilization Act will result in fixed prices on monopolies; there is no public protection from a practical standpoint. A prescription for a patented drug is a monopoly protected by patent law from competition, making price fixing illegal

The Quality Stabilization Act will permit manufacturers to fix wholesale and retail prices on patented prescriptions, even though the patent guarantees there can be no free and open competition from products of the same general class, nor goods usable for the same general purpose available from other

sources.

Practical experience proves that drug manufacturers and others have fixed wholesale and retail prices on monopolies since the beginning of legal price fixing, 30 years ago, in California.

Every year, drug manufacturers produce approximately 400 new drugs, a testimonial to the competence and ingenuity of American drug manufacturers. Price-fixing laws, like the Quality Stabilization Act, state that the wholesale and retail price cannot be fixed by the manufacturer, unless there are goods usable for the same general purpose available to the public from other sources. Some patented drugs have been price fixed in violation of this protective provision against monopoly.

The courts have permitted manufacturers to enforce wholesale and retail price maintenance on some patented monopolies, according to the Harvard Law Review, in reference to the Doubleday case and the Blen Raven Knitting Mills case. Only one time in the history of legal price fixing has a court denied a manufacturer the right to fix a price on a patented monopoly under the State price-fixing laws: Eastman Kodak Co. v. FTC 158 F. 2d, 592 (2d Cir. 1946) cert. denied, 330 U.S. 828 (1947) (color film and magazine film).

THE PUBLIC DOES NOT KNOW

THEREFORE

THERE IS NO PROTECTION IN THE PHRASE "When Goods Usable for the Same General Purpose Are Available to the Public from Other Sources."