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Hon. HUGH SCOTT,

BOTANY INDUSTRIES, INC.,
New York, N.Y., November 12, 1963.

U.S. Senate, Senate Office Building,
Washington, D.C.

MY DEAR SENATOR: Because enactment of the quality stabilization bill (S. 774 and H.R. 3669) is so necessary for the health and growth of American retailing, I have today directed that my statement, supporting enactment of the measure, be sent to all outlets handling Botany "500" and Worsted-tex clothing for men. In addition, I am asking all of our sales representatives to mention our support for the bill on every call they make.

We are putting forth this effort in order that everyone we can reach will know the truth about the beneficial effects of the quality stabilization bill for consumers, small business, producers, and manufacturers.

As I pointed out to the congressional committees, the best way to rescue the consumer from his confusion and the mercy of many sharp operators is by enactment of the quality stabilization bill-as soon as possible.

As head of Botany Industries, Inc., manufacturers of Botany "500" and Worsted-tex clothes, together the largest men's clothing manufacturers of brand name clothing in the country and the largest nationally advertised line of men's clothing in the country plus other companies that we own like Richelieu Pearls, Sea & Ski, Baltimore Luggage and Amelia Earhart Luggage, I do not want those brands exploited-and the public exploited-by interests with a selfish, shortterm viewpoint.

I respectfully request that this letter be included in the record of the stabilization subcommittee hearings on S. 774 as a report on action to help pass that bill. I congratulate you for your interest in and support for this legislation and again urge the earliest possible favorable consideration by the Congress.

Very truly yours,

MICHAEL DAROFF, President.

WASHINGTON STATE FOOD DEALERS ASSOCIATION,
Seattle, Wash., September 20, 1963.

Hon. WARREN G. MAGNUSON,

Senate Office Building, Washington, D.C.

DEAR SENATOR MAGNUSON: Enclosed is copy of resolution passed at our recent convention urging passage of the quality stabilization bill. We 3,000 grocers of Washington, including the chains, urge your support of this legislation. It is good for consumers and business alike.

All branches of industry-manufacturers, wholesalers, retailers-support this bill. The only opposition that we know of is from discount houses who want to use bait advertising. That type of business believes they must sell something at a ridiculously low price to get suckers or customers into their place of business. Good, honest, reliable, legitimate business does not need that kind of advertising. They can sell merchandise on its merits at a reasonable price which includes a profit, and we know that a profit is necessary. They do not have to raise the price on other merchandise to make up for loss leader selling. Will appreciate your support of quality stabilization bill.

Yours very truly,

R. A. CAMPBELL.

RESOLUTION ON THE QUALITY STABILIZATION BILL

Whereas dishonest and misleading pricing practices in retailing are detrimental to the industry and to the public; and

Whereas the trademark of the manufacturer is considered to be the valued possession of that manufacturer; and

Whereas the 1963 quality stabilization bill has been sponsored in the House of Representatives by five of the seven Representatives from this State: Therefore be it

Resolved, That the Washington State Food Dealers Association, assembled in convention in Seattle, September 8, 9, and 10, 1963, send a letter of appreciation and commendation to Representatives Walt Horan, Thor Tollefson, Catherine May, Thomas Pelly, and K. W. (Bill) Stinson for their sponsorship of the quality stabilization bill; and be it further

Resolved, That these above-named Representatives be requested to encourage Representatives Hansen and Westland and Senators Jackson and Magnuson to lend their support and sponsorship to the passage of this bill.

OCTOBER 8, 1963.

Hon. WARREN G. MAGNUSON,
Committee on Commerce,
U.S. Senate,

Washington, D.C.

DEAR SENATOR MAGNUSON: I wish to place before the committee my views on S. 774, the quality stabilization bill. I am a specialist in industrial economics, and hold a doctorate degree from Columbia University, awarded in 1944. Currently, I am a professor of economics at Washington State University. For the 10 years, 1951-61, I was a member of the economics staff of the Federal Trade Commission. Your committee may be interested in the fact that for 2 years in the late forties I was associated with the management of a retail grocery which failed because it could not match the prices of chainstore competition.

This letter has been written in my leisure hours and has been typed at my personal expense. Neither I nor any member of my family has a connection with any business or business group that would be affected by the decision of the Congress with respect to the provisions of S. 774.

The quality stabilization bill raises at least five issues:

1. Equity to manufacturers of branded merchandise;

2. Equity to distributors of branded merchandise;

3. Preservation of opportunities for small business in the field of distribution;

4. Maintenance of adequate competition among manufacturers; and
5. Maintenance of adequate competition among distributors.

I pass over the tendency of such legislation to raise the cost of living, as this is recognized by almost everybody.

Property is a bundle of rights-to use, to exchange, to give, or bequeath: rights to be sure which are limited by the rights of others and by State-imposed regulations in the general interest. Fair trade or quality stabilization programs add to the rights of owners of trademarks, and subtract from the rights of firms which have purchased branded merchandise for resale, particularly nonsigners of fair trade agreements. Whether this is an unconstitutional invasion of the latter's rights has been explored in much litigation. When effected by State laws, the U.S. Supreme Court has answered "No" with respect to the Federal Constitution. But as noted in the recent report of the majority of the Committee on Interstate and Foreign Commerce of the House of Representatives on H.R. 3669, supreme courts of 24 States have answered "Yes" with respect to their constitutions.

Traditionally American governments have proceeded cautiously in limiting the right of a business to sell its wares at the discretion of the management. Certain State-imposed limitations are countenanced in the interest of equity, and to preserve small firms from the predation of large rivals. The Federal Government prohibits price discrimination injurious to competition, or injurious to a competitor of the favored buyer. Many States prohibit sales below cost of acquisition, or below cost plus a fixed percentage of cost. As of September 1961, 10 States had laws of the first type and 17 States had laws of the second applying to retailing commodities generally. Additional States prohibited below-cost sales of specific commodities. Owners of patents and copyrights are permitted to restrict the price of a reseller, although the Convention of 1787 thought the privilege sufficiently unusual to recognize it explicitly in the Federal Constitution. Under the Constitution of the United States privileges associated with patents and copyrights can be extended "for a limited time" only.

A more fundamenal question is the essential fairness of the contemplated addition to the rights of manufacturers and cooperating distributors at the expense of distributors accustomed to sell at lower markups.

S. 774 provides two sorts of protection for the nonsigner: (1) He is notified of the limitation on his right to sell at time of purchase, and (2) he has an option of disposing of his stock at less than the fixed price (a) by resale to the manufacturer or (b) by resale without restriction as to customer or price, foregoing any right to replenish his stock or to sell at less than the fixed price any additional stock he might acquire. These provisions do not permit the nonsigner to carry on a low-margin business in fair traded merchandise; the whole

intent of the bill is to outlaw such a business. A significant ethical issue is raised by the exclusion of small business firms from low-markup limited-service retailing in lines for which only fair traded merchandise is available to them. For example, if all electric toasters are fair traded (except those made for sale under large distributors' private labels) such a businessman must either withdraw from the small appliance business or sell electric toasters at manufacturers' listed prices. If he owns or has a lease on a store in an old building or at a poor location (which made sense as long as he could translate his "rent saving" into lower prices), he must accustom himself as best he can to a loss of business. If the price cutter's savings have been in store appointments, he can junk these and install more lavish equipment, and if his savings have been in fewness of clerks, he can hire more: the chief sufferers are customers who would have preferred to buy less service and to have used the savings elsewhere. But if the price cutter's savings are in the lower wages commanded by clerks of limited ability or otherwise unattractive to customers, he must fire these people and bid for better personnel.

For many lines of merchandise, important indexes to quality now defy detection by the individual buying for family consumption, either because the merchandise is novel or because adequate inspection requires laboratory tests. For such types of goods the brands of responsible manufacturers are a useful device for assuring customers of the quality of goods marketed by small firms, inasmuch as these firms themselves have slender resources and a tenuous existence. Use of loss leaders is reprehensible, not only because it enables one firm to steal the goodwill of another, but because it impairs the social utility of brands. The proper means of checking loss leaders, however, is the prohibition of retailer sales (and offers to sell) below cost plus a Government-fixed percentage of cost, and not the prohibition of sales below cost plus a manufacturer-fixed percentage, as the latter almost always is much higher than necessary to prevent loss leaders. A further question is reached if the Congress deems the foregoing policy to be inadequate, and authorizes "fair trade": what can be done to preserve as far as possible the traditional rights of low-margin distributors? Something is saved by the proposed paragraph 9B to be added to section 5 of the Federal Trade Commission Act, but I already have pointed out the very limited character of this protection. Far more effective would be a provision enabling these firms to sell fair-traded goods below the set price on condition that they did not represent them to be fair-traded merchandise. Under S. 774 as now drafted, a manufacturer can effectively deny a distributor this right by so fashioning his product that its appearance and salability would be impaired seriously by removal of the manufacturers identification. The opportunity to avoid this situation lies with the manufacturer alone-hence I suggest that fair trading should be permitted only where the manufacturer's identity can be removed at small cost without injuring or defacing the merchandise. Were the retailer to represent in any manner that the goods were the product of a particular manufacturer, or the product of one of a small group of manufacturers, this proposal envisions that he would be limited to the options of paragraph 9. A practical problem is that of effectuating the manufacturer's warranty on equipment, and enabling the consumer to obtain replacement parts. The nameplate would have to be coded, and business firms set up to represent manufacturers generally, who would service such equipment and supply parts without disclosing the manufacturer's identity.

In several lines of merchandising, most small retailers want the legislation proposed by S. 774, and are eager to believe that it would help them to meet their competition. To be sure, it would cripple discount house merchandising and prevent large distributors from offering well-known brands at bargain prices. The immediate effects would be helpful to small merchants, and apparently the majority of the Interstate and Foreign Commerce Committee of the House of Representatives has accepted their testimony and looked no further. But many large distributors enjoy the confidence of substantial groups of patrons, and are able to market large quantities of merchandise under their private brands. The effect of S. 774 will be to stimulate large distributors' interest in private label merchandising (since they will have no price advantage on fair-trade goods), and to stimulate also price conscious consumers' interest in distributor-labeled goods (since once the pressure of low-margin sellers is removed, markups on fair traded merchandise generally will advance.)

The small retailer has at least one competitive disadvantage which is a legitimate concern of the Government; namely, the ability of his large competitors to buy at prices which are lower than the difference in cost experienced by the supplier in filling the orders. Where such discounts are given in interstate commerce, someone has violated the Robinson-Patman Act, section 2, and the injured small buyer has the right to sue for damages and injunctive relief. One difficulty he confronts is that of identifying the firm which first made the improper price concession (by law all other sellers can match the low price, unless it can be shown that they knew the price to be unlawful). The injured retailer also has the burden of rebutting respondent's defense that the difference in price reflects no more than cost of service differences, where he is without access to respondent's records. An important step toward remedying this inequity would be an outright prohibition of "volume discounts"; that is, discounts based on a buyer's total purchases within a year, irrespective of the number of orders he placed or the number of delivery points. (Small manufacturers also would be given a better chance to compete on equitable terms by the prohibition of such discounts. Their effect is to impell large buyers to place all their business with the supplier of a long line of products, as in this fashion they are most likely to qualify for a volume discount.) An alternative approach for the Congress (and a less satisfactory approach) would be to permit small retailers to pool their purchases to qualify for volume discounts. Currently, the Federal Trade Commission holds this practice to be unlawful.

Much of the difficulty of small retailers in rural communities is due to dwindling populations, to better highways connecting their communities with larger cities, and to general ownership of motor vehicles. As the smalltown merchant can never hope to stock the variety available to customers in metropolitan areas, he is being confined to the provision of convenience goods and services. Neither S. 774 nor any legislation compatible with the American conception of the role of Government will reverse this trend. The smalltown merchant has two opportunities: (1) broadening his lines of convenience goods to spread his overhead over a larger volume of sales, or alternatively, (2) moving to a larger community. Competition can be intense, it may be nearly nonexistent, or it may be anything in between; it is not a condition that either is present or absent. Competition may exist with respect to quality, price, immediacy of payment, or various aspects of service: in retailing, competition commonly exists in all these matters. S. 774 contemplates the elimination of price competition between distributors of any particular brand of merchandise, leaving-insofar as price competition goes only the rivalry between producers, and that which may be afforded by distributors' private brands. In the absence of the latter, the requirement that a fair traded good must be "in free and open competition (with) goods usable for the same general purpose" is no guarantee that the amount of competition preserved will be sufficient to protect consumers from exploitation, and to compel efficient performance at either the production or distribution level. Economists have recognized for a long time that when the number of rivals is few each of them is likely to abstain from improvements in his offer (particularly price cuts) even though sales volume is disappointing and he has much excess capacity: he hesitates because he believes the others will quickly identify and match his concession. (This resistance to competitive concessions does not always happen, but it is a common enough tendency to be of real concern.) Reduction of the number of rivals from the number of retailers to the number of producers with retail outlets in a particular community very often would transform the character of competition. There would be several unhappy results. "Sticky prices" make for periods of low employment. Rivalry for dealer outlets among producers of fair traded merchandise would push up dealer margins and retail prices. Producers would put more and more emphasis on style competition and advertising; these add to costs and push up prices further. Equipment manufacturers would deemphasize or discontinue "strip models." Customers generally would be disadvantaged by these developments, low-income buyers particularly.

Should S. 774 be enacted, possibly fair trade will collapse as a result of widespread evasion. (World War II experience with price control is instructive.) If fair trade does work, in lines of business without important patent barriers to entry the period of attenuated price competition will not last 5 years: large food chains like A. & P. and large equipment merchandisers like Sears simply will take over. The small retailers which survive will be relegated to high markup sales to patrons with urgent, unanticipated needs.

Sincerely yours,

FRANK J. Коттке.

Senator VANCE HARTKE,

AMERICAN ASSOCIATION OF RETIRED PERSONS,
Tacoma, Wash., August 30, 1963.

Chairman, Special Subcommittee on Quality Stabilization,

Old Senate Office Building, Washington, D.C.

DEAR SIR: I am much concerned over S. 774, the quality stabilization bill. I hope you actively oppose this bill which would curb competition and free enterprise, two principles on which our country was founded.

Since I am a retired person on a fixed income, I have to shop around and buy my needs at the most reasonable prices. This bill would be unjust and un-American and work a hardship on millions of consumers.

Please print my statement with the quality stabilization hearings. I am mailing a copy to each of my U.S. Senators.

Respectfully,

CLARA H. YOUNG,
President of Chapter 27,

American Association of Retired Persons.

AMERICAN ASSOCIATION OF RETIRED PERSONS,
Savannah Beach, Ga., August 24, 1963.

Re the Humphrey "quality stabilization" bill, S. 774.
Hon. VANCE HARTKE,

Chairman, Special Subcommittee on Quality Stabilization, Old Senate Office
Building, Washington, D.C.

DEAR SENATOR HARTKE: This letter is to request your active opposition to the above-captioned bill, because I feel it is an injustice to the buying public. I am a retired person with a fixed income and must see that I can buy commodities at the most reasonable price.

I cannot understand why price collusion between a manufacturer and a retailer should be declared legal when price collusion between that same manufacturer and another manufacturer is a wicked crime. Neither can this be reconciled with the fundamental principal of our antitrust laws. The explanation can be found, however, in the operations of the powerful lobbies that promote this legislation.

I am a consumer and insist on just as much protection from this lobby as from other would-be price fixers. I thought that the principle of cartels and suppressed competition had been outlawed in this country.

As a member of the National Retired Teachers Association (NRTA) and American Association of Retired Persons (AARP) am entitled to procure drugs, vitamins, and sick-room needs at a substantial discount through the NRTA-AARP Drug Service, Washington, D.C. If the so-called fair traders succeed in passing the above-captioned bill, they will be working a hardship upon thousands of members of these two organizations, for they shall have to pay the price established by this price-fixing bill. It will mean the end of any competition in the pricing of practically all that is manufactured or produced. What is to become of our American free enterprise.

We have a good example of "price fixing" here in the State of Georgia, the socalled milkshed that has seen to it that we are paying the highest price for milk in the entire country.

I request that this statement be printed with the quality stabilization hearings. Respectfully yours,

Mr. MORRIS J. LEVIN,

R. E. VAN BUREN, President, Savannah-Chatham County Chapter.

THE NATIONAL WHOLESALE JEWELERS' ASSOCIATION,

Staff Counsel, Senate Commerce Committee,
Senate Office Building, Washington, D.C.

OFFICE OF THE SECRETARY, Philadelphia, Pa., August 21, 1963.

DEAR MR. LEVIN: It is my understanding that a special subcommittee of the Senate Commerce Committee is currently conducting hearings on the quality stabilization bill.

Our association has been keenly interested in this legislation and for the past several years had adopted resolutions at our annual conventions in support of this measure.

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