THE ATTEMPT TO LIMIT COMPETITION - FAIR TRADE LAWS by Attorney General's National Committee to Study the Antitrust Laws The Committee acknowledges that "Fair Trade" enactments reflect some legitimate commercial aims. Nationally advertised and branded consumer commodities readily lend themselves to loss-leader and cut-rate merchandising that can impair substantial investments in business goodwill. Such marketing tactics may alienate established distribution channels whose appeal to consumers emphasizes attractions other than price reductions. "Fair Trade" pricing enables manufacturers and other brand or trade-mark owners to invoke prompt legal sanctions to check unwelcome promotional selling, thereby protecting "quality" items from debasement in the consumer's mind. In fact, the objective of preserving valuable investments in trade-marks and business goodwill from destructive marketing tactics was the Supreme Court's rationale in the Old Dearborn case that upheld state "Fair Trade" enactments.
The Committee, however, does not consider "Fair Trade" pricing an appropriate instrumentality for such protection. Since state enactments vest absolute discretion in suppliers for determining the level of a "Fair Trade" price, the legislative price-setting authorization extends far beyond the essential guarantees of "loss-leader" control. An effective "Fair Trade" system, moreover, strikes not only at promotional price cutting, but at all price reductions which pass to the consumer the economies of competitive distribution.
In no event can the Committee condone another consequence of "Fair Trade" pricing. Apart from manufacturers' interest in preserving trade symbols and commercial goodwill, "Fair Trade" pricing may enable distributors to extinguish price competition. A distributor whose inventory consists largely of "Fair Traded" products can carry on business freed from the pressures and tribulations of price competition. Accordingly, distributors in some segments of the economy advocate "Fair Trade" pricing by suppliers as a legal means for obtaining the benefits of a horizontal price-fixing arrangement that the antitrust law forbids. It is the Committee's view that "Fair Trade" when used as a device for relieving distributors from the rigors of price competition is at odds with the most elementary principles of a dynamic free enterprise system.
On balance, we regard the Federal statutory exemption of "Fair Trade" pricing as an unwarranted compromise of the basic tenets of National antitrust policy. We recognize that the legislatures of 45 states have at some time accorded official sanction to "Fair Trade" pricing; that the Congress twice deferred to state enactments by creating federal "Fair Trade" exemptions from antitrust prohibitions; and that without federal immunization "Fair Trade" pricing, as a practical matter, cannot survive.
Nevertheless, the throttling of price competition in the process of distribution that attends "Fair Trade" pricing is, in our opinion, a deplorable yet inevitable concomitant of federal exemptive laws. Moreover, whatever may be the underlying legislative intent, any operative "Fair Trade" system facilitates horizontal price-fixing efforts on the manufacturing and each succeeding distributive level. And the prominent existence of a federal price-fixing exemption not only symbolizes a radical departure from National antitrust policy without commensurate gains, but extends an invitation for further encroachment on the free-market philosophy that the antitrust laws subserve.
We therefore recommend Congressional repeal both of the MillerTydings amendment to the Sherman Act and the McGuire amendment to the Federal Trade Commission Act, thereby subjecting resale-price maintenance, as other price-fixing practices, to those Federal antitrust controls which safeguard the public by keeping the channels of distribution free.
A few Committee members feel that repeal, without more, overlooks serious business problems recognized by Congress and the State legislatures in adopting these statutes. Thus, in connection with repeal, they believe that Congress should consider means for treating problems like loss leader sales and debasement of widely advertised trade-mark and business goodwill. In addition, they fear that repeal of "Fair Trade" may prejudice existence of small retailing units which comprise an important part of the country's merchandising system.
In addition, a few members flatly oppose repeal. As President Truman explained in signing the McGuire Act, "it does have value in eliminating certain unfair competitive practices, and thereby will help small businessmen to stay in business—which I believe is a healthy thing for our economy and our society." And a Congressional Committee Report issued after both Houses passed the McGuire Amendment by an overwhelming majority, states: "The Committee believes that a system of fair-trade price maintenance produces beneficial results for many small businessmen when it operates to eliminate loss leader selling, irresponsible and deceitful price cutting, and contributes to achieving and maintaining a healthy resale price structure." These few members respect these conclusions and agree that irresponsible price cutting presents a problem for which there now exists no other practicable remedy besides these laws.