5. Price cutting and the manufacturer whose goods have little or no consumer good-will does not suffer from price cutting. In this class are those who manufacture bulk goods without brand names; those who manufacture goods to be sold under the private brands of retailers and job bers; and those who may brand their own goods but who do not experience a general consumer demand for their products, either by reason of limited distri bution or by reason of little or no effort to make the brand name known to, or demanded by, the consum ing public. It should be definitely understood that, as far as the manufacturer is concerned, price cutting becomes a serious matter only when it involves goods that have real consumer good-will—a good-will that has been built up slowly and expensively by the manu facturer and his cooperating dealers. The word manufacturer in this discussion is arbitrarily applied to makers of goods of this sort only.
6. What happens when prices are cut ting on standard goods is said to result immediately in some loss of consumer good-will. Accustomed to a higher price, consumers think they have heretofore paid too much, and they are inclined to believe that at the regular prices both manufacturer and dealer must be making too much profit. If one dealer offers the cut price often, customers will wait for it and will buy only then, and competitors who hold the price will lose trade to the price cutter.
If the price cutting keeps up, several different things may happen. (1) Other dealers may be forced to meet the cut. The first dealer, in order to hold bis advantage, may then cut still lower. His competitors meet the cut; and the price war may go on until the profit has been entirely cut out of the goods and they have been thrown out of the dealers' stocks. (2) In the majority of cases, perhaps, the price war does not continue until the profit has en tirely disappeared; it merely lowers the general price level in the community to such an extent that the dealers no longer make a fair profit on the sales of the article in question. As a result they are unwilling to push its sale; it is still carried, but it is sold only when customers specifically demand it, and whenever possible, the dealer substitutes for it some competing article that carries a greater profit. Needless to say, this seriously injures the manufacturer. He loses the good-will of dealers, and his consumer good will is greatly lessened by the antagonistic attitude of retailers. The sugar market illustrates this con dition. Sugar has been so universally used as a cut price leader that there is very little profit left in it for either jobber or retailer; in fact some jobbers have even offered bonuses to those salesmen who would sell the least amount of sugar. (3) There may be no
price war when one dealer starts cutting on a stand ard article. The others, unwilling to lose their profit, may simply cease pushing the article. Probably this is what happens in most cases, because dealers gen erally do not do enough business to enable them to cut largely on one article with the purpose of making up the loss on other sales. No dealer likes to have a customer say or imply: "You are robbing me. I can get the same thing down the street for seven cents less." Accordingly the innocent manufacturer loses in behalf of his goods a large part of the dealer activity which, without price cutting, he might be able to enlist.
7. Is the manufacturer really hurt?—Advocates of the dealer's right to cut prices sometimes deny that price cutting starts price wars that are disastrous to the manufacturer. They deny that cutting by one dealer decreases the manufacturer's sales in a com munity. Their contention is that the price cutter is usually a large, successful store, and that the cut prices on Arrow Collars, f6r example, will build up in creased sales in the community, even tho the non-price cutting dealer refuses longer to handle the goods. This is a question of fact. In some cases possibly the manufacturer does not lose. In an overwhelming proportion of cases, however, he loses. Suppose there are ten dealers in a town handling Arrow Collars. One cuts prices. He is the largest dealer. His own sales of Arrow Collars increase, but the sales of the other dealers fall off greatly. The increased sales of one dealer do. not compensate for this decrease, and total sales diminish. The Ingersoll watch com pany has collected interesting statistics showing ac tual falling off of sales in communities when one dealer has cut prices. Despite occasional instances to the contrary, the injury to the average manufac turer of standard articles on which prices are cut is generally conceded.
8. What has the manufacturer done about it?— Some manufacturers have done nothing to maintain their resale prices. They say they are not interested. The rnanufacturer with a semi-monopoly believes that people must buy his goods, and dealers must handle them irrespective of the penalty of decreasing profits which the retailer brings upon himself by price cut ting. Again, a few national advertisers have created such demand by advertising and quality that they believe they can force dealers to handle their goods no matter whether dealers make a profit or not. There are, fortunately, few manufacturers in this class. The method of selling goods by clubbing the dealers into line with advertising is in disrepute. It is rieither pleasant nor ordinarily profitable to try to force a dealer to do something that he does not want to do.