proposition that a man who works for a salary is somehow inferior to
a proprietor of a small business, Eveiy citizen is as important as
every other citizen, and large numbers of consumers, including many
j)oor consumers, should not Ije compelled to pay high prices so that
certain small businessmen — almost invariably more affluent — will be
permitted to earn higher protits or perpetuate a business for which
there is no economic justification.
In conclusion, let mo emphasize that the end of small business "pro-
tecticmism," characterized by the existing Robinson-Patman Act, will
not mean the end of small business. It will simply mean that our
growing number? of small businessmen will luu'e to gravitate to places
in the economv where they are really needed and will have to operate
efficiently.
If they perform a useful economic fimct ion, they will not be injured
in any permanent or significant sense by the price discriminations
permitted in the revision of the Robinson-Patman Act proposed by
the Johnson task force.
Mr. DinCtEll. Thank you very much. Professor Jones. At this point
I believe it would be appropriate that the record should have the
entire text of the report that we have just been discussing, the White
House Task Force Report on Antitrust Policy, and if there is no
objection, it will be inserted in the record at this point together with
appendixes, et cetera.
( Tlie report referred to appears in the appendix at p. 291.)
Mr, DixGELL. The Chair will recognize Mr. Potvin.
Mr. PoTviN. Thank you, Mr. Chairman.
Dean Neal, first of all let me as a member of the staff commend
you and your colleagues on the committee for your personal sacrifice
in taking a very considerable amount of time and effort as you did to
study these very important matters and for turning out what on the
whole is certainly an excellent report.
I must say that with the somewhat notable exception of the Robin-
son-Patman section that I find nothing with which I can be in sub-
stantial disagreement. I think that your recommendations are u.-eful.
Clearly they point in the right direction, and you and your colleagues
have performed a very real public service by donating your time to
this very important venture.
108
Mr. Neal, Thank you sir. That is the highest praise I have heard
so far.
Mr. PoT^TEN. Now, I am a little confused, of course, on one point.
You say that some members of your task force were in principle in
favor of outright repeal but your recommendations do not go that far.
On page 18 — that number is a function of the BNA reprint of the
report — it says, numbered paragraph 4: :
Revision of the Robinson-Patman Act is preferable to its repeal since repeal
would not preclude tbe wholesale transfer of Robinson-Patman doctrine to sec-
tions 1 and 2 of the Sherman Act and section 5 of the Federal Trade Commission
Act.
This I take to mean in rather looser phraseology that you should
drive a wooden stake through its heart so that its spirit could not
endure.
Now, could you and your f^olleague, Professor Jones, enlighten us
as to which, in view of tlieii- seeming inconsistency, which you do
regard as the more drastic of t he two courses ?
Mr. Neal. Oh, I tliink myself that repeal would clearly be more
drastic than what has been proposed in the report, and I would like
to recall to you that when I began my statement I said I would like
the report to speak for itself so far as the members of the group as a
whole are concerned.
I suspect that in my own statement here today I probably went
sonaewhat further than the majority of the Task Force would wish to
go m casting doubt upon the fundamental purposes of the Robinson-
Patman Act. I suspect I am somewhat more at the edge of the spectrum
than at the center of it.
Mr. PoTviN. We realize j^ou have rather less than a formal proxy
from those of your colleagues not present.
Mr. Neal. Right.
Mr. PoTviN. On page 10 of your statement. Dean, you say :
But it is not clear how large buyers can persistently exact price advantages
from their suppliers that are unrelated to costs of doing business with them.
Now, calling your attention, if I may, to the chart on your left,
that would be the orange bars, you will note there are 32 firms, in
the grocery and retail business, that have just a little over a third
of the total market. As an example of the sort of thing that is some-
times done, we are informed that in the city of Sacramento, Califor-
nia, one of these larger firms, Lucky Stores, dealt in about the follow-
ing manner with Foremost Dairies. They said you are going t& come
down to the price we want to pay you or we are going to build our
own plant.
I don't see anything unclear about how one might respond by giv-
ing them a price discrimination, do you? I think that is perfectly
clear.
Mr. Neal. Well, I think it would be very remarkable if Foremost
over any period of time were willing to sell to Safeway at prices less
than it cost them to produce, and if Safeway could indeed
Mr. PoTviN. Just a moment. Dean. Now you are treating two possi-
bilities : Their usual price or at a loss. There is, of course, one presumes
some intermediate territory ; is there not ?
109
Mr. Neal. Well, I simply assume that any manufacturer who ex-
pects to remain in business has to cover his costs in the long run.
Mr. PoTviN. And what options does he have in doing that, sir,
if he is a large national manufacturer with sales in many regions of
the country?
Mr. Neal. To perform efficienth- enough to compete in a competi-
tive market.
Mr. PoTviN. Now, one of the j^oints that your report consistently
makes is that in one manner or another, discriminations can be helpful,
that on the whole they are not bad, and if you prevent them you are
in some manner increasing the price. I am, of course, just paraphrasing
and if that is not a fair rendition, I invite your comment. But is that
a fairly objective replaying of the tape, as it were?
Mr. Neal. Well, I think it is a well-known fact that the process
by which the price level is eroded often takes the form, if not nearly
alwaj'S takes the form of erosion from the existing level and those
erosions will necessarily result in price differences between one cus-
tomer and another and between today as compared with yesterday.
So that whenever you try to force uniformity in prices as among all
customers, you are doing the ver^^ kind of thing that competitors
would like to do when they get together and try to hold the price
level stable. The point is no more subtle or obscure than that.
Mr. Jones. May I supplement Dean Neal's answer on that with a
concrete illustration ?
Mr. PoimN. Yes, of course.
Mr. Jones. If the committee would like to find a concrete instance in
which price discrimination serves to erode administered prices, a re-
cent decision in United States v. FMC Corporation in 1969 trade cases,
paragraph 72, 901, documents a very interesting fact. It documents
first of all a history of price leadership in the industry and, secondly,
a very special kind of conspiracy. The conspirators never met in order
to discuss what price they ought to charge people. That was handled
by the normal processes of price leadership with other companies
following. But whenever one of the members of this industry found
it necessary to discriminate in price for some reason, he would immedi-
ately call a meeting of all of the other members of the industi-y to ex-
plain to them very clearly, very precisely the exact scope of the dis-
crimination that was being granted. Here was a group of businessmen
who were prepared to engage — when they otherwise were quite care-
ful not to engage in conspiratorial conduct — they were prepared to
engage in conspiratorial conduct simply to make sure that those in-
stances in which they did discriminate did not spread, did not have
an eroding effect.
I think this has been the pattern in many industries where the num-
ber of manufacturers is few and the pattern of price leadership is
general. The normal way in which price reductions come about —
whenever such rare events do occur — is through individual price con-
cessions which are under the table to privileged or special customers;
then gradually word gets around and a so-called gray market develops
in steel, and then eventually the whole market collapses.
Here in the FMC Corporation case you have a group prepared to
engage in a criminal line of conduct just to make certain that that
36-138 — 69 — pt. 1 8
110
sonietliina: didn't happen in their industry, tliat a price discrimination
o-ranted by one member would not spread to other members.
Take a look at the findings of fact of the district judge.
Mr. PoTViN. If as you say these gentlemen were engaged in a crimi-
nal course of conduct, I would scarcely- regard that as the basis for
extrapolating to a universal truth, Professor.
Now, then, if a price discrimination were engaged in and were
stopped by action of the Commission, if what you say about raising-
prices were true, then we might reasonably anticipate that that price
would come down when the ctiscrimination took place. In other words,
here you have a situation where if a discrimination were stopped, the
price would go up. If the Commission moved in with an action, stopped
it with an appropriate order, if it really had a lowering ett'ect then
absent the discrimination if Avhat you say is correct, then the price
would go up. It that not reasonable^
Mr. Xeal. I think the whole point with reference to this argument
against the principle of the Robinson-Patnian Act is that you can't
really talk about isolated instances of price discrimination. The point
is rather that the effect of the act in making it hazardous for sellers
to vary their price tends to give an artificial rigidity to the whole price
structure. The point has nothing to do really with isolated individual
instances but rather with the tendency of the act to make the whole
market less supple.
Mr. IVinix. Dean, I appreciate what you are saying. Yet, while
abstractions, of course, play a very useful role in the conduct of human
affairs, there is a need to relate them to the real world from time to
time and these things do happen a case at a time. Let me ask you to
comment on this.
Corwin Edwards in his book, analyzing a number of cases, all of
those that were available to him at the time of publication, determined
that when the Commission did go in and remove the discrimination,
that contrary to your theorizing, prices did not go up. Some did, some
went down, some stayed the same.
What would vour comment be on that ? This is not a single isolated
case.
Mr. Neal. I wouldn't have any prediction about what would hap-
l)en. That is exactly what I suppose would happen. Some prices would
go up, some go down, and some stay the same.
]Mr. PoT\'iN. Yet you maintain that price discriminations lower
prices. Yet in the next breath you are saying but not so on the reverse
flow. Aren't you being inconsistent.
Mr. NeaTv. I don't think so. I think the point is simply that in the
absence of a statute or a cartel agreement which impedes differentials
in prices, you would expect the price level to be more competitive over
time.
Mi\ JoxES. What we are interested in is a process, a continuing proc-
ess. Once again
Mr. PoTvix. So is Mr. Edwards, one presumes, when he made his
analysis. Isn't it a fact. Professor, that you are going to maintain that
if the Congress by the Robinson-Patman Act, and the FTC in imple-
menting that act, could prevent discrimination, you say on the whole,
by and large, this will tend to increase ]~>rices.
" ^Nfr. Jones. Right,
Ill
Mr. Porvix. The corollary of that then has to be that when you go
in and if a guy is discriminating, you take it away — if you are right —
his price would go up. That would tend over a number of cases to be
true. Corwin p]dwards in his analysis found not so. that it was a mixed
bag. Some went down, some went up, some stayed the same.
Xow, another thing here. You keep characterizing price discrimi-
nation as increasing price, as being anticompetitive, is that correct?
]Mr. JoxES. The prohibition against price disc-rimination has a gen-
eral tendency to make prices more rigid than otherwise they would be.
Mr. PoTvix. Let us talk about Sun-Jacksonville for a moment. Here
you have a situation where you have a private brander. He is buying
at a nickel, 6 cents less than the tank wagon price to the branded
dealer. Yet the majors won't let him sell for more than 2 cents under.
If he does go under that 2 cents, the station across the street, Sun in
this instance, starts going down with him. They are subsidized by the
company to do so. Clearly the small private brander is going to go
broke eventualh'. Therefore, would it not be fair to say that absent the
ability to go in and stop that subsidizing, to prevent that disciplining
so that the private brander can be free to sell if he wants to at a
nickel below to give the consumer that good a buy, that you would
have less competition, that in this instance Robinson-Patman would be
divStinctly procompetitive ? Is that not a fact?
Mr. JoxES. I dcm't think so, not taken
]Mr. PoTvix. Wherein am I wrong?
Mr. JoxES. Not taken in the economy as a whole. The problem in
the gasoline areas is not to nmch the degree of competitiveness or
noncompetitixejiess at the retail level as the degree of concentration
and vertical integration which characterizes the refining industry.
And our task force suggested ways to deal with that problem.
]Mr. Poimx. "Well, vet as a matter of common knowledge vou know
and I know tliat the large private branders get almost all of their
product from the same major refiners that are selling branded.
^Ir. JoxES. Sure.
]\Ir. PoTvix. And empirically you also know that those private
branders are not allow^ed to go much below 2 cents under the branded
market because of price discipline and the only way in God's green
earth that that will ever be prevented is through implementation of
the Kobinson-Patman Act.
Would that not result in greater freedom? Would that not result
in lower prices to the comi)etitor rather than the rather rigid model
that you suggest ?
Mr. JoxES. It seems to me that the effect in each of these cases has
been to prevent the lower price and to bring al)out a return to higher
prices. I might add that the petroleum industry is a very unusual
industry because here you have a retailer that handles a brand of only
a single manufacturer. This is not the normal situation. That is. vou
don't normally have a food store which handles the food products of
only a single food manufacturer. So you may be speaking about an
industry which is quite atypical.
]Mr. PoTvix. Well. Professor, you know, I was somewhat enthralled
by the ^-ibrance of your statement, particularly when you said the ''de-
pression ended 80 years ago. The Roi)inson-Patman Act should catch
up with the times."
112
Mr. Jones. Our statute books are cluttered up with a lot of other acts
that are of the same origin.
Mr. PoTViN. If I may say so, that phrase comes with ill grace from
one who bears a device in his hand bearing the legend "back to 1914"
which is exactly what you say.
Mr. Jones. Back to 1914 ?
Mr. PoTviN. The Clayton Act.
Mr. Jones. 1 don't think so. I think our statute is quite different.
Mr. PoTViN. Indeed. May we proceed section by section with your
analysis of the statute ? Now, you say
Mr. Jones. I have the same copy as you.
Mr, PoTViN. Yes. First of all in what you call 2(a), you go back
to the old Clavton language in the main, dropping the language "to
injure, destroy or prevent competition," and so forth. And you do
substitute the words "exaction of consideration rather than discrimi-
nate in price." I have no particular argument with that latter.
Going on then to 2(b), under 2(b), you say "The recipient of the
benefit of the discrimination is in competition with others not granted
the same treatment. The discrimination is, one, substantial in amount,
and the discrimination is part of a pattern which systematically favors
larger competitors over their smaller rivals."
This is purely, of course, a function of primary or seller injury, is
it not ?
Mr. Jones. No. That is incorrect. Section (b) (1) is a codification
of the result in the Morton Salt case, which is a classic secondary line
case and indeed covers and retains the great bulk of the 2 (a) secondary
line litigation involving the Commission. That is, I think that in a
discussion of the task force revision it should be made clear that in
some instances we broadened the coverage of the present act, in some
instances we narrowed it, in some instances we left it the same.
Mr. Pot\t:n. Well, let us talk about
]\Ir. Jones. In this instance, we have codified the holding in FTO
V. Morton Salt case and I think confined that case to the particular
facts relating to it, which is indeed the trend in the courts and in the
Commission. That is, in this particular section, 2(b)(1), we have
codified the existing law and encouraged it to move in a direction in
which it is already moving.
Mr. PoTviN. Now, when you say you liave codified Morton Salt,
you say substantial in amount. What would be the amount?
Mr. Jones. Exactly the words in Morton Salt.
Mr. PoTviN. Yes, but what were the amounts in Morton Salt?
Mr. Jones. What were the amounts? I don't recall the precise
figures.
Mr. PoTviN. Do you remember the testimony saying
Mr. Jones. Sufficient to influence the resale price.
Mr. PoTviN (continuing). Two or 3 cents a case could hurt it?
Mr. Jones. What?
Mr. PoTviN. The testimony before the Commission, where there was
testimony that as little as 2 cents or 5 cents per unit, per case that was,
could hurt over time?
Mr. Jones. Sure. Sure. That is all.
Mr. PoTviN. Now, when you say substantial in amount and part of
the pattern, though, that is describing it in seller's conduct; isn't it?
113
Mr. Jones. As far as I know the seller is the only one that can grant
the discrimination.
Mr. Potvin;. That is right. All right.
Now, I believe Dean Neal covered this in his report mentioning
Stigler and several other works have covered it in detail. One of the
hallmarks of a collusive oligopoly is persistent and substantial dis-
crimination, isn't it ?
Mr. Jones. Frequently.
Mr. PoTviN. So in effect what you are saying is the kind of dis-
criminations that might reasonably be expected by an economist to
flow from collusive oligopoly would be actionable under your pro-
posed statute?
Mr. Jones. Others as well. They don't have to be collusive
oligopolies.
Mr. PoTViN. No, no, but the type described in (b) (1) is a classic
hallmark of a collusive oligopoly; isn't it?
Mr. Jones. It is a classic hallmark of almost all secondary line cases.
The standard secondary line case is a case in which a seller puts forth
a schedule providing for discounts relating to volume or to class of
customer where class has some relationship to size. And the results
in those cases are not disturbed one iota by our proposed (b) (1). I
don't see why this point confuses you.
Mr. PoTviN. It doesn't confuse me.
Mr. Jones. Just the exact language that was used in Morton Salt.
Mr. PoTviN. I can see what you are trying to do. Professor. I am
appalled but I am not confused.
Mr. Jones. Well, the only kind of cases, the only kinds of cases
which (b) (1) would not cover are those secondary line cases m which
the price differential is insubstantial, doesn't have any bearing on the
resale price, doesn't have any bearing on the ability of people in the
market to compete. That is an exception which exists in the present
law. There is no change in this.
Mr. PoTviN. You have to read (b)(1) in conjunction with your
final clause that starts, "Provided, however."
Mr. Jones. No. "Provided, however" defines a term which does not
appear in (b) (1). So I don't see how that is related.
Mr. PoTviN. But each of your three
Mr. Jones. "Provided, however" defines a term that appears only
in (b) (2) and (b) (3). "Provided, however" does not have any bear-
ino- on (b) (1). I don't see how you could possibly read it as having a
bearing on (b)(1). "Provided, however" defines what you mean by
the survival of a competitor and that language does not appear in
(b)(1).
Mr. PoTViN. The word "competitor" certainly does appear in (b)(1).
Mr. Jones. It says, "Provided that the survival of a competitor is
not significant.'' Look back to places where you talk about survival
of competitors being significant and that appears in (b) (2) and
(b)(3).
Mr. PoTVTN. Professor, I don't want to question your punctuation.
This is getting a little, you know, elemental. But I must say that
you start out with a (b) and they you have sub (1), sub (2), and sub
(3), and then you have a proviso at the end of those three, and to a
114
reasonable nongrammarian layman reading, it sounds very much
as though that p^o^•iso being the final step in sub (b) applies to each
and every element of it.
Mr. Jones. Well, with all respect, Mr. Counsel, I must disagree,
that while it is possible that someone might conceivably read it in
that manner, I don't believe that a careful lawyer would come to that
conclusion.
Mr. DiNGELL. The Chair is compelled to observe that while we are
not drawing the statutes for careful lawyers, we are drawing them
for judicial interpretation.
Mr. Jones. That is right.
Mr. DiNGELL. I have observed some very quaint interpretations of
statutes of which I have been author and they were at wide variance
with what I had intended.
Mr. Jones. As Professor Neal has pointed out, if this is a matter
of difficulty as to whether the proviso applies to (b) ( 1) , this is exactly
the kind of thing that one would expect to have clarified in the legis-
lative process. I don't see that this is any great difficulty.
Mr. Po'n^iN. Getting on to (b)(2), then, you say that the dis-
crimination must be substantial in amount and imminently threatens
to eliminate from a line of commerce one or more competitors whose
survival is significant to the maintenance of competition in that line
of commerce.
Now, on the seller's side, the sort of statistics that you have earlier
showing the John Blair concentration figures, it is quite easy to see
tliat if you have 80 percent of your market sliared by, say, four
firms, elimination of one of those clearly would be significant in the
maintenance of competition.
Now, let's talk about the blue section over there on the chart,
the single-unit firms in which you have 215,000 firms sharing 43.1
percent of the national sales. In the average markets, professor, would
it be conceivable tliat the knocking out of one of those businesses Avould
be significant to the maintenance of competition ?
Mr. Jones. Certainly. It depends. Firet, you have to define the
relevant market, which in the case of grocery stores is usually rather
small in a geographical sense. I think a 10-minute automobile ride
was the standard that was used in one such case, so that the area
involved would be fairly limited. Yes, it is entirely conceivable that
knocking out a grocery store in a narrow geograpliical area with
very few such stores might provide a problem.
But one of the things we have to remember is that the grocery
store business is a business that is ^-ery eas}- to enter.
Mr. PoTAiN. Now, let's return to Morton Salt for a moment. One
of the points in Morton Salt the Court relied upon was that if you
have a discrimination on salt today and peaches tomorrow, and so
forth, that no one of tliese will get you but cumulativel}' they might,
and that was expressly one of the grounds for the holding, is that
not correct?
Mr. Jones. Yes.
Mr. Po'rvaN. Yet no single discrimination, I submit, in a broad
line merchandise retailer could conceivably meet your test that it
could imminently threaten to eliminate you from that line of com-
merce. Is that not a fair comment?
115
Mr. JoxES. It is quite possible. It is hard to say.
Mr. PoTvix. Yes. tSo let's look at it. Let's sa}' that Dean Xeal is —
what would 3'ou like to be, Dean^ A grocer? Hardware man? Aiiy
product line that you feel would be ai)propriate.
Mr. Xeal. One that gets the most benefit from the present Robin-
son-Patman Act.
Mr. Porv'ix. "Well, I would be hard put to make that judgment,
but as long as we started with Morton Salt, let's say 3'ou are a grocer.
Okay. Let's say there is a Safeway down the street and let's say I
am a real bud guy. 1 do something outrageous. I gave them a 90-percent