Chairman, Earl Kintner, took a different position. What are your views
concerning the effect of the act on prices to the consuming public ?

Mr. Stigler. I think the act has had some tendency to raise prices,
not so much by its protection or lack of protection of small business
but by the costs it imposed upon such methods of doing business. There
are certain areas such as in the brokerage area where the act is strictly
protectionist and says we are not interested so much in the efficient
conduct of the brokerage business but in preserving the independent
broker. That could, but I suspect hasn't, lead to a substantial defense
of inefficient brokerage operations.

The reason I don't think it has had a great influence is that any
affected firm may then vertically integrate backward and undertake-
that function itself. Xow that is an easy, legal way of escaping the
impact of the act. But if that big company is not quite as efficient as
an independent broker would have been, or as somebody else perform-
ing the brokerage provisions, we have created by statute a slight ineffi-
ciency m business conduct. And tliis is the kind of an impact that I
think has been the main result of the Robinson-Patman Act, not that
it has radically changed the cost of business, indeed not even that it
has any great influence in protecting small businessmen.

Mr. Conte. Do I understand you correctly that a price difference
becomes objectionable only if maintained over a long period to only
certain customers?

Mr. Stigler. Well, the fundamental difference is one of duration, I
think. And if you show me a case where one class of customers in an
industry get preferential treatment for a long time after we have
washed out all the differences in costs, then I have got an orthodox
monopoly price discrimination case and I would like to get after them,
preferably by Sherman Act methods, but I would like to get after them.

If you show me where one firm gets a somewhat better price but 2
weeks later somebody else is getting it and pretty soon everybody is
getting it, then I feel that I have broken a monoj)olistic or some other
barrier to competition, and that is a result I don't mind. So that I am
going to make my test on whether it is really a method of doing
business or a method of changing business.

Mr. Conte. Yesterday, I asked Professor Neal a question about the
effect of this act on consumers. I am very concerned with the problems
of the consumer and if the consumer would benefit by changes in the



155

Robinson-Patmaii Act, "well, this is something which iimst be con-
sidered. But the case of the mom-and-pop stores that we had so much
discussion about yesterday is well known. These stores have dropped
by the wayside because of competition from the giant chainstores.
Congressman Moss brought out an excellent point here yesterday
saying it is no longer a question of small businessman versus the big
businessman. It is a question of the big businessman versus the giant
businessman. If we wind up with a monopoly here of only very, very
large companies, won't the consumer ultimately suffer from this by
these large operations being able to charge whatever price they want
to the consuming public.

Mr. Stigler. If we got in the situation where one, two, or three
dominant chains supplied the groceries of typical large American
cities, I would share completely that concern. I was under the impres-
sion, although I have not looked at the recent numbers, that there has
been a decentralization in the chain business; A. & P., for example, is
far from its peak percentage of the grocery business in America, and
that a large number of strong middle-sized, virile chains, go into
markets and have given us a fairly competitive and effective marketing
system. We have not gotten down to where there is a real danger in
any large city — there will still be small towns where there is high
concentration — of any threat of monopoly.

I might say I think the mom-and-pop stores may well be on the way
out but they are on the way in in other areas. The service industries are
growing at a very rapid rate and they are in some respects the haven of
small business because it is ven^ hard to run service enterprises in a
chain and the solicitude and diligence and application of the self-
employed small proprietors have great advantages in that area.

Mr. CoNTE, But isn't it the case that in many of these communities
you only have maybe two or three large chainstores operating?

Mr. Stigler. I think that is often true, although in the suburbs of
Chicago where I live the proliferation is immense, and an A. & P. is now
subjected to so much pressure that you have a wide range of
alternatives.

Let me say that retailing is a business that is easy to go in and
easy to go out. I am confident that so long as that is true, if you
show A. & P. or Jewel or Safeway or some other chain, any city in
which the margins look unusually attractive, the markups are good
and price cutting is inconspicuous, that you will very soon observe
the entrance of new units in that area. In other words, I think we
have a very com]5etitive and remarkably efficient grocery vending
business in the United States,

Xow, it may not continue that way. It may become concentrated, but
I don't think we are near that stage now.

Mr. CoNTE. Another point made yesterday was that : the Robinson-
Patman Act is poorly drafted, is vague, is widely violated, and that
the FTC spends too much time with R-P cases. How do you feel about
this?

Mr. Stigler, Let me say two things. First, I don't consider myself
as a nonlawyer to be a great expert. I don't know how you tell

Mr. CoNTE. IMaybe I should direct it to Professor Posner.

Mr. Stigler. He would be a better person to answer this.



156

]Mr. PosNER. I think it is somethino: of an affront or disgrace to
the legal system that there should be a statute that has proliferated so
much controvery and litigation over virtually every sentence. I am
sure that the costs of compliance by firms with the act are very high
and that this is a particular hardship for small firms. And it does
seem to be the small seller — because after all small businessmen are
sellers as well as buyers — who runs afoul of the act. If one looks at any
volume of the Federal Trade Commission decisions, it is clear that
most of the Robinson-Patman defendents are very small firms. A
consequence of having a badly drafted and highly complicated law is
that a great deal of the community's resources get devoted to litiga-
tion, legal and accounting expenses, which must eventually result
in higher prices on the goods being sold.

Mr. CoxTE. I have one last question. Professor Stigler, what are your
views concerning the great activity that has been taking place in
recent years in regards to conglomerates, and what are your views
concerning the course of action which the Department of Justice
has adopted in this field recently ?

Mr. Stigler. Our report was never released, and I suspect that
the section that we wrote on conglomerates is one reason that sec-
tion must have been a fairly unpopular piece of reading for Attorney
General Mitchell and Assistant Attorney General McLaren.

We on the one hand said that we did not know any good economic
analysis or collection of facts to demonstrate that there were important
threats, least of all of the monopolistic sort, in this inerediblv flourish-
ing conglomerate merger movement that we have had. We did not
believe that the Sherman Act should be used to attack it, at least
at the present time.

On the other hand, we realize that there are a series of possible
problems, in the security markets, in the issuance of securities that
mislead people and deceived them, in the possible subversion of tlie
political process by the great conglomerate concentrations of wealth,
and the like. And we proposed, therefore, a substantial threshing out
and airing of what really are the dangers and what are the right ways
of combating those dangers in the conglomerate area bv having con-
ference of the best informed people in America on this subject.

By the time we submitted it, of course, the new division was already
in full battle cry against the conglomerates. We knew that, but we
thought our task was to relay our convictions to the Department of
Justice and not to try to guess what it was going to do; that would
serve them no function.

Mr. Conte. So, therefore, you did not come out with any specific
recommendations. You merely came out with a recommendation that
you should have this conference and they should come up with
recommendations.

Mr. Stigler. That is right. We even argued against one or two of
the most widely flourishing suspicions, such as the pervasiveness of
reciprocity, ancl felt that this ought to be viewed not as an antitrust
matter. The antitrust laws are used here primarily because it is well
known that as soon as you can bring a case under the Sherman Act
and name as a defendant United States Steel, you have already got
nine votes from the j^iry. We would prefer to have the conglomerate
enterprise understood better and perhaps new legislation called for.



157

Perhaps the SEC would be the appropriate body. And perhaps tliere
is nothing to worry about.

I might say a conference such as that one that we proposed is
being held at the University of Chicago next week and then the week
thereafter another on the same subject is being held by the New
York branch of the American Bar Association.

Mr. Smith. In regard to your statement on the conglomerates, did
you limit your consideration to economic considerations or did you
consider the impetus as caused by tax advantages?

Mr, Stigler. I would consider that tax incentives have played a
part — I am speaking personally now. The committee really did not
go into the tax issue. Our mandate was primarily to look at whether
there were competitive implications of these conglomerates. In gen-
eral, we said, no. We did not go on to say is everything else satisfactor3\

My own belief is that tax considerations have played a very large
part in the emergence of the conglomerate in the form it has taken.

Mr. Smith. In arriving at a conclusion, would you not have to,
or did you consider that some of these would not really be economically
possible if it were not for the tax advantage, and, therefore, it is kind
of an artificial shift.

Mr. Stigler. I think that is right, but you cannot play it both ways.
Congress cannot pass certain kinds of laws and then be surprised if
businessmen react intelligently to them. And if Congress, for example,
heavily favors bonded debt by allowing interest to be deducted from
income for tax purposes, it has no right to be surprised that enter-
prises go in heavily for bonded debt and change the capital structure
of the business. I personally don't think we should give an incentive
to go in for bonded debt.

Mr. Smith. Perhaps I did not make my question clear. Wouldn't
you very possibly arrive at a different conclusion if the tax laws were
different, if in making your conclusion you only considered economic
advantages?

Mr. Stigler. Let me say two things. We did not say that conglomer-
ates are fine in general. We said we do not see a monopoly problem
posed by them. We said there may be. a political problem. There may
be a tax problem. There may be a securities market problem, and
mavbe these ought to be explored and new legislation developed to cope
with them, so that in a sense we didn't exonerate or convict the con-
glomerate movement. We said we did not see how within the frame-
work of our assignment, which was competition and monopoly, they
posed a problem.

My second answer would be that I might, if I took these tax con-
siderations very seriously, want to change some laws, I agre^ to that,
but I might not want to use the Sherman Act to deal with the problem.

Mr. Smith. Theoretically, if there were no tax advantage, conglom-
erates could not flourish, could they, because to pile levels of manage-
ment on top of levels of manage on top of levels of management and
all the additional problems created by that, if they complied with the
antitrust laws, they could not have economic advantages that would
permit them to flourish the way they have, could they?

Mr. Stigler. I have only one misgiving in saying certainly you are



36-13S — 69 — pt. 1 11



15S

right. My own instinct is that specialization has advantages in the
conduct of business and that if you are in the movie business there is
no advantage of going into the grocery business or into the clothing
business or something else. The one misgiving I have is that I am
told — and this really says that we do not understand conglomerates
\-ery well — I am told that another possible explanation for some of
the flourishing is that with the age of the new computer and the like,
the economics of centralizing action and of replacing inefficient
management with good management and directing capital quickly
may have changed the efficient size of enterprise, and that (leneral
Motors not only is good at getting GM executives but maybe good
enough so that they are good at training earthmoving executives,
whereas '20 years ago, decentralization was so clumsy in clearing things
with headquarters and the like it was nothing but a ))urden.

Mr. Smith. Well, then, to summarize, what is your position on the
Kobinson-Patman Act? "\Vould you repeal it or would you amend it?

Mr. Stigler. Let me distinguish two things. Our report says that we
were dehnitel}' split. Half of the committee advised the administra-
tion to leave Robinson-Patman alone, that anything likely to be done
would make it worse, and half of the committee said we should amend
the act to simplify and clarify its operation and restrict its anti-
competitive etfects. I don't really think we discussed very much the
problem of simple repeal because we were told basically in our mandate
not to play a Utopian game. AVe were not, like ]\Ir. Xeal, told to make
a blueprint for what Ave thought is an ideal world. We were told to put
most of our energies in what you think tlie administration could do
without legislation.

Mr. Smith. Speaking as an individual then would you repeal or
amend ?

Mr. Stigler. I would repeal as an individual.

Mr. Smith. What would you do, Mr. Posner ?

Mr. PosNER. Same thing.

Mr. CoNTE. ^Nlr. Chairman.

Professor, why did your study oj)pose the Xeal report ju-oposal
for legislation deconcentrating highly concentrated industries?

Mr. Stigeer. I think the formal answer is we never even considered
the issue in anv detail because that is a mo:-;t sweeping, radical, earth-
shaking kind of change in the economic policies of this countiy. You
could not throw that proposal out as a casual minor legislative amend-
ment of our ]iolicy. Since we Avere told mostly to concentrate on things
that the administration, not th.e legislature, but the administration,
couhl do something about, Ave did not go into SAveeping refornr^.

Mr. ( 'oNTE. I see.

Mr. Stigler. But I don't Avant to dodge your question. I person.ally
have serious misgivings about the Xeal proposals for deconcentration.
I Avorry about the fact that Avhere Ave have substantial large economies
of scale, deconcentration puts burdens on us, Avhere the economies are
not lari>-e, private rivals have a tendency to enter and eliminate in-ofits
themseh^es. Neal's proposal is a A^ery elaborate machinery. It could
easily be at least as complex as tAvo Rol^inson-Patman Acts. .Vnd the
stakes are CA-en higher, you knoAv : Will my company survive as one
company or become three ? Our committee did not go into the details



159

at iill. I have th()ii<!:lit about it some and tlu'i-e was a time when I was
younoer and perhaps wiser when I was enthusiastic for that scheme.
I no longer am.

Mr. CoNTE. One final question, if I may, Mr. Chairman. Mr. Smitli
asked you if you favor the repeal of the Kobinson-Patnum Act and
vou said you did. Would vou have anvthin<r to rei^lace it^

Mr. Stigler. In a way I don't know whether we need it or not. The
real question is do I want any discrimination statute ?

Mr. CoxiT,. Eight.

Mr. Stigler. And I think, I think no. I shall give an answer as an
economist, although we ought to ask our fellow member and lawyer.
Under the Sherman Act, if I were a small businessman and found you
engaged in predatory practices against me, I could still bring a triple
damage case under the Sherman Act. We want to have a defense
against predatory practices if they arise. But I have the feeling that
a defense exists under the Sherman Act. But tliat is a legal question.

Mr. CoNTE. Mr. Posner, how do you feel about that ?

Mr. Stigler. Do they or don't they ?

Mr, Posxer. It is a historical violation of the Sherman Act to en-
gage in predatory conduct in order to drive rivals out. In fact, it is
one of the bases on which the old Standard Oil Trust was held to be
in violation of the Sherman Act.

Mr. CoNTE. Thank you, Mr. Chairman.

Mr. HoRTOx. Mr. Chairman, just following up that last question, it
is my recollection from law school somewhere along the line that it
was much more difficult to bring an action under the Sherman Act
than it is under the Robinson-Patman Act. Is this one of the problems
tluit we have insofar as the small businessman is concerned^

I address the question to you. Professor Posner.

Mr. Posner. I think it is true in this sense, that in a proceeding
against price discrimination under the Sherman Act the plaintitl' or
the Govermnent would have to prove that th.ere was a danger or
monopoly or that the conduct had an evil motivation, something of
that sort. Under the Robinson-Patman Act it has been possible for the
Government to win its case with a minimum of evidence, indeed with
very little more than showing that there was a diiference in i)rices.

So in that sense the Sherman Act imposes a higher standard of
proof. But that seems to me wholly appropriate because the Robinson-
Patman Act with its very loose and broad standard forl)ids a lot of
price dilferences that either are not discriminatory at all or are, as
Professor Stigler pointed out, just a transitory adjustment to a new
equilibrium.

Mr. HoRTOx. Tliere are three or four areas it seems to me tliat we
are concerned about in these hearings. One is the matter of competi-
tion, and the problem of freedom of competition among small, medium
size, large, super, and whatever classification you v*ant to give to that.
You have tlie tug of wars between all tliese areas. At the same time
you are trying to preserve and to protect another concern that we have,
namely, the small businessman.

Then we have to consider the field of consumer interests in this

area.

Now, if you do away — and you have indicated difficulties that we
have with the Robinson-Patman Act — if vou do away with the Robin-



160

son-P;itinan Act, how do you protect the consumer interests and small
businessman against competition they cannot possibly keep up with ?
You are not going to do away with the paperwork. He's still got a lot of
paperwork, taxes, payrolls, all the other things that are involved.
What do you do to protect him, or do you have any suggestions in that
area (

Mr, PosNER. There are two separate interests involved. I think so
far as the consumer^

Mr. HoRTON. Well, there are really three. Competition, consumer,
and the small businessman.

Mr. PosxER. I think the first two are the same. That is, I think the
consumer is protected by a competitive market in purchasing goods at
the lowest possible price.

Mr. HoRTON. If it is a controlled competition, then your theory is
that he is not protected, isn't that right, Professor?

Mr. PosNER. There are types of control over competition that will
harm the consumer by preventing the more efficient firms from getting
the business. But in general, with the protection of the antitrust laws,
the consumer ought to be adequately protected and does not need
additional legislation.

On the other hand, if it is public policy to protect small business-
men from the vicissitudes of economic progress, then perJiaps you
might want to consider laws that appropriated money to businessmen
who were driven out by new forms of doing business.

Mr. IIoRTON. I recall in your statement you have indicated that
the act has acted more as a deterrent to the small businessman than
as an aid to him. Is your goal to protect the small businessman, or
do you say just don't worry about him, let him alone and let him shift
for himself in the market ?

Mr. PosxER. I would say essentially the latter. That is, I am not
convinced that there is a public benefit in keeping alive — I mean alive
in an economic sense — a particular group of businessmen such as the
independent food brokers.

But on the other hand, if that is public policy, there are methods
of effectuating it that might be preferable from a consumer stand-
point, and from the standpoint, indeed, of small businessmen gen-
erally, to an act like the Robinson-Patman Act which hurts probably
as many or more small businessmen than its helps and which probably
results in higher prices to consumers. Now I don't know how far
down that road one wants to go. There are multitudes of small busi-
nesses that have simply gone by the boards as a result of economic
change — harness makers, buggy whip manufacturers, stagecoach as-
semblers. I don't know where one stops if one makes a judgment that
it is desirable to protect particular businessmen against the competi-
tion of new methods of distribution. And that, after all, is what is
involved here. The impetus behind the Eobinson-Patman Act was
desire to protect existing forms of distribution from the chainstore,
the mail-order house, that kind of thing.

Mr. HoRTON. Well, you make it sound as if it is bad to try to
protect the small businessman and you mentioned some rather out-
dated types of small business. But there are modern and up-to-date
small businessmen, for example, in the electronics field and in other



161

fields who have good ideas. Yet they cannot compete in this market
because of size and because of all the other factors that are involved.
I would like to know from yon, Professor, how far you would go to
protect the small businessman. You indicated in the early part of
your statement that it is a cjuestion of how far you would go. How
far would yon go? I think that will help the committee at least to
put your remarks in a proper atmosphere.

Mr. PosNEE. As a personal matter

Mr. HoRTON. Right.

Mr. PosNER (continuing). I would not support legislation that was
designed to protect small business from the competition of more
efficient enterprises or new methods of doing business. I think that the
smart businessman in the electronics field or anywhere else can do
very well despite being small. Certainly electronics is an example of
an area where veiy small firms have done extremely well and have
advantages that giant firms have not I^een able to meet. I am thinking
of the assembly of highly so])histicated electronic components. I don't
think small businessmen need protection if they really have something
to otTer the consumer.

Mr. HoRTON. Professor Stigler, you volunteered earlier in response
to a question of Mr. Conte your thoughts as to why your task force
study had not been released. Would you spell that out a little more?

Mr. Stigler. I hope that you can get an authoritative answer if
you wish from the Department of Justice. Let me just say that in the
light of the fact that somebody released it to a newspaper — I saw
quotations which I think were in the Washington Post — I wrote a
letter to Mr. McLaren asking to have it released because I felt a fuller
statement including dissenting opinions miglit be more useful. And
before he could act upon that decision, it apparently appeared in the
Congressional Record and in the Bureau of National Affairs without
any consent from anybody I know. I don't know what the status of
tlie document was. For us it was simply a paper which I had sent only
to two parties, the Department of Justice and the counselor to the
President who was the coordinator of the task force, so I don't know
anything about procedures or reactions. I have had no further corre-
spondence with the

Mr. HoRTOx. But your theory is that it was because of the conglom-
erate position.

Mr. Stigler. I think that is the one main area where, just as an
outside reader, I see a large difference. We recommended higher
Sherman Act penalties and Mr. McLaren is now asking for them,