but I have seen them, on a number of dairy producers of this kind. It
goes down dramatically over the last 15 or 20 years.

Mr. Stigler. Primarily by merger, I am sure. Mr. Mueller is the
fanunis autlior of studies here. You may ask him. But it was my impres-
sion that the route has been merger and maybe it should have been
stopped by an antimerger policy.

Mr. Hungate. Professor Posner, on page 2 of your statement you
state that the act is so badly drafted and so capriciously enforced it
has harmed small business more than helped.

Could you give me an example of, just one example, perhaps, of
extremely bad drafting in there ?

Mr. Posner. One example would be the meaning of the phrase "like
grade and quality,"

Mr. HuNGATE (presiding). Pardon me. In the phrase what?

Mr. PosNER. The phrase "like grade and quality"- •

Mr. HuNGATE. Like grade and quality, yes.

Mr. PosxER (continuing) . Which is a jurisdictional provision of the
act. It has raised such questions as whether products that are physically
identical but have different brand names are of like grade and quality,
a question i)robably not foreseen by the draftsmen.

Section 2(b), which creates a defense of meeting competition, is
extremely ambiguous, because as you read it you do not know whether
showing that j^ou were meeting competition is merely a relevant factor
which perhaps shifts the burden of proof back to the Government or
whether it is an absolute defense, because it is written in terms of prima
facie case.



170

Mr. HuNGATE. Counsel — I mean. Professor- — I am advised that I
sliould concede that it is badly drafted, and that will be one of those
cases, Professor, where tlie record may not always support it.

Mr. PoTvix. However, Mr. Chairman, I think there are several
points that need to be made here. When you have four versions of a bill
introduced on a controversial subject, when it goes to a conference com-
mittee, you finally reach an equilibrium which is voted on out on the
floor. This is not an exercise in granmiar. It is an exercise in public
policy.

Secondly, while some of the — for instance the 2(b) matters that you
were just illuminatino' luiAe been troublesome in the past, the courts
are resolving- them. Certainly Standard of Indiana settled that for
the i)urposes of that case, absent the passage of II. R. 11, that it
is a substantive defense. Again, recently certainly the Meyer case and
the Perkins case have applied some sort of a connnonsense or rule of
reason approach to make it more workable, so that I think in fairness
when you critics talk about the draftsmanship and the lack of perhaps
both concision and precision, to your view, at least, in fairness I think
you have to also include in this the precedent track record that has
tended to eliminate, tended to dissolve, tended to accommodate these
various questions.

Thank you, Mr. Chairman.

Mr. PosxER. It is true that in the .3;] years the act has been on the
books, some of tlie questions that its draftsmanship raised have been
answered, and many remain unsettled.

Mr. PoTViN. Well, is it not true, Mr. Posner, as an example, the
Bible is something like 2,000 years old, contains sharply (liferent
points of view and statements in many, many matters, one takes it
of some importance. It is today still evolving as a living document. It
is today still being interpreted.

And certainly I trust that you would not urge the repeal or extir-
pation by one means or another of that document, would you (

Mr. PosNER. No, but I would not recommend using it as a legal
standard.

Mr. Oden. Or as another exami^le, the Constitution, which is ap-
I)roximately 180 years old, and the first 10 amendments are still being
interpreted by the courts every day.

Mr. PosNER. There is this difference, though, that the problems
under the Robinson-Patman Act have arisen chiefly from its s))eci-
ticity, its complexity. The Sherman Act covers the whole antitrust
ground in just a few sections. Obviously, they require interpretation.
But the Robinson-Patman xict is full of seeming inconsistencies be-
tween sections and mysterious omissions.

You have a section 2(f) that makes illegal the inducement of an
unlawful price discrimination, but why doesn't the act also outlaw
the inducement of an unlawful advertising allowance, section 2(d) ?

These kinds of mystery, of gears that do not mesh, are

Mr. PoTviN. Well, section 5 has proven a convenient repository for
that task, however, thereby solving that particular problem, has it
not?

Mr. Posner. Eventually the courts will patch together, I suppose,
the most badly fractured statute, but I think we would have saved



171

many lawyers' find judges' time had the act emerged from Congress
in better shape.

Mr. PoT\T[N. jSIr. Chairman, I think there is a further observation
here that I would like Mr. Posner's comment on, for the record.

One thing thai these hearings are proving is that we are hearing
discussed a dreadfully complex economy, and issues on which seem-
ingly reasonable people have the most violent dili'erences of opinion,
issues that are difficult to comprehend, literally almost impossible to
analyze.

Does it really sur]n'ise you, sir, that a statute that speaks to the to-
tality of those situations would, of necessity, be rather complex?

Mr. PosNEP.. It does surprise me in this sense, that the assumption
which underlies the Sherman Act is that, with a relatively simple
prohibition of monopolistic conduct, the Government will be able to
exercise a minimum of interference and control in the business pol-
icies of firms. And I think the Robinson-Patman Act is inconsistent
with that tradition in extending

Mr. Porv'ix. Well, now, speaking to Sherman, the structural part
can be simple — do not monopolize. There have been some very good-
sized disagreements and journeys into esoteric precincts over the mean-
ing of the word "conspire" in Sherman, though, have there not?

Mr. PosNER. That is true, but the fundamental difference is that
most of the time firm never encounters a section 1 issue. They are
either conspiring or involved in some kind of collusive activity or
they are not.

On the other hand, virtually every firm, I suppose, except those that
sell directly to the consumer and do not buy from competing sup-
l^liers, must constantly keep in mind the bearing of the Robinson-
Patman Act on its prices. Its prices, advertising allowances, and
brokerage dealings are subject to detailed regulation under this act.

Mr. HuNGATE. Mr. Conte,

Mr. Conte. I understand, Mr. Stigler, that while I stepped out
for a moment you commented on the Justice Department stand that
I believe Assistant Attorney General McLaren made on the mandatory
oil quota system.

You stated you approved of their position.

I have been hghting this for 11 years, now. I cannot tell you how
pleased I was to fuid someone who agreed with me that this national
security issue was a ])hony issue, that it is not involved here at all and,
if anything, during World War II when we needed oil badly for our
Atlantic Fleet we were completely dependent on Venezuela. So if it is
a question of national security, it is to our benefit not to have a quota
system and to have some avenues open with foreign countries on the
question of oil with this approach in times of emergency we would have
a market in which we could buy this oil. If you cut off this market and
these people become solely dependent on exporting their oil to the
Soviet Union or Europe, they are not going to turn around and sell
you oil in times of emergency and establish a new market.

Do you agree with me that the national security argument is a phony
argument?

Mr. Stigler. Let me just say that I find the argument that when
we have emergencies we have to go elsewhere very strong, and that



172

if we really were concerned primarily with national defense our treat-
ment of things like the Mexican and tlie Canadian supplies would be
different than it would be on national defense grounds.

I agree with your general position very much, and I hope, although
I do not laiow anything about it, that the current review by the admin-
istration of this system will lead to some relaxing of it, because it is a
very costly system.

Mr. CoNTE. The people who suffer the most in the entire country are
the people from New England, We have about 5 percent of the popula-
tion, and we use about 20 percent of the oil, and we just cannot get
sufficient supplies at reasonable costs.

It is a question of supply and demand. And as a result we are paying
right through the nose. We not only have the highest utility costs in
the country up there in New England, but now we have the highest
price for fuel oil, plus the fact that last year we encountered a 10 mil-
lion barrel shortage up there. It drove the price way up.

Not only that, but it was a terribly cold winter and a lot of people
could not get sufficient oil to keep their houses warm.

This is a terrible situation, only to protect some domestic oil barons.
That is the only purpose that act accomplishes.

Mr. Stigler. I take it there are no Texans on this subcommittee.

Mr. CoNTE. There are, and unfortunately we have never had hear-
ings on this question.

Mr. HuNGATE. Wright Patman is not from Indiana.

Mr. CoNTE. Thank you, Mr. Chairman.

Mr. HuNGATE. Do you have questions, counsel ?

Mr. PoTviN. Mr. Posner, to revert to some dialog in the record,
there are two points that I think need perhaps, if not correcting, at
least further consideration.

First, you stated in a way quite consonant, of course, with the recom-
mendations of the Commission that to use the report's language, "we
can conceive of no case of discrimination in which the Sherman Act
would not provide an adequate remedy."

Then you had some discussion with Congressman Horton on tliis
point. Of course, you would concede that section 5 and Robinson-
Patman are incipient in nature, whereas Sherman is not ?

Mr. PosNER. There is that difference in the way the sections are dis-
cussed, but I know of no disposition on the part of courts interpreting
the Sherman Act to wait until a situation has become irrevocably
advanced. One of the crimes under section 2 of the Sherman Act is
attempting to monopolize. I have no doubt that if a firm were found
to be engaged in a course of predatory pricing in order to exclude com-
petitors, one could proceed against that firm before it actually had
succeeded in obtaining a monopoly.

Mr. PoTviN. You would have to have a rather farther advanced
oligopoly, or wouldn't you have quite a credibility gap that you were
attempting to monopolize if you have less than a fairly advanced
oligopolistic situation?

Mr. PosNER. Yes, but you are raising an interesting question whicli
is: How does a firm that is very small, is not a big factor, embark
upon a course of making itself large through predatory pricing^

Mr. PoTviN. I think that there is some gray area, being in your lan-
guage a "very small" and part of, say, a four-firm oligopoly, or in this



173

case, as Mr. Odeii has correctly pointed out, a 32-firm grouping tliat
has a third of the market.

Mr. HuNGATE. Mr. Posner, I would like to inquire about your state-
ment regarding capricious enforcement. What do you mean by that^
Mr. PosxER. I had in mind the way in which the act has occasionally
been applied in a manner that seems inconsistent even with a purpose

of protecting small business. For example

Mr. HuNGATE. Pardon me just a minute. Would you say that the
fact that the Justice Department's only used it two times in, what,
32 3^ears, that you regard that as capricious ^

Mr. PosxER. No. That reflects

Mr. HuNGATE. Is capricious nonuse ?

Mr. PosNER. No. There are two judgments there. One, there has to
be a division of labor between the Justice Department and the Federal

Trade Commision. And under that division of labor, the FTC

Mr. HuNGATE. Well — go ahead. I am sorry I interrupted you.
Mr. PosNER. For many years the brokerage clause, section 2(c) , was
used against the buying cooperatives of small retailers who wanted to
get a discount in lieu of brokerage by forming a group that would not
require purchasing through an independent food broker. They wanted
to get the benefit of the fact that they were cutting out a middleman.
And the FTC proceeded very vigorously against these buying groups,
and they were enjoined and dissolved. I cannot see what purpose is
served by that kind of enforcement.

]Mr. HuxGATE. What area were they in ? I mean, what kind of busi-
ness, do you remember ?

Mr. PosxER. These were retail grocers.

Mr. HuxGATE. Retail grocers. What area of the country, do you
remember ?

Mr. PosxER. There are several cases, and I do not know that there
is anj'^ particular region involved.

Mr. HuxGATE. I would appreciate it if maybe you would furnish two
or three to the committee for its files.
Mr. PosxER. I would be glad to.
Mr. HuNGATE. Cite them.

Good. Now, would you regard the fact that this treble damage pri-
vate suit arrangement, would that lend itself to capricious action ?

Mr. PosNER. Well, there, of course, enforcement is strictly in the
initiative of the person who feels himself injured. Judging by the way
the treble damage suit has been used in the antitrust field, I think there
is a likelihood that firms will use this right of action for purposes that
inure strictly to their own benefit and do nothing for the consumer.
Mr. HuNGATE. All right. Pardon me a moment. I have some notes
somewhere.

Now, let's see. Professor Stigler, you refer to collusive and anti-
competitive practices that protect obsolete and ineffective types of
business. What would some of those obsolete and ineffective types of
business be, that are so protected ?

Mr. Stigler. Well, the main instance that was being proposed as
explicit and intentional on the part of the statute was, of course, the
independent broker. The law, I would say, though, is systematically
invoked bj^ private parties when thej' complain to the FTC, when they

36-13S — G9 — lit. 1 12



174

are at tlie receiving; end, not the giving end, of an aggressive, com-
petitive set of maneuvers.

And some of them are brought by people who are perhaps being-
injured. That is a question for the courts to decide. But in general,
whatever the motive for the competition, whether the other rival is
more efficient or not, you can invoke an investigation of the FTC
often to inhibit and hamper your rival.

Mr. HuNGATE. AVhen we mentioned the figure of perhaps 200 cases a
year, we were not discussing investigations, or were we? I mean, the
figure of total investigations would be larger than that.

Mr. PosNER. Yes.

Mr. Stigler. Substantially.

Mr. HuNGATE. Two or three times as nuich ? Or what is it you gentle-
men feel for that, or would you have an idea ?

Mr. PosNER. I don't know.

Mr. HuNGATE. Once again on this — I think you stated it might not
be — when we are looking to the consumer, that it might not be to the
public benefit to keep small business alive in those cases. Is that a cor-
rect restatement ?

Mr. Stigler. Yes. Where small business had to be protected by some
device, it does not allow more efficient rivals to take over, and then the
consumer will be hurt.

Mr. HuNGATE. Well, what we are saying, I guess, then, is that it is
not necessarily in the public interest to keep small business alive.

Mr. Stigler. Not per se, certainly not. We want to keep them alive
where they are, if given a fair chance, an efficient and viable form of
enterprise.

Mr. Hungate. Would you think it would be necessarily of public
benefit to keep large business alive ?

Mr. Stigler. I would say that where large businesses are essential,
it would be imprudent social policy to try to hamper and beat them
down just because they are large.

Mr. Hungate. Well, just because they are large, though, are they
any more necessary in the public interest than the small ones ?

Mr. SnGLER. No. I think there are a lot of monopolies that should
be chased after, that have no justification for their size. I do not see
a presumption on size alone.

I might just say in passing, I do not really see the horrible dilennna
of this connnittee facing a situation in which they have to protect
small businesses at a substantial cost to the rest of the community.

I think there are large areas where small business is the best form
of economic organization, and where there is no inconsistency in its
dominating the area and the consumer and the worker, and so forth,
benefiting.

Mr. HuxGATE. Well, now, there was some statement regarding the
consumer, and if I understand it, the operation of this act resulting
in higher prices to the consumer. Is that correct? I mean, is that a
criticism of the act?

Mr. Stigler. Yes ; it is.

Mr. IIuxGAiT.. And you believe in some cases it would result in that ?

Now, when you do that, aren't you — could not the same argument
be made regarding many of our labor acts; in other words, the right



175

to bargrain collectively undoubtedly results in higher \van:es, I suppose
in fringe benefits and higher prices to the consumer (

Mr. St-igler. I will go a step fai-ther than that. If I were making
up a set of acts which 1 think imjjosed large costs on the American
economy, Robinson-Patman would be way down the list.

Mr. HuNGATE. Well, 1 take it, then, you would be for rej)eal of the
rigiit to bargain collectively. Is that a fair statement (

Mr. Stigler. Not quite that.

JMr. HrxGATE. But you would be for repeal of Kobinson-Patman !'

Mr. Stigler. I would be; yes, and I would be for the repeal of some
of the rights such as, for example, those of enforcing secondary boy-
cotts and of the imposition of featherbedding constraints, and the
like, in the labor field. 1 would attempt to use the same criteria there.

Mv. HuxGA'EE. I think, if I understand the law, there is no right
for situs picketing under the law as it stands now. I think that is what
always comes up, they ask for that secondary boycott authority. I
do not think it exists.

What about a minimum wage law ?

Mr. Stigler. I would be opposed to one as being harmful to the
people that it is intended to hel}).

Mr. HrxGATi:. Well, before we had a minimum wage law, I suppose
we did have people working at below subsistence levels; did we not?

Mr. Stigler. Yes, sir. And many of them were then discharged.

Mr. PoTAix. Mr. Chairman.

Mr. Stigler, on page Xo, using the BXA identification, there is a
description of what your group has termed "a dark chapter in the
Commission's history."

Now, if I may turn aside from that for just a moment and read to
you from President Eisenhower's message delivered at the — well,
not his message but from the Small Business Act of 1958. At the time
of his signing it, it said :

It is the declared policy of the Conffres.s that the Government should aid,
counsel, assist, and protect, insofar as is possible, the interests of small business
concerns in order to pi'eserve free competitive enterprise.

Now, you seem somehow, or your group did, to object to an attempt
on the part of the Commission and some of its staff to devise a simpli-
fied, less time consinning, less redtape way to treat problems, involving
veiy small businessmen with large suppliers. You use such phrases
as "nefarious reasons, dark chapter," and so on.

Would you like to illuminate that or comment upon it ?

Mr. Stigler. As I understand this passage — Mr. Posner may have
quite a different opinion — the objection to the use of this system was
that it is essential to subject the Commission to other safeguards
against governmental policy to protect the individual. If the causes
and the actions are of such a size that the man who is being com-
plained about is injured, he cannot normally afford to use the courts
to demonstrate that the Federal Trade Commission is exceeding
its authority. And you always have the dilemma in the field of ad-
ministrative law of, on the one hand, getting too formalistic and put-
ting great costs and delay in the system, and being too infonnal, so
that the safeguards of the individual are seriously injured.

Mr. PoTviN. Isn't Mr. Posner, though, going to in very short order
encounter two constraints here : On the one hand he would argue



176

that he should not do this informally: on the other hand, his is one
of the louder voices in protesting the tilino- of individual cases rather
than doing the broad industry approach. Thus

Mr. PosNER. That is not — ^that is not anything I have suggested.

Mr. PoTviN. In your dissent to the ABA report, you did not-



Mr. PosNER. I did not suggest that they should be conducting studies
instead of filing complaints.

Mr. PoT\'iN. Well, you certainly objected, in the most vigorous terms
that these ej'es have read in sometime, to the hling of individual cases
on Robinson-Patman counts.

Mr. PosNER. Because of reservations about the merits of the sub-
stantive policies, not because of a preference for non-adjudicative or
informal enforcement methods over formal.

Mr. PoTYiN. Well, let's take a good garden variety FTC staple.
Let's take a 2(a) secondary injui-y case involving a service station.
Obviously, the service station operator is not in a position typically if
he is a lessee to go file a treble damage action. If he does, the Perkins
case track record suggests it would take 1-1 or 15 years if it goes all the
way up.

Would you regard that as a worthy case for the Commission's time
in a formal sense ?

Mr. PosxER. I think the verdict there was over a million dollars, so
I think his time in bringing that suit was probably well repaid.

Mr. PoT\'iN. Mr. Perkins, of course, was much more than an indi-
vidual lessee. He was (a) a large jobber, (b) who owned a number of
service stations and (e) a rather wealthv individual, quite apart from
that.

Mr. PosNER. Right. As a matter of enforcement policy, apart from
the merits of the statute, I think certainlv the Federal Trade Com-
mission ought not to spend public money in cases where there are pri-
vate remedies available.

Mr. PoTviN. So, thus you would not have

Mr. PosNER. Like the Perkins case.

Mr. PoT\'iN. You would not have them go on a 2(a) secondary
injury case, on an individual service station ?

Mr. PosNER. No. I was addressing myself just to the Perkins type
of case where the amount in controversy is so large that the victim can
well afford to finance his own ] itigation.

Mr. Pot\t:n. Reverting to the question, sir: We are talking now
about one lessee, we are talking about a 2(a) secondary injury case.

Please comment on whether you feel the Commission should or
should not proceed with a foi-mal complaint, assuming the finding of
the underlying facts, and so forth.

Mr. PosNER. I should think that even in that case the Commission,
because it has a limited budget, would have to make a judgment
whether to spend its enforcement resources on this type of case or
whether it should concentrate on some other area of the law.

It has to make that judgment. The Commission cannot prosecute
every case where a complaint has been lodged with it unless it has
unlimited appropriations.

Mr. PoT\'ix. Thus, you are expressing at least a disinclination to
proceed. You are not taking a flat-footed stance. So now we have, to a



177

deo-ree, eliminated the formal way to help this case with an obvious
law \iolation, and yet you do not want it done informally, either; do I
understand you to say ?

Mr. PosNER. I think the point of the report is not solely a criticism
of the use of covert enforcement where the staff may take upon itself
judgments that are to be made by the Commission, but also that it has
i)een the practice — at least it is ray impression that it has been the
practice — for the Commmission to act as a kind of dealer's representa-
tive in the dealer's relationship with its suppliers. This is not limited
to price discrimination but includes, for example, terminations. A ter-
minated dealer will go to the FTC and complain, and very often the
statf of the Commission, without even bringing the matter to the Com-
mission, will go to the supplier and try to work it out, or get the dealer
reinstated. The difficulty I have with this is that while making termi-
nation more difficult will help an occasional dealer, it will harm small
business as a whole because it will make sellers less interested in the
franchise mode of distribution, where there are independent dealers.

Mr. PoTviN. Let me ask this, sir: Xow, frequently these termina-
tions involve allegations — a common example is that as a dealer you