knowledge of the personality of the Commissioner and whether you
would be thrown out or not thrown out.



269

Mr. PoTV^N. I think that is a practical problem you speak of to all
members of the bar. You would want equal access on the one hand
and on the other hand, you certainly would not want to commit an
impropriety, and absent certain written rules, how would one deter-
mine that?

Mr. KiRivPA TRICK. You put it with great accuracy, sir.
Mr. Oden. Did you find in your discussions with the staff that there
was any feeling by various staff' members that these ex parte commu-
nications added to the feeling of demoralization at the Connnission ?
Mr. KiRKPAiTiicK. I do not recall any such discussion with the staff
members.

Mr. PoT\'iN. One final question, Mr. Chairman.

During the appearance of the Stigler group, we discussed with them
what they had characterized as a dark chapter in the Commission's
history, these rather simplified, so-called informal small business pro-
cedures. Frank!}', it did seem to us that it was an altogether helpful
thing. If things could be resolved in a way that was to everyone's
satisfaction and not misused, and I know of no such allegations in that
direction, it was probably altogether helpful. I do not believe you spoke
to that in your report, did you f

Mr. KiRKPATRiCK. Are you speaking of the assurances of voluntary
compliance '?

Mr. PoTviN. No, I was speaking, really, of the informal small busi-
ness procedures or the title I am familiar with. What has happened is
that specifically, Mr. Wilson of the FTC staff, particularly in the pe-
troleum industry, if a dealer comes in and says '"they are going to can-
cel my lease because they tried to tell me I have to sell at 30 cents and
I would not do it so they are going to break my lease," rather than
going through all the formal steps, Mr. Wilson of the FTC staff was
upon occasion contacting the parties involved and saying, "How about
that," and back and forth, and soon it would be resolved. To these ears,
it sounds reasonable. To Professor Stigler's ears, it sounded like some
kind of "nefarious activity."

Do you have any comment on that ?

Mr. KiRKPATRiCK. I do not believe that our Commission dealt with
that procedure at all. I did not appreciate that it had been formalized
at all.

Mr. PoTViN. You have received no complaints from any quarter on
this activity ?

Mr. KiRKPATRiCK. I can recall no complaints other than that which
I think is set out in Mr, Posner's dissent. I think he does refer, at least
inf erentially, to such a procedure.

Mr. PoT\aN. That is all I have, Mr. Chairman.

Mr. DiNGELL. Gentlemen, the committee is grateful to you. You have
been here a long time. You have been very patient and very responsive
and we are grateful to you for your very helpful testimony.

We thank you both, gentlemen, for your very fhie appearance today.
If there is no further business to come before the subconnnittee at
this time, we stand adjourned subject to the call of the Chair.

(Whereupon, at 4 p.m., October 9, 1969, the subcommittee adjourned,
subject to the call of the Chair. )



36-138 — 69 — pt. 1 IS



APPENDIX



President's Task Force Report on Productivity and Competition

The Report of President Nixon's Task Force on Productivity
and Competition was published in the Congressional Record (June
16, 1969, page S6472) at the request of Senator Talmadge. The report
had not been released by the White House as of that date.

The report, among other things, contains the task force's recom-
mendations, which are briefly summarized as follows : (1) establish-
ment of the Antitrust Division, Department of Justice, as the effec-
tive agent of the administration in behalf of a policy of competition
within the councils of the administration and before independent
regulatory commissions, (2) regulatory commissions permit free en-
try into regulated industries and abandon minimum rate controls,
(3) institution of antitrust suits that make good economic sense, (4)
close liaison between the Antitrust Division and the FTC at the
highest levels, (5) institution of a series of strategic cases against
regional price-fixing conspiracies, (6) maintenance of an unremitting
scrutiny of highly oligopolistic industries, (7) revision of the Justice
Department merger guidelines in the light of view that they are
extraordinarily stringent, (8) a program of action against con-
glomerates not be undertaken until there is more information as
to their economic effects, (9) new legislation to increase monetary
penalties for price fixing, (10) a new policy for antitrust decrees,
with the use of regulatory type only in exceptional circumstances,
(11) repeal the Expediting and Webb-Pomerene acts and sub-
stantially revise the Robinson-Patman Act.

The texts of the report, task force member dissents, and working
papers of members follow :

Summary of Recommendations of the Task Force on Productivity and

Competition

"We present here a summary of the recommendations of the Task Force on
Productivity and Competition. These recommendations are elaborated and de-
fended in the accompanying Report.

1. We recommend that the President issue a general policy statement (a) estab-
lishing the Antitrust Division as the effective agent of the Administration in be-
half of a policy of competition within the councils of the Administration and be-
fore the independent regulatory commissions; (b) urging those commissions to
enlarge the role of competition in their industries; (c) marshaling public sup-
port for the policy of competition.

2. We urge the commissions to permit free entry in the industries under regula-
tion and to abandon minimum rate controls, whenever these steps are possible —
and we think they usually are ; and we urge the President, when occa.sion per-
mits, to appoint at least one economist to membership in each of the major com-
missions, and institute effective procedures for the review of the performance of
the commissions.

3. To enhance the effectiveness of the Antitrust Division, we urge the Attorney
General and the Assistant Attorney General in Charge of Antitrust to insist that
every antitrust suit make good economic sense, and to institute semi-public con-
ferences to assist in the formulation and frequent reevaluation of enforcement
guidelines.

4. We recommend that the Department of Justice establish close liaison with
the Federal Trade Commission at the highest levels, with a view toward foster-
ing a harmonious policy of business regulation.

(271)



272

5. We recommend that the Department bring a series of strategic cases against
regional price-tixing conspiracies, which we believe to be numerous and eco-
nomically important.

6. We cannot endorse, on the basis of present knowledge of the effects of
oligopoly on competition, proposals whether by new legislation or new interpreta-
tions of existing law to deconcentrate highly concentrated industries by dissolv-
ing their leading firms. But we urge the Department to maintain unremitting
scrutiny of highly oligopolistic industries and to proceed under section 1 of the
Sherman Act — ^whieh in our judgment reaches all important forms of collusion —
in instances where pricing is found after careful investigation to be substantially
noncompetitive.

7. The Department of Justice Merger Guidelines are extraordinarily stringent
and in some respects indefensible. We suggest a number of revisions in the
accompanying Report.

8. We strongly recommend that the Department decline to undertake a pro-
gram of action against conglomerate mergers and conglomerate enterprises,
pending a conference to gather information and opinion on the economic effects
of the conglomerate phenomenon. :\Iore broadly, we urge the Department to
resist the natural temptation to utilize the antitrust laws to combat social prob-
lems not related to the competitive functioning of markets.

9. We recommend new legislation to increa.'^e the monetary penalties, at pres-
ent largely nominal, for price fixing.

10. We urge a new policy for antitrust decrees. The Department should not
seek the entry of regulatory decrees : decrees that envisage a continuing rela-
tionship with the defendant. Save in exceptional circumstances, all decrees
should contain a near termination date, ordinarily no more than 10 years from
the date of entry. And the Department should undertake a review of existing
decrees to determine which should be vacated as obsolete or inappropriate.

11. The Expediting and Webb-Pomerene Acts should be repealed, and the
Robinson-Patman Act substantially revised.

12. Mr. Alexander L. Stott dissents from certain parts of the Report and from
certain of the above recommendations. Mr. Raymon H. Mulford dissents from
two recommendations.

Report of the Task Force on Productivity and Competition

The Task Force on Productivity and Competition submits its report on the
problems which will be confronted by the new administration in this area, and
the steps which we recommend to be taken. The report is presented under three
general headings :

I. The Administration's Policy of Competition and the Role of the Antitrust
Division and the Regulatory Commissions in This Policy.

II. Organization and Procedure in the Antitrust Division.

III. Recommendations for Change in Antitrust Policy.

Individual task force members would often change the emphasis of the Report,
and larger differences are presented as dissents.

I. general policy

A. Antitrust policy

The American Way, as we are constantly told, is to rely upon competitive
private enterprise to do most of the work of allocating resources to industries and
firms, organizing production, and providing economic progress. We are con-
stantly travelling a shorter distance down this Way, however; for good rea-
sons and for bad we have almost continuously expanded the governmental con-
trols over economic life, and in recent years important restrictions have been
placed upon private enterprise to protect the balance of payments. Some of the
vast arsenal of public controls are unnecessary, and a large proportion of the
necessary controls are exce-ssively restrictive of competition. As one example,
the safety of financial institutions is of course a major public concern, but this
safety can often be achieved by insurance or similar devices, and hardly ever
requires that competition be suppressed to the extent that the most incom-
petently managed institution ^\all be prosperous, and hence safe.

The traditional American policy of seeking to minimize regulation of economic
life is a profoundly wise policy, and deserves to be reasserted and implemented.



273

Both logic and political expediency — not always close allies — dictate that eco-
nomic freedom be subjected to the discipline of competitive markets. We believe,
therefore, that the President should issue a general policy statement on com-
petition and public regulation, to achieve at least three important purposes :

1. To establish the Antitrust Division as the effective agent of the Administra-
tion in behalf of a jwlicy of competition, in intragovernmental groups, and be-
fore independent regulatory bodies.

2. To encourage and urge the regulatory bodies — which cannot ignore the clear
policy positions of the President even when his appointive power is dormant —
to enlarge the role of competition in their respective industries.

3. To revise and strengthen public support for the policy of competition, and
to establish the bona fides of the Administration as the protector of both con-
sumer and businessman.

An executive order or a major presidential address would be an appropriate
vehicle for this declaration. Whether or not a formal statement commends itself,
we believe that the correct policy is one of persistent and resourceful exploitation
of competition wherever possible.

B. The policy of competition in the regulated industries

Our mandate to examine productivity and competition in the American econ-
omy compels us to brief examination of the work of the regulatory commissions
themselves. The regulated industries comprise one-eighth or more of the economy
in terms of income, and are too important to be omitted from our Repoi't.

The tasks assigned to the regulatory agencies are various : to prevent monop-
oly pricing (as with telephone and pipelines) ; to prevent congestion (as with
radio and television frequencies) ; to provide safety to savers (as with financial
institutions) ; and so on. It is not po.ssible for us here to examine these purposes
critically, although it is notorious that in certain industries (such as motor
trucking) there is no respectable case for economic regulation. There is wide-
spread disenchantment with regulatory purposes as well as regulatory processes,
and a general belief that excessive rigidity, expensive review of economically
trivial details and frequent failure to achieve any important results have char-
acterized our regulatory efforts.

In two directions, we are convinced there should be a major reorientation of
the regulatory policy :

1. Entry of new firms should be encouraged wherever an absolute contradic-
tion with regulatory goals is not involved. At present the practice is univer-
sally the opposite : to prohibit or ration with utmost severity the entrance of new
firms.

2. Allow much freedom in price competition. The regulatory bodies should
abandon mimmum rate regulation whenever possible (and it is usually possible),
and rely chiefly on maximum rate regulation.

Where rates are regulated, it is essential to make both changes : there is
little merit in allowing additional firms to enter if they are not held to the test
of unfettered competition with the existing firms.

We urge the Administration to pursue three complementary paths of reform
in the regulated industries :

First, the commissions should have the merits of competition pressed upon
them. Competition is not a matter of all or none, and the fact of regulation
should not exclude competition as a force at each of a hundred points where it
is relevant and feasible. If there must be only one railroad there can still be
several truckers, several freight forwarders, and the possibility of inter-modal
competition.

Second, the primary method of giving a larger role to competition is by ap-
pointing commissioners who understand and believe in a policy of competition.
We believe that every regulatory body should have at least one economist as a
commissioner. Quite aside from the implementation of the desire for more com-
petition, this proposal has a decisive defense : economic regulation poses more
economic than legal problems, and an economist knows more about economics
than a non-economist. The economic triviality and irrelevance of much activity
of the regulatory commissions is patent and inexcusable.

Third, the regulatory commissions are largely out of public control. Once in a
decade or two, at most, a commission will be investigated by Congress. The
Administration should explore methods of getting more meaningful and effec-



274

tive reviews than we now get. We do not know whether the best method is an
enlarged Bureau of the Budget section, a national commission, the creation of
academic review committees, or a special adviser to the President. The best
method, however, is surely not infrequent, partisan Congressional review. The
present rule of the regulatory bodies is undirected, unmeasured, and unevalu-
ated.

II. ORGANIZATION AND PROCEDURE IN THE ANTITRUST DmSION

A. The utilization of economic knowledge

We anticipate little opposition to the proiwsition that the Antitrust Division
miake full and effective use of economists and their special skills. These skills
are often necessiary to understand the effects of economic practices (an example
is market-sharing in fixed proportions), to assess the economic importance of
individual cases, and to assist in devising remedies that will not shatter on eco-
nomic realities. We endorse the policy of having a highly professional economist
serving as adviser to the head of the Division, and a strong permanent staff of
economists.

The problem is not the goal of an economically sophisticated antitrust policy,
but its implementation. A division charged with the enforcement of a statute must
of course be directed and largely staffed by lawyers. Unless there are substan-
tial incentives to the staff to utilize economics — whether by central direction, or
vastly more powerfully by demonstrated assistance in winning cases — the non-
lawyer will often be viewed by the lawyers as a mysteriously necessary obstacle
to smooth operations. The Assistant Attorney General will have succeeded in mak-
ing a truly major contribution to antitrust policy if he establishes the relevance
of economic knowledge.

B. The development of criteria for classes of cases {(niidclincs)

W^hen the Antritrust Division is confronted by a large number of similar
cases — and it mu.st now he .scanning many hundreds of mergers each year — it will
inevitably have rules to guide the numei'ous men who pass on individual cases.
The question is not whether to have criteria or guidelines, but how to arrive at
them.

We believe, for reasons we discuss below, that the present merger guidelines
are questionable in important respects. Here we consider the procedures for
formulating guidelines.

A set of rules for a class of cases will be desirable only if two conditions are
fulfilled :

1. There are a large number of uncontroversial, easily identified cases. If
there are not, the rules give little help to either business or the Division.

2. Controversial or objectionable cases cannot be repackaged to avoid scrutiny.
The way to determine whether mergers, for example, meet these conditions

is to examine a large number of them in the light of legal and economic knowl-
edge. The Antitrust Division will perform this task vastly better if it uses the
large amount of professional expertise available outside the Division. We there-
fore recommend that the Division have semi-piiblic conferences to explore difficult
areas of policy, inviting legal and economic experts to propose or discuss guide-
lines. Some members of the task force would prefer to have formal notice and pub-
lic hearings in establishing rules. If rules are adopted, a periodic review of
them by the same procedure will be a useful method of conferring flexibility upon
them. A specific application of this method is proposed below for mergers.

C. The role of the Federal Trade Commission

No review of antitrust policy would be complete that ignored the Federal Trade
Commission, which is charged with enforcement of, among other statutes, the
Clayton Act, of which Section 2. the Robinson-Patman Amendment, and section 7,
prohibiting mergers and acquisitions that may substantially lessen competition,
are particularly important : and the Federal Trade Commission Act. whose oper-
ative provision. Section 5 forbids "unfair or deceptive acts or practices," a term
that has been interpreted to embrace even more than the vast area of anticom-
petitive behavior proscribed by the Sherman and Clayton Acts, as well as con-
sumer fraud and some "immoral" sales methods such as lotteries. As is evident, the
Commission's jurisdiction largely overlaps that of the Antitrust Division.



275

In its antitrust work, the FTC has concentrated on price discrimination, on
practices believed to ojipress or coerce small dealers, and on mergers, especially
vertical and conglomerate, and usually in industries such as food products,
groceries, and cement — industries which by long-established understanding with
the Antitrust Division have been assigned as the Commission's sphere of primary
competence.

Unhappily, little that the Commission undertakes in the antitrust area can be
defended in terms of the objective of maintaining and strengthening a competitive
economy. Consider price di.scrimination. There is now an impressive body of litera-
ture arguing the improbability that a profit-maximizing seller, even one with
monopoly power, would or could use below-cost selling to monopolize additional
markets. Yet, not only has the Commission continued to bring predatory price
discrimination cases, but the alleged danger of predatory pricing remains a prin-
cipal prop of its vertical and conglomerate antimerger cases. As for "secondary
line" discrimination (that is, giving discounts to some dealers or distributors but
not to others who compete with them), the Commission has never attempted ta
differentiate those cases (if there are any) in which a monopsonistic buyer is
able to extract unjustified price concessions from his suppliers to the prejudice of
his competitors from tho.se in which discrimination is employed l)y oligopolistic
sellers who wish to cut prices secretly — and should be encouraged to do so — and
those in which price differences (which the Commission tends to equate, errone-
ously, with discriminations) are not. in fact, discriminatory. Over the last eight
years the Commission, often under the prodding of reviewing courts, has pulled
some of the sting from enforcement of Robinsou-Patman against secondary-line
discrimination. It has demanded somewhat stronger proof of competitive injury ;
the meeting-competition and cost-justification defen.ses have been rendered mean-
ingful ; and the provisions of the Act relating to advertising allowances and
brokerage payments are, in general, no longer used to compel sellers to compen-
sate for services that are not economically beneficial to the seller (such as adver-
tising by tiny retail outlets or brokerage when a broker's services can be dis-
pensed with ) .

Although the retreat from per se rules against secondary-line discrimination
has led to a general diminution of enforcement activity by the FTC (private
suits continue, of course, and are discussed later) the Commission still brings
many cases that impair, rather than promote, competition and efficiency. For
example, the Commission has in recent years waged vigorous war against "func-
tional discounts", which are discounts offered to middlemen who perform cer-
tain distributive functions (such as warehousing) that other middlemen, who are
not given the discounts, do not perform. Moreover, as explained later in this
Report, we can conceive of no case of discrimination in which the Sherman Act
would not provide an adequate remedy — adequate, that is, to protect the interest
in maintaining an effectively competitive economy — and so we view Robinson-
Patman enforcement as inherently likely to be pu.shed beyond proper limits.

The efforts of the Commis.';ion to protect small dealers from allegedly unfair
and coercive business practices constitute a dark chapter in the Commission's
history. Much of this enforcement activity does not eventuate in formal pro-
ceedings. What happens is that a dealer who is terminated, for whatever reason,
is likely to complain to the Commission, knowing that the relevant Commi.ssion
staff is well disposed toward "small business". The staff uses the threat of an
FTC proceeding to get the supplier to rein.state the dealer, and if threats fail-
usually they succeed — the FTC may file a complaint charging the supplier with
having cut off the dealer because he was a price cutter, or for some other nefari-
ous reason. Our impression, in sum, is that the Commission, especially at the
informal level, has evolved an effective law of dealer protection that is unrelated
and often contrary to the objectives of the antitrust laws. The Commission is
supported in this endeavor by the Supreme Court's rulings that Section 5 of the
FTC Act empowers the Commission to suppress practices that resemble antitrust
violations.

"With respect to the Commission's enforcement policy in the merger field, it is
illuminating to compare the recent statements of Commission merger policy
with the Department of .Tustice Merger Guidelines, discussed els;ewhere in this
Report. The Commission is even more severe. Unlike the Department, it attaches
a good deal of significance to the absolute size (inde]iendent of market share)
of merging firms : to the alleged ix)wer that large fimis have over .«mall : and to
the dangers of "price squeezes''. It will, for example, challenge virtually any



276

acquisition by a cement producer of a ready-mix concrete company, virtually any
substantial accjuisition by a large food cliain, etc. The Merger Guidelines are
models of restraint compared to those promulgated by the Commission, which