On the Way Out?

THE philosophy and practice of Fair Trade price-fixing laws are taking a heavy official beating. Last week the high courts of two states threw out Fair Trade statutes as unconstitutional. In a case involving the sale of Prestone anti-freeze for $2.97 a gallon (instead of the Fair Trade $3.75), the Arkansas Supreme Court ruled that any law that gives a manufacturer the power to bind all retailers to a fixed price because one retailer has signed an agreement deprives the non-signers of "a valuable property right" (to sell at a reduced price) without due process of law. On the same grounds, the Nebraska Supreme Court ruled that McGraw Electric Co. could not block an Omaha drug company from selling $23 Toastmasters for $19.95.

Although the lawbooks of 40 states still carry strict Fair Trade statutes, the law of the market place has reduced enforcement to an absurdity on appliances, cameras, power tools, electric mixers, phonograph records and dozens of other items. While Fair Trade pricing is still fairly successful on hundreds of other household items (toothpaste, vitamin pills, jewelry), many merchants question the entire system. Fair Trading has defeated its own purpose, in that it brought great prosperity to the discount houses and other price cutters it was designed to outlaw.

Actually, Fair Trade laws were never designed for a booming economy with an expanding market. They gained momentum during the Depression, when the National Recovery Administration fixed prices to halt price cutting in the fight for a limited market. In 1937 the National Association of Retail Druggists, a powerful lobby of 36,000 retailers and drug manufacturers, pushed the Miller-Tydings Act through Congress to open a loophole in federal antitrust laws so that state legislatures could legalize the fixing of minimum prices. By the end of 1941, druggists and other small retailers had pressured 45 states to pass Fair Trade laws. Most states required all merchants to abide by a manufacturer's price minimum if one retailer agreed to do so, but in 1951 the U.S. Supreme Court ruled that non-signers were not bound. Congress then passed the McGuire Act to make even non-signers subject to minimum price agreements.

What are the arguments in favor of Fair Trade? The druggists' association maintains that it protects the consumer from "sucker prices" (loss-leaders) and the manufacturer from losing good will. The Fair Traders argue that the law gives the small businessman a chance to compete on equal terms with large distributors, who normally buy in quantity and can sell for less. (The druggists also contend that a 1951 Neilsen survey shows that drugstore prices are actually lower, on the whole, in Fair Trade states.) Says Sunbeam Corp., one of the biggest backers of minimum prices: "Without Fair Trade, the distribution of national brand merchandise is monopolized by a handful of the most powerful department stores and discount houses . . . This automatically eliminates the small store and limits outlets." Sunbeam says that 20 discount houses in 1953 took over 80% of Sunbeam sales in price-free District of Columbia and 600 small distributors dropped Sunbeam products. As a result, sales in the District were down 15%, although in the country as a whole, they rose 11%.

The biggest argument against Fair Trade is that it keeps up prices by holding an umbrella over the inefficient merchant. Although Texas, Vermont, Missouri and the District of Columbia have never had Fair Trade laws, none has a shortage of small retailers. Nor is there ruinous price competition. The Dallas Better Business Bureau believes that price freedom has helped Texas retailers "meet the rising threat of the discount operations." It also finds that most merchants still stick close to the manufacturers' recommended prices.

In the interests of freer competition. Attorney General Herbert Brownell's committee on antitrust laws is expected to recommend next month that Congress repeal the McGuire Act. But the chances for repeal are small, since pro-Fair Trade retailers exercise a powerful influence on individual Congressmen. Nevertheless, it looks as if Fair Trade is dying anyway. In an era of high production and high consumption, more and more retailers, like manufacturers, are aiming for low profits on many items, rather than higher profits on a few.

Many small merchants have found that their best protection against price cutters is not the fixed-price umbrella, but salesmanship and service. Nobody doubts that there will always be a place for the corner grocer, druggist or other small merchant who will run a charge account, cash a check, deliver on a moment's notice, etc. By such enterprise, most retailers can bring in enough new customers to more than make up for those lost to price-cutting stores.

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