Mr. YARRINGTON. That dealer?

Chairman DIXON. Yes. Your licensee dealer.

Mr. YARRINGTON. Those dealers in that area, we feel we have an obligation to permit them to be competitive.

Chairman DIXON. I want to ask you something here on that.

You have some company stations in Kansas City.

Mr. YARRINGTON. I don't think-I can't answer for sure.

Chairman DIXON. You have some in Kansas City?

Mr. YARRINGTON. I don't know.

Chairman DIXON. You don't know that, sir?

Mr. YARRINGTON. I really don't. I probably should.
Chairman DIXON. You should, yes.

Mr. YARRINGTON. But we have a very few company stations.

Chairman DIXON. You don't need many. Suppose you had one in that area right there that you are taking us through right now, and you changed your price to 28.9. What would that little dealer down there that told you to "flub your dub" have to do?

Mr. CHAFFETZ. You are on the wrong track, Mr. Chairman. I can save you a lot of time. There is no such thing in this picture. Chairman DIXON. No such thing?

Mr. YARRINGTON. That is right. Actually, our company operated stations

Chairman DIXON. Suppose there is such a thing. Do you run this company, Mr. Chaffetz?

Mr. CHAFFETZ. No, I just

Chairman DIXON. This is the vice president in charge of sales. You are his lawyer. You just keep talking, Mr. Yarrington.

Mr. YARRINGTON. All right. Very good.

Chairman DIXON. Yes, sir.

Mr. YARRINGTON. Now

Chairman DIXON. I said if you did have a company station here, and you did lower the price in your own station, which certainly you have a legal right to do

Mr. YARRINGTON. We would not do that until the competitive situation in that area made it absolutely necessary.

Chairman DIXON. Well, I would understand that. But then if you had a lessee dealer in that same trade area, where you had a company station, and you lowered the price, you would have him kind of in a whipsaw, would you not? A station right down the road in the same trade area you are. You set the retail price. He has the right to set the retail price himself down here. You just suggest it to him. Mr. YARRINGTON. That is right.

Chairman DIXON. But if you leave him-what would you think the public would say "Have you got a hole in your head? There is a station right up the street charging 2 cents less than you are."

Mr. YARRINGTON. Well, let's talk about the fact that out of any given number of service station dealers, this happens anyway, without the point of the company station that you mention.

Chairman DIXON. This happens to you quite often?

Mr. YARRINGTON. This happens-it certainly does happen to AmeriThere are many times when the dealers choose to sell above the price we suggest.

can.

Chairman DIXON. Unless there is a legal fiction in this business, it could happen all the time. Because if they are your lessee, aren't they entitled to set the price that they see fit?

Mr. YARRINGTON. They are.

Chairman DIXON. That is right.

Mr. YARRINGTON. And they can set this higher or lower, regardless of what we would do if we had a company station.

Chairman DIXON. What you are describing to us is a price war you say that you didn't start.

Mr. YARRINGTON. That is right.

Chairman DIXON. It was a situation you were confronted with-I assume being told about this through your salesmen. And you moved in to meet it.

Mr. YARRINGTON. That is right.

Chairman DIXON. Well, would you go ahead now, unless somebody else wants to pursue this?

Commissioner JONES. Let me ask you one question. When you say, "We lowered our price to the dealer," what price is that-tank-wagon price?

Mr. YARRINGTON. In the Kansas City market, we don't have a tankwagon price as such, because we use the suggested competitive retail plan here. But as we keep-as we suggest a price to our dealers, then we arrive at a margin for them, and establish a selling price to them that takes into consideration the extent to which we feel they should share in the downward price movement.

Commissioner MACINTYRE. The benchmark is the posted tankwagon price, from which you make this allowance, though, isn't it? Mr. YARRINGTON. Generally in most of our marketing territory. In most of our marketing territory.

Chairman DIXON. Mr. Yarrington, I should understand this industry well enough to stop where I did. Do you have a consignment station in Kansas City?

Mr. YARRINGTON. I can't answer that, either, and I am not trying to evade you.

Chairman DIXON. Did you have one at that time?

Mr. YARRINGTON. In that trading area-no.

Chairman DIXON. Are you saying you didn't have a companyoperated station? Did you have a commission station?

Mr. YARRINGTON. No; not in that area.

Chairman DIXON. Did you have a consignment station?

Mr. YARRINGTON. No.

Commissioner ELMAN. What are Hudson and Thoni exactly? Are they retailers or distributors at a higher level also?

Mr. YARRINGTON. Hudson and Thoni are independent--they are an independent chain. Hudson, for example

Commissioner ELMAN. Independent chain of retail service station owners and operators?

Mr. YARRINGTON. Yes; they are not refiners.

Commissioner ELMAN. Are they limited to the Kansas City area, or do they extend elsewhere?

Mr. YARRINGTON. Hudson operates in 34 States. Thoni, I can't tell you.

Commissioner ELMAN. I certainly displayed my ignorance with that question, didn't I?

Commissioner REILLY. That is why we are holding the hearings. Chairman DIXON. I remember Thoni when it started-in my hometown in Nashville, on Shelby Street, up by a bridge. I believe I am right.

Commissioner REILLY. You say you don't know who sells Hudson and Thoni, but do you have any idea in other areas who sells them? Mr. YARRINGTON. I would not want to make a statement that I don't have factual information

Commissioner REILLY. Have you ever picked up any rumors about it who sells, who sells them?

Mr. YARRINGTON. Yes. Since you phrase it that way, we think that Hudson is sold by independent refiners.

Commissioner REILLY. Now, how about Thoni?

Mr. YARRINGTON. That I don't know, but we think it is the same. And this varies from day to day, as to who sells who.

Commissioner ELMAN. Well, pursuing that a little bit, do these independent refiners who sell to Hudson and Thoni give them the same kind of protection on price reductions?

Mr. YARRINGTON. Getting into the context of Mr. Reilly's phraseology, we also think they do. But, again, we don't know. But there are trade rumors that there is protection.

Commissioner ELMAN. Do you regard a price war of this sort as essentially a contest between refiners? You have got the resources of the refiners entering into this.

Mr. YARRINGTON. No; I would say I essentialy consider this a contest between independent retailers.

Chairman DIXON. I am going to see if I cannot find out something else here. Do you exchange any gasoline in Kansas City?

Mr. YARRINGTON. No.

Chairman DIXON. Do you exchange gasoline with anybody anywhere?

Mr. YARRINGTON. Yes.

Chairman DIXON. Not in Kansas City?

Mr. YARRINGTON. Yes.

the

Commissioner ELMAN. These independent dealers that you say contest is between are not entering into the contest with only their own economic resources.

Mr. YARRINGTON. That is right; if they are supported.

Commissioner ELMAN. So long as an organization like American Oil Co. is able to support its retailers who are engaged in a price war situation of this sort, those retailers have behind them a very large treasury that is able to support selling gasoline at very low prices. The whole concept of below cost doesn't seem to mean very much when the retailer can go down very low and not have to worry about losing

money.

Mr. YARRINGTON. I think we have to flip that coin on the other side and say that American Oil has relatively inflexible assets in Kansas City, and so does its dealers, and regardless of the circumstances that are involved on this temporary basis, we feel like we must keep those dealers in business, and we don't want to lock up the stations. So we have to support the dealers, as we see it.

Commissioner ELMAN. But your tactics and your objective of keeping your dealers in business in that particular area may make it im

possible for an independent retail dealer to lower his price, because he knows no matter how low he goes, he is going to be met by a giant. Mr. YARRINGTON. But as a matter of what happens practically in the marketplace, there are many, many times that American and others, other majors, permit considerable differential. This is why there really is no standard differential as such in the market. The price is never moved downward by American. And is supported until there is a price they have to meet.

Commissioner ELMAN. Suppose you made a decision in your capacity as marketing development director of this company to eliminate the differential in that area, or even to sell your gasoline at 1 cent below the independent's price. Suppose you made that decision, as a man who is concerned with selling your company's gasoline and increasing sales.

Now, if you made that decision, you would have the resources to be able to enforce it. And you could drive them out of business, couldn't you? How could anybody sell Hudson or Thoni gasoline at 1 cent a gallon? Or 1 cent a gallon more than Amoco ?

Mr. YARRINGTON. You are really posturing a circumstance where we would just be giving our products away, and would be originating the doing of this, which is, in my opinion, unfeasible.

Commissioner ELMAN. You might have to give it away for a temporary period, long enough to drive the independents out of business, if that were your objective.

Mr. YARRINGTON. But it is not our objective.

Commissioner ELMAN. Suppose it were. Would you regard that as anticompetitive and illegal?

Mr. YARRINGTON. I don't know why I should suppose that this would happen.

Commissioner ELMAN. I am not suggesting it does happen or ever would happen.

Mr. YARRINGTON. I think this is the way that I would feel about it.

Commissioner ELMAN. Isn't there a danger it might happen, if someone wanted it to happen?

Mr. YARRINGTON. Not in my opinion. I think an analysis of the marketplace would indicate that this is not a danger. Historical analysis of how American prices and how other majors price would indicate this is not a danger.

Chairman DIXON. If you had a company policy that said you are going to sell, or you desired to suggest that your outlets sell your gasoline within 1 cent of these private branders, and that you would protect them, why can't you do what Commissioner Elman said-if you have more resources than they have? Why can't you discipline them? How long would you have to hold this operation down before they would get the message? That if they just want to keep on playing with you, you will just keep on following them, and let them lose just as much money as they want to lose. And then when they get tired of it, you will test them, you will go back up. And if they came, it worked; if not, you would come back. If you have a plan like that, why don't you have that kind of power?

Mr. YARRINGTON. We don't have a plan like that.

Chairman DIXON. Doesn't your SCRP plan have that kind of potential in it?

Mr. YARRINGTON. You must remember one thing, Commissioner; I believe it is the answer to this total line of questioning: American Oil's pricing is defensive from beginning to end.

Chairman DIXON. Well, this is good. But defensive from what standpoint?

us.

Mr. YARRINGTON. In that we meet competition when it is hurting

Chairman DIXON. When it hurts you?

Mr. YARRINGTON. When it is hurting our dealers.

Chairman DIXON. Then everything is all right-if everything is all right, you don't worry about it.

Mr. YARRINGTON. Well, it gets to be quite a difficult task defining all right these days.

Chairman DIXON. What should gasoline be selling for before you are aching out there in Kansas City?

Mr. YARRINGTON. Well, we have ached in Kansas City many times. Chairman DIXON. I would gather from all we have heard about Kansas City you must have been aching, a lot of people must have been aching. But what should the price of gasoline be there?

Mr. YARRINGTON. Whatever competition will let it be.

Chairman DIXON. I know. But before you institute this plan of yours, this suggested plan of protection-what is your normal spread to your dealer?

Mr. YARRINGTON. Kansas City, the normal spread is, I believe, 52

cents.

Chairman DIXON. What was the spread when this was going on? What did you ask the dealer to absorb?

Mr. YARRINGTON. We have a 4-cent downstop in Kansas City.
Chairman DIXON. Guaranteed-no lower than 4 cents?

Mr. YARRINGTON. Four and a half.

Chairman DIXON. Four and a half?

Mr. YARRINGTON. Four and a half there.

Chairman DIXON. But five and a half cents was the normal spread? he has to keep going?

Mr. YARRINGTON. That is right.

Chairman DIXON. But five and a-half cents was the normal spread? Mr. YARRINGTON. When you consider a 30.9 price, which is the price that we would like to see-5.5.

Chairman DIXON. 5.5 when regular gasoline is selling at 3012 cents in Kansas City. When it goes down under that, though, you institute your protection plan, and then their spread narrows.

Mr. YARRINGTON. That is right.

Chairman DIXON. How does it narrow-by half cents or cents, or what?

Mr. YARRINGTON. It varies on the odd. It goes down to threetenths on the first move, two-tenths on the next, and it is essentially 7525, so it goes 3 and 2 and 3 and 2.

Chairman DIXON. Well, now, we have interrupted you, I think, long enough. Will you carry that out? We had gotten

Commissioner REILLY. Mr. Chairman-I am back again to the mechanics of the suggested retail price to that American station there between the Thoni and Hudson station, and the allowance which you then give them.