FTC INDUSTRY CONFERENCE ON MARKETING OF AUTOMOTIVE GASOLINE

TUESDAY, MAY 11, 1965

FEDERAL TRADE COMMISSION,

Washington, D.C.

The Commission met in public hearing, pursuant to recess, at 10 a.m., in room 532, Federal Trade Commission Building, Hon. Paul Rand Dixon, Chairman, presiding.

Present: Paul Rand Dixon, Chairman; Philip Elman, Commissioner; A. Everette MacIntyre, Commissioner; John R. Reilly, Commissioner; and Mary Gardiner Jones, Commissioner.

The CLERK. The Honorable, the Commissioners of the Federal Trade Commission. The Commission is now in session.

Chairman DIXON. We will continue this morning.

Mr. EMMERGLICK. Mr. Chairman, due to the lateness of the hour, I had not quite completed my statement, I had reached one final recommendation or comment which we wish to address to the Commission. I can very briefly state it.

TESTIMONY OF LEONARD J. EMMERGLICK AND E. R. BRADLEYResumed

Mr. EMMERGLICK. It has been said in some quarters that the Commission should have authority to issue temporary restraining orders, particularly in price discrimination cases.

As to that, I would like to make three comments. First, these very proceedings, and the administrative dismissal by the Commission of six cases, into which long years of enforcement effort had been poured, together show how uninformed such orders would have been had they been entered in 1956, 1957, and 1958, in that they would have had no basis in the knowledge that you now think you need and are now getting in this area.

Second, such orders demonstrably could work grave injustice in the cases, for example, where a reversal takes place in the court of appeals, as in the Smyrna-Marietta situation.

And, finally, the need to tailor such orders is surrounded by difficulties which seem to be presently insoluble.

If we think back to 1956, and a case which is now closed-so I suppose we may discuss it-where it was charged against Sun that they discriminated in price in a little neighborhood area in Jacksonville, and the need to tailor a temporary restraining order there, so as not to really put Sun dealers out of business-and then think some 6 years to the time the Supreme Court decision came down, setting up two reserved areas where Sun might appropriately act-obviously such foresight cannot be expected of anybody.

It seems to me that such orders are one thing in the competence of a court which has the tradition of hundreds of years of judicial operation, with no result-getting function, and quite another thing should that authority be lodged in an agency like this which has and should have appropriately a result-getting function. And upon that distinction, and for the other reasons which I have suggested, it seems to me that it would be appropriate for such an authority to be lodged here. I have completed my statement.

Mr. Bradley and I will, of course, be available to answer questions. Chairman DIXON. Commissioner Elman?

Commissioner ELMAN. I have no questions.

Chairman DIXON. Commissioner MacIntyre?

Commissioner MACINTYRE. I would like to ask Mr. Bradley a question.

Mr. Bradley, you heard the statement that was made by you and by Mr. Emmerglick on behalf of Sun yesterday, and the proposition that was advanced that with respect to these problems which have been discussed in the court of these hearings, the Commission perhaps should not undertake to consider or promulgate trade regulation rules to cover any of the problems.

Does that represent your personal view?

Mr. BRADLEY. Well, I have a rather limited knowledge with regard to the implications of trade regulations and the legal aspects of these types of situations. I only have knowledge based on my discussions with our own attorneys and based on those discussions and the information passed along to me in that regard, I personally would feel that

way.

Commissioner MACINTYRE. In other words, if it should be-I am not saying what the Commission is likely to be doing in the futurebut if it should reach a determination that Sun and, say, six or eight of its competitors are using, let us say, practice x and the Commission is led to believe that practice a is unfair within the meaning of section 5 of the Federal Trade Commission Act and should be stopped, your view then is that the Commission should issue a complaint against your company and proceed to litigate that injury in that complaint, whether or not the practice is pursued by the others, until this litigation is concluded.

Is that a statement of your position?

Mr. BRADLEY. Well, again, I don't really feel qualified to take a position in that regard, because I think we are in the area of legality here and the law.

Commissioner MACINTYRE. This is a matter of practical application of the law, Mr. Bradley, and not an interpretation of the law that I am asking this question of you.

Mr. BRADLEY. Well, I would be of the opinion personally that the complaint should be registered against just my company, if I was one of six, or we were one of six.

Commissioner MACINTYRE. You think it should?

Mr. BRADLEY. Yes, I do.

Commissioner MACINTYRE. And if it should take, say, 6 years to litigate, to stop your company, then once that order is upheld, if it should be, by the courts, you would be prohibited from doing this for

6 years, while your competitors are then being pursued in litigation. That is your view?

Mr. BRADLEY. Well, not in the sense that my interpretation of the complaint would do this. I don't understand that a complaint would give us a cease-and-desist order that would put us in a noncompetitive position over a period of 6 years.

Commissioner MACINTYRE. Well, until the other litigation is concluded, which would follow yours, no order could be entered in that litigation against those companies until that litigation is concluded. But it could be against your company when the litigation against your company is concluded. You understand, do you? If the allegations of the complaint in each instance should be sustained.

Mr. BRADLEY. Well, I didn't understand that when you posed the question. I would like to see our company not in a position of being placed for a period of years in a noncompetitive position as compared to other companies.

Commissioner MACINTYRE. Well, let me tell you here and now, Mr. Bradley, that one of the objectives of the trade regulation rule procedures of the Federal Trade Commission, is to avoid doing precisely what you say you want to avoid.

We should not overlook that when we are talking about these different procedures.

I believe that is all, Mr. Chairman.

Chairman DIXON. Commissioner Reilly?
Commissioner REILLY. No questions.

Chairman DIXON. Commissioner Jones?

Commissioner JONES. Mr. Bradley, how many trading areas, price trading areas, do you have in Ohio?

Mr. BRADLEY. I don't know. We don't set up permanent trading

areas.

Commissioner JONES. You have one price in Ohio?

Mr. BRADLEY. No; we don't. We have prices that are based on the competitive prices existing, the tank wagon prices existing, and we would in that regard, from the tank wagon standpoint, probably have under certain circumstances, or during certain periods, probably one price in Ohio with regard to the tank wagon.

Commissioner JONES. How many tank wagon prices do you have in Ohio?

Mr. BRADLEY. Well, the tank wagon prices could vary, based on the conditions existing. We could have various tank wagon prices, and we could have various competitive adjustments, depending on the situations existing.

Commissioner JONES. I am afraid I am a little confused. In your statement you gave us a rather complete summary of all the factors that you take into account in forming a trade area. Now, you tell me you don't have any.

Mr. BRADLEY. We establish tank wagon prices based on

Commissioner JONES. Maybe terminology is the problem. What do you call the area in which a tank wagon price is effective?

Mr. BRADLEY. Well, a tank wagon price normally would apply to what we would consider as a tank wagon circuit.

Commissioner JONES. Circuit?

Mr. BRADLEY. This is an area that is the basic tank wagon price. How many of these tank wagon circuits or areas we would normally have in Ohio, I don't know offhand.

Commissioner JONES. Would you have a map that would show the tank wagon circuits?

Mr. BRADLEY. We would have this information. If, for example at the present time we only have one tank wagon price in the State of Ohio, the State would be our total area for tank wagon purposes. On the other hand, if in a city or in an area within a city we had a price situation develop that required a competitive adjustment, we would have a competitive adjustment off that tank wagon price within a given area.

Commissioner JONES. You would draw that area on something, would you-a map?

Mr. BRADLEY. No, we would not draw it, because this is not a permanent thing. The situations that develop, develop based on the conditions existing at any given time.

Commissioner JONES. But you must communicate this to somebody. You cannot keep it in your head, can you?

Mr. BRADLEY. Well, this starts generally based on communications from our districts or our field through our regional offices to our general offices. And it might start at one localized area. And this begins to spread, possibly, and this is where the feathering out process takes place.

Commissioner JONES. Who is the man who does this? Who keeps this in his head and decides what dealer will be charged what price at a given time?

Mr. BRADLEY. Well, it is not any information that is kept in anyone's head. It is a matter of documentation, it is a matter of record based on the original recommendations that might originate and usually originate from our district offices.

Commissioner JONES. Well, Mr. Bradley, I don't understand how you operate your business. Forgive me if I sound stupid, but I assume you have an area in which a tank wagon price is effective call it the State for the moment. You have a price disturbance. You decide to lower your price to meet that price disturbance.

Now, you tell me that you do not change the tank wagon price. You may change it within a small area. How do you draw that area, who does it, who makes the decision, who communicates it, just how does this operate when this happens?

Mr. BRADLEY. Well, the disturbance might initially start in a local area where possibly only one of our dealers might be involved. We then might grant or set up a competitive allowance for that particular station. Usually these types of situations do not necessarily stop in that small area. The spread generally takes place as a result of competitive moves that over a period of time result in this area growing larger. We do not attempt to draw each step of the expansion of that area. We follow the situation.

Commissioner JONES. Do you do it on an ad hoc basis? The dealer calls up and says, "I am in trouble, the guy across the street just posted 2 cents less." You check it out on the telephone, and fine, he gets a competitive allowance. Who decides how long he is going to get it?

Mr. BRADLEY. Generally speaking, I would say in practically all cases the considerations that we give to these circumstances are the result of dealer requests. As the dealer indicates the problem he is facing, our district offices evaluate the situation, check whatever facts. are available to them in this regard, and pass their recommendations along to their respective regional offices.

The regional offices will get in touch with our general offices and pass along the facts based on their recommendations, and our general offices then either approve those recommendations or disapprove them.

Commissioner JONES. I hope you work faster than the Commission, or that guy will be out of business with that system.

Mr. BRADLEY. We can work very quickly. We have no problems from the standpoint of communications.

Commissioner JONES. Tell me, what are the business considerations, if they exist, to keeping this information secret, or, to put it the other way, would there be any obstacles to publicizing exactly the areas covered by your tank wagon prices, posted in your stations, or in headquarters office, when changes are made to make those public? Mr. BRADLEY. You mean this information being made available to competition, or publicly?

your

Commissioner JONES. I assume if it is made public, competition would know it, too.

Mr. BRADLEY. We would not make this information available as a matter of public information or competitive information. It is available. Our information is well documented. If, for example, the Commission was interested in any types of information along these lines, it would be available.

Commissioner JONES. We have heard some testimony from some dealers who found that they were getting a less favorable price than the dealer down the street, or across the street, or whatever the territory was somebody else they found was getting a better deal from their supplier than they were. When they call up they find out they were in trade area A and the other man in trade area B. We have had some guys that looked as if they were in a trade area all by themselves.

Anyway I have been wondering whether there would be any way the dealer, before he takes your dealership on, could know what trade area he was in, at least at that time. It could be if he was close to the line, or the trade area next door, where there was a different price, because of competitive conditions, he might not want to take that dealership.

Mr. BRADLEY. There would be no way for any dealer to be given this information because these areas are not static.

Commissioner JONES. Well, but as of the time-it does exist as of the time he is applying.

Mr. BRADLEY. Well, we do not have areas as such. We do not have anything carved out on maps. We do not have a description of trading areas that we consider today as being the confines of an area.

Commissioner JONES. What you are really telling me is you have one price, regional, nationwide, wherever it is, and that it is subject. to some variation when and if this price disturbance, which is very contrary. I must be misunderstanding-I am sure that is not true.