Mr. BRADLEY. Well, possibly I might pose an example of a situation that develops, and the procedures that take place.

Commissioner JONES. I understand when you are responding to a competitive situation. What I don't understand is when there is not a competitive situation, whether you have a single price that is offered to every one of your dealers wherever you trade.

Mr. BRADLEY. Well, if there are no price problems, if the market is at what we might consider as a normal level, the price in effect for all dealers would be the tank-wagon price.

That would be a single price.

Now, with regard to tank-wagon prices, we, for example, would have throughout our marketing area what might be considered as tank-wagon circuits. We consider them as such. And these tankwagon circuits have their respective tank-wagon prices.

We have a different tank-wagon price, for example, in New Hampshire, than we would have in Massachusetts. Now, these are specific areas with specific tank-wagon prices, and this type information would be available to any prospective dealer.

Now, circumstances could develop that might change the pricing in those areas, and the assistance given might vary in sections of those areas as conditions of a competitive nature exist.

Commissioner JONES. Did I understand you yesterday to say that you had consignment stations?

Mr. BRADLEY. I do not think I am permitted to talk about consignment, based on Mr. Emmerglick's request.

Commissioner JONES. I'm sorry. I thought maybe Mr. Emmerglick had another case.

I have no further questions of you, Mr. Bradley. I have a question for Mr. Emmerglick later.

Chairman DIXON. You indicated to Commissioner Jones that you gave price assistance to dealers on occasions. Is this assistance that you give to your dealers conditioned on the station posting a lower price?

Mr. BRADLEY. No, sir.

Chairman DIXON. Just how do you give it, then? Describe it. You say it is off of tank-wagon price that you operate. Tell me in a practical matter what do you say to the station operator?

Mr. BRADLEY. Well, we say nothing originally to the station operator. The station operator comes to us first.

Chairman DIXON. All right. He comes to you.

Mr. BRADLEY. Requesting assistance. We evaluate the conditions existing in the area, first, by what is happening at the retail level. In addition, we, based on experience, based on our ability to determine as many facts as possible in the marketplace, are able to verify some of the competitive moves that have been made.

Our dealers talk to competitive dealers. Our salesmen are able to determine some facts in the market place.

Using what is available to us from the standpoint of developing information, we then reach our conclusion with regard to whether assistance is justified, with particular reference to what is happening to the business at that particular dealer's location.

We then grant to that dealer assistance, if the facts that we develop indicate that assistance is needed as far as our particular dealer is

concerned. We then make that assistance available to him, and it is then his decision what he does with it.

Chairman DIXON. All right. Now break down that assistance. You come right up to the point and stop as far as I am concerned. How do you give it to him; what kind of a plan? Do you say, "I am going to give you 2 cents off of tank-wagon price"?

Mr. BRADLEY. We indicate, for example, that we will allow a competitive allowance of so much off the tank-wagon price.

Chairman DIXON. A competitive allowance. That is all you say to the dealer?

Mr. BRADLEY. That is all we say.

Chairman DIXON. What do you suggest he sells the product for?

Mr. BRADLEY. We do not suggest that he sell the product at any price, because he has made the request to be able to meet the competition that is existing around his location.

He is able to determine what price it is necessary for him to meet. Our allowance is based on enabling him to meet the competition that he has indicated exists.

Chairman DIXON. Do you have a suggested price for your Sun

190?

Mr. BRADLEY. Our Sun 190 normally is set up on a straight line basis so that 190 is sold 1 cent below 200

Chairman DIXON. Do you suggest it, sir? I know what it sells for. I have been told that.

Do you suggest that it be sold for 1 cent under?

Mr. BRADLEY. Yes; we suggest that 190 be sold on a basis similar to all other grades.

Chairman DIXON. So you do suggest a price.

Mr. BRADLEY. We suggest with regard to the system-normally 190. Chairman DIXON. All right. If you suggest 190 be sold for 1 cent less, what do you suggest that it be sold-the regular be sold for? Mr. BRADLEY. Well, the system itself, that is the blending pump, so set up that there are various limitations within the mechanics of the pump.

Chairman DIXON. I have seen it.

is

Mr. BRADLEY. Now, this allows a certain area of flexibility, and we normally suggest to our dealers that all our grades under the blending system be priced on 1 cent increments, that each blend be priced 1 cent different than the next blend.

Chairman DIXON. But if you go to a dealer and, following your description, after he appeals for help, and you find there is a disturbance in an area, you decide in that area to give price assistance, you are saying that you just offer to give price assistance off of your tank-wagon price, and that is all you say.

Mr. BRADLEY. Well, our dealers our district managers notify our dealers, and we have a formal notification to our dealers with regard to competitive allowances or adjustments. We spell out in this letter that our district managers send to our dealers the conditions under which this allowance is granted.

For example, this letter says specifically:

Any allowance that may be established by the company will not be conditioned upon any agreement, expressed or implied, that you will fix or maintain a retail price designated by the company. You will determine your own retail price or prices, and no company representative has any right or authority to fix your

retail prices on any products purchased from the company, nor to enter into any agreement that any allowance shall be given conditioned upon your posting or maintaining any specific retail price.

Chairman DIXON. So if that letter were honored by the company just as it reads, this would mean that if I was your dealer in one of these areas, and I notified you that I was losing volume here because the spread was not enough to take care of me, I was going to have to go down, would you help me, and you were to say "Yes, I will help you and other dealers in this area to the tune of 3 cents off of our now tank wagon price" and I continue charging what I was charging for the gasoline, even though I had come to you for help?

Mr. BRADLEY. Yes, sir.

Commissioner JONES. What has been your experience? Have you kept records of just what the dealer reaction is when you give them a reduced tank wagon price-how many in fact go down in order to keep the gallonage, and how many retain it in order to widen their margin? Mr. BRADLEY. It is the rare case when the dealer doesn't want to take advantage of the allowance in the retail level.

Commissioner JONES. Because we have been told, it has been argued to us, that you must condition the dealers and give it only on condition that they will go down, because, otherwise, their economic incentive would be to widen their margin. So I was curious as to how many people under your setup had in fact used it to widen their margins.

Mr. BRADLEY. This is very definitely contrary to anything that we have seen or our experience-because our dealers become concerned about their inability to be competitive more so than ever discussing a desire to retain whatever the allowance may be, and keep the price at a noncompetitive level.

Chairman DIXON. Is the allowance that you give sufficient to meet the competition without the dealer having to take part of his margin to be competitive?

Mr. BRADLEY. As prices go down, there is a sharing of the reduced price.

Chairman DIXON. In other words, for him to be competitive-you don't give him enough for him to be absolutely competitive and protect his existing margin. It would be necessary for him to take part of his existing margin under your system, wouldn't it?

Mr. BRADLEY. Well, we have a minimum guarantee below which the dealer doesn't have to share.

Chairman DIXON. What is that?

Mr. BRADLEY. Under our system it averages about 4.2 cents per gallon.

Chairman DIXON. That is the bottom?

Mr. BRADLEY. That would be the bottom.

Chairman DIXON. And what is the top, under your system?

Mr. BRADLEY. There is no top.

Chairman DIXON. What is the usual-what is your experiencewhat is the usual spread that you find in a market that is not in this disturbed condition?

Mr. BRADLEY. Well, of course, there is no real maximum. We have areas where dealers margins are 6 and 7 cents. We have areas where the dealer margins traditionally, let's say for extended periods of time, would be around 412 cents, 5 cents. And we have areas where even

the minimum prevails for periods of time because of the competitive conditions existing.

Chairman DIXON. Now, we have heard statements here that in this kind of a disturbed market, where the dealer is not protected within the limits of his normal spread, he has to cut off part of his employees, he has to let a man go, or men go. Now, do they come and tell you this? Does this get up to your high level? Or does it just stop down there with the salesman?

Mr. BRADLEY. I am sure that if this was a situation that existed to any degree, it would get up to us.

Chairman DIXON. Well, has it gotten up to you?

Mr. BRADLEY. No.

Chairman DIXON. You have been here and listened to some of this testimony.

Do you think these men are just full of prunes?

Mr. BRADLEY. Well, all I can say is that many of the things that I have heard here don't exist as far as our dealer organizations are concerned.

Chairman DIXON. As far as your company is concerned?

Mr. BRADLEY. That is right.

Chairman DIXON. Well, if it did exist, and it comes to your attention, what do you intend to do about it?

Mr. BRADLEY. Well, I assume you are talking about the dealer that has to let employees go because of his margin not being sufficient to maintain his manpower?

Chairman DIXON. Yes.

Mr. BRADLEY. We would keep our dealer competitive with the existing situation, and we would have no thoughts of subsidizing a dealer so that he can conduct his business so as to be unrealistic with regard to the economics of a situation.

Chairman DIXON. Well, you just got through describing that under your normal-any normal disturbed market, your protection, or your price assistance requires the dealer to make a sacrifice of his own profits. There is a sharing, you say. Well, if he shares, one of two things happens. He makes less money, or else he must cut his expenses. Isn't that true?

Mr. BRADLEY. I said that the dealer makes some sacrifice with regard to his margin per gallon. I did not say he made a sacrifice with regard to his gross profits.

Chairman DIXON. Why wouldn't this happen, sir? We have had it described. Do you agree that there is approximately a 70-30 sharing of profits and costs from the gasoline, from the dealer's standpoint? Mr. BRADLEY. This would be approximately right.

Chairman DIXON. Well, now, if 70 percent of his business was making less than he had been making

Mr. BRADLEY. Except his volume goes up.

Chairman DIXON. Why would your margin go up if all you are doing is meeting competition, sir? You said you don't beat it, you meet it. Why would your volume go up?

Mr. BRADLEY. Well, at lower prices volume usually goes up in these

areas.

Chairman DIXON. I thought this was an inelastic thing. Can you make people burn more gasoline because it is cheaper?

Mr. BRADLEY. Our experience has been that it is not inelastic. It might be inelastic with regard to a broad area, a State or a region. But there is

Chairman DIXON. People just goad you and ride you more when gasoline is cheaper?

Mr. BRADLEY. To some degree they do. Some people buy more gasoline when they can get more gallons per dollar.

Chairman DIXON. Well, now

Mr. BRADLEY. And the motoring public is a floating population that move into areas where prices are depressed, which result in volume increasing in those areas.

Chairman DIXON. I thought, though, that your dealer came to you when there was a price disturbance and said, "I am losing volume, and I am losing money, too. To be competitive I need some assistance." And it is that plea that you meet, and you meet it on a plan that would require him to share. If he didn't go beneath the competitive price that he wanted to meet, you say he is free to do what he wants to. So if he just met it, why would you think again that he would increase volume?

Mr. BRADLEY. Well, he is losing volume if he is noncompetitive. Chairman DIXON. He recaptures volume.

Mr. BRADLEY. Yes-when he is made competitive. This area becomes an area which sucks additional volume into these areas, which results in a total increase in volume for these stations and gross profit that could be equal to the gross profit he experienced before with higher margins per gallon.

Chairman DIXON. Now, on page 12-one of the frequently heard charges in this hearing has been that some companies subsidize marketing operations with profits from crude production.

In section 6, entitled "Underlying Factors Which Influence Retail Prices," page 12, you state:

Assuming the corporate cost of producing its own crude is less than purchased crude at posted prices, those companies with higher proportions of their own domestic crude oil relative to their refinery runs may have lower unit raw material costs than some of their competitors.

Is this assumption realistic?

Mr. BRADLEY. I would think so.

Chairman DIXON. Assuming it is realistic, does this statement differ from the charge that some companies subsidize marketing operations with profits from crude production?

Mr. BRADLEY. I don't think it is a question of subsidization. I think it is a question of companies being producers in their own right, in the same sense that a producing company is only a producer in their right. There are producing companies that are not involved in manufacturing or distribution, and their economic position in this regard is really no different than a major company who is involved in production, as well as manufacturing and marketing.

Chairman DIXON. I have a hard time following that.

Is your company self-sufficient?

Mr. BRADLEY. No; we are not.

Chairman DIXON. How near self-sufficiency are you? What do you have to buy?

Mr. BRADLEY. We are about 75 to 80 percent self-sufficient.