Chairman DIXON. Well, I have been told by some jobbers or by people reflecting conversations with jobbers that when certain jobbers were offered a franchise, a jobbing territory, they made rather large investments in order to get this franchise and at the time they got it they had these commercial accounts. Then after they paid the investment, they started being picked off, and the business they had began to be more and more confined. "Don't have anything to do but shoot myself or sell out. And even when I sell out"-Mr. Ellis, I believe, stood here and said that the right of first refusal must be offered to the supplier-by the supplier. Do you have this with your jobbers? Do they have to give you the first chance to buy this stuff?

Mr. BURNAP. In the case of a financing arrangement? Yes. Now I say this: This jobber who feels that way-I would question the amount of revenue he originally received from this type of business because whether he had the business or whether he didn't, it has always been a very competitive business. So while he may have had some of it, I am certain he was taking it at very much of a reduced margin himself.

Now, what probably happens as time went on is not his own supplying company but some other company came in and started bidding against this jobber, and just through a process of erosion, the level got down to such that the jobber could not compete on his buying price. He asked his own supplying company to help, and it got to be a lesser price than they were interested in.

Chairman DIXON. Isn't that same thing happening over in the retail gasoline industry? As this thing gets tougher and tougher, we are hearing about the major companies that are taking over more and more company-operated stations, or more and more consignment. So there is no problem with what kind of an arrangement you have to make with that operator, what he is going to charge for it.

Mr. BURNAP. Well, our company is not taking over more and more salary and consignments. I don't know if that's true in the industry. I don't believe it is.

Chairman DIXON. We understand Standard of Ohio has 300-andsome-odd stations.

Mr. BURNAP. I have noticed that Standard of California has substantially less now than they used to have.

Chairman DIXON. I imagine it would vary.

Mr. BURNAP. We have very few.

Chairman DIXON. Thank you for coming. You have been most helpful.

We stand in recess until 2 o'clock.

(Whereupon, at 12:40 p.m. the hearing was recessed, to reconvene at 2 p.m. on the same day.)

AFTERNOON SESSION

Chairman DIXON. Gentlemen-off the record, Miss Reporter. (Off the record.)

Chairman DIXON. William E. Mullin, special assistant appearing for Mr. Mattson.

Go right ahead, sir.

TESTIMONY OF WILLIAM E. MULLIN, SPECIAL ASSISTANT APPEARING FOR ATTORNEY GENERAL MATTSON, OF THE STATE OF MINNESOTA

Mr. MULLIN. Thank you, Mr. Chairman. Mr. Chairman, Attorney General Mattson has already submitted to the Commission a written statement of the concern of the State of Minnesota with the problem that is under consideration by the Commission today.

Since 1956 we have had a situation in the State of Minnesota under which a portion of our State has enjoyed relatively low prices-although prices to the consumer for gasoline and other petroleum products-while another portion of our State has suffered from extremely high prices, as much as 5 cents higher than the prices prevailing in what we call the low-price area in our State.

The high-price area in general, members of the Commission, is found in the area near Duluth, what we call northeastern Minnesota, or our iron range. This is an area which already suffers from an economic depression resulting from other causes of severe magnitude.

The high prices prevailing in the Duluth area, in the northeastern Minnesota area, members of the Commission, impose an additional burden on this already disadvantaged area. Consumers in that area are required every week to pay a higher price with dollars that are harder to come by than consumers in other parts of Minnesota and other parts of the Midwest.

In addition to that, business firms who require the buying of gasoline to run their business, trucking firms, firms engaged in deliveries, and so on, are also required to pay higher costs, despite the fact that economic conditions in the area again impose on them an additional disadvantage against other parts of our region.

For this reason, as we have set forth in our statement, the people of northeastern Minnesota, and indeed the people of the entire State of Minnesota, are extremely concerned about these high prices.

Some time ago, the attorney general's office in Minnesota, after conducting its own investigation of this matter, submitted to the Commission information which suggested that this resulted, the discriminatory pricing system resulted, from violations of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, and that Commission action was warranted. We have had that information before the Commission for some time. We have been urging the Commission to act and we are happy to have the opportunity to appear before you again today and ask that the Commission thoroughly investigate the pricing practices that result in this situation which so disadvantages many of our people and to take the action which we believe is warranted under the act.

I might also mention, of course, the people who are immediately disadvantaged, the actual dealers in the retail gasoline business who are deprived of the opportunity to compete for the business of the many people who travel from Minneapolis and other parts of the State into the northeastern Minnesota region, and some materials which I will submit to you in a moment will show that Highway 61, which is the main artery between the Twin Cities and Duluth, in the northeastern Minnesota region, has the low-price area running up just short of Duluth. Gas stations alongside Highway 61 to a point about 20 miles

south of Duluth enjoy a much lower wholesale price than those paid by their competitors immediately to the north.

This results in their being able to compete on a much more favorable basis with their competitors to the north for the business of commercial travelers, salesmen, truckers, fishermen, and all the other people who follow that traditional route from Minneapolis to Duluth, who know the situation, who know that if they go a little bit closer to Duluth they are going to have to pay a much higher retail price for gasoline. We have submitted to the Commission, the Commission has in its files, statements by salesmen and other people who have taken advantage of this and quite naturally so. We have attempted to show and we think we have shown the competitive effect on the retail gasoline dealers operating in the high-price area. We believe that there is a substantial effect on competition. It is a continuing effect of long duration which we think has had an effect on these retail dealers as well, members of the Commission, as the entire economy of northeastern Minnesota.

I would also request at this time to submit to you the final report of the subcommittee investigating gasoline prices within the State of Minnesota, of the St. Louis County delegation to the Minnesota Legislature. These are the unanimous findings of the some five members of the subcommittee. They are in complete accord with the information that we have previously submitted to the Commission.

I realize, members of the Commission, that we were asked to submit all written materials 72 hours before our appearances, but I ask that that rule be suspended in this case. The findings were only completed on Friday of last week.

Chairman DIXON. We will make

Mr. MULLIN. I received them on Monday and, if the Commission please, I would like to submit and file 20 copies of those findings. Chairman DIXON. We will make these findings a part of the public

record.

(The information referred to appears in the appendix, at p. 945.) Mr. MULLIN. Thank you, Mr. Chairman, members of the Commission. I appreciate your hearing me out on this on behalf of Attorney General Mattson

Commissioner ELMAN. Do you have time for some questions?
Mr. MULLIN. Yes, sir.

Commissioner ELMAN. As I understand it, you are not concerned about any temporary or sporadic price disturbances. You are concerned about differences in normal prices. You say that usually the normal price in Duluth is much higher than it is in the Twin Cities

area.

Mr. MULLIN. That is right. We have contended, and we believe, that the facts show that this is a normal discriminatory situation, a normal illegitimate situation. We believe that the

Commissioner ELMAN. Is there any business reason that you know of that has been advanced as a justification for the higher normal price in Duluth? What is the reason given for it?

Mr. MULLIN. I believe justification has been advanced based on the competition of independent oil dealers in the Twin Cities area, Commissioner Elman.

Commissioner ELMAN. In other words, they face competition in the Twin Cities that they don't face in Duluth?

Mr. MULLIN. Well, that has been the position that has been advanced.

Commissioner ELMAN. By whom?

Mr. MULLIN. By some of the major oil companies in investigation by our legislative commissions.

Commissioner ELMAN. Is that all elaborated in this report you are turning in?

Mr. MULLIN. Yes, sir. There are other arguments, such as an argument that gasoline sold in the Twin Cities area is of a lower octane content.

Commissioner ELMAN. Well, if you are right about this, then we would have very dramatic evidence that the presence of independents in a market tends to keep prices down.

Mr. MULLIN. Well, we have no quarrel with that at all, Commissioner Elman. We are very happy that the people in the twin cities enjoy a low price as a result of competitive conditions there.

Commissioner MACINTYRE. Has this been anything more than a temporary situation?

Mr. MULLIN. Yes, sir. It has been in effect since 1956, according to the findings of the hearing examiner in the Standard Oil case.

Chairman DIXON. Mr. Mullin, don't they have independent private brand gasoline for sale in Duluth?

Mr. MULLIN. I beg your pardon, Mr. Chairman.

Chairman DIXON. Do they have private brand gasoline for sale in Duluth as well as in Minneapolis?

Mr. MULLIN. As I understand it, there are two or three private brand stations operating in downtown Duluth.

Chairman DIXON. Am I correct in this, that there is a competitive allowance allowed by the majors in Minneapolis but not in Duluth? Mr. MULLIN. That is correct.

Chairman DIXON. There is your answer.

Mr. MULLIN. And we have laid out the anticompetitive effects of this situation in our statement.

Commissioner ELMAN. Is there any one major company that is the market leader in Duluth?

Mr. MULLIN. Beg pardon?

Commissioner ELMAN. Is there any one major company that is considered to be the market leader in Duluth?

Mr. MULLIN. There may be figures available on that, Commissioner Elman, and I would have to plead ignorance on it. I just don't know. Commissioner MACINTYRE. What is the distance from Minneapolis to Duluth?

Mr. MULLIN. The distance, I believe, is about 80 miles, Commissioner MacIntyre. However, the high-price area-rather, the lowprice area extends within 20 miles of Duluth. As a matter of fact— Commissioner MACINTYRE. What is the price 20 miles south of Duluth where this price change takes place?

Mr. MULLIN. The retail price is 26.9 cents in Rutledge which is 20 miles out of Duluth. In Duluth itself it is 32.9 cents and as the findings of the legislators who have examined this and as our findings

show, this is not justified by-this results solely from the lower wholesale price that is afforded the advantaged dealers.

Commissioner MACINTYRE. Six cents difference in less than 20 miles. Mr. MULLIN. That is right, Commissioner MacIntyre.

Commissioner MACINTYRE. You say these findings are to the effect that is not justified by the differences in cost.

Mr. MULLIN. That is right. And as a matter of fact, although our information is not current on this, as a matter of fact, many of the major oil companies have admitted in legislative hearings held in past years that their wholesale price was lower.

Commissioner ELMAN. How about the dealers in Duluth. Are they very unhappy about this situation?

Mr. MULLIN. Yes, sir. They have expressed their concern on this. I think that sometimes the dealers may be very candid. Sometimes the dealers because of their relationship to their suppliers are less vocal about it, at least from a public standpoint, than they are privately, but they share the concern that many of your consumers have. Chairman DIXON. It is rather strange, without the price allowance system in effect up there, it would indicate that the dealers in Duluth are making a larger spread than they would be down where the price war is going on in Minneapolis, the Twin Cities.

Mr. MULLIN. That is correct.

Chairman DIXON. They are not happy about that? The dealers indicate they are not happy about making a larger spread than the

ones

Mr. MULLIN. In many cases the price discrimination is based entirely on a difference in wholesale price. Now, in some cases some dealers in the high-price area feel that they have to get a little bit higher margin because of their low volume. Now, we contend that the low volume-excuse me, Mr. Chairman.

Chairman DIXON. What is the tank-wagon price? Is there any difference in the tank-wagon price in Duluth and in Minneapolis? I have reason to believe that they are identical.

Mr. MULLIN. That is

Chairman DIXON. It is the price allowance that is different; isn't it? Mr. MULLIN. Well, that is true. We have advised the Commission that it is our view that whether you call the discrimination a price allowance or just call it a discrimination, it is still a discrimination.

Chairman DIXON. A price allowance, no matter how you slice it. Mr. MULLIN. That is right; and calling it a price allowance, we have felt we have vigorously contended to the Commission staff, has no significance, other than verbal, for purposes of this problem.

Chairman DIXON. As price protection has been explained to us, for instance the SCRP plan, this is a plan where the refiner or the company says to the dealer, we suggest you sell at that price, and offer that price. We will offer that price. We will give you a certain amount of protection if you do this.

Now, the other price is a tank wagon price, at which they say, I will sell to you at tank wagon price of, say, 25 cents, and give you a 2-cent price protection offer.

Now, if I have listened very carefully, generally the denial has been there has been no suggestion of what they sell it for. They just say we will give you 2 cents off for protection.