Mr. MULLIN. Well, Mr. Chairman, we have no objection to retail gasoline dealers getting an allowance or reduction in price. You can call it protection or you can call it a price allowance or competitive allowance or what not, and we are in favor of that, because it is going to mean generally lower prices to our consumers in those areas. What we are saying is that the dealers located on the Iron Range and in northeastern Minnesota are in competition with those dealers that are getting that allowance under the Robinson-Patman Act they should get that allowance as well.

Commissioner REILLY. Have you submitted evidence or data to the Federal Trade Commission showing the competition between the dealers in Duluth, in the Iron Range area, and in Minneapolis-St. Paul?

Mr. MULLIN. Yes, sir, Commissioner Reilly. We had an investigator from the Federal Trade Commission who spent several weeks in Minneapolis and in Duluth in 1963 and I believe going into the early part of 1964, and we put him in contact with numerous salesmen and truckers and other people who testified that it was their universal practice any man who is experienced in traveling in that area, whether he be a fisherman or what not, it is his universal practice to load up, get a tank full of gasoline before he passes over into the high-price area, and if he is stuck out in the high-price area running out of gas, he will buy 1 or 2 or 3 gallons of gas which will get him back into the low-price area, and he will do this on a consistent basis because, of course, it is economically-the economics govern him.

Chairman DIXON From the consumer standpoint, which one do you think is the right price, the high price in Duluth or low price in Minneapolis?

Mr. MULLIN. We would like to see all of our consumers get the low price

Chairman DIXON. If the price

Mr. MULLIN (continuing). That prevails in Minneapolis.

Chairman DIXON. If the price goes up in Minneapolis and St. Paul, equivalent to Duluth, who is going to explain that to the public?

Mr. MULLIN. Well, I can say this, that we don't anticipate that that is going to happen. These prices have been

Chairman DIXON. How do you know that?

Mr. MULLIN (continuing). In effect in Minneapolis for a long time, sir, but we still feel that if that happens, the achievement of parity and equality and the ability of the people in northeastern Minnesota, retailers in northeastern Minnesota, to compete with their counterparts to the south will be an advantage to that area.

Now, as I say, that is not the most-that is not the best situation. We would like to have these advantages given to everyone.

Chairman DIXON. Did you ever notice, Mr. Mullin, how well the consumer likes a price war if they are there?

Mr. MULLIN. Yes, sir. I might say, Mr. Chairman, that we have had no evidence submitted, as far as I know, to any of the legislative bodies, or to the attorney general's office, to the effect that, if this discrimination is eliminated, the price will go up in the Twin Cities. I think that the argument is that the price in the Twin Cities is dictated by the economic considerations that exist there and I think that the opposite will be true. I think the price will go down everywhere.

Chairman DIXON. What has the legislative subcommittee recommended, if you remember, to the legislative body to solve this problem in Minnesota?

Mr. MULLIN. Mr. Chairman, many of the members of this committee have sponsored various bills to eliminate this discrimination. I am not familiar in detail with the bills introduced at this present session of the legislature. I did have personal familiarity with some of the bills that have been introduced in past sessions of the Minnesota Legislature. I personally am, and the attorney general's office is, convinced that the Federal Trade Commission is the agency to deal with this problem and the acts administered by the FTC are the appropriate legislation. We get into severe constitutional problems, enforcement problems and other problems when the State of Minnesota attempts to regulate a national industry.

Chairman DIXON. Do you think the same competitive situation exists in Duluth that exists in the Twin City areas?

Mr. MULLIN. Mr. Chairman, I would not be able to tell you this because we are talking about two enormous totalities here and obviously since they are two different totalities, I have to answer no, but I don't know in detail how they differ. I do know that there is competition between the two areas, competition between the retailers located in each area, and I think that is the test for determining the legality under section 2(a).

Chairman DIXON. I am now going down into that area of competition, if you will. We have had described to us a very vigorous group of private brand retailers. I would understand that there are a considerable number of outlets in the Twin City area. There are more than one or two. There are many in that area. We have had it alleged here that by many, this is what precipitates so-called price wars, that too much volume begins to go out in these outlets and then one of the majors through some plan or something closes the difference between a major brand price and a private brand price and then, by steps, down it goes and then it stays there, or up and down. This has not occurred in Duluth.

There doesn't seem to be anything that will trigger it in Duluth. The reason I asked you how many private brand outlets were in the Duluth area, you said two.

Mr. MULLIN. I believe that is right. Again, it may very well be that the competitive situation or the competition offered by private brands in the Twin Cities keeps the price low there. All we are saying is that under the Robinson-Patman Act, the competitors of those retailers who are to the north are entitled to the same treatment.

Commissioner ELMAN. What would you say to the argument that might be made by a representative of the majors if he were here that the situation in Duluth is normal, that the prices there are reasonable and fair, and the profit margins are reasonable and fair, but that in the Twin Cities competition has been much more keen, and in order to meet competition each of the majors has had to lower its prices, reduce its profit margin, and each of them is operating at what it regards as a subnormal price and profit level in that Twin Cities area?

Now, if that was suggested here, would you say that when companies find themselves in that situation in one market they would

have to reduce their prices and profit in all other markets in which they operate?

Mr. MULLIN. First of all, Commissioner Elman, I might say I disagree very strongly with the premise on which your question is based. As the hearing examiner found in Standard Oil, as our findings have indicated, this low price has been in effect since 1956. Now, if that is a subnormal, no-profit, or low-profit situation, many of the major oil companies, many of the independents would have been driven out of that area by that time. There is no indication of failures by

Commissioner ELMAN. Not necessarily driven out. They are just operating at a lower profit than they would like to operate at.

Mr. MULLIN. Well, the fact that most of the companies that were operated in 1956 are still there I think suggests that there is at least sufficient margin to justify the economic activity that they are engaged in. Otherwise they would shift their resources into another area.

But let me meet the question assuming the premise. I think that it is fair to say that there is no law in the United States that guarantees a large profit to any company, whether it be a large oil company or anyone else, and there is nothing in the Robinson-Patman Act that guarantees a profit to anyone.

It requires compliance. It requires the granting of price concessions to competitors of people who are given a favorable treatment, and this is what we are asking for. I think that—

Chairman DIXON. I imagine that during all these discussions you had with our staff they made you aware of various cases that have been pending here at that time. Did this come about?

Mr. MULLIN. I didn't get the last part of your question, Mr. Chairman.

Chairman DIXON. I said I imagine that during your discussions with members of the staff of the Commission about this situation in Minnesota that they made you aware of cases that were then pending here at the Commission.

Mr. MULLIN. That is correct. I had some discussion with the members of the staff. They didn't give me any information about those cases, which was not public information or anything of that sort, but we did discuss the implications of cases that were before you.

Chairman DIXON. Did this involve the SCRP plan? Are you familiar with that plan?

Mr. MULLIN. Yes, sir. That is the plan that was involved in Standard Oil.

Chairman DIXON. That was the plan that was involved in that area. Well, that is all, sir. That case was dismissed.

Mr. MULLIN. I understand that, sir, and in that connection, I might say that we feel that the Commission in Standard Oil and in other cases has had an adequate opportunity to examine our situation and

as we

Chairman DIXON. The situation hasn't changed as of today or yesterday or when.

Mr. MULLIN. No, sir. Not to my knowledge. The figures sometimes change a bit and the retail price may go up a half cent or down but basically the situation has remained the same since 1956.

Chairman DIXON. What is the basic difference between the price of a regular gallon of gasoline of a major in Duluth and in the Twin City area? How much of a difference is there?

Mr. MULLIN. At retail or wholesale?

Chairman DIXON. At retail.

Mr. MULLIN. I believe the difference in retail price is 5 cents and the difference in the wholesale price is between 5 cents and 412 cents and in some cases the dealer in the high price area might take a little bit of a higher markup. And, as we have pointed out to the Commission, they would not need this higher markup if they were allowed to compete and to get higher volume; the trade that would normally come to them because of price equality and price parity, if they had that they would be able to lower their margins and lower this halfcent differential so we would have this price parity.

Chairman DIXON. This has gone on some 8 or 9 years?

Mr. MULLIN. Yes, sir.

Chairman DIXON. And you say it has gone on so long that patterns have been established where regular travelers will make this arrangement of waiting to buy their gasoline in the cheap zone rather than the high zone?

Mr. MULLIN. That is correct. The statements on file with the Commission that were prepared by the Commission's investigators will show that.

Chairman DIXON. Any more questions?

Commissioner REILLY. How long have we had this information? Mr. MULLIN. Two years, Commissioner Reilly.

Chairman DIXON. Thank you, sir.

We will hear now from Mr. John F. McCarthy, counsel, Ryan Oil Co.

Mr. MCCARTHY. Mr. Chairman, members of the Commission, I have with me here today Mr. Thomas Ryan, the president of Ryan Oil Co. I would like to have him appear in lieu of myself. He has a short statement and will be happy to answer such questions as you care to put to him.

Chairman DIXON. Go right ahead, sir.

TESTIMONY OF THOMAS E. RYAN, PRESIDENT, RYAN OIL CO.,

CHICAGO, ILL.

Mr. RYAN. My name is Thomas E. Ryan. I live at 10126 South Fairfield Avenue, Chicago, Ill. I am president and sole shareholder of Ryan Oil Co., an Illinois corporation, 3435 West 127th Street, Blue Island, Ill.

I very much appreciate the opportunity afforded me of appearing before this Commission. Your interest in the marketing problems of the petroleum industry is most encouraging.

Ryan Oil Co. is an independent distributor of petroleum products in Metropolitan Chicago, selling about 1 million gallons of gasoline per month under its own name. Ryan Oil Co. is not a refiner. It purchases most of its products from Gustafson Oil Co., Torco Oil Co., Ashland Oil & Refining Co., Triangle Refineries, Inc., a subsidiary of Kerr-McGee Industries, Clark Oil & Refining Corp., and Humble Oil & Refining Co. Ryan sells directly to homeowners, commercial ac

counts and, through service stations which it operates, to consumers or users. It also sells to wholesalers or dealers, who, in turn, sell to various types of consumers or users. This is a common practice in the marketing of petroleum products in Metropolitan Chicago.

Under normal conditions, in Metropolitan Chicago, there have been three prices for so-called regular gasoline at service stations; that charged by distributors or major brands; that charged by large independents and their dealers, generally 2 cents lower; and that charged by small independents, like Ryan, and their dealers, generally 3 cents less. These differentials are legitimate, in the public interest and entitled to protection, under the opinions of this Commission supported by the decisions of our courts.

Metropolitan Chicago has been the scene of intermittent gasoline price wars. These have been commenced by major companies and involve sharp price reductions, below-cost selling, financial support for dealers by major companies, and the marketing of regular gasolines as so-called economy grades at lower prices. Their purpose has been to drive independents from business and ultimately eliminate this competition. The price war of March through August 1962 was particularly severe. During that period, Ryan Oil Co. generally sold gasoline to its service station dealers for only a penny more than its purchase price. At that time, at Ryan stations, the retail price of regular gasoline was 23.9. This price included Federal and State taxes. Another practice, worthy of note, and by no means limited to periods of price wars, involves sales by majors to public agencies and commercial accounts at prices less than the market prices quoted in trade publications and less than independents might purchase the same produce from those majors. Ryan has lost several substantial commercial accounts in that manner.

I do not wish to extend these remarks by a detailed explanation of these practices. They are well known and undoubtedly have been and will be discussed repeatedly by other witnesses. I prefer to devote my attention to certain recommendations which, in my judgment, if followed, will result in fair marketing practices in the petroleum industry.

No one should be permitted to sell gasoline below cost or to conduct the marketing phase of his operations at a loss. If any doubt about this exists under present statutes, then those statutes and the regulations and rules of this Commission should be amended.

The costs of the various companies for producing and marketing their several products are not available to us. However, it is readily apparent that when, in Chicago, as has been the case, regular gasoline was sold for 23.9 cents a gallon, including Federal and State taxes, it was sold at a loss. Integrated companies may be able to do this because they receive definite Federal income tax advantages by reason of the 2712-percent depletion allowance permitted them and through the credit allowed them for foreign taxes paid. In other words, profits from producing and refining may offset and subsidize losses from marketing.

Everyone should be required to file with this Commission annual statements of his costs and of his profits in producing and refining gasoline and also in marketing gasoline. This is necessary to make