properly staff these transactions as they are uncovered in the daily newspaper and periodical survey, and as recorded from letters of complaint received by the Commission. NON-PRIORITY PROJECTS In conclusion, it is to be noted that the foregoing program plan for FY 1971 makes no allocation of any manpower for some 55 other merger investigations pending as of March 31, 1969, in the following non-priority industry categories: Baking Confectionery Dairy Department stores_ Drugs, pharmaceuticals, cosmetics and sundries___ Housewares and household appliances (elec. and non-electric). Insurance Fertilizer Food distribution. 3 1 Includes a new investigation being opened regarding the recently announced proposed merger of J. L. Hudson Co. with Dayton Corporation. 2 Includes Sterling Drug Inc., File 661 0641, presently pending before the Commission for approval or disapproval of a recommended consent settlement. 3 These investigations are expected to be recommended for closing. 4 A new area of action for this Division but one which has seen considerable merger activity and is likely to require the opening of additional investigations. 5 All of these investigations are being recommended for closing. Respectfully submitted, WILLIAM J. BOYD, Jr., Chief, Division of Mergers. MEMORANDUM Subject: Budget-Fiscal year 1970. APRIL 15, 1969. To: Bartley T. Garvey, Assistant to the Director, Bureau of Restraint of Trade. From: M. C. Steele, Chief, Division of Accounting, Bureau of Restraint of Trade. The Division of Accounting prepares analyses and studies of the pricing policies of respondents or proposed respondents in connection with the Commission's law enforcement work in regard to: (1) alleged price discrimination under Section 2 of the Clayton Act, as amended by the Robinson-Patman Act; (2) cost data submitted by the respondents in justification of alleged price discriminations under the Robinson-Patman Act; (3) alleged price fixing in cases arising under Section 5 of the FTC Act; and (4) alleged sales below cost in violation of Section 5 of the FTC Act. The Division of Accounting is primarily a service organization for the other Divisions of the Bureau and consequently, to a large extent, its workload depends upon the activity of the other Divisions. During the first nine months of FY 1969, the Division furnished accounting services on a total of 49 investigation and litigation matters which included 22 involving violation of Section 2 of the Robinson-Patman Act, 23 involving violation of Section 5 of the Federal Trade Commission Act, and 4 involving mergers under Section 7 of the Clayton Act. On a projected annual basis, the case load would total approximately 70 cases and will average nearly eight cases per man after adjusting for noncase activity. In addition to the casework for the other Divisions of the Bureau of Restraint of Trade, the Division of Accounting furnishes accounting services for the Bureau of Economics, and on occasion, for other Bureaus in the Commission and for the Congress. Also, the Division of Accounting prepares for publication each year, Rates of Return for Identical Companies in Selected Manufacturing Industries. During FY 1969 casework for the Bureau required approximately 8.5 manyears. The Division furnished accounting services for the Bureau of Economics and other Bureaus in the Commission approximating 1.5 man-years, and the project of Rates of Return for Identical Companies in Selected Manufacturing Industries required two accountants for approximately six months each year, or the equivalent of one man-year. An additional $16,000 is requested to provide one GS-11 accountant and one GS-5 stenographer for this Division. Respectfully submitted, M. C. STEELE, Chief, Division of Accounting, Bureau of Restraint of Trade. MEMORANDUM APRIL 15, 1969. Subject: Plans for fiscal 1971 budget. To: Cecil G. Miles, Director, Bureau of Restraint of Trade. Pursuant to the Chairman's directive of March 20, 1969, there are submitted herewith our ideas and basic plans for the fiscal 1971 budget. The overall objective is to combat price and other forms of discrimination which may injure or eliminate competition in the long run. Effective enforcement is aimed at forestalling monopolistic concentration of economic power. To achieve this goal, smaller, viable competitors must be protected from unlawful discriminatory practices. This gives them the opportunity to compete and survive. We learn of discriminatory practices through complaints from those allegedly injured and through our own investigations. The areas in which we will direct our emphasis in the future is not always predictable. However, we have developed some expertise as to the industries that are constantly troubled by price and other discrimination problems. We have organized project teams for these industries. As part of our every-day planning, we are extremely selective in screening and eliminate approximately 80% of the complaints from entering the 7-digit investigational workload. The applicants we hear from are generally extremely knowledgeable about the discriminatory practices in their respective industries. The industries that we are presently giving attention to where performance indicates price discriminations and other discriminatory practices exist are: Apparel, Dairy, Chain Grocery (all food products), Automotive Replacement Parts and Accessories. Baking. Drapery Hardware, Drug, Fresh Fruit and Vegetable. Publishing, and Department Stores. In practically all of these industries, we are confronted with power buyers and buying groups who are able to exert pressure on suppliers for preferential prices, advertising allowances and services. In most of these industries, private label is a significant problem. Some of the major legal problems that we face are: 1. The "commerce" requirement of the amended Clayton Act: 2. To What extent is the meeting of competition defense of the seller available in a private label bid situation to the seller and the buyer inducing the lower bid? 3. What proof is necessary to establish inducement by a buyer under the amended Clayton Act or Section 5 of the Federal Trade Commission Act? and 4. Cost justification. Realistic interpretation of these legal issues is necessary before we can suecessfully challenge the practices confronted by the Division of Discriminatory Practices. Assuming this Division receives an increase in the budget, we recommend that we become involved in the Major Appliance Industry and the Hardware Industry. Although we are substantially involved in the Chain Grocery Industry, we favor expanding our activity in that area. Major Appliance Industry: Because of manpower commitments to pending projects and non-project activity, we have been unable to focus any significant attention to this industry. Industry sales at retail are over $10 billion. The industry comprises approximately 100 manufacturers and 1300 distributors. Complaints reveal that widespread violations may be involved. Manufacturers and jobbers grant special discounts and advertising allowances to large department stores. discount stores and other large buyers. Private label is believed to be a significant factor. The objective would be to place independent appliance dealers in a position to enable them to compete effectively. Further concentration at the retail level hopefully would be forestalled. Further, the consumer should be able to buy at a discount price irrespective of where he makes his purchase. Estimated dollars cost: $80.000. Estimated manpower cost: 7,200 man hours. Target date of completion: continuing commitment.1 Hardware Industry: Industry sales approximate $1 billion. Recent complaints emanating from manufacturers, individual wholesalers and retailers allege that wholesaler and retailer buying organizations are obtaining preferential prices in connection with the purchase of hardware products from manufacturers, resulting in competitive injury at all levels. The buying groups are retailer-owned cooperative buying groups which deal in hardware, paints and allied products. preliminary investigation is being undertaken to determine what corrective action may be warranted. Because of heavy manpower commitments to pending project and non-project activity, activation of this project will be dependent on availability of the required manpower. Estimated dollar cost: $40,000. Estimated manpower cost: 3,600 man hours. Target date of completion: End of FY 1973. 1 Manpower and associated dollar costs estimated at $20,000 a year per man. Manpower costs estimated at 1,800 man-hours a year per man. The following projects have received considerable attention in the past and will continue to require additional manpower commitments in FY 1971. They are listed in order of priority. Food distribution (chain grocers), apparel and dairy are considered major projects. Chain Grocers-Food Distribution: The food industry is probably the largest volume business in the national economy. Retail sales exceed $75 billion. Our goal is to forestall any further concentration of economic power among either buyers or sellers. Nine investigations involving chain grocers and suppliers are in progress. They involve (1) alleged inducement of discriminatory promotional allowances in violation of Section 5 of the Federal Trade Commission Act, (2) alleged price discriminations in violation of Sec. 2(a) of the amended Clayton Act, and (3) alleged inducements of price discriminations in violation of Sec. 2(f) of the amended Clayton Act. Colonial Stores, Inc., D. 8768, involving inducement of promotional allowances, is already in trial and will probably carry over into FY 1971. In addition, United Fruit Company, et al., File No. 671 0187, will be soon forwarded with a recommendation that complaint issue since the consent order procedure has not satisfactorily resolved the issues. This case involves Sections 2(a) and 2(f) of the amended Clayton Act, Section 5 of the Federal Trade Commission Act (attempt to monopolize) and Section 7 of the Clayton Act (mergers). Estimated dollar cost: $120,000. Estimated manpower cost: 10,800 man hours. Target date of completion: continuing commitment. Apparel industry: Industry sales exceed $26 billion. This project arose through Commission directed industry surveys which disclosed that manufacturers of men's, women's and children's wearing apparel granted substantial discriminatory advertising and promotional allowances to large specialty stores and chain department stores. Consent cease and desist orders were issued against 302 manufacturers. In addition, several contested orders were issued. This Division was assigned the task of reviewing the compliance reports and cooperative advertising plans submitted. Two hundred and forty (240) of these cases have already been forwarded to the Commission. The remaining sixty-two (62) are being processed. Korell Corporation, File No. 641 0090, is one of the companies refusing to sign a consent agreement. Complaint in this matter has been issued by the Commission. Two (2) other companies refusing to sign consent orders are being investigated. Continued industry surveillance of manufacturers, including spot check compliance investigations, will be necessary because of the Commission's assurance to manufacturers who cooperated in the project. Estimated dollar cost: $40,000. Estimated manpower cost: 3,600 man hours. Target date of completion: End of FY 1972. Dairy Industry: The high level of concentration in the dairy industry has been caused by (1) mergers in the industry over the years, (2) forward and backward integration and the continuing decline in the number of independent dairies. There are severe barriers to new entrants due to the strength of large national and regional chains, and the keen competitive conditions existing in the wholesaling of fluid milk and dairy products. The Commission continues to receive a large number of complaints from independent dairies who claim they are being threatened with extinction because of pricing practices of large national and regional dairies. They charge that the large national and regional dairies are selling vendor and private label to large grocery chains at prices which are substantially lower than the prices charged independent grocers. By requesting bids for private label, the large grocery chains are exerting extreme pressure on all dairies, both large and small, for lower discriminatory prices. Always present is the threat that the large grocery chain will build its own milk plant. The lower prices received by the chains permit them to use milk as a loss leader and in frequent week-end specials. The price structure becomes depressed and milk suppliers are pressured by independent grocers for lower prices. In these circumstances, home delivery sales continue to decline. Although private label is usually sold by the grocery chains for a few cents less than vendor brands, only a very small part of the discriminatory prices received by chains are being passed on to the consumer. To date cease and desist orders enjoining violations of Section 2(a) of the Clayton Act, as amended, have been issued against National Dairy Products Corp., Foremost Dairies, Inc. and Dean Milk Co. In a pending proceeding Beatrice Foods Co. is charged with selling milk and dairy products at lower discriminatory prices in violation of Section 2(a) of the Clayton Act, and Kroger is charged with inducing and receiving discriminatory prices in violation of Section 2(f) of the Act. The pending Commission decision in the Beatrice-Kroger matter will no doubt govern our future efforts in dealing with private label bid problems in the fluid milk and other industries. At present there are pending twenty (20) investigations involving violations of Section 2(a) and 2(f) of the Clayton Act, as amended. They involve large national dairies not under order, large regional dairies, large grocery chains and large discount chains. Although it is difficult to predict, it now appears that complaints will be recommended in several of these matters. The objective of this project is to forestall further concentration by insuring that viable independent dairies will be given an opportunity to compete and to eliminate the competitive impact of the price advantages which chain grocery stores have over independent grocers. Estimated dollar cost: $60,000. Estimated manpower cost: 5,400 man hours. Target date of completion: continuing commitment. Fresh Fruit and Vegetable Industry: Industry sales approximate $7.5 billion. Our involvement is the result of numerous industry complaints that the brokerage provisions of the Commission's Trade Practice Rules for the Fresh Fruit and Vegetable Industry were being violated. Shippers alleged that competitors were granting brokerage to large buyers or to field brokers when the latter were acting as agents of the buyers, in violation of Section 2(c) of the Clayton Act, as amended. Investigational hearings conducted in different sections of the country indicated existence of law violations necessitating corrective action. The Commission recently determined to issue complaints charging five retail food chains and six "ground" or "field" brokers with violations of Section 2(c) of the amended Clayton Act in connection with their purchases of fresh fruit and vegetables. The chains are Jewel Companies, Inc., Borman Foods Stores, Inc., H.C. Bohack, Inc., First National Stores, Inc., and Food Fair Stores, Inc. The goal of this project is to obtain industry compliance with the Commission's Trade Practice Rules. The investigation established that approximately (40) brokers and ten (10) grocery chains engaged in the questioned practices. By issuing complaints against five (5) of the most significant chains receiving illegal brokerage service and six significant brokers involved, we are attempting to bring about industry-wide compliance. Estimated dollar cost: $120,000. Estimated manpower cost: 10,800 man hours. Target date of completion: End of FY 1972. Tri-Partite Arrangements: This project was undertaken pursuant to Commission direction. Two (2) investigations [involving at least 10 of the top chain grocers] are in progress and one (1) has reached the recommendation for complaint stage. The investigations concern promotional programs in grocery stores (sales approximately $75 billion) by third parties. Pursuant to these programs the participating suppliers, directly or indirectly, grant preferential advertising allowances or services to the participating retail grocery chain. The programs make no provision for granting allowances or furnishing services on a proportionate basis to competing retailers. It is anticipated that these investigations may necessitate complaint proceedings against the third parties and participating suppliers under Sections 2(d) and 2(e) of the amended Clayton Act, and possible proceedings against the participating chains for inducing and receiving discriminatory allowances or services in violation of Section 5 of the Federal Trade Commission Act. Estimated dollar cost: $40,000. Estimated manpower cost: 3,600 man hours. Target date of completion: continuing commitment. Baking Industry: Industry sales approximate 1.5 billion. The Commission continues to receive a large number of complaints from independent bakers complaining they are threatened with extinction because of discriminatory and below cost selling of bread by large national and regional chain bakeries. The complaints specifically allege that large grocery chains are purchasing advertised brands and private label bread from large bakeries at prices lower than prices charged competing independent retail grocers. Six (6) major investigations are now in progress. Some of the major baking companies involved in the pending investigations are American Baking Company, Continental Baking Company and Campbell-Taggart Baking Company. The |