(navigation image)
Home American Libraries | Canadian Libraries | Universal Library | Community Texts | Project Gutenberg | Children's Library | Biodiversity Heritage Library | Additional Collections
Search: Advanced Search
Anonymous User (login or join us)
Upload
See other formats

Full text of "Work materials ..."

BOSTON PUBUC LIBRABY 

3 9999 06317 39^ " 

OFFICE OF NATIONAL RECOVERY ADMINISTRATION 
DIVISION OF REVIEW 



^1 



MANUFACTURERS CONTROL OF DISTRIBUTION: 
A STUDY OF TRADE PRACTICE PROVISIONS IN SELECTED NRA CODES 

By 
Irwin S. Moise 
George B. Haddock 



WORK MATERIALS NO. 62. 



TRADE PRACTICE STUDIES SECTION 
March, 1936 



OFFICE or :tatic:ial k7.co\iiry administration 

DIVISION OF SCVISW 



_^ L.LAI-TUFACTTJI-aHS COl'TI-cOL OF DISTRIPufclON : 

f) A STUDY OF TP^ABF FilSCTICE FROVISIOITS IN SFLFCTED ilRA CODFS 



Fy 

Irwin S. lioice 
George L. Haddocl': 



D 



TRADE FRAG T ICE ST'_TIES SECTIOi 
'x.rch, 1?36 



J825 



FOREWOJfl) 

This study of naimfactLtrers ' coatrol of distriLiition was prepared 
"by Messrs. Irvdn S. iioise anc George T, Ka-Idocl- of the Trade Practice 
Studies Section, Mr, Corvdn E, Ldwards in cliarce. It also contains 
case studies on •.-■articular indiistries hy Clayton G-eliinan, A. A. Kimhall, 
L. 2, Lovell and J. W, i.'cVJally, res^tj ctively. One of the Airoendices 
v;as prepared 'bj'' II. L. Shirley. 

This study is an exar.iinr'/cion of nanu.f acturers ' distribution control 
efforts, the motives ui.derlyij,ig then, to wiUi,t extent such programs were 
incorporated in codes, and the de;';Tees of success lux.er code adminis- 
tration. The study is limited to thirteen codified ir:dustries. 

The cases studied fall into three grou;:^s: (l) -r.ttempts to elimin- 
ate intermediate distributors: (2) attempts to control intermediats> 
distributors while selling; in conrpetition "ith tnem; and (-3) attempts 
to maintain the position of the internediate distributor as the ex- 
clusive me^ns of v.iarheting industry-' products. 

part A of the report states the cimracter of the man'ufacturers ' 
problan of distribution and contains a cross-section account of ex- 
perience in the thirteen c.ses studied. Part S consists of detailed 
case studies of five of these industries. The Appendix contains case 
material for three additional industries and len^thly si:5)porting data 
for one oi the studies in Part 3, The distinction between the studies 
included in the report and those placed in the Ar-endix is that the 
latter are the cases in which it he.s not been possible in the tine 
available to assemble the ms-terial necessarj' for complete studies or 
to complete pii analytical "presentation of the naterial at iici.nd. 

The study shows the varying; degrees of success and failure attend- 
ing the policies txic>.t were tried out. Evaluation of the broader public 
policy "problems grov;ing out of the ;-.rograms studied is beyond the scope 
of this worh. 

The sources of informfition have in ^yeneral been the llilA files; 
transcripts of hearing; and briefs and letters from trade associations, 
members of industry, code authorities and others covering the period of 
code fomulation and aojninistration. ITurther research is desirable not 
only v/ith reference to the incorqjlete studies in the Appendix but also 
Y?ith reference to other iiantifacturing industries not included in the 
tiiirteen investigated. 

At the bac]: of tnis report v/ill be found ?. bj-ief statement of the 
studies uiidertahen ty the Division of r^evieri. 



L. C, Kar shall 
Director, Division of Review 

: larch 20, 1336 



9825 



1ABL7. OF co;:tei;ts 

Sui2ar.r;r 1 

I. l.invai'acturer Control oi' DistrilDution 1 

II. Industry Crse Studies of Trade Practices Affectin;;; Channels 

Ox Distriljution and i..arheting Methods 2 

A. Salt Industry 2 

B. rood-Cased Lead Pencil iltJiiuf a,cturi;ig Industrv 2 

C. Cork Industry 5 

D. Asbestos Incustr^r 4 

11. Plxunbing Fiiztui-es Indus ti"/ 4 

PART A r ll-Uv^IIFACTUiiZR COiTTiiCL 07 nSTRIPUTIOlI 3 

CKAPTEH I 

Introduction; Character of Liuiufact-arer' s Distribution 

?roble-i 7 

I . Scope of the In4uixy 7 

II. The Lanuf actiirer ' s Distribution Proble;;: 7 

A. Problems Incident to Direct Selling S 

1. Direct Selling: to Consiuner S 

2. Direct Sales to Retailers 10 

5. Selling Through TJholesaler 11 

C. Combination of Direct Selling a:.id Sales 

through Distribr.tors 12-A 

III. ;.anufacturer Incentives tov-ro'd United Industry Action 13 

I". Alternati\'e Industry Distribution policies 14 

CHAPTER II 

LloXiUfrcturing Indiistry Programs for the Hegu.lation of 

Distribution 16 

I. Description of Altern;,.tive Distrioution Policies 16 

A. Policy ilo. 1: Elimination of Distributors and 

Reliance on Direct Selling 16 

3. Policy Ho. 2: Joint Use of Diroct Selling and 

Sales through Distributors under Industry Control 17 



9825 

-ii- 



r 



pg/:e 

C. policy llo. 3: rioliance noon Distributors v.'ith 

Provision for their "Velfcre IS 

II. Clc ssif ication of Indnstrr Progrcjis Acc;or:.in^; to Policy 19 

III. D'' scriotioM of Proc;rains ty Policy Grouos 19 

A. Policy Group 1 Prorrans 20 

1. Salt producin.'^ Industry 20 

2. Cement Industry 24 

5. Uood Cased Lead Pencil i.ianuf acturin^^ Industry 27 

13. policy Grouo 2 Profrans 31 

1. Cork Industry 31 

2. CPTpet and Hu^"; Ll^Jiufacturinf; Industrj?- 33 

3. Funeral Supply Industry 3S 

4. AiC;ri cultural Insecticide and Pum-icide Industry -iO 

5. Valve and i^ittings i.Ianuf acturing Industry 43 

6. ?ire E::tinguishing Appliance Manufacturing 

Industry 46 

7. Steel Office Purniture Division of the 

Business Furniture, Storfige Equipment and 

Filing Supply Indus tr^"- 48 

8. Brake Lining and Zelated Friction Products 

Division of the AslDestos Industrj?- 50 

C. Policy Group 3 Prograias 57 

1. Lui-ilDer axid Tiulier Products Industry 57 

2. plunging Pi::tui' es Industry 60 

IV. Couparative Success of Alternative Distribution 

Policies 63 

A. policy Ho. 1 53 

3. Policy IIo. 2 63 

C. Policy Ho. 3 63 

V. Analysis of Factors Determining. Seccess or Failure of 

ListrilDution policies 54 

VI . Concluding Stateaent 65 

PART 3 - Iin)USTHY CASS S'lUDIES OF TP.ADE PPJLCTICES ^U'EECTIKG 

CHAirJELS OF DISTRIEUTIOH AilD iUJuCTIlTG ; iSTHODS 55 

CHAPTER I 

The Salt Producing Industry 57 

I . Industry 3ac!:ground 67 

S82o — iii— 



Pr.:-:e 

A. The product 67 

B. production and '^''alues 68 

C. Uses for Salt 59 

D. Hiere Salt is Produced 72 

E. Salt Producers 72 

r. Relative Prodv.ction Costs 77 

&♦ Salt producers' Association 78 

H. Selling Practices 79 

1. Sales Llade on Delivered Basis 79 

2. Marketing Areas and Freight Equalization 80 

3. Open Price System 83 

4. Channels of Distribution 85 

I. The Code 86 

II. Trade practices Affecting Channels of Distribution 88 

A. Customer Classification 88 

B. Resale Price Maintenance 90 

C. Price Differentials 92 

D. Quantitj- Discounts 97 

E. Discounts Other Than Q,uantity or Trade 105 

P. Consignments 106 

G-. Brokerage » 107 

H. Restrictions on Sales to Certain Classes of Outlets 117 

I. Restrictions on Size or lianner of Making Shipments 118 

J. price Discrimination 130 

III. Suramajry and Analysis 151 

A. The Problems 131 

B. The Code program Developed to lieet tne Problems 157 

C. Potential Effects of the Code Program 143 

D. Actual Effects of the Code Program 146 



,9»p. 



IUBi 



3. Evaluation of the Code Proeram 149 

IV. Addenda ^^2 

Footnote references and source of citations 152 

Table No. 1 154 

Table llo. 2 155 

List No. 1 156 

List No. 2 158 

CHAPTER II 

The TJood-Cased Lead pencil Hanuf actiiring Industry (Summary 

of case study contained in the Appendix as Echibit No. 3).... 160 

I. Description of Industr:/ and Its problems 160 

II. Code iiarketing Program 165 

A. Allocation of Production 165 

3. Stajidardi':ation and Simplification 165 

C. price Stabilization 16S 

D. Eestrictions on Size of Shipments and Accounts 172 

E. Restrictions on Certain promotional Practices 174 

IT. Eestrictions Extending Outside of the Industry 175 

G. Other Trade practice Provisions 176 

III, General Comments and Conclusions 176 

IV. Suggestions for purther Study 17S 

V. Chart A - "Tra.de Practice and Marketing Provisions in 

Code of Wood-Cased Lead pencil Industry" 183 

CHAPTER III 

The Cork Industry 189 

I. General Industry Data 189 

A. History and Size 189 

1. Armstrong Cork Company 191 



9825 



■e 



3. Cork Ins-a.lation 1S4 

C. Cork Stopper 199 

D. Cork Conposition; jfloor Tile; uarine Goods; and 

■Juliet in and Dis-olo;- Board 200 

L. Tariff 200 

II. Tlie Code period 203 

A. Code History 203 

1. The approval of the Code 203 

2. Definition and Division of Industry 203 

S. i.Ierchandising Plans 204 

4. Article VIII, Sectional, 2, and 6 207 

3. Customer Clcssif ication 209 

1. Cork Insula.tion 211 

2. Ivlarine Goods 216 

3. Cork Stopper 21S 

4. Bulletin Board 219 

5. Jloor Tile 219 

C. Resale price Liaintenance 220 

1. Cork Insulation 223 

8.. Code Amendment 224 

b. Assents of Distributors 227 

2. Uarine Goods 228 

3. Cork Stopper 230 

D. price Differentials 231 

3. Quantity Discounts 232 

1. karine Goods 232 

2. Cork Stopper 233 

r. Discounts other thaia Quantity Discounts 235 

1, Unfair Practices 235 

2. Freight Charges 235 

III. Analysis 239 

CHAPTER IV 

Bralre Lining and Related Friction products Division of the 
Asbestos Industry (Suamar^' of a 500 paf;;,e case study entitled 



9325 



-VI- 



Pr;--B 

"Inc.uiry Into Devices Affectin/;; Distributive delated Fric- 
tion Product'o Division of the Asbestos Industry", submit- 
ted ar> one of the reports of the Division of 2eviev/) 24-o 

I. G-enerrl Industry InforMation delating Distributive 

Zelrticns 243 

A. The products 24S 

3. The Production of the Products 244- 

G. The Dir.tri'bution of the products 245 

II. S-Tjerience Under the KI.:a l^elatiif; to Distributive 

r.elations 250 

III. Zffects and Conclusions , 2G0 

GHAPTUR V 

The pluahing Pixt-jre Industi-y 277 

I . The I ndus try 277 

A. The Product 277 

1. The j\inction and Technical Development of 

the Product 277 

2. Product Helationships as Evidenced Through 

ir^lA Codes 281 

3. Industr.y Size 234 

1. Trend in Overall Industry Size 284 

2. Helitive positions of Conponent Groups 287 

C. The Liemters of the Indr;.stry 289 

1. Stendgj-d Sanitaxy hanufacturing CoOToanjr 289 

(a) Position in the Industry 289 

(■b) Distributing Systeva 290 

(c) Standard Sanitary hig. Co. vs. U. 3 290 

2. Crane Company 291 

(a) Industrj- Position 291 

(h) U.S. vs. Trenton potteries 292 

(c) Distributive Systeni 295 

3. The Xohler CompcJiiy 295 

D. Distribution 094 

SS25 _^ii_ 



c 



Fare 

1. The liaster Pliirabers 2S4 

2. Customai'y Distritiutive I.iethods in the Industry 296 

3. The Pl-om'bing YJholesaler 297 

4. Sxcentions to the Customary i.iethods 298 

II. Discussion of Code Operations by Code Provision 305 

A. The Proposed Code 305 

1. Industry Participation 305 

2. The Original Proposed Code 306 

(a) Contents 305 

(b) Industry Acceptance of the Orij-inal Code 308 

3. Organized Objection to the Proposed Code 309 

(a) Pacific Coast Lianiif acturers 509 

(b) TTholesalers 312 

( c) The Pl-u'iiber s 313 

(a) The Direct-to-You Houses 315 

(e) The i,Iail Order Houses 317 

3. Code Operation - Provisions Immediately Affecting 

Distribution 319 

1. iIegotii,.tions Leading to Approval of the 

Distributive Relations Provisions in the 

Plumbing Pictures Code 320 

(a) The Proposed Lleans for Restricting 

Channels of Distribution 320 

(b) Reconstruction of the Objections to 

these provisions 321 

(c) Selected Phe^ses of the IJegotiations 323 

(1) The I'Seciprocal Rule" 523 

(2) Attitude of ITHA Advisory Boards 

and Divisions 326 

(3) Result of Pre-code Negotiations 327 

2. Customer Classification 328 

(a.) The Approved Code Provision, Article 

VII , Section 7 328 

(b) iian''afacturers 529 

(c) Wliolesalers 531 

(d) ileSl Order Houses 558 

(e) Retailers 338 

(f ) Consumers 359 

( g ) Sumnarjr 540 

3. Distribution Differentials axid Trade Discounts 340 

4. Quantity Discounts 346 

9325 

-VI 11- 



5. Restrictions on Sa?-es to Consm.iers 352 

(a) Sales to Government: Administrative Order S-48 

OJid Executive Order 6767 C52 

(b) The Sale of Brass xlepair and Re-placement Parts 

to Constuaers 354 

( c ) The Bashl in Coinocjiy 356 

G. Resale price l.;aintenance 357 

C. The Hail Order House Conflict 364 

1. Introduction - The Three Stages of the Conflict 364 

2. The Second State - Refusal to ji'ile iiail Order 

Contracts 355 

(a) Prelininarv Code Authority Actions 365 

("o) llon-CoraplicUice with the Call for uail 

Order Contracts 366 

(1) The point of Viev; of the Code Authority ... 366 

(2) Defense "by the Corapanies Complained 

Against 369 

3. Administrative Action - The Rundle Case 373 

D. price Dpmoralization Diu-ing the Code period, Its 

Causes and Effects 374 

1. Lail Order House Prices - The Third Stage of 

the Conflict 374 

2. The Part Played hy Standard Sanitaxy 377 

3. The End of the Trade Practice Provisions 381 

III . Su-raary 384 

A. Lac":: of Information 384 

1. pre-Code Histor;^ 384 

2. Period of Code negotiation 384 

3. Period of Code Operation 384 

E. The Coifoinotion of Code Trade Practice Provisions 385 

C» Operc.tion of the Code 387 

1. The E::tent of Diversity in Product and Dis- 

triljution 387 

2. ilail Order Contracts 390 

3. Sales Eetv-een Manufacturers 391 

4. Effects of the Open Price System 3S1 

5. Complaints Against Large iianufacturers 392 

5. prohToition of the Sale of "Seconds" and the 

Xokorao Cas e 393 



982£ 



"IX- 



\J 



Q 



7. Dir-.sHtisft.ction O"^ the Irakis aiid Seat 

. .an.-'of act ui-eiT, "54 

8. The Pates of tlie "holesaler-lletr iler 

Differential f-nu of tue Cost S/steri 394 

D. The Conclusion to 0>'er; tion cf the Coue Trnde practice 

provisions ''S5 

APFEIBICZS CC7 

Z;'iiioit I'o. 1 - _jei:oriptioa of procedure uS8 

lifiijit "fo. 2 - Suixirxj 3t.-.te:ient of Coue ProK,'raj;i Affecting 

Distribution in the .^-enent Indurtrj^ 415 

G-eneral Industry'- Data 415 

Trade J».s;:ociations -i-15 

..^ethods of Di'^tril/ution 4-17 

Lehij;^h plan 41o 

Under ll-^Ji Code 419 

Conclusion 420 

Ilifiijit fo. 3 - Trade practices .i.ffectin§ Channels of Distribu- 
tion ^jid i.,ar]:etin'5 Llethods of the T'ood-Cased 

Lead pencil iianufacturing- Industry 422 

Generel Indus tr;^ Data 'x22 

General Infornation Concerning liidustry 

Structure tind Problems 422 

The Iriporter C-roup 430 

liaportation Problens 433 

List of ilrnof actui^ers by Yolu'.ie Class 455 

Trt.de practice ?jid Mc.r':eting llules 433 

A. General Distribution 435 

Allocrtion of production 445 

Standards 447 

Restrictions u;on Advertising 452 

Classification of Uembers 454 

Acports of Code Advisers 454 

3. Types of Trade Prrctice 5.egulation3 Affecting 

Distributive Relations 456 

1. Customer Glas^.iiication 456 

2. Resale Price maintenance 463 

3. price Differentials 481 

4. •o^.u'^ntit.y Discounts 437 

5. Discounts Other Thc-jn .quantity Discounts 493 

5. Restrictions on Sales to Certain Classes of 

Outlets 500 

7. Restrictions on Si^e or A;. nner of lurking 

Shionents 505 

6. price Discri;.iin„.tion 510 

9825 



n 



d 



2:diijit I'o. 4 - Trade practices Affecting Channels of Distri^bution 
and Mai'keting liethods of the ''''alve and Fittings 

Lianufactiiring Industry 511 

1 . Su;n:.i?ry 511 

2. The Industry 513 

Methods of Distribution 

3. The Code Trade Practice provisions 517 

I. Customer Classification 518 

II. Resale price maintenance 522 

Hi Price Differentials 528 

IV. Quantity Discounts 532 

V. Discounts other than Q,uantity 532 

A. Terms of Payment 533 

S. Terms of Shipment 559 

C. Indeterminate Specifications 542 

D. ?a,ctory 'warehouses 543 

E. Distress Merchandise 54-4 

r. Unfair Trade practices 545 

VI . Consignment Selling 547 

VII. Price Discrimination 548 

Erdiibit lie. 5 - Summary Statement of Code Program Affecting Dis- 
tribution in the Fire Extinguishing Appliance 

i,iamxfacturing Industry 550 



9825 



-1- . 

SU"t.2iAHY 



I. 



..^^^TUFACTUHEE CONTEQ- OF :ISTRIBUTI01^^ 



■p -lo-mifnot-arers' efforts toward 
The initial ste. in ^^e ^conside^aU.n .f ^.an.la^t.^^^^ ^^^^_ 

the control of distribution \^ f^^^'^Jl^^ ,f the -.ethocs which may ^e 
point into the advantages ano ^ J^^^;^;f^^f^i,, \^ consumers and to retailers, 
used inn.:d.eting. The merits ^'jlYll^^^.^on of these methods, are 
of sales through wholesalers ^^J f ^°^^^,i,,i,g effect of the parti- 
oiscussed from that vievn^omt. ^ZJ^^^^ ^^ ^^on quality and hrand 
cular producer's reliance upo. price appeal -^.^^\^ ^^,^^ to di- 
reputation hased on -^-/^^^^f^^^^^o demonstrate the maay c-cumstan- 
rect costs, is emphasized in "f J '^^^^^f.^turer in reaching a decisiai 

:rtftss:u:utirSucy^w.She.iii..rsue, 

0, e^al importance to - manufacturer is^the -i^^ ^^f -_ 
tritutionpolicy which his ^^^^^^^^^^^^.'^.^^f.cturer is in a help- 
val policies disrupt his own ^y-^l^^ ^ .e shaped not from his own view 
less" position, for nis _ program .^st tnen J^^ P ^^ ^,^^^^, To re- 
view but from a situation ^^"^'^^l S^Z^^ ,re made among industry meHH 
duce this possihility to a "^^^-^"^■"^^^^Ho the largest extent possible 
,ers to unite on a -— ^^^f i^^^.^J distribution policy which should 
to reach an ^S^^^^f ^ ^^^ '".Heek union of industry members; when _ 
be used. The first aim is to seek unio possible distn- 

that has been attained the -f f/^I^n/^Se fselection based on the 
bution policies open to it and striv 
best interest of the entire industry. 

,• .• t r.-iiries from which the industry may 
There are three distinct ^^^;"/^/J° ^ to eliminate distributors 

.ake its choice. First. ,^^--/^^^^^^,J,f ^ ^^ ''^'^'- ^"'^'^'^ "'°' f ^ 
and express the industry's -^^^-"\f.f^,'J "; joint use of direct sales 
rect sales. Second, there can ^^/^J^^J^^^^^^ combination being deter- 
and sales through ^-^^^J^^^;^ . '.J^.^t^'given preference. Tnird. there 
mined by the degree to T^^^ .^^"^l^f^ distributors with a conse- 
can be recognition of the P^/-^f ^ J,'^^3°\^ their function. On the 
quent effort to preserve and P^^^^f ^^^^^3^ ,f tuese alternatives the 
Lsis of their emphasis u.on one or another ^ ^^^^^ ^,h a.r- 

thirteen industries ^^^f ^^^^.^^ %^reatment of e.ch industry's back- 
rangement follows a Pa^^^^'^^^^^^f ^.'^"fi^" ,nd effectiveness of the 
ground, factors governing ^^"V^^^ °^^!_^ gl'e a condensed and sammar- 
Code program, this representing in e.cnca. .^ ^^^ Exnibits. 

ized version of the facts presented m lul-e 

,f ,r,ri^i-try experiences under programs 
From this Presentation of inaatr/e^ ^^^^ ^^^^^^^^ ^^^^ 

based on tne various policies it boca.eB a ^^ ^^^ ^^^. ^^^ ,^3 
ful operation was not "aniforml. '^^^^^^^^^.^^^^ ^^^e successful md some 
industries adopting eacn I'^'^-^J'l^l,,^ characteristics of the success- 
.ere failures. An f ^^f ^^ °/ '^^.^^fleads t. the conclusion that those 



9825 



- 2 "„,.-. 

such unity wa§ lacl'.ing, tliere followed r,' "'oreaJic.O'-Ti in the absence of 
NEA eupporj;' 

The decree of success, however, is less irr^ortant than the public 
policy i^^o^le'-i centering on the desirability of the distribution iDrogram, 
The present stiidy, is Jbinited to an analysis and intei-preti-tion of indus- 
try efforts at regulation, but uith such analysis, najor policy 
questions siiggest thenselves, 

II. IIIBUSTRY CASE STUDIES OF TRADE PMCTIGES ArFECTIlTG CHAKNELS 
■ ; 0? DISTRIBUTION Aim i¥AMETIKG:l,IETKODS 

A, Salt- ProduciniS: Industry. 

The Salt Indiistry is.cpmposed of fer establishvaents and to a large . 
extent is doninated by, t^'o. concerns. Due to the fact that the product 
is standardize^, and the Potential sales limited by the characteristics 
of the product, price conpetition, affords the prinary nedium for the 
expansion of the individual producer's sales. Wlien the industry has 
attained unifornity of published prices, cutting by means of secret re- 
bates and conces<:;ions to distributors' has alwaj's '^roUr^M reversions to 
the original, price rjarfare. Although some nanufacturers have initiated 
a trend toward direct sales to lessen dependence upon distributors, 
and incident to this have discontinued the trade discounts to jobbers, 
it has always been vital to other manufacturers that they retain the flex- 
ibility of their distributors, and the latter type of producer frequent- 
ly acts in such a way as to sabotage the plans of the majority group. 

The Code prograra was looked upon by the industry'- as a means of secur- 
ing the price uniformity it had sought so long. Published prices were 
to be uniform, and price cutting Isj distributors limited through an expan- 
sion of direct sales \7ith a discontinuance of the sale of bulk salt to 
resellers. It rras contemplated that .competition with distributors on 
price would remain only in a very minor area of the industrial salt 
market and in the wholesale less- than- carload market' on table salt,. Except 
for the retail market in table salt, which was to remain undisturbed 
the manufacturers, through- their cohesion in selling direct, would ex- 
ercise control over the distributive process in the other main divisions 
of the market. The program was extensive, and was aimed to accomplish 
the ends which in previous ex23erience. to4 not been attainable because 
of lack of control over a minority group; in this case the dominant 
group relied heavily upon NHA's enforcement of its plan. 

The Code program did begin operation and did operate as intended 
for a period, bu.t when the- smaller industry members felt its impact and 
realized that compliance would not be enforced, their conformance ceased. 
The price uniformity was beneficial to one group at the expense of another, 
and the latter chose to breal-c away from the plan rather than suffer injury. 
The NEA failed to force these violators into line in the interest of the 
dominant group, and the Code erqoerience of the industry produced finally 
its most bitter price war, 

B, Wood Cased Lead Pencil Ilanufacturing Industry, 

The Wood-cased Lead Pencil Manufacturing Industry has been dominated 
9825 



-3- 



until recently by four Injpge manufacturers acting in concert - the so- 
called "Big Four", Yifi thin the last' few years there urs formed en oppo- 
sition group of four comTDanies located in Tennessee, which, although vast- 
ly inferior in size, through price cornretition hpve gradually increased 
their sales at the exoense of the Big Pour. Although the latter have 
maintained their collective dominance over the small com-Danies in the 
industry generally, they have been unable to dor.iinate these new competi- 
tors or to reach any coi:TCroraise with them. Tne Code prof^Taiii was therefore 
an effort by the Big Four to place the ne'- manaf acturers in a le ss ad- 
vantageous position. 

■Tl"ie Tenressee com-panies nnd fuund re.^dv acceutanco of their lo^^er- 
priced product from the lajr.2;e caain buyers mio, by the very immensity 
of their consumrition, to a. large extent subsidized the manufacturers. 
The Tennessee groun '^as also finding acceptance of its nroduct widespread 
among the small retailers rmo desired a' lowcr-prieud pencil. To accora- 
■olish the business of \iprooting these opponents the Big xour's Code pro- 
gram called for extensive uoliceand co i-oliance activity on the part of 
NRA to overcome tne resistance -r-'hich ^TOuld inevitably arise. 

The Big Four pr.'sent^d a plan wheri-by the Tenness^^ group would be 
required to raise the prices charged i" or itE pencils, adversely affecting 
their sal^s to chain stores. The abolition of trade discounts to whole- 
salers (on whom the new inajiufacturcrs relied for assistrnce in selling 
to small dealers), and minimum quantity restrictions, would have -pre- 
vented tne nc" members from expanding their sales to tiie sma.ll-retail 
market. The urogram obviouslv required NEA assistance, -nd the NEA , far 
from expressing willingneBS to police the plan, refused to aDorove many 
im-oortant features. Tr/o ?snncssee group organized its resistance at once 
and made it obvious that jnl'^ bv the -lOst Severe commlsion could it be 
forced to accept the program, 

C. Cork Industry . 

The Cork Industry operates to a large degree under the direction 
of one manufacturer, the only Cempanios capable- of contesting this su- 
periorit;/- having long since assumed tiie position of satellites. This 
group had attempted to formulate a Code program wnich would accelerate 
the process of re-placing dependence "a-pon independent distrib'ator s with 
reliance on direct selling mttrioos. Since there -'as no disposition or 
ability on tne part of smaller nanafacturers to enter into extensive 
prc-parations for direct sales, rnd every intention of continuing to use 
independent distributors ras expressed, the dominrnt group made plans 
to secure control over these distributors while expanding their own di- 
rect sales agencies. There was contem-plated a reouction in the discounts 
to inde-pcndent distributors below those granted to controlled distri- 
butors, with a consequent reduction of their operating :aargin; plus a 
requirement tnat resale -prices be adJ-i.r.-d to. Here, ho'^'ever, op-po- 
sition arose, for some manufacturers saw tnat to follow leadersnip in 
this instance wou" r constitute a movement in th.. direction of eventual 
oblivion; th. independent distrib-ators, ei.cept for tncse i^^nich could tx- 
is on exclusive agencies, foresaw a similar fate. 

There was insufficient powpr on thie part of the code -proponents to 
9625 



-4- 



iaicose their '-ill on the op-conents, and active KRA. assistrnce wps required 

to make the program operate successfully. Although the opponents of the 

Code program were greatly in the minority they vtre able to 'block: ap^oro- 
val of the program ty the FRA. 

D. Asbestor Industry . . 

.In the Uraice Lining and Eela.ted Friction Products Division of the 
Asbestos industry, in years prior to 1929, there hac been a fairly high 
degree of unity among brake lining manuf acturt-re. Cohesiveness of ac- 
tion and puroose had been disturbed hy l"-hu entry into tn^' industry of a 
large number of new producers "between 1929 and 1933, Fe^^' entrants into 
the industry were encouraged by the incre^'sing margin between stable 
consumer price levels and falling raw material -orices. These new pro- 
ducers needed distribution outlets, and many utilized the wide margin 
between consumer rricts pnd , raw nat( rial costs to .bid for the services 
of distributors through increasing discounts. This prpctice was met by 
the older producers, who suficxeo from the new competition and from the 
decreased demand for the industry products.' Incre: sing discount compe- 
tition became a serious fon.a of TDrict. cutting in the industrv, and one 
of tiie Torimary purposes of tae code program '.Tas to eliminate this form 
of price competition. 

The program involved iaandatory customer classification, fixed 
discounts, standard price lists, miniimim "cost floors" to different types 
of bilkers, and resale price maintenance contracts. Smaller manufacturers 
Were permitted to sell at prices under thost oi larger manufacturers. 

Baring the. code otriod, ra-- jnaterial prices increased sharply, re- 
ducing the margin from which manufacturers hao been granting large dis- 
counts to buyers, and this fact pro;.ioted a gL,neral desire on the part of 
manufacturers to reduce discounts to distributorr as far as possible. 
Larger producers were generally satisfied with the code program, which 
d.id not interfere with their m.,thod ui' securing access to tnc narket; 
and either the smaller •lembers, if not entirely satisfied ftith their "orice 
differential, believed that they "-ould be as "ell off under the code 
program as under any other circumstances, or else their deviations from 
the program were so unimportant as nut to interfere materially with its 
operation. 

The code program evidently "^as not designed to promote the in- 
terests of any one group or type of 'manufacturer to the appreciable 
detriment of others; and through general acquiescence it operated in a 
fairly successful manner in accom"?lisnine; .trie airas oi the proponents. 
The KRA refused to give its approval and su-^port to several of the more 
important provisions, and the success of tnt pro.^ram ypc attributable to 
industry cooperation. 

E. Plumbing Fixtures Industry . 

The Plumbing Fixtures Industry is composed of a great man-/ nanu- 
facturers producing a variety of products in either short-line or full- 
line fashion, Ho-'ever, three compfnies, each of '-hich produces a full 
line and has by advertising created widespread consumer acceptance of 
its product, dominate the industry. These manufacturers have promo-ted 

9625 



their ability to sell direct to plumbing contrnctors and have gained a 
position of considerable importance in the field formerly the exclusive 
realm of independent -."holesalers. To Veep abreast of this development 
the smaller manufacturers have also attempted to sell Direct to re- 
tailers instead of through a distribator intermediary, and also direct 
to large consumers. 

This incursion by manufacturers into tne wholesaler's field ivas 
to the disadvantage of the indeoendent wholesalers. The retailer suf- 
fered likevise through mail order sales of fixtures, for tne plumbing con- 
tractor had depended for profit as much upon sales of fixtures as upon 
installation charges. Tne large mrnufacturcrs, realizine,- their deren- 
denct upon both these elements in the distribution process, came to 
the decision thpt they should protect independent distributors. A 
Code program '.-'as dr--'^n up rhereby mpnufscturers would sxiar.- the 'whole- 
salers' field on s level' of strict equality, '(in return fo^^which in- 
dependent 'c"holesp"ers -ere to abide bv manufacturers' resale prices), 
and the retailer would oe allo-'od to function '.vith more protection 
against price competition from other quarters. To attain this end the 
proponents -ere '.villing to forego sales to uail order houses unless the 
latter '-ould relinquish their former preferential discounts and accept 
the status of wholesalers. 

It --as easier for the large and dominant industry laemb-er s to make 
this decision tnan for the smaller members, for it v.-as the latter v.'ho 
had the largest proportion of sales to mail order houses. This group 
also die not have -.-'holesale agencies of their orn and had to depend upon 
the 'Wholesalers ^ho '-ere noT to come under the proponents price control 
plan. Theeouality and op-ortunity .or all '^hich the Code program claini,'0 
vvas its object '.-as to be established on ^ plane .'nore beneficial to the 
large industry members. The realization of this fact vas not sIo't' in 
coming to the smaller producers. 

It had been expected by tne Code proponents that, granted* ap- 
proval of the program, recalcitrants would be forced into compliance 
by NUA.. Uniortunately for them, their hopes vere unfounoed in both 
cases, for NEA did not approve certain phases of tne program and proved 
ineffective in enforcing' what provisions it sanctioned. The Code pro- 
gram had aroused such deep- seated antagonism on the part of the smaller 
producers that it -'as impossible for tne industry to operate under tne 
plan. 



9625 



-6- 



PART A 
MAMIFACTUEEH COHTROL OP DISTRIBUTION 



9825 



-7- 

FATiT A - L'l AlTUFACTUESH CONTROL OF DISTRIBUTION » 
CO.PTSR I * 

IlTTROrUCTIOI^T; CfiAHACTj£F: OF ;;L\iIUrACTUFJ:R' S DISTRIRUTIOLT PROBLEM 



I. SCOPE OF THE INQUIRY" 

The reijUlation of distribution was a matter of central attention 
in NRA codes of fair competition and in the negotiations and contro- 
versies surrounding them. Tlie importance of the suhject is clear 
when it is recognized that the conflict of competitors culminates in 
the mariiet, and trade practices in the market are of vital importance 
in determining the result. Tlie problems of distrihution include the 
efforts of various industry groups and factors to govern or influence 
distrihutive trade practices such as the efforts of retailers to curh 
loss leaders; the efforts of v/holesalers to preserve their function 
"by the estahlishment of maiuatory trade differentials; and the efforts 
of manufacturers to regialate the distrihution of their prod.ucts not 
only in the primai'y market "but in each stage of distri"bution to the 
ultimate consumer. 

The present study is limited to the latter su"bject, the efforts 
of maiaufacturers to regulate the distri"bution of their products, and 
particularly with the relation of i\3lA codes of fair competition for 
these manufacturers to such efforts. Tlie inquiry into j^roposed ajid 
effected regulations em"braces an examination of the distri"butive 
pro"blems facing the manufacturer or manufacturing industry, th^ al- 
ternative possi"ble solutions, the policy adopted and devices used, 
and t"xieir operation and effects, or the effects implicit in the policy 
and devices employed. It has Iseen possi"ble to study only 13 industries, 
"but even vTith a limited sample, the inquiry has developed a range of 
actions and a,pparent motives v/hich it is "believed reveal the essential 
character of the manufacturer distri"bution pro"blem. 

II. THE ;.xxfactltj:r's distribution proelel; 

Tlae manufacturer's distri"bution pro'blem em"braces not only'his 
rela.tions with other manufacturers in the market, "but his relations 
with ATholesalers and retailers through whom he sells and with whom he 
is in competition if he sells directly to retail stores or to the 
consumer. The present study is focussed on manufacturer relations 
with ^wholesalers and retailers, although it is not possi"ble to separate 
completely t'nis part of the su"bject from that of the relations of 
manufacturers to each other, and this latter su"bject is touched on 
to the extent necessary to illuminate the pro'blem of relations with 
distri"butors. 



(*) T-iis Chapter v/as v/ritten "by Francis A. Staten 



9825 



-8- 

In the modern market the manijf acturer has alternative channels 
through which he may distribiite his product. He frequently sells 
directly to the ccnsumer through his own retail stores; he may sell 
directly to retailers only, or he may rely on wholesalers to get his 
product to retail stores. If he elects to sell directly to retailers, 
he has a further -oroblems to what tyoe of retailer will he cater, 
chain store, mail order house, de-oartraent store, or independent. 

Many manufacturers find it most advisable to distribute through 
a combination cf the above-mentioned channels. A -Dortion of sales will 
be direct tc retailers, a portion through wholesalers, and a portion 
direct to the ccnsumer, particularly large industrial consumers and 
public institutions. They may elect to sell mail order houses and 
chain stores direct and independent retailers through wholesalers; 
they may elect to distribute entirely directly in certain markets 
where the density of sales is great,, and indirectly through wholesalers 
in others where sales are relatively few and scattered. 

A fact which a raanufactux'er must face in making his choice of 
distribution channels is the very serious conflict of interest which 
exists among them. A choice of dependence on one channel is almost 
certain to result in a falling off in degree of cooperation from those' 
engaged in competing cli3.nnels. Further, and very important to the 
present study, the choice among methods of distribution cannot be 
made without careful regard to the methods employed by other manufac- 
turers. A policy which may be very good for one manufacturer considered 
by himself, or for an industry in cooperation, may be very dangerous 
to the individual manufacturer if applied without regard to the prac- 
tices of competitors. It was experience with this last difficulty 
that made industry groups eager for a uniform industry-wide regulation 
of distributive prextices apparently made possible by the MA. 

Closely related to the manufacturer's decision as to his most 
profitable channel of distribution is his decision as to a general price 
policy for his product; that is, to ',7liat extent will he compete upon a 
price basis and to what extent upon a product-differentiation basis 
through development of a brand name supported by direct advertising. 

Both in the choice of a. price policy and in the choice of channels 
of distribution, a manufacturer is obviously anxious to insure his 
position in the market. His position is strengthened, to the extent that 
he can increase the dependence of the consumer upon him and decrease the 
threat of competition leading to price reductions and loss of business. 

Whichever price policy a, manufacturer has selected, he must seek 
its application not only in sales by himself to intermediaries, but in 
each step to the consumer. If he chooses to compete on a nrice basis, 
it is presumably because he believes he can best promote his own security 
in that way. This policy assumes a faith in his ability to produce and 
distribute his product at a cost and price lower tha,n his competitors. 
To effectuate the policy, not only must production be at low cost, but 
also distribution must be at a low cost if the price to the ultimate 
consumer is to attract the necessary trade. 



9825 



-9- 

It should be noted here that conmetition on a -orice "basis has 
become mere and more difficult for manufacturers as fixed costs have in- 
creased with the increased use of machinery in lar,?;e scale -nroduction. 
Competition on a price of efficiency basis requires tha,t there iJe an 
advantage in costs throu£:h greater economies in buying materials, in 
manufacturing and selling. Witii the change in the striicture of costs 
typical of so many indust-^ies in the modern market, however, the most 
intense price competition is likely to come from a competitor whose 
prices are based on his direct costs, the overhead costs being ines- 
capable for long periods of time. Efficiency is measured in total 
costs, whereas price is likely to be on the basis of direct costs. 
IThen competition is intense, an inefficient competitor selling on the 
basis of direct costs to keep a hold on the market is a menace to the 
most efficient producer for as long as his capital and his consumer 
goodwill will last; and perhaps indefinitely if there is good financial 
support from affiliated companies or banks. 

If the manufacturer turns a'l^ay from price competition because of 
its threat of insecurity, he seeks to remove his product from competi- 
ticn by differentiating it from all others in the minds of consumers. 
He develops a brr.nd name, advertises in newspapers and magazines, with 
the purpose of creating such a consumer acceptance and demand for his 
product, in preference to all others, tliat the consumer cannot be 
diverted to competing products on the basis of price alone. If this 
is his choice, he cannot stop with the direct advertising alone; he 
must carry tiarough by making certain that the product is promoted on 
a bra.nd and quality basis through each distributive stage. Cooperation 
of wholesalers and retailers in capitalizing on the direct advertising 
is necessary. 

It is clear that whatever the general sales policy, it must be 
carried through the manufacturer's primary market to the wholesale and 
retail markets. In these secondary markets, the raan-iafacturer h^s a 
choice of channels, and presumably his choice will depend on his eval- 
uation of the advantages and dangers of each. There follows an examina- 
tion of the manufacturer problems incident to the choice of (l) direct 
selling; (2) dependence on intermediary wholesalers and retailers; or 
(3) a combination of direct scllinf and dependence on intermediaries. 
These problems differ according to whether the manufacturer is selling 
en a price basis or a brand or quality basis and these differences 
are therefore covered in the consideration of each of the three heads. 

A. Problems Incident to Direct Selling 

1. Direct Selling to Consumer 

(a) On a Price Basis 

If the manufacturer elects to sell direct to the consumer and 
compete on a price basis, he must be efficient not only in his manu- 
facturing function but in the functions which would otherwise be 
performed by the wholesaler and the retailer. Therefore, he is ex- 
posed to the competition not only of other manufacturers but also of 
wholesalers and retailers distributing the products of other manufac- 
turers. He must expect that he can perform the retailing f\inction 

9825 



-10- 

more cheaply than s-oecialized mass retail distributors, such as chain 
stores and mail ord^r houses, '^e is therefore ejToosed not only to 
prices on the hasis of direct cost by manuf actu.rers , hut also to the 
risks which may accomuany the use of aggressive loss leader merchan- 
dising by distributors on other mamifa.cturers ' products. If the manu- 
facturer is able to cope with competition on each of these levels, 
because of superior efficiency or resources, he can expect to be fairly 
secure in his market; but such is seldom the case. 

(b) On a Brand Basis 

Where a manufacturer chooses to sell his product on a brand basis 
differentiating it in the customer's mind from other products by means 
of direct advertising and acceptance of the brand name, and where he 
takes to himself the entire merchandising function to the ultimate 
consumer, he has the advantage of being able to take .the fullest 
advantage of his direct advertising through intelligent capitalization 
of its results by the retail store. However, to the extent that the 
differentiation is not complete, and it seldom can be, he is exposed to 
the competition of other manufacturers' products sold on a price ba-sis 
sufficiently below his own price to attract away customers. It should 
be noted that the dangers of price cutting on competing products may 
arise both in the ■nriraary market for such competing products and in 
the secondary markets. That is, competing manufacturers may make their 
initial sale on a price basis, and distributors likewise may use the 
product aggressively on a low price basis at small unit profit, or 
even as a price leader. 

2. Direct Sales to Retailers 

(a) On a Price Basis 

When a mamJfacturer elects to sell his product to retailers, relying 
on price appeal, he is exposed to the competition of other manufacturers 
and wholesalers. Here again, if his industry is one characterized by 
relative high overhead charges, price competition when most intense 
will be on the basis of direct cost rather than total cost a,s will the 
measure of efficiency. Further, on a price basis it is very probable 
that the best outlets will be aggressive merchandisers such as denart- 
msnt stores and mail order houses. If he sells to these, he is un- 
likely to find much interest in his product on the part of independent 
retailers, with the result that mail order house, chain, or department 
stores outlet tends to become the exclusive possible channels. In this 
case his position may become precarious by reason of dependence upon 
such powerful retail organizations who, as a consequence of that de- 
pendence, are in a very strong bargaining position enabling them to 
exact a low purchase price. 

(b) On a Brand Basis 

If sales are to be on a quality basis and the policy' is direct 
selling to retailers, the margin to the retailer on the product must be 
such as to induce their fullest cooperation in capitalizing on the ad- 
vertising and cons-umer acceptance. This necessarily high margin, added 



9825 



-11- 

to the cost incident to orodwct Droraotion "by the manufacturer, makes 
necessary a high retail orice. To the extent that differentiation 
is not comrilete and cons-oners can he attracted away "by a large price 
differential, the -nroduct is eriDOsed to orice competition. Further, 
once a product is established in the market, the interest of chain stores 
and department stores in it increases. The patronage of these outlets 
is very desirable to a manufacturer "because of the large volume moving 
thro\igh them, and for the reason that this type of retailer is aggressive 
in its promotion of a product. Eovever, if these outlets are sold, 
and the product is iised as a price leader or sold at a very small profit, 
the interest and cooperation of independent retailers declaines, prob- 
ably even to the extent of a virt\xal boycott. The retail interest 
failing and dependence upon mass distributors increasing, the manufac- 
tTorer is again in danger of being subordinated in bargaining power to 
the latter. * 

B. Selling Through Wholesalers 

1. On a Price Basis 

Sales to vrholesilers on the basis of -orice appeal involve no 
assurance that the iov price to the wholesaler will be passed on to the 
retailer, and by him to the consumer; and successful competition on a 
price basis requires aggressive low margin merchandising in the whole- 
sale and retail markets. In the case of direct sales to retailers, 
the best use of price appeal is by aggressive mass distributors. More- 
over, aggressive price competition by the wholesaler may well lead to 
\anusual pressure by the wholesaler for lower prices to enable him to 
continue his price competition, and to the extent tliat he is able to 
play manufacturers one against the other, he may be able to drive prices 
to the level of direct costs. Another possibility also presents a danger; 
tha.t is, the disappearance of the wholesaler margin through aggre^ssive 
price competition may cause him to lose interest in the product entirely, 
turning to development of his own wholesaler private brand, or to ad- 
vertise differentiated products. 

2. On a Q-oality Basis 

The policy of product differentiation through brand development 
combined with use of wholesalers or jobbers for distribution, requires 
that there be a margin adequate to interest wholesalers and secure their 
cooperation. The product must be removed from price competition. 
Wholesalers must be nrotected from each other's price cutting on the 
margin if they are to retain interest in the product. This requires 



(*) It should be noted that merchandising on a brand basis may proceed 
on the policy of avoiding price competition as to the retail price, 
but accepting price competition in the intermediary market; i.e., 
manufactTorer net price may be reduced by extending larger discounts 
to intermediaries, with the condition that the increased margin be 
devoted to sales promotion rather tlian price cutting. This prac- 
tice, however, is only an incident in a brand promotion nrogram 
looking to ultimate greater profit through enlarged demand for a 
differentiated product. The policy is exposed to the dangers 
above described. 

9825 



-12- 

resale price maintenance in the wholesale market with all of the 
enforcement difficulties that surro-und that device. Moreover, the 
manufacturer lias no assurances 'of the wholesaler's efficiency in 
promoting the product; a difficult educational task confronts him. 
And .again there is the temptation to sell to mass distributors to 
secure the additional volume. If this is done, the interest of the 
wholesaler is likely to wane; it may even subscribe to a wholesaler 
boycott of the -oroduct. Added to the above difficulties is the threat 
of price com-Detition from similar products of other manufacturers, sold 
on a basis sufficiently low tc nullify the differential advantage. 



9825 



C . Combination o f Direct Selling and Sel li n,-: Thro-u,°:h Distributors 

1. On a Price Basis 

The combination of sales directly to retailers with sales through 
v/holosalers on a orico basis immediately places the manufacturer in 
active cornoctition with his own wholesaler customers. In addition to 
facing connetition in their specialized field, ho risks gaining their 
ill will. In fact, to the extent that he is de-pendent on distributors 
for distributors for distribution of part of his product, it is prob- 
able that he will be obliged to txirn to aggressive price mercliandisers 
such as mail order houses and cliain stores in \/iiich he is again faced 
with the thrent of their powerful bargaining position. Added to these 
difficulties, of course, is the constant threat of price coraioetition 
from the products of other ns.nufacturers. (The same problems as set 
forth above apply to a combination of direct sales to ultimate con- 
sumers with sales through intermediaries.) 

2. Combination of Direct Selling, Selling Through 
Distributors on a Brand Basis 

¥here the manufactiircr distributes a part of his product direct 
and must rely on wholesalers as to the rema.inder, he must maintain a 
wholesaler margin sufficient to secure cooperation. Further, he must 
protect that margin by some form of resale price maintenance to prevent 
the distributor from using a part of the margin for price reduction. 
Price maintenance is necessary in this case to protect not only the in- 
terest of other distributors, but the position of tho manufacturer him- 
self in the v;holesale market. If he is successful in maintaining resale 
prices in the wholesale market, there still remains the threat of price 
competition from the products of other manufacturers sold on a price basis. 

It is apparent that whatever price policy the manufacturer adopts 
and whichever channel or channels of distribution he elects to favor, he 
is confronted with various threa.ts to his position in the market. The 
analysis shows that the manufacturer individ'oally may be able to solve 
some, but not all, of his difficulties. For example, direct selling 
eliminates dependence on distributors; v/herc he shares the market with 
the distributor, he may maintain resale prices by refusal to sell to 
r)rice cutters. It is 8.pparent, however, that two major threats run 
through the entire range of distribution policies and neither of these 
can be completely met by the manufacturer as an individual. On the other 
ha.nd, policy of price competition carries with it the threat of low prices 
tending to the level of direct costs, either through the corai")etition of 
other products, or through exposure to the sxiperior bargaining power of 
mail order houses, chain stores a.nd department stores. On the other hand, 
the policy of product differentia.tion with relatively high prices is con- 
tinually threatened by price competition on a level low enough to erase 
the differential advantage; beca-use differentiation in product us"ually 
runs in terms of ability to comma.nd a somewhat higher price but not a 
complete monopoly of demand. 

Price competition is the f'ondamental threa.t to the desired power in 
the market in each case, and if the manufacturer is to realize the wished- 
for power and security, price competition mu.st be limited. 



9825 



III. I'AinTACTUrTiRS I"ra"TI\'ES AIG TO'^AIID imiT"PII INDUSTCY ACTION 

''Thore a nanufactTir^r is oper^ti^.g both in th° -ori^i^rv mTk°t and in 
th° ■^liolesal^ rnA vctril mprkets, th-^t limitation to 0"=^ eff«o.tiv'=' mast 
? ■^■'•ilv in f>ach of ti.-os'= "inrk^tso This limitption hp cannot pff'^ct as an 
individunl; control of ■n-'ic^ c "''^•^tition is a ■nrohl'^n ™hich extends 'b'=!- 
yond th<^ inr'ivir'-a^l mnniifactur'^r' s sal-^is policy pnd r^lptions '"ith his O'-m 
distrih-ators. To hpv^! such control th°.ro. must h^ ai°;r'=^'^m'^nt pmong raanufact*» 
ur°rs or som° coercion ^hich '^stahlir.h-'^f. a unity of ■Dra.ctic", Having 
achieved ? corrnon front r^non?: th^^'.s'^"' v^'s,- th'^^y may first dir'^ct th^ir 
rtt^ntion to ^ liTTiit."^tion of comr'^-i-itinn p-aon^ thenisfilv=>s in th° -orimsry 
market, proc^^ding th^^n to a control of distrihutivp. r^'la.'fcions in the • 
s'^cond.ary mprk'=^t. It is also t)OSPi"^)l'= that control in th° ■orira^ry market 
is d'=>-D°ncT=>nt u^oon p control of .th<^ s'^condary markets, in ^hich case a 
distribution -oro^rrpm must be agre'^d on before the -control of the ririraary 
mr>rket is effected. But even in this crse there raiist be an understanding 
among at least the dominant manufacturing grounas to the need for such 
control and itr. relation to the tirinar?,'' market.. Manufacturers '^ill want 
control of the wholesale and retail mark^^ts if they are selling directly 
to r°tail°rs or consumers, and particularly if those sales are ba.sed uiDon 
a DOlicy of high, prices throuf^h -orod-uct differentiation and brand de~ 
velcfimento Th^y ma''- '-ant such control if they ar^ de-oend°nt UTjon inde- 
io°nd°nt distributors for distribnti'-^n »nd those distribi:tors are ■oc'erful 
enough to d°mand -nrotection from mail ord^r houses or oth^r. aggressive 
merchand-isers. 

It should b° not°''T h^r^ that if distributors are ■no'^erfv.l they must 
be aarti^s to th° "orograra psr°°(\. on, '^hich further complicates the loroblem 
of unity of action. 

The er-:tent to ^^hich a rannufactar'^^rs' ^^rogran is suc^egcif-iii iri -promoting 
th^ir aims '^ill de-oend UTjon th° dp.-zi^ee of rmity achie-"-edo Ther^ are several 
ways in '^hich acco-otance r^f a. common -orograra may b"^ effected. First , there 
may b" a vol'jnt^ry acce-otance of en infustry -orogram by -•^11 -Dirties, It 
is -oossible, rj though not lil-.-eV/, th^t a c^mrlefca id^ntitv of interests 
among manufacturers ^onld l=arl to this result. It is T^.ore likely, however, 
th=t the voluntary -"^^ree'^ant '^'onld b° based unon a comrDromise between man- 
ufacturers -^i shine- to follo"' differin- distribution r^olicies. For e-amnle, 
small manufacturers distributing^-, on the "basis of -orice fi-o-oeal might agree 
-'ith lar^e- nanufactu-^eT-s distributing on "• brand b^sis if s-oecified -orice 
differentials T^ere accorderi them. Whatever the -basis of a^reeinont, the 
fac^. of a^ree-^ent 'nakes th" success of the distributive -Drogra.m m®re likely 
th^n if coercion is relied -iiTjon. The major threat to succegs -hiT e the 
-unity ci-^ntinues is the anti-tr^xst la'^, Sind sus^^ension of- this becomes the 
prime reaxiisite, » _ , ■- 

Sepond j uniformit''- ?<f ^ction m^v be '-chieved. by th'^ ejcercise of pO'-er 
by a dominant grou^ or dominant 'concern in the industry h'^ving sufficient 
■DO^er and resourceB to dictate. the -iractice to b" follo'-'ed. The degree of 
success in-'this case is in direct ratio to the absol-i'-teness of the -oc-^er 
of the dominant interest. 

Third, there is a. ':)Ossibilitv of G-overnra=^nt control of un-'illin^ non- 
conformests such ^s '-'as ^-)Ossibl° through the NPA. This is the most, doubtful 



98?5 



-14- 

rout^ to -unity. Th=^ G-o-''°rnn°nt, "h^n it 'bricom'^s p"Tpr'= of th° Tnotiv°s 
und-^rlying m industry r'>e:iil.'^tory nrofrram, -oartic-al-Tly ^h°r'=' th^^ '=ilira- 
instion of sutordinption of e tyco'= of '^nterDriz'^ is r'<=sir'=a, '-i''] ti" v^ry 
r-^l-uctant to I'^nd its fiat. 

From th-:^ .-"bov" discn.ssion, it is loeic-l to =>:':^oct thpt m^nuf^ctur°r 
■orograms for th":" r'^.^ilption of distributive ■Dra.nti'^'^s pr)pl;tin^ tp th^^ 
-'hol=isal'= ?nd re^t^il rnprk'^ts ^r"^ nost ir"=!ly to >}° rc'vpnc^c' by "ipnufpcturing 
grou-os '-hinh h^v^ plr'^adv "r-hi°-5/°r' ngr<=?°"i°ht among th'='ms^iA'''=s. 

I V . ALTJENAT I VE j:raySTRY JDT STRJ'^UTI ON . FpLI C IES_ 

Assuming pgr^'^rn'^nt on th° iDPrt of npnuf pctur'^rs p.t to th'^ n^^^d for 
p conmon nrogrpin of control of distributive roHations, th^r^^ pt°- thre° 
g9n«?rpl Plt°rnp.tiv<^s avpilpblo to thpm. ^hich of theses is chos'=!n rio-nonds 
unon the, degree to "'hich manufpctur^srs ptp s-^lling or '^ant to s'^''! riir«=ct 
to consiimers or r'^tpilers, pnd the. oxt^nt to '"hich ps an industry th«^y are 
deriondent unon distributors. The alternatives pre: 

A, Reljpnce on Bjrect S"lling. The mpn-'ifacturers in this case pro- 
ceed to PTD-oro-nriate to thenselve.s either the ontire market or a segregable 
Tjart of it for direct sales. This involves the elimination of the inde- 
pendent distributor or at lepst such rirorous control over him ps to 
■oracticallv eliminate him. There ma.v be an outright refusal to sell dis- 
tributors or such a limitati'-n of th^ir mprfrins as to ma>e it un-orof itable 
for them to o-Doj-ate. 

B, Combination of Diregt Selling pnd Use of Distributors . This 
r)Olicy pcce-ots a joint occu-nancy of the "holespi^^ market by manufacturers 
and distributors. In such a case th= distributors may be circumscribed 
in their Drice comnetition by mandatory regulation of resale -orices and 
terras; other'^ise the distributors •'•^ould constitute a threat to the direct 
selling o^epptions o:^ raanuf^cture-s. 

C, De-penrienco on Spleg Through Distributors . This alternative con- 
stitutes abpndonment of the ^-'holesale pn'^' petpil raPrket to c^istrib\itors. 
However, "here the mpnufacturers are de-oenrient unon distributors for their 
cooTDerPtir^n, th° distributors must be -nrotected from ^irice coranetition 
Pmon?- themselves, p.nd T)Prticulprly from the r-.rmnetition o.'f'- mass distributors 
selling on a isri"" basis. 

The follo'^ing charster is ri-^voted to a full-^r descri-otion of these 
alternative -oolicies anrT to an account of their- use in particular manufact- 
uring industries studi=^d.* 



* T'no sur)r)lementpry comments are in ord^'rJ 

(l) The study is limited to an e--araination of manufacturers (distri- 
bution control efforts, the motives underlying" them, their o-neration anrl 
riogrpo of success. "Evaluation of the -Dublic nolicy problems following any 
flp.^yao, of success in the nrograms is beyond the sco-ne of the study. Ob- 
viously, the evaluation in broader terms is vital to any government decision 
as to the ^c^i-op of tolerance or surj-oort to b" given pn industrv effort. 

9825 



-15- 

contro-i t>tt="nots, th° Tn--in vflu= o" • hidi i- to tli-o^- th° mi'blio isoMoy 
nrctl^M into r°li^f. 

To th<^ o-'t'^nt tlipt npn-ufpntur^'-s or° 'vi-r.^assfiil in th^ir efforts .to 
circunscri'b" aistri>intiv<= r=lrtinns, '■^ith th<^ oonconit-^nt liTnit-^ti^n of 
■oric^ con-n^tition, :fr°=^rlon of co'Tn'^tition in th=* nar^'^t "bTopV ao-ni. Th° 
TDrotl^m in oulDlic --lOlicy conn'^nc<=r rt this --lOint. Sh.-'il th° .--ov^rnPT^nt 
r^fus"^ su-o-no-t to th=^ effort or ■ornc'=='d vi.~oroiisly ;^p-pinst it i^' it is 
"b^infT don° 'without fcov^rnm^nt oun^'^ort? Sh:l"i it pco.=-ot th° 'T^mif?'o,tur'=r 
jud.f:ra°nt 8:<:pinst fr^*" conn^tition, -'^nc', if so, -ith '^h-^t rjuhlio. controls 
to insure p r>rox>°r "^i^htin^ of t.h° rionsu-^r"" r-n'-'' ^ino-ity inrlnstry intRr^^st 
in its '=>ff°cturtion7 The issu'^s inn=^dipt°Ty ■b^-.o^^ v^^y brond in charfct^rJ 
strbilizrtion of business r^ainst fr'^'^lon of cOTTri'=(tition -^ith its -ororaise 
of lo" costs pnr" ^ric^s thro-'ifrh rp-nid intror^uotion of n'^^ ia=thods pnd 
liauidption of th° old; th^^ rnlr-tiv^ sonipl valu°"of "ff ici<=!ncv thro-ogh 
int'=>-^ration "ith oontrol ps p^pinst thpt of in(?=^-T=^ndf^nt O'-r^r.-tion of ^ 
larg=! num'bpr of rimpll '^nt°r-^ris°s ^v^n -^ith sonip'^hpt hi,?h='r costs. Such 
•oro'bl'^.ms ar^ c°ntrpl to th'^ distri'bution rro'bl°r,i, "bnt rv^- in p forun "b°vond 
th":^ scor)<= of this stud'"'. 

(2) It is pri-DPi'^nt thpt th° "oro'bl"^ of this study ps c'l^'fin'^d li°s out- 
side th^ fraine'-rork of th° olri'^r economic theory of the ns.tur-^ of inprket 
h^hovinr. That theory, ■'Dr'^nised on th° pssuTni:itions of p Ipt^p hurn'oT of 
huyers, l^rpe nunher of sellers, stpndprdized r)ro6uct, loio^lec'sie of the 
raprk°t, pnd ^ohilitv of cp-oit-"!, ^e-tcludps th* -^ossil-iilit-r cf s°lle:^s pchi^v- 
ins: dorriinpnt •no'^er over the inprket and escpioinff the in-'-iPct of conro^tition 
(pside from th° theory of nonopoly "orice) . Assuning thes° conditions, it 
r=psons thpt "business T=n mu.st "ct in aco^^rdpnce ■"ith th° th='ori = s >iased, 
Ti'Don ■^.h=In. Our o'bserv'tion is thpt hu'^in^ss m^n in their actions seldom 
if ev^r pcc'=TDt th°se pssumntions pnd the theory "baser! thereon, pnd con- 
tiniiall'^'' P^t in th'^ "beliaf that cons^au^nc^s "uit^ different from those 
d^duc^d ^r= "oossilil^. It is p-l-^prent that to th" ^t^gi-oo th°ir efforts pre 
suc^pssful, the th°orj'' is in^'OTDlicahle. H<=cofrnizing th^ inaptylioahility 
of the old°r theor'^'' to tb'^ innui':"''/', th'' ■or°s='nt stu'-'''""Tp resents an analysis 
of market "beha.vior -"hich is hss^c' on th° o'bs'=r'7°d -actions of man^nfpotur'^rs 
-ith relation to c'istri'b'ation of ■i-h°ir "oroducts. 



9825 



-X6- 

CHAPTZR II 

IvlA.lTUFACI UIlI:T& IKSUSTHY PRO CTim MS ' FOR 
TH3 RZGULATIOH OF DIS^i'aiBUTIOtl 

I o lESCHIPTIOH OF ALTFPJIATI V3 DISTP.IBUTIOH POLICIES 

The industry studies of this Unit indicate tliat attanipts at 
the regulation of distrihution "by manufacturers, or attenpts "by 
manufacturers to promote or protect their access to the market at 
a profit, involved one of the three general policies descrihed in 
the preceding chapter, or combinations of such policies. 

The first included the appropriation for direct sales hy man- 
ufacturers of all or a segregable part of- the market, and the elimi- 
nation of independent distributors from competition, either through 
the establishment of a direct selling organization or through con- 
trol of distributors by agency, contract, or affiliation. 

The second involved the joint occupancy of the market by 
direct selling manufacturers and by distributors, but ?;ith a manu-. 
■ facturer control of the prices and selling policies of the distri- 
butors. 

The third involved the abandonment by all manufacturers of a 
particular market or a part thereof to distribxitors, thus eli- 
minating competition betv;een manufacturers and distributors in tliat 
m8.rket. 

A. Policy ITo. 1 

The comple.ta adoption of Policy No. 1 - the appropriation 
by manufacturers of the entire market - could be accomplished by 
a prohibition of sales to distributors, or wlmt amounts to the 
same thing, by making it iriipossible for distributors to sell to 
certain customers at prices as low as those granted by manufac- 
turers to those consumers on direct sales. This coiild be accom- 
plished by selling to cons-umers and distributors at the same or 
only slightly different prices, thus eliminating the margin upon 
which the distributor depends for continued operation. Since this 
would be feasible only ^5/here manufacturers were in a position to 
serve all cons-umers by direct sales, the complete adoption of this 
policy would not be practical for most industries. In the in- 
dustries studied by this Unit, the com'.ionest approach to Policy 
No. 1 was the manufacturer's appropriation of a segregable part 
of a market. The segment was made on the basis of a'^-ntijai, or class 
of customer, or comiTiodity, or combination of these bases.' 

Characteristic of an ap;3ropriation of a market on the basis of 
quantity was the substitution of quantity discounts for trade dis- 
counts, whereby all buyers, whether distributor or consumer, pur- 
chasing in excess of certain qxmntities, were enabled to secure the 
same price from the imnufacturer. If the basis of the discount were 



9825 



-17- 

carloed purchases, all carload "b-uycrs would receive the same price 
from the manufacturer, and the distributor would be given no margin 
on which to compete with manufacturers on sales to carload consumers. 
Thus, there would be an ap-n-o-priation to tho manufacturer of all 
sales over the sTsecified quantity. 

An a-Dproioriation by raanuiactv.rers on the basis of classes of 
customers' would be accomplished by {sx-anting to certain classes of 
buyers lower prices' tlian were granted to distributors, in which 
case the distributor would lose the business of these specified 
classes of customers. In this connection it should be noted that 
manufacturers might appropriate all or a part of the sales to re- 
tailers, without any appropriation of the consumer market. For 
example, man\ifactu.rers might elect not to sell to anyone in less 
than carload lots, btit would allow all carload purcliasers the same 
price. Thus, the manufacturer v/ould not invade the consumer market 
(exclusively l.c.l. in certain industries) bu.t would take from vrhole- 
salers all carload salv^'S to retailers. 

A-opropriation of a part of the market on the basis of commodity 
timt is, the market for certain types of products only - V'ould be 
accomplished by prohibiting the sale of certain commodities to dis- 
tributors, cr quoting to certain consumers lower prices on certain 
commodities than were granted on such co.Timodities to distributors. 

The most common kind of market segregation and ai-ipropriation 
appearing in the industries studied by this Unit, \-sas on the basis 
of quantity and class cf CAistomers. Th3.t is, the manufacturers 
appropriated large quantity sales and sales to certain profitable 
types of customers. This was accomplished by giving to certain 
specified classes of cvLstomers prices on carload or other large 
quantities as low or lov/er than Y/ere given to distributors. 

As has been indicated the industries studied v;hich adopted the 
policy of manufacturer appropriation of a market appropriated only 
a segregable part of a market to which it was fea.sible for manu- 
facturers to make direct sales. In each instance, a part of the 
total irarket, v/hich for some reason the manufacturers considered 
it impractical or impolitic to reserve exclusively to themselves, 
either was left to distributors cr was jointly occupied by both 
manufacturers and distributors. If the raanu-facturers elected to 
jointly occupy the unapproTjrii^ted segment of the iiarket v/ith dis- 
tributors, but attempted to exert some degree of joint control over 
the distributors, the. program with respect to this unappropriated 
segm-ent of the m3.rket would resemble Policy Ho. 2. If the mD.nu- 
facturers elected to leave the market entirely to distributors, the 
program with respect to this segment of the market would r^^semble 
Policy ITo. 3. 

B. Polic:; llo. 3 

The adoption of Policy llo. 3 - joint occup3.ncy of all or a part 
of the market by distributors and direct selling manufacturers, v/ith 



9825 



-18> 



some form of manufact-urer control of the prices and selling policies 
of distrilo-afcors - could te accomplished hy a program in whicJb maaiu- -- 
fa.cturers were given direct control of distributors (as for 'example 
in a vertical code dominated by manufacturers) or some form of re- 
sale price maintenance, mandatory or permissive. 

A program involving Policy Ho. 2 was one reqtiiring all manu- 
facturers selling to distributors to refrain from selling to those 
distributors failing to enter into a contract whereby they would 
agree to resell only in accordance with the price and terras of the ■: 
manufacturer. Saveral variations of this type of request were 
utilized. One principal distinction existed betv;een the various 
programs involving Policy Ho. 2. Some of the programs extended 
protection to distributors in the form of adequate differentials 
or trade discounts, while oth.jr programs na.rrowed the margin on 
which distributors operated, or otherwise made the life- of the dis-" 
tributor more difficult. To the extent that protection to distri- - 
butors was given in any program, thatpi-ogram approximated- Policy 
No. 3. To the extent that the distributor was liandicapped in any 
program, that program approximated Policy Ho. 1. 

C. Policy Ho. 5 

The adoption of Policy Ho, 3 - abandonment by manufacturers 
cf all or a part of the market to distributors - was effectuated 
in programs in which there was a definite relinquishment by manu- 
facturers of the privilege of selling direct to certain classes of 
buyers, or the relinquishment of the privilege of selling direct 
in q"aantities under an agreed-upon amount. Generally included in 
programs uiider this policy was some form of protection to retailers 
against invasion of their market by wholesalers; in other instances 
protection was afforded against other retailers. 

One or mors of the above described policies was incorporated 
in each of the industxy programs studies by this Unit. There were 
no instances in which there was a complete adoption of Policy Ho. 1 
or of Policy Ho. 3. That is, in no industry program was there a 
complete approprfe-tion of all distribution by manufacturers; and 
in no case was there a complete abandonment of all distribiition to 
independent distributors. For the purpose of comparing the programs 
of the various industries studied by this Unit, it has been con- 
sidered desirable to divide the -programs into three general groups 
based upon their relation to the three broad policies above des- 
cribed. In making this grouping attention has been given to what 
appeared to be the direction in which the industry was moving, and to 
the relative importance to the industry of the various policies which 
may have been involved in its program. For example, an industry pro- 
gram involving the appropriation of a part of the market for direct 
sales by the manufacturer, and an abandonment of another part of the 
market to distributors, would be placed in Group 3 if it appeared that 
this program constituted a withdrawal from an important part of a 
market in which direct selling manufacturers load theretofore coiiipetod. 



9825 



-19-. 



Or it would be placed in Gro-'Jio 1 if it a:?peared that by -its pro- 
gram the; ind-astr;/ wore ap-^ropriating to itself, and depriving dis- 
tributors of access to, an inportant oart of the market in V;hich 
distributors liad tharetofore narticitiatod. 



II. CIAS3IFICATI01I OF IlIDUSTRY P20GPAMS ACCOrJDIlIG TO POLICY. 

3ach of the industiy programs studied by this Unit falls uiider 
one of the three broad policies above, described. In order tliat com- 
parisons might bo made between the. various' industries adopting a 
particular tj^e of program, and' between the tyioes of programs them- 
selves, the follov,'ing division has be-jn made of the industry pro- 
grams studied by this Unit. 

Group 1 pro4;raras (involving manufacturer a;opropTiation of a 
segregable part of the market) incl\ide th.'. following codes: 

Salt -Producing 

Cpment 

Wood Cased Lead Pencil Ifenufacturing 

Group 2 programs (involving joint occupancy of the market by 
direct selling maniifacturers and distributors, with sortie degree of 
manufacturer control over distributors), include: 

Carpet and Rug llan'ofacturing 

Valve and Pittings Manufacturing 

Cork 

Pire Hxtiiig-ijishint, Appliance i,ian"afacturing 

Agricultural Insecticide and Fungicide 

Business Purnitur., Storage Equipment and 

Pilin,^ Supi^ly 
p-on eral Supply 
Asbestos 

Groiip 3 programs (involving an abandonnient o'r relinquishment 
of a segregable part of the market to distributors), invlude: 

L'umber and Timber Products 
Plnmbin^ Fixtures 

III. DS3CEIPTI01T 01 PEOGHAMS BY POLICY GPO'JPS • 

Following is a brief description of the pro^jrams of each of 
the industries studied, by .-this .Unit,- g.rouped on the basis of the 
division set forth on the preceding page. 



9825 



-20- 



A. Policy Gro-gp 1 Programs 

1. Salt Producing Industry (*) (Code IJo. 20) 

One-third of the producers ty nuinlDor control nearly 
two-thirds of the volume. Two producers are imch larger than the 
others, and have heen leaders in pricing and mercliandising methods. 
Prior to the code, through association activity, quality and pacl^ag- 
ing were standardized, and a freight equalization system put into 
effect, eliminating freight ahsorption from the field of competitive 
price cutting. Because of high fixed overhead costs, there is a 
strong incentive on the part of manufacturers to increase volume 
through reduced prices, in order to reduce unit cost. Since a general 
red^iction in price levels would not materially increase the total 
consun-rption of salt, an increase in the sales -volume of one pro- 
ducer would result in a decrease in the volume of other cortipetitive 
producers, who must meet price competition to retain their market. 
As long as there is active price competition "between manufacturers, 
there is a tendency toward complete price demoralization. Prior 
to the code, the industry- ha^d succeeded in securing :iBd maintain- 
ing almost complete u:iiformity in published prices between manufac- 
turers, but because of the existence of secret rebates and price 
concessions, and the existence of price competition between producers 
and distributors, tne industiy had not succeeded in controlling 
price corripetition a.s a primary weapon in securing access to the mar- 
ket. Attempts at the control of resale prices of distributors had 
not proved very successful in the past, and the indi\stry had dis- 
continued ^ranting of trade discounts to jobbers, eliminating the 
distinction between jobbers and retailers. 

Certain of the larger producers maintained branch warehouses, 
or entered into contracts with wholesale distributors whereby such 
distributors performed e. warehousing and selling fuiiction for them, 
but agreed to adhere to the producer's filed prices and terms of 
sale. 

Prior to the code, there had been a partial segregation and 
appropriation of the market for direct sales by manufacturers. Re- 
tailers capable of buying a carload of salt at a time could secure 
from the producers as good a price as could wholesalers, and con- 
sequently such retailers purchased direct from manufacturers rather 
than pay wholesalers a higher price. Industrial buyers, capable 
of buying in carload lots, or whose annual purchases of salt ex- 
ceeded a fixed number of carloads, could secure as good or a better 



(*) The information contain-;d in the folloY/ing description of the 

program of the Salt Producing Industry has been summarized from 
the Report on the Salt Producing Industry, Y/hich is contained 
in Part I. For a more detailed description of this program, 
and for details regarding its operation, reference should be 
made to the Report itself. 



9825 



-21- 



price than coul.l salt jobbers, and therefore pui'chased direct from 
producers. This appropriation of thc^^. raarlcet by manufacturers was 
only partially successful, due to the fact tlmt salt is sold in 
t^70 different forms — in bulk, and pacl3.f^ed. As Ion;: as ma.nu- 
facturers continued to sell ~oullz salt to jobbers or ?;holesalers 
at a lower price than that c'narged for paclcaj^'ed salt, such re- 
sellers could paclcage tlie salt and sell in coiinetitiou with the 
manufacturers. There is a greater potential profit to manufac- 
tu-rers from the sale of packaf.-ed salt than bulk salt, the actual 
profit on pacl^a^ed salt depending on the extent of price competi- 
tion from independent distributors. Manufacturers evidently be- 
lieved that they could not entirely discontinue the sale of bulk 
salt, lest they permanently lose the business of larr;e industrial 
buyers capable of enterinj'j into the prodxiction of salt for their 
OFn use should the price become too high. Ydt as Ion;;, as resellers 
could secure bulk salt, they could divert it to the paclcs.ged s-alt 
trade, thus preventing manufacturers from maintaining a large dif- 
ferential in price betweni bulk and paclcaged salt. 

The code program ^-as evidently designed not only to assist in 
promoting and maintaining price uaiiformity and the r.-striction of 
price conrostition between manufacturers throvigh open prices, protec- 
tion against price competition betv/een the different producing ar.;as, 
and a prohibition of &?.les belo'v cost; but an atterot was also made 
during thv code program, Vvdth the assistance of the code, to promote 
direct selling by a further appro^oriation of the market to direct 
sellers. 

During the cod.e period, the industry discontinued the sale 
of bulk salt to resellers and to l.c.l. or pooled car consumers. 
The only persons permitted to btiy bulk salt were indu.strial con- 
sumers large enough to buj' in straight carload lots, and the only 
source from, which they could purchase bulk salt was the producer or 
his o\7ned or controlled sales agencies. Thus, salt manufacturers 
appropriated to themselves the business of all industrial consumers 
desiring bulk salt who were lax-ge enough to buj^ in ca.rload lots. 
This was an appropriation on the basis of quantity and commodity. 

The manufacturers had discontinued the granting of trade dis- 
counts to distributors, and because they granted the same price to 
all carload buyers of paclra.ged salt, th^ manu.factu.rers secured the 
business of all industrial consumers desirin;; packaged salt, who 
were capable of buyin^; in carload lots. This was an a:iprogriation 
on flae basis of qua.ntity. 

On the higher grades of industrial salt, industrial consumers 
were given lower prices than were given to independent distributors, 
if they would enter into annual contracts specifying a minimum total 
volume of salt to be purchased. This appropriation by the m?.nufac- 
turers was based on class of customer, commodity, and annual volume. 

with respect to the uiiappropriated market for industrial salt — 
9825 



-22- 



i.e., l.c.l, ■bioyers of the lower grades of industrial salt and "buyers 
of l.c.l, lots of the higher Grades of industrial salt not large 
enough to purchase the minimura annual volwae necessary to q-ualify 
as ann"ual contract "buyers — toth manufacturers and distributors 
conrpeted. The volume going to this market was comparatively small 
and of little inrportance to the manufacturers, ilo trade discount 
was given to distributors and the quantity discovoits on the salt 
going to the unappropriated market were generally so low as to pre- 
clude distributors from cy.tting prices by any significant- amotmt. 
The primary basis of competition in the -unappropriated industrial 
market became one of service, rather tlian price.' The person 
(VJhether manufacturer or distributor) best qi^alified to fill the 
needs of these l.c.l. industrial buyers, by maintaining, adcq-uate 
stocks, giving prompt service, or providing storage facilities for 
the b-uyers, would be the o"iie most likely to receive the business 
of these bij;y'ers. 

''Jith respect to table salt, no attera^-^it v<as made by th.i members 
of th-j industry/ to enter the retail market, and this market was ■ 
left to grocers. However, manufacturers entered the wholesale mar- 
, ket on table salt, by discontinuing tr-ade , discounts to independent 
Tifholesalers, and selling at the same price to all carload buyers of 
table salt. The quantity discount for Carload purchases was so 
large as toencourage retailers to buy direct from the producer in 
carload lots v/herever possible. This was an ap;oropriation of a 
segregable pa,rt of the wholesale ,ms.rket on the -basis of qiiantity. 

With ruspect to l.c.l. parcl:ia.s-:s of table salt, manufacturers 
and wholesalers jointly occupied the market. Attempts wer^ made by 
individTa3.1 manufacturers to persuade wholesalers not to resell to 
retailers at lower prices than were quoted to retailers by manu- 
facturers, but no infomia.tion is available as to the success of 
tnis attempt, or as to the inrportance to the manufacturer of the 
l.c.l. retailer trade. 

In addition to these activities, the Code Authority endeavored 
to eliminate the payment of brokerage to cooperative buying orga- 
nizations. Also, a special discoijut was granted on table salt to 
very large retail buyers, -umdersuch conditions tiiat only the national 
chain stores could qualify. 

The hisiiory of this industry, the statements iiade by code pro- 
pronents, and the logical effects of the activities of the industry 
under the cede, lead to the conclusion that the cede proponents 
sought to subordinate price competition as the primary means of 
gaining r.ccess to the market — first, as between manufacturers, 
and second as between manufacturers and distributors. As a step in 
the attainment of this objective, the promotion of direct selling 
was considered to be necessary. Had the program been completely 
successful — had price uniformity between manufacturers been achiev- 
ed, and had manufacturers succeeded in eliminating competition from 
independent distributors — it appears evident that the large ms-nu- 
facturers, capable of maintaining efficient, wid^^-spread distribution 



9825 



-23- 



facilities of their ovm, and, more iiirportant, c apalsle of .--ngaging 
in intensive and exrpensive advertisin,^ canrpaif^ns , nould have heen 
"better equipped to protect and expand their access to the market 
than the saaller members of the industr^y-, not financially ahle 
to effectively cortpete on the "basis of advertising- or distrihu-ting 
service to the h-u^'er. 

The ;iational R.^covery Administration did not play a very 
active part in the administration of this cod... It is douhtful 
if the ilHA. realized tliat the indxistrj^- intended to iirohihit Isiillc 
s-' les to sina.ll cons"umer£ and resellers, or tl'jat the industry 
program involved the filiation of uiiiform discounts, pricss, and 
selling terms. To mention v/as made of these matters at the time 
of the p\iolic hearing on the code, and the ITBA never officially 
endorsed or sanctioned any of the Code Authority or' industry acti- 
vities heretofore mentioned, T.'ith the single exception of the Code 
Authority's attempt to prohi'oit brokerage payments to cooperative 
"buying organizations. The 1!3A first inte^i-proted the code as 
prohi"biting payment of hrokerage commissions to "buyers, then later 
rescinded this interpretation so fair as "bona fide and legitimate 
cooperatives V'/ere concerned. 

During the first few m.onths of the code period there was a-n 
•-^.Inost complete cessation of "b-olk sales to resellers and to l.c.l. 
cons-umers; pu"blished prices rems.inediiniform.- between ms.nufacturers 
■ in each trade area and re"'Dates and secret price concessions were 
mostly eliminated. There is evidence to the effect tlriat the sales 
volume of independent salt jo"b'bers and buying cooperatives, parti- 
cularly ?;holesale farmers' cooperatives, was greatly redticed. Noth- 
ing is definitely Inio-'-n of the effect on the sales volume of the 
different salt raa.nufacturers. 

During the latter half of the coie period, there commenced 
a renewal of rebates, secret pricing, and other forms of conces- 
sions to buyers not set forth in filed prices. rissponsi'Dlity for 
the recurrence of this .situation is difficult definitely to fix, 
although the first ones to i*evert to secret pricing practices ap- 
pear to have been among the small and middle-sized members of the 
industry. 

Moreover, independent salt jobbers and l.c.l. industrial con- 
sumers,- who 1-^.d been denied the opportunity to purcha.se bulk salt 
at pricer; lower tlia-n those charged for paclca-ged salt, foimd means 
of evading the restriction on sales of bulk salt. L.C.L. constunsrs 
ordered full carloads of- bulk salt, then turned the carload of salt 
ovex" to jobbers capable of hoandling the full carload and sxipplying 
the consumers with their salt requirements at a lov/er cost to them 
tlian v7ould have been charged by manufacturers or distributors for 
l.c.l, pacl3,ged salt deliveries. IIo information is ava-ilable as 
to the extent of this practice, but it wa.s sufficiently Vvdde-spread 
to cause a partial breakdo\7n, at least, in the 'effective operation 
of the restriction against bulk sales. 



9325 



-24- 

Vj'ithin a few months after the Schechter decision, deviations 
from published prices hecame so great that the price structure of 
the industry 'broke down entirely, and the industry is now engaged 
in a "bitter and extensive price war. Some wholesale distributors 
were again given discounts not based solely on quantity. To the 
extent that a rebate "based on class of "buyer may "be said to "be a 
trade discount, jo'bbers are again being given trade discounts. 

The contemplated code program of the Salt Industry, as 
evidenced by the actions of the Code Authority and members of the 
industry during the code period, included an increase in direct 
selling by manufacturers, the control of price competition between 
manufacturers and between nis.nufacturers and distributors and a re- 
duction in the amount of bulk sales, with a resultant increase in 
the sales of pacl-s-ged salt. In actual operation the code program 
appears to have resulted in some increase in direct selling, par- 
ticularly resulting from the attemrpted elimination of bulk salt 
sales to resellers, while continuint^ bulk' salt sales direct by 
manufacturers to consumers. ITo defxnite information is possessed 
as to the act'oal extent of increase in direct selling nor the extent 
to which jobbers were able to evade the restrictions on sales to 
them. With respect to the attainment of price uniformity and the 
elimination of price competition between manufacturers and between 
manufacturers and distributors, the code program appears to have 
been fairly successful during the first few months of the code period, 
but there was an increasing breakdown during the latter months, and 
a conrplete breakdown of the program following the Schechter decision, 
With respect to the contorarolated decrease in bv.lk sales and increase 
inpackaged gales, little is knovm as to. the actual effects, although 
it appears tiiat the code program was more successful in accomplishment 
of this end, than it v/as with respect to the control of price competi- 
tion. 

2. Cement Ij^dustry (*) (Code llo. 128) 

Th.i history :if this industry shows a high degree of -^rice 
uniformity between manufacturers for many years prior to the code, 
uniform delivered prices liaving been amintained throUi;^-h the cooperative 
use of a multiple basin:, point system, Tht; Cement Industry is one of 
those industries in v^hich a relatively high ratio -of fixed overhead 
costs to total costs results in strong temptation to the individual 
producers to increase their volwne of production by price reductions, 
in an endeavor to reduce unit cost and increase total profits. There 
appears to be a general recognition on the part of manufacturers in this 



(*) Tne information contained in the following description of the 
program of the Cement Indiistry has been taken from a suuLnary of the 
program of the Cc,ment Industry which is contained in the Appendix, 
For reference as to source of the statements herein made, and for 
a greater detail regarding the Ct^uent Indiistry, reference should be 
made to that document. 



9825 



-25- ■ 

industry of the fact tliat v/han price cor.ipetition oxistc, it "becomes 
the dominant, primary device in iiELintainin.^- or incroasin:^ sales, and 
price reductions on the part of one individual must "be met by reduc- 
tions by conrpetitors if thoy are to protect their ina.rlcets. VJhen 
price competition exists it tends to baco-ie destnictivc by reason 
of its tendency to result in prices being based solely oh direct' 
costs. 

Prior to 1930, the major portion of tbe industry's otitput was 
sold throUfe-h dealers who were allowed a trade discount. The slump 
in construction in the lata .1020' s, with a resultant decr^mse in 
consunrption of cement, was felt both by producers and dealers. 
Pressure on manufacturers to sell direct to large buyers requiring 
no dealer service, became stron^- and there was an increase in such 
direct sales by uanufacturers. Building- supply dealers had lad a 
hold on manufacturers through control over sales for residential 
building, but the depression shift to. public building released 
this hold and permitted manufacturers to resort to direct selling. 
Many dealers, in an endeavor to bolster their decreasing sales vol- 
ume, engaged in the practice of passing. on to buyers a part of their 
discount. There followed a considerable degree of price coinoeti- 
tion between dealers and direct-selling manufacturers, constituting 
a serious threat to the price stability of the industry. In 1921 
attempt was ma.de by the larger producers to introduce. a form of re- 
sale price maintenance, by iiiroounding" dealer discounts for a period 
of time, the acci-ued amount to be paid to. dealers only if they liad 
maintained the m3.nufacturer's prices. This attempt was unsuccessful 
because some of the manufacturers, relying primarily on dealer dis- 
tribution, and not liaving to protect direct sales against dealer com- 
petition, failed to follovj the program. 

Thereafter, certain of the larger producers openly allowed 
specified industrial consumers, capable of liandlin,^ cement v/ithout 
dealer service, the same disco"jnts as had been granted to dealers. 
But since ma.ny smaller producers continued to allow dealers a grea-t- 
er discount than ^vas granted by them to industrial cons-omers, the 
dealers naturally gave their, business to these producers. As. long 
as dealers cov.ld secure cement at a discount, raa.ny of them continued 
to pa]FS part of this discount on to the consumers. 

The code pro-^onents requ.ested and were successfiil in securing 
the incorporation in the Cement Code, of provisions to the follov/ing 
effect: 

1, The classification of typ '& of customers to v.hom 
producers could sell direct, inclxiding most of 
the verj' large types of buyers. 

2. The complete elimination of discounts to dealers, 
placing tnem on the sane price level as those large 
users to whom producers could sell direct. 



9825 



-26- 



The code provisio:"' prohibiting dealer discounts remained in 
effect only one month, and aroused a storm of protests from dealers, 
as a result of v;hich the provision was stayed ty the NBA, The 
tenor of the protests from dealers was to the effect that this code 
provision resulted in dealers retaining only the trade of sma.ll 
l.c.l. buyers, v/hile manufacturers sold direct to the important, 
carload buyers, in whose business the greatest volxime of profit 
lay. 

The effect of such a program would have been to appropriate to 
manufacturers, for direct sales, all of the larger buyers, since they 
could secure cement from manufacturers more cheaply thian from deialers. 
The market of dealers would be restricted to those buyers, mostly 
l.c.l, buyers, whom the manufacturers did not care to sell direct, 
or who required dealer service to a sufficient degree to T)o.y a 
premium for it. The effect vjould have been to restrict greatly the 
volume of cement passing through dealers' liands. The successful 
operation of this program probably v/ould ha.ve been to the advantage 
of those producers financially able to maintain a large, active and 
wide-spread sales organization, and to those with factories and 
warehouses so strategically placed as to be able to render proimt 
service to buyers. The progra.m probably would hr.ve been to the 
disadvantage of those producers theretofore relying on dealer dis- 
tribution of their prodiicts, unable easily to expand their sales 
forces and increase the niirabor cf their warehoT3.ses. 

Inasmuch as this provision remained in effect only abjut a 
month, it cannot be said tiip.t the provision itself 'oad any material 
effect on distribution practices. . Very little definite info iTfia.t ion 
has been developed regarding the situa.tion which prevailed during 
the latter part of the code period, or ?;hich now exists. Prices 
evidently still rema.in stable in this indiistr;/-, and manufacturers 
evidently still continue to sell direct to certain large consumers. 
Furthermore, there was an offer by the code proponents to amend the 
code by removing "ready-mixed concrete manufacturers" from the list 
of buyers to whom manufacturers could sell direct. Although this 
amendment was never approved by the Administration, the mere fact 
tha,t it v^fas proposed by thv code proponents is some basis for a be- 
lief that the proponents were still selling direct to the other 
classes of large indtistrial buyers listed in the code, but tliat 
there was an inclination oa the part of the cod.e proponents to 
reach a satisfactory adjustment with dealers and. with those manu- 
facturers depending primarily on dealers to distribute their product. 

This fact, together with the absence of furthr complaints from 
dealers to the NBA., and the further fact that the code was amended 
during the spring of 1935 by the coinplete elimination of all refer- 
ence to direct selling or to dealer discotmts, gives rise to a ques- 
tion as to whether or not the manufacturers had been able to reach 
some sort of an adjustment whereby those manufacturers desiring to' 
do so could continue to sell direct to certain t^naes of industrial 
cons-umers without dealer conipetition in tliat portion of the marlcct. 



9825 



-27- 

The CgTient InJoistry pro,;ram l\'\s "been placed in Group 1, even 
thoii^-h it embodies the reservation of a i^art of tli^:: narket to 
dealers — th£-.t is," the l.c.l. market.' The direction in which the 
industry is moving is to",7ard direct sellin:;, since manufacturers 
have appropriated a -oart of the market heretofore controlled "by 
dealers, and have not relinquished to dealers any part of the 
market heretofore controlled by manufacttirers. 

3. ^.7ood Cased Lear". P-ncil Ifenuiacturin.i; Industry (*)CodG 
No. 291) 

This in'ustrj-, vhich has only thirteen nemhers, lias 
"been dominated for many years by four manufacturers, each of whom ; 
have controlled over 15} of thri business. These four manufactvj-ers 
have relied for their greatest profit on a five-cent pencil, usually 
yello'7 in color, for vhich they liave built wo a. '.vide-spread cons\imer 
acceptance and c.era?-nd through extensive advertising,- Their other 
lines range from the penny pencil s.nd t\7o or tlireo for five cent 
pencils up to the ten cent grade. For the lov/er priced items they 
have established a continuing market in educational institutions, 
to the larger of which they .have sold direct, and in all lines they 
have sold :\irect tc large cons-'omers. 

'.'.'ithin the last fe-.T years, the so-c?lled "Big Pour" m?nufac- 
turers _have liad to face the competition of a now group of compara- 
tively small manux'a.cturers which gained a foothold in the inf.iistry 
thro-agh a policy of prodv,.cing and selling a pencil at a price con- 
siderably lower than t'nat cliarged by the Big-Fdur. The product of 
the new manufacturers vias comparable in color and appearance to the 
five-cent pencil of the Big-Four, and if inferior in quality, was 
not svifficiently inferior to iriipair its competition with the Big-.-Stovir' 
product. Chain stores and mail order houses v/ere immediately at- 
tracted to this pencil, and because of the lor,- distribution cost 
to these buyers, and the fact tliat expensive advertising was not in- 
volved in the cost of manufacture, the new producers succeeded in 
gaining an appreciable part of the business of these distributors, 
who desired a product v;ith price appeal to the buyer. 

In addition to the patronage of these large distributors, the 
smaller members began to increase sales to sms-ller retail dealers. 
VThile tioese dealers could not expect to cor.raete on the basis of 
price with mail order houses and ch^.ins, yet they v/ere able to buy 
the pencils of the smaller producers at prices considerably below 



(*) The information contained in tnc followi:ig description of the 
program, of the Uood Cased Lead Pencil i/ianufacturing Industry 
has been sumniarized from the E:pa=rt on thiS.t Industry, which 
is contained in Part II and the Appendix. .For a more detsAled 
description of this program, a,nd for details regarding its 
operation, ref^^rence shoxild be made to the Heport itself. 



9825 



-28- 



the cost to tlieiTi of the v^ell-advortised. "Big rour" pencils. By 
reselling these cheaper pencils to cons-u_mers as five-cent pencils, 
the dcalerG v;ere ahle to aake a larger margin' of profit than was 
possihle on the "Big Poiir" products. This sutstitiition evidently 
was entirely- feasihle, largely because of the comparable appearance 
of the tv;o kinds of pencil, and the fact tlmt the average consumer 
cruld discern little or no difference in qus.lity. 

The smaller manufacturers evidently depended more on dealer 
sables acrtdvity tlian on national advertising to increase the ^larket 
for their product, and this approach to the marlvet was based on the 
ability of the smaller manufacturers to offer dealers a lower price 
for their product tlian could be profitably met by the Big Four. 

During the past few years, the new members of the industry 
increased their volume rapidly, and at the time of the presentation 
of the code, they v/ere producing about 10 J of the total dollar vol- 
ume of the incustry. ]]]ven more serious to the older, larger members 
of the industry than the act^oal loss of volume to the new members 
was the fact that they were required to reduce thoir prices to less 
profitahle levels in order to curb the continued growth of the new 
members. 

The lead'Tencil Institute, dominated by the Big Four, proposed 
the Code of Fair Competition for the 'iTood Cased Lead .Pencil Industry. 
The proposed code was an exceedingly complex and cor.Tprehensive in- 
str'jjiient, containing proposals for fixed minimum prices, alloca- 
tion of production, resale price maintenance, and over forty other 
provisions, the apparent effect of which i-oulo have been to elimin- 
ate .the competitive advantages possessed by the nov/ members of the 
industry, to raise price levels, and to restore the older, larger 
members to complete control over the industry. Many of these pro- 
visions were rejected by the NEA., and many more were either suspended 
in the oi-der of approvin;;; the code, or wore stayed subsequently. 

The part of the ^srogram of particular interest to this study 
included: 

1. Customer Classification. The distinction betv/een whole- 
salers and retailers wp.s eliminated, and both were 
classed as "dealers". The code contained a classi- 
fies, tion of consumers based on quantity, 

2. Division of manufacturers into three classes accor- 
ding to volume of production. 

3. Authorization for the fixation of minimum prices 
and discoiints, A fixed maxirmm discount to deal- 
ers v;as pror)osed, along v/ith mininaim voliime of pur- 
cliases which 'must be mac''o by dealers to q.ualify for 
the discount. These minima on volume varied by class 
of manufacturer. For example;, a small manufacturer 



9825 



-29- 

could jrant a 40,^ disco"uiit only to dealers mak- 
• ino, annual purclvi.sas of one hundre-l dollars; 
v/hil--^ larj^e inr.nufacturors covila i..,rant a 40-; discount 
only to dealers ina::!^^; annual purchases of two hun- 
dred dollars. A sliaiu^:; scale of discounts to dealers 
\7as established dependin;;,- on voliime of purchases. The 
same arra:igeuent was made- for consimers, prices to 
whohi were sliefntly higher than those {granted to dealers 
on the same quantities, hut not sufficiently higher to 
permit dealers to coiiroete with i^na.nufacturers on sales to 
large consumers. 

4. Authorization of resale price maintenance contracts 
v.lth dealers, and provision that lower discounts 
must he given to dealers refusing to sign stich con- 
tracts, 

5. Restriction on the opening of nev; accouiits \vith 
dealers whose voltuae of purcliases was below a fixed 
amount. 

5. Provision of a lower discount to btiysrs mahirg pur- 
cliases in sma.ller amovaits than fiftejn dollars for 
single shipments. 

7. Restriction of freight absorption to shipments of 
100 "OQ'uni'.s and over, except in ilew Yorlc Citj. 

8. Limitefcion of sales of blaif" pencils to be im- 
pi'inted for advertising purposes to "distributors" 
approved by th-^^ Code Authority. 

Of these previsions, n^unb^rs 3, 4, 5 and 8 were suspended 
in the order aTaproving the code, and were never officially p\it into 
effect. The Code Authority published a list of minimum prices and 
a scale of discounts, and evidently attempted to operate under such 
schedule, but the ITRA. officially disapproved the schedule in Jvine, 
1934, and it does not appear tljat the Code Authority activity was 
very effective. 

The smaller code opponent members of the industiy contended 
tiis.t each of the above provisions, with the exception of the elimina- 
tion of the distinction between ?;holesaler5 and retailers, would 
handicap them in their access to the market. They stated that they 
depended to a considerable extent on sales to sma^ll dealers, and 
hoped to expand their snles to tliat class of trade, and complained 
tha.t the minimum annual volume requirements proposed were so large 
as to prevent them from granting adeq-uate discounts to dealers, 
from opening new acco'ojits with sma.ll dealers, and from continuing to 
sell to dealers so small as to be unable to order fifteen dollars worth 
cf merchandise at a time. Farthermore, since a. large p3,rt of their 
business was •.vith very small dealers, the prohibition against freight 
absorption except on shipments of over one hundred pounds would be 



9825 



-3<^- 



a furthor ha,nd.icap to them, hy further ra- is ing the price to a large 
number of their outlets. 

Hov/ever, there is no evidence to indicate that anj oi the few 
effective code provisions operated in the manner feared ^oy the small 
producers. In fact, the code proponents^ in the fall of 1934, re- 
quested the administration to stay several provisions of the code, 
including the open price provision, alleging that the program origin- 
ally proposed Vi'as one single pattern, the operation of each part of 
which depended on the operation of every other part, and that the 
Administration's a,ction in disapproving or starring the minimum price 
fixing provisions m.ade it irapossihle to effectively administer the 
remaining provisions. It seems clear that the 'Jood Cased Lead Pencil 
Coda was entirely ineffective in axcoranlishing the aims of its 
sponsors, and it is doulstful if it had any appreciable effect on 
distribution, voliiroe, or prices. 

±his industry is placed in Gro-oji llo. 1 for the reason tlmt 
the code program resulted in the discontin'oance of trade discou:its 
to wholesalers, placing them in the-, same discoiuit class as retailers. 
There was an appropriation of a part of the wholesale market by manu- 
facturers, the appropriation being based on qup.ntity. 'Tha.t is, manu- 
facturers would sell at the same price to retailers and wholesalers 
having the sara^ annual volume. /Hiolesalers were permitted to compete 
for the business of retailers so small as to riualify for a lov; volume 
discount, but even on this part of the marliet an attempt v/as made to 
require the wholesalers to observe the prices of raa.nufacturers. 

There was an appropriation of a large part of the cons"araer 
market through the fact that large consumers were given prices lower 
than were given to any save the largest dealers which prevented ef- 
fective comoetition from dealers on such business. 



9825 



-31- 

B» Policy G -roup 2 Profraros 

1. Cork Indastr;','- (*) (Coee lie. ie9) 

This is a snail industry in v/hich one-third of the oroducers "by 
nuffl-oer control more thnn thfee-fourths of the total volume of oroduction. 
One nemter slone controls over fifty percent of the total production. 
The' larger concerns over a period of several years have been increasingly 
using sales branches and exclusive distribucors, Tlae smaller units hp.ve 
depended to a greater e^:,te^t upon independent wholesalers and johhers, as 
they are either financially unable or unwilling to afford the e--pense of 
branch factoric-r, sales offices, and T'arehouses, There is a high degree of 
■uniformity in cost of products and i n list prices quoted by manufacturers. 
The only factors which have blocked complete '"irice uniformity have been 
the ability and the desire of independent distributors to reduce prices, 
and the possibility of price concessions through freight absorption. 
Despite their fea.r of reprisals from the powerful price le.aders the 
smaller manufacturers have vijidoubtedly attemoted to retain their in- 
dependent distributors 'oy giving them a margin applicable to orice cutting. 

The proposea code program required: Price filing; clpssification 
of distributors in three main groups (factory brsjiches, exclusive 
distributors and independent distribu.tors) ; and conformance to manu- 
facturers' filed prices by distributors as well as by man^jf -cturers. 

The opposition to these provisions cane from smaller manufacturers 
T/ho objected to code control of their relations with distributors. 
Published list pices had. been uniform in the pr^st. The filing of d.iscounts 
according to mandatory customer classes would bring all prices and dis- 
counts into the open and e:;pose any price cutting operations of smaller 
manufacturers of their distributors to the superior power of the dominant 
industry group, ITot only would consumer prices be revealed in this case, 
but publicity would also be given to s-ny special inducements to distributors 
by way of larger discounts to secure their necessary cooperation. The 
smaller manufacturers felt that such publication would result in un- 
iformity of orices and discountSi tiore than this, a statement made by 
one of the code proponents' cle?rl;r indicates that it -wa,s the intention 
to grant lower discounts to independent distributors than to manufacturer- 
ov/ned or controlled distributors. Consequently they objected, starting 
that it was vital to their livelihood that they be left free to make such 
arrangements with their distributors as 7?ere necessary to secure the 
distrib\itors' cooperation. 

The approved code first included distributors udthin the defini- 
tion of the industry, b"at the code was later amended and direct control 
of distributors was eliminated. The Code authorized the presentation 
by the Code Authority to the 17RA of nercha:idising plans for each of the 
five divisions of the industr/, involving resale price maintenance, Tlie 
first division of the industry to gain consideration of g. merchandising 
plan was the Cork Insulation I)i ision. The "TlA deleted the i^.-^ndatory 



(*) The information contained in the following cescript'ion'of the -jrograri 
of the Cork Industry has be;;n 3ummari:':ed from the P.e-nort on the Cork 
Industry, which is contained in Part II. For a more complete descrip- 
tion, reference should be made to the Report itself, 

3825 



, -32- 

resale -price maintenance feature of this plan and aulDstituted therefor 
a requirement that distrihutors must file their trices v:ith the" manu- 
facturers' code authority, this requirement to remain in effect only if 
Tojo hy number and S5;?i hy volume of the distrihutors assented to this re- 
quirement. Several months elapsed iDet'veen the presentation of the 
merchandising plan and its final approval. Shortly after the presentation 
of the' plan, the 1 rger producers put into effect a selling system v.'here- 
hy their distrihutors were required to maintain the resale prices estali- 
lished "by manufacturers, but some of the recalcitrant smaller producers 
•refused to do this until forced by the code to do so. Because of the 
long delaj'' of the MA in acting upon the proposed nerchnndising flan 
and the failure to specifically require resale price maintenance, the 
cork insulation division of the industry, as far as merchandising 
methods were concerned, reverted to the position in '/hich it was 
immediately prior to the code. 

Although the other four divisions of the industry -oresented 
merchandising plons, only one (which did not have anj?- features of par- 
ticular importance to this industry) was approved. The program for the 
Cork Insulation Division was tj^pical of the desireSfof the code proponents. 

Had the contemplated program operstted successfully, it senms "oossible 
that price competition would have been eliminated almost entirely, in 
vievr of the past history of uniformity of list prices bet^-'een majiuf acturers. 
In siich a case, it is doubtful if the small manuf.acturers would have been 
able to maintain the sxjecial inducements to their distributors necessa.ry 
to offset the advantages of the direct selling organisations of the 
larger manufacturers. The orogram therefore was double-'=^dged in that it 
handicapped both smaller r.aniifacturers and independent distributors. The 
restriction of price competition and the handicapping of inde^oendent 
distributors would have been to the benefit of these majaufacturers 
maintaining exclusive sales forces, numerous factory branches and ware- 
houses, with vrell known brand names constantly brought to the attention 
of the consuming public through nationwide advertising; and woiild have 
been to the disadvantage of those manuf \cturers not finaiicially equipped 
to effectively compete in advertising, who v/ould have been forced to 
com-oletely revise their method of selling. 



9825 



-53- 

2. Gamut njid Rile; Uamupcturin;-; Indiiv'ory (*) (Code llo. 202) 

Prior to the code, nnnufo.c.tMrers sold direct to retailers, and 
indirectly throi\';h '■'iioles'-lers. Souie prodiicers 3olt. entirely direct to 
retailers, others entirel:/ throU;;h rrholcs-^lers, axid other utilized iDoth 
channels, y"^ Trade discoruats iiere given to )7holesrlers md to certoAn 
specified l:^rge retailer o\i;)'-ers, Discovmts ''o/'sod on quantity purchrsed 
in the urevious season rare granted to all tuyers, Trholesale and retail. 
2/4/ The history of the industry is one of uniformity IjStueen price 
lists, Tith a snail differential in price to snpller mcnbers of the 
industry, pernitting then to give a greater volume discount to buyers 
in any quantity "bracket thrn vould he given on that quantity by a large 
raanufrcturor. ^ 

A considerehle number of trade practice provisions nere contained 
in the iroposeo. and aporoved codes for this industrj^; ho\7ever, of such 
■orovisions only those of central iiroortance in this analj^sis are dis- 
cussed herein. 

The code pro"jonents requested a code i^rovision prohibiting manufac- 
turers from selling to wholesalers xiho failed to maintain the monufac- 
turers' -orices and schedule of discoiints.ii/ The np-:.iroved code contained 
a. -orovisi :n stating that it "shall be an unfair trade practice for any 
member of the industry to distribute through intermediate channels in 
such a mrnner rs shall create unfpir comoetition, as defined in Articles 
VII, VIII, and IX, with members of the indu.stry distributing direct to 
the retailer and consumer. "2./ Tiiis rather ambiguous -orovision ■'Tas inter- 
preted by the Code Authority to reqxiire wholesalers to resell at the spme 
price as TTOuld be charged by the manufacturer to the' consumer or 'whole- 
saler. Z/ 

The industry/- also attempted to discontinue the granting of volume 
discounts to cooperative buying syndicates of independent retailers 
(rrhile continuing such discounts to retail chains) , through a provision 
to the effect that the calculr'tion of volume discounts must be based 
"only on merchandise invoiced to an individual company. "3/ This provi- 
sion was stayed by- the President in the order aiproving the code. It 
was subsequently made effective upon agreement of the code authority to . 
interpret "individual companj'-" to include cooperative buj'-ing syndicates.^ 
Later the code authority abandoned its agreement, 10/ buying syndicates 
then securing an official interpretcation of their favor. 11. Thereupon 
the code authority requested that the progra^n again be stayed, which 
was done.l^ Although some mjmufacturers continuGd to refuse to give 
volume discounts to buying syndicates, the fact that the number of such 
syndicates increased during the code -oeriod is evidence to the effect 
thhat the code atteinpt to elininnte volume discounts to buying syndicates 
we.s generr^lly unsuccessful. 1^ 



(*) The information contained in the following description of the urogram 
of the Car-oet rnd R\ig Industry ha.s been prepared from work materials 
contained in the files of this Unit, The em-^lo^'-ment of the investi- 
gator assigned to the study of this industry ended before his report 
was plpced in sha"oe which would Demit its inclusion in the A:opendi:: 
to this Report, 



Footnotes a-oriear on "OPge 55 



9825 



-34- 

The code prohibited sales by -Drodacers direct to consiiiriers, except 
in the case of government and certain comuon carriers. =^ Uiien one 
producer complained thft this provision of the code '-'oald -out him out 
of business, because it vro.s his custom to sell direct to consumers, en. 
exemption 'ts -jrorriitly granted. The Code Authority explained that it did 
not kno^T that oJiy producers folloijed this method of distribution. 15/ 
No other instances of this natvire occured, and it docs not a-^oeor thr.t 
the provision had finy effect on selling methods. 

In vie--' of the different channels of distribution in use in this 
industry'-, l/s/ the original reauest for resale trices maintenance 'oj 
and the interioretation of the Code Authority to the effect that the 
code required resale price maintenance on the xi.rt of wholesalers tJ 
was evidently designed to protect those me.nufacturers desiring to sell 
direct to retailers a^Tinst price cutting by distributors — either 
their O'jn or ihose of other manufacturers. Horeovcr, by romovin:; the 
pressure on direct sellers to meet the price cuts of distributors, 
application of this intororGtation -jOTild assi'=it in the naintenpnce of 
the stabilized rrice structure of the industr;'-. 

Although the intention underlying the attem it at the discontinu- 
ance of volume aiscounts to buying syndicates is not so obvious, the 
possibilities inherent in such an endeavor should be jointed out. 
First, the growth of combinations of retailers, er ch claiming high 
volume discount:; on the basis of their total, pooled ourchases, 13/ 
tends to loTrer the price level of the industry by placing more and 
more retailers in the higher discount brachets insterd of the lower 
brackets for which their individual purchases would oualif?^ them. It 
ismtural that all producers of carpets rnu rugs would be opposed to 
this trend. Second, the combination of retailers into groups to en- 
able them to buy from manufacturers at lower prices than they could 
otherwise secure, vrould roraove from the market available to wholesalers 
increasing numbers of retailero. This effect '-OLild be to the disad- 
vantage of -"holesalers rnd those maiiuf acturers selling -orinarily through 
wholesalers and de sending on their continued existence. 15/ 

One outstanding difference bet^-een this industry's r)rogram and that 
of the other industries studied by this Unit should be noted. There 
was no attempt by this industry to secure a.bsolute 'oniformity of varices 
between all me;.ibern of the industry'', 16/ Smaller members (who depended 
more on wholesalers than did the larger iieToers, -and who ^-'ere inca;oable 
of entering into extensive a-dvertising cajnpaigns) i-'ore granted a small 
differential in price under tha.t of the Irirger manufacturers. 4/ Evi- 
dently the code oro-DOnents did not desire to e-itirel;'^ eliminate "orice 
coynpetition, but wished to limit it, permitting the smaller members to 
have some price advaaita-:;e to balance the advertising and brand name ad- 
vantage possessed by the larger members. The statement was raa,de by one 
of the code proponents that this program was consciously designed to 
strike a balance of corTOctition between the various man\if a,ctnrers, a.nd 
that there '-'as no desire to give one cl, ss of mar.ufacturers a. competitive 
advanta^ge over others. 4/ 



982L 



-35- 

Al though the' industry cprir.rcntly was not successful in eliminating 
the graiitinA' of volurie discounts to ■ba3'"ing syndicates, the information 
in NRA files indicates a considerable degree of success in limiting 
price conpetition "betT'cen nanui'r cturer ; ■ nd distrTjutors. 1?./ 13/ 

Footnotes ; 

1/ See "DistriDution of Textiles", Bulletia ITo, 56, Harvard Uni- 
versity Bureau of Business Iiesearch, 

2/ See information furnished "by the Institute of Carpet ilrnufac- 
turers of ili.iericn - (Volume A - Code Record Section Tiles). 

3/ See statement of P. J, Lundgren, Cavendish Trading Cor^joration 
(Transcript of Hearing held October 4, 1933.) 

4/ See statement of H. I. Gutterson, Cho.irmau of the Code Authority 
(Transcript of Conference held A,)ril 8, 1935.) 

5/ See original code proposol - (Volijxie A - Code Record Section 
Files.) 

6/ See iYrticle VII, Section 1 of Code. 

7/ See Code Authority Ballotin Ifo. '?, dated Karch 16, 1934. 

8/ See Article VII, Section 19 of Code. 

9/ InterToretntion Code Avithority Stal5iliza.tlon Committee (Code 
Authority Bulletin No. 12, Hay 17, 1934.) 

10/ See Ilinutes, Code Authority 3 ts-hilizati on Comiiittee, held 
Feljrur.ry 20, 1935. 

11/ See Adninistrntive Order 202-16, dated ilarch 23, 1935, 

12/ See Administrrtive Order 202-17, drted Ilprch 30, 1935, 

13/ See statement of H, I. Gutterson, Chairman of the Code Authority 
(Transcript of Hearing held April 25, 1934.) 

14/ See Article VII, Sectioii 13 of Code, 

15/ See Administrfitive Order 202-7, dated Hay 17, 1934. 

16/ See ^roT^osed code (Volu^ie A- Code Record Section Files), and 
the approved code. 

17/ See testimony and exhibits given hy Irving C. Fo::, Counsel, nat- 
ional Retail Dry Goods Association - (Transcrrot of Hearing held Aoril 17, 
1935.) 

18/ See Letter froia Administration Member transmitting Ilinutes of 
the Code Authority Meeting held April 4, 1934 - (De.mty's files - "Ad- 
ministration Ilembeio" folder.) 

9825 



-36- 



3. Funeral Supply Industry (*) (Code No. 90). 

Certain raemters of the industry sold direct to retailers -_ funeral 
directors >- thro^xogh their ovna selling organization; others sold' primarily 
through independent Johbers; arid still others sold hoth direct and through 
jothers. Even those memhers sj)eciali*zing in direct sales utilized jcbhers 
to ' some extent, particularly for sales in areas where they did not main- 
tain selling agencies. (**) 

- Jobbers were given a trade discount. (***) In recent years there 
has been a growth of buying organizations- of • retailers - cooperatives, 
retailer-owned jobbers - which d'emanded the jobber discount. The grant- 
ing of jobbers' discounts to these organizations was considered by the 
code proponents to be detrimental to the i-ntSrests of those manufacturers 
selling direct to retailers a^ad to the price structure of the industry 
as a whole. Independent jobbers, and funeral directors also were opposed 
to the grfoiting of jobber prices to retailer-controlled buying organ- 
izations. (****) 

The operations of anotner type of distributor were disturbing to 
the code proponents, jobbers, and funeral directors. Cemetary and burial 
associations - composed of or supported by consumers - were engaged in 

(*) The 'information contained in the iollo';';ing description of the 
program of the Funeral Supply Industry has been prepared from 
work materials contained in the files of. this Unit. The employ- 
ment of the investigator assigned to the study of this industry 
ended before his report was placed in shape which would permit 
its inclusion in the Appendix to this Report. 

(**) Letter from Code Authority, dated lTov.21, 1934 - (See Consumer 
. Advisory Board Files, Folder A). 

Transcript of Public Hearing, held Dec. 7, 1934, p. 32 

(***) See Article IX, Sec. 1 (h) of Code. 

(=*=***) Letter from Code Authority, dated Nov. 24, 1934 - (See Consumer 
Advisory Board Files, Folder A) . 

Minutes, Code Authority Exec. Comi., ll/l3/33 - (Deputy's Folder 
18-c) . 



9825 



-57- 



the "business of selling funeral sumDlies as such direct to consumers. 
This was a sharp contrast to the customnrv method of retailing funeral 
supplies. Funeral directors always combined their retailing function 
with a service function. Th^t is, the xirice to the consumer combined a 
charge for the undertaking furiction as veil as a charge for funeral 
supplies. The cemetary and burial associations sold fimeral supplies to 
consumers separate from the undertaking function, which was nerformed 
•separately from the retailing function. Because of the volume controlled 
ty burial associations and cemetery associa.tions, they claimed a lower 
price than was granted to independent funeral directors, tlius making it 
possible for them to resell to consamers at lower prices than could be 
profitably met by funeral directors, (*) 

The proposed code program included an attempt a!t the discontinuance 
of sales of funeral supnlies to burial and cemetery associations; (**) 
the prohibition of jobbers' discounts to retailer-controlled buying 
organizations; (***) and resale price maintenance on the part of 
jobbers. (****) 

The approved code prohibited feales of funeral supolies to burial 
and cemetery associations or others not lofitimately engaged in funeral 
directing, (*****) Jobbers were defined as wholesale distributors carrying 
stocks of goods and shipping out of such stocks at least half of the 
goods sold by them (******) Jobbers' discounts "^ere restricted by the 
code to distributors qualifying as joboers'uhder this definition. (*******) 

(*) See Transcrint of Hearing, Dec. c, 1953, -op. 29,54 and 61 

(**) See Article VIII, Sec. 1 (a) of Code. 

(***) See Article IX, Sec. 1 (h) of Code, 

I'inutes, Code A^athority Exec. Coram., 11/15/32 - (Deuaty's 
Folder 18-c. 

(****^ gg^ Article it, Sec. 1 (i) of Code. 

See TranscriDt of Hearing, Sept. 19, 1935, p. 85. 
See Report, Consumers Advisory loard, Dated Fov. 1, 1933 - 
(Consiomer Advisory Board Files, Folder A), 

(*****) See Article VIII, Sec. 1. (a) of Code. 

(******) See Article II, Sec. (d) of Code. 

(*******) See Article IX, Sec. 1 (h) cf Crde, 



9825 



--38- 

The evident intent of this provision was to prevent buying organisations 
of retailers from receiving a jobber's discount if their "orincipal 
business was the mere transmission of orders from retailers to be filled 
by direct shipments from manufacturers. In other words, jobbers were 
required to perform a warehousing function* (*) 

The code contained a provision prohibiting the extension to any 
customer^ either retailer or jobber, of discounts or terms differing in 
any material way from the manufacturer's published discounts or terms. (**) 
Since jobbers were included as members of the industry by the code 
definition, and w^"re required to adhere to the requirements of the code, 
(***) this provision required them to adhere in their resales to the 
discounts and terms published by manufacturers, (****) 

In operation, the code did not accomolish the desir^^s of the 
proponents, either with respect to retail buying organizations or burial 
and cemetery associations. There does not appear to have been ar^ con- 
certed opposition on the part of any members of the industry, but 
evidently a, considerable number of manufacturers were willing to continue 
to sell to buying organizations and cemetery and burial associations 
until they were compelled to desist. The program was not successful in 
providing this compulsion, (♦****) 

The restriction of jobbers' discounts to distributors -oerforraing 
a warehousing function was not successful in stop'oing the granting of 
jobbefs' discounts to buying organizations, a considerable number of 
which, at least, found it TDOssible to meet this qualification. The 
code requirement of resale price maintenance on the part of jobbers did 
not solve the oroblem of the buyihg organizations, since they need not 
reduce resale prices, but could give to their nembers dividends based on 
profits, thus reaching' the same end, 'The Code Authority attempted to 
interpret the code definition of a jobber to mean that no agency or 
organization owned, controlled, or affiliated with retailers could 
qua.lify as a jobber. The MA disapproved this inter-oretation, (******) 
The Code Authority then broposed to amend the code definition of jobber 
to attain this result, but the amendment was not approved by the IvTRA. (*******"* 

What evidence we have regarding the operation of the nrovision 

(*) See Mnutes, Preliminary Meeting of Code Authority, held 
October 24, 19S3 - (Volume B-2), 

(**) See Article IX, Sec. 1 (i) of Code, 

(***) See Article II, Sec. (b) of Code, 

(****) See Report, Cons'oraers' Advisory Board, dited Nov, 1933 - 
(Consumers' Advisory Board Files, Folder A), 

(*****) See Minutes, Code Authority Meeting held April 9, 1934 - 
(Deouty's Folder 18-d), 

(******) Letter, Review Division to Code Authority, dated March 26, 
1935 - (Deputy's Folder 16), 

(*******) Letter from Code Authority, dated Nov. 24, 1934 - (See Con- 
sumer Advisory Board Files, Folder A). 
9825 



-39- 



prohititing sales to burial and ceinetery asEOciations and others "not 
legit imo.tely engaged in fioneral directing" indicates that this TDro- 
vision did not accomplish the ains of the code proponents, as the Code 
Authority requested the amendnent of the code hy deleting this provision 
and suggesting a provision prohibiting sales by manufacturers or jobbers 
to any bioy licensed funeral directors. This amendment was "oronosed late 
in the code period and was not approved, but indicates that the original 
code provision did not ooerate satisfactorily, Dossibly because of the 
difficulty of determining the meaning of the term "legitimately engaged 
in funeral directing, " (*) 

Had the code urogram operated sue cessf ■ally, it is apparent that the 
manufacturers selling direct to funeral directors would have been pro- 
tected by the elimination of price comr)etition with jobbers through re- 
sale price maintenance. Since jobbers were protected by a diff erentialt 
manufacturers depending on jobbers would not have had their access to the 
market impaired by reason of the resale >rice maintenance in and of itself. 
Of course, if amy manufacturers had depended on sales to cemetery or 
burisil associations, or to retailer-owned or controlled buying organiza- 
tions, for an important isortion of their volume, those manufacturers 
would have bepn injured by any action effectively eliminating or reduc- 
ing sales to those distributors. No information on this point has been 
developed. 

The code program was unsuccessful in accomplishing the aims of the 
proponents and its failure can be attributed to the fact that the MA 
refused to give the comD:.ilsion which was necessary to overcome the lack 
of cooperation from the industry members. 



(*) See Transcript of Hearing, Dec. 7, 1934, p. 21, 



4. Agrictiltural Insecticide and Fimgicide Industry* 
(Code llo. 275a) . 

This is a small industry composed of a fe\7 very large chemical 
companies (producing insecticide and fun£-icide' onlj'' as a side line) 
and other companies specializing in insecticide and fungicide. The 
principal user is the farmer. The methods of distribution "before the 
code were: direct sales to farmers, sales to farmers' cooperatives, 
sales to retail dealers, and sales to johbers. Ilost producers used 
all methods, but depended more on certain channels than on others. 
Some use was made of manufacturers' sales agents — exclusive terri- 
torial agents who took the place of the manufacturers' sales forces 
in certain areas. Tlie large chemical companies relied to a greater 
extent on manufacturers' sales agents and jobbers than did the com- 
panies engaged solely in this industry. Particularly those produc- 
ing a full line of insecticide pnd fungicide relied more on their own 
sales forces to contact retailers, cooperatives and consumers (thus 
enabling them to conduct an educational campaign, for the most effec- 
tive use of the wide number of different products manuf acti-ired in this 
industry), than did certain other concerns v.'hich produced only a com- 
paratively few of the better knovm and standardized products. These 
relied more on jobbers than on their own sales forces. Evidently the 
distribution methods selected depended more on the variety of products 
and the necessity for consumer education in the use thereof, than on 
the size of the producer.** 

At the time of the presentation of the code, the industry was 
engaged in a demoralizing price wa,r, end it was claimed that every 
member of the industry was selling certain products below his cost. 
The stopping of this price wa,r was the primary purpose of the code 
proponents, and to attain this end they requested the establishment 
of minimum cost levels belo" v/hich sales could not be made. The NBA 
acceded to the request of the code proponents and approved a schedule 
of minimum prices on tv/o of the largest voluiae products of the indus- 
try. These minimum prices v/ere not put into effect until late in 1934 
and e>rpired in April 1935.*** 

(*) The information contained in the follovdng description of the 
progrfin of the Agricultural Insecticide and Fungicide Industry 
has been prepared from viorlz materials contained in the files 
of this Unit. (See work data files) The employment of the 
investigator assigned to the study of this industry ended before 
his report was placed in a shape which would permit its inclu- 
sion in the Ap'oendix to this Report. 

(**) Report of Constant Southworth, I'inimum Price Unit, dated 

January 10, 1936, containing inforraation gained by investiga- 
tion in Hevr York, N. Y. 

See Transcript of Hearing, February 7, 1934, "op. 91-95. 

(***) See reference to Southworth Report, supra. 

9825 



-41- 



To effectuate the ninimiori prices, certain rirovisions affecting 
distribution vere included in the code. These provisions included: 

<i) CuntoiiKr claEsi:i\^.t-inn . T/ie code contained defini- 
tions of deal'-^rs, * joboers,* cOir-iUi-nrc „.. , -^ ^i.^\jKjiy\jio.\j^^ 
consumer cooperatives,* hrokors, * and "n^rricultxiral sul- 
phur distributors.* The .Code Authority v/as £avon control 
over the classification of sulphur distributors and job- 
bers, (**) v;hich enabled the Code Authority to prevent a 
classification as distributors or as jobbers of individuals 
or concerns "fhich the Code Authority did not believe should 
receive treatment as distributors or jobbers. Ho specific 
mention '.7as made of incorporated farmers' cooperatives or 
manufacturers' sales agents on products other than sulphur. 

(2) Open prices. An Oj^en price system 'vas included in 
the code under ^hich each member was required to file 
prices, showing the differentials j?;ranted to jobbers and 
dealers and the commissions t-ranted to brokers, and all 
other terms and conditions of sales. (***) 

(S) Resale Price Maintenance. Manufacturers i-ere re- 
quired by a code provision to enter into resale price 
maintenance contracts with their jobbers. The operation 
of this provision was restricted a six months' period of 
time from May 10, 19.:;,4, the effective date of the code. (****) 

This "orovision, in part, v'as extended to June 16, 1935. (*****) 

(4) Price differentials. The code did not specifically 
authorize the fixation of differentials between the vari- 
ous classes of customers. In November 1934, the NHA 
fixed minimum prices on t-'O important industry products. 
}]o mention T;as made of differentials in price to differ- 
ent classes of custoners, and the minimum prices were 
considered by the industry to be the lowest prices which 
could be granted to the most preferred class - i.e., 
jobbers. In practice all members of the industry ad- 
hered to a graduated scale of prices, whereby the dealer 
was charged more than the jobber, and the consumer more 
than the dep.ler. The different ids grnnted to each class 



(*) See Article II, Sections (f), (e), (g), (h) and ( d) of the 
Code. 

(**) See Article V, Section 1 (1) of the Code. 

(***) See reference to South\-orth Report, supra. 

(****) See Article V, Section 2 of the Code. 

(*****) See Ad-ministrative Order 275-A-16, dated Nov. 11, 1934. 
9825 



• -42- 

of "biiyez^s tecane -uniform throv^;hout tne indus- 
try, and this uniformity o::ists up to the vtqs- 
ent time.(*) 

The Code Authority no.s o,ctive in supervising and regulating 
the classification of Johters. "Incorpora.ted profit-operating farm- 
ers' cooperatives" were classified either as jobbers, dealers, or con- 
sumers, depending on their method of doing business and the function 
performed for the producer, and on their volume of purchases. ( **) 

The primary objective of the code proponents seeras to have been 
the elimination of price competition betv/een manufacturers on the 
principal products of this industry. To a.cnieve and maintain this ob- 
jective, it was necessary to eliminate price competition between job- 
bers and direct-selling man\if acturers . Distributors ^vere protected 
by price differentials, and direct-selling manul'acturers were protected 
by resale price maintenance contracts with jobbers — the only distribu- 
tors in a position to effectively compete v;ith ma,nufacturers on the 
basis of price. ( ***) 

Althoug]i minimum prices were established by the ITFLA. for only a 
comparatively brief period of time, the members of the industry con- 
tinued to adhere to the minimum prices and to uniform differentials 
between various classes of customers, following the expiration date 
of the NRA.. This condition exists up to the present time. (****) 

There does not appe;\r to have been any desire on the part of 
the code proponents to handicap any manufacturer in his method of 
distribution, and no evidence to the effect that the code required 
or caused any appreciable change in the channels through which the 
products of this industry passed. Combined with the minimum price 
provision, the code program had the effect of protecting manufactur- 
ers ag inst price competition aJiong themselves on certain large sell- 
ing items, and protecting tha.t resxdt by eliminating price competition 
between manufacturers and distributors .( *****) 



(*) See reference to South'/orth report, supra. 

(**) See reference to Southworth report, supra. 

(***) See reference to Southworth report, supra. 

(****) See reference to Southv/orth report, supra. 

(*****) See reference to Southworth report, supra. 



?825 



-43- - ■ 

5. Valve and Fittings L'anuf acturin^: Inclustry(*) 
•(Code Yo. 1=:'3) 

This industry includes concern .■.- ;5^-ed in the manufacture of 
various types of valves, pipe fittin£S and accessories, nhich prod- 
ucts are used in assembled xmits of eqixipment ;.iajiuf actured by concerns 
not members of this industry. There are sevei-al divisions of the in- 
dustry, each manufacturing a different type of product. Comparatively 
fer manufacturers arc engaged in all divisions of the industry. These 
few are kno\7n as i'f\ill-line producers", while manufacturers making only 
a limited niimber or type of product are kno\7n as "short line producers". 
The full-line producers are generally la.rger in size and total volume 
than are the short line producers . 

Sone members of this industry sell solely through distributors, 
except r/hen selling direct to very large consumers (usvially to the 
Government). Ot.iers never sell through distributors, performing their 
orrn distribution through factory r-arehouses or branch rarehouses. Still 
others use both methods of distribution. 

The proposed code program involved: 

1. Classification of customers into six groups - dis- 
tributors, pipe fabricators, pipe contractors, general 
contractors, original equipment manufacturers, and con- 
suners. 

2. The fixation o" differentials in price betv/een the 
various types of buyers "ith the distributor given the 
l0T7est "orice. 

3. Hesrle price maintenance through a provision re- 
quiring producers to exer-.-i:-. due diligence in main- 
taining resale prices. 

4. The inclusion \inder the provisions of the code 
of factory warehouses or branch offices of members 
of the industry. 

5. A requireuent that sales must be i.o.b. point 
of shipment, and the establishment of a minimum 
size of shipment on v;hich freight allovrance might 
be ma.de . 



(*) The inforna'-ion contained in thv^ follorring description o:f the 
program of t.ie Valve and Fittings i-ian-uf acturing. Industry hs,s 
been samn^rized from the report on the Valve and Fittings Hanu- 
factujring Industry contained in the Appendix. For a more com- 
xilete descriotion of this program, and for details regarding 
its operation, reference should be made to the report itself. 



9825 



-44r- 

Of the aT30ve provisions, only tne first, the definition of 
classifications of customers, was included in the ri^pproved code. 
Short line manufacturers op"oosed the estahlishment of fixed differ- 
entials, contending that such action vfould result in price uniformity, 
and that short line producers must "be given a differential under the 
prices of full line producers in order to continue in "business. The 
statement was made that johhers preferred to handle a full line pro- 
duced "by one mamxfacturer, instead of assemhlin^ a full line "by pur- 
chases from several short line producers, and that such short line 
producers must mp.ke a more attractive price than the full line pro- 
ducers in order to induce johhers to "buy from them. 

The short line producers also objected to the resale price main- 
tenance provision, contending that such a provision gave undue advan- 
tage to producers s'ole to sell direct through their own warehox\ses, 
ivhile short line producers depending on independent distributors would 
have imposed upon them barriers against price reduction which vrould not 
apply to the brancn houses of the direct selling manufacturers. 

The direct selling manufacturers did not wish to have their ware- 
houses controlled by the price provisions of the code unless independ- 
ent distributors were controlled. 

Those members of the industry v;ho did not maintain factory ware- 
houses but depended on independent distributors, objected to the re- 
quirement that sales must be made f.o.b. point of shipment, contending 
that this would give an unfair advantage to concerns possessing factory 
warehouses, permitting them to absorb freight from the factory to the 
warehouses and to charge the buyer for the freight cha.rge from the 
warehouse to the point of destination only. Concerns not having via.ve~ 
houses would be required to ship f.o.b. fa,ctory which, in very many 
instances, would require a, gi'eater freight charge to buyers. The ap- 
proved code authorized the Code Authority to conduct a market study to 
consider the functions and services performed by the various types of 
buyers and the difference in cost thereof, in order that a basis might 
be shov^n for the establishment of fixed differentials in price, between 
buyers. Although committees were used to make this market stud;^', no 
plan satisfactory to all members of the committees was evolved until 
late in the Spring of 1935, rjid no report or recommendation was made 
to the Administration on the question of fixed differentials between 
classes of customers. The approved code required the filing of prices 
to each of the classes of trade therein defined and required that the 
"lowest prices that may be filed shall be the prices at which he (the 
produce 1-) shall sell his products to his distributors." 

This last provision, which was the only approved code provision 
exercisin;::: any direct effect on distribution or distribution channels, 
came into conflict T/ith E;!cecutive Orders 6646, 6767, and Administrative 
Order X-4:8 (permitting prices to be quoted to Government agencies 15^ 



9825 



-45- 



undcr filed lis*" rrices) . Tae Code Authority apr-arentl]/ believed 
that if a -oroducer i^r.s to £,dhere both to the code and to these Execu- 
tive Orders, producers reducing their prices to the Government below 
filed prices ■■'"'or '.d be required also to reduce their prices to dis- 
tributors belor cctiial filed price, in order that no buyer could re- 
ceive a better price thp.n distributors. Since this would have re- 
sulted in a violation of that provision of the code reauiring members 
to adliere to their filed prices, a hopeless conflict resulted "-^hich 
was not straightened out before the end of the code period. 

As a result, it does not appear that the Valve and Fittings ILanu- 
facturing Code had any rTDpreciab"'r- affect on distribution or distribu- 
tion channels. 

A discussion of v/hat might have happened had the original program 
of the industry aeen approved by the jiiiA may be somewhat academic, in 
vie".7 of tne fact that the program did not receive approval. The short- 
line producers believed that the program would have resulted in price 
tmiformity, and that the full line -producers were far better equipped 
to sell on the basis of brand, selling effort, and product, than were 
the short line producers. Their belie-^ was evidently strong enough to 
defeat any chance of successfiil opers.tion cf the progrcjn without com- 
pulsion by the KRA. 



-46- 

6. Fire ExtingTiishing Ap-3liance Manufacturing Industry (*) 
(Code I'lo. 98). 

This is a small industry in '.■'hich seventeen members control 
over three- fourths of the total dollr.r volume of production. These : 
seventeen merahers composed the Code Authority, and vieve the code pro- 
ponents. Some producers maintain hranch sales offices and warehouses, 
v/hile others utilize independent distrihutors. Certain members used "both 
methods of distribution. 

The code program shovs a desire on the part of the pro-ponents 
to eliminate price competition both bet'Teen manujfacturers and between 
manufacturers and distributors, by the establishment of minimum list 
prices and the fixation of the uniform discounts therefrom, and by re- 
quiring adherence thereto by man'afactu.rers and distributors. 

(a) Customer Classification . Under an authorization 
contained in the code, the Code Authority defined various classes of 
buyers, including "distributors", jobbers, U. S. Crovernment, ver;^,'' large 
users, dealers and consiimers. The Code Authority definitions were in- 
formally approved by the assistant deputy administrator in charge of 
the code early in 1934, 

(b) Trade Differentials . Under authorization contained 
in the code, the Code Authority established fixed discounts to each class 
of trade. List prices 'vere prices to consumers, the various kinds of 
resellers receiving discounts therefrom. A distinction was drawn be- 
tween Class A rnamifacturers, having national sales forces, and Class B 
manufacturers, not maintaining extensive sales forces and depending 
primarily on jobbers, the latter class of manufacturers being permitted 
to grant slightly larger discounts to jobbers than the former could 

.give, 

(c) R esale Price Maintenance . The Code prohibited the 
practice of "continuing to supply any trade factor whose practices are 
fully proved to be destructive of the market at -orices which enable 
him to continue destructive marketing." The Code Authority interpreted 
this provision as requiring resale 'orice maintenance on the part of re- 
sellers, and fonnulated a "distributor contract forn" which must be en- 
tered into between manufacturers and their distributors, requiring the 
distributor's adherence to the manufacturers' filed prices, among 
other things. The KRA later ruled that this provision did not, ver se_, 
require resale price maintenance. 



(*) The infornation contained in the follo^-ing description of the 
program of the Eire Extinguishing Appliance Manufacturing In- 
dustrj'- has been taken from the suyinary statenent of the code 
program affecting distribution of the Fire Extinguishing 
Appliance lianufacturing Industry, contained in the Appendix. 



9825 



-47- 

(d) Filed Prices . Each manufacturer was required to 
file his -prices and discounts r.nc' terns of sale, plus a list of his 
distributors. 

(e) I.Iini nu m Prices . The Code authorized the Code 
Authority to establish a "lov/est representative cost" for the various 
industry products, "based on the cost of reoresentative members of the 
industry. The Code Authority fixed minimum list prices, which were 
informally approved ^oy the assistant deputy administrator. 

Prices to consumers were to be uniform, the only deviation 
from com-olete Tories uniformity resulting from a concession made to Class 
B manufacturers, whereby they could allow a slightly greater discount 
to jobbers than could be given to jobbers by Class A manufacturers. 
The attainment of consumer -orice uniformity would be most advantageous 
to those members of the industry capable of engaging in extensive ad- 
vertising campaigns, and having well known brand names for which con- 
sumer acceptance and demand had been built up. 

The differentials which rare fixed by the Code Authoritj'" es- 
tablished a very narrow margin on v.hich jobbers could operate in com- 
petition with direct selling manufacturers in sales to the government 
and large industrial buyers. The government and large industrial 
buyers were given a discount of bO/lOfo, which was the same discount 
fixed for the jobbers of Class A manufacturers. Class B manufacturers 
(not maintaining a national sales force, and dependi-ig on jobbers to 
distribute their products), could allow jobbers a discount of 50/l0/5fo, 
which meant that the jobbers of the indirect selling manufacturers were 
granted a discount of 3|-^, greater than was given to the goverirnent and 
large industrial buyers, or a. mark-up margin of 4-^ on which to operate 
on sales to these classes of buyorj-s. This mark-up margin, though small, 
was evidently considered by the Code proponents to be sufficient to per- 
mit indirect selling manufacturers, through jobbers, to participate in 
sales to the government and very large users. 

The Code Authority activity vdth respect to definition of cus- 
tomers, fixed discounts, and fixed minimum prices, were all formally 
disapproved by the WBA in June, 1954, This action resulted from pro- 
tests by buyers and members of the in"''.stry who had 'oreviously relied 
on their ability to undersell other producers to gain their access to 
the market. There was never as much publicity given the formal dis- 
approval of the program as had been given to the preceding informal 
approvals, and it appears that the Code Authority was loathe to give 
up the program which load been developed. 

In Anril, 1935, the Federal Trade Commission issued a. complaint 
against the seventeen members and officers of the Code Authority, charg- 
ing that they had entered into a combination in 1932 to fix and maintain 
uniform prices, refrain from soliciting customers of each other; refuse 
to sell to distributors, jobbers and dealers failing to maintain the re- 
sale prices set by manufacturers; and to do other things designed to sup- 
press and prevent Thrice competition. The complaint further charged that 
the respondents, under color of the code of fair com-oetition, continued 



9825 



-1-8- 

to agree on uniform iDrices, by reason f-f vhich. competition had "been 
suppressed and small enterprises discriminated against. In September, 
1935, the respondents filed a consent; ant:''er, insisting that everything 
done by them was done under rnd pursua.nt to the code and in "good faith, 
but consenting to the issuance of an order to cease and desist from the 
methods of competition alleged. 

It is apparent that until the consent decree this induntrj'-' s pro- 
gram, rfhich involved the elimination of price competition bet\7een manu- 
facturers and between manufacturers and distributors, operated with a 
considerable det^jree of success even a,fter the disapproval by the KRA 
of the fixed prices and discounts. 

7. Business Furniture, Storage Equipment and Filing Sup-oly 
Industry - Steel Office Furniture Tivision (*) (Code llo, 88). 

In this industry there is a conflict in methods of distribution 
between the larger, full-line producers, and the smaller, shortline 
producers. The former depend more on direct distribution, maintain- 
ing their ctti wholesale and retail branches, and selling through in- 
dependent distributors only incidentally, Sm.aller producers, par- 
ticularly short-line producers, do not maintain such extensive outlets, 
and rely on independent wholesalers and retailers to distribute the 
major part of their production. (**) 

Those manufacturers sell ing direct found that their orincipal 
price competition came from the distributors of other manufacturers* 
products. The code proponents contended that conditions in the in- 
dustry could not be improved as long as independent distributors were 
enabled to engage in uncontrolled and destructive price cutting. 
However, it v/as necessary for the producers who sold through independ- 
ent distributors to maintain their existence, whether or not it meant 



(*) The information contained in tiie following description 

of the program of the Business Furniture Storage Equip- 
ment and Filing Suppl;; Industry - Steel Office Farniture 
Division has been prepared from work materials contained in 
the files of this Unit. (See work data files) The employ-- 
ment of the investigator a.ssigned to the study of this in- 
dustry --anded before his report was -olaced in a sha-^e 
which '"'ould pernit its inclusion in the Appendix to this 
Re-oort. 

(**) Statement of Joseph Berger, Art Steel Co. of Hew York • 
(Volume B, pp. 109-110.) ' 

Abstract on Public Hearing, 9/21/^3 (Kesearch and Planning 
Files, p. 44). 



9825 



-49- 



the gr-'nting of additional orice rair^ins ^s n prelude to price cutting. 
The prevalence of oi'ice cutting by distributors reflected only the 
necessity for one group in the industry to offsrt by nrice reductions 
its fund--ment"l comnetitivc disadvart'v-.e. (*) 

The proposed code for the business furniture industry included 
classification of customers ind products, fixed trade differentials 
and quantity discc^aits, and prohibited manufacturers fron selling to 
any distributor who foiled to abide by the res-'le prices sot by the 
m^inuf acturers. The Code also required each member to file his ■orices 
and discounts to each class of trade. (**) 

The Administration disapproved the provisions fixing trade dis- 
counts, (***) and the provision relating to resale orice maintenance 
was revised in such a manner as to m'Jce its meaning doubtful. (****) 
The Code Authority interpreted the p.ovision as requiring resale orice 
maintenance; (*****) the Administration finally decided that resale 
price maintenance w-^s not required by the Code. (******) 

The code proponents contemplated a program ™hich directly con- 
trolled all factorr entering into price except the base price (*******); 
and the fact that base prices attained a high degree of uniformity 
following the approval of the code indicates that the proponents may 
-have contemplated this result also. x_u, - price competition bet^^een pro- 
ducers was to be eliminated or greatly curtailed. Aioplication by the 
Code. 

(*) Memo, dated 9/23/33 from Ind. Adv. Board (Deouty's Folder 
316). 

Letter dated 1/16/35, from Nat. Emergency Committee 
(Deputy's Folder 20-A) 

(**) Volume A, oroposnl, 9/11/33. 

(***) Memo, dated 3/22/35, Baird-Butt to Staten (Consumers Adv. 
Bd. , Tolder A. ) 

(****) See Art. VI, Sec. 2(f) of Code. 

(*****) See Memo, dated 2/6/55, C-allagher to Cochr-^ne (De^iuty 

Folder 19); Memo d-ted J-n. 24j 1955, Advisory Council to 
N. I.E. B. (Deouty's Folder 20-A); memo d-ted 3/22/35, Baird- 
Bu+t to St-^ten (Consumers Advisory Bo-^rd Folder A). 

(******) ygj^Q d-ted 1/24/35, Advisory Co.jicil to i;.I.-?.B. (Deoaty's 
Folder 20- A) . 

(*******) Volume A, proposal, 9/11/33. 



9825 



-50- 

Authority of the so-called "resale -orice Biaintena.nce" "orovision of 
the code, was exoected to restilt in the -;:enerf>l riaintenance of resale 
prices Ijy distritutors, v^ith the effect of eliminating or greatly re- 
ducing price co-qpetition liet'jeen distrihi^.tors and nanufacturers. (*) 

Small producers opposed the resale ■nrice Tna-intena-nce "orovision, 
contending th?t it ^oa].d "be to the advantage of the large-direct sell- 
ing manufacturers and to the disadvantage of those selling through 
distributors , "because of its tendency toward the elinination of price 
competition, leaving the "big advertisers rnd those rrith extensive and 
efficient sales forces in a far "better competitive iDOsition than those 
T7ithout a well knovm trade name, not producing a full "line, and not 
well equiTOT?ed to compete on pvrj "baris e:ccept thpt of price. (**) 

The NP-A refusal to sustain the Code Authority's interpretation 
of the code as requiring resale Thrice maintenance resulted in an in- 
creasing "breakdoTTn of this -oart of the code program, "hich, in turn, 
caused a breakdown in nrice uniformity, and a recurrence of price com- 
petition "between producers and ijistri"!3utors. (***) 

8. Brake Lining and Relcited Friction Products Division 
of the As"bestos Industry (****) (Code To, 80). 

Inasmuch as brake lining accotuits for about 85;^ of the total dollar 
production of friction materials, and was the product on which there 
v;as most activitj;- of interest to this study, this summary deals only 
with brake lining, and does not include the otlier two friction mater- 
ials, clutch facings and trans-aission linings. 



(*) Memo dated 9/23/33 from Ind. Adv. Board (Deputy's 
Polder 316) 

Letter a.ated 2/22/34, from Toof Jc Co, (De'outy's 
Folder 316) 

(**) Abstract on public Hearing 9/21/33 (llesearch and 
Planning Files, p. 44) 

Brief, 7ars"uaw Mfg. Co. (Consupiers Adv. Bd. Folder A) 

(***) Letter dated l/lS/SS, from lTa.tionaI Emergency 
Committee (Deputy's Folder 20-A) 

Memo dated 1/22/35, Barnes to Fickalson (Deputy's 
Folder 18). " ■ 

(****) The information contained in the following description of a 
part of the program of the Asbestos Industry has been de- 
veloped from the Suxraary of an inquiry' into Devices Affect- 
ing Distribution in the Brake Lining and Related Friction 
I'aterials Division of the Asbestos Industr^'-, contained in 
Part II. The full reT)ort on wliich the summary was made has not 
yet been placed in a forra which would permit its incorporation 
in the Apnendi::, •^nd is contained in v'ork data files of the 
Distributive Relations 'Tnlt in its -orelim-inary form. 

9825 



-51- 

Practically all ar^bestos bra''e lining is used in autonobiles. 
About three fourths of the total dollar volume ^f sales go for replace- 
ment uses; the remaining one-fourth beinr; sold to equipment manufac- 
turers. 

Prior to 1929, nractiGally all of the bralce lining uas woven from 
long fibre asbestos, most of ^Thich rras imTJorted from Can-M'i though 
Russia and Africa also supplied considerable amounts. Very little 
long fibre asbestos is mined in the United States, Three brake lining 
producers had large interests in Canadian asbestos mines, and con- 
trolled the Cajiadian a.sbcstos price level. 

During the 1920 's, a method \ies connercially developed for mould- 
ing short fibre asbestos into brake linings. Since the natrual supply 
of short fibre Hsbestos fs-r exceeds that of the long fibfre, and since 
there T7as no centra-li^-ed control over short fibre production, the Drice 
of this grade of asbestos T7a.s far belor that of tiie long fibre. Further- 
more, moulded asbestos brake lining v;as originally better adapted for 
use in internal brakes than ras roven lining. The combination of dis- 
placement of long fibre by short fibre asbestos and general decline in 
the demand for spinning fibre for Vtses -^ther than in brake lining, re- 
sulted in considerable declines in the -orices of lon^:; fibre asbestos. 

Between 1929 and 19S3, twenty new producers entered the brake 
lining industry,- taking advan.tage of the declining raw material -orices 
and the relatively high, stable prices for the finished product. These 
twenty new producers almost equalled in number the old, established 
manufacturers . 

The traditional channels of distribution had been as follows: 

(l) Direct sales by manufacturers to equipment manufacturers, both 
for use in original and replacement equipment and for resale to auto- 
mobile dealers; (2) to "affiliates" (national or territorial private 
brand distributors), who resold to jobbers, dealers, consumers, mail 
order houses and automotive chain stores; (3) to jobbers (for resale 
to dealers, garages and service sta.tions); (4) to mail order houses 
and automotive chain stores, reselling mostly to consu-ners; (5) to 
dealers (garages, service stations, brake installation shops, etc); 
(6) to large industrioj consumers (owners of fleets of tracks and buss- 
es. ) 

The old line manufacturers had established extensive distribution 
facilities and were able to reach and utilize the various distribution 
channels. The new "oroducers, with no established distribution facili- 
ties, and unable to contact large n-ujnbers of buyers, were at a dis- 
advantage in f inching methods of placing; their products on. the market. 
Four or five of the new members, with good financial backing and re- 
latively large -oroduction, developed different distribution practices 
from those adopted by the smaller members. One of the larger members 
was a manufacturer and distributor of automobile tires, and distributed 
bralie lining throu^gh its retail tire shoos, company service stations, 
and independent tire dealers. 



9825 



Another large nev producer sold a major "oart of its production 
through tno "afj^ilistes" under the brand name of the affiliates, one 
of 'jhich v;as a. manufacturer of autonobile parts v;ho had established 
contact with the automotive parts ti^ade. A third large nan producer 
sold a major portion of its production to the members of a national 
association of automotive parts distributors. The larger net? members 
were able to participate in the business of equipment manufacturers, 
mail order houses, and automotive parts chains. 

The smaller new members, with insufficient production to secure 
the exclusive sales services of national or territorial distributors, 
or to supply the private brand requirements of national or territorial 
private brand distributors and mail order houses, or to participate in 
sales to automobile manufacturers, had to denend primarily on sales to 
jobbers and dealers. However, they had difficulty in gaining access to 
the regular jobbing trade in competition vrith older manufacturers, hav- 
ing better known and advertised brands, and they began to offer sioecial 
inducements to jobbers, through increased discounts, to make the handl- 
ing of their products attractive to the jobbers. 

During the same tine "hen the "=6 ne'-' members were entering the 
industry'', the depression v.'as causing a severe drop in the total con- 
sumption of brake lining, Distribixtors demanded increased discounts 
from manufacturers to recompense for their reduced sales volume. Manu- 
facturers, striving to maintain their own sales voliime, began bidding 
for the services of distributors by offering larger discounts. 

The combination of the depression and the advent of a large number 
of new producers in this ind\istry resulted in increased discounts to 
regular jobbers; the granting to jobbers of exclusive sales territoris , 
the use of national distributors of a.utomotive parts "ith correspond- 
ingly higher discounts to both; o.nd the allowance of jobbers' discounts 
to individvials engaged primarily in retailing, but doing sons selling. 
to other dealers, 

For a number of years manuf pcturers had sold brake lining on the 
basis of standard price lists, established by the trade association, 
quoting consumer prices with discounts to the d.istributors and large 
consumers. A high degree of uniformity and stability existed, and 
still exists, between prices to the consumer on comparable grades nf 
brake lining. Most replacement braize lining is sold by dealers in- 
stalled in the car, with the dealer performing an installation as '^ell 
as a sales function. Since the average consiimer pays for brake lining 
on an installed basis, there has been small incentive for the average 
dealer (garage and service stations) to reduce the list price of bralce 
lining. Dealers customarily sell brake lining on the basis of "Plat 
Rate Guides", setting forth the installed price of various tj^Des of 
brake lining. 

Price competition has taken the form of competition on discounts 
rather than list prices, Zven befoi-e the deoressi'm and the advent of 
the new pro'ducers in this industry, discounts on brake lining were ex- 
tremely high. Discount totaling from 70 to 80 per cent of list ririce 
were not uncommon. During the past four years, discounts as high as 
eO/lO/lO/lO/lO^ have been granted, totaling about 87fo of list price. 

9825 



-53- 

The combined mark-up allorred to tlie various distributors in many in- 
stances amounted to as much as six or seven hundred per cent. 

During the years immediately prior to the code, not only were 
manufacturers directlj'' cora-oeting for the favor of distributors by 
increasing discounts, but also, the verjr large distributors - national 
and territorial distributors and "affiliates" - were striving to in- 
crease .their volume of sales by comp3ting with the manufacturers for 
the distribution services of, jobbers, contributing to the increase of 
discounts. 

To further complicate the picture, private brand buyers utilized 
the lov.' rrices received by them to underr.ell the braJ:e replacement trade; 
and "cut-rate" bralie shops began to reduce the -orices for installed 
brake lining. By purchasing private brands distributors were enabled 
to evade the pricing restrictions placed by mnnufacturers on standard 
brands and there was a very marked increase in the total pro^oortion 
of private brand sales as comr):^red to the sales of standard brands. 

The Code proponent - a trade associ?ti"n composed nainlv of the 
old line producers - evidently believed that sr.mething must be done 
to stop the trend toward increased discounts and to stabilize distri- 
bution practices. The Code contained provisions intended to have this 
effect. First, "affiliates" were to be included as members of the in- 
dustry, the definition of "affiliates" to be subsequently submitted 
in the Merchandising Pl.an; second, the Code provided for resale price 
maintenance, through the use of contracts between "oroducers and their 
distributors; third, the Code authorized the formulation of a Ferchan- 
dising Plan. 

In November 1933, a merchandising plan was unanimously adopted at 
a genp-ral industry meeting. This merchandising plan included: 

(l) Definitions of classes of customers, \7hich must be follo'^ed 
by all manufacturers, 

.(2) Pixed or maximum trade and quantity discounts to each class 
of buyer. Small manufacturers were permitted to give a ten ver cent 
greater discount to jobbers, dealers and consumers than could be given 
by large manufacturers. 

(3) A considerable number of standard "orice lists, each manufac- 
turer to make his choice of the list or lists on which he desired to 
sell. 

(4) "Cost floors" were established on popular sizes and t;T)es of 
cut sets, practically amoixnting to minimum prices. Jobbers were given 

jthe highest cost floor. Small manufacturers were "oermitted to sell 
■at prices lO^S lower than the jobber cost floor; and the cost floor 
to private brand buyers and national and territorial distributors was 
10^ below the price which small members were permitted to quote to 
jobb.ers, dealers and consumers. That -^is, the private brand buyers and 
national and territorial distributors could purciiase bralce lining at a 
price approximately 19^ lower tiian could be given bj' the larger manu- 
facturers to jobbers, 

9825 



-54- 

The Code author! za.tion of resale price contracts included a pro- 
vision that such contracts should require distri outers buying on any- 
given list to resell on the "basis cf the same list. That is, distri- 
butors were not to be permitted to buy brake lining from an 80^ price 
list, for example, and resell thrt bralte lining on the basis of a 70^ 
or 90(^ list, vmich would have neant thct their customers would pay- 
either less or more tlian the price specified by the nanufacturer. 

In T)ecenber 1933, the ifetional Automotive Parts Association, the 
national distributor for one of the nev.', large manufacture, refused to 
enter into conti'acts agreei-ng to resale price maintenance, and objected 
to the fixation of maximum discomits. As a result of the attitude of 
this large distributor, the Code Authority deferred the dead-line date 
for the signing of resa.lo -orice contracts, and sought NEA apnroval of 
the merchandising plan, with the hope of securi^ig official backing 
in the enforcement of the plan. A public hearing was held in Janu^.ry 
1934 but no decision was made by the lOlA until August 1934. 

The refusal of large distributors to sign resale -orice maintenance 
contracts made it unv/ise for manufs.cturers to tie U'o their other dis- 
tributors. The Code Authority several times fixed, and then extended, 
dates by which producers must enter into resale price contracts, and 
finally abandoned the attempt to require such contracts. This action 
probably was influenced by the failure of the IIRL to approve the cus- 
tomer classification and fixed discounts of the merchandising plan. 

It should be noted that although the industry was unable to secure 
mandatory resale price maintenance contracts with the larger distributors, 
the reluctance of the distributors to sign was evidently not caused by 
their desire to pass on to their buyers "^art of their discounts, but 
rather that they wished to be free to do so if they found it necessary 
in order to retain their customers. Throughout the entire code period, 
there was little evidence of any widespread or material reduction of 
resale prices by distributors. "Affiliates" - t)rivate brand national 
or territorial distributors, who, before the code had resold brake lin- 
ing to Jobbers, dealers, consumers, mail order houses, and chains, at 
prices below those quoted by man-ufacturers to those buyers - during 
the code period generally maintained the -nrevailing price levels, 

"Cost floors" to private brand buyers broke down during the sum- 
mer of 1934, It was a.bout this time thp.t large -private brand buyers 
were replenishing their stocks for the replacement market, and pressure 
became too great for manufacturers to deviate from cost floors. It 
should be noted that the provisions of the merchandising plan relating 
to "cost floors" required that prices to private brand buyers could 
not be lower than 19',o below the -orices granted to regular jobbers, which 
meant that prices to ^orivate brand buyers would have been greatly in-, 
creased by the use of these cost floors over the prices at which such 
buyers h8,d iiur chased in the past. Prior to the break down of the 
"cost floors", prices quoted by man^uf actiirers to private brand buyers 
had not been published. The failure of the NHA to approve and assist 
in the enforcement of the merchandising plan probably contributed to 
the difficulties encountered in the operation of the cost floors. In 
an endeavor to accom-olish a grea.ter degree of adherence to the cost 



9825 



-55- 



)rs, during the stimner of 1934 the code authority "be^an the practice of 
Lishin- to all mr.nufacturors of private "brand "brake lining the names 



floo: 

"ouhlj 

and prices of all -oroduccrs v;ho sold to -private brand "buyers at prices 

below the cost floor. For a time, prices to private brand buyers went to 

oven lower levels, but within a couple of months they increased to a 

point evidently satisfactory to a rea.jority of the members of the industry. 

In August, 1934, the ITBA acted on the request for approval of the 
merchandising plan, and rofused to give aipproval to mandatory consumer 
classification, fixed discounts, and cost floors. (Later, in the Spring 
of 1935, the HRA. approved a pcnnissive customer classification program). 

The industry continued to recognize the merchandising plan originally 
adopted, even vdthout IIKA approval of these important sections. 

The "orimary intent of the proponents of this code program ap lears 
to have been the restriction of a form of price competition between 
manufacturers - the granting of increasingly large discounts to distributors 
in order to secure or retain thoir services as distribution outlets. 
Manufacturers were making sales of thoir standard brands to several levels 
of distributors - national and territorial distributors. Jobbers and 
dealers - in order to preserve and protect their individual access to 
these different levels, it was considered desirable to exert some measure 
of control over the prices granted uy national distributors to jobbers 
and dealers, and by jobbers to dealers, lest these distributors, by 
offering better prices, cause jobbers and dealers to desert the manufac- 
turers and handle the products sold by the pricc-roducing intermediaries. 
The whole program with respect tc regular brands vfould have been endang- 
ered by permitting national and territorial private brand distributors 
to continue to purchase private brand brake lining at prices far bclov/ 
those charged to distributors of regular brands. These private brand 
buyers in the past had been able to utilize thoir ability to purchase 
at low prices to offer to jobbers and dealers prices lov/er than those 
offered by manufacturers and distributors of regular brands. The code 
program operated to increase greatly the prices c'na.rgcd to private brand 
distributors, thus narrowing the margin upon which they had depended for 
the mald.ng of price concossicns to thoir bu;.'ers, and the resale prices 
of private brand distributors during the code period were closer to the 
prevailing price levels of rogialar brands than they had boon prior to the 
code. Furthermore, jobbers were discou.ragcd from handling private brands 
by the establishment of a. minimum riua.ntity on private brand purchases in 
order to qualify for the i^rivate brand discouiit. Jobbers unable to buy 
$200 worth of private brand merchandise a.t a time were required to iDay 
as much for private brand merchandise as thoy would for comparable regu.lar 
brands. By these devices, the industry attained a considerable measure 
of protection against price conpetition on the part of both standa.rd and 
private brand distributors. 

The program oi this industry as a whole appears to have been fairly 
successful. There was a greater observance of resale prices during the 
code period than prior thereto. Discounts to the different classes of 
customers defined in the merchandising plan v;ere reduced, and there was 
general ac^Jierence to the discounts originally established in the merchan- 
dising plan. Prices to private brand buyern were increased above the levels 

9825 



T7hicli had prevailed prior to the code, and their operating margins redujced, 
discouraging price cutting in their regains. 

It cannot he said thr.t t;.e code "orogram v/as entirel3'- responsible for 
the cessation of increased discounts to huYers, since the market price of 
ran ashestos increased during the code period. Those same raemoers v7ho 
entered the iinfustrj-- hecause of the wide spread hetv/een ravr asbestos (and 
asbestos textiles) and the finished brake lining priceis to consigners, x^ere 
no^7 being pinched because conswner prices on brake lining still remained 
stable, a,nd in some instances decreased, uhile rar; asbestos and asbestos 
textiles were increasing in price. They did not have as "ide a margin 
as thej^ had previously enjoyed, and ve-^e not so susceptible to pressure 
for increased discounts. 

Tlie larger ner? producers evidently believed thpt their access to the 
market - through sales to equipment manufacturers, affiliates, national 
and territorial distributors, and nail order houses - ''as well enough as- 
sured to permit a stabilization of disco^JJit practices without injury to 
them. The smaller producers were given a lOfo differential under the prices 
quoted by large manufacturers, and although certain of the smaller members 
claimed that this margin was not sufficient, there was evidently a general 
acceptance of the differential, as deviations therefrom \7ere not considered 
to be particularly important. 

Since p major part of the program did not receive IIHA support, it 
should be said that the industry itself was primarily responsible for its 
successful operation. 



9825 



-57- 



C. Policy Group 3 Progrpms 

1. Lumber and Timber Products Industry (*) (Code No. 9), 

Between 19(-6 and 1932 the annupl per capit? consumption of lumber 
decreased from above 500 feet to less than 100 feet. Since the number 
of ii:holesalers and retailers did not decrease proportionately, the 
result was a very grave fplling off in the average volume of sales per 
retailer and wholesaler, with a resultant increase in their cost of 
operation per unit. In an endeavor to maintain volume, competition 
between distributors has been very severe. During the 1920 's 
wholesalers began to increase their sales to the larger industrial 
users through depriving retailers of the more lucrative carload business 
and tending to restrict them to less than carload business. To a 
considerable extent manufacturers, also suffering from decreased volume, 
began to sell direct. to these consumers, thus depriving both wholesalers 
and retailers of a considerable part of the available business. 

By 1926 the situation had become unendurable to retailers and 
its gravity was recognized also by producers and wholesalers. The 
less than carload lumber business still accounted for a large percentage 
of the total sales of lumbers but If retailers v^ere required to depend 
on this business alone, their per unit operating cost would be so. great 
as to necessitate a higher mark-up, with danger of increasing the cost 
of lumber to less than carload b-^yers to a point where they would 
return in ever increasing numbers to substitutes for lumber. 

Trade associations of retailers, wholesalers, and manufacturers 
attempted to solve the distribution difficulties of the industry, 
and in 1931 a conference committee, composed of representatives 
from each of the associations; agreed upon a "statement on the sub- 
ject of distribution of lumbe?.", in which the retailer was recognized 
as the proper distributor within his trade territory of all lumber 
except for the following classes of business: 

1. United States Government 

2. Shipyards and large dock builders 

3, Railroads 

4, Large users of industrial lumber buying re- 

gularly in carload lots, but not for con- 
struction pxirposes. 

This statement expressed the principle that manufacturers and 
wholesalers should sell direct only to the above listed classes of 
trade, and would not compete with retailers on sales to other buyers, 
regardless of size. The retailers supplied the pressure to enforce 
thi s agrbo aent by refusing to buy from those manufacturers and re- 
(*) 'This brief description of the program of the Lumber and Timber Products 
Industry has been summarized from an informal report to the Distribu- 
tive Belations Unit by the ix'.dividual assigned to the study of this 
industry. Eis employment with the I'BJi. ended before it was possible to 
place his report in shape for inclusion as a part of the Appendix to 
the Report of this Unit, This informal report is contained in the 
work data files of the Distributive Relations Unit, and reference 
should be made to that report for a more complete description of this 
industry's program and for details regarding its operation. 
9825 



tailers vho violated the agreement. Pressure was trought to "bear on 
wholes.alers by retailers pixd by manui-^cturers, since the latter would 
suffer by a boycott if retailers found that they T'ere continuing to 
sell to wholesalers vho '"ere violatinf:; the agreement. 

An attempt was made to incorporate the substance of the above 
agreement in the Code of Fair Competition for the Lumber Industry, 
but difficulty was encountered in defining the types of industrial 
users to whom manufacturers and wholesalers could sell direct. The 
Code was approved with a provision authorizing the Code Authority to 
submit this classification to the IIBA later. Some manufacturers and 
wholesalers v'ished to .sell direct to all carload buyers. Some of 
the smaller mills "'anted to be permitted to continue the practice of 
selling direct to users in truck-load lots, particularlT those buyers 
coming to the mills with their own trucks. Carload users wanted to be 
permitted, to biiy direct from producers or wholesalers, thus avoiding 
the payment of a higher price on purchases through retailers. 
Retailers demanded that producers and ^holesalei's be prohibited from 
selling direct to certain types of consumers, particularly contractors 
and other buyers of luiAer to be used for construction purposes, and 
urged ths.t producers and \vholesaJers be prohibited from selling to any 
consumer buying in smaller quantities at snf time than two and one-half 
carloads. 

Vkhile this controversy over customer cla.ssif ication was going on, 
minimum prices on lumber and timber riroducts ^.-'ere established by the 
NRA, and differentials were fixed whereby wholesalers i^ere given a 
lerice differential of 'not to exceed 8^0 under the price to retailers, 
and distribution yards and commission men were given a d-% differential 
under the retail price. 

The -proposed prograa involved a withdrawal from the retail market 
of manufacturers and wholesalers by prohibiting them from making 
direct sales to certain ini^ustrial consumers to whom direct sales had 
been made prior to the code. It was a T3l''^n to abandon a part of the 
market to retailers and to protect them in their occupancy of the market. 

The proposed code nrogram contemplated a joint occupancy of the 
wholesale market. That is, manufacturers were permitted to sell direct 
to retailers if they de-ired to' do so, uut wholesalers were given an 
8% discount under the manufacturer's price to retailers, thus affording 
the wholesalers a margin upon which to operate in the sale of lumber 
to retailers. The minimum prices estaolished under the code applied to 
wholesalers as well as to retailers, and in effect constituted a sort 
of resale price maintenance requirement on jobbers. That is, they 
were prohibited from passing; on to their customers any part of the B^a 
differential which they received. The program contemplated a joint 
occupancy of manufacturers aJid vvholesalers of the wholesale market, 
with protection given to wholesalers, and protection to manufacturers 
against' price competition from i."holesalers, 

9825 ■ 



-59- 



The NRA fin?lly ruled that no c"'.assif ication vrould be accepted 
whereby/ a carload consumer i^rs required to pay a price in excess of 
that granted to '''holesalers. This decision in effect virtually 
eliininr.ted mrndrtory trade discounts and confined price differentials 
to quantity discounts. Lianufacturers were permitted to sell direct' to 
all carload buyers. Under this ruling the retailers did not secure 
the protection which they were demanding and the code did not materially 
change the situation vrhich existed prior to the code period v;ith respect 
to distribution channels and practices. 

Following the code, in Au^^st 1935, the three trade association 
again joineu in a "statement on lumber distribution", setting forth 
again the principle that the retail lumber dealer is the proper dis- 
tributor vi-^hin his trade territory of all lumper, except to the 
following classes of bussiness, commonly, sold b/ raanuf^'Cturers wholesalers, 
and retailers: 

"A. Sales of lumber and lumber products in carload 
quantities or Jnore: 

1. To v'holesalers and retoil lumber dealers; 

2. To and for the Federal Govern'^ent, and to 

and for U.S. Government river and harbor 
works; 

3. To and for railroads and steamship companies; 

4. For shiiDyards, underground work in mines, 

large docks, large dams and large bridges; 

5. To industrials for re-manufacturinfj, pattern, 

and shi-oTDing purposes. 

"B. Sales of lumber and lumber products in less than car- 
load quantities: 

1. To wholesalers and to retail lumber dealers and 
planing mills. " 

The lumber program proposed to NRA may be said to have included 
the relinquishment by the manufacturers to the retailers of a part of 
the market theretofore controlled, to an appreciable extent at least, 
by direct selling manufacturers. The proposed program included pro- 
tection to ohe retailers in that portion of the market abandoned to 
thegi. The proposed program also involved a joint occupancy of the 
market by the manufacturers and wholesalers with a recognized dif- 
ferential to wholesalers, and protection to the direct selling man- 
ufacturers against price competition from r-holesalers. 

Through inability of the producers to agree among themselves, 
and with retailers, on the bas-LS of a division of the m. rket bet'-een 
direct selling manufacturers and retailers, the assistrnce of the 
NRA was required to make an arbitrary division, and the decision of 
the NRA was not satisfactory to retailers nor to those members depending 
on retailers to furnish their prihiary access to the market. As no 

9825 



-60- 



material change A^as made in the situation existing prior to the code, 
those manufacturers desiring ;to do so could sell direct to carload 
consumers, and the code :did not re'-'uire their abandonment of any 
portion of the market. Actually, the code does not appear to have 
had much ef ''ect on the distribution practices in the lumber industry 

2, Plumbing Fixtures Industry (*) (Code No^ ?04) 

This is an industry with approximately £50 concerns producing 
a great variety of products of various coinpositions and processes 
of manufacture, the products of some producers being sold to other 
producers for combination with, or to suopleraent, their own products. 
Most of the producers are "short line producers", very ler companies 
producing all of the types of products classed as plumbing fixtures. 
Three large companies dominate the industry, partly from point of 
size and consumer acceptance of brands, and partly through the dis- 
tribution methods they employ. 

The manufacturers depend on plumbing contractors to perform the C 
principal retailing function, comDining the re.tail sale V7ith the ^ 

installation of the products into plumbing systems. Plumbing contractors 
depend for an appreciable part of their profit on .the sale of plumbing 
fixtures, as well as on the charge for the instal^l'ation of such 
products. 

The traditional' method of, distribution m this industry was 
mrnuf rcturer to v'ho],e.saler, to plumbing, contractor, to consumer. 
In recent years there have^ developed t"'c important deviations from 
this traditionrl practice. The smaller and medium sized manufac- / 

turers experienced considerable difficulty in finding vholesale 
outlets for their products, mniiy of the best and largest ''^holesrlers 
naving been taken over by the larger companies, either by purchase 
or through exclusive contracts. In order for these smaller manufacturers 
to gain access to the market, many of them found it necessary to 
increFse t^ e sale of tneir products direct to retailers. Also, those 
manuf c cturtrs experiencing difficulty in finding satisfactory access M 
to the market through the wholesaler-retailer channel commenced to 
sell direct to large buyers, such as the Government. 

The second developJnent 'which v^as proving disturbing to the 
manufrcturer-vholesaler-plumbing contractor channel of distribution, 
was the increase in sales of plumbing fixtures through mail order 

(*) The infor-nation contained in the following description of the 
program of the .plumbing Fixtures Industry na's been summarized 
from the P.eport on the Plumbing Fixtures Industry, which is con- 
,tail;e£,-.i:i the " Patt "I I . For a more complete description of this 
program and for details regarding its operation, reference should 
be made to the Report itself, 

98?5 



-51- 



houses. This has aroused increasing fear and resentment on the part 
of -DlUiQbing contractors and '-'hplesflers. The .iiail order houses do 
not carry cotaplete lines of plumbing fixtures, but purchase and sell 
only- those products for Thich there is an active and steady consumer 
demand, and on '.^'hich a rapic; turn-over can be expected. Because of 
their size and the larf;e volume of ranidly moving items -hich they 
purchase, certain manufacturers (usually in the medium sized class) 
have granted sizeable quantity. discounts to this class of buyers. Since 
mail order houses -cerforined their ovn ';^holesaling function, they 
claimed and received classification as wholesalers, and through 
receipt of wholesale discounts plus large quantity discounts, rrere 
ena.bled to purchase at prices below those at vhich regular '-hole- 
'salers could buy. As a result, talcin^^ into consideration the I'elatively 
low purchase price and the fact that the items carried by the mail 
order houses were only those having a rapid turn-over, the mail order 
houses "'ere able to offer products to consumers at prices far belov those 
vjhich the wholesaler (with very large, slor moving stock) could meet. 
Consequently, the plumbing contractors, '^hose princi-oal source of sufply 
had been the plumbing fixtures rholesalers, found it impossible to 
compete Fith mail order houses' on those items which the mail order 
houses carried, prior to the submission of the Plumbing Fixtures 
Code, associations of -olurabing contractors and plumbing fixtures 
wholesalers entered into a reciprocal rule whereby the plumbers agreed 
to make all purchases from wholesalers, and wholesalers' agreed to make 
all of their, sales, to. plumbers, . Constant rressure from plumbing con- 
tractors and wholesalers played an important part in the formulation 
of the mpnufacturers ' code. The, approved cod.e prohibited sales by 
manufacturers to consumers. The cod.e classed mail order houses as 
wholesalers. Tiholesalers were to ^3 given prices below those charged 
retailers and the Code Authority was authorized to establish the differen- 
tial. Manufacturers' branch houses were to be classed as wholesalers 
and allowed no iDrice advantage over independent ^-holesalers. Adherence 
to these regulations was to be checked by the filing with the Code Auth- 
ority of lists of customers ( the classilication of whom could be 
challenged by the Code Authority), and the filing of prices and discounts. 
Quantity discounts' were limited to 5-o, which raaterially reduced tne price 
advantage possessed by mail order houses over other types of distributors. 
The Administration did not , approve the subsequent recommendation of the 
Code Authority fixing price differentials between classes of customers. 

In addition to these reouireraents, the manufacturers proposed 
a mandatory resale price agreement whereby wholesalers could not under- 
cut the prices of manufacturers' branch houses, and the latter could 
not undersell the independent ^'holesalers. This provision was rejected 
by the FEA and never appeared in the approved code. At that time it 
was expected by the code pro-conents th^t the then pending codes for 
the wholesalers of plumbing fixtures aJid the nlumbing contractors 
would contain provisions recuiring them to maint-^in the filed prices 
of manufacturers. 

The p..'ogr?m of this industry wps based on a cjnscious relinquish- 
ment on ths part of the manufacturers of their right to sell direct to 
consumers, thus abandoning this market to retailers and. wholesalers. 

9625 



-62- 



The program conteimDlated a joint occupancy of the wholesale market, in 
which independent ".'holesalers were protected against competition from 
manufacturers selling direct to retailers by the establishment of 
fixed differentials and by an agreement by maniif acturers to treat their 
own wholesale branches in the same manner as they treated independent 
ir'holesalers; manufacturers sales to retailers through their own branch 
warehouses vieve to be protected against price competition from independent 
wholesalers by an agreement on the part of such independent wholesalers 
not to resell at less than the manufacturer's published prices to 
retailers. Thus, they also contemplated the control of price comrietition 
of wholesalers with direct selling manufacturers in the '"holesale market, 
iioreover an endeavor ^^^as made to protect the wholesalers and the plumbing 
contractors against mail order houses bv reducing the price advantage 
possessed by such organizations. 

. The probable efiect of such a program, had it operated as con- 
templated, would have been to the acvanta^-e of the larger members of 
the industry having vt/ell-knowri brar'f. names, national advertising and 
national distribution, and a control either iinancial or by contract 
over most of the better grade of wholesalers. The successful operation 
of the program would' have reduced, the volume of products going through 
mail order- houses, and this would nave been to the disadvantage of those 
medium sized members of the industry depending on such sales outlet for 
the distribution of , appreciable percentages of their production. Those 
manufacturers who had been making sales direct to large consumers "'ould, 
of course, bei handicap-ped through the provision prohibiting the continuance 
of such sales. 

. ■ .The code, however, did not operate to accomplish these things. 
The code breakdown began with the refusal of manufacturers having mail 
order -contracts to file their contracts or the crices on their sales 
to mail order houses. There was wide-spread lack of compliance on the 
part of manufacturers with the provisi^. ns requiring the filing of prices 
and lists of customers, prohibiting sales to consu'iers, and relating to 
the ■ classification of customers. 

•The code breakdown was 39 complete that in the Spring of 1935 the 
tradq practice provisions of tV^e code were deleted. 



9825 



IV. C01.IP.M\T1TZ SUCCESS 0? ALT3?;"ATIVE 'DlST.l'l'll'^'^ POLICES. 

A. Policy "Jo.. 1 

rhe industries -vliicli adopted policy "Jo. 1 were i.^terestcd in 
promoting direct selling; oy rnan-ufact-urers to a ^-articiilar market or a 
segregate' 1-jart of a iiiarket ,• and. the elimination of cornetition with 
distriliutors in tliat; ■■narlcet or pegre^^ated part thereof. Of the indus- 
tries selocting progran\s incorporating Policy Jo. 1, the cement industry 
mav he saic' to 'neve achieved a poneidcrahle de,;ree of success. 

Of the tno other industries in the groui , the Salt Industry was 
moderately successful in the early days of the code, tut the prograjn 
brohe do\7;T tov/ard the end. The ^ood. Cased Lead Pencil Industry 'vas un- 
successful. 



The industries v.'hich a.dopte6. policy Jo. 2 recoij'.-.ized the necessity 
or desirPvhilit.y cf a joint occU'iation of the jnarhet, or a major part 
thereof, by direct selling manufs,cturers. and- independent distributors, 
hut sought to eliminate or sub jugate price competition between manu- 
facturers and distributors throug]i soiiie measiirc of manufacturer control 
over dis.tri'butors' prices and selling practices. Cf the industries 
selecting program^ incor;;^or:-.ting policy Jo. 2, the following achieved 
a considerable degree of success: 

Cari^et & P.''Jg' Ji'.nufacturir.g Industry 
Agricultural Insecticide and F-angicidc 
P're Eztinguishdng Appliances 
AL.bestos (Friction "Literials Jivision) 

The code programs of the lolloving in6.ustries, incorporating 
Policy Jo. 2,. failed to achieve any substantial success: 

Cork 

Juneral Sui^plies 

Valves (i Fittings 

The Business Furniture Industry exroerienccd considerable success 
in the early sta{:es of the code •oeriod, but its program broke down to- 
ward the end. 

C . P olicy J o. 3 

The industry ;-.rograiES involving Policy Jo. .3 -.vere aimed at the 
abandonment by direct selling manufacturers of a market or a segregable 
part of a market, leaving t:ie same to distributors, thus eliminating 
competition between manufacturers a,nd distributors in that marlret. Of 
the industries studied, only two incorporated Policy rio. 3 as a major 
part of their program, and neither of these prograins operated success-' 
fully. The-se two industries '."ere: 

Lum"i3er & Timber Products 
Plumbing Fixtures 

9825 



It is a'o;"arc:it from the a,'bove recapitulation that in no instance 
did all of the i.idiiustries adoiritinr; any one ;oolicy succeed in achieving 
their objectives. Of the indv.stries ac opting Policy '"^o. 1, two failed 
f.nd one succeeded; of the industries adopting Policy Vo. 2, four failed 
and four succeeded; of the tno selecting Policy Ho, 3, "both failed. 

It is aiD7arent tnat no one ty;-ie of program policy, in itself 
carries any aes'-arance of success in operation. For fa.ctors determining 
success, it is necessarj^ to look 'beyond the tyne of distribution policy 
adopted, to the chars.cteristics of the industry and tlie situation in 
v/hich the attempt vid.s nade to a."-)ply the ■'■>olicy. 



V, ■■ MaLYSIS 0? FACTOHS u' TUFJ:!".'! G- SUCCESS CH FAILURE 

OF nsTHiiuTio::" policies 

A reviev/ of the industries -'hich v/ere a.'ble to evolve a distribution 
jDrogram which £a,ve pronise of a cie^:ree of continuing success in realizing 
their aim yields the f ollo\7in;'^ cor.u^on Ciia.ra.cteristics v/liich account for 
tliat resti.lt: 

1, In each of these industries tliere v;as a common acceptance of 

a single program for the industry, resulting either from volun- 
tary agreement, guccessfiil coirrpromi.se of conflicting interests, 
or from the acquiescence ''oj g,ny minority group in the superior 
pov.'er or leadiership of a dominant co:._cern or group, 

2, In each instance, the industry progra.m conformed with the 
maximum of industry co itrol consistant with industry ha-rmony, 
the extent of the concessions made usually varying inversely 
v/'. th the degree of dominance and power of the program sponsors, 

3, Ii each instn.nce, little actuil deiiiendence v.'as placed on IHIA. 
support 'and enforcement , except for the a'.iproval of meclianics 
to start the progi'am,- Once the administrative equipment was 
estahlished, each industry v/as a,ble for the most part to ad- 
minister its o'.Tn "'program. 

Turning to those industries wliere the code program did not a.ffect 
an adjustment in distributive relations such a.s to indicate a prospect 
of continued operation, there are also very definite comimon ciiaracter- 
i sties -i.hich account for the result: 

1. There was a lack of com: ion accej-ita-nce of the code program in 
the industry, due cither to a failure to compromise the con- 
flicting interes.ts with a recognition of ea.ch, or to the ab- 
sence of sufficient power in the code sponsors to force ax- 
quiescence in the program^ "by the dissenting minority withoiit 
governmient sttpport. 

2. In each instance the success of tjie program depended on HEA 
enforcement and policing to overcome the opposition of tlie 
disisenting gro-uji. Failing to secure the necessary support, 
the program broke dovni. 



9825 



-6i3- 
YI. CC:'^CLUDmG STATEMIHT 

The -oart pla;>''ed ty '.'HA. in the rc<jala"ion of cUctrihutioi; in manu- 
facturinc industries vap a-^-.^arently larf;ely limited to affording 
oxein;^ition from the restrictions of the ajiti-trust lav;s. The aims of 
the code ^Droponents '..-ero most nearly realized v/hcre there A'fas a high 
de£.roe of industry ?occop1tance of their valxie: bi\6., to the extent t'lat 
dc-peadence was placed on securing a unity of action tliroui^h the pov;er 
Ox '.niA, the pr0;;;;rr'm broke do'.m vmen ITBk failed to give the necessary 
su2?port. "lat world ".lave liappenod if ITEA had been -./illing to give the 
full support requested by the less successful industries must remain, 
of course, opeu to con joct-ore. 

: uch i.ioro f-ondainental thxn the i.-'.ere f,-,ct of success or f.ailure is 
tiic question ;'.? to whether a sound public policy could accept or promote 
tne airas of tnc ■.>rograi'n. In "IBA there v;as no cefinite contintdng policy 
as to tnc -ii-o-oer -:ub?.ic ends in co;viection v.lt]". control of distributive 
relations. Such :. defi-.iits policy' c-ovuc. not be f emulated without a 
"orecedent 'nalpsis anc" understanding of tho character and intent of 
such controls as proposed by induriry. In the oresent study, an ap- 
proach to o.n aiialysis and an interpretation has been made on the ba,sis 
of such f:-;.cts as ••'Gre available in ITHA e:ciericnce. The study stops 
with the aric-lysis and interpretation i"h6Yrevcr, t.ic task of eval"uation. 
being beyond its scope. Hone the less, it is desirable to su^jgest the 
cliaracter of the oroa.der issue* 

The examination of control efforts h-a,s revealed t-irt in many 
instances code programs siinply imrnlemented previous nmufacturer efforts 
at price a"ad distribiition control. In such cases there arises the 
question as to vhether the govern'^ent v/ishes to lend its support to the 
pre-existing effort, and v/ncther it -.vants to sanction its extension, 
Th-is probleiT very quickly extends itself to t \e ■.'hole ->roblem of the 
social value of competition, tne areas in ■.•;hich it should be promoted 
or United, a.nd the Iritnd of ciccom-'^anying controls essential for the 
protection of efficient operation c:,ad for consuner pi-otcction. 

In certain cases tnc code effort was directed at the restriction 
of one or -another dissenting group in the industry, such as mail order 
houses or soall manufacturers not conforming to the generally accepted 
industry trade practice pattern, Z'ere there is presented the problem 
as to ho\7 far the govern-nent wants to close tne door to freedom of 
action in the m.arket, vdth its hope of eiicouraging new /.lethods and new 
processes, and hoY/ far it -^refers to rely on the hope of a more stable 
industrial market operation such ■:,? is conceivable \7ith close integration 
and centralized control. 

Policy -problems such as these set forth are ;")resent v/'iether the 
governnent eiqDects to act positivel;/ in the promotion of industry solf- 
reg-ulation or prefers to rely on a r-.olicy of free narket operation. 
The fact that a large measure of control already exists in nan;^ indus- 
tries indicates tliat almost os ■: rea.t a. degree of jiositive action 'by 
governr.ient is essential to the promotion of a free narket as is necessary 
if it elects the policy of a controlled m3,r]:et, Hither v/ay, there is 
the central issue! '£ov much control should be promoted, permitted, or 
tolerated, and with v/hat safegnoards in the v/ay of continuing government 
suoervision? 
9825 



PART B 

INDUSTRY CASE STUDIES OF TRADE PRACTICES 

AFFECTING CHANIm'ELS GF DISTRIBUTIOl^I 

AlNlD MARKETING METHODS 



c 



(J 



9825 



-67- 
CHAPTEHI 



INDUSTRY 3ACXGnOUIID(*) 



Product 



The Code of Fair Competition for the Salt Producing Industry, as 
amended, defines the Salt Producing Industry as "the production and 
sale hy the loroducer of salt (sodium chloride) as such." This defini- 
tion excludes the prodixction and/or sale of salt "brine, and includes 
as memhers of the Industry only those persons and concerns engaged in 
the TDroduction and sale of salt in solid or crystalline form. 

Salt falls within two general classifications - rock salt and 
evaT3orated salt. Rock salt is produced "by a raining operation com- 
TDara"ble to that of coal raining. It may "be sold in the forra in which 
it comes fr-. q the mine - as "Ixirap rock salt" - or it may he crushed 
into varying degrees cf fineness. 

Evaporated salt is divided into three types - vacuum pan, 
grainer, and solar evaporated. Vacuum -nan salt is made "by the at)T)li- 
cation of heat to a salt solution while in a partial vacuum. The 
salt solution, or .brine, is usually produqed hy sinking a shaft into 
a salt deposit and forcing water down this shaft. As the water "becomes 
saturated with salt, it is forced to the surface and then evaporated. 
Salt produced "by the vacuum pan process is comt)Osed of grains which 
are cu'bical in shape, the size of which deioends on the speed with 
which the water i? "boiled away, 

Grainer, or open pan eva.porated salt, is made from a salt "brine 
(produced in the same manner as that from which vacuum pan salt is 
made) , "but in the grainer process the water is evaporated "by the appli- 
cation of heat to large, shallow open pans, under normal air pressure. 
The salt produced through this process is composed of grains or flakes 
more irregular in shape than those resulting from vacuum pan evaporation. 

Solar evaporated salt is produced only in the Western States, as 
this process is commercially feasible only in regions where there is 
little rainfall and consistent sunshine over long periods of time. Salt 
brine from the ocean or from salt lakes (such as the Great Salt Lake in 
"Utah) is impounded in huge, shallow containers from which the water is 
evaporated by the sim, leaving a deposit of salt. Solar evaporated salt 
is comparable to rock salt, in that both are produced at low cost, and 
both contain more impurities than appear in vacuum pan or grainer salt. 
In California, some solar evaporated salt is re-dissolved and the re- 
sulting sol", tion is evaporated by the vacuum pan process, thus producing 
a purer, higner grade salt tlian the original product, (l) 



(*) The cooperation of the Federal Trade Commission in making available 
to the writer information gathered by the Commission relative to the 
Salt Industry, lias been of material assistance in the preparation of 
this report. 



9825 



-68- 

3. Production And Values 

The following table shows the amount and value of the salt 
•orodUced hy each of the ahove descrihed -oroduction -Drocesses: 

T^.njes of Salt Produced 

(Mineral Yearhook, 1934, and Mineral Market Henort 

-Ko. M.:'. 5, 364, Anril 26, 1934 - U.S. Bureau of Mines) 

1952 1933 1934 

Tons Value Tons Value Tons Value 
(000) (000) (000) (000) (000) (000) 

■^4,634 541 $4,411 

8,123 1,267 8,191 

■ 1,178 333 1,171 
5,402 1,884 6,140 

1,130 139 999 

Pressed blocks 

from rock salt 27 153 31 169 29 166 



List Wo. 1, in the Addenda, shows the -oroduction of evanorated 
salt and rock salt each year from 1920 to 1934, inclusive, and the 
average value -oer ton of both tjTies of salt in each of these years. 

The average annual value of the salt -Droduced from 1920 to 1934, 
inclusive, was about 523,500,000. The a,verafe annual value of salt -oro- 
duced from 1922 to 1929, inclusive, was about $25,000,000. The annual 
dollar -production since 1921 ranges from a high of slightly over 
$26,000,000 in 1922 to a low of ^U8, 500,000 in 1932. The 1933 production 
was slightly over ^20,500,000, rising in 1934 to about $21,000,000. (2) 

The annual tonnage -oroduction of salt fluctuated less than did the 
value of salt. The average annual tonnage of all salt -oroduced -f rom 
1920 to 1934, incl-asive, was about 4,200,000 tons. The average annvial 
production from 1922 to 1929, inclusive, v/as about 4,400,000 tons. The 
annual production ranged from a low of 3,400,000 in 1921 to a high of 
about 4,650,000 in 1928. Production in 1933 fell to 3,600,000 tons, 
which increased in 1933 to slightly more than 4,100,000, and in 1934 to 
about 4,200,000 tons. (?) 

9825 



Open or- 








grainer 








evaporated- 


592 


$4,447 


573 


Vacuum pan 








evaporated 


1,073 


7,197 


1,311 


Solar evap- 








orated 


269 


944 


322 


Rock Salt 


1,558 


4,949 


1,754 


Pressed blocks 








from evap- 








orated salt 


119 


848 


153 



-69- 

The averag^e annual tonnage production of rock s^lt from 1920 to 
1954, incliisive was 1,952,000 tons; the average anmial tonnage production 
of evaporated salt during these years was 2,268,000 tons. During the 
past ten years, the average value of rock selt has ranged from 'i2.90 to 
$5.40 per ton, with an average value for the ten years of ahout ?^.5.20 per 
ton. The average value per ton of evaporated salt has gradually declined 
diiring the past ten years, the average value during the past two years 
being $6.40 per ton - just ti.7ice that of rock salt. (2) 



C. Uses For Salt 

According to the 1954 Encyclo-oedia of the Social Sciences, the in- 
dustrial reouire.nents for salt developed chiefly during the past century, 
are still second to food uses, although likely to assume first place in 
the near future. 

This reference to "food uses" embraces both the domestic, or 
household, cons-unption of salt, and its use in the commercial preparation 
of food. Data gathered by the U. S. Tariff Commission indicates that 
about one-fifth of the total tonnage of salt goes to household use.(^) 
Of this one-fifth, the major portion is table salt, composed primarily 
of vacuum pan evaporated salt. 

In addition to household food uses, large quantities of salt are 
used in the commercia.l -nre-naration of foods - by bakers, canners, cheese 
man-afacturer , pretzel manufacturers, biscuit and cracker manufacturers, 
etc. A major portion of the salt going to these buyers is grainer, or 
onen pan. ev? Torated salt, and is referred to in -nrice lists issued by 
salt manufacturers as "high grade industrial salt." (4) 

Meat packers use large quantities of rock salt in the curing of 
meat, and rock salt is also used in the making of ice cream and ice. v4) 

Other important industrial uses for salt embrace the bleaching of 
paper and textiles; the tanning of leather; the preparation of animal 
feeds and direct use as salt lick; as a fertilizer to assist in releasing 
potash in the soil; soap manufacturing; oil, gold, silver, copper and 
steel refining: by railroads for the melting of snow and ice from tracks 
and switches. (4) 

Chemical companies require large quantities of salt for use in 
their operations. Prior to 1900, chemicad companies relied largely, on 
purchases of salt from salt manufacturers to meet their requirements. 
During the past 30 to 40 years, chemical man^af acturers began to locate 
their plants near limestone deposits and salt deposits, and in increasing 
numbers began the production for their own use of these t^o basic raw 
materials. Thus, there has resulted a decreasing demand for evaporated 
or rock sa.lt for- chemical purposes. At the present time, about 45 
per cent of all salt produced is produces and used in the 'form of brine 
by chemical com-^anied. " ■ 



9825 



-70- 

The following quotation, taken from an article on Salt in the 
1934 Encyclopedia of Social Sciences, relates to this situation: 

"A very large, and steadily increasing, fraction of 
the total output (of salt) - 45 -oer cent in 1931 - is . 

never placed upon the market rs actua.l salt, but is (-nro- 

duced and) used "by, chemical com-oanies in the form of trine 

This has narrowed the areas available (for exriloitation by 
salt companies) and has facilitated concentration of tie 
greater salt -oroducing fields in a few hands." 

According to the U, S. Tariff Commission, 90''^ of all rod: salt is 
classed as industrial salt, less than lO'^o being sold for domestic con- 
sum-Dtion. (5; Some rock salt is -oreriared for table use, and is sold as 
such in the South at a slightly lower -orice than eva,porated, table salt. 
Most of the so-called "domestic" rock salt rirobably is used in home 
ice cream freezing, curing of raea.t on fairms, etc. 

Because of its flaky texture, grainer eva-oorated salt is not well 
adaDted to h )usehold use, and an important, if not the -Drimary, use for 
this tyne of salt is in the commercial TDreparation of food -nroducts. 

Vacuum T3an salt is used for a wide variety of •D-'OT'ooses. Between a 
quarter and a half of this tyoe of salt is sold as table salt, the re- 
mainder being used for industrial puriooses, some -orobably going to food 
TDrocessors, the remainder to various other types of endeavor. 

On the West Coast, solar evaporated salt largely is used for the 
purposes for which rock salt is used in the East, and is used for the 
salting of fish, as well as for most of the industrial uses above set 
forth. Some solar evaporated salt, after refining, goes to table use, 
although the percentage probably is very small. 

According to a statement made by a salt ma,nuf acturer in a letter 
written in 1919, rock salt is not competitive with evaporated salt-. "I 
am sure that a careful investigation will- clearly show tha.t competition 
between these two products is, and always will be, practically nothing. 
At various times, when we have been long on eva.porated salt and short 
on rock salt, we have endeavored to switch some of our customers over 
to evaporated salt, but without success." (36) 

This stateijient is in conflict with. ?■ statement raa,de by a salt 
manufacturer to the author of this report during an interview in 
January, 1936. ^5) This salt producer stated that evaporated salt is 
better adapted to certain industrial uses than is rock salt, because of 
the greater purity of evaporated salt and the fact. that evaporated salt 
is more readily soluble. In many industrial uses, such as the tanning 
of leather or the bleaching of paper, the salt, is dissolved to form a 
brine, and t ^e speed and ease with which the brine is formed becomes a 
factor in the determination of the type of salt to be used. Because 
evaporated salt possesses the advantages of greater purity and solubility, 
many industrial users are willing to pay a premium for it. However, the 
price of rock salt has a direct influence on the price of evaporated salt. 



9825 



-71- 

If the differential 'betvreen these two types of salt becomes too great, 
industrial users turn to rock salt, the disadvantages incident to the 
use of this sale being outweighed by the saving in cost. So actually, 
rock salt and evaporated salt are potentially competitive, the actual 
degree of competition de-oending unon the size of the differential in 
TDrice between the t'vo kinds of snlt. 



9825 



D. IT here Solt Is Produ ced 

Salt is prorluced comnercially in only l;j States of the Union: 
Kichigsji, ITew York, Kansas, Ohio, Louisiana, California, Texas, Uest 
Virginia, Utah, Oklahoma, Keir Kexico, and Nevada. The prodiiction of 
Hew Mexico ;md Nevada is negligible. The following list of salt "oro- 
ducint States, together with the percentage of salt tonnage produced 
"by each, was coiTOiled ^"rom the U. S. Tariff Commission report on the 
salt industry. (3) 



Michigan 


26-1 


Nei.7 York 


23-; 


Kansas and Oklahoma 


16;; 


Louisiana 


125; 


California 


12^1 


Ohio and West Virginia 


7^0 


Te:--as 


34, 


Utah 


1-; 


Nevada and ITew Kexico 


Negligible 



Table No. 1, Addenda sets forth the production of salt, by kind, 
in each of the producing States. It v/ill be observed that Ohio and 
Tfest Virginia produce no rock salt; that California produced very little 
rock salt (producing primarily solar evaporated salt); that Louisiana 
produces a. little evaporated salt, but specializes in rock salt; that 
Kansas and New York, although important evaporated salt producers, pro- 
duce more rock salt than evaporated salt; and that Michigan, the largest 
producing state, produces five times as much evaporated as rock salt. 

There has been little change in the relative position and impor-t- 
ance of the various producing States in recent years. 

E. S alt Producers 

Durin;; the latter part of the 19th century, the Salt Industry 
was composed of a large number of salt producers, primarily engaged 
in the production of salt for sale to nearby buyers. In many in- 
stances, salt was produced only as a b^'^-product of some other activity. 
During this period, the volume of production was high and prices were 
low. (5) 

The National Salt Company (concerning v.'hose previous history no 
information is available) conceived the idea of formulating a salt 
trust. This company entered into contracts with a large number of salt 
producers whereby the National Salt Company agreed to purchase all of 
the salt produced by each producer, and each producer agreed to sell 
only to the National Salt Company. These contracts usually specified 
a comparatively high price for a certain number of tons, and a very 



9825 



-73- 



low price for all s-:lt produced over that amount. For exrniplej a salt 
producer might have a plant capable of producing a hundred thousand 
tons a year. His contract would provide that the National Salt Company 
would purchase 50,000 tons at $8.00 per ton, hut that any salt produced 
hy him over the 50,000 tons would "be purchased "by the National Salt Com- 
ps.ny at $1.00 per ton. Thro\igh these contracts, t'ne National Spit Com- 
pany made it prof ita'ble for salt manufacturers to produce a smaller 
amount of salt than they other'"ise would have produced, and "by reason 
of its monopoly on srlt, the National Salt Company could resell the salt 
at a profit. During the time this program was in operation, the National 
Salt Company gained a considerable financial interest, if not outright 
ownership, in a large number of salt tilants. '^' 

During the 1890 's or in the early 1900 's, the National Salt Trust 
failed. No definite information has been developed as to the circum- 
staJices responsible for .its failiuB . Inasmuch as it was about this 
time that chemical companies commenced the trend to'wa.rd production of 
their own salt needs, it may be that their entrance in the salt pro- 
ducing field was parti:;.lly responsible for the failure to maintain a 
monopoly over salt sp.les. 

Whatever the causes, the National Salt Comr^any failed. Creditors 
of the company took over control of many of National's plants i The 
Morton Salt Company - already an important western" producer - became 
the largest producer west of the Allegheny Mountains. From the wreck- 
age of the National Salt Company v/as formulated the International Salt 
Company, becoming the largest ^producer in the East.^ ^ 

The mmber of salt manufacturers declined steadily from 1899 to 
1933. According to the 1933 Census of Kanufactures, published by the 
U. S. Bureau of the Census, there were 159 salt producers in 1899; 145 
in 1904; 124 in 1903; 98 in 1914; 86 in 1919; 79 in 1921; 75 in 1923; 
70 in 19%; 58 in 1927 and 1929; 53 in 1931; and 50 in 1933. During 
this same period, the number of employees remained remarkably stable, 
ranging from 4,774 in 1399 to a high of 6,800 in 1923, then down to 
5,458 in 1929, and 4,728 in 1931. 

According to the 1934 Mineral Yearbook, published by the U. S. 
Bureau of Mines, there were 52 salt producers in 1933, operating 70 
plants. Of these 52 companies, 10 (operating 11 plants) produced 
salt and salt brine for chemical uses. 6 or 7 others produced cal- 
cium chloride, bromine, or other products, their salt production for 
sale being comparatively unimportant. It thus apper.rs that in 1933 
there were only some 35 companies engaged, primarily in the production 
for sale of rock rjid evaporated salt. 

These 35 companies operated some 53 or 54 plants. (See List No. 2, 
Addenda for list of salt producers, their location, and type of salt 
produced.) 

In view of the fact that the annual tonnage volume of salt pro- 
duction has Varied so little over a .long period of years (See Table No, 2, 
Addenda), it seems plausible thn.t the decline in number of concerns 

9825 



74- 

engaged In the industrv is attril^table to the concentr"'.tion of pro- 
duction in fewer hands, rathsr tlia.n a decrpacing volunc. of pro- 
duction, or a declining total demand for the product of the industry. 
Hoirrever, it appears that there li?.s heen a decided change in the market 
for sell, since 1900, which prohahly facilitated the reduction in nuraher 
of plants . 

As has already been str.ted, duringthe past thirty to forty years 
large industrial consuners of salt (principally chemical companies) have 
commenced 'he production of salt brine for their c-m use, until about 
45 per cent of the total outpixt of salt is composed of salt brine, 
which is never placed on the market as salt. 

The lessened demand for crystalline or solid salt for chemical 
uses appears not to have resulted in any marked decrease in the total 
production of such salt, either rock or evaporated, prohably because 
of the increasing population of the United States, vdth a resultant in- 
creased demand for salt for h^oman consumption; and the increased indus- 
trial activity of the country, causing an increase in the demand for 
salt for industrial purposes other than chemica.1. 

However, this njirrowing of the market for rock and evaporated 
salt, and the necessary, though gradual, shift in the direction of 
sales effort, probahly found many. producers, v'ho had been selling a 
considerable portion of their output to. chemical companies, poorly 
equipped to enter into effective competition' in the sale of table salt 
with producers who had lohg specicJized in the production and sale of 
that type of salt. 

As a result, whether through bankruptcy or throuigh amtilgamat i on 
with other producers, the number of concerns steadily declined. 

A comparison between the Salt sections of .the 1919 and the 1929 
Census of Manufactures, develops some interesting information' regard- 
ing the decline in number of salt producers over a period of ten years. 
For both 1919 ard 1929 the total dollar volume of production was very 
nearly the same - between thirty-seven sjid thirty-eight million dollars. 
The follov;ing table indicates the n-umber of esta-blislments, their rela- 
tive size and the prodiiction of each size grouii. 

Value of Products . Number Percentage of 
per ilstablishment Total Production 

1919 1929 



TOTAL . 86 58 

$500 - $4,999 12 

5,000 -* 19,999 9 3 

20,000 - 99,999 . 15 9 

100,000 - 491;, 999 29 20 

500,000 - 999,999 10 12 

1,000,000 and over 11 12 

2,500,000 and over : __ . 2 



by Value 


1919 


1929 


100--^^ 


lOOfS 


0.1 


— 


0.3 


0.1 


2.2 


1.4 


22.3 


13.5 


18.2 ■ 


21.1 


5G.9 


63.8 


, 1/ 


*/ 



9825 



_^/ Data included in class immediately above to avoid 
disclosing figures for individual establishments. 



• • -75- 

The 1S29 Census tabulation did hot inclvide estaolislments pro- 
clucirvc- under $5,000 north of Salt per year. It will te obsorved that 
in 1913 this class of producer accoimted for only one-tenth of one per 
cent of total production. 

Tliis comparison indicates clerrly the tendency toward the concen- 
tration of salt production in the hgjids of larger estatlishi.ients. In 
the ten year period 'betv^een 1919 and 1929, the. nurater of establislunents 
producing ■bet^='een $5,000 ajid $20,000 fuinually decreased 66 2/3fo; those 
between $20,000 and $100,000 decreased 40<; those betv/een $100,000 and 
$500,000 decreased olfo. On the other hand, the nwnber of establislaments 
producing between $500,000 and $1,000,000 increased 20^^; and the number 
producing over $1,000,000 increased 27;'b. 

In 1919, ei^taulishments vhose individual anni.ial production was 
under $500,000, accoimted for 2ff& of the total production of salt; in 
1929, establishments in this size class accounted for only 15^^ of the 
total T)roduction. Establishments in the million dollar class increased 
their percentage of total production from about 57:!-. to about 6^i;o, ac- 
counting for most of the decrease in the business of the smaller con- 
cerns. 

In 1933, the International Salt Company, ;vitli. six plants, was the 
largest producer of salt in the United States. Three 'of these six 
.plants produce roc': salt, pnd the others prodiice evaporated salt. 

The i.iorton Salt Company, with eight plsjits, all of vjhich produce 
evaporated salt, is the largest producer of evaporated salt in the 
United States, Llorton also is an important factor in the rock salt 
business, as one of the eight plants produces rock salt as well as 
evaporated salt, ahd in addition, Morton Salt Company sells for In- 
ternati-onal the rock salt \7hich is produced in International's Michigan 
salt mine.^^^ 

International is the dominant member of the industry in the East, 
and Morton is the dominant member in the Middle West and T/est. In 
addition, through extensive' advertising and nation wide sales effort, 
Morton dominates in the sale of table sa.lt throughout the country. 

Of the 55 companies '-hich are members of the Salt Producing In- 
dustry, 2 (liorton and International) are large; 12 or 13 are middle 
sized; and the remainder are small, conducting little advertising, hav- 
ing small sales forces, and little known brand names. ^''^ 

One compa,ny ovms eight plants; one owns six plants; one owns three 
plants; and five own two plants each. Eight companies own half of the 
plants j the remaining plants being owned by separate companies.(5) 



9825 



The above enuinerf^ted fifty-odd plants are engn,p;ed in the produc- 
tion of rock or evaporated salt. In adaitionj there are 10 companies 
engaged in the production, of salt trine for their ovm use. 4 of these 
10 companies sometimes produce evaporated salt, and sell it in competi- 
tion with, or to, the regular salt producers. (7) The amount of salt 
so produced and sold is not great in volume v;hen compared nith the total 
output of the salt industry, hut is capahle^of; disturbing the market 
price for salt heca.use the companies, vhich produce salt only as an in- 
cidental product are willing to dis^^ose of it at any price necessary to 
promptly move it, without figuring costs on the spjne "basis as re-jular 
salt producers. (5) 

Of the 3^ companies considered to be members of the Salt Produc- 
ing Industry, two are subsidiaries of corporations primarily engaged 
in the production of foods. The Diamond Crystal Salt Company (said by 
the magazine, "Fortune", to be the fourth largest salt producer in the 
cOTontry), is owned by General Foods Corporation. (8) 

The Independent Salt Comxipjiy, with a, rock salt riine in Ifemsas, is 
affiliated with or controlled by t"0 meat packing companies - Swift and 
Company; and Armour and Company. It is operated primarily to supply 
rock salt to meet the reauirenents of these two packing companies, but 
produces more salt than they need. The excess production is sold on the 
open market. The following letter, from, the Carey Salt Company to the 
Code Authority of the Salt Prod\icing Industry, dated I'ay 17, 1S34, is 
of interest: 

"There are five salt mines in Kansas with a total 
.tonnage of' 450,000 tons. Foui' of these companies 
are doing a regular comi.iercial and distributive 
salt business. The Independent Salt Company of 
Kanapolis, Ko,nsas, is owned by Svaft and Co. and 
Armour a,nd Corapanjr, and their chief function is to 
supply Swift and Armoiir vrith their rock salt re-, 
quirement. The rock salt requirements of these 
tv70 companies wo\ild run approximately 100,000 
tons or better per year. In the course of produc- 
tion, they produce various grades and sizes. It 
is not possible for these tv/o companies to utilize 
the entire amount of fine (No. 4 crushed salt) so 
they have a surplus of Ho. 4 crushed rock salt v/hich 
they are compelled to move in order to. facilitate 
their operation and which they feel they can move at . 
a very cheap figure. The salt producers of Kansas 
liave riot for many years been able to maintain a price 
on rock salt comparable with the fair prices which 
have been maintained in other fields; namely, $5.00 
and $6.00 per ton. The going price in the Kansas 
field has not been over $4.00 per ton for some time, 
and in similar cases No, 4 crushed rock salt has been 
sold to the commercial trade as Iom as $2 per ton in 
order to compete with Independent salt company's 

9825 



-77- 



surplus IJo. 4 stock. The Independent Spit 
Comp^mj'" taices the position, that thej'- must 
supply retail dealers or any carload buyers 
on the same has is as they sell Svrift and Com- 
pany pud Armour and Company. . They have charged 
a slight overaf:;e for truckload lots ahove the 
carload lot price. Every effort has heen mp.de 
to release the Independent Salt Company of its 
surpl\is .of fine salt ty an outright purchase of 
the same or hy handling the sales of same, hut 
whenever the natter ha.s heen discussed, the Inde- 
pendent Salt Company continues of the same opinion 
that they have maintained; namely, that they should 
continue to 'liandle the operations for themselves. "(3j) 

. F . Relative Production Costs 

l-tock salt, the, major part of which is mined in Louis io,na, Nev/ 
York, Kansas, i.iichigpji and Texas, costs less to produce than evaporated 
salt (v,dth the possible exception of solar evaporated salt.) Grainer or 
open pan evaporated salt is said to cost more to produce than vacuum 
pan salt, primarily because of the higher fuel cost and the longer period 
of time required to complete the evaporating process. (.5) 

?rom 4C to 50;'j of the cost of manufacturing va.cuum p3,n evaporated 
salt is general overhead cost. It is said that it V70uld cost a ha.lf 
million dollars to construct a modern, efficient plant to produce vacu- 
um pan salt, this amount to include expensive machinery, buildings, loca- 
tion, and expenses until the plant '.vas op;; rating on a paying basis. (5) 

Fuel cost is the most important item of direct cost in the va.cu- 
um pan process, exceeding labor cost. (5) 

Little information is available regarding costs of producing 
grainer or open pan eva,porated salt. Since the ca.pital investment in 
grainer plants evidently is not so high as in the case of vacuum pan 
Tjlants, with a corresponding reauction in depreciation charges and. per- 
haps taxss, the overhead cost is lower, and fuel and labor costs are 
higher than in the case of vacuum pan salt. 

The principal cost in rock sa,lt production is labor cost. (5) 
Probably the greatest saving in cost in rock salt mining, as compared 
to evaporated salt, results from the lo-^'er investment cost and depre- 
ciation charges, and from the absence of fuel costs. 

Nothing is laiovm regarding the production costs of solar evapo- 
rated salt, except t.^at the cost is considerablj'- lower than other 
forms of evaporated salt. 

So far as this investiga.tion discloses, there does not appear 
to be any marked variation between different producing fields in the 
cost of manufacturint;: vacuijm pan or grainer evaporated salt. 



3825 



Because of lorer labor costs, Louisiana and Texas rock salt 
mines prota'bly have a lovrer cost' of production than Kansas, iiichigan 
or Ne',7 York rock salt mines. This saving in cost is offset "by the 
greater transportation costs to industrial centers. 

G. Salt Frodi^cers '• Association 

The Salt Prodxicers' Association was formed in 1S14, nith a member- 
ship of 20 producers of evaporated salt, '^ho produced approximately 75"o 
of all evaporated salt. The rock salt industry w.s not included, al- 
thougii evaporated salt prod\icers produced and distributed more than 
50^9 of the rock salt then mined. Chemical manufacturers, producing salt 
brine for their o^m use, were not members of the association. In 1932, 
there were 22 members of the Association, who produced $9,217,000 worth 
of Salt, as co;npa,red with 32 non-Association members who produced 
$8,879,000 \7orth of salt. Inasmuch as rock salt producers did not then 
belong to the Association, it appears that members of the Association 
produced most of the evaporated salt - probably close to 75f:i, as in 
1914, According to a stateiient made at the public hearing by the Pres- 
ident of the Association, members of the Association at that time pro- 
duced SG;j of a,ll salt produced for sale in the United States. (34) In 
1933, the by-laws of the Association were amended to provide for Asso- 
ciate members of the Association, for code presentation piirposes. 
16 non-association members becaiiie Associate Hembers.(9) 

A copy of the minutes of an Association meeting on July 26, 
1933, indicates that the following companies v;ere members of the Asso- 
ciation: 

International Salt Company 
I'orton Salt Company 
Dirmond Crystal Salt Company 
Carey Salt" Company,'- 
Colonial Salt Company 
Union Salt Company 
Hyles Salt Company (10) 

In 1922, the Federal Trade Commission fo\md that the following 
firms in addition to those named above, '-fere members of the Association, 
and it seems likely that they still are members; 

T'orcester Salt Company 
Kulkey Salt Company 
!Ba,rton Salt Company 
Anthony Salt Company 
Ohio Salt Company (11) 

The by-laws of the Association declared its purpose to be the 
preservation of standards of quality, and the making of uniform changes 
in such firced stani ards as were deemed desirable; making of uniform 
sizes, styles and forms of packages; standardization of methods of 
figuring cost; discovery and transmission to members of new uses for 
salt. The by-la'./s also contain this statement: 



-79- 

"It shall be thoroTi^:;hly understood 'by nem'bers of the 
Associ.i.tion thpt all iufornation reriorted to the Ar,sociation or 
distributed' by it is surely statistical, rnd pertains only to 
past transactions, .-ind that no -oaTt of the machinerj'- of this 
Association v,'ill "be loerinitted to "be used to fix nrices for the 
sale of goods, or to divide the. territory, or lii;;it or control 
co?iT)etition; ;-.nd no infornatioh shall be collected or distribut- 
ed res'oectin^ any -orice which a,ny raember intends or expects to 
ask," ' , 

The Associption npintains three :Standing comuittees: 

(1) Transriortatio n. This connittee shall furnish to the 
Secretary's office freight rates coraoiled for all shipoing -ooints in 
the territories sunulied rith salt by menbers of the association. 

(2) Simplified Practice . This co^araittee is to assist in the 
establishment and ado;.-ition of sim-olified t)ractices ?jid standards of 
salt TDackajes. 

(3) Trade Relation s. This connittee shall keep the Associa- 
tion informed on trade develonnents of interest to the raeinbers, and 
shall offer reconriendations T'/henever they -oronise to benefit the in- 
dustry, the trade and the consuming;' public, (iS) 

Among the past activities of the Trade Association --ere the fol- 
Icring: 

Securing of s co"oy of all invoices of sp.les made by 
menbers of the Association. U^oon readiest from associa.tion nem- 
bers, the Secretary of the association, by perusal of in- 
voice records, '.''as able to advise the inauirer '"hich manufac- 
turer ^ps supnlying salt to a certpln buyer, 

Seciirin^- conplete list of all brokers handling salt for 
various menbers, and advising members which brokers have been 
drot)T)ed because of connection with buyers. 

Advising members of the association the amount of bro'c- 
erage allowed by other members, and indicating the m.axinum 
amoujit which seems desirable. 

ComT5i-Iin;x State Preight Rate Boolcs for use in connec- 
tion -Tith the rrablished trices of each member, in order to 
arrive at a delivered ^rice. (35) 

H. Sellinf?- Practices . 

1. Sales made on a delivered bqsis. 

For m.any years, it has oeen the practice of the salt industry to 
sell salt on a delivered basis, rather than f.o.b. plant, llo definite 
information has been developed as to the length of time this practice 
has prevailed. 

9825 



-80- 

2, Ilariietini; Areas and Freight Equalizntion, 

As has already beeu mentioned, transoortation cost is a very im- 
portant item in the ultimate cost of salt to the buyer. One salt 
manufacturer estimates that frei,?ht cost anouiits to more than 50^a of 
the average cost of salt-- delivered to the buyer. (5) The -oractice of 
absorbing a portion of freignt' costs, in order to widen marketing 
areas in comrjetition with other producers or producing fields, or to 
retain markets being invaded oy other producers, became a form" of 
•orice reduction fully as important as a reduction in the base nrice of 
salt, Freight- cost became to the "oroducer as much an element of cost 
as manufacturing cost. 

Any program for the stabilisation, of orices mur.t include the sta- 
bilization of freight absortJtion. 3y 1916, the industry -'as OTjerating 
under a freight eoualization "orograra embracing some of the-noints of 
a basing iDoint and a zoning system, . " 

The country ^7as divided up into a nu;aber of "marketing areas" 
(sometimes also cp.lled "freight areas") ^-^hichcorresiDOnded roughly to 
the different producing areas. As Jias. already been stated, salt is 
produced comnercially in only 12 strtesof the Union, Of these, two 
stpfes (iTeiT Mexico and llevada) , -oroduce a very small quantity of salt. 
Prior to 1950, Oklahoma was riot considered to be of sufficient im- 
portance to warrant its seoarate consideration as a producing field. 
The Salt industry considered that there were eight producing fields in 
the country, as follows: 

ilew York 

Ohio a,nd 'ifest Virginia 
■ I'ichigan 

Louisiana 

Kansas 

Texas 

UtpJi ' ' . 

California ' 

A "natural marketings area" for each oroducing field was agreed 
u-Qon, v?ith certain States falling into a joint marketing area for two 
fields, x'lo information has been developed as to the time when the 
industry first established those marketing fields, nor is definite in- 
formation availaole as to the exact boundaries of ea.ch field, Allthat ' 
is known definitely is thr-t m;.;r]:eting areas were established and re- 
cognized in the industry' by 1^16 - two years after the formulation of 
the Salt Producers' Association in 1914. 'v/hether the Association was 
resTDonsible for the establishment of 'the "marketing areas", or whether 
they were in existence before 1914 is not known. The transcript of the 
Public Hearing on the Salt Code contains statements to the effect that 
marketing areas "have long been recognized in the Salt Industry", and 
that "these areas have been amicably divided in the past". (I4) 

A review of price lists in effect -orior to the dode (15) indicate 
that the marketing arsfts 'in 1932 closely corresponded to those recog- 
nized during the code loeriod, with the exception that the Oklahoma pro- 
ducing field was granted a marketing field which vias not recognized 
before. 

9825 



"31- 

liistory IIo. 1-Addenda is a copy of a bulletin issued "by the Salt 
Producers Association in SeDtenber, 1933, containini?; the Code Author- 
ity's definition of the "natural marketing territories". Reference to 
this history will give , a general idea of the situation prevailing both 
before anc? during the code period. 

The iiichigan-lfensRS marketing area is unique in that it contains 
no producing field, but is a joint marketing field between the Mich- 
ig;in and the Kansas -oroducing fields. 

The 'orinary numose underlying these merketing fields apoears to 
have been an attempt to recognize certain areas as naturally belonging 
to certain -Droducing fields. There <7ps a general understanding to the 
effect that -Droducers in one area vjould not attempt to invade the nat- 
ural marketing area of another -oroducing field by undercutting the 
■orices of the -oroducers of that field. The duiaping of salt in another 
narketing area, in order to maintain volume sjid lov: unit cost, was 
fronned u-oon. The establisl'iment and recognition of "natiiral marketing 
areas" evidently i,7as intended to stabilize 'larkets and to eliminate 
price cutting as a neans of extending raarl^ets. 

For example, it '-.as the xiractice for Kansas producers to refrain 
from quoting a delivered price to points 'in the Hichigan marketing area 
lower than the price ciiioted by .1 Michigan producers. In the case of a 
Joint marketing area, such a.s the Kansas-Iiichigan area, no outside pro- 
ducer, such as an Ohio or Louisiana, plant, would undercut the prices 
quoted by Kansas or Michigan ■nroducers to anj'' point in the Kansas- 
Ii'ichigan area. Thus, producers in each area '"^ora enabled to determine 
their own minimum prices for their local areas, vrithout fear of being 
undersold by outside producers. Such an arraiigement probably was of 
advantage to large companies, such as Morton (v/ith plants in five dif- 
ferent producing areas), and International (with plants in three dif- 
ferent producing areas). At the same tine, it gave a, measure of pro- 
tection to other jiroducers in ?reas such os Ohio, 'There neither In- 
ternational nor liorton had olpnts. 

(See History ]?(!•< land 2, Addenda). 

It is of interest, however, tnat the areas in which the two 
largest comp.anies had plants, plus the intermediate or open market 
areas, such as Kansas-iiichigan, include 44 out of the 48 states of the 
Union, leaving only four - Ohio, West Virginia, Virginia and Oklahoma - 
in Vnich neither liorton nor International could cut prices* 

The sizes of marketing areas were not uniform, nor Were they en- 
tirely based on transportation costs. Other factors, such as the 
importance of the producing field and its potential productive capac- 
ity, and the population and potential consuming capacity of the States 
embraced in the narketin.-' areas, apparently exerted considerable in- 
fluence over the definition of the "natura.l ma.rketing areas". 

The opern,tion of the marketing area prograra was not entirely 
satisfactory prior to the code. Although the boundaries of the various 
areas were genera.lly recognized throughout the industry, 'dumping and 

9825 



-82- 

invasion of foreign areas through price cutting were not entirely elim- 
inated, . 

Following the organization of the Salt Producers' Association in 
1914, that organization Dre2Dared .and -oublished iThat v/ere kno\7n as State 
Freight Rate Books for every State in the Union, These freight rate 
"books contained the name of every knorai delivery -ooint, or point of 
destinntion, in each State, together with the railroad frei^vht rate to 
such delivery point from the nearest producing plant. The various pro- 
ducers, in calculating the delivered price of salt to such point of 
destination, would add to the base price of the figure set forth in the 
State Freight Rate Book, Thus, every producing plant becajne a basing 
point for all delivery points nearer to it then to any other plant. 

The following quotation is an excerpt from a letter, written by 
a member of the industry to a Nebraska wholesale, grocer in 1915, ex- 
plaining the method of using price lists and freight rate books (which 
system is still in effect): 

"We have sent to you Nebraska and Iowa books and 
scales, Youivill note that there are two scales - one 
Scale, IIo, ?, which applies on Michigan salt, the other 
. Scale ilo, z-7, which applies on Kansas salt. The Rate 
Books show freight reites both from Michigan and Kansas, 
The method of using the books is very simple. Take the 
town of Vfeeping 'tfillow, Nebraska, for example. Refer- 
ence to the Rate Book will show that the cheapest rate 
to Weeping Willow is from Kansas, and is 36rf. To ar- 
rive at the price to Weeping ^/illow, use the z-7 book 
and look under coluran 36, vjhich will show that the price 
of number 1 Jack Rabbit is $1,21, This is the price to 
be charged a retail dea^ler. From this price you are 
.allowed a 5f per barrel commission, as shoimi on the last 
page of the Schedule, We insist that the wholesale 
grocer keep the discount for themselves and shall not 
in any way reba.te to the customer or sell him at prices 
less than those shov.'n in o\ir schedule, 

"To arrive at the price on Michigan Salt to Weeping 
Willow, we refer to the Michigan Rate, which is 57(i, 
Recently, however, it has become the practice of Mich- 
igan manufacturers to absorb the difference between 
Michigan and Kansas rates to the extent of 15ii per 
barrel. Therefore, the Michigan price to Weeping 
Willow would be at the rate of 57 rf- less the maximum 
absorption of 15'^, which makes 42(#, and the price of 
salt from Michigan to Weeping Y/illow is found in Col- 
umn 42 of the Michigan Schedule, Thus, the price on 
Michigan salt is $1,27 per barrel," (36) 

The amount of freight absorption varied considerably, depending 
on the need for an ex-oanded market on the part of manufacturers in any 
given ayea, and even varied on different grades of salt. Thus, in 1932, 
we find one southern manufa,cturer issuing a, price schedule containing 

9825 



instr\iction.s to. salesneu to limit, .frei£;J.it at s or ot ion .on rock salt in 
southern states to a noint .vhich rrould net the^Tirodncer at least $4,00 
per ton at the plant., .'but -oerraitting coiTOlete. freight, absorption to all 
•Doints of destination, on high, grade industrial salt,' -In sales in Ken- 
tucky, for exanple, the salesraan is instructed to figure freight rates 
on the I'lichigan or Ohio .freight rate, T-ihichever is lawer, instead of 
figuring'' the freight rate on the actual cost frorn. Louisiana, except 
that on rock salt the ab5orx)tion of frei.ght was limited to a. figure 
which would net the nroducer $4.00 per ton,- (15) 

o. CTDen Price. .. System. ., • .■ 

For raani"- years, salt has 'been sold on •the .basis of molished :3rice 
cuotations. Each neinber of the iiiduatry \70uld publish a separate price 
list for.e.ach marVeting area into fi^hich he ciBsired- to sell. Copies 
of these price lists r/ere circulated a;.aong the various raerabers of the 
Salt Prpducers' Association, Each com-oany's -orice list has been in 
conformity -..-ith the iDrice lists issued by other riroducers for the same 
areas. All t)ublished "orices a-vilying to fitvj area ^^ere uniform on com- 
parable gr.ades of s^lt, ?or e::ariTole,, if a bu;;rer in Peoria, Illinois, 
ri shed .to "qxx^i a car lord of c.O'Tion. evaporp.ted salt, ne would find that 
the TDtiblished -orices of every salt •nanufacturer who sold in that area - 
whether a Kansas, iiichiga.n, Ohio, lle\7 York, or Louisiana uroducer - 
.were precisely the. same,.. Piiblisned nrices might vary between areas, 
but not within any area. The -"trices on rock salt in the^ llichigan area 
might be considerably higher than in the Zansas-IIichigan, or the Kansas 
area, .but every manufr-cturer would quote .the same price :a3 every other 
manuf.acturer for sa.les.in the .Ilichi.gan area, or the Kansas-IJichigan 
area, or the Kpjis-S; area.^ (15) 

Jhere is some evidenqe to the. effect that this uniformity .in- riub- 
lished orices re su.lt ed from a. definite fear on the part of snvaller pro- 
ducers, of disastrous reTDrisv.ls if they disturoed the i^rices establish- 
.edby.the' larger, more ■oo'^erful -orpducers.' The l-'.R.A. fi^es- contain a 
co-oy of an excer-ot from a letter from the Anthony Salt Company to the 
Farmers' Elevator Service Cora-pany, Ralston, Iowa, written in 1934, 
stp.ting tha.t the Arithony Salt Corauan2'" would like to make a certain price 
reduction, but that this ^reducer had been informed if he lowered his- 
price "they woiild lo'^er their prices" to a -"Oint whe-e he ^-"ould have to 
sell below his cost oroduction. (16) 

i!\i.rther eviaence as to tne reason for uniformity between r>rice 
lists is contained in the following co-oy of a letter from the llorton 
Salt ComT^any, which was aTotDarently sent to members of the Salt Pro- 
ducers Association in 1915 in res-oonse to a request that Morton Salt 
Comr)sny or the Associ^-tion pre-nare the -nrice list^ to be used b^'' the 
members of the._ industry: 

"I.ir.. Crews tells ne .that it is not advisable for 
us to f-arnish Rchedules in Quantities to any one, 
■ There. -is -no objection_to our sending one or two of 
our schedtiles . to anybody we v.'ant to, but it, is improper 
for us or the-Association to fiirnish price lists for 
other peor^le. If. it is their wish, to make their prices 

9825 



-^84- 

the same as ours-, then it is of course their privilege 
to do so,. L)ut they should have the price lists printed 
thenselves, and it is not within the province of the 
Associa.tion to have thorn printed for them. 

"^CSur schedules are printed Dy Barnard & Hiller, 17? 
F, LaSalle Street, Chicago, Illinois, v;ho have the 
Torinting all set up, and if pjiyone ^la/ats to order 
schedules from them and will send a copy of Scale G 15, 
for example, or any other scnedule, showing the print- 
ing they ••ant on the outside,, the brands, and any other 
changes they nay want, in to Mr, Fred Ijarnard of the 
a'Dove firm, the order will oe promptly filled at a low 
cost, inasT^rach ns they have the forms for the schedule 
all set un and can "orint the'i quickly R,nd economically, 
I would s"'aggest that all members wanting to order 
schedules should send the order direct to Barnard & 
Ililler ther.se Ives," (36) 

Siaring the yeors -'ro!i 1916 to 1920, severoJ nerahers of the asso- 
cia.tion instructed 3arna"d a;id Miller to make up new price lists for 
them to conform to ne'^ I.Iorton Salt Company price lists. (36) 

No information is available whether or not this -orocedure is still 
employed at the present. 

Regardless of the precise procedu.re which is employed to arriwe 
at price uniformity between the various companies, an examination of a 
number of price lists in effect in 1932, 1933, and 1934, indicates that 
prices to the sane bu^/^ers, on the same or substantially the same grades 
of salt, in the same marketing areas, are absolutely uniform between salt 
producers* As there is no evidence to the contrary, it is assumed that 
Morton is still the price leader in the evaporated salt field, said, that 
International, by reason of its size, probably is the price leader in the 
rock salt field. 

In the period. immediately prior to the code, published prices re- 
mained stable and -liniform^ but there w^s extensive price cutting by means 
of discounts, rebates and concessions not mentioned in the price lists. 
The following statement, contai-ned in a letter 'from the Ohio Salt Company 
to the I'.R.A. , early in 1934, bears on this matter: 

"Prior to the time the code became effective, prices 
on salt to all classes of trade, in our entire field and 
in all fields, were greatly demoralized. Secret dis- 
counts, e.llowances and brokerage rrnd rebates were made 
to practically all kinds of resellers " (l?) 

Statements made at the time of public hearing on the code, in cor- 
res-oondence between code proponents and the Administration both prior to 
and after the approval of the code, and by a salt manufacturer recently 
interviewed ^y the author of this report, indicates that price cutting 
took the form of rebates, secret discounts, and other forms of deviation 
from published prices. It appears that although list prices remained 

9825 



-85- 

uniform and staljle, they did not represent actual prices during the 
years immediately prior to the code. 

4. Channels of Distribution 

Accordine to the Census of Distribution, 15th Census, 19S0, salt 
v/as sold to the following tyiies of "buyers in 1929: ■ 

40^^ to wholesalers or jobbers 
25^ to retr.il dealers 
33fo direct to industrir.l users 
Ifo thro'dgh manufacturers' sales brances 

These percentages cannot be relied UDon to give a true picture of 
the distribution of salt. First, the figiires are based on the dollar 
value of salt tilus value of containers. Since the Census figu.res in- 
dicate a total dollar value of $57,000,000 for 1929, and the U.S.Bureau 
of iiines states that the total value of all salt produced in 1929 (not 
inclrding containers) T7as $25,000,000, it is as-sumed that a considerable 
tjortion of the $12,000,000 difference was attributable to container 
costs. 

The U. S. Tariff Commission stxidy of the salt industry (S) pre- 
viously cited) indicates -that from 1929 to 1925 over 60^ of all salt 
shi"oments were made in bulk, which would indicate that there was no 
container cost whatever on 6^^j of the total salt tonnage. It is prob- 
able that large industrial b-'^yers would desire to avoid container costs 
on shi-oraents to them, and entirely possible that most direct sales to 
industrial users were made in bulk. Therefore, although direct sales 
to industrial users may have accounted for only one-third of- the total 
dollar value of salt nlus containers, it seems urobable that well over 
half of the total tonnage of salt was sold direct to industrial buyers. 
This conclusion is further supported by the fact that many grades of 
industrial salt - particularly rock salt - have a much lower value than 
higher grades of salt such as t-able salt. 

Thus it an-oears that less than half of the total salt tonnage 
carried all of the container cost,' This would be particularly true of 
table salt, iDacked either in comparatively expensive cartons, or placed 
in small sacks or packets which in turn are packed in barrels. Table 
salt was sold through wholesale grocers, and direct to large retailers 
(chain stores being included in this category). Some industrial saJ't 
was sold to jobbers, to sunoly the needs of industrial users incapable 
of burring sufficient amounts at any one time to make direct sales to 
them desirable; and some industrial salt was sold to retailers, parti- 
cularly feed dealers, farm coox)eratives, etc. Ilcever, it seems prob- 
able that a com-oaratively small percentage of cheaper industrial salt 
was sold through jobbers and dealers, while practically all table salt 
was sold to wholesalers avnd retailers. 

In view of the fact that jobbers probably handled a considerably 
larger proriortion of industrial salt than did retailers, it would seem 
logical tlia.t most of the salt sold to retail dealers would be intended 
for bimaJi cons''ajmDtion, while a lesser iDroTDortion of that sold to jobbers 
would have the same use. Then it appears that nearly as much table salt 

9825 



• -86- 
V7as sold direct to retailers as was sold throu£^h jobaers. 

Suirraarizing the atove conclusions, it seems probable that from 
two-thirds to three-fourths oi" the total sales of industrial sfelt were 
made direct to the industrial buyers; and that of the remaining one- 
third- to one-auarter, the major part was distributed through jobbers, 
leaving only a small percentage sold through retail dealers. It also 
seems probable that practically all domestic salt was sold through 
wholesalors and 'retailers, nnd that direct sales of this type of salt 
to retpilers were not very far below' sales to wholesalers. 

Each of the above named general classes of buyers and distribut- 
ers were divided into sub-cla'?ses. Section II of this chapter contains 
information on this matter. 

In additicu. to sales made- through distributors and those made di- 
rect from the plant, some of the larger manufacturers maintain ware- 
houses at various points. Oddly enough, it is not unuaual for one salt 
manufacturer to perform a warehousing service for other manufacturers. 
For example, the Worcester Salt Com-o'any, of New York,' sells some of its 
higher grades of salt in the Middle West. It uses florton Salt Com- 
pany warehouses to maintain a stock of salt in that area, Worcester 
Salt Company salesmen who secure l.c.l. orders, or orders renuiring 
prompt delivery, have the orders filled from the stock of salt carried 
in Morton's warehouses. (5) • 

ITo information has been developed regr-rding the charges made by 
Morton for this service. However, aside from any direct payment which 
may be made, this practice is of advantage to Morton. Tiforcester Salt 
Coma'ony salesmen mpj;/ secure an order for a part of a carlo;id of salt 
of the type w'nich the Worcester Salt Company carries in Morton's ware- 
houses, but the buyer may v/ish to fill out a carload oy buying cheaper 
grades of salt. It would not be -orofitable to Worcester to make the 
shipment from its factory, as the "orice on the cheaper grades of salt 
would not be high enough to make possible the necessary freight ab- 
sorption to the Middle f/est. So Morton's v^arehouse is instructed to 
fill out the order with Morton's salt. Morton does not bill the biiyer, 
as the buyer is the customer of Worcester. Instead, Morton bills the 
Worcester Salt Company, This is probably the reason why many sa,lt pro- 
ducers buy salt from Morton. (o) Reference is made in this paragraph 
to Morton's warehousing operations. Whether the sane tyve of operation . 
is conducted by other producers is not definitely known. 

It ao'oears that Morton perforns this v.'arehousing service for a 
number' of salt producers. As above sta,ted, the terms under which this 
service is performed are 'not known, nor is it known whether or not 
Morton will warehouse only certain grades of salt for othei* producers, 
or will warehouse the products of certain producers only, refusing to 
perform the service for other producers, 

I. The Code 

A proposed code of fair competition for the Salt Producing Indus- 
try was presented to the National Recovery Administration in July, 1933, 

9825 



-87- 

and a public hearing thereon ^as held on AUf^ust 14, 1933. The trade 
nractice -nrovisions of the -nronosed code affecting distribution prac- 
tices and channels did not differ in any material respect from those 
which were contained in the code approved by the President on Sept- 
ember 7, 1933. This became Approved Code ilo. 20, for the Spit Pro- 
ducing Industry. 

A discussion of each of the trade practice provisions of this 
code affecting distribution practices and channels is contained in 
Section II of this chapter. As will be observed, there was very little 
discussion of these variotrs trade practice provisions at the time of 
public hearing, either as to the reasons for the inclusion in the code 
of the provisions, or the results sought to be accomplished thereby. 
In ;^eneral, the evidence presented at the public hearing was to the 
effect that the principal trouble in the industry I'^as the demoraliza- 
tion of prices, and that the trade practice provisions of the code 
were desit;ned to alleviate or cure this condition. Mr. Daniel Peterkin, 
spokesman on trade practice provisions for the Code Committee, stated: 

"Chief among the abuses in the industrj;- has been the 
cutting of published list prices - secretly by means of 
discounts, rebates, concessions of one sort or another, 
and the dumping of salt b^ a producer in one field into 
the field of another producer by extravagant absorption 
of transportation costs..." (I4a) 

Mr. Peterkin further stated tha.t on most grades of salt, qualit;'' 
vas so well standardized as to eliminate it as one of the factors con- 
sidered by the bu^er in the selection of salt, leaving only price and 
service as the decisive competitive fa.ctors in the industry. (14) For 
this reason, the eli:nina.tion of "price demoralization" was of partic- 
ular importance in the minds o^ the code proponents. 



9825 



-g8- 
II. T'MDE ?lUi.C'2lCZS A7~:':G1!T'G CHA'-'ri^LS OF 

A. Cust ome r Cla spi iication 

ITo provision of the Salt Code directl:' rclntes to. t'le classifi- 
edition of customers. Several orovisions indirectly, '^ut nevertheless 
seriously, affrcfc customer cla.ssification. The first of these is the 
requirement t>i,?,t each ricmher shall sell u-->on the hasis of open prices, 
conto.ining all facts -necessa-ry to fully inf,orm the trade of prices and 
all terms of sale,'-^°^ Shis requires each manufactiurer to o-ienly class- 
ify his o\rn customers. Iccaaise of th.e code irovisian w^ich states tliat 
th-e minimui-a prices " uhlished in any marhetinj^ field .hy ails'" producer in 
tiicit field sfell '^^ t'"^'-' loT'cst pi'ices at v/hich a,ny Tiroducer may sell in 
that field, ^ -^ULiiformity in custo..ier classification is j^ractically 
assured, since producer A cannot ;vi'''G ■'-■ Detter -rice to any given ptir- 
cnasor in Prodi-;cer 3's field tmn Prod-acer B /ives to that purchaser. 
Producer A can call the pau-chaser anytnin^ jie chooses, but he must sell 
to him on the hasis of Frodr.cer 3's classificr.tion. The same tliin,[; is 
tru.e of Pro'.iicer 3 v/jien he sells in Prodaiccr A's field. The natural 
result is tlmt uoth manufacturers a-ill classify purcliasers alike. This 
result is ma.do more certain in vie^ of the fact tliat tncrc is ■■'ractical 
uniformity het'i/eeii price lists (ooth as to price a.nd customer classifi~ 
cations) 'botvfeen all members of the industry ad thin any area, 

Otaier ;'^rovisions resultin/^ in customer cl5ssifica.tion are those 
prohihitina secret alloY/ances "by -uray of "broherage, and prohihi,ting 
rcha.tes or other alloi.ra.nces hy any na,me or of any n.a„ture, ^'^^' r/hich 
v/ere inter'preted co .lean that hroirerage discounts could not be given 
to others 'thiui I'^ona fide food hro'^ers, anu. were denied to "huj^ng 
hrckers" r/ho -.Tere apents or .affiliates of huyers. These ^Trovisions 
are discussed at length later -ojider the section entitled "bro^rerage" . 

Price schcuules in effect prior to and folla-;'inp a^r^roval of code 
define resellers (Wyers for resale pux'-oses) ; consumers (huycrs v-iho 
do not resell); high-grade consumers (bxiyers of certain kinds of high- 
grade industrial salt); clia.in stores (single huyors v/ith one credit 
rislc, centralised control over buying, selling, merchandising and ad- 
vertising, ':,'ith vaiolly-ovmed suhsidiaries) ; contract consumers (con- 



contract to hu,/ all salt needed for a period of a. year). 



Diiter 
(15) 



There is in existence in the Salt Incustry a wholesale reseller 
known as a "salt dictrihutor" . These distributors appear to be whole- 
salers engaged solely, or at least primarily, in the v/arehousing and 
v/holesale distribution of sa.lt. They differ from other viholesalers or 
jobbers in tjiat the latter are usuaJ.ly engaged in a more general bu.si- 
ness, ha^ndling other commodities in addition to salt, 

A letter from the Interaational Salt Company to the '.'.?.. A., dated 
i'ebruiiry 14, 193-1, contains tne folloivin;; stateiiient : 

"OujT classification of salt distributors is confined to 
buyers whose principal business, or at least a. substantial 
part thereof, is the sa~le and merc'.i:.indiping od salt,..," (21) 

9825 



The Lastern S'">-lt Comany, of l-oston, Massachusetts, is the dis- 
tributor for tne I'ltcrnational Salt Company. T>.is distribTxtor main- 
tains .'- warehouse ;.ind a selling orr:anization, and evidently is ahle to 
iDurchase salt on better tr.r:As than, other resellers. It is not Imown 
whether the Eastern Salt Cor.^pany is o-vned by International, or v;hether 
it operates under an exclusive agency contract. I'ot onlj' is the East- 
ern Salt Coiripany the only distributor for International .in the Boston 
Area, but also it is the distributor, and apparently the only distributor 
in that area, for each of the other producers in the Te\i York producing 
field, Svidentiy, the Eastern Salt Company, although related in some 
manner to International Salt CoMpany, either by contract or ownership, 
is also the exclusive distributor for other 'Jevi York ;''^roducers, ^ -' 

This situation is not at all unusual. The Atlantic Salt Con;, e.ny, 
of Boston, is evidently the exclusive distributor in tiic Boston area 
for Ohio [-roducers. The Worcester Salt Coi.van;- lias established a dis- 
tributor in the rhilader->hia area, and. tlu-^t cUstributor handles the 
salt of other -irod-ucers as v/ell as tiia,t of Worcester, In Washington, 
r. C, the distribv.tor is an affiliate of or uiidcr contract to Morton 
Salt Couipanj'-, yet the Washington distributor ap-ears to be the exclusive 
distributor in this area for oth.er salt producers. ^'^ ^ 

A iTev York salt producer '.-.'as as." red the follov.'ing question; by the 
writer: "why is the Eastern So.lt Coirr'^any the principal distributor 
in Tew Ln^^land for all of the 1"' v; York producers? Since there is some 
connection between Eastern and Internationa^l, v.'on't 7.aptern try to 
push International Salt, rather tlian the salt of other producers?" 

In replying, the r.ionufact^arer i:icicated tuat Eastern ^^erformcd 
primarily a wareho.using fu:ict,i3n for the r.roducers other than Inter- 
nationrl, and. thiat he, personallv, da-nended on his orai sales force to 
do a reselling job - to i^-et buyers to order his salt from Eastern. \-^'' 

In an area v.'here this rianui"acturer oivns or controls the distribu- 
tor, that distributor pushes the resale of- h.is salt, but' warehotises the 
salt of other manufactsrors, v/ho do their- 6v/n resei].ini3,- activity^ (5) 

(Writer's comment: In con.iection v/ith the above, it 
must be kept in mind tlia.t the term "distribvtor" ic used 
in technical sense throughout the discussion. In other 
T;ords, although Ea.stern may be the exclusive "distributor" 
in the Boston area for all of the ITev; York producers , that 
does not mean that th.ese producers do not sell salt to other 
resellers. All of them sell salt to jobbers or dealers, vmo 
in turn resell to retailers or cons^^Jners. However, the "dis- 
tributor" is i;^iven certain privileges and concessions not 
Civen to otncr resellers, includ.in;S: the ••rivilegc of buying salt 
in bulk, tond receiving d.iscour.ts greater than those given the 
coin;.ion, run-of-the-nill reseller.) 

There is another type of reseller, evidently different from the 
"distributor" and the "dealer". This -.-reed, is called an "agent" or 
"supply dealer'.'. As ■'rill be discussed, later in this report, a restric- 
tion was placed inon the sale of bulk salt to resellers d.uring the code 
period, "Distributors" evidently d.id not f.all \7ithin the prohibition, 

9825 



-9C" 

and neither did "agents or simply dealers," A telegram from the Secre- 
tary of the Code A-atliority to the Deputy Administrator in Deccm^'ber 1933, 
contained the follov/ing statement of the policy of the industry: 

"There viovld he no objection to selling to the coniplainant ' 
(iTotci The coimolainant was a jobber of grain and salt) bulk 
salt in carloads or less t'.ian carloads for consig-nmcnt direct 
to its cons-omer customers, provided complainant would agree 
not to divert such shipment to its ovrn warehouse for packing 
and resale, and further tlia.t the complainant would agree 'to be 
bomad by applicG.ble provisions of the gait Code,' in vmich case 
the complrdnant v/ould be classified as an agent or supply 
dealer and yraiXld receive prevailing rates of commission or dis- 
count a-plying to such' classification... ." (21) 

From the above it a.ppears tlx-'.t ,a dealer or jobber could be class- 
ified as an agent or supply dealer, to receive special commission or 
discount on sal* sales made by him, but not warehoused or liandledby 
him, the shipments to be made direct .to the cousnmer. Thus, the 'jobber 
or dealer would be acting as a sales agent or broker vdth respect to 
the sales so ma.de, 

3 . Resale Price I.iaintena nce 

The follo?7ing are excei-pts from a ntimber of letters written by. 
the Morton Sf.lt Company to various wholesale distributors, bctv/eer 
1315 and 1920: 

"As we e>:plained to you some time ago, the salt 
market is very firia anr it is necessar:; for the v/hole- 
salo grocer to assit us in keeping it so...." 

"Open price schedules show the prices cliarged to 
retailers. We insist that wholesale grocery comjanies 
keep the jobber '.s discount for t>,emselves, and shall not 
in any way rebate it to the custom.or or sell hir.i at lower 
prices tlian those sliown in otu- schedule." 

.., "'We are glad to see that you are holding the "ofice, 
a,nd must ask th-t yoi.i corroinue to do so as long as you 
are selling our salt. If the pressure gets too great 
and you have to blow off steam, please do it with some- 
one else's salt, 'Jc should not like to have you selling 
our gooc's at lower prices than vre o^uote, ourselves," (oS) 

Copies of memoranda addressed by tne idorton Salt Coraipany to its 
Sales Department in 1919 indicate tivat they refused to allow jobbers' 
discounts to wholesalers who sell to industrial consumers, or who do 
a brokcrag:e business, or who are ov/iied by or affiliated with retailers. 
Another mcmorandnm to the Sales Department (1919) reads: 

, "You will sec from the attached letter tlia.t Mr, 

(a jobber) coes not believe ray statements about a firm 
ma,rket cany too strongly, but I hope he will ]iold to the 
ma.rket. i.iy letter to lim gives us a loop hole to cut 

9325 



-91- 
laim off if he starts cuttin.r prices on our salt," (r>6) 

Pollovduf: the organization of the. Salt Frodxiccrs' Association in 
1914, members of the association discontinr/id. the granting of j oh oc rs ' 
discotuats except to wholeso.lc grocers. 

It seems probable tliat one of the p'oriDOses, or anticipated i-esults 
of this action was to enable the ;Tien:Dors of the association to exert a 
juore effective control over the resale prices of jobbers tlian vraxild 
have been possible -lad thoy contimaed to grant discoiuits to all kinds 
of jobbers. Tliis conclusion is sLT:.vorted by the following quotation 
from s letter v^ritten by the Secreta.ry of tn-: Trad-^ Association to one 
of the members of the a,ssociatior. in. 1915: 

Tmiicdiatcly the jobbing discount is ortendcc. to 
people other than wholesale f/rocors listed in the Red 5ook, 
there is no measure tliat can prevent other salt sales in- 
stitutions from being i^ivcxa tne discount, and at once the 
prices arc cut under the schedules, and it cannot be 
corrected," (36) 

As is discussed in Subsection C, Section II, the Federal Trade 
Commission ordered ohs inerabers of the association to discontinue dis- 
crimination between jobbers, rnd the members of tnn association later 
discontinued trade discounts to .„11 jobbers, Follo'-'in,;: the a:oprav-Tl 
of the code the members of the industry discontinued btillc shipments to 
resellers; discontinued the .■•aj^nent of brohcrrge corraissions to buyers 
or bujanf: agencies. The ;::iart played "oy the Code Authority and the V.,?.,A, 
in this action is discussed clseiyhere in tjiis report. 

Only t'.7o instances, arc foun>," in which the Code Authority made iiri^r 
rulings or toob any action directly relating to resale price contr'^l. 
The niniites of ? Code Authority meetinrr on Februr.ry 6, 1954, ^^"■' con- 
tain the following sta,tement: 

"A -oroducer iirs raised the- qviostion xvit'.i rrforcncc 
to 3,:\;cncy contrr.cts, which rcs\-ltcd in the follo-.ving ex- 
planation: The nialcing. of an a,,ency contract v/ith any per- 
son, corporation or 'oartnership , vrl'dch could norix.lly ^oy 
itself compete with more tlia.n one salt producer, when 
such a^encj" contract is '.adc \7iuh the intent or liaving 
the effect of evaaing the :irovisions of the Code of Fair 
Competitio.: for the Salt Producing Industry by using 
3,^ ency contracts as -a means for -rv^l-ring p'^ices to bviyers 
whicn are not published as provided, 'oy the Code, or which, 
in effect, constitute secret discounts, and where the pvir- 
P"OEC Sold effect thereof is to p'rocurc all or the major 
poitions of the business of such buj/rrs, constitutes a 
violation of the Cede of Fair Com-etition for the Salt 
J^ TV ducing Ir.d as try, " 

The above e:rjlanation is one which is woi'thj of e:-:planation itself, 
but the intent seems to be tlia.t if any riember enters into an e,:-;ency 
contract with a jobber distributor, whereby ho pivcs such jobber dis- 
tributor any si:ccial discounts not ., ivcn to other jobbers 3,nd not 

9825 



-9?- 

•nitlisliod in his price lists, such contract distrihutor must not resell 
in competition ',7ith other manufact-arers , at lower prices tli:-.n those 
published hy the mrnuf icturer with whom he ha.s the contract. As is 
pointed ov.t in the portion of this report dcalinf:^ with Restrictions on 
Size or Ilanner of '.iahint; Shipments, m;\n\iiacturers will ma.kc hiall: ship- 
ments to distributors who enter into a contract v;ith then not to resell 
sxich sflt p,t lower ;oriccs than those published by the maniif actarer. 
A major requirement of such .af^ency contracts secm.s to be the e„;;;rccment 
on the part of thio distributor, to -abide by the resale prices sot forth 
'by the m?nuf.actiirer. 

Later, on October 10, 1354, the Trade Practice Complaints Com- 
mittee minutes contain uho followinsr,- stpto.icnt: (22) 

"Consideration v/as given to '^ending comj^laints a.e^ainst 
the Manistee Salt Yii'orlcs, L'anistee, IMchii'pan, alleging- viola- 
tions of the provisions of A.rticle IV of the Code, on sales 
made through their distributor, t^ic Detroit Waj/-nc Co-mity 
Salt ComprTiy, Detroit, Hichigan, to Abnor A. Wolf, Inc., De- 
troit, Michigan. The Committee rules tlia.t if a, distributor 
is representing a j.iroducer or rui agency basis, the prodiicer 
is responsible for all acts of thic distributor, insofa,r as 
they are governed by th; erovisions of the Code, Th.vrcforc, 
it appears that tne hanistce Salt Works lia.s violated the 
provisions of Article IV, Para^;raph (b), (c), (d), and Sec- 
tion 2 of Parapraph (c)." 

(ThiO first three para, a-arihs ■ rovidc for the liling of "rices and 
the strict adneronco to tne same. Tiie last -DaTaL.raph [errohibits secret 
allov/ancGS by v/ay of discount, broleorage , storage or advertising. The 
agency distrib-ator in th.is case resold salt to Abner A. Wolf, Inc., at 
a lower net pr-icc tn.ni v/as " rovided by the Manistee Salt Compa-ny price 
lists for sales to retailers,) 

Since Sa.lt Manufactiarers refuse to give jobbers' discounts or 
mahe bull: shijjmcnts to anyone except to contract distributors, (as is 
discussed in Subsection I, Section II) and the above ruling Has the 
effect of requiring resale price maintenance on the yart of contract 
distributors, the effect is to require resale price maintenance on the 
part Df edl distributors who receive lower prices tlian retailers, thus 
insuring the maintenance of the me.nufaxturers ' prices to retailers, 

C , price Differ entials 

The Code contains no rerovision directly relating to --rice dif- 
ferentials or trade discotuats. However, the portion of Article IV 
(a) V7h_ich prohibits producers from making lower prices (or discounts) 
tiia.n the lo';;est ;orices filed by members in any- marine ting area, ha.s the 
effect of compelling man-ofact-orers , vriien selling into any-given area, 
to adopt the Eriine differentials establishcr', by ^^ reducers within tliat 
area.. 

Prior to 1914, it was a custom.ary pra.cticc in the Salt Industrj^ 
to allov/ price differentials, or "trade discounts" uo jobbers. In 
1914, the S:.lt Producers' Association w.as formed, anc' as a result of 

9825 



-93- 



the Ooeration of tnat acsocintion, it becfime the practice of its members 
to aliow jobbers' discounts only to wiaolesple grocers - no price differ- 
ential being given to other wholesale distributors of salt. In 1922, 
the Federal Trade Commission issued a ceat^e ?nd desist order, requring 
the members of the .•association to refrain from the rractice of allowing 
jobDers' discounts only to wholesale grocers whose names appeared in 
directories of wholesale grocers or any other similar list 9repErec by 
a third person or by members of the Salt Industry in cooperation with 
each other. The Commission charged, that the practice of allowing 
jobbers' discounts onlv to wholesale grocers whose names appeared in 
directories of wholesale grocers was a discriminatorv practice, re- 
sulting in restrrint of trade, and held that the practice of acting 
in unison in this res'.pect was i.-TDroper. ^^■^j 

The files contain no informati'^n indicating the irrctice of the 
industry in the years ira..iediately following the issuance of this order. 
It is presumed that some members- of the industry again granted jobbers' 
disccunts to '-holesrlers other than r-holesale grocers, and that other 
members of the industry tried to discontinue wholesale' discounts al- 
together. By 193?, however, it appears that jobbers' discounts had 
been eliminated entirely. Price lists and letters contained in the 
files (15,) (17), (23) indicate thf^t trade discounts had oeen dispensed 
with prior to tne code- at least so far as distributors were concerned. 
Jobbers could receive no better price than could retailers or consumers 
purchasing in the same qua.ntities as the jobbers. 

Although trade discounts to distributors had been eliminated, price 
lists of a number of s^lt producers in efiect prio^r to and following 
the approval of the code, indicate that certain tj'-pes of industrial 
consumers were occasionally given lower prices than were granted to 
joboers or other distributors, and that chain stores could secure 
lower prices than other types of buj/'ers of table salt. As stated in 
the Customer Classification sub-section of this report, ■ price lists 
drew a distinction between resellers, consumers, high-grade consumers, 
contract consumers, and chain stores. These different Classes sometimes, 
although not always, received different prices. Different price lists 
might or might not be issued to different classes, depending largely on 
the grades of salt involved, A buyer aigiit at the same' time be a 
consumer 'and a high grade consumer, depending entirely Upon the grade of 
salt purchased, Ke "-ould buy his high-grade salt from one price list, 
and his com..ion salt from another list. On certain grades of salt, re- 
sellers and consumers migiit be quoted the same price; ,cn other grades, 
the consumer mignt be given a better price than the reseller. The 
available price filings are toj few in number to permit the telling 
of a complete story, (15) 

The International Salt Company, both before and after the approval 
of the Salt Code, issued a printed price list, which quoted prices to 
resellers on a pooled car basis. This company also issued mimeographed 
instructions to its Field Department, quoting prices to consumers. Fol- 
lowing are some excerpts from these instructions: 

"'The following prices are to consumers only Only such buyers 

will be auoted on the consumer's basis as use in their own process 

9823 



-94- 



all the salt they purchase and offer no salt for resale.... To 
resellers, such as ^^'holesale grocers, feed dealers, etc., o\ir price 
on these grades of salt will be the printed list prices." (15) 

(The printed list prices - i<e*, -Drices to resellers - were hi£:her 
than orices to consumers for the s-^me grades and quantities.) (15) 

"Tifith consumers who use six ca.rloads of salt or more per year, we 
will contract for their rear's requirement of, salt. The , following 
prices will anply to such contracts...." (These -Drices '."ere slie;htly 
lower thaa the consumer prices.) 

"No sales will be made at our. riant at consumers' prices". (15) 

Before the ai?-nroval of the code, prices were quoted to consumers 
only on the basis of pooled carloads or straight carloads. Mo restric- 
tions were set forth on the sale of bulk salt, either to resellers or 
consumers. No reference was made- to l.c.l. shipments, except in the j 
case of high-grade salt. Following the approval of the code, Inter- * 
national's instructions provided tnat bulk salt would ^ot Be sold to 
resellers under enj circumstances, nor to consumers in l.c.l, or tiooled 
car lots, Cons-omers buying less than carload lots or pooled ears must 
pay the same price as resellers. (15) 

Both before and after the code, the statement v^as made that l.c.l. 
shipments of high-grade salt v,'oal d be made, with a minimum shipment of 
5 tons. , (15) 

Before the code, high-grade consumers could receive a special price ' 
if they were "national contract buyers^ using 2,000 barrels or more 
per year." Following ap"provpl of the code, . special discount would be 
given to contract buj^ars buying lOOQ barrels "from all sources", (15) 

• Apparently, l.c.l. shi-oments i"ere made to consumers (other than 
high-grade) and to resellers prior to the code. Available price lists, M 
usually based on pooled car shipments, vith discount for straight carloads, ^ 
do not indicate the -orice which would be charged. on l.c.l. shipments. 

Practically all of the -orice lists contpined in NRA files, issued by 
various manufacturers, are the price lists to resellers, with a base 
price for pooled cars, and a discount for straight carloads. The 
mimeographed instructions issued by International Salt Com-pany, which 
become, in effect, price quotations to cons-omers, axe the only list 
prices to consumers contained in the files, so it is not possible to 
state positively that all manufacturers quoted lower prices to con- 
sumers than to resellers. However, since International is the largest 
producer of industrial salt, and sincp price lists of all manufacturers 
to other types of buyers are uniform, it seems -orobable that other 
salt manufacturers followed the practice set forth in International's 
lists to consumers. , 

The price lists would indica,te that all resellers (other than 
chain stores) were quoted the same prices, whetner they were whole- 
salers, retailers, oir cooperatives. Large retailers were eligible to a 

9825 



-95- 

specipl qucntitv discount on table salt, under conditions which made it 
impossible 'for resellers other than national chain stores to secure 
the discount. Although ostensibly a quantity discount, the conditions 
under which the discount was ,F;ranted really uiade it as nrj.ch a trade 
discount as a quantity discount, and .for that reason mention is ma.de 
of the matter in this section. A full discussion thereon will be found 
in subsection D, "Qjiantity Discounts". 

As set forth in subsection 3 of Section II, it does not appear to 
have been the practice to file prices to "agency or contract distri- 
butors", and therefore, the f&ct that- price lists do not mention such 
distributors, does not indicate that "agency distributors" received 
the same crices as other types of middlemen. On the contrarj'-, it seems 
probable that "agency or contract 'distributors" vrere given price differ- 
entials, or discounts,, not available to "joboers", or "dealers." 

Although price lists indicate that jobbers, cooperatives and re- 
tailers were quoted the saras price, (no trade discount being given to 
jobbers or cooperatives), there is evidence to the effect that concessions 
in lieu of trade discounts were in existence prior to the code, at 
least during the depression years, so far as cooperatives are concerned. 
Some manufacturers granted brokerage commissions to farmers' coopera- 
tives for several years prior to the code. This form of price differ- 
ential is discussed in detail in subsection G, entitled "Brokerage", 
Other forms of price concessions are. discussed in subsection E, "Discotaits 
other than Quantity Discounts." 

From the above facts,. it is evident that the Salt Industry, as a 
whole, had discontinued the granting of trade discounts to jobbers prior 
to the Salt Code. This practice vzas not directly affected by the Code, 
but was fortified bv that part of Article IV (a), which states that the 
"minimum prices published ip- any marketing field by any producer in that 
field shall, be the lowest prices at which any producer may sell in that 
field," Thus, if the producers in any given field refuse to grant 
jobbers' discounts, or other price differentials, producers outside the 
field must refrain from granting such differentials in sales within the 
field. 

No information is available as to the effect on sales to jobbers 
as a result of the decision of mai>ufacturers ^to discontinue discounts 
to jobbers. Neither is there any information as to v/hat, if exiy, change 
was necessitated in the selling practices of manufacturers, as a result 
of the above action. It is not even possible to state the approiiraate 
time when the industry decided to discontinue trade discounts, except 
that it occurred bet-veen 192c and 1933. 

As is set forth in subsection E of Section II of this report, price 
concessions or reductions in the salt industry usually take the form of 
additional discounts or rebates, rather than reductions in the published 
list prices. 

Por the first year of operation under the Salt Code, published 
prices were generally adhered to, end there was very little price cutting 
through special allowances, discounts or rebates not set forth in filed 
price lists. During the last six months of the code period, there began 

9825 



-96- 



,to develop flurries of -Drice cuttin,'^ through secret discounts. As 
producers began to discover that violations of the pri'ce filing; pro- 
visions of the code were hard to prove, snd that punishment therefore 
was at most uncertain, some of therd again commenced to allor secret 
disccunts or otner price concessions to certain buyers. Apparently this 
situation didn't become particularly serious durin^t^ the code' -oeriod, 
but within three months thereafter - by August, 1935 - the practice of 
.granting discounts f'rom published prices became very widespread. At 
the present time, the Salt Industry is engaged in one of the, most 
vicious price wars in its history - so bad, in f?ct, that it is said 
that every raember of the salt industry is losing money, (5) 

This price war is not reflected in published prices, which remain 
just about the same as they v/ere during most 'of the code period. Price 
cutting takes the form of discounts and allowances from nublished 
prices, and most salt riroducers are now allowing discounts from list 
price to wholesalers ranning as high as SO'Jo, (5) 

The following circulars, issued by the V/orcester Sal.t Company to 
its wholesalers, are tyioical of tbose being issued by most salt pro- 
ducers: 

"September 5, 1935. To Our Y/holesalers: Due to the many 
irregular prices that are being offered to our customers, we 
hpve decided for' the time being' to m11o\7 a 20°i.. discount on the 
.,, delivered prices of all ; table salt items, both cartons and 
, ■ pockets, up to and including the 5C lb, size. Also on twenty- 
five (25) and fifty (50) pound bags, Vacuum Fine..." 

"September 12, 1935, To The Wholesale Trade: In order to put 
■ . you in a position to meet competition, v/e will allow a 20fo 

discount from our delivered price list dated April 18, 1935, 
. on the following items: 

Round Cartons Table Salt 
Square Cartons Table Salt 
Pockets of Table Salt - all sizes 
25 lb. and 50 lb, bags taole salt 
25 lb. and 50 lb. bags V.C»F. salt 



"The Worcester Salt Company has always tried to protect 

jobbers in a fair margin of profit on the 'Worcester Brands, 
'7e have made no change in that policy. On the new price basis 
you can now make your resale prices such as will show you as 
good a profit per unit as ever, and at;. the same time increase 
the percentage margin..." 

The above letters indicate that the Salt Industry is at present 
granting to wholesalers a trade discount. Whether or liot retailers 
buying direct from manufacturers are given a comparable discount is 
not known, but it seems very likely that they are, at least the larger 
retailers. Neither is it known vhether the term "wholesalers" or 
"wholesale trade", as used by the Worcester Salt Company, embraces 
only wholesale grocers, or includes other types of salt distributors 
handling table salt, 

9825 



-97- 



A discussion of the reasons and responsibility for the existing 
price V7ar is contained in subsection E, Section II of this Chapter, 

E. Quantity discounts 

No provision of the Salt Code mentions quantity discounts, but . 
Article IV (a)> mentioned in the first paragraph of subsection C, 
"Price Bifferentials", is capable of the same effect on quantity 
discounts as it is on trade discounts. 

For as long a time as there is available information regarding- the 
industry, it appears to have been the practice to .allow discounts on 
carload purchases. Practically all of the price lists in the files (15) 
are prices to resellers, based on pooled oar purchases, with discounts 
for straight carloads. Casual references appear in same of the price 
lists to less than carload shipments, but no schedule in the files 
contains a stateraeht as to the price of gait staid inl.c^l. quantities. 
It is assumed that a different set of price lists 'i-S' issued for sales 
in l.cl, lots and thflt the prices on such sales are higher than on 
pooled car sales. However, no definite information has been secured 
on this point. 

The straight carload discounts from pooled car prices appear to be 
uniform between manufacturers, but far from uniform between various 
grades of salt and there is oftentimes a considerable variation between 
discounts in different market areas. These discounts are set .forth 
in cents per unit of size (cwt,, barrel, sack, bale, case, etc.). 
In the Kansas area a barrel of table salt may carry a pooled car price 
ranging from $5.?7 to $9.12, depending on the freight charge to point 
of destination, From this price a discount of 4Ci^ is allowed for 
C'-:rload purchases, .aaking a percentage carload discount of from 
4:^^ to V-gT^, A hundred .pound sack of No, 1 Medium^ with a price of 75^ 
to $1,93, carries a 6^ carload discount, making a discount of 3yo to 8^6, 
Discounts on crashed rock salt range from 4fi to 12Xi; on pressed blocks of , 
4^3 to l?f=; on square cartons of table salt from 6-3 to 15'/o; and on round 
cartons of table salt a flat discount of 1S';S seems to be customary. 

These discounts may vary from .market area to market area, as do 
pooled car rrices, but all manufacturers quote the same prices and 
disco-unts within any one area -as do all other manufacturers selling in that 
area. In the Michigan area, the discounts on any given grade of salt may 
be higher or lower than the Kansas discounts. This practice is not 
attributable to the code,- as the discounts (according to the available 
price lists) ?;ere the same before the code as after its approval. 

There is insufficient available . information to enable a determination 
of 'j'hether or not the carload discounts to consumers are the same as 
those to resellers. Since the pooled car base price to consumers is 
sometimes (if not always) lower than to resellers, it is entirely 
possible that the carload discount may be different as to different classes 
of buyers. 

The above disctissicn deals entirely '-/ith carload discounts. Other 
forms of quantity discounts exist in the Salt Industry. 

9625 



•=•98-. 



A special committee of the Co'de Authority., established to inves- 
tigrte the allo-'ance of qaentit.^^ >diE counts, in its report to the Code 
Authority, dated February 7, 1934, and mentioned in the Code Authority 
minutes of a meeting on i.larch 29, (24) str'ted __■. •. ■ 

"It'ijas been the practice of a number of ^ large producers over a 
long period of ye&rs to grant discounts to large q\ia.ntity buyers... 
We believe ... that the total business- overj a period of time, 
rather than an individual transaction, more adequately establishes 
the true status of the quantity buyer, in that such a method affords 
each competitive seller an opportunity to share in. the business 
of the large buyer, whereas if the discount were applied to. 
the quantity purchased at one tittie frora one raanufactiirer, it 

. might result in excluding c'om-netitive sellers from- that parti- 
cular business..." 

Subsection "C of this chapter, "price Differentials", has already, 
referred to. the fact that International Salt Company allowed special 
prices to consumers Using 5 carloads or more per year, who would 
contrrct to purchase their entire annual ne^ds from International. Other 
companies' price lists indicate that such an offer was not confined to 
International. This offer did not apoly to resellers. Also, Inter- 
national gave a reduced price to "national contract consumers", or 
"contract consumers" of high grade industrial salt v.'hose annual 
purchases were 20(30 barrels (before the ' code - 1000 barrels during the 
code period) , • ■ 

f • 

It is not known whether other manufacturBrs made similar offers 
on high-grade salt,, as the files do not contain high-g^'ade price quota- 
tions except by International. Incidentally,.' it might be of interest 
to note that the only salt price lists available ere., those gathered in 
the Sprin.?: of . 1934 b'y the Consnimers' Advisory Board, which are included 
in the Price list Files of the Open Price I/nit, Trade practice Studies 
Section. Tl-;e Deputy's file's conta.in a copy of a letter written by him 
to ^the Code Authority in July,' 1934, requesting a copy of all price 
lists filed, together with a complete set of minutes of -Code Authority 
meetings, (17) There is nothing to indicate that the Code Authority 
ever supplied the requested price lists. 

, These contract buyers must be consumers, not resellers, and they 
rnust. agree to buy all their salt frora the. company with whom they__ enter 
into the contract, i'n order to -secure the contract price. This practice 
apparently i^as not affected materially by the Code, . . 

Anothei',- f orin of quantity discount was given on table salt to a 
certa.in type of reseller onl.y,' The follovTihg quotation is taken direct 
from instructions issued 'Dy the International i>alt Company to its Sales 
Department on December 7, 1933: , ■ : 

"qUAl'TITY DISCOUIvTS - .EASTJl'EN KEY letter' 
TERfilTOhY 

"Effective ten days frora this date in eastern ke.y letter territory, 
to a single buyer wh'ere there is one credit risk, and where there 

9825 



-90- 



. is Centralized control of buying and selling, and direct control 

oi" merchandising and advertising, and to such a boyer's wholly-owned 
subsidiaries where the payment is gviarrnteed by the centralized 
control, who buy salt for resale and whose total purchases of 
evaporated s.-'lt from all sources equal any of the amounts stated 
below, figured at net plant -orices, and considering the blanket 
price items such as round cans and square cartons, etc, as 
being the plant price, we will grant the folloving discounts: 

"To such buyers ^"'hose respective total purchases of evaporated 
salt during the last 12 months p.g;-;rega.ted any of the amounts 
mentioned below, we will allow the rates of discount applying 
PG stated below on purchases of table salt only: 

$'25,000 - 2^0 

50,000 - 3fb 

75,000 - 4% 

100,000 - 5p 

150,000 -, 7^/0 

250,000 - 10-/0 

"Every sucli buyer will be required to certify that he individuallv 
purchased such quantit:/ of salt during the past 12 months, unless 
our own sales records disclose that to have been the case. 
Should our own records not confirm such fact, then certification 
of the buyer shall be subject to confirmation through the 
Secretary of the Salt Producers' Association before any buyer 
will qualify for such quantity discount, and the usual advance 
10 days notice shall be given to the Code Committee before such 
a discount is made to any buyer. 

"V/e wrill alio-' no discount on comnon salt, blocks, or grades 
otner than table salt. No discount will be allowed on any • 
processing tax on containers. 

"Should a buyer falling in any of the categories named above 
also be a buver of salt for his own consumption on the Consumer's 
list Basis, such as baker's salt or butter salt, etc. j the 
quantity discount shall not apply on sucn grades, and he may 
purchase such salt on contract or on such terms or for such 
periods as ap-nlv in the territory where the salt is purchased. 

"In all other territories except the Pacific Coast territory, 
'..'est of tiie Soclcy Ilountains, and except the State of "^lexas 
where no quantity discounts will apply, the quantity discount 
in effect will be 10^^ of the net plant price on table salt 
only to buyers whose aggregate salt purchases amounted to 
$100,000 or more during the past twelve months; subject, however, 
to like qualifications, terjis and conditions as set forth in 
the first paragraph of this memorandum." (15) 

Four sie^-niiicant points should be noted, . First, that table salt 
only is affected; second, that the phraseology of the ofier would seem 
to restrict it to corporate chains, excluding voluntary chains; third 



-100- 



that the^ilexible scale of discounts applies only to the Eastern 
territory, and that a flat 10}j discotint for $100,000'-DUi-chases 
apiDlies in all other territories except Texas and Pacific Coast areas; 
fourth, that the buyer need not rurchase all' of his srlt from Inter- 
national, but may purchase cart from other sources. 

The files do not contain similar offers from o'ther companies, 
but it is known that other memhers of the industry followed the same 
practice as International. 

The first reference in the 'files. to tne matter is a copy of 
AESOciation Bulletin "wo, S, October 21,' 1933, informing Association 
members "that 7irst National Stores, Great Atlantic and Pacific, 
Kroger, National Tea Comr)anv, anc 'western States Grocery Company 
have qualified for discounts applyiig to purchases of $100,000 or 
more per year, 

.,Tne report of the special committee of the Code Authority 
investigating quantity discounts, dated j^ebruary 7, 1934, indicates 
that t"0 additional chains - Saieifay Stores ana American Stores - 
had. qualified as ouvers oi over $100,000. (24) 

From the phraseology of the above quoted association bulletin, 
and statements contained in somfe of the complaints hereinafter 
mentioned, it seems prohable that this discount to chains had not been 
of long standing, probably having been commenced in the early P&.11 
of 1933 - around the time of the Approval- of the Code, although there 
is nothing to shoT' thrt the Code '"'as responsible. This conclusion is 
supported by the following complaint, dated November 4, 1933, from 
the National American 'i/holesale Grocers' Association to the Secretary 
of the Salt Producers' Asi:ociation: 

"I am infer, led that after' the aprroval of the Code for the Salt 
Producing Industry an agreement "as made among. salt manufacturers 
"•ritn respect to quantity discounts, among 'other .things, as 
follows: 'To a single buyer v^aere there is centralized control 
of buying and selling and direct control of raerchaiidising and 
■ advertising, and to such buyer's wholly O'-ned s\ibsidiary, 'inhere 
•the payment iS; guaranteed by the centralized control, and whose 
annual purchases of salt for resale from all' sources amount to 
$100,000,. Figured at the net plant prices, a discount will be 
allov-ed on table, grade on'Vy and 10 percent on a net, plant price, ' 

"You will readily reco.gnize that if this quantity discount proposal 
is adopted, and adliered to by the salt manufacturers, a few of 
the natid'n-i'-ide chain store organizations will be in the position 
. to resell salt at a price less than tuat for 'i^hich it can be 
bought by the wholesale grocer from the 'producer. The adoption 
of this quantity discount sciiedule by agreement among the salt 
manufacturers will discriminate ag,"inst the independent wholesaler 
- °TiH T-c+Q-ii^-r^ pnd will tend to drive them out of the field ol 



■■ -ICl- 

Apparently there was a considerable divergence of opinion among 
the nemhers of the industry as. to the desirability of the abovo 
quantity discount, and the Code Authority established two special 
committees to study the question - one composed of members favoring 
the -oractice, and the other of members opposed thereto. The files 
contain a copy of the report of the Special Committee favoring these 
quantity discounts, a portion of which has already been quoted. This 
report further stated tliat the saving in selling cost alone to the 
large buyers was greater tlian the discount being given to them. The 
report continues: 

"The report of the Committee opposini3 quantity 
discounts sets forth a number of meritorious arguments 
wliy granting discounts should not be allowed, and v;hile 
we recognize many reasons why it should be desirable to 
discontinue all discounts or differentials on quantity 
buying to the retail trade, and have given fiill weight 
to the .attitude of buyers whose purcliases are not of 
sufficient volume to entitle,, them to the benefit of 
such discounts, we believe at this time (their discon- 
tinuance) would be unwise and would constitute a hard- 
ship on such manufacturers in our industr^,^ who for many 
years have enjoyed a large slia.re of the business of these 
q\iantity buyers and are dependent on their business to a 
large extent for the dfficient operation of their plant. "(24) 

The files do not contain any copy of sumiffi'.ry of the report of the 
Special Committee opposed to quantity discounts. Apparently its ar- 
guments v/e re cogent, for on Iferch 29, 1934, the Code Authority, by a 
vote of 4- to 3, rejected a resolution approving these quantity dis- 
counts, and on the sajne day, by a vote of 4- to 3, adopted a resolution 
recommending that the practice of granting qu3.ntity discounts, other 
than the usual carload discounts, to retail buyers be discontinued. 
A portion of this resolution reads as follo?;s: 

"Marketing provisions of the Code provide that 
each prodxicer in each field of production sliall indi- 
vidtially publish to the trade and 



9825 



-102- 

to the Code Coramittec the prices at \7hich he will sell. Should the 
Code Coraii'iittee find the prices in any field -unreasonably high, it mry 
require them to be reduced to, a reasonable figui'e, and this might be 
further construed to give the Code Committee the povrer to require the 
elimination of discoimts found to be unreasonable or economically 

unsound Such discounts may result in discrimination as between 

buyers conducting similar businesses and marketing similar grades of 
salt, 

"The reiDort of the Special Commjttee opposed to the gr.anting 
of discounts does, in the opinion of the Code Connitteu, set forth 
such facts in support of their reconiiendation that the Code Connittee 
feels justified in recoiinending the elinination of quantity discounts 
to retail buyers", (24) 

On May 5, 1934, the Secretary of the Code Authority replied to a 
letter from the DeiDuty Adr.iinistrr.tor ( trananitting a conplaint fron a 
wholesale grocer regarding these quantity discounts) , referring to the 
above nentioned action of the Code Authority and stating: 

"The Code Corxiittee is awaiting the Deouty's advice o.s t5 what 
further steps should be trken in connection with this riatter,"(24) 

For soue undisclosed re -son, the Code Authority then decided to 
reverse its previous action, and on May 9, 1934, the minutes of a Code 
Authority meeting read as follows: 

"The Code Connittee gave fiorther consideration to the subject 
of quantity discounts and after d. ca eful e::anination of all facts 
found a divided ooinion in the industry on the question of qua.ntity 
discounts^ Pricing salt :\t v;hich it will be sold has alwa,vs been nn 
individual natter for each producer and this is recognized in the Code, 
The Code does not provide for the Code Conr.ittec to nrice or fix prices 
at which producers in the industry shrll sell salt, above cost," (22) 

Aether this latter action was taken upon advice from the MHA, or 
because of internal "oressure within the Salt Industry, is not known. 

The files contain a nur.iber of conolr.ints fron buyers — -mostly 
fron Tifholesale grocers, mit one fron a snail chain store — complaining 
of the price discrimination resulting from .this tjrpe of quantity 
discount, (24), (25). Possibly as a result of protests from smaller 
retailers, there was a revision made in the scale of quointity discounts 
during the summer of 1934, On September 24, 1934, a letter was written 
by the International Salt Conpojiy to the Secretary of the Code 
Authority^ '^stating in part: 

"Following is a statei^.ent of quantity discounts on evaporated 
salt now in effect with resellers, as published by individuol producers 
in the New York field: 



9825 



-103- 

$25,000 to $50,000 - 5?' 

5(?j0U0 to $75,000 - &$ 

■ 75,000 to 100,000 - ,. 1$ 

100,000 to 150,000 - Qfo ■ 

150,000 and ovur - lO^J 

It will "be otsorvod that the discount of lO^o has heon changed to 
apply on $150,000 instead of $250,000, rjid thot discovmts on snallcr 
p-urclic.ses had been projortionr.tuly r-iisad, This evidently afforded 
sono rcleif to Turchasers buying quojitities bet\-'een $25,000 and 

|i5Q,ooa.. * 

In resoonse to a conplaint from a California v;holesaler in 
December, 1934, the Code Authority in March, 1935, disclaintid all 
responsibility or control over the subject of quantity discomits, and 
on March 22,1935, the Do-mty Adi.iinistrator notified the conplainant that 
the case wrs considered closed, this action having been reconuended by 
the Code Authority, the Adr.unistration representative on the Code 
Authority, the Industrial Advisory Board cjid the Legal Adviser, (26) 

The Connittee opposed to quantity discounts was co;;posed of 
representative's of the. Carey Salt Cory.irjiy, i.'I;,^les Salt Coiipany, TJatkins 
Salt Conpany, and the Colonial Salt ConprJiy - all nediun sized or 
snail nrjiufacturers. (22) The conp.-'mes represented on the connittee 
favoring quajitity discounts i,7ero not disclosed. Neither do--s the 
record disclose Arhich nenberd of the Code Authority voted in favor of 
quantity discounts or aga-inst, then. All th;\t is known definitely is 
tha.t two nenbers of the Code Authority, '/. P. Inee, of the Colonial 
Salt Con-oany, and Howard Carey, 'of the Carey Salt Conpany, had indicated 
op-oosition t'o -t-he q^ursntity discount oractice, (24) The renaining five 
nenbers of the Code Authority were officials of International, liorton, 
Ci-liio Salt, Jeffersorj. Islfir.d Salt,, and Leslie-California Salt Conp,anies« 
(22) Of these five, Jefferson Island and Leslie-California are 
conparatively snail producers, in addition to being non-association 
nenbers. It is possible tlir,t these two- nry have been the additional 
two voting against quantiijy discounts. 

iir. Carey, of the Carey Salt Con-imny, addressed a letter to the 
N. H* A. on Eobrus.ry 10, 1934,. oiroosing quajitity discounts, in which 
he stated in part: ' 

"Through the granting of those quantity discounts* the salt 
industry is guilty of fostering one class of bu^^ers as conparcd with ■ ■ 
another, with the probable res^'olt that here rnd r:ore of the tonnage 
will nove through the outlet receiving the louer price. This is not a 
desirable thing econonically, because it not only works for the 
exclusion of distributive outlets but to the exclusion of producers as 
well. This is very definitely recognized in riilings of the courts 
and Interstate Conferee Connission. . . .If discounts are allowed to 
cl:iain retail stores and cooper.ative bujring groups one only has to . 
contenplate the ultinate outcone; ncnely, all salt will be handled by 
such buyers. These buyers would concontrato their purchases with two or 
tliree salt conpaiiies, and thus the distribution of one of the 
necessities of life '.vould be xuider the control of a few..." (24) 

9825 



-104- 

On I,'Li.rch 13, 1934, the Detroit 'Tnyno County g.ilt Conpany 
(distributors for the licnistee Sr.lt tlTorks - ri srx-.ll -oroducer) , \7rote to ^ 
the ¥., ?., A« couplaining aljout these qurJitity disco-ujits, stating in 
part: / 

"I have discovered that the largo salt nanufacturers (in the 
Michigan field) , nanely, Morton Salt Conop.ny and IJulkey Salt Coupany, 
allov/ a' secret discount, of 5% for a certain volurie of businn^s,'and lO^i 
for a lai'ger voliuie. In other ^7ordSf the large nanufacturers have got 
to the largest buyers and have then coiriletely sewed up tifa-it"(25) 

On Septenher 5, 1934, the Colonial Salt Gonpony, of Ohio (one of 
the sLmller producers), protesting against the continurince of these 
quantity discounts, illustrating the ability of Kroger Grocery Conpany 
to advertise a price on salt to houso'.Tivos which is px^actically' the 
so.ne p,s the best price which crn be secured "by hn independent whole- 
sale grocer, stated: 

"You will see fron the above that it has put the wholesale 
grocer and the inde'oendent retail grocer out of business so f£X as the / 
sale of salt is concerned," (24) 

(Should the above strter:ent be correct, this result would, of 
course, reflect adversely on those nanufrcturors depending on 
independent wholesale and retail grocers to distribute their product.) 

As above indicated, no code orovision seens res'.jonsible for the 
developnent of the qup,ntity discount to chains; neither was the Code so 
adninistered as to prevent such quantity discounts. 

According to infornation secured frou a New York salt producer, 
the qur^ntity discount given to chain stores is the New England marketing 
area was reduced to a naxinux.i discount of 3/o in the latter, days of the 
code period. Moreover, this nanufacturer stated that this discount vfas 
given to any retail buyer whose annxuil perchases were large enough to 
entitle hiii to the discount - not only to national chains, but also to 
local chains, coooeratives, and indeoendent stores»(5) It is not Icnown K 
whether this down\7ard revision in the naxinun discotmt was acconprjiied 
by any change in the quantity of salt V/hich nust be purchased to entitle v 
the buyer to the discount. If the bu;;^er nust purchase $150,000 worth 
ol" salt annually in order to secure the ofe discount, it does not seen 
likely that the snaller chains or cooperatives , could avail themselves 
«f the concession, ?..id that it would be applicable to very few 
independent buyers. > 

This salt producer also indicated .that chains were not permitted 
to use the special quontity diocount to lower their "orices on table 
salt to the consumer. -H^e .stated that the chain stores maintained a 
suggested nininum retail price, thus permitting independent grocery 
stores to sell the salt at the sane price as the chains«(5) Whether 
this practice was pursued by all salt producers selling in the New 
England Marketing Jixe-.i, or only by this narticilfer nanufacturer, is 
not knovmo 

It is still the oractico to allow a IC^J discotuit to chain stores 
in narketing areas other than New England. (5) 
9825 



oection E. Jiscoiuit :-;, Otne r Th^xi ■Qyumtit'^ Or Trade 

Accorcing to st.'itenents ra^tC e at the piiblic hearin.r ' and in a 
letter to tiae IT.?.. A. from the Ohio Salt Coinpany, Aioron, Ohio/-'-'^) during 
depression years the mprketing practices of the Salt Industry ■bec-ime 
somewhat demoralized, and various companies in a scraraole for volui-ie 
granted discounts, rebates, advertising^ allowances, and, other forms of 
price concessions not mentioned in their price lists. 

Accordin£;ly, a number of provisions wex-e included in the Code, (in 
Article IV, Section e) prohibitinsj such practices as the secret jjrantin^ 
of rebates, .?.dvertisinf^ allowances, brokerage and other commissions; 
substitution of grades different them those ordered; v/arehousing of salt 
with customers; gratuities, free deals. 

Except as discussed under the "brokerage" and "consignment sections 
of this report, the files disclose nothing to show that these provisions 
had an^r effect whatever, there being no mention of them either by pro- 
ducers, the Code Authority, or buyers. 

In addition to these code provisions, there developed during the 
code period a striking uniformity in the "marketing provisions" sections 
of price schedules, whereby practically all price schedules contained 
a statement of uniform credit tei'ms; refusal to accept bookings for 
longer than thirty days; and a statement that price protection v;ould not 
be extended for more than ten days after shipment . ^ -^^^ 

I'o information has been develped as to the practices of the Industry 
prior to the Code on the above subject, nor the effect of any change in 
such practices under the code. - 

As has been stated in Section II ,' subsection C of this chapter, 
price cutting in the snlt industry usually takes the form of allownnces, 
rebates, discounts, and other forms of concessions from published price 
lists. The industry is engaged in a severe price v;ar at the present 
time, in which disco-'unts running as high as 30S are granted from list 
prices. In addition to the discounts given to certain classes of buyers 
- such as the 2G''j discoLmt given to wholesalers of table salt by the 
Worcester Salt Company - special discounts and allowances are made to 
individual buyers, depending on their bargaining pov;er and importance. 
Published prices appear to be used only as a basis from vrhich to begin 
the calculation of discounts. Tae Industry has reverted to the practice 
existing before the code, of granting a large enough discount from list 
price to secure the buyer's order. (5) 

The present condition, although not becoming really serious until 
about August, 1935, had its fore-runner in the last six months of the 
code period. There was spasmodic, spotty price cutting d^uring that time, 
increasing along toward the end of the code.^^^ 

It is difficult to assign responsibility for the price war to any 
particular class or size of producer. The code prohibited secret allow- 
ances by way of discount, brokerage, storage, or advertising, storage of 
salt in customers' v/arehouses, and the offering of salable gifts or 



prizes. A-pparentl^,^ these provisions did not affect the merchandising 
prograin carried on mider the code hy one of the lar/^est producers. 

Salesmen of this producer v/ould approach wholesale grocers or other 
salt v.'holesalers, offering to place a fev; cases of his salt in the whole- 
saler's stock. No request was made of the wholesaler that he push this 
particular "brand of salt, or that he discontinue the handling of other 
"brands which he might "be carrying. The wholesaler was told that retail- 
ers in his locality would soon "begin to asl: for this particular producer's 
salt, and he might as well have it on hand so that he could fill the 
orders. The salesmen would then distri"bute to school children and house- 
wives, through retailers or "by a house to house program, pencils or toy 
"balloons or other similar novelties, "bearing the name of the salt pro- 
ducing company. Tliis foi-m of advertising, together with magazine and 
newspaper advertising, would develop a consumer demand for the salt in 
the locality where the campaign was being conducted. Retailers would 
"begin to ask their vrholesalers for a few cartons or cases of this salt. 
Since prices were imiform between various manufacturers, it was just as 
profita"ble for the wholesalers and retailers to handle one grade of salt 
as another, and they naturally gravitated toward the salt for_which there 
v/as the greatest consumer acceptance - the advertised "brand. '•'-'^ 

Smaller producers, seeing their customers slowly weaned away by this 
process, were confronted with the alternative of conducting an e.xpensive 
advertising program of their own, or reducing their prices to malre their 
prod.uct a more attractive one to handle. Rather than reduce list prices, 
they resorted to special discounts from list prices to those customers 
on vmom they had formerly relied most heavily. Thus was started the 
price war now in existence, '^iie faxilt cannot be said to lie either with 
the large or the smaller producers, but rather v>'ith a program which re- 
sulted in xuiiformity of published prices, without allowing any differ- 
ential, or price advantage to the non-advertising, usually smaller, con- 

( 5 J 
cerns.^ ' 

P. Consignments 

The Salt Code contains provisions as follows: 

Article IV (e) 

"The following shall be deemed to be unfair trade practices 
in this industry: 

"2. Secret allov/ances by way of ... storage. 

"5. Delayed billings. 

"7. Storage of salt in customers' warehouses." 

Although there was very little discussion of the above provisions 
at the time of public hearing, Mr. Daniel Peterl:in, of the Morton Salt 
jompany, stated that these provisions were intended to prohibit the con- 
signment of salt to custoiaers.^ ^ 



9825 



-107- . 



In the Soring of 1924, the Code Authority ruled! 

"Consignments are prohibitr^d unless all p^orchasers can buy on 
ccnsignraent. " (17) 

There was little code activity on this subject, ApDarently the 
shipning of salt to branch warehou-S"S of manufacturers, and agency dis- 
tributors was not considered as consignment. Evidently, the olacing of 
table-salt in the stock of a wholesaler (described in the previous sub- 
section) was not considered to be a violation of the code. 

Practically nothing is known of the extent to which manufacturers 
consigned to buyers ^rior to or since the code nor the extent to which 
salt was stored in b-uyers' warehouses. 

G. Brokerage 

The Salt Code contains three orovisions which are relat-d to the 
subject of prohibition of the payment of brokerage conimissions to buyers 
or buying agencies. 

Article IV, Section (5), Paragraph 2 "orohibits "secret allowances by 
way of discount, brokerage, storage, or advertising." Paragraph 6 of 
this section orohibits "rebates or other similar allowances by any name 
or of any nature," Paragraph 16 of this section prohibits the "giving 
of gratmties or special commissions to buyers." 

At the time of the public hearing on the Salt Code,, there was 
practically no discussion of any of these orovisions, other than a general 
statement that the industry was suffering because of the use of rebates, 
aJ-lowances, commissions, and other orice concessions to certain buyers 
not set forth in published price schedules, (14a) There was no SBecific 
mention of any desire to prohioit brokerage payments to buyers or agents 
of b^ayers, the intention appearing to be to orohibit all allowances or 
concessions not specifically cet forth in open xjrice lists. 

According to the U. S. Bureau of the Census, aooroximately 5^ of the 
production of the Salt Industry was sold through brokers in 1929. (29) 
For a considerable oeriod of time orior to 1929, the members of the Salt 
Producers' Association had endeavored to strictly regulate brokerage 
allowances. 

In 1919, the Secretary of the Trade Association addressed a com- 
munication to all members of the Association, containing the following 
statement: 

"Mr, , of , South Carolina, styles himself 

a broker and has been known as such for some time, but is 
now without a salt accouzit due to the fact that it has been 
discovered that he is vice 'oresident of the Whole- 
sale Grocery Company." (36) 

On September 50, 1919, the Secretary of the Association ^^rote to one 
of the m.erabers of the association, as follows; 

9825 



-10 3"- 



"Will you please furnish' 'rne vdth a list of the brokf^rs 
through i?,'hom you a,re selling Bait? The last list you sent us 
is over a year old. We find that almost every s^lt comriany 
employing broki. rs requires an ngi-eement with them that they 
will represent him ■^:xli>.i\/ply, bat many brokers are still 
endeavoring to recr- ^f u", as 'nany :i3,lt oroducers- as they can 
sign up and k'ee.p u'.jder co/er, '' (36) 

The salt orodiicer r.= oli d a ,f ■■ w d-iys l/iter, supplying an un-to-date 
list of its trokerSi and stnting tha.t they would oromntly advise 
the association secretary if any changes in the list occurred. (36) 



9825 



-109- 



In 1916, the Secretary of the Associption scioresr-ed a letter 
to another association member, as iollo"'s; 

"This vill acknowledge receipt oi your letter 
of July 13, referring to the amount of brokera^'e 
allo'"ed to brokers on your list. This is certainly 
some stunner. It doesn't surprise me at all that 
you have had trouble in your territory. The most 
brokerage paid in any territory in which the asso- 
ciation operates at present is 20^ per ton on com- 
mon salt and Zbtt per ton on trble salt. The cO(»^ 
■ -per ten on .coniaon'-is varied ar.lyf V?ndi. the' brakerage 
is made orf per barrel. If every broker representing 
Kansas concerns, at the brokerage they are getting, 
is not splitting it, I shall be surprised - all of 
which acts against your market every second." (36) 

A similar letter ?;as sent by the Secretary of the Association 
to still another salt producer about the sa le time: 

"It is easy to see vhy you have no market. Vihien 
brokers are permitted as high as lOrf per barrel on 
common and ZOi per barrel on table, it means that in 
order to get business, they can reduce the market 
price B<f: on common and 1^4 on table, and still get 
the regular margin allowed the brokers." (36) 

The above correspondence ir.dicates that the Trade Association 
for many years had endeavored to limit the amoiint of brokerage com- 
mission; discontinue the giving of brokerage to buyers or agencies 
or affiliates of buyers; and to recognize as brokers only those who 
were acting as the exclusive agent of one manufacturer. 

However successful this -orogram may have been prior to 1930, it 
appears to have broken down. during the depression years. The following 
statement contained in a letter from the Ohio Salt Company to the 
Administration is enlighteninf': 

"Prior to the time the code became effective, prices 
on salt to all classes of trade, in our ^entire field and 
in fact in all fields, '-'ere greatly demoralized. Secret 
discounts, allowances and brokerage and rebates were 
made to practically all kinds of resellers. IXiring this 
time we i^ould allow discounts to farmers' cooperatives 
and to other jobbers. Since the code became effective, 
all of these discounts have been eli'ainated. " (17) 

Letters in the KKA files from the Ohio Farmers Grain and Supply 
Company, the Farmers' Union State Exchange, the Ohio Equity Exchange 
(all of Ohio); Farmers' CooTJerative Exchange (of North Carolira); and 
the Earners' Elevator Service Company (of Iowa) - all of which are 
farmers' coo-ceratives - state that before the code they were allowed 
a brokerage commission. (23) 

9625 



-no- 



Contained in correspondence from the Farmers' Elevator Service, 
of Ralston, lowp, are a number of statements to the effect 'that national 
chain stores had been allowed brokerage payments, and casual statements 
in other letters indicate that brokerr-.ge payments had been made to 
buying agents for various types of group buying organizations - including 
retail cooperatives, '."holesaler-retailer cooperatives (such as I.f'.A. , 
Red & "v.hite, Clover i'arras, etc^ ) (15) 

There is some evidence to support the belief that the growth in 
the payment of brokerage co;n;.iissions to buying agencies may have been 
caused by, or at- least encouraged by the fact that jbboers' discounts, 
as such, had been largely eliminated through the activity of the Trade 
Association. Instead of giving cooperatives a Jobbers' discount, a com- 
parable discount- entitled "brokerage" had been given. As evidence, 
correspondence from farmers' cooperatives refers to Jobbers' discounts 
and brokerage as though thev meant the same thing. 

The Jarraers' Elevator Service Comranv stated: 

"This r-outhern salt "ror'ucer is not allo-^ed to nay us 
brokerage or alloi-' us the usual JooDers' discount 
(not carload discount." 

"l<'e are going to pet the right to be paid commissions 
for selling salt or others will not receive them. Co- 
operatives will get discounts or chain stores '"ill no't,"(16) 

. ■ The Ohio Stuity- JJxchange stated: 

"MonoDolv on s-^lt is preventing us from handling salt 
on a Jobcers' basis, and elevators are losing their 
salt, business to chain stores." 

"It seems a. p;eculiar thing that after we have handled a 
coramodity for years on a jobbers basis, that on account 
of the code they tell us they cannot work with us any 
more, " 

"Before the Salt Code, we had no diiiiculty in securing 
brokerage, but since the code we are told that we can- 
not any longer receive it. If other brokers and whole- 
salers are given brokerage and such commissions are not 
given to us, we cooperatives are being discriminated 
against. " 

"Vie respectfully request that a ruling should be made per- 
mitting salt companies to grant brokera -e to any legiti- 
mate cooperative "'holesaler. " (23) 

'■■hatever the reasons responsible i or the practice of paying 
brokerage to buving agencies, the Code Authority decided to eliminate 
the practice, 

9825 



-Ill- 



V.ithin a m,;nth after the r-pprovril ui the Salt Oode, the Code 
Committee (nt a meeting on October 10, 1. 3.'0, ceiined ?i broker as 
follo'7's: 

"A food broker or merchrndise broker is an independent 
sales agent "-ho performs the service of ne<^otiating the 
sale of food, groceries, or other luerchandise for and 
on account of the seller as principal, and who is not 
e:nT}loyed or established by or affiliated "'ith the pur- 
chaser or any purcnasing agency, directly or indirectly, 
and whose compensation is a comiaisrion or brokerage 
paid oy the seller, "(2?) 

The Code Authority discovered that the above deiinition did not 
have the eifect of prohioiting brokerage payments to ouying agencies, 
and on i'ebruary 6, 1934, the Code Authority made the following ex- 
planation: 

"Any producer of salt sellin.<: directly 'or indirectly to 
a broker 'vho does not aualily under the definition of a 
'broker' as adopted by the code committees on October 
10, 191-1?, is violating the provisions ol' the code." (22) 

(The Code Committee did not specifv inhich provision, or provisions, 
of the code '-rould be violated by such brokerage paytt^ent.) 

It "fas the above regulation vhich gave rise to the protests from 
farmers' cooperatives. So far as the NBA files disclose, no protests 
or objections to the above regulation were received from any distributor 
other than farmers' coi,'peratives. Ti.hether this means that the regulation 
v^as applied only to farmers' cooperatives, and ignored with respect to 
other types of distributors, is not kno-^-n. The only definite evidence 
on this point is the fact tnat prior to June, 1954, the Jefferson Island 
Salt Company reiused to give brokerage to a farmer's' cooperative, stating 
that it coulc not do so v^ithout violating the' Code Authority ruling; 
yet during the month oi June, 1934, the same salt producer issued the 
folloi>ring notice to Jobber Buying Organizations: 

"To jobber buying orgr-nizations ve are alloping a brokerage 
of 5;\j to the net plant price. The above brokerage is to 
be paid to the buving org.-^nizations direct. The buying 
organizations which ^^e recognize at this time as being en- 
titled to the brokerage, are as lollows. 

Clover Farms; I.G-.A. ; Jobbers' Service; lianufpcturer- 
Jobbers' Association; iierchants Service; Flee-Zing; 
Red & V/hite; Fation-tUde; holesale Grocers' Exchange; 
United Mvers; National Branch Stores." (23) 

(The majority of the above organizations appear to be voluntary 
'^holesaler-retailer cooperatives. ) 

9625 



-112- 



whether the above offet* vas s\ibsequently rescinded oy the 
Jefferson Island Salt Company) or '^-hether that company continued to 
grant brokerage to sach buying organizations vhile denying it to 
farmers' cooperatives^ is not known. Although this offer T7as brought 
to the attention of the Secretary of the Code Authority by one of the 
iarraers' cooperatives, there is no indication that anything vras done 
about it. (23) 

In this connection, it is pertinent to remark that farmers' 
cooperatives had long been ipersona non grata with at lerst one large 
member of the salt industry. This is indicated by the follovring excerpt 
■from a letter addressed by a large salt producer to its sales office- 
in 1915: 

".'.e notice on your report of April 26 that you sold 
a car of assorted salt to the 5'armers' Cooperative of 
and , Iowa, ije ^ish to state that vhen 



you receive orders from this class of trade at Iowa 
points you should take it up with us first. These 
people are evidently farmers. It is our policy not to 
sell farmers in towns where we are securing business 
from merchants. V^e have been selling merchants in both 
of these tO'-rns for years and feel sure there will be 
trouble if a car of our salt is unloaded by the farmers 
at tnese points. "(36) 

On April 30, the sales office replied: . 

"Yours of the 28th was apprently written under 
a false impression. We have not sold the Farmers' 

Cooperative Association of and , Iowa. 

We have, however, quoted them, and the quotation is 
15^ high on the scale, which is our regular system 
of handling these farmers' associations. ,ie have as 
yet received no order. Should ojie come in, we 
shall of course advise you, and expect that 
the overage in price will be sent to the dealers 
in the towns." (36) 

On§ of the first complaints received against the discontinuance 
of brokerage pavments to cooperatives came from the iarmers Union 
State Exchange, of Ohio, who addressed a letter to the Ad.riinistrs- 
tion in December, 1933, as follows: 

"17e are a' central cooperative wholesale or- 
ganization serving over 400 local cooperative stores, 
elevators, oil associations, etc, i4iny pf these 
local cooperatives purchase salt from us in carload 
lots, shipped from the salt plants direct to thein 
and billed to us. We have been advised by the Salt 
Companies that under the code they are not per- 
mitted to allow us any brokerage on this business." (c3) 

9825 



-llo- 



This coa-olrint vns rc-ierred to the Secretary jf the Code Auth- 
ority, ^Tfho disclri:aed responsii-ility lor the ref-aspl to alio-' broker- 
age to cooperatives, strtin;;:, 

"I 6-0 not believe the above situation is affected 
by the Code. " (Z'd) 

He stated that the salt producers serving the Ohio Territory maintain 
a regular sales force and do not need addition,'^! representation through 
the medium oi the Excnange. 

"To allovT a discount or brokerage for services 
which the producer c'oes not need rrould be discriminat- 
ing. -gairst other customers," (2o) 

On subsequent complaints from other cooperatives (even those re- 
ceived after the Code Authority explanation thrt the tiayraent of broker- 
age to cooperatives would be a violation of the code), the Secretary 
of the Code Authority made much the same reiolv, indicating that the 
matter was not affected oy the code, (13) (£3) In this connection, 
the follov'ing corres-rondence is of interest. On May 23, 1934, the 
Jefferpon Island Salt Com-can.y addressed the Secretary of the Code 
Authority: 

"I have your lettei of May 19, enclosing a copy of 
a letter from E. L. Kreger of the Farmers' Elevator Ser- 
vice Company, Kalston, lo'-a, in ''hich he asked you the 
direct question of '''hether a producer would b e allowed 
to pay him brokerage on business he developed through 
his corn-cany; also a cory of your letter to him of iviay 
17 in which you advised that the Code Authority does not 
deny anyone the right to act as a broker for any salt 
producer, l^eedless to say, I am very imich surprised to 
see the statement contained in your letter to him, I 
had understood repeatedly that he, on account of the very 
nature of his business, could not comply as a le^'itiraate 
oroker under the salt code. I trust yoa ■■ill i:nmediately 
let me have an answer also to this direct question - is 
the Jefferson Island Salt Companv at liberty to appoint 
the Farmers' Elevator Service Company of Halston, Iowa, 
as a. broker for business of elevator companies which are 
members of this Service Company?" (lo) 

On May 24, 1934, the Secretary of the Code Authority replied to 
the above letter, referring to the fact that the Code Committee had 
defined a broker on October 10, 1933, and adding: 

"Considering the knowledge I have of the operation of 
the Farmers' Elevator Service Company, — it is not, in 
ny judgment, a broker nor does it conduct it business 
so as to come anywhere near rualifying within the defi- 
nition of a broker, as adopted by the Code Committee, 

9825 



^^ "-UntLer. thg Qircumstrnces , to app»int this company as a 
_' b.roker wculd be contrary to the qualificrtions of a 
broker as contained in the definitio. and therefore, I 
do not see hov; •"•ou can consisteutly gre.nt tiiis com-;^?.:!;'' ' s 
re'mest for recognition as bio'cer vdthout violp.tiug 
tlie coc'.e." (16) 

. On Jtil;'- 11, 1934, the Code Autncrity aclopte'-'. an i.iterv.retation 
of Article IV, Section (o) 6, re?c.inj "Hebates or other simila.r 
al low-oner's by any name or any nature", to the effect that such 
provision -:rohibitec'. tno employment of any apent or broker wnen 
all 01 a "ortion of the commission oric. to such broker is p-ssed 
on to the customer. At the same time, the Cof'.e Aaithority defined 
brokerape as meaninp the comp>ensation p,':,id br a producer to an in- 
deneadent sales a -ent for services in nopotiatiniS the sale of salt, 
no part or ortion of '.'hick compensaticn is -passec' on to tae cuGtnmer 
or purcliaser. (22) 

Durinp the Sutuner qf 1934, .the Salt Producers' Trat.e Association 
approved a neYi "brokers contract for use "by its members, -"hich provi- 
ded that salt sold throuph a broker is to be 5hi-;^ed a.nd billed direct 
to tnp bti.yey by the salt, producer; t]i::t the broker 3.prees to kee-^ 
the entire brokerage com.mission paic. to him, and that no portion 
thereof -will be rebated, returned, tra.nsmitted, or in a.ny other way 
paid to the bu-Tr, anr" that no yortion thereof shall be r-sec in any 
way that v.ould result in giving the buyer n lo^'.'er "rice than he \7ould 
receive if he ^-urchased salt direct from txie seller. -(IS) 

On kecom.btr 15, 1934, the k.H.A. issued o/ficial interpretation 
of Article IV, Section (e) 6, vhich prohibited "rebates or otlxer sim- 
ilar allov.-ances by any name or of any nature". Tlie inter'oreta.tion 
vp.s to the effect t lat the above words --rohibited the giving of 
brokera^:e w;:'.en such brokerage is i;iven .to a. purchaser. The inter- 
pretation reads:, 

"Brokera.pe cannot be piven to a -urcnaser, since it is -a3rment 
made to. a., full or part time agent in return for a definite ser- 
vice or function performed." (SO) 

This interpretation (v/hich was assented' to by all Advisory Boards 
of the il.E.A.) like those previously issued by the Code Authority 
maizes no mention whatever of the President's Executive Orders 635.5 and 
6606, anc. I'.K.A. interpretations thereof, contained in Administrative 
Orders X-35 and .X-93, , -The last named AcLministratiye Order stated: 

"pu.rsuant to Executive Or- er 6306-A} dated February 17, 
1934, no yrovision of any Cof e of Fair Competition here- 
tofore or hereafter approved unc'.er said title of sa,id act, shall 
. ■. be so construed or ayplied aoS to make it a violation of any 
sue ^ ode for any member of an"-- incv-stry to ,:'ay qt allow a 
brokerage commission to any bona, fide and legitimt.te coop- 
erative organisation performin services .or engaged in 
functions for which other persons may properly be paid such 
a co.umission " 

9825 



-1T.5- 

Zecowze of c. "bitter fijlit vr^.j,eC. "by farmers' coope: p.tives - f.ar- 
ticu.larl_- 'bf t.\e Farniers' Ulevptor Sei-vice Company, of P.alr.ton, lowa- 
to have the atove .■nentioned Executive Orders carried into effect so 
far as the Salt Code was coiacerned, the re,,ulr,tions isr.ued "by the 
Code Authority denyin:-; "brokerage to cooperatives o"bviously could not 
"be u:iield in any test case. Therefore, in the Spring of 1934, the 
files disclose the :ji-ov;th of nevv means of 'reventin;,- "brokera-ge pay- 
ment;? to cooperatives. 

On :,."ay 25, 1934-, the A'ltaony Salt Company, Anthony, Kansas, (a 
coraiarativel-- small ^reducer), .addressed t".;e following, letter to a 
farmer s ' co operpt ive : 

"I .:.o":;e -ou can "be yatient forju.ct one more month. Al- 
though I Pin not a li"bcrt3'- to toll ""ou just what is join/;,- 
to h.a"'oen, I do knov/ that "by t.ir t ti.^c we \/ill have all 
our fiffictilties strai£-;hte and out,,., 

"It is triie that the Code Aut.-ority does not nov; Oeny 
an--one the right to act as a "broker for an-/- salt producer, 
"but it niijht te of interest to 'ou to know ths.t when we 
tried to do this, r-e were served notice "by other people 
that in the event we did it, r 11 the other comoanies 
v/ould allovj exactly the same hroherage to a.ll their in- 
dependent tuyers, and they' also threatened th.at in the 
event we met this -^rice, and allowed you a brokerage off 
that, they would come on down on their scale -rrice until 
fae;- \70uld have us wni;''"ed to t'le r.oint t"h3.t we would he 
selling helow our cost of -crot-uction " (Zl) 

Fro.ii this letter it will he o'bserved that certain mem"bers of tiiO 
Salt Industry vvere afra,id of \i'hat would happen to them sliould they cuote 
orices not agreea'ble to oth.er members of tlte industry, (incidentally, 
a letter from hr. S. L. Kre;;er, Farmers' Elevator Service Conipany, 
Ralston, Iowa, c^.ted April .<:- , 1955, stated that the Anthony Salt 
Company vent out of business about t'/.e first of April of this j'^ear, 
"We do not know what became of them, but if it is the usual story, 
they have been absorbed by the one companr th-'t controls the 
field." (51) '.Thether this fact, if true, ha.s anj connection with the 
fepjT of re-risal \7hich the Anthony Salt Com^oany la.bored under a 
few months previously, is not knovm.) 

In the Spring: of 1955, lir. Kreger received notice from the i'.o.,A, 
to the effect that no rrovision of the Salt Code could be interpreted 
to pro-ibit the oa.yment of brokerage to bona fide cooperatives. On 
April 35, 195-'r, hr. "ireger replied, stating thr t he appreciated tais 
fact, but adci.ng that it didn't ".elp him any, "Tne Code gives the 
producers in th=^ Michigsn-Ka.nsas field the control of this territory, 
and Llichigan-IIansas erodu.cers v;ill not recognize us, and claim that 
under the code neither Jefferson Island or any other 'outside' pro- 
ducer caa file us as jobb>;rs until a Kansss or h'ichlgan -oroducer does 
so...." (31) 



9825 



-116- 

Sri" orting tliis str-.ter.ient ica letter v/rittcn to i,.'r, Kre:;;er b-/ the 
Jefferscai Isl-'Uic. Spit Co-ir^any (a Louisip.n;;. proc.ucei'), statin:^: 

"Tlie nortl'ern proJ'-ucers have our hendE tied alisolutely, 
er.iC. 1 hooe you v/ill understand oar "osition. Tor your 
ovm information, I am fairly- iDositiv? th?,t ell buyinit,- or- 
ganizations of your kind v/ill "be done av/ay Fith, FranV.lyj 
I cannot see how, they ca;n mal^e an exception of your case, 
but each -producing- area meices its own rulings, and I can 
assure 'ou tha.t whenever we are -ermittec to "^ut you on 
ovx ?rice list, we shall certainl ■ do so." (IS) 

;.r. Kre;r::er went on to state that since the code .--re.-ented "outside 
producei's" from _^;ranting brokerage to his organization, ana sivine t ^e 
dominant members of the Kansas and Michigan field.s ha.d prevented other 
producers in those fields from grantin.;^ brokerage to him, by threats of 
reprisal, he was as effectively prevented from securing brokerage com- 
fflir;sion" as if the PresicLsnt's Executive Orders regarding brokera,ge 
ha,d never been ispued. (?l) 

I'.T. Kreger's sta,teincnt is partia,lly substantiated hy a letter 
from th_e Secretary"- of the Code Authority to him, replying to Mr, 
Kreger's charge that Kansas and Michigan producer's refused to allow 
him brokerage, or to permit outsid.e prod.ucers to allow him brokerage. 
The Secretary's letter reads: 

"You. state tha.t the- sov thorn salt :roducor is not a.llowec 
to pay you. brokerage or .allov/ you the usual job'ers cis- 
count (not carload discount) because the hna.sas and. Mich- 
igan -lod-ucers v;ill not y.llov,' it to you. '.'Je axe informed 
by both Michigan a.-iiC. Kansas producers that their -orice to 
you on all grades of salt is exactly the sarde -is it is 
to any other carload, buyer or jobbtr.,- and that you enjoy 
the z'=ne discoimts as any other c.o,rload. bu '■sr or jobber. 

"it would a.- ear that if an/ special discount was granted 
to :'ou, it \TO\rld consitute- a d.iscrimination as a.gainst 
every other carload buyer a.nd jobber in the territory in 
\"'hich "ou operate. "(16) 

(it is difficult to reconcile toe above statement with the action 
taken b" the Coce Authorit/ on tne subject of quajitity discounts to 
chain stores, heretofore discussed.. In covinection with the .j.hove letter, 
it should, bo kept in raincL that jobbei s .and retailers were given the same 
price, and that no trade discount or brokerage was given to any resa.le 
bu'/ers. Thus the above letter confirms Lir, Kreger's statement that the 
coclB had. resulted in c'en-ying to aim brokerage pa'^vnents v;h.ich he had re- 
ceived prior. to the code.) 

Several farmers' cooperatives complained that tj'.e disconti juanoo 
of brokerage payments to them a s & result of tl.e code had. caused them to 
lose :ractica.lly a.11 of their salt business. (P.Z) Mr. Kreger is more 
specific, stating that his salt business v^as reduced from '}4.'iOO to '>700 
(not indicating v/hethcr these figures represent grocs business or net 

9805 



-117- 

profit); rrn. t>' t norcovor, l)cc.ruse of tl.e "brokera -3 rulin,;-, one so.lt 
jirodiicer vho owed liira )2000 iu "back "broicerir-.j-e co.nmiEr.ions stated that 
he couldn't -m-' that fimoiint, hecauce it vould be p, violation of the 
coi'e. (15, (c'5), (31). 

There i? little i.if ormation -^v^ilaljlc v;ith res-pect to the effect 
on -rices of tne refusp.l to ^? rant ■broker-iigo commissions to cooperatives, 
L'r. Ilreiier stated that orior tu the o.iscontinuance of the hrokerar^^e 
to hixii, memhers of his organization were able to a: cure Kansrs rock 
salt at two collars -^er ton. following the discontinuance of brokerage, 
the -price v/as raised to h53.0C. "Then we gavo up our fight, and in- 
formed our trade, and soon the price of salt had advanced to ,;5,00, 
Our members had been able to buy it in bulh.but then order? vrere given 
thct there v;ould be no more bulk ship-ed, so the dealer has to -pay #3,30 
per ton more for bags. Bags are not needed on s. large -percent of the 
stock salt, but farmers .^re forced to pay this af.ded cost 'Outside' 
producers caniiot ship in bulk becauso the Michigan-Kansas producers said 
not." (ol) 

In addition to the discontinuance of brokerage payments to buyers, 
tae files indicate that in October, 1934, tl.e Salt Proojucers' Association 
passed a ruling whereby the maximum co..™ission which might be paid to a 
broker could not exceed 5j of the net amount of the invoice. Tliis asso'- 
ci-.tion ruling v,'as protested b-p t-.-.o brokers who ^lad been receiving lO'o 
brokerage. T-ie International Salt Company, in response to one -of these 
complaints, indicated th.?t it had cut its brokerage coaimission to certain 
brokers because of t;.efact th. t it hpd been giving 10'''i to some brokers 
e.nd 5'.; to others, a.nd tl.rt all brokers nhou.ld be jjlaced on the same basis 
in order to avoid -price discriminrtion, v/hich is contrary to the Salt 
Code. JO further i-nfor.nation on this subject is contained in the files. 

(.::5) 

Tlie E.ctivity vjit.. -1 es :ect to broker^.p ir. closely relsted to re- 
strictions on bulk shi-pments to certain resellers, discussec" in Section 
IX of this Chapter, In both instances, an attempt v/as made to place 
certain middlemen - coo'peratives, buying a-^i,encies, jobbers, and dealers, 
in a -position where it would be difficult, if not im-ossible, for them, 
to maintain or increase volume by price concessions frovmed upon by the 
man\if ac tvr e r s . 

H, Restrictio ns on Sales to Certa in Clas ses o f Outlets . 

ITo Coc e -jrovision directlv restricts spjcs to certain classes of oxit- 
lets.. Under sub-section C "price Liffereiitials", sub-section C-, "Broker- 
age", anc ■ sub-section I, "Eestrictions on Size or Manner of iiaking 
Shipments" in this section, will be found a discussion of some trace 
practices having the effect of restricting; f sales to certain classes 
of outlets - jobbers and cooperatives. In addition to those -practices, 
the files disclose some additional- restrictions v/hich (according to a 
comparison of price lists) acparentlp -.vere generally ado-pted by in • 
dustry me.nbers. 

One of t/i.ese v7as the discontinuance of the sale of "stock salt". 
Some manufo.cti;j:ers entirel- discontinued stock salt sales by a 
statement to that effect in price lists, (15) Others would sell stock 

9835 



-US- 
salt in "b^gs only - discontinuing tulk se.les. 

Stock salt is aroarently loose sr.lt (either ev3--5or?.ted. or crushed 
rock) i./hich v;as iDought liy faners for stock feed. It pro"ba"bly ivas com- 
petitive ("because of its lov;er rice) with j-essed blocks or "cattle 
licks". 

In a letter from a farmers' cooperated in lov/a, it is stated: 

"ITortliern i.Ii;?souri and Iowa, consumers are no. forced to "buy 
salt in "ba-js - no bu.lk allowed in this territory. 'JThy should 
the farmer "be forced to aa.y 16-|^ every time he huys 100 pounds 
of cl\ep.j: 'ba.g salt, to "oay for "bags he doesn't need? V/hy can't 
the producer ship "bulk stock salt if he -wishes? The -proiiLUcer in 
Texas or any other Southern Territory cannot ship into this ter- 
ritory in "bulk "because the Kichigan-Kansas producers, who con 
trol this field, luive rulec a.;,ai"ii3t it." (16) 

ITo further informa.tion on tiiis Gu"bject is contained in the files. 

LIr. Lan Lutz, a truc].c gardner at Hartville, Ohio, vranted to "buy 
some "fertilizer salt" to leleasc potrsh in the soil, necessary to his 
product. In past vea.rs, he had purchased this chea."0 grade of refuse 
salt from the Ohio Salt Compan7. In the Spring of 19L'l-, he found 
he could not buy an"' of this saJt. In a letter to him dated harch 27, 
1954, the 0-. io Salt Company stated; 

"lue to "' recent code ruling, we are not permitted to sell this 
grade of sp.lt (refure ^rade) direct to the consumer. It will be 
.i.eces-a.ry for you to =i"ran_e to buy salt of this kind through vour 
locrl dealer, vi''xo vdll, no dou.bt, lLP'\re sometl'.ing to offer you." 

hr. Li-";-tz went to t/:e local salt dealer, who informed him that a 
new "ITFJl ruling" a-'Oiiibited him i rom selling refuse salt except to tile 
and brick factories. 

i."r. Lutz a;^periled to the IIEA, and was informed that no rulings of .' 
this nature !:?. d been made by the NFJl, and that the .IT-A had no jurisdiction 
over the jua.tter, (17) 

T. ere if: no evidence to shov/ v/ho was responsible for the origin 
of tae refusal to sell refuse or agricultural salt to farmers. This re- 
fusal apparently was not confined to the' Ohio Salt Company alone, since 
the International Salt Compan.y issued in,structions to its sales de- 
partment on I'ovember 30, 193Z, st.'-ting that "agricultural or refuse 
salt" v.'ould be sold to Steel i.iills, Fisheries, Ceramic Manufacturers, 
and for "track use" (by railroacs), provided they would buj;- by the 
carload and pa/^ ^4.00 per ton. (Tliis instruction seemingly im-olied 
that no agricultura.l or refuse salt v/ould bo sold to, agricultiiralists. )(15) 

I. lestrictions on size or manner of making s h ipments , 

ITo provision of the Salt Code directly imposes any restrictions 
either on persons to whom salt may be sold, or the mamier of mal-:ing ship- 

9825 



-119- 

ments. '"o-revei-i Article IV (a) of t.ie Coo.e, "by ^roliiluting -roducers 
from Selling at a lov.-erprices tl.p.n -^roducei-s within the area in which 
the sale is made, -emiits producers Vv'iti.ia anv area to practicall-'- di- 
dtpte all tervis and conditions, of sale 'b''- a'l produce:- r. sellin;^;; into 
such p.rea. Tliis has a direct lioj-rin^ o'-i the subject of this section, 
as Fill be devolopod hcrciu. 

An •-;:eraination of price lists in effect rior to th*^ Codr discloses 
that prices on bulk sr-lt v"^'re quoted to r^sellc^s, both in strai^^ht car- 
loads and pooled carloads. Since no l.c.l. price lists are availa.ble, 
it is impossible to conclude from a study of --rice schedul'^s v.'heth^^r 
bull: sales uere .nPc'e to resellers in l.c.l. lots. (15) 

Shortly ei"ter the approval of th'^ Cod'^, Ttirice lists published by 
different mamxTacturcrs included th: follov/ing provisions: 

"I-Io grades of salt in bulk or bu'^er's sacks v/ill be cold to 
dee.lers, jobbers, or to anyone offering- salt for resale," 

Tliis refusal to sell bulk salt . to r esellers a"7'arently bccsjne the 
accepted practice in all area and .on the lart of all manufacturers as 
practically all available price lists to r': sellers during the Code 
period contained the above statement. (15) 

T-ie first compls.int of v.-hich there is recorci in I'lTA. files crme from 
the A. P. Aaes Company, a salt Jobber in p^abod3'-, Massachusetts. A 
telegr?.:i to the II. E. A. in December, 193?,, stated that the Eastern Salt 
Comp?jLy (subsequently sliovvn to' be the Massachusetts "selling agent" for 
International, 'Torcester, Cayuga, 7?tkins and SblvaySalt Companies, all 
of the ITew York producing -area) had refused to sell salt in bulk to A. 
P. Anies Compa.ny (v;ho claimed to ha'v-'e been buying an average of S9 car- 
loads oT bulk salt monthly in the ps.st), on the ground that Ames Company 
v/as a reseller. At the same time larger industrial consumers \fao had 
b-ien customers of A^ies, such as the 'A.' C. Lar;rence Leather Company, were 
permitted to buy carlokd lots of bulk salt. (31) 

This complaint v'as referred b'^ th.e I'le-cuty A^'ininistrator to the 
Secretajry of the Code Au.thority, who replied; 

"To correct unf.air practices e?:istiny yjrior to the ado-?tion 
of the Code, it has become absolutely nccessarv to decline to 
sell bulk salt to dealers, to prevent them from chiseling on 
our published prices for paclcaged salt with our own bulk. It 
has been the practice of some dossiers, as a subt rfuge, to pur- 
chase bulk sp.lt with the sole purpose of defeating .-iroducers' 
published prices on packaged goods. A. C. Lav/rence Leather 
Coirany is a leather mamif acturer and uses in its ovm processes 
all s.?lt purchased by the^r. from Eastorn Salt Company. 

"A. P. AjTies Comioany opera.tes as a jobber or dealer and --urchases 
not onl^>- sg.lt but other co.Tii-nodities, and during upset m.arket con- 
■ ditions was purchasing salt on the lo:. riced bulk basis, then com- 
peting (with manufacturers) on salt sold to consumers. There would be 
no objection to selling to the complainant bulk salt in carloads 
or less than carlop.dr. 
9825 



■' -120- 

for consi;n:iient direct to -itfe -conr.umeY -Giistomers, provided complaine.nt 

comolaiaant v/ould a^ree not to divert suc.i' " - Fliipment to 'its 

o\m wareliour^e for xackin^^ and resale, and fv.rtlir-r that the 

coimlaiuant would agree to te "botind "by applica'ble provicions 

of tlie Salt Code, in v/hich case the ' coni-ilainant v;ould "be 

classified as an ai2;ent or supplj^ dealer and motild receive 

prevailinp rrtes of conimission or discount a:pl:/ins to such 

classification. A representative of the Eastern Salt 

Company is taking this suliject up v/ith Ajtios. There i s 

absolutely no disposition towork any avoi^.r"ble hrrdship 

on the complainant or any other "buyer in this effort to ' ■• 

effect the necessary -market improvement." ( 21) 

(In an interview with the writer, I.^r. Alhor P. Ames, of the 
A. P. Ames Company, stated that he was never ar-roached hy a represen- 
tative of the Lastern Salt Company -vith any proposal \7here'by he could 
huy hulk salt.) (S2) 

On January "■3, 1934, a lengthy letter v=c sent to the iT. H. A. hy 
the Chamher of Commerce of peahody, uassachijsetts, ex-/:-laining txie. manner 
in which Ames operated and requesting an investigation of the matter. 
This letter throv;s so much light on the entire question th"t it is 
quoted in full: 

"Tlie A. P. Ames Company, dealing in ha'% grain and salt, has heen 
"buying salt in hulk in carload quantities- from the Eastern Salt 
Company of Boston, Liassachusetts, distribut-ors- f or the Internation- 
al Salt Compa,ny. This was sold 'to thp Leather ma.nufacturers, 
generally after being bagged and v/as -d.clivered in unites of not 
moire than' 3 tons. 

"This enables the l,c«l.- bu-^'-ers to obtain tlieir salt oromptly and 
more cheaply than the Eastern S6.lt l.c.l. price. - The factories 
bujring bag salt iu ca.rloa>,ds found it a^dvantageous to buy of ■ 
Anes Conr-any for the following roat'ons: ■ 

"1. Ames Company dolivorcd calt at the facotrv. TJheu buying 
carload direct,; the buyer ha.d to unload the car, truck 
or 'cay trucking charges to the factory, and possibly pay 
demurrage . ■ ■ 

"2, 'Tiien a. factory -:;ut in r. carload lot, t'!ie chances were that 
■ due either to their allowing t;aeir siv^^ly to become too low 
before reordering or delav on the part of the producer or in 
transit, they v/ould. find themselves out of salt and were 
forced to pay a much- higher price for the same to carry them 
■over. 

"3. Ames Company delivered in 3 ton lots, easily stored, and placed 
the lots in a more accessible s^oot for i.ninediate use. 

"4. Mes Company, being situated locally and keeping frequently 
in touch with their factories, has been able to' overcome 
that trouble for them dnc to the frequency of tlicir cars 

9825 



r-rrivinj and "beoav^se of their stora.yc facilities. 

"5. Factor"" space, otherwise nceCeH. for Sc.lt storage, could "be used 
for more -roductivc purposes. 

"6. Ariies Coiroany vvitli lov;cr overlisac. cost could "bag salt and sell 
c.iea';er tlian Eastern Salt Company. ,. 

"T-ie result of this v;p.s that A:i:ies Co'm lany 'be^;an to £et a "busino'ss 
from many of the factories, especiallj'' when thej' 3,_^^preciated the ad- 
vantajes that this service offered. This meant that some of the East- 
ern Salt Com -an' s carload "buyers of he^.-; salt "be -an to "bu3r in small ■' 
lots through Anes Company, hoivever, this did not mean a reduction of 
the De.stern Salt's tonnage sold, "because ^os. Company's tonnaje "bou'.ht 
from the "astern Salt Comoany increased. It did mean this: that the 
Eastern Salt Company or the International Salt Company (the parent com- 
panjr) v/as losing to a certain degree tlie adc'.d profits of "bagi.'lihg salt. 

"This condition \,-as led to the refusal on tixe -art of all salt pro- 
ducers to sell "bulk salt to resellers, such ax .Araes Com-oany. Tliis re- 
fusal ha.s just "been put into effect, -sTith the :u"blication of the 1934 
price list for the J^Tew '/ork territory (vLiich incl\ides He v; England) , and 
applies not only to the ines Company, "but to all resellers in this ter- 
ritory at least, if not the v/hole country. Salt in "bulk is sold only' 
to consumers v/ho agree not to resell. 

"'.7e consider this a restraint of trade; the various salt com- 
panies ha.ve com"bined through the medium of their salt code committee 
to put this practice under the IIRA, when their code does not give the 
Code Authority any power to make such a provision. It is true tha.t the 
Code Authority has a limited power over price fi;.:ing, but that power . 
does not ^ertaan to trade practices. 

"Tne Salt, producers have, apparently, one ohject, to get the entire 
control of the distri'bution of salt under their thum"bs to freeze out the 
small middle man who can offer a, loca.l, efficient, legitimate service that 
the salt producers cannot. Once this control is gained, through the -iro- 
cess of appointing 'distri"butors' which are "but su'bsidiar^'- comioanies, 
the price of salt Y/ill "be su"bject to the whims of a, legalized trust. 

"Eastern salt virices for the year 1933, were as follows: 

Bag price $11.80 before Octo"ber, 1933 

11.40 after October, 1933 

Bulk price 10.30 before October, 1933 

10.40 after October, 1933 

"prices above, per ton in carload lots. LCL, bag salt - ^16. 30 
per ton, 5 ton lots the lowest. 

"In contrast to this price, Ames Conr-?ny's price list aft er_ paying 
a fair \':?.;e for labor and other costs, is as follows: 

Bag price il3. ex car (directly from car to factory) 
9825 



-1S2- •■ 

3 ton lots ' ' ' 

vl4 e;x; wereliQur.e, 3 tou Iptc 
)15 ex wE.rehouse 1 ton lotc 

"Bulk v^rice )13 ex car- only,, A;:nes Cora'ornv prices, it must l)c 
rememTDered, include !'■ ctor'^ t ■. livsry,, insvires re.mlF-,r sur-ply rnd avoids 
use of excessive stor:v;e c-;;,cr, etCe 

"How let us cq.'n.irro the --.iices cubted from the 1934 price list of 
the Eastern Snlt Go:.i pn--, 

"Bag -orice )14„20 per ton c,?.rlo':'d lots 
Pooled crload price, l3;,::_^ed .;15.20 
LCL ■-15, -10 i.er ton, Bvili^ price - vl0.90 
per ton carle .d lot ' 

"Anes Company orice lint \i\-::eci on liU/'inj tali: at )10.90 per ton,' 

"Bag price '14 ex c?r in 3 ton lots ' 

$15 ex warehouse in 3 ton lots 
'16 ex r/arehouse in 1 ' ton lots 
Bulk price .,^14 per ton ox car 

"Tliese comparative prices lells our story. Ames Company, "by 
offering services tha.t manufacturers want, can jct this 
Tjusincss. They can tjivs these services at a lower sost tha,n 
the East-jrn. Salt, Company althQiv^h they have had to l)uy hulk ■■ 
saJt froin the .Eastern Salt' Compan.y. i,>umfacturers v/ould , ■ 
rather o.rder a carload thr.ough Arties Corn-any and haive^ them 
deliver in 3 ^tqn lots at their ex car price than huv direct 
from the Eastern Salt Com-o.n.]/- hccausc Afies Cdm-oanv can 
renc.er the service that sa.ves them additional expense, 

"[Eie-Ep.qtern Salt Compan" is satisfied v.-it:. the hulk price 
from hi J consumers. A;nes Com an' a. hi^, consumer in a. sense, 
is willin„; to nay txiat sa,-.ie hrice anc: ha.s been htiying in hulk 
. for ;39 years. The ■:;astervi. Salt Com 'an-;- cannot provide the 
, service tha,t Ames Company has renderei. nd that \-hich the 
manufacturer Y/ants, Ames Com -any has done this a.nd was about 
to reep the rev/ard of arovidini^,- a needed service for "business. 
Other loca,l resellers 'throughout the country are in this same 
position. The salt companies are trying to freeze then out 
hy refusing to sell in hulk to resellers. 

"This means that Ames Company and other local resellers wouln 
ha^e to pay pl4.20 for hag salt per ton. Tliey cannot pay 
this price and privide the sei-vice v/anted tinder the ahove price 
list of Ames Company, 

"We'helieve the ffcts warrant .soi.ic invcsti.^ation hy the 
II. R. A." (31): ■ - : ■ 



9825 



In res-.-:onse to this letter, tie deputy Acmiinistrator on Fe'briJarj'- 9, 
1934, referred the matter aj^air^ to f-ie- Coc'.e Authority, and- so advised 
the com7lainant, (21) ' , 

'On February 10, Aip.es requested that the ruling against "b-alk sales 
to resellers be susoended v.ntil a final decision v/;:'.s reached thereon. (21) 

IIo action •.".■?.s i,,?i:en b;- tl-.e I^PJi, o;i this recvest. 

On Fcbraury 12, the Code- Authority stated that. 

"it does not believe the cuestio.is involved are rithin 
its ^iurisdiction, ,v. Each -producer ineach field of 
■Production individually ir.aZces and publishes his ovm 
trices.... Producer in question (international has 
been rectiested to ■^repare r. statement setting; forth his 

:oosition, which he -romis.es. wil'i. be sent to you early next 

"week." (?1) 



9825 



-12-4- 

On February 14, the International Salt ComT^anv vrrote the KiR.*A, , stating 
that it refu.sed to sell salt in "bulk to resellers for siibstantially the reasons 
set forth in the letter from the Secir-:.tar-' of the Code Authority to the K.R.A. 
(already quoted in this section). Tl'ie Isttei" continuesis 

"There is no justification whatsoever for the com" 
plaia,nt's state. annt that the 'salt con-oanies are trying 
to sc^ueeze out resellers hy refusi'ig to sell t'lfirt gait in 
hiiilk. ' Koi,7eyei', International Salt Comoany, under the Salt 
Code, and Zsstei-u Salt Co-.roan", v^ithout a code, claims the 
right to sell the -product on such terms axid cp-;ditions as 
are fair and reasonable; a.nd without discrimination between 
buyers. liVe claim that the comolai-i.ant ha-s in the loast oper- 
ated in a c'estructive '-^ay, which is clearly admitted in 
his letter, r;'...ich states, r-~-f erring to loost -oractices of 
complainant: 'This en.xbl ^cl. the loCl, buyers to obtain 
their salt oroimtly and mor3 chea-oly than the Eastern Salt 
Cora-aany*s l.cd. lorice.' This applies even more disruptively 
a;P;ainst this conroany and othor Droducers oiDerating under the 
salt code.,,, 

"The method of distribution and sales to our customers, 
and the price charged for salt, are in no way subject to the 
jurisdiction or control of the code committee, but are, as 
stated, entirely within the "orfeivinGe of each individual pro- 
ducer in the respective marketing fields set forth in the 
salt code, Tliis co!;roany has adopted a -olan of marketing 
which is based upon its o'Tn experience over a period of utd- 
ward of thirty years, and. the general eroerience of the in- 
dustry. Many practices detrimental to the industry have de- 
veloped from time to time, and we have consi:~tently attera-oted 
to follow a course of action which would eliminate them when 
fo-und objectionable, 

"Y/e maintain the right to nrotect ourselves and our cus- 
tomers against such com-oetition, and to sell our salt to whom- 
soever we rilease at such "orices and terms of sale as we may 
TDublish in accordance with the -provisions of the salt code. 
We cannot be forced to be T)laced in a position nor to adopt 
practices that would result in selling salt to customers who 
in turn resell in com-^etition with ourselves at prices and 
terms that result in demoralization of the market, and a loss 
of revenue to us and the industry, 

"The grade and tyoe of salt princi-oally sold to such 
resellers as the com-olainant represents only a small -.-.art 
of our total evanorated salt tonnage, a.nd we cannot afford 
to create or permit a situation whereby a small tonnage 
would control or serio'sly affect the major and more pro- 
fitable part of our business,, o» 



9825 



-125- 

"Oiir classification of salt distributors is confined 
to "b-u^/'ers whose lorinciiDal liusiness, or at least a substan- 
tial Bart -tliereof , is tin sale and merchandising^ of salt. 
Our published -orices for consiuaers -Drovide that the small- 
est unit of sales shall he a carload.... However, such 
hujrers may ootain 'Snaller quantities liy- paying a higher 
price.... To lorotect ourselves as well as the '--.ajority of 
our distrihutors, we cannot sell "bul^c salt to customers who 
would package the same and resell at little or no profit 
in competition witli us..«." (2l) 

On Fehruary 26, 1934, Deputy Administrator Taddock advised the com- 
plainant: 

"1. That no pi^ovision of the Salt Code nor ruling of 
the Code Authority prevents Eastern Salt Company from sell- 
ing to Ames. 2. That no provision of the ahove code gives 
the KEA any authority to demand that Eastern sell to Ames 
.if they do not desire to do so. It is therefore decided 
that the matter is not one coming within the jurisdiction 
of the Administration. (21) 

On March 10, the complainant pointed out that not only International, hut 
every ether salt producer simultaneously refu.sed to sell hulk salt to Ames and 
ether resellers, indica.ting collusiv3 action to place producers in comiolete 
control of all distribution hy the elimination of distributors not under an 
agency contract with them. (l7) 

The Deputy Administrator again stated that the H.R.A. had no jurisdiction 
over the matter and the case was considered closed. (l7) 

The A. ?. Ames Company ap-oarently referred the matter to the Federal 
Trade Commission, as the files contain a letter to the Deputy Administrator 
dated July 17, 1934, from David Miller, Attorney'-- Examiner, New York Branch 
Office, Federal Trade Commissi02i stating that: 

"An investigation is being m.ade with reference to the 
various salt marufacturers refusing to sell bulk salt 
to resellers. Should you have any information along 
this line, I would ap-oreciate su.ch information. Mr. 
Ames of the A. P. Ames Company has given your name as 
one with whom he has had corresriondence." (l7) 

(A new Deputy had been placed in charge of the Salt Code, who apparently 
either misunderstood the question cr was not informed of the controversy 
relative to bulk sales to resellers, as his reply dealt entirely with the 
subject of brokerage payments to buyers, and does not touch upon the restriction 
of bulk sales of salt.) (17) 

The Federal Trade Commission later advised the complainant that the case 
had been closed, on the ground that "it does not ap-oear that the respondents 
are engaged in practices coming within the purview of the laws administered by 
the' Federal Trade Commission." (32) 



9825 



-126- 

!"£-.-'". otiier coranlairits were receiv -d on this s^iliject, some of "hicli 
throT7 ado.itior.p.l light on the effects of the discoritinuance of bTjl^^ sales to 
resellerc. Tor ejrample, a letter was received 137 the I'.H.A. on March 8, l'I34, 
from the Cor.solidated Salt Coroan:;, ITorfolk, Virginia, vho stated that the;- 
had 'bee:-, johoing salt for many years, buying fron several producers ^.n^. re- 
selling to nholesale grocers, ice manufacturers, fish -oackers, ice crea;.! 
manufactvrers," etc. Since the first of the year, the com-ilainant had "been 
inforraed that "because of the IT.S.A, code, the sale "oroducers could not sell 
to him for resale. The comolainant requested that sonething "be done to 
assist hin. 

The natter T7as referred to the Code Autliority and some three T7e3':s later 
the Secretary re-olied, stating that he had just bsi'n informed that the co-.>- 
plainant rras no longer in "business, having gone in to the hands of receivers. 
He suggested that in view of this fact, there wasn't much more that caild "oe 
done in the mo,tter. No further action was ta]ren, (l7) 

Soue of the complaints stated that packaged salt cost 25^ more than 
"bulk, others lout the figure, as high as 50fo (depending, presuma'bly, on dif- 
ferences in grades of salt, freight charges, etc.) 

Other corvolsants indicate that althoiigh the Code Authority disclaimed 
all responsi'bility and aizthority, it still -olayed an active -oart in t'lese 
matters^. .(I6), (l7) , (25) 

On a coirolaint from a jo"b"ber in Cincin lati, who formerly purchased ni::ed 
carloads of 'ovllz and -oackaged salt, the Code Authority stated that the practice 
had "been discontinued "because of the fact that darro "bulk salt vras apt to 
dampen or ?therwise injure packr^ed salt, and many manufacturers had for t'nis 
reason diccoritinued mixed car shi-oments containing "oiilk salt. (22), (25) 

OccasionaAly, con?aUners were included in this restriction .by .mistake. On 
a complaint fron a stock feed man^'ofacturer from ''/irginia, who had been iiV" 
formed that an IIEIA ruling prohibited sales of ""oLilk salt to him,, the Code 
Authority- advised the Deputy Administrator that "on the basis of his re- 
presentation as a consumer of salt, he is entitled to purchase bulk salt, and 
will have no more difficulty as a consumer in -ourchasing salt in biilk fron 
producers." (22), (26) 

The Anericen Dairy Coii^an;'-, Syracuse, through a Congressman, com-jls^ined 
that the ruling against bulk shi-oments v;ould put the'a out of business very 
shortly tuiless rescinded. On reference to the Code Authority, that bocl.;- 
replied that no ruiing had been made, but that oroducers had individually 
decided to discontinue the iDractice, "Salt ship^oed in bulk is subject to 
contamination the moment it leaves the plant, and is subject to further '.■':i:- 
favorablc influences and unsanitjiry conditions when talcen from the freight car 
and trs-nsported elsewhere. Under the circumstances, it can be ap-oreciated that 
producers have adopted precaution to orotect the ptiblic when selling salt for 
human consum-otion," (25) 

rriether or not the Code Au.thority was resoonsible for the \mifor3.i and 
simultaneous development of tliis restriction, the 17RA received the blame, Jiany 
of the complaints started out with a statement to the effect that salt nro- 
ducers or salesmen had told them "because of the 1\F3A ruling", or "because of 
the IPuA code", they couldn't sell bulk salt, luch as they would like to 
continue the loleasant relations which had existed for so long, (I6), (25), (2S) 
9825 



-127- 

ITo c.efi.-.ite infonation is con>.ainecL in the 1J,?-.A. files as to the actual 
effect on the volume of sales thro-o^h joabern, or on the jobhers themselves, or 
on raanufactirrers who previously sold through jobbers. HoV;'ever, interviews \;ith 
a salt •orodr.cer and with distributors of salt nave develo-oed sufficient in- 
formation to.tijrow considereible ll-^it on the reasons underlying the restriction 
on biaic sales to resellers, and on the efficacy thereof in accomr>li shins the 
desired ends, 

Tt7o entirely different reasons ar - given for the development of this 
restrictior.. The first, voiced both by the Code Authority and by individtml 
manufactxirirs, is that salt shi-oped in bulk is subject to contamination, and 
that salt -oroducers wished to malve it im':)0ssible for a buj^er to secure a car- 
load of loose salt, package it, and resell the same as salt fit for huivian con- 
sumption. 

The second reason is an outgro-./th of th- fact that there is raoro profit in 
the sale of -oackaged salt than there is in bulk salt, (5) As is set forth in 
Section I of this report, the U. S. Tariff Commission indicates that over 50fS 
of the total tonnage' of salt is sold in bulk. This includes both rock and 
eva-oorated salt, 

Tlie Tariff Co.-nnission re-oort (o) contains a breakdown of livllz shipments 
by tiroes of sp-lt_, from whicn it a-Q-oears that ap-oror.imately 70^ of rock salt; 
60^ of solar evaporated salt; 30fj of vacuum pan evaporated salt; and 20'p of 
grainer or o-^en -oan evaporated salt, is sold in bu].k. 

As has been stated in Section I, rock salt and evaporated salt are 
potentiplly competitive so far as industrial uses are concerned. The price which 
can be chargec. for evaporated salt for industrial -oxirposes is limited or re- 
stricted by the price of rock salt, llany large ino.ustrial users, at present 
buj'-ing eva^jorated salt in bulk, would turn to rock salt if the price of evo,- 
porated "salt became too hi.^h. These large buyers wou.ld prefer to buy a car- 
load of salt in bulk, rather than paying a higher price for salt placed in 
sacks by the nan"'afacturer, 

A ceiling is placed on the price of both rock and evaporated bulk salt 
because of the fact that if prices become too high, large industrial u.sers are 
capable of co:nencing the production of their own salt requirements, as a 
number of chemical companies, two large meat packers, and one large food aa.nur- 
facturer, hs.v: already done. Salt producers loiow that there is rea-1 danger of 
permanently losing some of their larger customers if prices on the salt pujr- 
chased by such bxiyers are not kept down. 

For theije reasons, as well as competition between members of the salt 
industry for the business of large industrial buyers, the sale of bulk salt has 
been conducted on a very narrow margin of profit even in prosperous years. 

However, evidence indicates that an effort has been made to restrict the 
sale of bulk salt to those buyers who are in the best position to enforce their 
demands for the same. In other words, that the industry has attempted to reduce 
the total voliijae of salt which is sold in bulk, attempting to substitute there- 
for packeiged salt on which, there is a considerably greater margin of profit. 



3825 



-128- 

The inc'.ustrj- discontinued the -oractice of shro"oin-' nixed carloads o:" or.?.!: 
and packaged salt. They -oractically eliminated the shioment of "oalk in l.cl, 
lots and at least one -producer (lnternationa.l) discontinued the shi uiei-.t of or.l': 
salt in -icoled cars to consumers, s,s xiell as -providing that pooled car shi->- 
ments of -jac'iaged salt must hear an l.c.l, frei2;ht rate. Of more direct im- 
portance to this study, during the code period they attempted to elninr.te 'ov?Az 
shiiDments to resellers* 

This was of advantage in ttro resnects - first, it assisted in r 36:c.ci:--'p: the 
total sales of hTolk salt, substituting therefor the more profitable pa.ckaged 
salt; and second, it reduced the possibility of resellers rjurchasing buj.l: salt, 
packaging it, and reselling the "oackaged -oroduct at lo\7er -orices tho-h '-roiiLd be 
charged for the product by the manufacturer in its packaged form. 

As lor.' as resellers were in a -position to pa.c]'age salt themselves, ar.d 
resell i::. coLipetition with manufacturers' packar;ed salt, the manufactxu-ers' 
prices on "oackaged salt could not be maintained at as high a level as d.esired. 
by them, lest the resellers encroach too much on their pacl:age sales. 

It .-.hould be mentioned that the restriction of the sale of bulk salt to I 
resellers s-pparently did not apply to "distributors", defined in s\ib-section A 
of this section. These "distributors", o-oerating luider contracts with nanu- 
facturers, or direct orders of their r.anufacturer-o^"n.iers, could be deper-ded upon 
not to package bulk salt and resell in con-oetition vith their consignors. 

Interviews, with a salt producer and with distributors of salt i::dic?,te 
that jobbers of salt adopted two different methods of remaining in the business 
of selling salt. The first, acceptable to the Salt Industry, was for the jobber 
to continiie to act as a jobber of packaged salt, bt\t chcnging his. method of 
operation with res-oect to bulk salt from a jobbing operation to a selling agency 
operation, cojoarable in some res-oects to a bro^rerage transaction, Tha.t is, 
the jobber could order bullc salt f;:om a manufactiu-er, to be consigned direct by 
the manufactiier to the industrial user. On this tjT^e of business, the jobber 
(never coming into possession of the salt) would receive a discount or com- 
mission conparable to that given to brokers. Definite information is not avail- 
able as to whether the manufacturer billed and collected from the indiistrial 
user, or considered that he had sold the salt to the jobber, though consigning 
it to the industrial user. 

The second method utilized by the jobber to remain in business was one far 
less satisfactory to the industry. Jobbers would 'enter into agreements with 
industrial c-nsumers, whereby such consumers would acceot consignment of a car- 
load of bulk salt. However, the jobber would actually unload the salt and store 
it in his warehouse, nackaging it for resale, or reselling it in small lots, , 
In this fashion, industrial buyers inca-oable of buying in carload lots, cotiid' 
still receive salt from the jobber at a -orice less than the l,c,l. rata, and '^ 
less than the price which would be charged him for packaged salt purchased from 
the manufactr'.rer. 

Although definite information is not available on this -ooint, it seems 
probable that jobbers may be given a selling co'^nission or brokerage by manu- 
facturers on salt ostensibly sold to industrial biiyers, but actually purchased 
and received bji- the jobbers. If this is true, it means that the jobbers v;l.o 
developed this method of evading the restriction against bulk sales to resellers. 

9825 



-129- 

actual'-y rere enabled to -purchase 'bulk salt at a lo'jer cost than.befo-e tlie 
restrictio;-., xilien they paid the same price as. industrial ■b'i:iyers for carlor.d 
quantities, vdthout receiving any selling comnission or discoimt. 

The statement was uade to tji? writer of this report that following the 
restriction on bulk sales to resellers, there was a considerable increase in 
sales throUj^li brokers, at least in ¥.ev England. 

Tlie e-tent to which jobbers made use of the above mentioned methods of 
evading; the restriction on bulk sales to resellers is not loiown, end con- 
seqviently it is im-oossible to indicate the actual effect of this restriction 
on jobbers, or the volume of salt bein-?; sold through jobbers, or total volvne 
of bulk shi-xientso (35) 

In addition to the discontimiaiice of bulk sales to resellers, an exa^iination 
of price lists discloses sone rdditional restrictions on size or manner of 
ma^king shipnents, rhich developed after the ap'orov^l of the code. 

Following aD-3roval of the code, most of the price lists on file incli\6.ed 
a list of marketing provisions practically uniform throughout the trade. 
Following are some of the reqairements or restrictions v/hich were not con- 
tained in price lists ririor to the code: 

"iTo table salt pockets to be shiiD^Jed loose in smaller 
units than 25 lbs." 

"Iodized salt in cartons to be marketed only in round 
cans of 25 oz, and 2 potrnds" , 

"StoTj-over charges to be r)aid by buyers. On stop-over 
shi-onents, -orices for entire shipment must be based on 
highest-rate book rate" (ooint of final destination 
usually) . 

"Shcald one buj'^er -ourchase a sufficient amount to entitle 
him to a carload discount, and allov7 other buyers to ha.ve 
shi;onents included in the same car, the other buyers must 
-ov.y f-dll list -orice, withoxit any aaantitj- (or carload) 
allowance." 

iTo information has been develo";ed or pa.st -practices with resnect to the 
above matters, or effects of any change that might have taken place and do not 
regard then as im-portant. 

Prior to the code. International Salt Coirpany price lists imoosed no 
restriction o:i pooled car shi-oments to industrial users. Following the code, 
Internationa.l price lists Tjrovided that pooled car shi-oments in bulk coi^ld not 
be made to consumers, and that consiamers b-uying salt (-oackaged) in pooled cars 
must pay the appropriate l.c.l. rate. (15) 

There is no information as to whether or not other manufa.cturers follo-;'ed 
Internatio-nal in this res-oect. 



982f 



-ISC- 

P2ICE DISCEIi.ilMTIOK 

Article IV (c) of the Salt Code contains the follovring provision on 
price disci'inination: 

"There shall Ise no discrimination "between customers. 
Difference in price "based on differences in grades, 
quantity, quality, selling or transportation costs, 
or made in the same or different co; imunities in good 
faith to meet com-oetition, shall not constitute 
discrimination." 

It does not at) lear that this -orovision -olayed a very important "oart in the 
history of the code. Under the "Quantity Discounts" su'b-section of t'nis 
chapter is discussed a futile attemr)t to invoke this provision to stop the 
granting of special discounts to chain stores, "but the Code Authority" did not 
take any definite action. 

In the "Consignments" su'b-section of this chapter is made of a Code 
Authority rciJLing that if consi.enments were na,de to any customers, they :.iust | 
l»e made to all customers. 



9825 



-151- 



III. SU;,n,AIir AiC AlIALYSIS 

In this Section, an efxcrt is made to analyse and correlate 
the information contained in the previous two sections, vdth the 
hope of ^ainins an understanding of the prohlems of the industiy, 
thffi methods selected hy the industry to solvo those prohleras, and 
the results of such methods. 



A. 2he Prohlems 



Certain general characteristics of this ind\istry and its 
product should be noted. The dorrand for salt is relatively in- 
elastic coinpared to the demand for products of other industries. 
This is particularly true of tahlc., or household, salt. Consump- 
tion of this tj-pe of salt does not appear to he seriously affected 
hy price fluctuS-tions, \/hich means that the total vol^ome of tahle 
or household salt cannot he expected to he materially increased by 
a reductio'i in the general price lev-l for such salt; and at the 
same time', an increase in the general price level probably would 
not materi-^-lly reduce the total consurrrotion of ta.ble salt. 

To a lesser, but at the same time a marked degree, the same 
thins is true of industrial salt. The industry cannot expect to 
materially increase the total co^isurrption of industrial salt by a 
reduction in general price levels. Kjw uses for salt are being 
developed — such as the use of salt on dirt or clay roads in the 
same nanner and for the same purpose as calcium chloride l:ias been 
used in th'^ past - but new markets have developed slov/ly, and 
the general belief lias been expressed by members of the industry 
that any gain in volume for the industry as a whole as a result of 
price reductions would be more than offset by a loss in net profits. 

A very important exception should be made to the general rule 
of stability of demand. Although price reductions cannot be ex- 
pected to result in any material increase in total consumption of 
salt, price increased might result in the permanent loss of a con- 
siderable portion of the market for industrial salt. Large indus- 
trial consumers are entirely capable of entering into the produc- 
tion of salt brine to fill their salt requirements should the price 
cf ^crystalline wr solid salt be raised to too high a level. This 
threat to the industry is not an idls one, as many large chemical 
producers have already stopped buying salt from the members of this 
industry, preferring to produce their own salt in the form of brine, 
at 3. imich lower cost to them then if they had to purclmse the salt 
required. At the present time, nearly half of the total industrial 
requirements for salt are filled in this manner, which means that 
salt producers iiave pemanently lost a very considerable portion of 
their markc-:;. Also, tvro of the largest meat packers in the country 
now operate their o^rn salt mini, Imving found tliat it would cost 
them less to produce the salt than to buj^ it. The General Foods 



9825 



-132- 

Corporation is ilia o\7ner of the Dianond Crystal Salt CoCTp3,ny 
(reputed to 'he tha fourth lars^^est salt producer in the coujitr:,"), 
and this salt coiirpany protahly supplies the entire salt needs 
of General G-oods. There is no assurance to salt prod.ucers 
tii?-t other large industrial buyers will not follow the sarae course 
if prices on sa.lt are raised too hi,.];h. 

Salt de;;iosits, capahle of coniusrc'ial e:qploitation, exist in 
nearly a dozen States, anji anybody with sufficient incentive and 
money can "begin the prodxiction cf salt. 

The fear of -5ncourat:ing salt users to enter into the production 
of salt is greater in the case of industrial salt t"ns,n it is y;ith 
tahle salt. There is little danger of the average household con- 
sumer, or for that matter the avara.^e retail or wholesale grocer, 
TDecoming a salt producer because prices are too high. Of course, 
it is presumed that chain stores are capable of siich action, which 
rre.i'' help to explain the fact that salt producers in most of thenarkotr 
ing areas allow a special discount on table salt to retailers big ^ 

enough to use vlO0,00 worth of salt per year, for ?;hich discouiat only 
the national cliain stores can qualify. In general, however, there is 
a rfflich b&tter opportu;iity for high price levels on table salt tlian there ' 
is on ind\i3 trial salt. 

Similarly, small industrial consumers are not as v/ell equipped 
as large consumers to protect themselves effectively against price 
increases, and sales to this tj'pe of bu;-'er do not ha.ve as low a 
price ceiling as to sales to large industri3,l buyers. 

A rcrther factor helps to complicate the picture — the com- 
petitite status of rock a/nd vacuum pan evaporated salt for industrial 
usus. Rock salt can be produced at a lower cost tlian vacuum pan salt, 
but the latter salt is better adapted to many industrial uses tlian is 
rock salt. Therefore, evaporated salt is purchased by many industries 
at a higher price tlmn they would h--ve to pay for rock salt. ShouJd 
the differential between rock and evaporated salt become too great, 
however, the se.ving in cost of rock sa.lt would otitweigh the tech- 
nical advantages of evaporated salt, and many bu;/-ers would turn from 
evaporated to roek salt. As a result, the price on the cheaper grades 
of evaporated salt is influenced by the price- of rock salt, and the 
price differential between the two, grades, for sales, to industrial 
users, must not become too great. Furthermore, it is ;oossible to 
divert common vacuum fine salt from industrial to domestic uses. 
/Buyers could purclxaso this grade of salt, presuma.bly for industrial 
uses, then place it in paclages, for household use. Since they were 
able to get the salt at a low price as industrial salt, it could be re- 
packaged and sold as table salt at a correspondingly low price, thus 
embarrassing salt producers depending on their ability to irake a good 
profit on- table salt. Luyers engaging in this practice usually were 
distributors, rather tiian industrial consumers. 

Industrial buyers us-oa.lly prefer to bu;,' salt in bulk, rather than 
9825 



€ 



-133- 



in sacks or other containers, because of the savint^; in cost, pacl:- 
aged salt naturally is more expensive than salt shipped in bulk, 
both beca.use of the ccst of the sacks and the char^'O made bj'- the 
manufactiirer for filling- the same, 

Pror-i 1929 to 1933, over liald of the total salt produced v;as 
shipped in bulk. Because of the fact tliat vers-" raany of the custom- 
ers v/ho purchased bulk salt were larje buj'-ers, the price charged 
by the industry for bulk salt could not be raised without danger. 
Consequently, it is claimed that for years, there has been no 
profit in buJk salt, the really profitable end of the salt pro- 
ducing business being in packaged salt. The industry evidently 
believed ths-t if it were possible to rediice the volume of salt 
sold in bu k, and proportionally increase the vol'oiiie sold in 
packages, .here would be a greater potential npportuaiity for profit. 
If this conld be done without danger ox losing the large industrial 
consumers of salt, so much the better. Over a j^ariod of years, the 
industry made some progress in this direction. ?irst, the industry 
discontinued the practice of ship"iiig table salt in bulk, and later 
discou.ragod the sMpmont of bulk ?alt in less than carload lots. 
How to make further decreases in bulk salt sales, without endanger- 
ing voltune, was one of the problems in the solution of which the 
code evidently was desig-ned to help. 

A decrease in bulk shipments, and an increase in paclcaged sales 
would make theoretically possible an increase in profits, but unless 
something were done to make this possibility an actxoality, small ben- 
efit would accrue to salt producers. 

Something must also be done to protect the prices charged for 
packa^jjCd salt, lest price levels for this type of product decline to 
unprofitable levels. Sever-al factors were present which iinperilod 
the price structure on paclcagcd salt. 



9825 



-134- 

The statement made previously that the demand for salt is compara- 
tively stable or inelastic does not mean that no individual compaiiy can 
expect -to increace his volume of sales ^by a reduction in price. On the 
contra.ry, volume is very sensitive to price in this industry, largely due 
to the fact that quality is v/ell standardized and fairly uniform, at 
least on most grades of salt. A producer who reduces his prices may ex- 
pect to secure an increase in volume, "but since tha.t increase means that 
some other producer or producers will lose just as much vol-ame as the 
original manuf a.cturer gains, his price reduction is likely to "be met very 
promptly, this resulting in the same competitive status as existed be- 
fore, excerit that the price level has "been reduced. 

As is pro"bably the case in. other industries Tvdiere overhead is an 
element of cost, and where price is naturally the most effective weapon 
of competition, (differences in qixality "being practically non-existent), 
there is a strong temptation on the v-art of individual producers to re- 
duce prices in order to gain increased volume, there"by reducing unit 
cost and increasing net profit. . This temptation is counteracted to 
some extent, thoug'ii not entirely, "but the certain knowledge that other 
producers must meet the reduction in order to Tnaintain their own volume. 
Prices can "be cut easily, "but "orice increases are considera'bly more dif- 
ficult of attainment. In man:' instances, at least, thay come only as 
the result of the elimination of competitors, or a tacit or outright 
agreement "between competitive orod,ucers to raise prices at. the same time. 

The history of this industry indicates repeated attempts to promote 
price stability, by eliminating price as the outstanding weapon of com- 
petition between members of fhe industry. Aside from the activities of 
the Ifetional Salt Conparo' t; ust in the 1890 's, when there was an attempt 
to gain a monopolistic control over the sale of salt with an accompany- 
ing increase in prices, little is Icaown about the industry prior to 1914 - 
- the year in v?hich the Salt Producer's Association wa?- organized. In 
the years following 1914, the members of the industry sold on the basis 
of published price lists,, and it is apioarent that one , company was the 
accepted price le-^.der for the industry, at least so far as evaporated 
salt was concerned. Other members of the industry adopted the prices 
quoted by the leader, and a marked degree of uniformity in published 
prices has been evident for the oast tv/enty years. For a number of years, 
it was the practice of many members of the industry to copy the price 
schedules of the price leader, and this may still be the manner in which 
uniformity is a.chieved and maintained. 

The reasons underlying the apparent willingness of all members of 
the industry to quote prices the saiiie as those of other producers are 
not known. There is reason to believe that one of the influences was 
fear on the part of the smaller Droducers of reprisals against those 
openly underselling the larger producers. Also it is possible that the 
members of the industry were cognizant of the futility of open price war- 
fare, in vie?; of the fact that price reductions, when known, would cer- 
tainly be met "by competitive producers, and the producers with the long- 
est pocketbooks would be the least harmed. 

The atts,i"ament of comolete price uniformity and the elimination of 
all forms of urice coraDCtition voul-d materially assist in the maintenance 



9825 



-135- 

of prices at as nrofita'ble a level as possible. Uniformity in published 
prices was a Ion? step in this direction. 

Before .there could be actual xmiformity even in published prices, 
variations in nomenclature, quality aiid packaging had to be eliminated, 
in order that a corroarison wou-ld be possible between prices quoted by 
various manuf;\cturers on a specific t?i'P-(ie of salt, packaged in a specific 
way. Since 1914, the Salt Fi'oducers' Association has been engaged in 
the standardization of quality and packaging, with such success that dif- 
ferences in quality, nomenclature find packaging are practically non-ex- 
istent, with the exception of a teu grades of higher-oriced salt, v/here 
relative quality still appears to be a factor considered by the buyer. 

Trainsportation costs ginount to such a large part of the cost of 
salt to the buyer (estimated to be fifty percent of the average de- 
livered price of salt) that it would be impossible to attain nrice uni- 
formity at ajiy given point as lon^- as there existed any variation in 
transports.*" .on charges between various pla.nts to stich point. For many 
years, the .ndustry has sold salt imder a form of basing point system 
whereby trp isportation chartes to -my delivery point would be the same 
on. all ship.aents to that point, no matter "here such shipments origin- 
ated. This was accomplished by the division of the country into a num- 
ber of marketing areas. The Trade Association compiled and issued 
freight rate books fo- each State, such rate books containing the name 
of every delivery point within the State, together with the freight rate 
to such point from the nearest produ.cing plant- Separate price schedules 
were issued by each manufacturer for each marketing area into which he 
desired to sell salt, and the delivered price was calculated by adding 
to the base price for such area the freight charge set forth in the 
freight rate book to the point of destination. Thus transportation 
charges became uniform between the various members of the industry. 

There could be no price uniformit:" if only base list orices ^/ere 
the same but discounts were dissimilar. In order that discounts, and 
henre net prices, quoted by raanufpcturers to anj'' particular buyer, might 
be uniform, there must be uniformity in customer classification, so that 
all producers would allow the same discoTont to such buyer. The Trade 
Association was instr-ajnental in attempts to establish uniform customer 
classification, t For" example, -the Trade- Association kept on file a list 
of all brokers receiving brokerage commissions, rjid informed the members 
of the association whenever it developed that somebody claiming broker- 
age had been cut off from the brokers list because of affiliation with 
buyers. Also, members of the association agreed to allow a "jobber's 
discount" only to those wholesale grocers whose names vv'ere contained in 
certain directories of wholesale grocers, thereby eliminating confusion 
as to who were and v/ho were not entitled to be classified as jobbers to 
receive the jobber's discount. The Federal Trade Commission in 1922 
required tl-2 discontinuance of this means of classifying customers, fol- 
lowing whica the members of the industry eliminated trade discounts to 
jobbers, lae elimination of jobbers' discounts simplified the problem 
of obtaining uniform classification of customers, by removing the nece?,- 
sity of distinguishing between various types of distributors. No trace 
discounts were given to resellers, and the only discount given to re- 
sellers was a discount based on quantity. 

9825 



-136- 

By IQ'o, the industry liad evolved a. cormDaratively simple method of 
classifying different customers, generally folloi,"6d .toy'' inflividua.l 
■oroducers. Different price lists were issued to different classes of 
customers, including resellers; consujners (industrial users); high-grade 
industrial consijraers (consumers of certain more ex-oensive grades of 
salt). Discounts to the different buyers ?;ere "based -nriraarily on 
quajjti'iy, and were un-if.orm throughout the industry. Some trouble still 
was exTDerienced in the definition of individuals entitled to brokerage, 
and this difficulty was ca.rried into the code Tjeriod. 

At the "time of the loroposal of the code, the industry had made 
considerable -nrogress toward the attainment and maintenance of price 
xinif ormity or, stated in a different way, the subjugation of nrice as . 
a competitive device. HoT"7ever, there still remained three major ob- 
stacles to overcome before this objective could be attained. 

7irst,' although, all member, s of the Industry sold on the basis of 
published price , I'ists, there v/as no assurance tliat these published 
prices ^ould be adhered to by the various r)roducers. Particularly 
during time of depression, in efforts to bolster declining sales 
volume, r.many members of the industry offered secret prices, discounts, 
rebates ■...and other concessions. The price stability program of the 
industry depended to a large extent on price publicity — knowledge 
of the prices a,t ^viiich e^cli competitor vas actually selling his , 
product — and the existence of . secret price concessions was a serious 
problem. • ' ' • 

Second, the control of the price leaders over nrices and actions 
of other members of the industry -was a tenuous thing. The incentive 
to reduce prices to,, make an advantageous sale, or raa.ke a greater 
freight absorption in ordf-r to expand a producer's marketing area, or 
to dump salt in some o bher territory in order to boost volume and 
reduce unit costs, was oftentimes sufficiently great to overcome fear 
of retaliatory price cutting. In an endeavor to secure an immediate 
advantage,' some manufacturers were prone to forget or ignore possible 
long-tim^e effects .of their actions, or else, recognizing the dangers 
involved, believed the advantage would outweigh the possible ultimate 
effects. Furthermore, certain members of the industry, owned by large 
industrial consumers of salt,, were in a position where they need not 
be particalarly concerned aboiit the porsibility of retaliatory price , 
cutting, li^ieir own salt reaiiirements vrere sufficient to take care of 
an appreciable percentage of their salt plants' output, and they were . 
not I'liolly dependent upon profit from their salt producing operations. 

Third, price uniformity between manuf actxirers was threatened by 
reason of the fact that distributors — jobbers, cooperative , buying 
organizations, dealers — occasionally resold salt at lower prices 
than were'quoted by salt producers to s uch resale trade. For mr.ny 
years, salt producers Imd distributed salt both through jobber .middle- 
men and in direct sales to consumers and retailers. By 1929, it'is 
estimated "that between twp-thirds and three-fourths of the total sales 
of industrial salt were made direct to industrial consumers, most of 
the remainder being sold through jobbers, and dealers; and that aboat 
half of the sales of domestic salt were made direct to retailers, the 

9825 



-157- 

remaining half being sold throw;h wholesalers. As long ,as i.t' ?^s 
•Dossible for ind-ependeut distributors of salt tp., resell at' prices less 
thtin those quoted; by mamif acturers for direct s?les, rnan-ufabturers 
vrere confronted ViJ-'th-) the alternatives of (l) varying their prices to 
meet those of the distributors, thus sacrif icing _-nriee \iniformity 
among manufacturers; (2) discontinuing direct sales; or (3) finding 
some means of eliminating price competition on the part of distributors. 

B. The Code Program Developed To Meet The Problems . 

In the. ^.revious -oages, there 'have been described- what it is be- 
lieved the' code Droponents considered to be the t'70 basic problems 
confronting the industry: First, how to decrease bulk sales and 
increase t)ackaged sa.les; second, how to eliminate or subjugate price 
competition. 

Under the code, an attempt was made to solve both of these -nroblems. 
The three remaining obstacles to price uniformity were attacked in 
the following, manner: 

First, the code contained a ■ reauirement that all prices, terms 
and conditions of sale be set forth in open price lists, which must be 
rigiAly adhered to; and "orohibi ted rebates, secret allowances of all 
kinds, free deals, storage of' salt with customers, and other similar 
concessions. In this manner, attempt was made to overcome the threat 
to "price uniformity caused by the existence of secret -orice com-Detition. 
(Art. IV, Code, Exhibit IV) .' 

Second, a firmer control over prices was enabled by reason of the 
"market protection" t)rovision of the code, which provided for the divi- 
sion of the United States into a number of "natural marketing fields," 
based on the d iff erent Tiroducing fields existing throughout the country. 
The code further -orovided tliat "the minimum prices published in any 
marketing field by any -oroducer in that field shall be the lowest 
prices at which any, producer may sell in that field." Under these pro- 
visions, the country was divided into ten "natural marketing fields," 
and the minimum -orice at which salt could be sold within each field 
was the lowest -orice filed by a -oroducer in that field. In this fashion, 
the threat of dumping or -orice wars between producing fields was over- 
come. Furthermore, this division of the country into protected marketing 
areas enhanced and strengthened the possibility of controlled prices 
within each field. Between them, the two largest companies — the 
natural price leaders — had plants in eight of the ten marketing 
fields - which eight fields embraced 44^ of the 48 States (*.25). In 
each of these eight marketing fields, one or. the other of the two 
largest -oroducers could cut -orices to any extent desired by them, .and 
were therefore in a position to discipline a smaller producer whose 
prices got out of line, without risking any nation-wide price war as a 
result. The principle is somewhat similar to bulklieads in a boa.t, in 
that there could be a -Drice war in one area, without its spreading to 
other areas. In additipn it is easier, as a general rule, to secure an 
agreement between five or six persons than it is to attain agreement 
between thirty or forty -Dtople. It is also easier to maintain adherence 
to the agreement in the case of the smaller grout). Third, during the 



9825 



-138- 

code neriod, a number of restrictions developed on sales to resellers^ 
their combined effect being to impede the ability of distributors to 
resell at prices under those quoted by -oroducers for direct sales. 
Some of these restrictions were established by the Code Authority 
under guise of the code. Others were attributed by individual 
producers to the code, but actually were not authorized by the code. 
Still others resulted from actions of the Salt Producer's Association 
during the code period. 

Some of these restrictions had forerunners in years prior to the 
code. For years, salt producers had urged jobbers to refrain from 
reselling at prices lower than those published by manufacturers to 
retailers and consumers. Prior to the 1920's, it was customary to 
allow a trade discount to jobbers evidently giving a sufficient margin 
to permit jobbers to resell at less than the producer's prices on 
direct sales. Many difficulties confronted any effective control 
over resale prices. First, salt was sold through such a wide variety 
of jobbers that it was difficult to keer* any effective' supervision 
over their sales. Second, it was exceedingly difficult to properly 
classify a jobber to qtialify ,him for a jobber's discount — so many 
of them were affiliated in some way with retailers, or did some retail 
business themselves. These difficulties were particularly important 
in view of the fact tliat many s^lt raan'of acturers probably didn't care 
particularly whether their distributors maintained resale nrices or not. 

In order to eliminate these difficulties ag far as nossible, the 
Salt Producers' Association in 1914 decided that jobbers' discounts 
should be given only to wholesale grocers, and adopted as a guide 
certain directories of wholesale grocers. The Federal Trade Commission 
in- 1932 issued a cease and desist order against the practice of allowing 
trade discounts only to wholesale grocers whose names appeared in the 
above mentioned directories. 

Following the action of the Federal Trade Commission, it became 
the practice of the industry to allow discounts based only on q"uantity, 
discontinuing the allowance of trade discounts to all jobbers. 

Tliis reduction of the jobber's operating margin was the first step 
toward reducing his opportunity to undersell the producer making direct 
sales. 

Action had also been commenced toward the elimination of brokerage 
payments to buyers or agents or affiliates of buyers. The trade 
association maintained a list of brokers in good standing and notified 
members of the fall from grace of brokers found guilty of affiliation 
with buyers. Because wholesale cooperative buying organizations 
naturally could not be expected to maintain the prices quoted by manu- 
facturers to local, or retail cooperatives, certain members of the 
industry, at least, discouraged sales to such wholesale cooperatives, 
particularly farmers' cooperative "buying organizations. 



9825 



-159- 

The -orogram carried on during the code -oeriod was a contimjation 
and enlargement cf the -ore-code activity. 

Farmers' wholesale cooperatives, during depression years at least, 
were being given brokerage commissions from a number of -Droducers. 
This brokerage payment operated precisely as did the old trade discount 
to jobbers. It afforded the wholesale cooperatives a margin which 
permitted them to resell to constituent cooperatives at a price below 
that at which they could buy direct from the producer. 

An effort .was made by the Code Aathority to have the code inter- 
preted to prohibit the allowance of brokerage payments to these co- 
operatives. 

Apparen'-ly the objectives was finally attained - not under any 
official interpretation by the MA of any code provision mentioning 
brokerage, but under the "market protection" provision, which was 
evidently construed to mean that unless the producers within any mar- 
keting field granted brokerage to cooperatives, no producer outside 
of that field could grant such brokerage on sales into the field. It 
is not known whether this restriction applied with the same force to 
buying organizations composed of v/h'olesale or retail grocers as it did 
to those controlled by farmers, although there is some reason for a 
conjecture tiiat such was not the c?se. 

Another, and extremely important, restriction which developed during 
the code period was the discontinuance of shipments of salt in bulk 
to resellers. This restriction accompanied other similar restrictions, 
including the discontin-oance of bulk salt shipments in mixed carloads 
(bulk and packaged salt in the same car); discontinuance of bulk salt 
shipments to farmers; discontinuance of bulk salt shipments in pooled 
carloads. These restrictions, while not the result of any official 
interpretation of the code, accompanied the development of the code 
program, first appearing in price lists shortly after the approval of 
the code. Again, the amazingly versatile "market protection" clause 
of the code appears to have been construed to prohibit "outside" producers 
from making bulk shipments to resellers,' or in mixed or pooled carloads, 
or t3 farmers, in any area if the local producers in such area did not 
make such sales. 

This type of restriction was capable of accomplishing the double 
purpose of ojcreasing the total sale of bulk salt and assisting in the 
maintenance of price uniformity, with consequent elimination of price 
competition. The restriction in the sale of bulk salt was not accompanied 
by danger of losing large industrial buyers, since industrial buyers 
capable of purchasing a carload of salt at a time could still secure 
bulk salt. However, resellers and industrial b-'jyers incapable of 
purcha^sing full carloads were required to purchase packaged salt. Thus 
the industry engaged in a program whereby price increases would be made 
possible on sales to bijyers who were not in a position to effectively 
protect themselves against such price increases; yet at the same time 
no risk was run of losing the business of large buyers. 



9825 



-140- 

This type of iDrovision, particularly the restriction on bulk sales 
to resellers, was designed to assist the maintenance of price -uniformity 
due to the following circumstances. 

Following the discontinuance of joboer's discounts several years 
ago, it became apparent that jobbers might still be able to profitably 
undercut producers' prices in sales to the smaller retailers and 
industrial buyers. Either as a result of a decision of salt producers, 
or because of difficulties involved by reason of railroad regulations 
or rates, it was not customary for TDroducers to ship bulk salt in l.c.l. 
lots. Purchasers unable to buy as much as a carload of salt at a time 
would be required to b^y packaged salt, and in addition to the higher 
price for this type of salt, would have to pay a proportionately 
higher freight rate on their l.c.l. purchases than if they had purchased 
in carload lots. Jobbers, buying bulk salt at a much lower price than 
was charged for packaged salt, and receiving a. carload discount as 
well as a cheaper freight rate, found it possible to sell to these 
smaller buyers at, a price under that quoted to them by producers. They 
could either deliver the salt in small lots in bulk at a considerably 
lower price than that of producers, or could paclsige it and still 
undercut the producer. Moreover, jobbers occa.sionally purchased 
industrial salt and packaged it for sale as. table salt at a price below 
that charged by producers for their table salt. All this was aggra- 
vating to producers since the packaged salt business was more profitable 
than the bulk salt business. 

As a result of the discontin\aance of bulk sales to resellers during 
the code period, the only remaining basis upon which resellers — job- 
bers, dealers, cooperatives — could operate wa,s the carload discount 
granted by the producer. The effect varied with different kinds of 
salt. Producers realized that it would not be economically feasible 
to attempt to make direct sales of domestic salt to all retail grocers, 
and wished to continue to utilize the services of wholesalers for 
distribution to this type of outlet. Accordingly, the carload discount 
on table salt varies between 15<^ and ISfo, giving the wholesaler a good 
margin on which to operate, through the p-urchase of carload q-oantities 
and resale to small retailers in l.c.l. lots. The -nroducer retains 
direct sales to retailers large enough to buy a carload of salt at one 
time, and, by reason of the large discount, encourages retailers to buy 
direct carloads whenever possible. (As will be developed later, pro- 
ducers apparently were not concerned over the fact tliat certain retail 
grocers were enabled to buy salt at much lower prices than other 
smaller retailers). 

The carload discounts on industrial salt are very much smaller, 
ranging from 34 to 84, detjending on the kind of salt. As a result, 
jobbers were not given a sufficient margin to enable then to undersell 
the -nroducer on industrial salt and in many instances, the margin 
was not sufficient to -oermit the jobber to continue in the handling 
of salt. 

A reduction in sales to jobbers would not be beneficial to the 
industry unless some .alternative method existed or wes available for 
placing salt in the hands of the cons-umer or retailer. Alternative 

9825 



-141- 

channels or methods of distribution were manufacturer's salesmen, 
"branch warehouses, and contract sales a!f!;encies. Lar|5:;e buyers could 
be contacted by salesmen, and the orders secured by such salesmen 
could be transmitted direct to the m.\nufacturer, to be filled by a 
direct shipment by the man-afacturer. Suirolemcnting this selling 
method were contract distributors ana branch warehouses. A wholesale 
distributor, with warehousing: facilities, would be made the ex- 
clusive distributor of a manufactuicv for a certain area, each con- 
tract distributor being required not to resell at prices under those 
published by the manufacturer. These distributors were not con- 
sidered to be "resellers," and were able to secure salt on better 
terms than those given to "resellers." Since these contract distribu- 
tors were considered to be agents of the manufacturer, manufacturers 
were not required to publish their prices or terms of sale to their 
contract distributors, considered to be subsidiaries or affiliates 
of the manufacturer. Producers were held responsible for the actions 
of their salesmen. 

In addition to the branch warehouses and contract distributors, 
another type of intermediary was recognized by producers, and given 
concessions not allowed to ''resellers." This intermediary was termed 
a "supply dealer" or "agent," and for his selling services he was 
given a commission or brokerage. Ke did not take title to the salt 
on which he was given such e„ commission, nor did he receive possession 
thereof. To all intents and purposes, he became a broker. Such agents 
or sunply dealers were required by contract not to rebate to the buyer 
any portion of their selling commission or brokerage. 

Another interesting development during the code period was the 
granting of a special discount on table salt to chain stores. This 
new development cannot be directly attributed to the code, though it 
appeared iraiaediately following the approval of the code. This dis- 
count was ostensibly based on quantity, and was granted in addition 
to the carload quantity discou:it= Bi^yers capable of purcha,sing a 
h-ondred thousand dollars worth of table salt per year, from all sources, 
were allowed a ten percent discount in most sales areas. In some areas, 
a sliding scale of discounts was established, such as 2fj for '^)25,000; 
34 for $50,000; 4^1 for •'575,000; 5'1 for SIOO.OOO; 7^o for $150,000; 
10"^ for $250,000. At first, price lists were so worded as to exclude 
cooperatives buying organizations — retail cooperatives, retailer-whole- 
saler cooperatives, etc. — from the offer of disco"ant, which was made 
to "a single buyer where there is one credit risk, and where there is 
centralized control of buying and selling, and direct control of mer- 
chandising a.nd advertising, and to such a buyer's wholly owned subsidiaries 

where the payment is guaranteed by the centralized control " During 

the first fe^ month's operation of this special discount, only seven 
national cliains of grocery stores were listed by the Trade Association 
as being eligible for the discount. There is some reason for a belief, 
however, tiirt this offer subseauently was made available to cooperative 
chains large enough to avail themselves thereof. 



9825 



-142- 

The fact tiiat such a ST)ecial discount was allowed to chain stores, 
plus the additional fs.ct that large retailers could secure much lower 
prices than could small retailers, because of the large discounts for 
carload lot purchases which only the large huyers could make, indicates 
that the salt industry was not trying to protect one type of retail 
outlet against another. Similarly, because of the fact that restric- 
tions were -placed on the ability of smaller industrial consumers to 
secure bulk salt at Drices much lower tlian those cliarged for packaged 
salt, while large industrial buyers were still t)erraitted to purchase 
salt in bulk, it is evident that the industry was not concerned with 
the effect of its program on the relative comijetitive' status of its 
buyers. • 



i 



9825 



C. Fotention Effects Of PrO;--;ram 

So far, there have been discussed t^^'O toajor obstacles which 
the industry aiDDarently considered p.^ blocV:.ng the road to industrial 
recovery, and the orograra ueveloTDed to o"; e.-c.ome those obstacles. 
First, the industry attem-nted to reduce unr.rof itable bulk shiTjments 
of industrial salt, substituting thi-rc-lor the sale of packaged salt, 
on which a greater margin of -orof it, was possible. Second, the in- 
dustry attemt)ted to eliminate -orice as a com-'ietitive weanon between 
producers themselves, and between iDroducers and distributors, enabling 
not only the maintenance of price stability, but also making possible 
a greater control of price levels, at least on packaged salt. 

So much for the industry's conception of its problems and the 
general program developed to solve those problem.s . At this point there 
should be a distinction drawn between the '"industry," and the com- 
ponent members thereof. The welfare of an industry, and the welfare 
of individual members of that industry, . may be entirely separate and 
distinct — possibly entirely irreconcilable. In the case of the Salt 
Industry, as in ;.iany other instances, the IT.R.A. accepted as the in- 
dustry a "representative" group of members thereof. The basis of 
representation was number of members and volume of business. The Salt 
Code was proposed by the Salt Producers' Association, claiming to 
represent well over half of the prpducers by number, who produced, 
ninety percent of the total dollar volume of production. The program 
proposed by the code sponsors was accepted by the N.H.A. as the program 
best designed to promote the best interests of the industry as a whole. 

In this analysis of the program of the Salt Industry, it is 
deemed desirable tp attempt to calculate its effect on individual 
members of the industry, and on others affected, rather than to at- 
tempt to treat the industry as an integrated whole. 

An understanding cf the physical structure of the industry is 
necessary to this approach. The industry embraced within the definition 
of the code is composed of t-'O ver:/ large producers, thirteen or four- 
teen medium-sized producers, and twenty to t'.iirty small producers. Not 
only do the two largest members produce a considerably greater volume 
of salt than any of the other members of the industry, but also they 
both operated a considerably larger number of plants, scattered through- 
out various producing areas, than did other members of the industry. 
For years, the Morton Salt Company, one of the tro largest producers, 
has been the price leader on evaporated salt thro^oghout the country, 
and has been the price leader on both rock and evaporated salt west 
of the Alleghenies. Little is known regarding the activities of the 
other large producer. International Salt Company, which, although pro- 
ducing a greater total volume of salt (evaporated and rock combined) 
has not played such an ostentatious part in pricing and marketing 
policies, evidently being satisfied to permit Morton to assume the 
price leadership, at least in the western and middle western States. 
However, since international is by far the largest producer in the 
Eastern States, it is considered probable that its prices and marketing 
policies have a considerable effect on the prices and practices of 
ether eastern producers. 

9825 



-144- 

Different -Droducers followed differing distribution methods. The 
Morton Salt Company maintains a niomher of warehouses, and a large sales 
force scattered throughout the country. This company probably sold a 
major portion of its industrial sslt through its own warehouses prior 
to the code. Other of the larger companies apparently have not de- 
pended on branch warehouses as much as Morton, but have utilized the 
services of contract distributors. For example, International has a 
contract distributor in Boston who performs a warehousing and sales 
promotional service for International. Apparently this contract dis- 
tributor is exclusively International's as far as sales promotional 
work is concerned, but performs a warehousing service for other 
producers. 

For some unexplained reason, the smaller members of the industry 
usually do not maintain exclusive contract distributors - that is, 
contract distributors who perform an exclusive sales promotional ser- 
vice for them. It is believed that the smaller producers have in the 
past relied more on independent jobbers tlian on contract distributors. 
In general, the smaller producers, and to a considerable degree the 
larger ones also, depend on their own efforts, or those of brokers 
or other selling agents, to create a demand for their products handled 
through contract distributors. 

V/arehouses and contract distributors were considered to be agents 
rather than customers of the producers, and 'the restrictions and con- 
trols applicable to independent jobbers were not applied to the 
contract distributors. Prodiicers need not file prices to their own 
warehouses or their contract distributors, and the restriction on bulk 
sales to resellers did not apply to them. 

A reduction in sales through independent jobbers, with a resultant 
increase in sales through manufacturer owned or controlled distribution 
agencies would probahly have the effect of increasing the joint use 
of contract distributors. This form of centralized, cooperative ware- 
housing might possibly be more efficient than the older system in 
which a large niomber of jobbers were competing both in sales and 
warehousing. The joint use of contract distributors might also have 
the effect of reducing cross hauling on cheaper grades of salt. This 
possibility is demonstrated in the following situation. 

As has been stated, Morton Salt Company maintains a number of 
warehouses throughout the country, and these warehouses perform a ware- 
housing service for other salt producers. For example, the Worcester 
Salt Company, of New York, sells certain of its higher grades of salt 
in the, middle west and west, and utilizes the warehousing service af- 
forded by Morton. Because of the long haul, it would not be profitable 
to make the necessary absorption of freight charges on cheaper grades of 
salt. In order that Worcester Salt salesmen and brokers might be 
able to offer a complete line to prospective buyers, Worcester Salt 
Company arranges to fill orders for cheaper grades of salt with Morton's 
Salt. If a buyer, for example, wishes to purchase a full carload of 
salt, in order to secure the carload discoimt, but wants only a quarter 
of a carload of high grade salt, the salesman takes his order for the 
full carload, and instructs Morton's warehouse to ship a full carload 

9825 



-145- 

to the 'bxiycT, filling in tlie requir^/d ch.e;T>er grades with Morton's 
Salt. The buyer is filled for the full carload "by Worcester, who -pays 
Morton for the salt su;?5-Dlied to fill the carload. In this manner, 
Morton makes a sale without effort, W:^rcester is enabled to offer a 
full line to buyers without the i.eces:^iy of making an unprofitable 
freight absorption on cheat)er grades, and everybody is satisfied. 

The -orinci-Dal significance of this ccoDerative warehousinf is 
that it emphasizes the departure from sales through independent dis- 
tributors, and the substittvtion therefor of a. direct selling program, 
whereby producers either distribute their products themselves, or dis- 
tribute them throiigh controlled distributers. 

Since the use of contract distributors requires a. considerable 
degree of resale activity by the mautifactux'er not receiving a sales 
promotional service from such distributors, those manufacturers capable 
of maintaining an extensive sales force probably would be benefited more 
by the increased, use of such distributors than would the smaller members, 
not so well equi-nped to contact the market direct. To an unknown degree, 
this potential advantage is offset by the ability of the smaller 
members to utilize tihe services of brokers in place of a directly con- 
trolled sales force. Of course, those producers owning or controlling 
a nxmiber of warehouses, like Morton, would' derive a financial benefit 
through the opera.tion of a system whereby they perform, and receive 
payment for, a distribution service rendered by them to other producers, 
as well as receiving a free sales promotion service on some of their 
products by' other producers wishing to fill out a complete- line. 

However, although it is impossible to estimate the direct effect 
on the competitive status pf various members of the industry of an 
evolution from indirect' to direct selling, the potentia.l or possible 
indirect effects of such a change are of great importance. 

A policy of selling througV. o^rned or controlled distribution 
agencies would assist in the elininr.tion of ririce competition between 
manufacturers and distributors, which, in turn, would be an important 
factor in the maintenance of uniform prices from producer to consumer 
and the elimination of price as a competiiive weapon between producers. 
The elimination of price competition in an industry where packaging 
and qi:iality are so well standardized as in the salt industry would 
leave sales effort as the -nrincipal means of securing or maintaining 
access to the market. 

The substitution of selling competition in place of price compe- 
tition as the outstanding method of promoting and maintaining sales 
would be to the advantage of those best equipped to effectively utilize 
that method cf competition. Those membern with small sales forces, 
little knc"-n bracad names, doing little advertising, who previously 
depended on independent distributors to promote and distribute their 
products would be at a distinct disadvantage as compared to those 
manufacturers having m-ell known brand names,, maintaining -extensive 
sales forces and conducting expensive advertising programs, so long 
as the competition was limited to selling competition. Those producers 
financially unable to readily revise their distribution methods or to 
enter into expensive advertising campaigns would find the situation a 
serious one. 
9825 



-146- 

It sliOTild be 'borne in mind that the demand for salt appears to 
■fae comparatively inflexible. Increased advertising, intensified sales 
effort, probably contribute very little towa.rd a total increase in the 
consumption of salt. If one company increases its sales, either by 
increased selling efforts or by reduced prices, others probably lose 
a comparable amoujit of business. 

Since the larger members of the industry are better equipped 
to compete on the basis of selling effort, as contrasted with price, 
it is probable that the successful operation of the merchandising 
program carried on under the code would have had the result of in- 
creasing the sales of large producers at the expense of the smaller 
ones. 

D. Actual Effects Of Code Program 

There has been set forth above an a^nalysis of the problems con- 
fronting the industry, and the program developed in an attempt to meet 
these problems, together with a discussion of probable effects had the 
program operated successfully. Some information is available as to 
the actual operation of the program. During the first fsw months of the 
code period, it appears tha.t most of the members adhered to filed 
prices, eliminated bulk sales to resellers, discontinued the granting 
of brokerage to cooperative buying organizations, and generally con- 
formed to the va.rious regulations included in the total program. 

During 1924, a few complaints of code violations developed. 
Some of these complaints were against deviations from published prices 
on the part of producers or contract distributors of producers. Diffi- 
culty was encountered in obtaining compliance with the Code Authority's 
regulation against the granting of brokerage commissions to coopera- 
tives. The II. R. A. finally determined tl'iat this regulation was in con- 
flict with Executive Orders issued by the President so far as farmers ' 
cooperatives were concerned. 

During the latter part of 1934 and the early part of 1935 de- 
vices were developed whereby jobbers were enabled to evade the restric- 
tions which were imposed on bulk sales to resellers. Agreements were 
entered into between jobbers and smaller industrial consumers, whereby 
a consumer would place an order (either through the jobber, acting in 
the official capacity of "supply dealer" or "argent" — somewhat compar- 
able to a broker — , or direct to the producer) for a carload of bulk 
salt. The carload would be consigned by the producer to such consumer, 
but upon delivery to the railroad siding of the buyer, the jobber would 
unload the salt and store it in his warehouse. He would then supply to 
the consumer such salt as the consumer needed, selling the remainder 
to other small industrial consumers. This would be of advantage to the 
buyers, unable to handle a full carload of salt at one time, by enabling 
them to secure their salt at a better price than they would have to pay 
for packaged salt, purchased direct from the manufacturer in less than 
carload qpantities. The jobber, of course, would furnish the money to 
the industrial consumer with which he would pay the manufacturer. It 
was difficulij for salt producers to unearth instances of this means of 
evading the restriction on sales of bulk salt to resellers, and there is 
reason to believe that certain members did not particularly care whether 
this result obtained. No definite information is available as to the 
9825 



-147- 

extent of this practice, nor its total cvfjfcct. 

In the latter mrnths of the code neriod, the practice rf granting 
secret rebates and other secret crncespionB froT filed prices "began to 
develop in the industry. Filed ririces w^ve maintained at uniform levels 
within the various marketing areas, hut actuil T)rice uniformity was dis- 
appearing. The difficulty of discovering and nroving secret price con- 
CG8sien3, plus rather apathetic sup-oort from the N.R.A. along comt)liance 
linrs, contributed to the gr<*wth nf ciccrct pricing. Adherence to 
published prices was a vital nart rf the ca.Tmaign for uniform nrices, 
and the recurrence of secret pricing wis an cxtrerriely serious obstacle* 
to its success. 

No information has been developed as to the actup.l extent of 
violations of the open nrice -nrovision of the cede. Evidently, the 
eitufltie.n was not sufficiently serious to be called a complete break- 
down of the riDen price provision. Comparatively few com-olaints were 
brought to the attention &f the IT.H.A. This may indicate cither that 
actual evidence of code violation was nrt forthcoming, or that attempts 
were being made to persimde violators to mend their ways voluntarily. 

Following May 27, 1935, deviations from riublished -orices became 
more and more troublesome. By August, the secret prices evidently 
bocarae sufficiently serious to warrant retaliation by the price leaders 
in the industry. Since that time, there has develo-oed one of the worst 
prica wars cxoerienced in recent years by this industry. Published 
prices remain practically the same as they were during the code period, 
but discounts and rebates ranging fr^ra twenty to thirty uorcent are 
boing granted to various types of boj'ers. Whether or not the severity 
»f tha Torcsant nrice war is to any e::tent attributable to an attempt 
•n tho part of smaller -oroducers to regain business which they may 
have loGt during the code ■oeriod, or the natural result of a return 
tp the use cf any competitive weapons available, or to a psychological 
reaction from the restrictions im-nosed during the code period, is not 
knowii. 

It is impossible to estimate the actual effects of the Code of 
Fair Crmpetition for the Salt Producing Industry. It may be that the 
industry has made a -oermanent increase in direct salps, and that per- 
manent Torrgrcss has been made toward the substitution of uackaged sales 
for bulk sales of salt. Certainly the existence of tho present pric^ 
war do-^s not indicate tliat much -orogress has been made toward the eli- 
mination of price crmpetition from this industry. 

It appears that the level cf prices was increased for the first 
few months --.f the code period, through the cessation ■^f the secret rebates 
and sccr<5t concessions from filed prices which existed bef«*re, and 
after, the code -nericd. 

There evidently had been an incrcas?^ in the use of manufacturer's 
selling agents or brokers as a result of the operaticn of the code, but 
whether this increase is a -nermanent f»ne, or whether there will be a 
comnlste reversion to the use of Jobbers and dealers as such, is a 
matter of conjecture. 



-148- 



The large numher of complaints from -jobbers to the- effect that 
the code restrictions were making it iranDOSsible for them to -Drofitahly 
handle salt indica,tes that the code was of assistance in the elimination 
of jobber middlemen from the handling of industrial salt (except those 
distributors under contract requiring resale price maintenance), or so 
limiting the differential to jobbers that they could xirofitably 
retain only that tyoe of business which the -nroducer could not handle 
throiagh direct sales, placing him in a position where he could not 
interfere with the price structure of the manufacturers, or participate 
in the carload market. 

Of the two distinct -ohases of the industry's program — first, 
the reductio:i of bulk sales and increase of packaged sales of industrial 
salt, with resulting opportunity for greater profits on sales to smaller 
buyers; and second, the elimination of price competition — the first 
appears to have been the more successful, Althoiogh some buyers found 
means of circumventing restrictions on bulk sales, it is doubtful if 
all of them were successful in this direction. 



9825 



-149- ' 

E.' Evaltiation of the Code Prc Tram 

Per iiorc than t\7enty years, through trade association activity, 
and later under the code, atteiapts have teen nade' to . stahilize prices 
and place less emphases on jirice as a inethod of competition than on 
advertising service, and other for.ns of selling effort. It appears 
that nore p--ogress was aade in this direction prior to, than during the 
code, including the division of the country into recognized marketing 
areas;' festaolishaient o-f a "basing point system; recognition of the prin- 
ciple of sales on the "basis of published prices; eliiiinatinn of open 
or pu'blislaed trade discounts to joVoers. 

Tt.e failure of the code to operate "ith complete success may "be 
actri"buted to tvo factors. First, the code attempted to a,ccomplish 
those thir.gs t?hich had "been found- r.ost difficult of accomplishment in 
the association program nhich hr,d teen supported for many years "by the 
industry Merj"bers la.ter sponsoring the, code. Second, inlierent in this 
progrjan'vras a major o'bstacle to its successful operation. Although the 
program tras potentially capa."ble of increasing profits for the industry 
as a rrhole,' yet it vras so designed as to enable only certain raem"bers 
to participate in those profits. An attempt ups made to change from 
fheilse of price as the rjredominant ueapon of competition, to the com- 
plste elinina,tion of price, rjid the suhstitution therefor of selling 
coiipetition. 

• Inevitably, this uould "be to the di sadvaaitage of those mem"bers 
una"ble to effectively compete on the nerr "basis, and these mem"bers, 
rather than face certain extinction, nould nattirally persist in revert- 
ing to a "basis of competition, uhich, although perhaps not more satisfac- 
tory to theu ultima,tely, at least might permit their survival for a 
longer tire than •under the nev; "basis. 

It is' entirely possi"ble that, uhe the r the principal "basis of com- 
petition be price or selling effort, the sane producers would be best 
equipped to. survive - the larger, vreaithier members. 

Por a period of more than thirty years, t"ne number of producers 
in this ind.-.strj'- has -steadily, declined. It is probable that ultimately, 
the. smaller producer is no better off under a program uherein open price 
competition exists than -under one vhere there is no price competition. 
In this industry, as in other nhere overhead cost is a very important 
element. of cost, there is a strong incentive to increase volume thereby 
materially decreasing per unit cost production, '.'ith the hope of reali- 
zing a greater net profit. Because the total demand for salt is rela- 
tively inflexible, the total consuraption probably is increased .very 
little as a- resul-t. of price reductions, and any increase in volume 
gained by one producer as- a result of reduced prices trould resiilt in a 
similar reduction in the vol-ume of .eales of other producers. Other 
producers would be compelled to meet the price reduction in an effort 
to maintain their volume, and the. result would be that all producers 
would retain their relative volumes, but would be selling at a reduced, 
and possibly unprofitable level. "The producers able to continue to 
operate unprofitably for the longest time will survive, while the wealrer 
perishes. 



9825 



-150- 

Tlie principal differences bet'veen the tijo tases of competition - 
cornpletelj^ free price conpetition versus selling competition — are, 
first, that in the la,tter case, the competitive straggle is conducted 
on a higher price level, and the members "best equipped to survive 
could nointain or "better their position ^rithout the expense incident 
to a long price war; and second, that the demise of the neal-zer uemhers 
night he deferred longer when price is the principal "base of competi- 
tion. 

There has never been evident in this industry (so far as infoma- 
tion available to this study discloses) an3'' rrillingness on the part of 
the large advertisers to openly allow the snail or non-advertisers a 
price differential, thus balancing the appeal 0^ j)rice .by the appeal 
of advertising. Price reductions, when open, evidentl;^ have alrvays 
been net by other producers. Emphasis on price is entirely capable of 
causing, and in fact has caused, price wars in which prices become so 
low as to cause all members of the industry to sell at a loss. Those 
members of the industry with the longest pocketboohs — the greatest 
cash reserves — are the ones best able to survive such price wars. 

It is interesting to speculate what might have been the result had 
the industry"- made the attempt, not to completely eliminate price con- 
petition and substitute therefor selling conpetition, but to give equal 
prominence to both means of seeking access to the market - by permitting 
the non-advertisers to sell for prices slightly belovr those of adverti- 
sers; by giving those not as well equipped to render a distribution 
service to buyers a slight j^rice advantage over those better equipped 
to render this service. If a differential could be developed which 
would be satisfactory to the various types of producers, tending to 
rigidly the relative positions of the different members, a program of 
price stabilization might be r.ore feasible administratively than the one 
undertaken. 

Any program of price stabilization, of course, is subject to the 
valid criticism that the interests of the consuming public are en- 
tirely overlooked, the sole purpose sought to be accomplished being 
the protection or enhajicenent of the profits of the industry. Jrom 
a public viewpoint, the benefits to be gained through the successful 
operation of any price stabilization program, in which the public has 
no voice, are apt to be outweighed by the cost thereof to the public. 

Por example, the refusal of the members of the industrj'- to allow 
brokerage payments to wholesale farmers'"; cooperatives, who would in 
turn pass the discount on to their members, plus refusal to nalce bulk 
shipments to small buyers and resellers, thus requiring farmers to btiy 
packaged salt at considerably higher prices than they had been paying 
for bulk salt, doubtless benefited salt producers by increasing the 
amounts received for salt sold to farmers. Hov;ever, the adverse effect 
on the farmer might readily be considered more important than the 
beneficial effect on salt producers in an appraisal of the desirability 
of the program from the public viewpoint. 



9825 



-151- 

Shirtlier :oi-e owr jyo[^r.": rrliic.\, lii'e '.•.lie one a>"o -ted "by the Salt 
Industr---, is Ijased on -price discviiinati'.n "oet-'een lar.';;e and snail buyers 
is o^en to severe criticisi, p-rticwlarl-- \7hen the ;ric8 differential 
between these classes of bixyers is ver^r lar^e. As has been stated 
earlier in this report, the -jrograu of this indastry evidently- con- 
terrplated an increase in pricGs to spiall industrial buyers, unable to 
protect themselves against such increase, at the sa le tiie permitting 
large irdustrial bu^'^ers to -ourchase their salt at a jrice considerably 
lorrer than that charged si.a?ll buyers, since the lpr'-;e bu;'''ers ^^ere 
better able to -protect their interests b"-- ente-nn'^ into the -oroduction 
of salt to neet their requireuents. 

Snail industrial buyers, incapable of buying a full carload of 
industrial salt, were required to pvxchase oackoged salt, and were re- 
fused the -privilege of buyin-^ bui:- salt in pooled cars. Large indus- 
trial buyers were given a cai'load discount, an ooportunity to secure a 
further discount V" entering into a contract callin- for the pxirchase 
of large Quantities oT salt over a -period of a ^-ear, and v^ere per litted 
to purchase salt in bwlk, at a considerable'' lo'-rer -iricc than that which 
the l.c.l. bu'-er v/as charged for -oncizaged salt. 

IJAch the sane situation orevaile". --ith resviect t" trble salt, 
Lsirge grocers, capable of b-aying i: carload lots, cc ■'.Id sec"are a c?rload 
discount rE.ir;ing up to 13^. However, iiatio'ial chain stores, in nost 
narketin^ areas, co \ld secure an additional 10-j discount, gra::ated to 
resellers large ehoiigh to purchase $100,000 worth of salt -oer ^"-ear, 
from all so-orces. Thus, chain stores co .ild bu;;- salt for a price as 
much as 28fj below that which s-:all, inde^oendent grocers, were required 
to pa;''. The total price differential betv-een the large and srmll biiyers 
of both kinds of salt was considerably greater than is easily 
justified on the basis of any srvi'-'g i''^ cost to the seller. 

If the analysis herein nade of the objectives . sought to be 
attained through this industr3'''s atterjpted control of distribution, 
is an accurate one, it certainl" wouT.d not appear that the pro- 
ponents of the progra": "ere greatl'"' co'icerned over the protection 
of s'-iall e'nterprises en-';;;v.^eC- either in the ::an-.ij'act-a:'e or distribu- 
tion of salt. 



3325 



-152- 

?oot-i' ote lefe rer.ces rind Oitotioiis. 

I. Complied from a st-'itement preseTited to the National Recovery 
Administration h-j the Salt Froducei-s' Association, pp. 4-12, 
Vol. 1, Trejiscript of Keorins^, Aii^^ust 14, 19'>J>; puolications 
issued "by the U. 3. Bureau of i'lines, including; issues of Flineral 
ResoTJTces and the Minerals Tearhool:; ;-ind Volumes A and 3, Belt 
Producing Industry Code, Code Hecord Section, ii.H.A. 

2i 1934 I'iinerals Yeartook md a galley proof of the Salt Section of 
• the 1935 Minerals Yearbook, U. 3. Bureau of I'iines. 

3. "Production and Distribution of Salt in the United States by Pri- 
mary Producers" , U. S. Tariff CoiuTiission, 1955. 

4. "Salt, Its Soraanfcic History, Its P.efiuing and Its liany Uses" , piib- 
lished by the ^"'ox'cester Salt Corn-any, ITew York, 1933. 

5. Interview withk'r. H. C. Mandeville, President, Worcester Salt 
Company, i'levf Yor]-: City, Jaiiuary 9, 1936. . 

6. Information contained in the 1934 Minerals Yearbook, U. 3. Bureau 
of Mines, with the exception .of the number, of plants ov.-ned or con- 
trolled by International Salt Company. Tiae Minerals Yearbook in- 
dicates that International ovms.or controls five plaiits; price lists 
issued by International contain the names of six plants operated 

by that co'.ipany. 

7. 1934 Minerals Yearbook, U. S. Bui'eau of Mines. 

8. Moody's Industrial Service,. 1932. 

9. Letter froi.'i the President of the Salt Producers' Association to the 
National Recovery Adrainistratioa, July, 1933; questionnaire filled 

in by the Secretary of the Salt Producers' Association; both of vmich 
appear in Volume B, Salt Code, Code Hecord Jiles. 

10. VolTJine B, Salt Code, Code Hecord Files. 

II. Docket 781, Federal Trade Comr:ission. 

12. By-Laws of the Salt Producers' Association, Voluj-n3 3, Salt Code, 
Code Record Files. 

13. "Railways in the United States, 190.2, Part II, Cnrn^cea in Freij^ht 
Tariffs", Interstate Cor.a'nerce Cor iniission, 1903. 

14. PP. 53-57, Transcript of Public Hearin,;;, Salt Industry, Au^^ust 14, 
1933, Statement of Mr. Daniel Peterkin, Morton Salt Comprjiy. 

14a. PP. 54-55, Transcript of Public nenrii-.s, Salt Industr:.^ August 14, 
1933, Statement of nv . Daniel Peterkin, iCorton Salt Comyinny. 

9825 



15. Price List Files, Srlt Folder, Open Price Unit, Trade Practice 
Studies Section. . ' ' 

16. Deputy's Files, Brokers Folder. 

17. Deputy's Files, Codo Autliorit;/ Folder. 

18. .4rticl : IV, (a), (b) , Salt Code. 

19. Article IV, (a), Salt Code. 

?0. .4j-ticle IV, (e) , 2, 6. .: . . ^ 

2i. Deputy's Files, Code Authority 3-eneral Folder. 

22. Deputy's Files, Meeting Folder 

23. Deputy's Files, Cooperative Folder. 

24. Deputy's Files, Qu.ai^tity Discoxmt Folder. 

25. Deputy's Files, Protest Folder. 

26. Deputy's Files, Complaints Folder. ' . . " 

27. Salt Producing Code, Article IV, Sec. (e), paragraphs 1, 2, 3, 4, 

5, 6, 7, 9, 10, 16. 

28. Page 90, Volume II, Transcript of Public Hearing, Salt Industry, 
August 14, 1933. 

29. Distribution of Sales of Manufacturing Plants, Fifteenth Census, 
published by the Bui-eau of the Censvis in 193?,.. 

30. Deputy's Files, Interpretations Folder. 

31. Public Agency Division Files, Drawer 4, Cooperatives Folder. 

32. Interview with Albert P.. Ames, ovmer of A. P. Ames Company, .. 
Feabody, Massachusetts, Jairuary 8, 1936. 

33. Deputy's Files, G-eneral Code Folder. 

34. Volume 1, Page 4, Transcript of Public Hearing, Salt Industry, 
August 14, 1933. ■ ■ 

35. The .information contained in pages 98-100- inclusive was- developed 
in interviews with a salt producer and distributors of salt. The 
distributors requested that their names be not divulged. 

36. This information was secured under a pledge of confidence as to 
source. 



3825 



-154- 





UDOrH r-OrH-=f LTNrO 


fO 


Q. 


c\j LO, r— vx) oj ro ir- r~i 


V.O 


p 


O 0"^-* C\J r— t^ ^D UD 


ir\ 




-•--'» 




P 


OI OJ LOLfA C\J C\J 




> 






J- 






en 




. .. 


r-l m 


OJ 00 OJ >-X) CJ h- I-— 0-, 


NT 


S 


J- VD r-H vjD t^vX) UD O 


^ 


o 
• 


C\J r-H rH 


ro 


CTiCTNOrH 0"^CT^LPlOr^ LTA 


2 


r-ir^tooj cr\C\jj-vx>^ K) 


ci 


OOV£) r-H irM^r<-Mr^r-)J- 


r- 






> 


-w- 




r-^, 






C7^ 






r-t CO 


r-+ r^ O f<l OJ ^ KAVD VT) OJ 


t1 


r-O K> (Tn lo 'o >.X) ^'^^vD li 


"■ 


O 


r^ 1 — O M ro LP. r-H 


^ 


tH 


OJ rH M 




(D 






,d 






rH 


+3 




oj 


rH = 




-=^ > 


-1 




i^. 


CO 




0'> •* 


^ 






QM-H Lr^ O O O LfN O 


r^, 


CO 


cr\^ o OJ o = 


^ 


C 


^-^^^ OJ m LO. ^ 




o 


rH rH * » » 


* 


tH 


o ^ 






fl 




CD 


o 




^ 






rH 


+3 




Oj 


ct3 




r^> 


E 




r-^ 


^1 




^ 


• • •• •• •• •• •• •• ■• o c 






ror^-OLT^ooo 


LC^ 


to 


-:J- ^ t^ -H 


rH 


a 


-'-^ ^^Sf rH J- U-^ 


CJ 


o 


rH rH * * * 


# 


f:h 


'^— - ^ = 






h-vo ^ u■^vx) vD 


CTi 


(D 


fo ro OJ ^ r^ 





pi 







1— 1 


"-•••-- rH 




rt 


rH rH ^ K-\ OJ n! = = 


rH 


J- > 


'"> CO 




i"^ 






f— 1 


• ^ •• •• 

CD 




CO 


KM-^ OJ IC> r^ H) +J 


J- 


C 


r^. t — ai ^ r^- vX) (^ 





o 


ro OJ r~- r^ f^ ^ 


ou 


EH 


= c 

e 






• CD •• •• 

LO^O ^ LTN^.O cr. CD 


o~\ 


(D 


fO r- rH h-^^ OJ 


r-- 


;:( 


cr. t^. 1-^ r'"^ rt 


0"^ 


r-H 


».««« 0= = 




"i 






K> > 


</> CO 




fV-x 


CD 




r-l 


• •• '• •• t~t •• •" 


" 


CO 


t^^a ^ ^ ^ ko= = 


^0 


rt 


Oj 1x1 m u"\ roMD .h 


c^ 


o 


ri-NCXj 1 — r^ i-<-> Cn 


r-< 


tH 







9325 









nS 










• H 










p! 




cS 






.H 




•H 






ty3 ctJ 






3 Ih 




^1 a 

•H c;j 




CO 


E^O 




> -H 




tH c:! 


•H >. 




en 


ro 


•H en 


^ ^ 





+2 -H 


rrl 


r-\ a 


?. 


•H 


to 


M 


nj a 


•H 0) 


cl 


<o 


01 


M 


.^^ s 





t-^ Ml 


iH 







,a cu 


m 




4J 


W, CD 


c-( 




H 


Pl K 


CO 


1 




-_• 


r! 









m 




• 


+= -IJ 


w 


p 


4J 


iH 






rH 


- fij 


fip 


rH 


t-J 


CO CO 


Cl 


c« 


CO 


ni 


•H 


4J 




CO ^ 


m 





-TlJ 


S 


rJ 



(D Cd O 

-1^ M fH 



S +3 
> 

<D 4J 
rH 

CD d 

P 03 
O 

to M 





rH 


m CD 


3 0) ti Cij 


•■d 


oj 





td M 0) 


Q) 




■c! to 


fn 





«tH 


(D v_ 


^1 E P;tH 


pi 





^J 


P 


t 




cj 


to c 







^1 • 


-p (B c^ d 


fn 


C\J 


CD 


m UD 


P 


c.> 


p a 


;>- PJ -H .r) 






. rj .H 


xi ^ -P 


• 


'd 


> fn 


" 


CO 


CD 


CD ^ 


+= ^^ -H ;:J 


^ 







rH p s: t:) 




^ 


t.o 


cd 


• 


■tJ 


r; d 


CO ^ Tb Jh 


r- 





•H 


Jh d P 




^1 


-P (D 


^ rt 


t:) 


P 





: (D 


q 




cd r< 


- 4^ 


G, 


. Vv 


fn Tj 


f-l S to ctj 




id 


4J 


<D r" E 


•• 


CD 


'S '^ 


tH rs; CO .H 


• 


e 


.-^i p 


a M 


cii 


•T) 


CO 


p3 


> 


fl 


Cti 


!h . « fn 






t^- -H 


(D to p 


•» 


fn 


,0 C 


cS - p 


• 


CD 


Sh 


pi to . C5j 


>-• 


■cJ 


rd 


•-d C >H 




fn 


CD «H 


ctJ 


• 





+3 .H 


f^ W . -P 


;^ 




CJ rH 


P: S 




a 


E t.j 


CO (D • 


•• 


•H 


•H tj 


-P <D -rH C 


• 


v_^ 


-P 


to ni .iT) 


.^ 




CO TZ) 


(D Td fl .H -H 





• 


0) fl 


toO cd W +3 


•H 


r] 


cd 


Pi a -H CO ttj 


^ 





(D 


id CC to rH 




•H 


Jh CO 


rH ^ -H P 'H 





— 


ho to 


-P pi b 

to tn rH 


•H 


nrf 


•H c 


•H +3 hT -H Oj 


^ 


rt 


<t-i a 


rH CJ 





■c;3 


w 


cd nj +3 






c 


t! to • .H lU 


1 


• 


m 


oj ci ,ci 




• 


■H 


•H ^ rl -p 


J* 


M 


-p 


to nJ CO 


ro 


fl 


to 


•H -rt f-l 


o-> 


cS 


CD 


pi ^1 to « 


rH 


;^ 


"tl +:■ 


.H ^-^ Ch 






rr; 


1-^ <D fi 


* 


* 


(h -P 


fH ^— ^ to 


^ 


• 


p w 


t-q ^ .H 





>H 




• P -~^ CO 







-p 


■n P! cd 


^ 


• 


rH • 


<D 00 OJ (D ^ 


!-< 


t^ 


rt fl 


+3 CD ^C! -p 


Cl! 




to 


Cd +J (B 


Q) 


•« 


•H 


E pi H ^ 


^w 


cti 


>1 +J 


•H 'd tn 4J +> 




C 





+3 CQ 


r-t 


c:i 


r< 


a U CD m 


Cti 


■ rl 


P1 'ri 


W p 1-1 Vi cd 



iH 1:^) o 



-155- 

TABL3 IJO. 2. 

Salt Prod-uction ^nd Value Per Ton 
(Compiled from i.iineral Yenr- 
tooks of the U. S. Bureau 
of Mines.) 





RQOli SALT 






Tons 


Value 




(000) 


Per Ton 


1920 


1,610 


$4.30 


1921 


1,473 


4,50 


1922 


1,947 


3.80 


1925 


2,104 


3.70 


1924 


2,065 


3.60 


1925 


2,343 


3.15 


1926 


2,136 


3.35 


1927 


2,144 


2.90 


1928 


2,218 


3.05 


1929 


2,113 


3.35 


1930 


1,977 


3.40 


1931 


1,854 


3.05 


1932 


1,585 


3.15 


1933 


1,785 


3.10 


1934 


1,920 


3.30 



EVAPORATED SALT 



Tone, 

(oon) 

2,410 
1,931 
2,277 
2,240 
2,225 
2,235 
2,198 
2,263 
2,430 
2,546 
2,359 
2,204 
2,053 
2,359 
2,290 



Value 
Per Ton 

$8.60 

8.75 

8.10 

8.25 

7.50 

7.60 

7.20 

7.30 

7.30 

6.95 

7,40 

6.50 

6.50 

6.40 

6.40 



9825 



List I'To. 1 

SALT FH0DUC3'.1S ASSOCIATION 

Ofiice of Secretary 

Book 3uilcUn£^ Detroit. 



BULLETIN 



Sept enter 19, 1933. 

TO ALL SilLT PRODUCERS: 

NATURAL MARKETIl-G TERRITORY 

The Code Comnittee has defixied the present natural marketing territory 
for each producing field to he as follows: 



N'EW YORK 

New York 

New Jersey 

Delaware 

Pennsylvania (except Star Points 

Accpmac and Northampton Counties) 



OHIO 



Ohio 

Pennsylvania Star Points , 
Virginia (except Accomac and 
Northampton Covinties) 



New England 

Maryland 

Dist, of Columhia 

Virginia 



West Virginia 
Kentuckj'- Star Points 



MI CHI GAIT 



Michigan 

Illinois " . 

Indiana (except New Alhany and 

Jef f ersonville) 
North Dakota (except Star Points) 



Wisconsin 



MiCHIGAN-KAITSAS 



Iowa 

South Dakota 

North Dakota Star Points 



KANSAS 



Kansas 

So. Missouri 

Nehraska 



Minnesota 
No. Missouri 



Colorado Star Points 

Wyoming 

New Mexico 



OKLAilOMA 



Oklahoma 

Arkansas: That part of the State which is North of the 

South boundary line of the following counties: 



9825 



-157- 
List llo. 1 (Continued) 



TEXAS Texas 
UTAH 



Idaho (except Kortliern part) 

I'.'ontana 

Wyoming (except Star Points) 

Nevada (except Western part) 

Utah 

Colorado (except Star Points) 



CALIPORITIA 



California 

Oregon 

Nevada - Western Fart 

Idaho - Northern Fart 



Folk, Scott, Yell, Ferry, 
Faulkner, White, Woodruff, 
Cross, Poinsett and 
Mississippi. 



Arizona 
Washin=cton 



LOUISIANA 



Louisiana 
Mississippi 
Alabama 
Georgia 
Florida 
South Carolina 
North Carolina 

Kentucky (except Star Points) 
Jeffersonville and New Albany, 
Indiana 



Tennessee 

Arkansas: That part of 
the State which is 
South of the South 
boundary line of the 
follov;ing counties: 
Polk, Scott, Yell, 
Perry, FauBmer, White, 
Woodruff, Cross, 
Poinsett and 
Mississippi 



FHANK MOBSE 
Secretary of the Code Committee 



9825 



List I'o. 2 

(List of Salt producers, By States; type of salt produced, and affilia- 
tions or o-.vnership. ) 

Compiled from 1934 Minerals Yearbook, U. S. Bureau of I,;ines. 

STATE "ROUJCEil 



ilG. CI' TIPS Ci SAL] 
PLAiTTS 



CrUED BY CR 
AFFILIATED 
WITH 



Cali- 


Leslie-California 


2 


Evaporated 






fornia 


Long Beach 


2 


Evaporated 








Morton 


1 


Evaporated 








Arden 


1 


Evaporated 




liOrton refines salt 
produced "by Arden. 




Sierra Salt 


1 


Evaporated 








Surprise Valley 


1 


Evaporated 








Monterey Bay 


1 


Evaporated 








Calif. Rock Salt 


A 


Rock 








Saline products 


1 


Rock 








Burnham Chem. Co. 


1 


Evaporated 




Chemical Company 




Western 


1 


Evaporated 








St auff er Chem . Co . 


1 


Evaporated 




Chemical Company 


Kansas 


Carey Salt Co. 


2 


Evaporated & 


rock 






Independent 


1 


Rock 




M.eat Packers 




Crystal 


1 


Rock 








Anthony 


1 


Evaporated 








Barton 


1 


Evaporated 








Morton 


1 


Evaporated 








American 


1 


Evaporated & 


rock 






Diamond Crystal 


1 


Evaporated & 


rock 


General Foods Corp. 


Louisiana 


Avery Salt Co. 


1 


Evaporated & 


rock 


International 
Salt Company 




Jefferson Island. 


1 


Evaporated & 


rock 






Myles 


1 


Rock 








Carey 


1 


Rock 






Michigan 


Morton 


3 


Evaporated' 








Diamond Crystal 


1 


Evaporated 




General Foods 



Detroit Rock Salt 



Rock 



Manistee 


1 


Evaporated 


Dow Chemical Co. 


1 


Evaporated 


Mershon, Eddy, Parker 


1 


Evaporated 


Saginaw 


1 


Evaporated 


Strable Ltimher & 






Salt 


1 


Evaporated 


Solvay process 


1 


Brine 


Michigan Alkali 


1 


Brine 


Pennsylvania 


1 


Evaporated 
brine 



Corporation 
International 
Salt Company 

Chemical Company 



Chemical Company 
Chemical Company 
Chemical Company 



9825 



—159— 



Nevada Virgin xliver 

Kew iviexico ITew Mex. Salt Co, 



New York 



Ohio 



Oklahoma 



Texas 



Utah 



Retsof 



Ro ck 



:ilock 



International 


2 


Evaporated 




Wat kins 


1 


■Evaporated 




!7orcester 


2 


Evaporated 




Solvay process 


1 


Brine & evapc 


> rat e d 


Cayuga Rock Salt 


1 


Rock 




Union 


1 


'"vaporated 




Colonial 


1 


Evaporated 


■' 


Ohio salt 


1 


Evaporated 




Diamond Alkali 


1 


Brine & evr.p. 




Pittsburgh plate 


1 


Brine 




Glass 








Excelsior 


1 


Evaporated 




Pomeroy 


1 


Evaporated 


- 


Texaco 


1 


Evaporated 




Ivlorton Salt Co. 


1 


. .Evaporated & 


rock 


Palestine Salt & 


1 


Evaporated 




Coal 








United 


1 


Rock 




Royal Crystal 


2 


Evaporated & 


rock 


horton 


1 


Evaporated 




Great 7estern 


1 


Rock 




Poulsen Bros. 


1 


Rock 





International Salt 
Company 



Chemical Co. 



Chemical Company 
Chemical Company 



Texas products 
Company 



1i7. Va . J. Q,. Dickinson 

Westvaco Chlorine 

Liverpool 

Ohio River 



1 Evaporated & oromine 

1 Brine Chemical Company 

1 Evaporated & bromine 

1 Svaoorated ci bromine 



9825 



-160" 
Chrritcr II* 

THE :;00I)-CAS;2D LK-ID PSCIL ;XTr.:^AGTiJIlirG IIDUSTEY 

I. DSSCPJPTIOr 0? liTDUSTRT AID ITS iTlOBLSKS 

Tne '.."ood Cased Lead Pencil Indtir-trv, as defined "03- its code, con- 
sisted of 13 firms. Of these, four firms v/liicli have been in business 
for more thaai 50 years, have long held a leading position in the industry'-, 
together accoiinting for a substantial majority of the total volume of the 
industr]-, and being familiarly l;no\7n throughout the industry as the "Big 
Pour".. At the time the code was adopted., each of the "Big Pour" firms 
accounted for at least 15^5 of the total volume of the industry''. However, 
their combined percentage of the total business had been declining for 
several ^rears, from Br^fo in 1927 to 76^ in 1930, to 72^0 in 1932, and to 
66^0 in 1933. ** 

Prom 1913 to 1927, v/hen the industry volume reached its peak, the 
increase in volume was quite consistent with population increase, the 
volume running roughlj'- six pencils per person per year. However, starting 
after the peak year of 1927, the industry suffered a do':'nward volirne trend, 
so that tiy 1932 the total industry"- volujne wo.s down a-boiit SOfp from its pea!:. * 

This decline in volume was laid largely to the competitive ac^vance in 
the writing instrument field of raechanica.l pencils, fountain pens, statis- 
tical and bookkeeping machiner;'-, etc., as the decline started before the 
depression in 1929. **** 

During the period of volume increase from 1921 to 1928, several nev; 
production -units entered the industry, v/hich units began to compete for 
sales volume on the basis of lower selling prices. From 1928 on, as volume 
commenced to decline, there began a competitive contest for sa.les volume, 
which, according to code proponents, had tv/o outstanding characteristics - 
price cutting and chepa.er goods which copied the appearance of the higher 
priced numbers. Tlie code proponents consistently pointed out the importance 
of the yellow pencil as having been a.ccepted as the five cent pencil b;- * 
popula,r consider opinion, and raised strong objection to, the use of, this /' 
color in cheaper pencils." ***** ■ . ^ 



* This Chapter V7as "'ritten by Arthur A. Kimball 

** See Appendi::, Exliibit To. 3, pages 422,, 424 • and 4?8. 

*** Ibed.. ,page 423. • 

**** Ibid.. , Page 423. 

***** Ibid. , pages 423, 424- and 443 to 451 



9825 



-161- 

?ron the best available information, tlie highest average price per 
gross v/as reached -in 1920 - $3.25 per gross. From' ,1920 on, the average 
price per gross declined steadil3'-, reaching $3.47 i'n 1929, and only $1.G5 
in 1932, at r;hich time it amoiuited to but 30^o of its peak. Hie code pro- 
ponents further estimated that the induslPr';'- suffered a financial loss . .^ ■:•• 
amounting 'to $1,000,000 in 1932,- and that in vie\7 of ..the anticipated in- 
crease in labor cost's "onder the code, and in s;oite of the impossibility of 
regaining a EaleS' volume an;;n,7here near that of the peah year, it was nee- 
essar;'- to increase ■tThe gross income, which could only be accomplished by 
raising the price average.* 

In addition to the reasons mentioned above for declining sales volume - 
a.dvance of other writing instruments, price Competition from nev/ members . 
of the industry, and the depression - a recfent added factor at the time 
the code v.^a-s proposed nas the great increa.se in lovf-priced Japanese, imported 
pencils. (This factor does not have much relation to the subject studied, 
but is mentioned in order to present- a comolete "picture".)** 

In addition to the "Big Four", there v.'ere tv/o firms (Class 3) vrhich 
each accounted' for more than- 5f& of the total sales volume, and seven firms 
(Class C) which each accoxmted for less than 5^ of the total volume.. In 
1929, , the Lea.d Pencil 'Institu.te, Inc. (the codC' si':)onsoring trade association) 
was. founded. 'At the time' the code v.-as originally pre?;ented, the Institxtte 
consisted, of , ir'members out of • the 13 firms in the industry'-, Howeverj one 
of 'these members v/ithdrew f ro"m the Institute and joined the group opposing 
. jihe'code. *** ■ . 

Tliree small (Class C) man-of acturors consistently opposed the code, 
all of them being non-members of ' the Institute. All of these firms v/ere 
newcomers in the industry' - tvro had been in T>usinegs for; three ^or .four ..■-• 
years, one for but a few months. This group, which 'ivi 11 be referred ■tai:!--.i. 
herein as the '"code" opponents", consistentlj'" charged that the 'code wag; -.an:.' 
effort b;"- the' ."Big Pour" to gain an even greater mbnopol^^, and "by forci'ng:' 
these small manufacturers out of busines-s, to regain their -position in tjie 
industrj;-' s total sales volume which t'he.3'- had lost to these new firms in • 
recent ^'•ears. It will be noted in latter pages that certain charges of 
the .code' opponents which seemed to have considerable merit, bro'ught forth 
no proper defense by the code proponents, as far as available i'.E.A. files 
are concerned. **** 

Tlie code opponents charged tha;t other smaller members of the industry'' 
were owned .outright, dominated or controlled by the "Big Pour"; that- the 
"Big Four" najned every mem.ber of the Code Authority, not only those rep- 
resenting Class A manufacturers. ***** 



Ibid., pages 433 and 457. • 
Ibid. , pages .432 to .434 
Ibid.,pa.ges .423, 4P4, -454 and 455. 
Ibid., pages 424,, .429,445, 446, 448, 44", 452, 
474 ■, and .507. . 
Ibid., "oage 424. 



9825 



-152- 

Certainly, with the exce tion of one Class B manuf -^cturer , little code 
pro-oosing or administrative activity v/^'S recorded concerning these small 
manufacturers who were among tne coc e proponents. Bather, the names av- 
T>earing on behalf of the code Torooonents , with th^- exception of the paid 
officials of the Code Authority and Institute, were generally members of 
the "Big Four". (7ith tuis ch'-rge and information in mind, it is -oointed 
out that certain charges of oppression "by the code onponents, and by the 
D'irrow Heview Board, were answered by the code proponents simoly by the 
statement that other small manufacturers were not orot^'Sting. * 

On the other hpnd, the code -ormonents cnnrged that the two older of 
the code omonents had interlocking directorates, and were set up as a 
"straw man" by a Iprge chain store organization to beat down the price of 
othc-r other manufacturers. 'The chain store business was stated to be the 
most important factor in the pencil trade, and was of great imi^ortance to 
one member of the "Big Four" in narticular, who lost some of this volume 
to one of the code opponents.** 

In addition to the 13 firms mentioned above as comprising this in- 
dustry, four other firms tried hard but unsuccessfully to be admitted under 
the code as members of the industry. These four firms, which will be r^^- 
f erred to herein as the "importers", imported certain leads and materials 
in this country, and then turned these materials over to other firms which 
by contract fabricated and assembled these materials into pencils bearing 
the name of the "importer" concerned. The title to the materials nnd to 
the finished pencils remained in the "impoter" during this entire process.**"* 

A great deal of the time at the hearing was devoted to the controversy 
concerning this petition for code membership. The code proponents stren- 
uously objected to th^ir admission , stating that they were not manufacturers 
under the definition made by the Federal Tr- de Commision, and thus had no 
place, as members of the industry. The "iimorters" stated .that they were 
members of the industry, but not of that narrow part of the industry defined 
by tn= code; that they were not anxious to be admitted to cod^ membersnip 
if th*^ code had no effe>ct on them, but that the code did seriously affect 
their interests and that the Institute intended to attempt to regulate them 
as "sales agents" of manuf '-icturers , (which it v;ill be seen later was at- i 
tempted ay the' Cone Authority) without giving them the right to represent- 
ation and" oarticipc^tion in the code autnori*-y and its activities, (it 
might be noted that certain other F.E.A. codes, such as the codes for the 
Merchant and Custom Tailoring Industry and the Handkerchief Industry, did 
admit as members of the industry firms which had tneir merchandise man- 
ufactured for them by contract. Certain industries considered it more 
wise to gather under their codes all types of firms v/ith related problems, 



1 



* Ibid., pgs. 477 ^^d 506.- 
** Ibid., pgs. 4P7 and 429. 
*** Ibid., pgs. 4:29 and 430, 



9825 



163 

rather than leaving out of the code and apart from its direct rpgulation 
certain firms 'vhich in some c-ises from the coint of the vie'v of the 
whole industry, most needed ^e£:^lla':i on. ) Hov/ever, the code as approved 
did not include these "importers" as members of the industry. (*) 

As for a description of the methods used in distributing the goods 
of this industry: The code as proposed and approved made no distinction 
betv7een "'holesaler and retailer, both tyoes of outlets being designated 
as "dealers". The code s-'oonsors stated tha.t the strict wholesaler had 
practically disappeared in this industry and that it was not practical 
to distinguish between vrholesaler and retailer or to give the wholesaler 
a special price differential; txiat many dealers combined both wholesale 
and retail f-onctions; that there were large and small retailers, some 
large retailers such .as mail order hoiases, chain stores and five and ten 
cent stores, Handling a much larger volume than most wholesalers. Thus, 
as will be seen in later pages, the code provided the same terms and dis- 
coonts for all "dealers," regardless of their fionction, with certain price 
recognition on a volume basis. (**) 

In aodition, the manuf actarers themselves sold direct to large in- 
dustrial consumers, the code providing special discount schedules for 
this type of customer. It is quite likely that this type of sale was more 
within the field of the large manufacturers with amole, well-trained 
sales forces, than the field of the smaller manufacturers who probably 
had to rely more on dealers for the distribution of their TDroducts. (***) 

The code was supported by many individual wholesalers and by their 
orincipal association, although this association wished the code to be 
more restrictive concerning small volume direct sales to consumers. ("'***) 
However, certain individual wholesalers wrote letters ooposing the market- 
ing rules proposed for the code. Inasmuch as one of these wholesalers in- 
dicated that his active support of the code had been solicited by one of 
the large m.anuf acture-^s, .and that while other TOolesalers might advocate 
approval of the code without reali^^ing its disasvantages, he desired to 
register strong protest against it, the value of the general supporting 
requests of certain vholes-lers may be questioned by the reader. (*****) 

The code also received the support of individual retailers and the 
association of commercial stationers. On the other hand, it was strongly 
opposed by certain retail associations, which represented mail order houses, 

(*) Ibid., pgs. 130 to ^.:S2,' and 45G to 463. • 

(**) Ibid., pgs. 4G4- to 455. 

(***) Ibid., pgs. 4.52, 464, -465, 469, 481 -nd 434 to 486. 

(****) Ibid., pgs. .l3eito-441, 487,' 489,- etc.- 

(*****) Ibid., pgs. ieT, etc. 



9825 



\ 



-164- 
fiv-^ pnr" t'^n f^-^nt stores, d°-Tartra'=rLt, dry froods r'ri'^ s-opciplty stores.* 

Thp. f^bov? chpnnfils of distribution ^-^v limit-^d to stpndsrd -o^ncil 
brands and s-T = cial adv-^rtisin.'- irro'-ints. An -^ntir^l-"- diff°r°nt channf^l 
of distrilnition ^as us^d for "blank p'^ncils (itJ^'nciT s "bearing no printing, 
"but to 'b'^ inrorintpd for advertising -DurDOs^s), accordin,2; to th'^ cod° pru- 
^30n=nts, "ho stated that through c-astom in th° industry this typ=^ of 
TD^ncil -^as handled only h"'' a sr)=cial tjTjR of outlet -'hich had cora^. to h^ 
d'^-signated hy th=> t^.Tni "distrihutor" . ^'^^th'^r such a r^ strict iv«». channal 
of 'distribution had ©"ist'^'^ fo- hlan'- ^i^noils "orior to the cod^, or 
'-'hither th^ riro-oon=!nts in truth ^^■<^'^ ^tt=>mDting to ^stahlish such an «?~- 
c]usiv= chann'^l through th° .us'= of th° cod'^' nrovisions, is not '^ntir'^ly 
cl='ar froTn availahl^ records. Sotit" ^vid'^nc^ contrar7,r to th° statements 
of th^ cori° -oro-oon^nts i=5 found in th° records, and freau-^ntlv l^tt^rs 
froni i^hol^salers t'=rm''d th^'ns'^lves as "distributors", rather than re- 
s'erving that t = rra for th": s-D<=cial meaning which th*^ -orononents stated 
custom had ^arn-'^d for it,** 

"-h^ cod= TjroTjos^d "by th° Institute contained many trad^ -Dra.ctice 
■■orovisions and marketing rules, °ach iirovision h'^ing d "signed to do its 
shar.'^ in carrying out th^ comTjl^t'^ program of th" pro-oononts. Certain 
of th^' -orovisions in th= code, whil^ oth°" -orovisions '^epe sus'oend.ed "by 
th° Administrative Order ar)-orovin.e th= cod^, '^ithout thes'= susn'-'nded 
■orovisions th^ -orogr^ra of th^ Institute "as m'"d'= ineffective, and T)0ssi"bly 
certain of th^ remaining •nrc'-isions --'rrk-d to th^ disadvantage of thf' code 
proponents. In anv ev^nt, aft'r trving hard to hav^ the sus-o^nded -oro- 
visions reinstated, th° Cod'^ Authority (nine months a,fter a-onroval of the 
code) reouested and. obtained th^ sus'-iension of a number of other provisions 
(including a, standard provision "hich barred, nrice discrimination between 
customers of th" sam^ cIpss), until such time pg the -orovisions originally 
susTDended w^re reinstat ''d.*** 

Therefore, it is not -oossible to d-terraine the actual results of the 
Institute's eip"botate marketing regulations, although statements and 
charges made by bofi: sid^s, as referred to lat'r, do sho^^ the results 
"'hich the riro-Donents exoected or ho-Ter) to attain. 

A larg° -nart of th'-- code -nrovisicns directly or indirectlv vra.ya pimed. 
at the stabilization of nri^ec; in the industry,' not only in an effort to 
raise the -irice pY<^-rBf^ (-frankly admitted, by the pi^o-oonents) , but, accord- 
ing to the node OTJ-oonents, to ^ard of-f or eliminate th° new -oroduots '^hich 
"ei.^ comoeting on a -orice basis. Other ^orovisions', "hich from lonrefuted 
charges seemed to have th^ sa^ie -Dur^ose and -orobable effect, "ere not con- 
nected "ith -orices, but "ere seer,-,in^iy piTnoji pt certain merchandising 
methods n^c^ssary to the foothold of theg- smaller concerns, '^■ndoubtedly, 

(*) Ibid., pgs. 441, 44^ , .-ibl, 475 to 476 etc. 

(**) Ibid., v^s. 45G, 481, 503 etc. .■ - ■■■ . 

(***) Se^:. Ch^rt A, pag-s "ig-.-^SS, and AT3-oendix, E-:hibit Ho. 3, pss. 
431,-467, utG,. 



9825 



-155- 

for ? sin^l^ rrxv small industry, th-^ niunlD^r of ti-pd' vvPctiry^ pnd 'nprk'^^t- 
ing T)rovisions "st ontstandin.-rly lPTf:° for F.R.A, n.od^s, covering to a. 
surprising iDoint of d-tpil, various -Dhns-s of distri'bution --^nd mprk°ting. 
Not only ■^■^r'=^ th-- T^nb^^rs of th-^ industr.y -olnc^d.und-^r r'^strictions, 
■but th= cod° att=nrot=>d to go fii.rth'^r and iil"o,-> r-^stri-^tions on dsal^.rs 
and others "ho - =r'^ not '■i^in'b^T's of th'= industry.* 

II CODE !L-iP.lCEi:'II\rC- P''0&'^ Ail 

■Th'^ progrpm of th^ r.oC -^ oroijon^nts, a?, sbo-n ty th^ vprious cod^ 
r>rovisions ■oro-oossd and ao-or'^v'^'i ( ^i thort r^^grrd. ^t this tirti'^ to th^ir 
final status) and action tal.^n und/=>r th'^s-^ nrovisions, might 'b'= sk=>.tch°d 

'^S foTlO'^s! 

A. Allprotion of Production . 

Th^ -Drooon^ntf, soupiht to rllocpt^ ijrocuetion of industry loroducts 
uoon th^ "basis of yoliun^ in th=^ -oast thr"*^ y^Ts, th^ ""^ie- li'our" stating 
that this 'Ts pt th" r^ou'-^st ^nd for th° nrot'^ction of th° small manu- 
factur'^rs. This rivv h-^ ouestion^'d "-h^n th--^ r=c^nt inroads of th'^ small 
manufr'^tur^rs ^-ho o-o'oos^d th^ cod= ^r'^ consid~r'=d; rath'^r, it m-^y have 
h^^^n for th-^ -ourDos^ of lar'^v^nting furth=ir volura--^ advancR hy th^s=^ n^'"- 
com^rs. Mor^ cr=ri°nc=' may h^ giv°n this latt'^r thought aft'^r considering 
on" unr^ifut^d cha.rg-= by th" code nro-DOn^^^nts. This Articl^^ on -oroduction 
control contFiined a ^^rovision TDrohihiting manufacturers from installing 
novr shoT3inj=- machinery ("hich sha.-oes th>-^ unfinished ■p^'ncil - n^c^ssary in 
pencil production) until th° industry's ^"isting sha"oing machin'^ry '"as 
us=d continuously for si^: months at 80/» capafiity. The code opponents 
charged that thr-^o of th« "Sig ?our" had recently moved consid-^rahle pro- 
duction to C^n^dian factories, creating idleness in their domestic machinery 
to that e-tent; that the ""^i,o- Four" '^ish^d by this -orovision to -or^^v^nt 
the e:--73r!nsion of small manufacturers until this e-:c"ss dom^'stic "oroduction 
ce^acity "as in use again. A further charge, mad" in ^noth^r conn-ction, 
may be T)<=rtinent, it b-.ing claimed thnt the "Big Four" doubled their 
production ;ca-©acity during th° ^ar, to en ^---t^nt un^rarranted, so that fol- 
lo-ing th-- "ar th-y had considerable "-:c°ss canrcity, -ith its resultant 
^jro^nse. At any rat» this nrovision "^s ^'liminet^d from the r-od^ after 
the nublic hearing,** 

5 • Standardization ^nd Sii-m"' if icstion . 

'J-he code T3rovid.=>d. that if simolifi^d iDractic^ recommendations ^ere 
aDTDrov^^d for this industry b""- the Bureau of Strnd-^rds of the "". S. D^riart- 
m=>nt of Commerce, such standards should b°come binding u-oon all members 
of th" industrj'-. Proriosa.ls for standardization of industrjr products pre 
g^^nerally considered innocuous and a st"T) in th"' right direction, and as 
such "ould not be of interest In such a studv as this. Ho-rp,ver, it "as 
charged that th" stmdards pro-oos-d in this cas^ -rp.ro fnr^ th" t'^o-fold 



(*) Se" ArjT)., E--hibit Fo. 3, rifri. 4P3,^34,445, 44-6 MB 44'3.. 
452, 467, 474, 507. . > -. 

I. ) Ibid. , pgs. 444 to 446. ' 



9825 



-166- 

puroos-^. of nrovidin^ p "basis for th- vvlr^ structure nnd to -lirainpt'^ 
numb-rs of partioiilnr iniDortpnr.'^^ to th- '^od- oiDTion^nts, so that th'- su"b- 
j'^ct is of " int°rpst ps pti integral vavt of th- Institute's r>rogrpra, if 
such nhp-rg='S pv^ tf-ii^^,* 

Throughout th--=^ record of this mnd\istry' s <^.od°- activiti-^s th= irnnort- 
anc^ of th° y-'^llo'-i, fiv=- n.pnt -o^ncil "as str^-ss^d hy th=) ■oronon'^'nts. 
Th°-ir stPt-^d that this y°llow color had ■5=00111'=' iropresSRd on th'^ rj-.tlio's 
mind ^s indicative of th° fiv° o°nt quality ^°ncil, and that th° inroads 
m^d^ "by th° '^od/^ o-o-oon-^nts ^-^r^ l"rg=ly du'^ to th= fpot that th-^y pro- 
duced a nd marketed -o^ncils -^'hich ---'^^r^ inff^rior in nuality and '-hppiD°r in 
■orioft, hut idi=^ntical in a,-DT3=!a.r8,nc= to th^ st^ndprd fiv^ r"=nt TT=ncil. 
Th^r=fore, th<^ "oropon^nts ""^ire df^t-^rinin^d in th-ir Rffort to limit th'^ 
use of this color to th^ fiv^ r.-^nt r)t=noil. Th'^ sinrolifi^d -or3ctic« r^- 
com.mendntions for th" industry'- rs ^v^ntuallv -"-oTjrov'd hy' th° 3ur=!Pu of 
Standprds p?vid=>ntlv did sr r^^striot th'^ us=? of th= y^llo^ color, for th^^ 
records sho'- p Ipt^r r°nu=^st of th= Cod= -'uthorit'"" for susr)Rnsion of this 
restriction on th-^ groimd that th== cod'^ OTO'oon^nts had obtained an unfair 
advantpg° hy oht'^inin"' Iprg^ pd.vanc° orders for nh-^P'T^r yello'^ iD^ncils 
■orior to the pdorjtion of th^ standprds.** 

On th'=> oth^r hpnd, th= cod= oij-'on^nts '"hprg°d thrt this '--ps m^r^ly 
PTi pttenipt to '='liminptp them from "business "by taking r^py from th'^m th^ 
right to use pny attractive colors on th^ir •D='nci''s; that th°ir "business 
^as almost exclusively in -r^ncil s -ori'^^d at l^ss than fiv^ -^'^nts; that 
their -oRncils -hich sold at less thpn fiv= cents ^^y-^ ^ou^l in axrality 
to th^" fiv= cent -oencil of th= *Big Fo^ir" ; that the diff^renc in e6st 
"bet'-'een a five cent ri-^ncil '^nd p chop-nor. -o-pncil '-'p.s n^gligihle.*** 

C. Fric" Sta'bili'^otion . 

Th° code contained s''v^"al -provisions (some of "hich '-'=r= sus^o^nderi) 
which ^ere d^^signid to" i^l'ry-a -o;ii't''iin "^ff^i^ting sta'bilizatinn-of prices 'in 
the industry. It '-as stat°d "bv th= code irODonents that such stp"bili2P- 
tion •■•o-^ld hav<=^ effect only in the distributive channels, where it was 
sorely needed to provide a living margin to dealers and manufacturers a- 
like, but that it would not raise prices to consumers, vho were protected 
by their habit of buying pencils in terms of fractional currency - one 
ceht , two for five cents, five cents, etc. (This was questioned by the 
Consumers' Advisory Board, which pointed out that this buying habit did 
not protect the industrial consumers and others who customarily bought 
pencils by the gross or larger quantities. Tlxe code orononents answered 
this charge by merely stating that these consumers were orotecced also, 
as the prices on lar^jer quantities v/ere regulated by the nrice of the single 
pencil. Howev-r.'no definite reasons for assurance of such urotection 
were given. Furthermore, it is doubtful that either type of consumer was 
thus xirotected by this stated buying habit, for in b-uying -nencils at cer- 
tain prices he might obtain lower quality than formerly as a r'^sult of the 



(*) Ibid., pgs. 444 to 446. 

(**) Ibid., pgs. 444 to 446, and 467 

(***) Ibid., pgs. 444 • to 446,. 476, 477, 478, 479,:;. etc. 



9825 



-167- 

cost of such price stabilization - a ■■oint that is not Drought out at any 
point in th- recor_ds v^-.ich v,'f-rp studied.* 

The code contains nrovisipns permitting manufacturers to provide for 
resale -orice maintenance through contracts with dealers (which the dealer? 
would have to make in order to handle the goods), and nroviding for en- 
forcement of such resale price maintenance throughout the entire dis- 
tributive channel through the use of boycotts in the form of unfavorable 
nrice differentials for off-nders. ('These provisions, however, were sus- 
pended at tne time the code was a-oproved.) Furthermore, in the code orig- 
inally proposed by the Institute were -orovisions nrohibiting sales to 
dealers who violated resale price maintenance agrf-^ements , or who used 
certain merchanaising practices such as "loss leaders" , premiums and 
prizes. (These rirovisions were delctf-d before approval of the code,)** 



(*) Ibid,, pag^s 437 to A7>8, 46.4 to 466, 466, 469 tc 47"' 473 to 474, 
to . . ■ 



(**) Ibid., pages .46?, .45-4, 5>'^3 etc. 



3825 



-163- 

Tlie Cede -arovidsd for open price filing, rliich filing was mandatory 
■apon all members of the industry Revised prices could be filed, all 
filed prices becoming effective ija'VDdiatel;.?- upon filin-^. (The original 
pro-ocspl iorovid'";d that nricRS filed shotild nc.t beccne effective for at 
least 15' days, bu.t this provision i.7as clianrec di.xe to criticisn to the 
effect that- this rculd oicnote colltisio.i 'p-r i^- ifln-ufacturers as to 
prices.) With the filed prices r'ere reonired to oe inclr.ded the nem- 
bers's st3nd.ard terns and discf'unts, so that the actual net urice of 
^nj transaction could be rendil" deter -.in '^c . it "as f-oi'ther urovided 
t'hat -dd member cou].d sell on a more favorable basis ^'■h'-'n provided b^ 
his filed "orices.* 

The code further "orovided in ccnnsc:i''n vith such price filiri^j", 
that fair minimvua prices of products ret'^ilin" at five cents or less, 
corJ. d-be. determined crj the Code Authority '-ith t'le approval of the Ad- 
ministrator, and that after sujh :iini.mui jrices vere approved, the Code 
Authorit.Y.shculd.-r.eject... any. .price list. -,-hich did not--confQrm to such 
rainimuras. The fact tliat the niniraui price provision i7as limited to 
pencils retailing- at five cents or less is interesting- in vie' of the 
state, lent "q'j the code opponents that 95 : of their volume --.'as in pencils 
vhich retailed at less than five cents e^'fi-i th°t the]'- made no pencils 
nhich retailed at nore than fi'-e cents, ':hich the rreat bul^: of the 
business of the "Bi? Eo-ur" - as in -lencils ^hich retailed at five cents 
or more. It should '■Isc be noticed uhat one lar ::e variet^?" chain charged 
that the code efforts --ere directed chief 1^- against i^-Dncils in the low- 
est -nrice brachets.** 

This ninimun price provision carcsec" a --reat deal of contr'^vers''' 
and brought forth the char -e froM. t"ie code o-ovjcnents that the cod-j au- 
thority'- intended to use it in a lanner '■■hich v^uld elini-nate their pro- 
duc t s . 

Shortlv after the approval cf the code, the code authority issued a 
minimum price schediole as authoritative, \-'hich they stated had the 
written and oral a-oproval of the Deputy Administrator. This schedule, 
of course, had to be retracted and subjected to la-i:e-. official co-nsidera- 
tion, leadin?; to ^n official decisi'^n. *** 

Eo-ever, the ci^de opponents :aade the -onrefuted char-^-e (citing 
specific exannles) that the oro-oosed schr3dule sin 'led oat their leadin-j 
items and placed a prohibiti-^^e minimu: price -•x-^r\'!\ the-;, i-^hile -:ilacin-; 
ver-','- advantageous mininum prices uoon the lepdin-,- ite-y-.s of the "Bi^' 
?o-ar".**** Several, months after the approval '-^f the cod:, the code 



(*) Ibid.,, pages 4'^7,. 46.'3, 467, etc. 

(**) Ibid., pages 41^4, 467, 476,477,. 479, 430., etc. 

(***) Ibid., pa5;es .4j:^8, 469, 476 .tc 479. .,- 

(****) Ibid., pages 476 to 479., 



^825 



-169- 

.Tuthorit^' s pr^Tjrsed niniranii ■'irice sch?d\ile '7r>s ccnsidered at a nuo- 
lic hearin-^. This schediilo x:"s drafted in tya parts - one for sr.les 
to dealers and one for direct sales to consiuTiers - "hicli was obviously 
an effort by the code authority to prbyide the differential i7hich had 
been lost through the suspei'isif^n of disoo-uo-it iDro^-isirns v/hich establish- 
ed such differentials, althciS. vu the code authority attempted to justif^^- 
such repcrate schedules as necessary and intended b"/ the language of the 
code provisions. Eo^vevor, the code aiithcrity refused tc submit date in 
justificaticn of their ~oro-oosed mirdmUin rjx-ices, or of an energency re- 
quiring the esteblisliment of raininuras, claiming vhat nn further justifi- 
cation beyond the apiiroved code T)i'ovisicn 'ras necessary, So the proposed 
rainiaT':n price schedule '-ras eventuallj'- officially disapiroved (after 
first havin- 'D^en'recori' '.ended fc;: apiirnval by the Deputy Administrator. )* 

The open urice filing and ruinii.iuTi price provisions were apnroved 
originally, but after the cede authority failed in its effort to have 
their minimum price schedule approved, or to have the provisions which 
were originall-'- stispended reinstated, these provisions were among those 
which were later suspended at the request nf the code authority.** 

One other charge of the code apr^onents should be particularly noted 
at this point in connection with the Institute's effort to establish 
minimum prices and an otherwise stabilised price structure. 

The code opponents, smaller and newer members of the industry, 
not having funds for advertising uoon o wide scale, relied upon price 
appeal as the available method of competition v.ith the old.er, well- 
known brands. They stated that they were able to sell at -lower prices 
than the "Big Po-'or" for several reasons; (l) They did not have the cost- 
ly advertising e:qiense of the larger manufacturers; (2) they did not 
have large executive salaries as did the "Big Four"; and (3) that they 
did net have costly excess prod.uction capacitv, which the "Big Pour" 
did have due to unwise expansion at the time of the War. The code 
opponents stated that their existence depended on their price appeal, 
for otherv/ise they could nct*coiipete with the better-known brands, so 
that equalization of prices (whether or not linked with standardization 
and even without having their 'prices sot at a hi-^her level than those of 
the "Bi:: ?our" would eliminate them from the industr- - thus accomplish 
a purpose of- the "Big Pour."*** 

The cede opponents stated f-uj.-ther that their -lencils which retailed 
at less than five cents were eq;aal in quality to the much heralded five 
cent yellow pencil of the code proponents, which pencil vras sold at that 
price due to the heavy ex'Denses of the code proioonents. Thus, the code 
OTToonents linl-ed the standardization -orc^^ram to this contemiDlation of 



(*) Ibid., pa-es 476 to 477,'. 481 , 434 to'. 48': 

(**) Ibid., paTe 430 etc. 

(***) Ibid., pages 417, ^'7? to -RO, 507, etp. 

9825 



-170- 

eq-aalized prices, stating that throiiTli such standardization the code 
propcnents hoped to reserve to viencils selling at five cents or more, 
yello',? pnd other attractive colors.* 

The only refutation of these charges which was made "by the code 
proponents was to the effect that the pencils of the code opponents 
were inferior in quality, and that by initating the oopular five cent 
pencil, they vere cheating the -ouolic. (The question as to the compara- 
tive quality of these pencils :'iiTht well 0= ans^rered by investigation at 
the Bureau of Standards.)** 

The code provided in detail for terrQS and discounts of the various 
types of pencils to various t-rpes of customers. These provisions (ex- 
cept that relating to cash discounts, and credit terms) were all suspended 
in the Order approving the code, however, and were never reinstated. It 
was charged that these provisions were disigned to stabilize prices, but 
the code authority pointed cut that \7hile the various o^uantity and trade 
discounts were standardized, the list prices frov;i which they were to be 
deducted could be varied at will by the manufacturc;r concerned, as long 
as anj"- rainiraum price restrictions i,7hich might be established were net 
violated. **- 

The list price was defined as; the price at •./hichtiie Manufacturer 
would sell one gross to the consumer. The suspended rirovisions, in 
proving a trade discount to dealers, contei^plated a price differential 
v'hich would enable dealers to co:roete with, manufacturers in sales to 
large consuinern. However, discounts on sales from raanufacturers to 
consumers were graduated upwards to a Hiaxiraura of 33-1/5 per cent (for 
single shipments of 500 gross or over), v/hile the standard trade dis- 
count to dealers -as generally 40 "oer cent, leaving too narrow a margin 
to permit dealers to pixfitably comoete with the '-nanuf acturer in the 
case of larger purchases by consumers.**** 

The code proponents stated in their letter of trans'iittal that the 
quantity discount had been discarded. However, this statement was in- 
accui-ate, as several provisions in Article X established quantity dis- 
counts as such, or indirectly had si^-ilar effect. Such provisions in- 
cluded Sections 1, 2, 7, 3, 9, 10, 11, 12 and 18, Sections 8 - 12 having 
been suspended at the time the code was approved. Certain of these "oro- 
visicns, such as Section 11 (which provioed for the later establishment 
by the code authority of graduated cumulative discounts based on the 
dealer's or distributor's entire annual p-orchases of industry products) 
would have offered some price protection to the large wholesaler who 
served many small dealer -accounts, and who other^^ise received nc such 
protection under the code with the exception of the low minimun set for 
direct ptirchases from raan\afacturers. 



(*) Ibid., pages 4.46 tc 4bO, 4767 477, 478 to"~4eO.' etc. 

(**) Ibid., pages 4?A, 451, 501, 50.?, etc. 

(***) Ibid., 469 to 471, 47?, 474 etc. 

(****) Ibid., pa-es, 463 to 471, 480 tc 487, 49^, etc. 

9825 



-171- 

(One -jholesaler who servec' ;LO,000 Email ret.^il denier accounts, 
■oleadcd for the reinstatement cf Section 11, in order to receive a 
price differential over these dealers rjho other-dse could purchase 
pencils rt the sane price he paid for the ;)* 

The linitaticn on quanti'i:- uLlovances woiild have ta^:en away sons 
of the advnntq^re of certrin ret-^ilers \7ho purchase pencils in large 
quantities (such as nail order houses, five and ten cent stores, chain 
stores and c'epartnent stores) over other '7hclesalers and retailers. 
S'urtheriacre, it should he hept in mind that according to the code pro- 
ponents, one or tvo of the code opi^onents vrere controlled "by a large 
variety chain, vrhich tie-up was effective in heating d^v/n industry 
prices. Thus, any restriction on quantity disccunts -''^uld tsnd to impair 
the effectiveness of this ccmpetiti-^n, particularly when comiected to a 
minimuin price schedule. The coao proponents may have had this thout-ht 
in mind, although they did net entirely discard recognition of the quant- 
ity factor.** 

Another cf these suspended Torovisicns restricted sales of hlank 
pencils for imprinters of advei'tisini,- pencils to distribuuora recognized 
hy the code authority, and establislied the maximum quantity disccunts 
for such sales. (The code authority had a particular desire to limit 
the distributors of blank pencils, for they tried to have the suspension 
of this provision removed at the time that they reqiiested- the suspension 
of ether provisions.**'" 

The prevision establishing^; sta'idard cash discounts and credit terms 
was in effect during the life of the code, not .being subjected to any 
particular criticism. It merely fitted into the price stabilization 
program by preventing the use of excessive cash discounts and credit 
terms as a^ means of loitering of the price floor conteraiDlated by the 
other code provisions. Certain other provisions had the srrae purpose 
and interest in connection rith the, contemplated price stabilization. 
These provisions prohibited the granting of extra allowances, by pro- 
hibiting the giving of advertising allo'-'ances or contributions of var- 
ious named tj^pes, or prizes of certain kinds, and limiting freight allow- 
ances, the return of niercnandise, the furnishing of samples and display 
equipment, etc. These lorovisicns were effective throui'hout the life of 
the cede, although the price strijicture which they v/ere designed to pro- 
tect v;as never in operation.**** 

The -orovision -jhich limited freirht sllorances seems worthy of 
further mention. This provision provided free delivery of an}'- quantity 
to New York City (the reason for this favorin;' this particular locality 



(*) Ibid., pa,ves 464 to 46S, -43L"i, 484, 487 to 4?0, etc.-.- 

(**) Ibid., pages 'iP.J , 4^.8, ^?3, etc. 

(***) Ibid., pages 4R1 482,- 503 to 504, eta. 

(****) Ibid., pages 49S, 500, 



5825 



-172- 

ijas not given - whether or not the f.-ict thflt the "Bi'i ?our" and most 
of the code proponents were located in or near IJe-; Yorh City, while 
the code op"ocnents were loc-nted in Tennessee has any hearing, cannot 
be determined frcn available records), but free delivery in other lo- 
calities was limited to shipments of 100 po-unds or more. The code 
opponents charged that this was rank discrimination in favor of the 
larger .manufacturers; that it was seldom that the smaller r^aniif acturers 
with their more limited ntimbers aade up for one shipment a lot weighing 
100 pounds. This charge was not answered by the code proponents. How- 
ever, the provision was in effect d"'arinj;' the life of the code.* 

The provision ccncerninq; samples also nii,7;ht receive further com- 
ment. Under this provision the code authcritj'- later submitted and had 
approved, detailed regulations governing the amounts and tj'pes of pen- 
cils which could be given as samples, and even prescribing the tj'pes of 
materials which coiild not be used fir display folders of cheaper pencils. 
(The code authority, without stating a reason, later requested the can- 
cellation of these regulations, which request, according to available 
records, was not granted).** 

Another code provision limited the prices <^£ dealer imprints to 
dealers, to not less than the rjrices of equ.ivalent types of standard 
brands, a provision which remained in effect thi-oughcut the life of the 
code. This provision was objected to 'oy the code opponents.*** 

. Hestric tif ns o n Size of Ship ments or Acc ou nts . 

The code provided certain provisions which restricted the manu- 
facturer in his selling program, and which the code cpnonents charged 
was designee to crii37)le them in their attempt to build up a business.**** 

On such provision prohibited .nanufacturers from opening nev/ accounts 
with a dealer for less than s;oecified ''.iniraui orders, graduated according 
to volujae class of the manufacturer. This minimum in the case of the 
code opponents (Class C manufacturers) was $50 net worth for shipment at 
one time, which minimujn, according to the code opponents, wo^old prevent 
them from obtaining new accdjnts for dealers would not order that great 
an amount xrpon en original trial order. This provision was suspended 
after several mouths of cede o-oeration. ***** 



(*) Ibid., pages 50Gand 507. 

(**) Ibid., pages 49:5, to 495. 

(***) Ibid., page 477. 

(****) Ibid., pages 4«1 to 483, 505 506 to 6-09,.'.etc. 

(*****) Ibid., page 505. 



9825 



"173- 

Ancther such provision provided a consldei-atly lovrer trade discount 
to dealers rho during the previoiis year had piirchsae-d less .than certain 
mininum quantities (grading according to volume class of manufacturer) 
from the monuTacturers concerned. The code opponent's ininiinTam was set 
at $100, uhich they said was prohibitively hi-^h and would eliminate many 
of their accounts, as they were new in the ■ industry and the volume from 
dealers had to be built un slc-dy as their products 7;ere tried by the 
dealers, and that no dealers would buy froin then at less than the staiidard 
40;j discount. This provision was suspended at the time the code was ap- 
proved. Certain wholesalers demanded even higher rainiraums.* 

Another such provision limited the trade discount to 25'.'o on orders 
for less than $15 net worth of -oencils to direct factory accounts. The 
code opponents stated that $15 was a large amount for a sample, trial 
order, and that this provision would prohibit their efforts to grow and 
to obtain new customers, as well as placing an unwarranted penalty on 
fill-in orders of hip-her buyers. This provision, however, was approved 
and was effective throughout the life cf the code.** 

Another provision in the code prohibited the sales of special im- 
prints not for advertising, or •.member's standard brands back stamped, 
upon orders for less than certain specified oviantities. . The code cp- 
T)cnents stated that this provisif^n was discriminator-/ in favor of the 
lar^r manufacturers.*** 

In the case of these four provisions the code proponents stated that 
they were a concession to the Vnolssalers - an attempt to throw sranll 
accounts and orders to wholesalers who were not otherwise recognized by 
the code; that these smell orders and accounts were- costly and unprofit- 
able to the manufactiirers so that they were glad to get rid of them; 
and that the minim-oi'-.s had bee,n set as low as they were for the sake of 
the small manufacturers who needed these smaller accounts, for the large 
manxifacturers would have been blad to set the minimums even higher. 
However, the code opponents denied that these snail orders were unprofit- 
able, and charged that these restrictions were fof the. sole purpose of 
stopping their growth. There may be some merit to this char re for the 
code proponents' answer does not seem a proper defense or justification 
due to the fact that the -.linimuriS were graded accoridng to the volume 
class of the manufacturers concerned, so that the larger manufacturers 
could have set their minimums higher had the;?- desired, and the minim^jms 
of the samller manufacturers could have been lowered or eliminated.**** 



(*) Ibid., pages 431 to 4P3. 

(**) Ibic., pages . 503 to 509. 

(***) Ibid. , oage. 503. 

(****) Ibid., pages, 'iBA,- to 4So,50'3. t'^ 510, etc. 



S825 



■ -174- 

■£ ^ Restrictirns on Certsin Fronotional Fi-3ctice3 

The code contained certain Drovisions rejulptinf; ^dvertisin,?; and 
other iDromotional practices of manufnctLirers. These provisions were 
claimed ty the code orjDonents and ethers to be aimed at such smaller 
manufactuLrers in on attempt to destroy thera.* 

One such provision prohioited the furnisMn^s; of advertising sheets, 
in color or otherwise, tc dealers for insertion in dealers' catalogs, 
although pages for insertion inc'talogs of customers* salesmen could 
be furnished in hlack and irhite only. The code opponents stated that 
color advertising was necessary for the sale of colored pencils, and 
that the Institute sou2ht to bar the only tj'pe of color advertising 
which they could afford; that while this was being done upon a ^slea of 
economy, the "Big Pour" did not prohibit color advertising in national 
mediums such as the Saturday/ Evening Post, or colored lithographed dis- 
play pieces, and other expensive t^rpes of color advertising which only 
the "Big Four" coiild afford.** 

Another such provision v;ent so far as to linit the use of color in 
manufacturers' catalogs to the cover and bacl: pages only. (in connection 
with these provisions concerning iuse of color in advertising, the In- 
stitute's strong desire to limit the use of the yellow color to the 
standard five cent pencil should be kept in mind. )*** 

Another provision prohibited nanuf '^cturers from displa'^'^ing their 
products at any trade conve^itions or meetings of de-^lers. (While 
nothing in laarticular was said about this provision, it vould seem to 
have little purrjose other than to prevent newcomers to the industry from 
acquainting dealers with their products.)**** 

Other provisions prevented cooperative advertising bet'''een manu- 
facturers and dealers, or the granting of advertising allowances by 
manufacturers. While these provisions had a s one purpose the maintenance 
of the contemplated price structui'e (as mentioned previously), it was 
charged that such complete restriction was unnecessary a s legitimate 
cooperative advertising could be permitted under supervision, but that 
this was a weapon used against smaller manufacturers who did not have 
the advertising fuiids of larger manufacturers.***** It would seem that 
there was considerable merit in these charges of the code opponents, 
and that no proper defense was presented by the code proponents. How- 
ever, these provisions were all approved and remained in effect during 
the life of the code. 



(*) Ibid., pages 45.3 to 454, 4D-7 to 498, 

(**) Ibid., pages 45?,' to 454. 

(***) Ibid., pages .434', and 450''to 454. 

(****) Ibid., va-e 452. 

(*****) Ibid., pages 497 to 498. ; 

9825 



-175- 
p^ ::iestrictions Sxtendin^ Outside oT the InJ.ustr:,'- . 

Sever'^1 of the code provisions diractly cr indirectly controlled 
activities of dealers and others not nemters of the indiistry. 

The foirr "importers," mentioned at the tje-s.-inning of this Stimraary, 
were fcrtidden membership tinder the code and participation in code ac- 
tivities and administration, out the code authority later attempted to 
gain control over them (as the "iniporters" earlier charged they nould do) 
by classifying them as "sales agents" pnd under an approved crde pro- 
vision proposing regulations to consideraoly restrict their activities. 
Hoirever, the legal adviser ruled that the proposed regulations went 
beyond the scope of the code in this regard, and they i.-'ere ■.7ithdra\7n 
by the code authority.* 

One code prevision provided that the customary trade discount of 
40/0 off list could not be given to any dealer \in.o handled inroorted goods 
which did not conform to industry standards, rrhen such standards \7ere 
approved. This provision uas suspended at the time the code r/as approved 
and was never reinstated. The code proponents stated that this provision 
wFs necessary in order to make effective the proposed standards. How- 
ever, dealers handling imported f"ocds objected to this provision as an 
unwarranted boycott on foreign-made goods, which went beyond the power 
exercised by Congress over imports.** 

Another provision prohibited sales to export houses except upon 
conditions guaranteeing that the order was for bonn fide consumption in 
the market for which the goods were offered. This provision was in ef- 
fect throughout the life of the code. (it is interesting to note, how- 
ever, that the code provided that none of the marketing rules contained 
in Article X were to apply to the export trade; probably a reason for 
the above provision. It was charged that this provision was f'^r the 
purpose of keeping the export trnde in the hands of a fe-. )*** 

Another set of provisions, which provided for resale price mainte- 
nance, provided a boycott upon dealers who failed to contract to maintain 
such resale prices and to sell r^nlj to such ether dealers as made similar 
agreements, through the use of an unfavorable trade discount. However, 
these lorovisicns were susjjended in the Order approving the code. They 
were severely criticized by certain dealer organizations as sn invasion 
of the rights of non-members of the industrv. **** 

A provision originally propossd hj the Institute, but deleted prior 
to the a-Q-oroval of the code, contevnplPted considerable control over the 



(*) Ibid., pa::es .456 tn 463.. 

(**) Ibid., pages500 to 503.; 

(***) Ibid., page 503. 

(****) Ibid., pages 453, 475, 479, 480 etc, 

9885 



-176- 

activities of deplers "07 prohioitiniT sales to dealers vho used such 
merchandisina; methods as "loss leaders", prizes, prerniums, etc. * 

G. Other Trade Practice Previsions 

LIcst of the other trade practice provisions "jere of a nore or less 
standard type, prohibiting such practices as inproper grade marking and 
labeling, espionage of competitors, commercial iDrilDery, design piracy, 
secret retat.^s, etc. For the nest part there ua.s little or nothing in 
the available records referring specifically to these provisions.** 

One provision, however, provided that contracts v/ith "buyers must 
"be specific as to quality, quantity and price of 'oencils to "be fur- 
nished, and that no contract could extend "beyond twelve months. This 
provision was in effect during the life of the code. Little was re- 
corded concerning this provision, although the code authority complained 
that it was being violated "by cne of the code op-oonents in his contracts 
with a large variety chain.*** 

(Incidentally, cne of the nem'oers of the "3i:.: J'our" had had 60^ of 
his volume handled through this same large variety chain, and has losing 
sales to this chain due to the inroads of this code opponent, who it was 
claimed, sold his entire voluiTie tc this chain.)**** 

Other provisions, prohibiting combination sales, trade-ins, etc., 
caused certain criticism but ^rere not of great importance.***** 

III. GEKEEAL COI.aSl'IT Ai^D GC'x^TCLUSIOi'S OP IKVZSTIGATOH. 

One point '^hich seemed evident from the records of this code, was 
the partiality of the long line of Deputy and Assistant Deputy Adminis- 
trators who handled the code, for the code proponents. "Shile the position 
of all these administrative officials is not made clear by the records, 
those for which there is information upon which an o-oinion can be based, 
seened y/ithout question to favor the code proponents, either by state- 
me;?:--s Lo that effect or by their action or latf.c of action.****** Many 
of vi:-'- '"harges made by the small manufacturers who opr)Osed the code to 
the c.'r;:ot that proposals or action of the code proponents was for the 
pij-po,^.e or would have the effect, of eliminating them from the industry 
or restricting their progress, seemed prima facie to be worthy of serious 



(*) Ibid. , page 505. 

(**) Se& Chart A, pages 319-325. 

(***) See Appendix, Exhibit T.o. 3, oages ..: 433, 429 and 496. 

(****) Ibid., pages 42;^ p.^d 499; 

(*****) Ibid., wages 495 to 496. 

(******) For example, see Memos of Deputy, Ibid., pages 425 to 423 

433 to 439v " • 
9825 



-177- 

con si deration p.iid. at lep.st should have proi'voted co.rei-ul inverftif^.-.tion. 
Purtheriiore, these sunll sianuJ^acturers '/ere not nlone in rOi^^isterinL; 
these protects, for sinilar chrr ;es t.'ere \}.r.C.e bj certain lar^^e dealer 
orgrnizp,tions, and others. In addition, not just a sin.:;le grievraice i7as 
voiced, but r-.ther a nuiijer oi" -protents all of nhich -pointed in the sozie 
direction raid ae n l0c;ical tipon their face. Mov.'over, as far as avail- 
able records are concerned, most of the statements of the code oro :)0'- 
nents seemed to ha.ve been acce^jted rdthout investi^j^ation and the chp.r^'es 
of the code op-^onents itsnored. Host of the ^^jrovision suspension rjid 
other action unfavorable to the code pro-oonents '■'as taken by officials 
of higher rpjik than the Deputy in charge mid rtp.s contrary to the re- 
conriendations of the De-iut?/.* 

The sa'.ae charge night 'lell o.-yil^'' to : lost of the code advisers. The 
Consuners' Advisory T^oard • t.s the sole adviser to object to the proposals 
of the code pro-3onents at the tine the code was i^resented for approval, 
having recorir:ended deletion in its entirety.' of Article X - "ilarJceting 
Terms." The President Industrial Adviser stated that the larger manu- 
facturers ^"ere gaining rii adv^ijitp^ge over the s. aller iienbes^s of the in— 
dustrj"- ajid had things pretty nuch their oijn nay, yet later recommended 
unqualified approval of the code. The other a,dvisers recom:iended ap- 
proval of the coG.e, plthou;h the legal rnd econo'iic advisors did object 
to certain Irter -^roDOsals of the code authorit3/ '■'hich "ent beyond the 
sco-je of the code.** 

3ased upon the availa,ble records, an o-oinion ;jay be deduced to the 
effect that the larger npnufacturera did set \ip the elaborate marketing 
ajid trade pra.ctice schedule for the purpose of bettering their own posi- 
tion a.t the expense of the ne'7 small rnenfoei s of the industry who had 
been ^.alri.ng -orogress in sales volirie at their expense. ITo evidence is 
available to orove the charge of the code opponents to the effect that 
the other snrll manufacturers lined up with the "^'i-: Pour" through fear 
or promises of protection, but it is certain tho.t little was heard from 
thera in connection with the code. It may also be felt that the code oro- 
TDOnents sought also to weaken the position of the "importer" group and 
of large derlers, such as variet;;- and other chains, 'vho had a doninat- 
ing influence on the industry. ZTurtherriore, the stated purpose of the 
code proponents to raise the price average and increase the sale of the 
higher-'oriced pencils should be remembered.*** 



(*) For example, see Appendix, E:dii';it llo. 3, page 481. 

(**) Ibid., jages 443, ,454 to 45C, 460 to 452. 

(***) See pp ,-es 280-283, and Appendix, Zxliibit ITo. Z, page 424. 



9825 



-178- 

The r.ctivitiC3 of the s::ir,ll : ;r"Aifpct".re:'s -'lio o oogrcI t'.e code zr.-p:\ot 
be defeno-ed o:a the brsis of tliis record, for there is :T.ot sirfficient 
evidence to shor: ^^hether or not theii' rctivitiss '-ere .-^bsol'o.tely hona 
fide, n:id did -rionnt to a savi-\ ■ to the co ■runer tjrou Oi efficiency in 
distriluition. Ho^'ever, their cl:r.r :ss Gon3erni:i ; their ^tte- )t.ed eli; d- 
■::'.rition hj tlie "■'d^.- Pour" iindor the "lise of .other -rar-joses for the -pro- 
visions concerned, di' see: to hr.ve r 'i-c': ;roii:nd siif dcientl''' lo/;ico.l 
to crdl for careful invecti'jrtion.* 

.-s hps oeen stated oefore, the fp.ct thr.t n.r.:.i:' i:T^ortp;it -^rTts of 
the ;ir,rlieti:i;' -iTo^rpn '-'ere sriS'oeno-ed r,:vl n3ver effective -ir-ken it iri- 
3ossijle to t];rL:'.£:e their nct^i."'! effect uion the :"ii:tri yi.itive cnrn'iels 
throUf;;h ■•hich the iroducts of this industr;,- o.",sseu, r;.id liidts such 
infer nrtion. to conjecture "brsed u ^on the rro rnd con str.te lents irde 
at the ti .e the oro/isions '/ere ■:>ro josed. " "urthernore , even in tlie 
case of tho^e jrodsions -■hicJi -"are p;o-jroved, ^-hether o:- not the-'- -vere 
later sugt ended softer ssverr^l lontha of o'lerption, the files contain 
little or -no in.for lation concerniiri-; their o:Joration, or the effects 
'•'hich the]- -oroducedj if rvv^. (To ootrin such infor, ;,-'tio-'. if it is avail- 
shle , it -ould he necessrr-" to stud-;/ the fili-o o.'^ the code ruthorit - at 
the Institute hea-.^i-aarters in 'Jashington, to inte-rvie'-' -.irnufacturers of 
various t'-jos, and certain derlers.) 

A. fin.al hrief suroiiary of the effect cf the trrde -oractice and narl:- 
etin;-:; niles iro-ooscd by the code u-oponents vhich lo; dc and rer.sonin^-; 
rd.;-;ht lead one to e:nect, ni -ht be as fol"'.oi-'s: 

1. The eli-ii:i.rtion or serious crio di:^5 of c,c-;rtain snail n.-^nu- 
facturers vho liad Tcceritly entered the i-u".a::;tr-/; this to be 
rcconolished b]?- the follow ing nethods, aj.ionr^ others: 

&m Allocation of -iroduction. 

0, j^liriination of r.-ice a-o^erl, throuj;h stabilised nininim 
-prices. 

c. Throi\=;h standand'^^r.tio-n, li'ubii; colors -dth consumer 
ap-ioeal to hi-^;h'.er- iriced jencils. 

d. Prohibitinj adve::tirdn.:; :i3tl:.o(.s ^dtiiin rerch of 3np,ll 
- -irraid'r'Cturers . 

e. Zsta jliahin':: -ii-idm::i5 for ;ie-'.7 accounts, siivjle shirie'its 
and annurl -o-.irchnses of de ler -'hdch ^--ould ■ lahe it uiffi- 
cult for a ne'7 firn to eip-jrnd. 

2. Restricticn of the o-oorrtic:^s of the "i lortcrs", "ho had -jon- 
cils asse. nlod for the:!, in this coi'intry. 

3. The vift-Lirl eli-jin^tion of foreij;jn-nrde -Ter:cils, e:;ce it nhen 
handled by e.-cclusivc '...eplcrs, althoi'^h chain r"nd jLe-jrrt le-.t 
stores ; li jht snift to f orei;;-a-"ir.de pe:irils e:.:clusi--el-. 

<--, The es trolisu. -lO it of rj^^tricted chan- .el for the odstri"bation 
of jlan]-: je-ncils to bo iIn-^i-^ted for a^-vertisin;; -nrr-oosoa - 
the recorrnizeo. "distri /utors. " 



(*) See Anpendix, S:chi,dt Lio. 3, pages 445, 4'.6, 448, -J.49-flna ^"5.7. 



9825 



■- -179". 

5, The rr.isin;; of t^iO .'^vo'..;'.: -.rice x".i' ■■■.toiis received "r- .■■i-^avi- 
f.-.ctTorGrs, r:icl the frvori -.r,- Oi' fyn "'st vC^vC. '"ive" ce'-'.t -lencil" 

- -.••iiich, in •■-•. )ito or •.strto-.o-'.tr. to the. .coat i-t-, mi^'^ht veil hr.ve 
rr'.isod the Ji'^ico to r;on!3\r);.,:-3, 

6, Ptetention of uircct r.cco;i:it!3 o:.' l.-^r^o i-.iuuutrinl co;r,n;iers, hut 
r. shi;"ti \,' of ;-,;v Her Cirect r.ccOvi-its to '-'holeo-'ler-j "-lu ret. ti- 
ers. 

7, A loss of distinction hc^r\r.!^ vholea- I'V pad ret-^.tlor -"3 far ra 
a n-ice dif 'bropitifl. wra po.ioej.'ne,'., . Ithoii ;h tu.r:ain. : a;.in.ll di- 
rect dorler t'CCf-onta ovor \o the '.'holea- lQr» 

3« Zlinlur.tion of Uw r uv.'^atr;;o of cnrtr.ia l,-ir:;e retf.ilern ovox- 

othor reto.iler'3 rav'. '7holP3."lorr , through lin:.t~tion of qTj.,?jitifc7 
distinctiOii - '^'hich nould ."Iso reler '.e certri:! n "infr.cturers 
froa cert' in do- .in.'-tion or tli.rer.t'.j to t'.ieir nrice schedi\les, 

S« pLetoTition of e.Tjort n'.r;in^::^3 n )0:.; r orsis of i'Tee p:~x\ oiion cora- 
•oetition, not 3'i.hject to tho , irr'cetin^';; rules, 

10« • Protection of tlie .^uolic fron hoi. v.; '.-.old r;;oodn of in^^erior 

auj^lit^/- "ithcut co::-:>ons"tinj nrico reduction - if such r, ir.^c- 
tice V.-as indixl^^ed in, 

11, The :iOs:3ihle furthoriv; of the co.i letitive p.dv.'nco of other 

t'/-ie3 of '-ritin.': i^'.;"tri.i;ion'on, through the r'-j^trictiona on the 
advert isi^vi." of industry )roducts rrcic". the r.'>isin."- of irices r-ith 
resultrat lo-irerin:-; of the orico dif-'ere-\tirJ. het-'Qe\ jencils 
r:-nd other tr^ies of -.-ritin-: i laor^a ionto, 

IV. suc-CL-S'^v-js I'oi; i-iiiT"^:- . .STinr.. 

The ■'.-.teri^.l r.tudied in connection '.-ilh thir:. report of the TJood 
Cased Ler.d Pencil Industiv .-nd its code .■cti-.-itior. -'as li litcd to -Ir ta 
avrila.hle in the files of the r.ll.A. ^x-; h.'r.s been indicated, this data 
{cives Tra. :ticall7 no infornation concarnin,^: the o^'oeration or effect of 
the various p-ytroved trade -}rrctice a.id nrhetin,:; "^rovinions. 'Tliether 
or not such -iia.terirl is availafole out.'riO.e'of h'.?L»A. is not' laiown, al- 
though it se.v. IS reasonable to relieve that conf-!idcra.hle such da.ta could 
be ootaiued fro:i other sources, Purther:iore, as '"ill oe seen fron this 
re.iort, in the case of lany of the to-iics of discinssion or co itroversy, 
h'.2.A» reco:rds sho--.-ed onlj the ar:;LV'iont3 of one or both sides, -.'ithout 
^ivin^- evidence to irove r-hich side '7as r-^.turlly correct in its con- 
tentions, c.lthou,-:h freo'ie itl - the crse jrsGwnted hy one siO,-j o:.' the other 
ni ';ht seem on its fp.ce to be nost lo :ic' 1. 

There 'ore, furtner invest ir;.- 1 ion .,1 ht he :ade •.-\lon,.'; the linos in- 
dicated helo'"': 

1» The records of tne code aiLt-iorit",' sho^ild ho caref'oll"'- searched, 
a.'s the;' undoxthtodl:'- and l0:;icall-' should contnn considorahle 
inforoaticn not re,:eived 07 I'.R.At 



9325 



-18-0- 

a. i''.'.llli. fileij c'.o- ■'vdt 6o:ij- i:. eo ; -].nto ii}^atGS- o:,' the code 

piAthorit"." ;;ei;tio. 'S. In so !C cr"5e ^ '. .'.rL^., I'iles --ere lirit- 
■ , ' . ed to orier ".ju\''-C;ti i ; is.:-;'. .^■, co'icov'::i\ : -ctivitie:-^ of Icng- 
t'iiy ;ieeti-^ :-3, T.u? co-nljtu :"ii:.utes shoiiAcl'oe o'-jtr.inr-lile r,t 
the Institute ofiico. '' . 

Td. Certai;i I'ilo^ on n-rtion.lr,r nrtters -itni.rr-^'n ~0Y the code 

.-u.thorit7 vere i-.'t .^r i..- to the code nithorit" rt its ronuest 

07 the Douit"/. Sue "ilir, coMcorncd suc]i -.ip.tten a.s )i-o- 
iToyed re7,ilr,tion (Sf.BrdoGQr.i'jcacies* ■■ . ,-, 

c.' ■■Undou''ptedl7 vx'.ch .co?rrj3,io'idoncc oct^-ee'T the -coo-C r'utJ'iority 
r.ndv -iG-v)ers . of 'thr; in.luj ^.r'^ r:\C. its yli"stri"t);itin" ch'^::'."iels 
., i-t^vur- VTS for- ■rj;(,c.:, to 11. E. A. "uch coiv>^g '0"l. ' \C'''. ■n.-;ht 
co'it.-^in vrl.urble inf 01- ■ ■ tion. 

d. CertCTin roco:]' en..: tio v, o" tlio cods., rAitnorio/ .'or rction 
, ' djy '.'..ll.'A. :'vc;.'c not^rcco i;'-,'^,Ui., h''" v\..^3V;:ia or ,jir ti;""!", ; 
C-.- tr,. Such i''."oi-r tio'i li "'it ju i.<^' b' i. i-."' :"ro- 1 code r.uthor- 
itj'' files, "liiiutos of cO'Lc Puth.orLi"^ ;k", .:ti":. t^ , or- h' or.'^.l 
intervie-'s ■■i;fch' -lersoMS ^yho .vrtici yted in .such rro-^os'.ls, 

2. The Burer'u of :"t'^n..r -\.s should he, consnlt:;^. ';o-".oernin ; the i;T- 
'.on'.:tr7's si":) if io '. in-^ctice. reco.''i::end",tions, .^nd co-'.cc;rni'^;,' the 
■our.lit7 of "various t;^:^'^ of loncils nrde 07 code -.i.ro lonents '"nd 

• O'Tooneil.ts.' '.,,,, 

a« The I'jurer.u f ilas ,ni;;";h.t co-it i\ r,d '.itioisl i.ifonnation in 

the for:i of -cor os ^o.^ ".once or otVj;r'-dse co icornin.-^ the oqui- 
tio's pnd ineciuitic; of -the •■ 1 jvov-j-. schedule of st.'Midards. 

"b,. The ;.!uronu jii 'ht have, or Tse .dole to ohtain, inforiir.tion 

ccncorni-r-; the corri. r tivc 'iLi.,"lit"' of v- rioiis ^sencils, -7ith 
-or.rticxLl"r reference to t h.e iroeonents' nuch hero.lded yello" 
fiv,>: ce-'.t "jencil, -md the o;,) lone-its ' lo^'er -oricod nencil 
\'hich the Institute deii::od a chea^ init"tion. The .-^.nsT-rer 
■to the ouestio.'i '^^ould thro'^ co isiderrhle ''ei/.-ht to the side 
it frivored, 

c. The "hirep.u ;n. ;ht rlso have datr eoncerni:if:; nroduction costs 
of the vriois t ,■:', of H:':-ils, -fiich 'foiild'oe of interest 
in, the sruo -^-^Itcr y :, :;t U--^ in the n-ccediii:';; ■"ir-ra+jraoh. 

3. huch o.ote is.u:i''.0Ld.)tedl".' co:it.-ined in the ■•"iles of the Le.-id Pen- 
cil In.stitutc, Inc., the code ;; -.onsori^^. ■ trr u.e, as!?oci- tion, 
i7hich 'inturipl iii cht je of '_.on;',id ra)le interest if Tiadc p,v-il- 
a,hle,. ■ ■ . 

a. The In.stit-.te h.ps ")..' \ ' - t- .-rthcrin ; ,'^.;enc:" since its 
1 oundin. : i-i. i^SQ, pi. :;-:.'■ hpve co-iSide?"rhle statistical 
infer;. ]-^ti(in concerni.i. ; :'ro',.uction' md o.istri ;ution, in ad- 
dition to th-'.t p/pf'. ole i;-. f.'.f...... files. Such infornption 

ni.ffht fill in sonc of the " jpps" -^o^-' nrevpili -. ;, p.nd should 
Drinn- ,-:;enerpl iidustr.^ dtp ui to d.'te. 



98,25 



-181- 

Td» The I:i;;tibuce :fou1vu nlso ll^'Mly je .?. fino source for ol)- 
t.-^ir.in.. • nor.-st-'^tistic' T i.irTor;!-- tion concernin ; rctivities 
■pnd :)robl'ms of the i.ir.ur.-trv r.nd its c-.istribution nethods 
gjid chpn.iels. 

4. Infornation could olso ;50ssi"bly 'be oitrined fron the State De- 
orrtnent, Tariff ComiGsion, Pederrl Trade Connission md other 
G-overnnentpl sources concorniag the "oroblen of coupetition from 
Japanese pjid other ir. 3ort;;d pencils, ^o.st end •orcse:it, .iid other 
industr^; pad distrioixtion -orohlens. 

5, Personal intervie'-^s with iraiufpcturers ( including hoth large 
a;:d snail neaoers of the code proponents and raenlDers of the o-o- 
position aaid "inporter" groups), TTholesalers (possToly throu^'h 
their association) and retail dealers (includin/^ independents, 
chain stores, five and ten cent stores, deportraent stores, P-iid 
nail order houses, prohn.bl/ thrOTi<';;h their respective associa-. 
tions), should develop conr;idera'ole additional infornation and 
should -oresent an op jortunity for questionintV on certain points 
of particular interest, or concernin;; \7hich infor:.iation now 
available at IT.R.l,, is very i^iconplete. A fe-: of the Vrpes of 
data T'hich night thus be obtained are: 

p.. Present conditions in the i:'vJ.ustr7 since the abolition of 
i<.Pi.A. codes, includin;^ treuus in sales of higher-priced 
and lOT? priced oencils, vol''a:ie position of large rnd snail 
manufacturers, volune hrndled through dif 'erent distribu- 
tion channels (direct factory to consuner srles, spies 'oy 
large retril orgpjiizations, etc.), relative position of 
TTholesalers pjid retailers of differe it t;"pes, co.r?etition 
of inported goods ("tirice, oairlitv, vol.tie), ■unfp.ir nethods 
of co'.roetition bei.v; 'iracticed, cC'ibinr tions tending to- 
irard :iono}30l~^ or restrai:it of trade, profit stattis of in- 
dustry/-, u'oduction rnd distrib-.vcion cost dp.tp,, etc. 

b. Effect of code .irovisions -Thich -rere actaall';' in operation 
u-->on the vnrious trv-s of firns craestioned, pn.d u^on the 
industry generally. (Properljr drafted nue s tions shou.ld 
produce infornation to fill ;aan:,'" of the vast "ga"os" novr 
present in II, R..'.. data concerning this code.) 

c. ?pst conditions rnd iroblens of the industry'-, rnd in- 
fornption concerning the intended pnd -probable effect of 
code Drovisions '•'hich r,'ore oroiosed bj" the Institute, but 
susi^ended or dispp^)roved by if.M.A. and concerning the con- 
plete naz'hetin;;,' plpn n-o;.-)03ed by the Institute, 

d. Heco:i icndp.tions concerning forn a:id sco )e of future re- 
gulation of the inxoAstr;' pnd the distribinticn of its ;oro- 
ducts, if rnj'- such regu3.p.tion is considered advisable, 

(rne infor.ir.tior. \Thich ni :ht thus be obtained, should hp.ve a bepring 
upon general industry' d.~ta (statisticrl raid othen-^ise) , p,nd such ■)ar- 
ticulaJT subjects as price control rnd sitabili?a,tion, control of ad- 

3325 



-182- 



vertisin,- aiid othe:.^ jroi^.otio-.i.-l rctivities , restrictions _on nethods of 
distrilDution (distin-.Tiishin;; t^/ies of custp.ms, li;uti;x;; 'size of orders, 
accounts, etc.), standardizr tion of indnstiy -oro^dacts, -production control, 
and other specific ty^^os of trade pnd nar";etin/' practices.) 



4 



9825 



\ , -103- 

V. CHARTS V. CHAHTS 

C-Li'^T A - Tra:"e Practice and Liar'zetinj,- Provisions 

in Code of T7ood Cas3d Lead ?:rcil Industry 



pr.OVISIOK 

Art. II, Sec. 5 

" " Sec. 6 

" " Sec. 7 

" " Sec. 8 



Art. VII, Sec. 1 

" " Sec. '2 

" " Sec. 3 

" " Sec, 4 

" " Sec. 5 



" " Sec. 6 

" " Sec. 7 

" " Sec. C 

" " Sec, 9 

" " Sec. 10 



SIE-JI^CT 

Defined "dealer" 

Defined "di s ' rilj-ut or" 

Defined "cons^oner" 

Defined "sales a/^ent" and pro-, 
vided fnat code autliorit:; (uith 
ap-oroval of A^jninistrator) 
shoTxLd adopt resu-lations for 
a-pTDOintnent of sales a^-ents 

Restricted sales to dealers of 
non-stands,rd innDorteci pencils 

Proliibited Palse C-rade rar^'iing 

ProliiDited iS;'oionage of Coni- 
■oetitors 

Prohibited Connercial Bribery 

HestMcted sa^iplina- to re.'^L.lar- 
tions to be submitted by Code 
Authority for aToproval 



Sec, 11 



xlestricted Conbination Sales 
Restricted "Trade-ins" 
Pronibited Price Discrir.ination 

Prohibited Secret Rebates 

Prohibited attempts to substi- 
tute loner quality than speci- 
fied by buyer calling; for bids 

Prohibited, contracts ii'.definite 
as to' time, quality, ;orice or 
ouantit;' or v;hich e::tend be- 
yond. 12 nonths. 



STATUS durii:g 

LIFE or CODE 

Effective 

Effective 

Ef:''ective ■■ 

Effective- reg'ala- 
tions su.bvjitted by 
code authority, but 
withdratri before 
a-oT>rov3.1 

Sxisuended'by order 
aioproving Code 

Effective 
Effective- 
Effective 

Effective - Re,:^i.-_la- 
tions subnitted a/nd 
auproved - Requested 
cancellation der.ied 
by IIEIA 

Effective' 

Effective 

Sus'oended 
ITov. 23, 1S34 

Ef-''ective 

Effective 



Effective 



9825 



-184- 

CIu'lRT a - Trado Pr;:.ctic and Marketing Provisions 

in Cod:- of ¥ood Caced L--ad Pencil Industry 

PBOVISIOII 3LT3.TECT STATUS DURIHg 

LIFE OF CODi: 

Art. VII, Sec. 13 prohibited Dafamation of Cora- Effective 

petiliorB 

" " Sec. 13 Prohibited pira;;' of Design, Effective 

Trade-nark s , etc. 

" " Sec, 14 Prohibited False Billin;: Effective 

" " Sec. 15 Pro'b.ibited Pirac" of Design of Effective 

Icev? Pencil Throes 

" " Sec. 16 Prohibited Sales to E::-oort HoTise Effective 

except for gixaranteed no.rkets 

" " Sec, 17 Restricted Retiyrn of Merchandise Effective 

" " Sec, 18 Prohibited advertising allowances Effective 

to ctisto'iers for cataloi-^s, etc. 

" " Sec, 19 Prohibited fi,Lrnishing of -orinted Effective 

Insert Sheets for customers' 
catalogs for distr-ibution to 
their trrde; permitted insert 
"' pages (in black and white only) 
for -catalogs of customers' 
salesmen 

" " Sec. 20 Prohibited cooperative adver- Effective 

tising with custoners 

" " Sec, 21 Prohibited allowances for otit-' Effective 

door advertising of customers; 
pernitted gifts of advertising 
■ , ' material for' .window or indoor 

disTjlays of customers, 

" " Sec, 22 Limited f-'cin/ishing of sa:vple Effective 

disiilay ecuroment and displays 

" " Sec,' 23 Limited furnishing of remanent Effective 

refillable disTolay cases. 

" " Sec, 24 Prohibited giving of "onizes to Effective 

customers' conventions, etc, 

" " Sec, 25 Limited use of color in manu- Effective 

facturers' catalogs to cover and 
bad-: oages only. 



3825 



-185-- 



CHART A - Trade Practice and Marketing Provisions 

in Code of Wood Cased Lead Pencil Industry 



PROVISION 



Art. VII, Sec. 26 



Art. VIII 



IX 



X, Sec. 1 

", Sec. 2 

" Sec. 3 

" Sec. 4 



Sec. 5 



Sec. 6 



SUBJECT 



Prohibited exhibitions by manu- 
facturers at dealers ' trade con- 
ventions 



STATUS DURIIIG 
IIFE OF CODE 

Effective 



Provided for corn-oliance Trith 
standards T;^hen ado-oted by in- 
dustry ■^ith ar)"nroval of U.S. 
Bureau of Standards 

Classified manufacturers according to 
•oercentage of total sales volume 
(Class ^, more than 15'1 each; Class 
a, 5''' to IS'I each; Class C,..less 
than 54 each.) 

Defined "List Price" 

Provided free delivery to New York 
and on shi-oments of 100 lbs. or over 
to other noints, etc. 

Required OTjen nrice filling, nrices 
to become effective immediately 
upon filing 



Effective - 
Standards later 
a'n-oroved 



Effective 



Effective 



Effective 



Suspended 
Nov. 23, 1934 



minirrrun prices to be filed. 



Provided Code Authority (with Ad.min- Code Authority 
istrator's approval) could establish proposed minimum 

price schedule, 
public hearing, 
June 5, 1934, 
Schedule disap- 
proved. Provi* 
sion suspended 
11/23/34. 



Provided for revised price lists, 
effective unon filing 



Suspended 
Nov. 23, 19:54 



Reauired compliance with manufac- Sus'oended 
turer's filed prices, except obsolete Nov. '-^3,1934 
and dpmaged goods when approved by 
Code Authority. 



9«25 



"1:33- 



Trade Practice and har'cetiag Provisions 
in Code of ./ood Cased Le.:.d Pencil Industry 

FHOVISION ■ SlDBJSCT ; STATUS DUR I i^G- 
' ■ LIFE O'P COD'S 

Art. X, Sec. 7 Provided standard cash discount and 
credit terras; advance dating privi- 
lege on ship:nents greater than mini- Effective 
•mums specified (graded according to 
class of manufacturer") 

" " Sec. 8 Specified maximum quantity discounts to Suspended 
consumer on standard lines and special by Order 
imprints, not for advertising, quantity approving 
ifor single shipment to govern Code 

.." , '! . Sec. 9 Specified minimixm terras for selling pen- Suspended 
cils speciitlly imprinted for advertis- by Order 
ing puriDOses. ' approving 

Code 

" " Sec. 10 S-oecified mrices (trade discounts) to Sus-oended "by 
dealer.-; for standard lines and spe- Order approv- 
■ cial imprints, not for advertising ing Code 
(limited discount to small quantity 
buyers, graded by class of manufactixrers) 

" " Sec. 11 Permitted cumulative discounts for an- Suspended .ty 
nual volume of "buyer to be established Order a-oorov- 
■ by code authority with aporcval of ing Code 
Administrator 

" " Sec. 12 (1st paragraph) Limited sales of blank Suspended by 
pencils for ira-orinters of advertising Order aporov- 
pencils to distributors rscog-nized Dy ing Code 
code authority; (2nd paragraph) s-oeci- 
fied discount to distributors on blank 
pencils- for shipment at one time. 

" " Sec. 13 Code authority to determine status of Suspended by 
buyers under regulations approved by Order, aporov- 
' ■ Administrator. " ing Code. 

" " Sec. 14 Provided lower trade discounts to deal- Suspended by 
ers who refused to sign resale price Order aporov- 
maintenance contracts ing 

" " Sec. 15 Permitted manu acturers to make and re- Suspended by 
quire buyers to sign resale price Order approv- 
maintenance contr.':ctG. ing Code 

9825 



-187- 

CHaRT a 

Trade practice aiid /iar'cetine; Provisions 
in Code of Wood C;',oed Lead Pencil Industry 

FHO^^ISION 5U3J-^GT STATUS DURING 
LIF^. OF CODE 

Art. X, Sec. 16 Hestrict^d opening of new accounts with Suspended 

derlers bTivivig less than specified Hovember 23, 

rQinimuras (i^adec. according to class of 1934 
manufacturer. ) 

" " Sec. 17 prohibited evasion of rainiinuin orices Suspended 

through bids using fractions of a November 23, 

cent. 1934 

" " Sec. 18 Provided lower trade discounts on di- 
rect factory shipments of less than Effective 
$15,00 net wortn of pencils, 

" " Sec. 19 Prohibited sales of non-standard lines Effective 
at less than prices of eauivalent stand- 
ard lines. 

" " Sec. 20 Limited blank pencils and special and 

advertising ii.vprints to tyoes in Effective 

standardisation schedule, when ap- 
proved. 

" " Sec. 21 Limited minimum prices to de-ilers for 

dealer imprints to minin-ara orices for Effective 

equivalent tj'pes of standard brand 

pencils. 

" " Sec. 22 Specified mini:aums for shipment and 

hilling of special imprints not for Effective 

advertising ana staidard brands, back 

stam-oed, 

" " Sec. 23 provided that Art. X should not 

axivly to export trade (including Effective 

Philirjpine Islands.) 



Provisions Contained in Code pro-posed at 

Public Hearing but Deleted Prior to O o d-j Approval 

Art. V Limited domestic sales to the restrict- Deleted 

ions as to prices and terus iaposed by 
Schedule 3 

9825 



-1-83- • 



CHART A 

Trade Practice aiid 1,;"! letin^ Provisions 
in Code of 'iood Cased LeF.d Pencil Industry 

Provisions Contai ngd in Code Proposed at 
Public Hr'arin>'; but Deleted p ri or to Code Approval 

PROVISION S'JBJ'IJCT STATUS D^.THH^IG■ 
LIP-^ Off CODE 

Art. Vil, Sec. 5 Code Authority to endeavor to develoiD a Deleted 
uniform cost accounting system, for sub- 
mission for Administrator's aoproval. 

II " Sec. 6 Upon approval of coniform cost accounting Deleted 

system, sales below individual cost of ' 
production, as determined thereby, pro- 
hibited after 90 days. 

" 'I Sec. 7 Required filing of revised orice list Deleted 

after 90 day period to conform to cost 
requirements. 

" " Sec. 8 Exempted export' trade fro'n Sections 6 & 7 Deleted 

Art.Vlll, Sec. 9 Prohibited sales to dealers who resold Deleted 

bolo"' fixed miniiiia or a^eed resale 
prices. 

11 II Sec. 18 Prohibited sales to dealers who v/ere code 

violators, or who sold hy use of "loss Deleted 

leaders", ^orizes, premiums or commercial 
bribery. 

'I " Sec. 19 Prohibited sales to bankrupts, etc. escept Deleted 

for cash, ixntil -oaid entire indebtedness 
to indastry members for oeucils purchased. 

Art. IX, Sec. 2 Prior to aoproval of industry stan- Deleted 

dards, schedule adopted at industry 
meeting held Aug. 5, "1933, should apply. 

" " Sec. 3 This Article was not to araply to export Deleted 

trade. 

Art. X, Allocation of Production • ■ Deleted 

Schedule B, Provided action to be taken vifhen member Deleted 

Sec. 6 found not selling in accord? '"-oe with code 

requirements as to list Mricp.^. 

Schedule B, Operation of provisions :.'ttlj..ti--A : to Deleted 

Sec. 8 price lists subject a.t p.ll tines to 

Administrator's aporovrj. 

^325 



-189- 
CrJUPTEH III* 

TME copj: i:'DUS'-F.y 

I GZ~£?JiL IirUSTRY D-^TA 

A. Eistor:,' ai-ci Si:; c 

The frl'ricatic:i Ox corl: ■•roducts c:.;--stitutcs ore of the v/orld's 
oldest ii'.custi-ies. The uses o± the inT'.terial were known to ancient E^^'-ot, 
aiid corlr itself, the Height outer "brrl: of a species of oalc tree, ha.s had 
a coiaviercial value for centuries. The rtiw nr.terial is indiii'enous to the 
countries hcrderint, on the Mediterranean Sea, v.dth the iDulk of the sup-olj'- 
comin^ from the Iberian Peninsula and ITorthern Africa. The chief use 
of corl- has until coijiarativcl;' recently been almost exclusively for 
stopfer Tjumcses and for marine cq.uipncnt. In the former use its merit 
lies in its ca-oacity for expansion; in the latter, its characteristic 
"buoya.-.cy. (**) 

It was not until midv.'ay in the nineteenth century that a cork 
industry,'- was estaljlished in the United Strtes. The original factories 
were located in t he northeastern Sta,tes and were engaged only in the 
production of cork sto-riers and marine goods. Some forty years ela:Tscd 
■before the rmnufacturc oi cork insulation v.-as started, and it v/as 
still later that cork coripositicn and cork tile becane important pro- 
ducts. It is thus apparent th^.t while the industry itself is of ancient 
origin, the American branch as novj constituted has only a brief history. 

One of the diicf obstacles' to the growth of c ho industry 
in this country- has been a complete dependence for raw material upon 
tho Llediterranean area, coupled with the fact that in the production of 
sto-Tiers and marine goods American producers have a.lways ha-d to connete 
with cork -ircducts from the sar.ic area. Although comioletc information 
as to the efforts to meet this situation is not availcble, it is 
known that American manufacturers have defended their position through 
the tariff, throu^^h bu;-ing control of sources of raw raa.terial , and in 
some cases oy establishing brai.ch fa,ctories close to sup lies of native 
cork(below - Armstrong Cork Cortpany). However, in the fields of cork 
insulc.tion, composition and tile, conipetition has mainly existed bc- 
tv;ecn these products and domestic manufacture of substitutes or of 
articles for which cork itself was originally used as a substitute, 
e.g., clay floor tile. 



(*) This Chapter was written by Janes Wallace i.icPally 

C**) U.S.. Tariff Ccmioissicn. Trade Information Series - Cork. 
VJe.shint^ton, 1921 



9825 



-190- 



Here utility and ;-irice r.re co/itrollin . f^ct^rs. (*) 

The i'.-.dustr;- i^. siirll i.- nuxaber of cstablishmentG, num'bGr 
of enrployeRs and u-llar voiujne of business. The Census of I.fe.nufr.ctures 
for 1933 reports the existence of ''.6 firms _-irimarily concerned v/ith 
the i.ianufacture of ccr"; .-iroducts, a decrease of fivefron the 1931 
fitjure. Totrl value of ^iroducts vas $11,235,516, as con^i.:,red to $14,377, 
454 in 1931 and $33, l^i3,329 in 1929, llanufacturcs in I'ew Yorl: rnd Vqv 
Jersey cchibined usually account forali'iost fifty percent of the total 
volune. 

A fev: cornanies ^iroducc r, l?a\,e part of this volume of sales. 
In 192S ten of tlie thirty-five estahlishnents -oroduced 8o.8',J of the 
voluiue vhile the rems.i:.,in;^ tv/enty~five estahlislii.ients accounted for only 
11. '.p of production. In 1931 si:: of the thirty-one firns then in existence 
produced 7c . 6^- of total volujue. (**) The President of the Cork Institute 
in 1933 reLiarlred that "?.s re^^r.rds the size of its units the industry is 
strihlnply on.e of extremes, being made up of six or seven large comp- 
anies, v;ell financed and in several cases, completely integrated, and at 
the ouher end sor.ie twenty-odd small cornp0.nies employing relatively fev; 
v.-or]:ers rnd ii3,];in£ usually only one "oroduct J'(***) 

Totpl employees of the industry numbered 4,265 in 1929, 
3,018 in 1951 and 2,334 in 1953, a decline of more than one- third in 
four years. Some insight into the location of these employees and the 
auount.of business and labor policies of their ernloyers can be gained 
from strti sties of v/eehly hours for ?:orhers in the industry. Of 35 
est?,bli^ients in the industry in 1929, 31 had a vcrh-v/eek of not more 
than 54 hours end 14 of these r/orhed less than 40 hours per v;ceh. Wlicreas 
these 51 industry members employed 2,219 v.'orlrers, the rcma.ining 4 firsas 
in the industry, v.diich rcrl^ed in excess of 54 hours T;eehly, had a total 
of 1,623 enT;iloyees. The situation was even more mr.rhed in 1931, when with 
only 31 estrblishr.ients in the industry, five, working employees more than 
54 hours weekly, eiTrployed a total of 1,645 workers and the other 1,372 
employees in the industry v/ere distributed amon;^, 26 concerns observi^i^ a 
work-wefk of less th^n 54 hours. (****) 



(*) haterirl bc-.rin;.: on the Cor]r Lionufr cturin.^ Industry, Research and 
Plannin.: Division re-.ort, October 27, 1933, -->. 4, Research and Plannin,' 
Files. 

(**) Ibid. P. 3 

(***) Tra:.acri-.t of Code Hearing, October 25, 1933, -i. 33, "HA. Piles. 

(****) haterial be^rin^, on the Cori: i.Ianuf .'.cturin, , Industry, Statisticcl 
A:rTendices; also Labor Advisor;' Board re--)ort, und; ted. 



9825 



-191- 

The industry diviues eo.sil.y o: n;.ture of product although 
several firms raanufactujre more tlia-.i one linR. The Ar.-.istror.-- Cork Corir-ia:iy 
is the cnl;- esta'alishment in the industry which r.ia.Ves every t-me of cor^: 
product. Listin:^ the number of firii? producins the different lines, v/ith 
figi-ij-es orsed en a -oeriod in lOoC vrhcn there T/ere SO industrj-- -aembcrs, 
the result is as follov.'s:(*) 

StojT ers 18 

Marine ^oods 4 

Insulation 5 

Conroosition 5 

Ploor tile 4 

bulletin ar.d Displty Heard 10 

Until Au:,ust 1-:-, 19C3, when the Cork Institute of America -..-as crerted 
for CoC c :iur:ioses, the only association of ennloyers in the industr:^ had 
"been il-.:.t of the insulrtion nar-.ufacturini; jroup. This was the Corh In- 
sulation hpnufacturers' Association, ferried in 19o2. 

The Arnstron:; Corh Conr-any is ecsily the preponderant in- 
fluence in the industry. De:mty Adiuinistrator '.Taltcr C-. Eoohe in £. report 
of Au£,u.st, 1934, stated that thds coman^'- "is "by fcrtliC largest in the 
industry rnd normally does rhout 75^ of the business of the country. "(** ) 
An official cf the coi.ipany is quoted as havin;,^ sri d ths.t Armstrong, is 
satisfied with the 60^,:^ of total sales it usua.lly secures "because a ^:reat- 
er proportion r,ii.^.ht lay it open to chcTpes of ucno]-ioly. (***) The n^ost 
frequent estimc\te cf this cor.ipany's share of gales of American cor"!r 
products is CO)). 

1. Arnstron^ Cork ConTian^' 

The Armstrcn-. Cor:: CorDany was incor-^crrted in Ponnsylva/nia 
inlS9C as the successor to Ajrustronp j^.rothers and C-^., Inc., which h?d 
"been estehlished in 1C31. At present it o-ocratcs in addition to two 
plants at its headqup.rters in Lancaster, Tennsylvanir , factories located 
in the following, cities: Camden, C-louc-stcr, rnd ""or.' Brunswick, I'ew Jersey; 
Pitts'b'.-'jr^h rnd Server Ff.llr.., Tcnnsylv.- via; Pnlton, IM. ; Greenville, 
South Cf rolinp-; and Pensaccla, ricric'a. Four large and tv:o small fact- 
ories are ;T£,intained in Spain, rnd over th-irty cork balinj and shipping 
stacions are ciereted in foreis.n countries. 



(*) Report from Code Authority, '."PA files. 

(**) '.".alter C-. Eookc, Deputy Ad:unistrrtor, memo to Llajor Gcorse lorry, 
Auj,ust CO, 1934. hPA files. 

(***) P.eed il. Pr.'nd sunim.- ry of Cork Industrj- for Consumers' Advisory Joard 
Piles, Ju_ie 15, 1935, "TA fik:- s. 



9C;.?.5 



-192- 



There ere tv'o . French ., one Gaiircdc'.r-, one Spanish, one PortU£,uese, ~a c. 
one Snr,lish corporrtion r,r.on.:: the forei.'T. suosidif.ries, while the 
Americe.n suusidis.ries of the pareht comT)an;' consist of the Arrastron^j 
Cork Products Conr^eny, the Cor]- Import Corporr tion, the Armstrong; De- 
velopment Compare, axL the Armstror.i, Corl: Comp.:'.ny of Calif ornie.. The 
Pennsj'lvanir, TrE.dinti, Conipa-ny, i.\ suhsidir.ry. handlin^ importations of raw 
cork, v/af: liquidated in 1934. The Arnstrcng Cork and. Insulation GDJnpaii;-, 
another suhsidiarj^, becane on Ja.iurrp 1, 1955 the Arnstron^ Cork Products 
Company, serving' as the rales outlet for ?>11 ;>roducts of its principal. (*) 

The net sales of the compe-Tj'- for 1934 v/orc $22,593,108. Tliis 
fic;Ure represents the a£;ore^,atc of rian;- various products whose inrposin^- 
diversity- indicates the complete inte£rati:'n of Armstroni^.The insuls.tion 
divisicn ^''^roduces not only corlthoard and cork insulation, hut also "tem- 
lock", r substitute, and other -irivrtely orandcd alter"/.atives. The clo- 
sure division i.ianufactures cans, crowns, netel covers end ruober stoppers 
in addition to a. stnnd:--rd line of corks. Cork shoo products, cork textile 
mill accessories, cork gaskets anc other automohile accessories, bulletin 
board, and msn-ine ([-;oods, all turned out in different shapes and stples 
for particular usages, f re su;y ilenented by a v/idc ran^^e of miscelLaneous 
items. The waste from all these 0:)erations finds read;- usa^e in the me.nu- 
facture of another leadin^, itori, linoleum. (**) Sales Offices rre located 
in the followin^ cities :(***) 



Albany 

Atlanta 

Baltimore 

Birrain.Uiam 

Boston 

Buffalo 

Chariot te- 

Chi cago 

Cincinnati 

Clevclrnd 



Dallas 

Denver 

Detroit 

Houston 

Jacksonville 

rCrnsas City 

Lenicnstcr 

Los imgeles 

lienr^hii s 

ilinneaTJolis 



3"ew Orleans 
I"cw York 
Philadelphia 
Pittsburgh 
Rochester 
S t . Loui s 
San Fra.ncisco 
Seattle 



Ilontreal 

Toronto 

\Tinnipeg 



PF.ris 
London 



( * ) Lio cV ' s I nve s t'mcnt 3,1931. 

(**) Armstrong Cork Company. Cork . 1930 edition. Lancaster, Pa. 

(***) Ibid. 



9835 



■~19o- 

The net income of tlio CoK-rpcm;', excluclir.,;. forci;^:n su'bsidi..ries, 
is lisbfc.'. r.s follors foi' the seven yer.rs erclivv.. vith 1934. (*) 



i:::s " $5,9G5,6c:i 

II'JS 4,014,546 

1SE;0 Loss o, 554, 414 

1951 n :3, 235, 120 

193.? • I' 1,603,645 

1933 • ?,450,6CC 

1934 1,9.1?,, 3^ 5 

The relrtior. oi domestic sr.leo ':k. domestic riir.i-.tLfacturir..i_' e>r->enses 
( ezccl-adir.^. s?lf.ries F.rcV corfd scions) over the sane period a. T.stC**) 







]_9::'C — 


100 










1927 


19?? 




19?.9 


1950 


1931 


Sr.les 


77.4 


Qr~ o 




100 


70.0 


49 . 3 


E:v"ie:"-ses 


193? 


193^- 




100 

1934 


, 94.0 


70.5 


Seles 


33.5 


37. S 




4G.7 






Ex-oeiises 


31. e 


.■' n n 




34.3 







The' Census 03" I.iF,r.uf " ctvures iiidici.'.tcs the location of the i:~.- 
dustr;-'s sr,les only :;e:'erall;'-; ccrnlcte infcri;;r tion c-.-^ the rolrtive in- 
port;/.ice 01 vrricus products iii :;he sc;t;,l volui"ic is rot Pvr.ilrole.Corh 
stcmers he.d a dollrr volune oi' ^>?, 339,075 in 193C acainst ^3,332,133 
in 1931, while coi-l: insyJation and tile to^;othcr did C'5f2S7,60G in 19.35 
ad. $6,023,905 in 1931. Since floor tile is l:nov'n to Le a minor item 
compared T.'ith sto'i- ers ers.C. ins'il; tio2i it can be seen thct these latter 
products cor.prise the field of jreptcst dollrr viluiae. The combined sale 
of the other tln-ee industry," products (composition, hulletin hoard, and 
mc?.rine t_,cod.s) usually a-ru-oximc-tes the corl: stopper total. Irrom the stat- 
istics avrilcble it \.'ould a-p^ear that insulati en is the rar in product, 
v,'ith sto'-'-ers an iir-ortf,nt seccndari.d tjie other -oroducts of lesser volir.ie. 



(*) Poor's Industrials, 1935 
(**) Iijod3''e Investments, 1935 



9825 



-194- 

3. Cor!: Ir-su-l.-tion 

In the S'lrin . o'l 19"4 (the ;ocricd rt v;jiich the only avail- 
aole inrorKirtiGn './•,-, coivnilcc-) the: e vcrc five estcblishuucnts primarily 
concerncu. with the ^•,roc.uction oi ccrl: iz-sulr^tiovi r.nd c fev others doin,^ 
some i::cident£:.l ■business in th t li:-.e. The lollov/in^; r,rc the a^) a-oximr.te 
percenta^.es of chat "business handlot 'uy the various monocrs of the Inrlusti-'s(*) 

Arinstro:.^ Cork Comc.ny 55;'i 

Corl: Insulr;cif-n Co., Inc. lO'^o 

United Cork Cor:T>r::ics 17f; 

L. Ilmidet and Son 13; > 

L'itcholl fxd Smith, Inc. 3;,' 

0^11 others 2]'' 

Of the^e concerns Arnstron;,, as menticnod above, is the only cnc makin;,;; 
a full line of ccrl: ;rc:.uct&. The Cork Insulation Co., Inc., is the only 
concern en£,v£cd crrclusivelj'- in the nrocVacticn of in3ulM.i'"'n; the other?, 
produce other liiies in anounts ra;-.j,i:,_. froi.i 10 to 40 "ler cent of th^ir 
totals. Of these ini-nlftion manr.facturers Arns'.rc/., and Cork Insul£.ti':n 
Comroany ere stronrjest financiall:^, the former 'jcin;_: tJie :irnt in the 
.iai;ieri'an cor:i: industry. The latter, cc:-itrolled hy Britich backers. Lord 
Vestr;, ■ nc Sir Ed-.7r,rd Voritr--, possesses the nepest -olmt in •Eio indu^,try and 
is at lei'.st on a prr in efficiency r/ith the Armstro::,; Corl: Cor.T->an3^ 

"7Jhe position of tho ether corjjrnieG is doubtful end it seems likely 
th: ,t ohey ,.re some\.'h-;.o dcnondent uoon Arrastron^; for \7hatever vcll-bcin^; 
they ;.1P./ obtain'.' (**) 

At the t?.riff heari::_ of 19 :9, when the lc:ri:er conroanies 
sou^/no an increased r^.te o:i cork board (corl: insulation) (***), the 
folio;. in,, statement uas included in the o i losin^ brief submitted by the 
cork i.-i;.orters, anon:^ uhom onljr the Insulati'-ni Cork Co. (sic) is of 
aroprecirble size: 

"The brief v:hich h,£.s ^occw filed by ^he domestic ne.nufacturcrs of cork 
products is r.iislc. •: i:;: i:^. .^^:.x;■ of it;- features. The brief is sicncd by 
six firms, but only three of ckcr;e, namely, the Armstrc::^ Cork Co., th? 
United Cork Co., and L. Kundet C, Son (inc.), ms'/nuf acturc cork board. 
These th.ree firms operate cork-bo?rd factories both inthe I'nited Scrtes 
and forei^.n countries. One of thom mp-niofrctv-rcs .approximately 70pper 
cent of all cork board sold in the "'nitcd States. Of this 70' per cent, 
it is estime.ted thrt one-lic^lf is manunactured in .the United States and 
the other hclf in a forei.-^n coruitry. It is also represented by the six 



(*) He. ruin 1'ritel, Reset.rch c:id Pls,nni-ji,_- Division , nemo to J. A. 
Hilli\ian, Division III, en Cork Insulation Merchandisiny Plan of Ma;- 7, 
1934. llary ?:i^ , 1934. p.l., :T^ files. 

(**) Ibid., p.". 

(***) Sec below - Tariff 



9825 



-195- 

do'iestic manufe.ct-uxers of cork orodxicts that their firns 
have an investnent of $30,000,000 and employ 7,400 Tie::., 
"but no mention is made of the fact tiia;t thfe total in- 
vestment in tnrmtfactul-inf; cor'f iboard in the United States 
does not e:':ceed $4, ODD, 000 and the niu'n'ber of men employed 
in the manufacttire of cor^: hoard in this country does 
not e:cceed 500." (*) 

It is indicated in testinovij'- rt 2')Uolic hearings and hy a report of the 
Research and Planning Division that the Ar-istrong Cork Com-oany has heen 
in the hahit of -Dubli shine; its prices, and other industry raemhers of fol- 
lowin;; these lists. Another statement from the tai'ifi hearing orief 
indicates that there is no wide range of orices het\7een competitors e:;cept 
in uiuisual circumstances. (**) ■ 



'(*)■ Tariff readjustment - 1929, Ker-rings before the Committee on Hays 
and ueans, House of Representatives, "70th Congress, Second Session, 
Vol. XIV, Schedule 14,"' Siindries, p. 7289, Washington, 1929. 

(**) Ibid. p. 7290 



9825 



-196- 

" AlthoUi^h it has been represented that an increased duty is 
necessary to prevent the fpreij^n conipctitors from driving them 
.out of business, it is noted that this representation is based 
u'lDon heavy losses alleged to lia-ve occurred from. July, 1927, to 
December, 1928,, An investigation, v.d 11 show fnat . during this 
period Trices Y;ere depressed \)y a price war among the domestic 
manufacturers themselves, and the domestic manufacturers raalce 
no mention in their brief of the market price of lOi" cents in 
1926 nnr of the prevailing market price of 8-| cents, nor of 
the fact that the depression in prices from July, 1927, to 
December, 1928, affected the. impcrters as well as the domes- 
tic nanufacturers of cork products." 

V/ith quality standardized the bulk of sales has naturally gone to 
Armstrong by reason of its prestige, the other companies having main- 
tained their fields through factors of geography, service, and associat- 
ion vifith established customers. 

Distribution of cork insulation products is effected by Armstrong 
principally through factory branches; there is vai-ying evidence in rej« 
gard to the conrpany's claim tha^t it sells as rav-ch as 30^ thro"ugh dis- 
tributors. Cork Insulation Company uses distributors and a-gents almost 
exclusively, and others either combine the methods or use agents and 
distributors, the preponderance being ?/ith the latter. In most cases 
these agents and distributors are under contract with one manufacturer, 
Some.nanufacturers sell direct to ultimate consumers and some to other 
manij^acturers v/ho use cork in their products. Where factory branches, 
consisting of sales offices and warehouses, are established in numbers 
and over a wide area as the backbone of a distributing system, such 
agencies are in a position to provide services which independent dis- 
tributors must strive to equal. Distributors who as a sideline supply 
crews to erect the cork insulation sold Imve been greatly affected by 
the practice of manufacturers supplying such crews from their factory 
branches. This practice seems to ha.ve begun with Armstrong; it is 
knomi tha.t two others have followed suit. Dealers complain bitterly 
that manufacturers supply this service from their factory branches at 
cost since they are satisfied ?;ith the profit on the product alone, 
whereas the disttib-ators had formerly taken an additional fee over 
the labor e>rpense. (*) 

The following outline indicates the distribution set-up and 
establishes terminology to be used below: (**) 



(*) Walker-Jams.r Co., Duluth, Minn., letter to Consumers' 
Advisory Board, April Z, 1934, IIRA files. 

(**) Martin Taitel, Research and Planning Division, mora* to 
J. A. Hiilraan on Cork Insulation Merchandising Plan of 
May 7, 1934, May 29, 1934, p. 3, NEA Files. 



9825 



-197- 

. j^.-ent, .'. .; '' Resale bi^yers (tho.se v/ho -use cork 
Distriliutor,; ■. lasulo-tion for corjiGtraction or in 

Ivianu- or connection with inotallation of 

facturer Factorj^ t^ieir products) . 

Branch 

ConsTinors (tliose who xise cork 
insulation in connection with 
their ovm nonufacturing operations 
and all others not included as re- 
sale iDuyers) . 

There is reason to oelisve that cuatomer classification alon^; these 
lines has "been customary in tne industry; Deputy Administrator Walter 
G. Hooke, describes a similar set-up as "'based on long estalilished^ 
trade practice and custom in the industry". (*) However, no definit.3^ 
information is availaolc on its len^-th of existence or rigidity. Avail- 
atle evidence indicates that prices to resale "buyers are lower than 
those to consumers, and that exclusive distributors receive "better treat- 
ment than independent agents or non-exclusive distri'butors, "but here 
again nothing definite can "be eGta"blished. It will be seen below tliat 
the attempt of the man-CLfacturers in this grou.p to write such a system 
into the Code met wH-h determined resistance from one of their ovm. num- 
ber (Cork Insulation, Co.) and from the largest non-manufacturing distri- 
butor of cork insulation products (York Ice H:^.chinery Co.)« 

In a report to General Hugh S. Johnson, dated September 15, 1934, 
Deputy Administrator Hooke stated: (**) 

" All five manufacturers are economically efficient and all 
meet each other competitively on a substantially equa.l basis ... 
Cork Insulation products are sold in the trade by all five manu- 
facturers both directly through branches and indirectly through 
distributors. Each manufacturer apparently has a preference for 
one or the other of these selling methods, but all five use "l^oth 
methods in varying degrees. According to the testimony at the 
Public Hearing, one of the larger manufacturers which lias the 
largest number of direct branches, nevertheless sells approx- 
ima.tely 30;j of its products through distributors who are in 
direct competition with other manufacturers, their branches and 
distributors.'' 

The Research and Planning Division reported generally on the cork in- 
dustry on October 27, 1933, and on I/fi-y 29, 1934, gave a short account of 
the cork insulation group as a preliminary to its comments on a pro- 
posed mercha.ndising plan. Other tlrnn this no research was made into 
the situation of this industi-y. In all of the subsequent difficult- 
ies arising out of the merchp.ndising plans proposed by the industry 



(*) W alter G. Hooke. Report to General Hugh S. Johnson on Cork 
Insulation Merchandising Plan, September 1j, 1934, HRA files. 

(**) Hooke to Johnson, memo, Sept. 1:3, 1934, ilRA. files. 



9825 



-190- 

(v/hich will be fully disciissed oelow), v/hile pa.rtisan ^'roups set forth 
opposing contention?, and adrniuistrative a,i,encies debated policy, there 
seems never to have been assembled a. conrorehensive picture of the yrork- 
ings of the industry previous to the Code. The Deputy's statement given 
above indicates timt there vz-as no' ?-{vreement even on the scanty informat- 
ion presented here in re[:;ard to the cork insulation jroup. 



9825 



-199- 

C. Cork Stopper 

The stop'.ier mnn'jf -^ct^orers are n ..meric^>lly the Ifir^^st rjroduct group 
in the industry and being the original cork industry in the TTnited States 
number among them spver?!l small, but Trell established, old com-oanies. 
DesToite the fact that there are 13 ?-anuf ••'Ctarers in this group it is 
claimed that Armstrong Cork Corarj-^ny alone controls 60^ of the sales of 
this product and v;ith two othf^r manuf actufers , one of which is L. Hundet 
and Son, controls SO'/o, (*) 'Mo ictwl statistics adequate to an under- 
standing of the relative positions of firms in this -grouu h^ve been 
located. 

To the stopper manufacturers the great -oroblem centers about 
the importation of finished corks from abroad. Independent importers 
compete directly with American manufacturers and their distributors, 
although the extent and effect of this competition in unknown. The 
industry presented this situation to the Administration along with the 
original proposed code and requested that the Code be so drawn as to 
afford them protection against import. 

Despite the f^ct that the industry seemed fairly unanimous in its 
appeal for control of iraoorts.it later devalued thot t^o major companies 
had already found means of coping with the situation, Coyne and Paddock, 
a smaller concern, charged in a letter of May 12, 1934, that Armstrong 
Cork Company and L; I.'undet and Son were ooerating their own factories in 
Spain and were as much resoonsible for the foreign competition as the 
'importers themselves. About the same time distribators of cork products 
made protests against the policy of the same t''"0 comuanies of catting 
under their nrices for domestic corks on small-auantity sales of im- 
ported corks, and that the results '"ere disastrous to distributors of 
domestic corks. 

Distribution of cork stoppers follows generally the method used in 
the insulation branch of the industry, although even less f'^ctual in- 
formation is avails,ble, I/anof ictiorers in some cases sell direct to 
large manufact-oxers as in the case of oroprietary medicines. Most sales 
go t'nrough factory branches and manufacturers' distributors, the latter 
consisting of distributors who handle exclusively the products of one 
manufacturer and jobbers who "handle the oroducts of' several manuf actuerest 
Another class rs composed of wholesalers who in the orocess of a general 
distribution service deal in corks along with other commodities. (**) 
The manufacturers' distributors receive preferential treatment over 
wholesalers, and within their o\'ni group the exclusive dealers get better 
terms thaji jobbers. As in the case of the cork insulation group nothing 
is known of price differentials, terms of sale, or handling of greight 
charges. 

Hot even such a- sketchy report on the industry as was made by the 
Research and Planning Division for the insulation group is available for 

(*) Coyne & Paddock, Inc., Long Island City, II. Y., letter to Senator 
Robert VJagner, ¥ay 12, 1934, IJRA files, 

(**) Criticisms of Research and Planning Division and Consumers' Ad- 
visory Board on Cork Stopoer I/erchajidising Plan, August 5; 
July 12, 1934 Deoaty's files. 



9825 



-200^ 

1_ : . . J. d'-i'MO;j /or t]:;: : j.... '. _ j.^ -i- ^ -r 

the cork stopper division. Smaller industry rneraoers and distributors 
who protested from time to time gave partial information substantiating 
the facts outlined ahove, "but neither the Cork iT^stitute nor the Adininis- 
tration seemin^'jly ever prepared a statement on the set-up and customs of 
the industry. Such data seems to have been thorou^^hly neglected in favor 
of opinions concerning the probably effect of certain Code provisions 
under consideration. 

D. Cork Corn-position; Floor Tile; Marine' Goods; and- Bulletin and Display 
Boprd. 

I'To information vihatever on the pre-code situation in the cork com- 
position, floor tile, marine goods, or bulletin and display board branches 
of the American cork industry has been located, Vflien the proposals of 
these- divisions in regnrd to merchandising plans designed to supplement 
the Code are discussed belov: some li^^'ht may be thrown on existing con^ 
ditions, but such information is disputable and inconclusive. 

From the fact that the Armstrong Cork Company is conceded SQf,^ of the 
total, sales of cork products in the United States, with about 55fj of 
insulation and about 60fo of pork stoppers, it may be inferred that the same 
company averages about the s"arne percentage of total sales in these fo-or 
minor divisions. I t^ produces in each of these four fields and is there- 
fore one of four c'cmpaniiss manufacturing marine goods, one of four tile 
producers, one of five composition manufacturers, and one of the ten 
bulletin and display board firms. It is a fair assumption that the Arm~ 
strong Cork Company approaches a dominating position" in each of these 
fields with the possible exception of bulletin fmd display board, where 
it is kno-mn that in addition to the ten cork companies engaged in pro~ 
duction several manufacturers Cif other commodities produce this article 
as a side-line. If this assumption be justified then it i's' also likely 
that the general Armstrong policy of preferring to use its factory branches 
for distribution has had an effect u'pon jobbers and wholesalers in these 
lines. 

E. Tariff " ' 

Protection has been afforded the cork industry over a considerable 
period, but, the recent trend deserves particular .comment. Fnile the raw 
material, corkwood, has remained on the free list, there has been a sign- 
ificant increase in duties on manufactured products over the past two 
decades. Cork insulation in particular has received greater protection, 
the change coming concurrently with its increasing importance and value 
in industrial usuages. From 1913 to 1930 when the most recent legislation 
was enacted, large cork stoppers (over ^ inch in diameter) the rate per - 
pound rose from 12 cents to 20 and finally to 25; while duty on s'maller 
corks went from 15 to 25 and to 31 cents per pound. However, the 1930 
rates of 25 ,^nd 31 cents fell considerably short of the industry's request 



9825 



of 40 and 50 cents duties respectivdly . •("') '■' 

Oyer the same period, in tlio tariffs of 1913, 1932, nnd 1930, cork 
insulation rites changed from ^ cent per pound (the. equivalent of l/5 
cent per "board foot) to 30^!' r.u valo.'jra (equri,l to 1,3 cents per hoard 
foot), and finally to ?-\ cen'iis per board foot. The 1930 rate was just 
•5- cent short of the industry,' a request for a 2 3/4 cent rate, and re- 
presents aJi increase of 1150^ over the 1913 rr.te. In the argument for 
such an increase the Ajnoric-ai m.-inufr'cturerB(**) used several irapressive 
arguments, some of which, however, seened mutually exclusive. Thus the 
industry descriood the hij^h w;v;'e system in America and the differential 
"between these wa;,'^e.s and the foreign scale, and argued that lack of ade- 
quate protection had forced Anieric-n manufacturers to locate factories 
abroad. Both the differential in vmges -md the industry's escape from 
the differential therefore stood separately as nrgiunents for higher duties. 
Again, the industry showed statistics of ,an increase in importations of 
foreign insulation; only raertioning in another connection, as a separate 
argument, the fact that Araericsn firms were swelling this total with the 
products of their ovm factories abroad. The petitioners also state that 
manufacturing plants in Spain r^id i'-ortugal have heen increasing in nurnher 
and productive capacity withoxit adding the important corollary that for- 
aign-0"vned plants in those countries have "been declinin-5 in both regards. 

The importers v.'ho opposed the higher duties of the 1930 tariff (***) 
were of course also arguing from the standpoint of their interest. Tneir 
request for an investigation of the situation by the Tariff Commission 
Y/as without result. 

"In brief, the total .arao^int of cork board manufactured 
in foreign-owned factories and sold in the United States during 
1928 was 25,000,000 board feet or 18 per cent of the total 
amoTint of 135,000,000 hoard feet used during that year in 

the United States V/e cannot estimate the added cost 

if the increased tariff should result, as is apparently de- 
sired hy the three domestic manufacturers, in the closing 
down of the foreign-owned corI:-hoard factories, leaving the 
selling prices in the United States entirely to the will of 

(*) Tariff Headjustment - 1939. Hearings before the Committee on 

V/ays and Means, House of Representatives. 70th Congress, Second 
Session. "Vol. XIV Schedule 14 Sundries, p. 7279 et seq. The 
hrief presenting the American industry' s demands ivas opposed hy 
one offered hy the importers of cork insulation, hut no contrary 
evidence was presented in regard to other cork productc. 

(**) United, Mundet, Armstrong, Paddock, Truslow & Fulle, and Croimi 
Cork & Seal. 

(***) Luse-Stevenson Co., Insulation Cork Co., and Wicander and Co., Inc. 



9825 



-202- 

Imerican manufacturers operating their cork-'board factories 
at home, or both at home and abroad, as they might deem ex- 
pedient. 

"The duty on cork "board should not "be increased without 
thorough investigation of the profits realized "by Amer- 
ican manufacturers over a period of years." 



The utove attempt at a picture of the pre-code "backgroTind of the 
American cork industry is incomplete in many respects. There is no 
reliable information on the proportion of total sales held by the in- 
dividual industry members, on the relativfj importance of these companies 
in the different branches of the industry, or on the impact of cork sub- 
stitutes and imports on the industry. Financial conditions and inter- 
re] «.tions are unknov/n; there is no gauge of the dominance of certain 
ind.^stry members. One cannot discover trends in distribution methods 
with anything approaching preciseness; the extent to vdiich certain methods ^ 
are used is extremelj'' vague, as are the reasons for preference. The con- I 
dition of wholesalers, distributors, jobbers, and agents, a vital point 
throughout the Code period, remains undescribed. Discounts, terms of 
sale, price differentials, and treafeient of freight charges are unlcnown 
quantities. The bits of information given above are dwarfed by the great 
lack of essential data. 



m 



9825 



-203- 

CIIAPTER 11 
II. IKE CODE PERIOD 
A. Code History 

1. The Ao'~iroval of tho Code. 

The Cork Instit-ate of Amerio,-^., estallished on Augvist 14, 1953, 
applied for a Code on Sei:tember 7 of the same yeox. The sponsor de- 
clared itself an r.ssccif,tion of 24 of the 26 cork manufacturing es- 
tr.bllshments in the United States, with msm'bersui-^ re-jreoenting 98fo of 
the total dollar volume for the previous ye^r. 

After two -orelininnry conferences hetv/een the Code Comraitte of the 
Cork Institute and re^resenta-tivcs of IIHA, a public hearing was held on 
October 25, 1933, -lith Deouty Adi.iinistrator R.3. Paddock presiding. 
Here the industry's proposed code, r/hich hr'd undRrgone certain revisions 
in the preliminary conferences, v.';'S further amended, and sent to the 
Advisory Boards for coLiaent :u\d criticism. Following additional revision 
which \7as^.:ronpted by the advisors, the final code went out again to the 
Advisory oards for their ap-oroval. The Legal Division, the Research and 
Planning division, and the IndustrirJ Advisory 3oard approved this last 
version; Consumers' Advisory BoGjrd and the Labor Advisory Board made 
approval conditional upon further specified chcjiges. Deputy Paddock for- 
warded the Code th General Joh-nson without further amendment, accompanying 
it with a reply to the objections of the Consumer and Labor Advisers. 
Division Administrator Berrj'^ recommended a.pproval, and the Code was ap- 
proved on January 12, 1934, to oecoue effective ten days later. 

The nature of the trade iractice ^orovisions and their varying 
fortunes will be discussed belov/ under certain groupings as to type. 
Wages were set at thirty-eight cents oer hour for males and thirty cents 
per hour for females, both being minimum rates. Hoxirs were forty per 
week averaged over a three-month period, with a linitation to forty- 
eight hours in any one week. The Labor Advisory Board based its final 
objection on the limitation of time and one-half overtime pay to those 
cases where the employee' s avenvre was in excess of forty hours per week, 
and to the exemption of $25.00 per week assist.?nt3 from the ma:clmura hour 
limitation. (*) 

2. Definition and Division ox" Industry. 

The code carried a orovision for the division of the industry into 
six product groups, and accordingly there v;ere established the follo-;ing 
Divisions: 

Cork Stopper 'Division 

Cork Insulation Division 

Cork Composition Division 

Harine Goods Division 

Ploor Tile Division 

Bulletin and Display 3o rd Division 



(*) Leo TTolmaJi, Labor Advisory 3oard. p-^^ort on Cork Code, 

December 27, 1933. Labor Advisory S .xL Piles. 
9825 



-204" 

The industry's claim that these divisionr. hr.d 'jidel;.'" differing trr.de 
practice problems '^as recognized, and Code provisions '.lere left rather 
general in character. Hor/ever , provision "vas specifically made for each 
Division to sutmiit a merchandising plaia designed for its exclusive use, 
Tfhich plan after a^Dproval should Ijecone part of the Code for that product 
group . 

The Industry definition reads: (*) 

"The terjp. ' inrJiiEtry' o,s used herein, includes the manu- 
facture and sale, including jobhing and '.7hclesaling, of the 
products of the irdustry, gjid branches or su'idivisions there- 
of as may from time te tine be ir.cli.ided under- the' -orovisions 
of this Code." 

The inclusion of jobbing and wholesaling under the jurisdiction of a 
raantLfacturing group met with considerable opposition from the Advisory 
Boards. The industry itself -orofessed a realization of the injustice of 
the attempt to bind distributors who had no re:oresentation or participa- 
tion in the formulation and p.drninistrfbtion of Code provisions. TJhen 
Amendment Ko.l to the Code, deleting the words "including jobbing and 
wholesaling" from the definition, cane i.ip for public hearing on June 22, 
1934, the Code Authority requested the change, A. L. Paubel, Secret,. ry, 
explained that in pre-code co;";ferences with Deputy Paddock an appeal for 

relief from the competition of imported goods was made, and tha.t Paddock 
had stated that the only meaiis available to WA consisted of including 
the importers under the Code. (**) It may perhaps be significant that 
just previous to the oroposal of this amendraent , comyjlaints began to come 
in from distributors who charged that Armstrong Cork Coripany and L Mundet 
& Son i,7ere demoralizing the doiiestic cork stopper market with cut-price 
importations from their fa.ctories in Spain. (***) If there is a con- 
nection betv/een these incidents it indicrtes tha^t the larger companies 
had anticipated the eventual it"," and preioared for it. 

3. Merchandising Plans 

Immediately after the promulgation of the Code the Code authority 
busied itself with the Executive Com.mittees ,of the various Divisions for 
the formation and proposal of merchandising plans. It should be mention- 
ed that the Code Aathority consisted of the thirteen members of the 
Board of Directors of the Cork Institute. Armstrong, Hixndet, and Mitchell 
&. Smith, Inc. were each re-oresented 'by two Directors; seven other firms 
had one Director each. The Board was representative of the various 
Divisions, but the election rule here quoted gave a marked power to the 
coiTtpanies with greatest volume: (****) 

( * ) A?t rilTr^ecT^ ,""Col."e"'^rrthe7Cork, Indus tryT ^ Go deTso f "" ~ " '"*'""" 
IPair Gpm-oGtition, Vol, V, p. 43, 

(**) Public Hearing on Anepdment l"o . 1 to Cor^: Code, June 22, 1934. 
Transcript, pp. 3-5 

(***) Constitution and By-Laws, Cork Institute cf America 
IHIA Piles. 

(**'''*) Constitution and By-La "s, Cork Institvite of America 
MA Piles. 
9825 



-205- 

"Directors (ot.xer t, n -... '^,,,,cA.)r:,vxi o ' e,'.-„ch Division 
vrho shrll "be a neviber o:" the Boprd e:: orf icio) , in order to 
be elect..;c. tc r(v.:.-es5nt tL'.^ Division, Ilust receive :\t least 
a m.'^jorit:- of t}..e votes of tr.c uev^ ers thereof tO|;i ;ether -Ith 
the. co ncurrerLce. of _EcE"borS of the Divisions. rej3ref.entin£ at 
Ji-egj± J jir'eji-foui thg, o.f^ f.ie do i ljtr_ g ali; s volume of the pro- 
ducts of the Di\ision as sho'.7;.i b"- the records of the Cork 
Institxite for tl'.e -^receding six months period." 
(itplics mine) 
"..Taen later it vas found thrt each o;" the -^ro^osed merchandising plpjis 
carried a -nrovision reciiiring the votes of re-present r,tiv'es of at least 
75f5 of the dollar vol-a-.ie for ajnendjnent , it nas freely ch:rf:ed that' 
Armstrong dominated the tTvo other componies ^hc, conhined V7ith it, con- 
stituted the reouirod -lercentafe , 

Since the mer chcJidi s ing -olan orovisions fU'e to be discussed belov 
in groupings acc.ordirg to the nature of the trade practibe orovisions, 
the following account of the tiite sequence of the^e rrovisions vrill 
serve to e tablish the chronolo-s"/ of events subsequent to Code approval. 

The Merchandising plan for t..e Cork Stop .er Division was the first 
of five such lans to be subnitted "by -the industry. Originally pro- 
posed in Febru-ry, 193^1:, it -Ta^ revised and resubmitted on Abril 6, to- 
gether with oroposals for Insulation and Bulletin Board plsiis. Two v/eeks 
later a conference of the Code Authorit.7, Deputy, and Advisory Board 
representatives wr. held with reference to these plans, and in accordance 
with decisions there reached the Insulation and Bulletin Board plans 
were revised and resubmitted on May 14. On June 2 the Code Authority 
proposed a plan for the Floor Tile Division, end three days later one for 
the Marine Goods Division. Thus within five months after the Code the 
industry had submitted all its orov-osals for divisional merchandising 
plans. 

A public hearing was held on the Insulation and Bulletin Board plans 
on June 2Z, with a post-her.ring conference next day. The changes made 
necesscry by that hearing ^'ere made, in the plans, as will be seen below, 
and they were sent in once more by. the Code Authority on July 18. 
In the meantime the Cork Stooer Plan, further altered, had )een resubmitt- 
ed. Later in August the Code Authority suspended action on all except 
Cork Insulation and requested the Administration to consider this one 
solely and as a model for subsequent procedures. On August 31 Deputy Hooks 
having conferred with his aides and Advisors, announced to the Code 
Authority that the Insulation Plan remained unsatisf fictory after two 
altera-.ions and required further ar.iendment to meat the following ten ob- 
jections, an accumulation of those ::ost -oersistentl - raised in one quarter 
or another: (*"> 

"1. Plan must receive ap .roval o"^ at least 75;^of the dollar 
volvj.:e of the division's sales for the preceding six months. 



■(*) Code History, p. 90. 
9825 



-506- 

"2. An;/ Plan stibi.iitted snould '.t^ a form to lie followed by 
members of the Industry- in cuomitting their orm Plan and 
should not -ie a me:-chandisi:ie^ Plan for the Industry. 

"3. Objection t'. clp.ssif icrtion of customers. 

"4. Ten daj' ^liltini-- period is cortrpj-y to -oolic.y, 

"5. Objection to zoning systems. 

"6. Pronposed Plan did not co::ply i,7ith Office Memo- 
randum IJo. 2S8. 

"7. Objections to "orovisions prohibiting the granting 
of higher quantity discounts unless orders we: e delivered 
to one destination. 

"8. Objection to resale "orice m?3,intenance. 

"9. Objection to provision re^;. rding consign- 
ment selling. 

"10. Objection to mandatory classification of customers." 

This list is cited here only as an example of the nature of objections 
which delayed approval of the merchandising plans submitted. Very few, 
if any, of these objections ori^-inated in the Deputj'-' s office; almost 
all wore brought forth by Consum.ers' Advisory Board, Research and Plan- 
ing Dividion,, and the Legal Division. 

The Code Authority re-.orted on Se-otember 7 that it had ap-oroved 
a new Plpji, and this Plan went, at the recuest of Consumers' Advisory 
Board, to the Advisory Council of NK.-i.. There a ublic hearing was held 
before a Sab-conmittee on Octo.er 4, ajid ag^ain the industry was reqviired 
to mal:e further alterations in its plan. TTiien a new plan was proposed 
later in the month, it was found that the latest alterations had been 
so drastic that the Plan could only be :^itted in under the empowering 
Code provision through an amendnent, (*) Accordingly, a public hearing 
was held on November 13 to consider the nev? -olfin ajid Code amendments 
which would authorise its an-Toval. 

The -oublic hearing necessitated revision of both the tentative 
Insulation Plan and the proposed Code amendments. Through the action 
of the consumers' Advisory Boa,rd these were returned to the Advisory 
Council, ¥/hich on December 13 suggested methods of reconciling the aims 
of the industry with ICIA policy. The Cou-ncil considered in this in- 
stance only the Form of Agreement, a model manufacturer-distributor con- 
tract, and the Code amendiients proposed. The amendments were revised 
and were accepted by the industry provided the Cork Insulation Flan 
vrere approved simultpjieously. Five da^^s later, on January 15, Assistant 



(*) Because it called for -jrice-f iling bj^ distributors, and. distributors 
had been removed froia the industry definition by Amendment No.l 

9825 



-207- 

Depiit" Bryron E, Ball, at this time acting as Deputy while Walter 0-. Rooke 
was acting- Division Administrator, forwarded the amendments and the Ii>« 
s-ulation Plan to NIEB for final aij-^roval. The adverse conments of two 
Advisor;,'- Boards did not acconpan^r the -oroiDOsals "In view of the fact that this 
Merclicndising Plan has been before the Administration for such a long period 
of tine and "because they want iini:ediate action "by the Board in regard to this 
matter," (*) Deputy Hooke as Acting Division Administrator gave his approval, 
and on January 16, 1935, Code Amendment Ko. 2 vas approved, as was the Cork 
Insulr.tio-: Plan. 

On February 1, 1935, the Marine Goods Plan, further revised, was submitted 
by the Code Authority. This not being as far-reaching as its predecessor and 
considered a model plan by Consumers' Advisory Board, ap'oroval was granted on 
March 30 without dissent. The Cork Stopper Plan was then put forward once more, 
but inasmuch as it was more nearly similar to the Insulation tyoe than the 
Marine Goods plan had been, it met at once with vigorous objection. Two confer- 
ences and revisions failed to remove points on which Research and Planning and 
Consumers* Advisory Board took issue. Finally on April 5, 1935, the Code 
Authorit;"- declared the objections insurmountable and requested suspension of all 
further action on merchandising plans until Congress should take action on the 
future of IIHA, Although two later Code amendments included standard provisions 
respecting mandatory budget and child labor clauses and permitted incorporation 
of the Code Authority, no other significant action on the Cork Code transpired 
previous to May 27, 1935, 

4, Article VIII, Section 1, 2 and 6. 

The Code provisions which precipitated the industry's dif f icu.lties with 
plans are found under Article VIII - Merchandising Plans, and the following 
sections (l, 2, and 6) outline the structure as originally intended: (**) 

"Section 1. The Executive Committee of each divisional group of 
of the industry shall, with the approval of a majority of the members 
of the division representing at least seventy-five percent (75/j) of 
the dollar volume of the division's sales for the preceding six (6) 
months* period, prepare its recommendations as to the form and p:'o- 
visions of a merchandising plan to be followed by each individual member 
of the division concerned, which recomimendations shall require ea-ch 
individ'oal member of the division in filing his own merchandising plan 
to submit; 

(a) His basic price list, 

(b) Complete schedules .of discounts, including 
extra quantity discounts, if any, 

(*) Byron S, Ball, Asst. Denuty - P.enort to III?B on Insulation Merchandising 

Plan, January 15, 1935." (lIPA files) 
(**) Ap-oroved Code, pp. 56-57 



9825 



-208- 

(c) Terms of salo, 

(d) his classiiicp-uion of the trade. 

(e) Lists cf the various £;rades of all products 
which ha proposed to offer for sale. 

(f) All ot?aer conditions in any wa.y affecting any 
trans3.ction or sale of the products of the division. 

"In a.ddition to the foregoing inioruia.tion the ISxeeutive • Committee of 
any Division may require the submission hy the individual members of 
such division of bona-fide samples cf each grade of the products 
offered, for sale, v;here varying the qr.ality can 'be used to obtain 
a competitive advantage* All such recoininendaticns -a-nd m.crchandising 
plans prepared by the Executive Committee slia.ll be capable of 
uniform application with the respective divisions and shall be 
submitted to the Code Authority and the Administrator for ap Toval, 
and upon such approval shall have the same force and effect as 
any other provision of this Code. 

"Section 2. Within fifteen (15) days after the approval by the Code 
Authority and the Administrator of the Executive Committee's 
recomraenda.tions and merchandising plans as provided for in Section 1 
of this Article, each individual member of the division concerned 
shall file v/ith the Secretary his -olan for merchandising v.'hich shall 
supply the information reqiiirod and shall be in .the form approved 
by the Administrator. Such plan and any revision thereof shall remain 
in force -jnless and until supcrsed.ed by the filing of a revised 
merchandising plan, revised price lists and/or discounts. The 
member's original plan and each revision thereof slos'.ll state the 
date o:: nhich it, shall become effective, which date slia.ll be not 
less than ten (lO) nor more than twenty (20) business da.ys after 
filing of same with the Secretary, a.nd each other member of the 
division may file a similar revision to take effect -upon the same 
date. The original merchandising plan and all. revisions thereof 
filed be each member shall be ma,dc available by the Secretary to all 
other members of the division. 

"Section 6, Many members of the industry sell their i:)roducts through 
agents, distributors, jobbers, wholesalers, and/or contractors, while 
others sell their products directly to the ultimate user. In order 
to prevent indirect evasion of the provisions of this Article VIII 
by those members selling through agents, distributors, jobbers, 
wholesalers, and/or contractors, it is hereby provided that the • 
I]xecutive Conmittee of each Division of this industry, subject to 
the approval of the Code Authority and the Administrator, siia.ll 
prescribe appropriate forms of contracts to be entered into between 
members of the industry and agents, jobbers, distributors, wholesalers, 
and/or contra.ctors (excluding retailers) for the distribution of 
the products of this industry and the observance of such prices and 



9825 



-209- 

ternis as those c-arrently filed with tho Code Authority at which the 
manufacturer sells such ;':>ro ducts. " 

Since the indu.stry's system of distriLutin.., its products was to "bo 
governed through this system of merciianuisins plans, the trade practice 
provisions in the Code itself were ^'oneral in nature, and for that reason 
there vrais no opposition to them although they wore not present in the code 
as originally proposed. 



The expoerience v.-ith regulation of ch?.nncls of distribution in the 
Cork Industry under the code will be treated ujider the following headings: 
customer classification, resale price maintonc.nce, price differentials, 
quantity discounts, and discounts other th-r.n quantity discoimts. 

3. Customer classification 

The method of controlling distvihution through merchandising plans 
was attaclcod previous to the puhlic hearing on the Corh Code. T.arl Hauck, 
of the Consumers' Advisory Board, reported after a meeting with the Code 
Committee on Octchsr 13, 1933: (*) 

"The representatives of the industry a;.reed to consider the point 
and stated tliat they may remove all reference to a Merchandising 
Plan from the Code since I assured thera the C.A.B. would object 
strenuously. " 

At the -Qublic hearing, of October ,^5, a representative of the National 
Retail Drj^ Goods Association made this st-tcraent in objecting to the same 
point: (**) 

"This section proposes that each member classify potential buyers -and 
sets down conditions of sale thjit rau.st be more favorable than the 
model plan for the industiy provided in Section 2. *** This pl?.n also 
proposes to fix prices thrc\igh classification of customers v/hich will 
fix the conditions of sale "oy arbitrary grouping of distribution 
outlets rather than through the cu.stoi:iary c^ifforences in the elements 
of sale, the merchxandise, or service inherent in the distributors." 

R. M. Fulle, of Truslow and Falle, Inc., Brooklyn, il.Y., supported 
this objection: (***) 



(*) Karl Eauck, Consumers' Advisory Board, re;ocrt, Oct. 12, 1033, 
Consi-ijners ' Advisoiy Board ITiles. (lI?A files) 

(**) Code Hearing. Transcript, p. 56 (ITRA files) 

{***) Ibid. p. 107 



9825 



-21C- 

"In anticip.ition of tiae apjjroval of the proposed code 
a model merchandising plan has 'been drafted "b^ the Sxecu- 
cutive Committee of the Cork Stppper Division and distributed 
to the members. Under t':is ^:odel Merchandising Flan all 
customers (and potential or prospective customers) are to 
be assorted into one of tv/enty enumerated classifica- 
tions and depending upon the .amount of cork stopper busi- 
ness transacted by each, each is to be designated into 
fiirther subclassifications and given a distinctive letter. 

"Jobbers, agents and distributors are also defined, 
assorted and classified. The concerns presently recognized 
as jobbers are named t.nd it is provided that 'Uo additional 
jobbers shall be established under this classification' . 
The plan likewise names the recognized agents and distribu- 
tors cJi6. requires them to observe the manufacturer's designated 
resale prices and provides that 'no further agents or distri- 
butors shall be established who shall buy outright from the 
manufacturer for their ovm account.'*** To effectuate the pre- 
scribed classification of customers, the Flan required that 
each member of tne industry 'shall file with the Secretary a 
complete list of his customers and prospects indicating the 
trade classifications of each rnd indicting rlso the total 
sales in dollars made to each customer betv/een July 1, 1932 
and June 30, 1935.' " 

G-eorge i'. Haddock, of the Consujners' Advisory Board, recommended the 
with-Srawal of jobbers, wholesalers and importers from the purview of 
the Code in a report of October 31 to Deputy Administrator R. B. Faddock. 
The Cork Insulation Co., Inc., sent telegrams and letters to G-eneral 
Hugh S. Johmson asking for his rejection of the Code on the ground of 
customer classification inimical to the. interests of the industry as a 
whole. 

The protesting company received the following assurances from A. L. 
Faubel, Secretary of the Cork Institute: (*) 

"*** I can briefly repeat to you here my assurance to you 
over the telephone on Monday morning that the provisions of 
• Article VIII, Section 6, of our code relate only to the 

form of the contract to be entered into between manufacturers 
and agents, .distributors, jobbers, wholesalers and contractors, 
and this provision does not give the Executive Committee of a 
division any authority or any supervision over the detail pro- 
visions to individual contracts drawn up between a manuf act\arer 
and agents, jobbers, distributors, wnolesalers and contractors." 

As stated above, the Code was approved with general provisions for 
future treatment of distribution through merch-ndisiiig plajis to be sub- 
mitted latter. All five of the plans submitted were in by early J-une, 
1934, and in every case there ensued immediate objections to the customer 

(*) A. L. Faubel, letter to J. H. Stone, Cork Insulation Co. 
January 13, 1934. Deputy's Piles. 

9825 



-211- 

classif ication. Debate v/rs nt ,-11 tines so continuous on the character 
of the classifications laid down in these plans that no attention was 
ever paid to Section 23 of Article VII, prohihiting: 

"Incorrectly classifying a c\xstorr.er to enahle said customer 
to obtain a price better or tern.s of sale more favorable than 
those stated in such member's filed price list, terms of sale, 
or merchandising plan as hereafter provided." 

Of the Cork Stopper Plan submitted by the industr-', J. W. l'.acken:^ie 
of Consumers' Advisor7 Boajd remarked that "it is difficult to believe 
that any industry would offer a merchandising plan such as this with 
any expectation that it would receive the apy;roval of the Aciministrator ." 
He stated that its price control and customer classification "sews up 
the entire industry" , and pointed to the price schedules to manufacturers 
of electric motors as an example of the uniformity of prices already 
ap"oarent. Mr.ckenzie also charged that the reason that the industry 
later eliminated distributors and jobbers from the jurisdiction of the 
Code was that under thc3 original Code definition the latter would have 
to be given a heajring. (*) It is true that it was after the elimination 
of these groups that the merch-^ndising plans were drai^^n up in such a 
way as to produce the sane control over distributrns without affording 
any opportunity for protests. 

I. Cork Insulation. 

The W. S. IJott ajad A. K. Bennett pipe covering contracting 
companies, of iviinneapolis, Minnesota, in oj^posing the Insulation Plan 
charged that(**;: "'The three dominating concerns of the insulation 
division are inimical to the well-establisned policy of dealing through 
agents, distributors, jobbers, v;holesalers and/or contractors, because 
they ha.ve their own erection crev/s operating out of various sales 
offices...." It w-'S further charged that these dom.inating concerns 
controlled 75^0 of the dollar volume of s'^les in the division, and the 
three concerns were dominated by one of their nuinber folding alone 5G)o .qf sales 
and that the policy of all wr s to discourage the use of independent 
distributors and contractors. The protesting comioanies stated that they 
themselves had already lost preferential discounts by reason of these 
three companies having already. put into operation the merchandising 
plan, though not yet approved. The following statement was made by H. 
W. Frentis, President of the Arm.strong Cork Co-npany, in defending the 
distinction between exclusive ajid non-exclusive distributors which 
appeared in the Insulation Flan: (***) 

(*) Memo., Mackenzie, CAB, to J. A. Hillmrai, Div. 3, iiay 10, 1934, 

Consumers Advisory Board files. 
(**) Petition from Nott anc Bennett Comprnies, Anril 13, 1934 Deputy's 

Piles. 
(***) Public Hea.ring on Amendment No. 1, Transcript, p. 174 



0825 



— 21?-* 

" tiie f-und,nmental reason why v^e "believe in having 

a classification on prices for exclusive distritntors and 
one for the non-exclusive distributors (is) because the 
exclusive distribntor uses raore stuff aiiO hence is entitled 
to a lower price. Secondly, we believe that any exclusive 
distributor or noa-exclasive distributors, so fc\r as our 
corap.any is concerned, sho'ulrl hrve the same price in his 
classification, regardless of his location, frei^^ht and 
the cost of transportation excluded, that he should be put 
on a fair basis of competition with anybody else who buys 
in that classification, and hence instead of mailing v.'idely 
varying series of prices to eivclusive and non-exclusive 

distributors, we have two sets of prices which I named 

In our own comprjiy I should say that over 30^ of our insula- 
tion moves through distributors, rind v,'e are vitally interested 
in their welfare." 

T. Pl. Vaughn, of the Legal Division, reported to Jack Garrett Scott, 
managing attorney, on August 8, 19.34, that all the proposed merchan- 
dising plans "are diametrically opoosed to present NHA policies" in 
respect to mandatory and uniform classification of trade. (*) Scott 
replied that the Legal Division should therefore quote Office Memorandum 
No. 260 and refuse approval. f.Iartin Taitel, of the Research and Planning 
Division, reported on the Insulation Flan: (**) 

"There are no serious objections to classifying 
custon.ors as set forth in Parts I to III. It is suggested, 
however, that a provision be added permitting intermediate 
and siibgroupings by individual raanufactxirers , providing 
they file their bases for such groupings." 

The provision of the Insulf;tion Plan to vmich both Advisers objected 
is i^-*) 

"General Grouping for Classification of Trade a. FACTORY BRANCHES: 
For the provisions of this plan are hereby defined as direct s-^les 
offices of a manufacturer of the products of this Division or of a 
wholly ov/ned or controlled subsidiary of such a manufacturer. 

"b. MCLUSIVE TERRITORIAL DISTRIBUTORS: For the provisions of this 
plan are here defined as Distributors of a m.-muf acturer of the products 
of this Division in a given territory in lieu of a manufacturer's own 
sales force and operating under contract with one manufacturer for the 
exclusive distribution of this manufacturer's products within a restricted 
territory. 

(*) Vaughn memo to Scott, Legal Division, A\agust 4, 1934, Legal Division 

Files. (IIRA files) 
(**) Taitel, Research and Planning Division memo to Ilillman, Div. 3, 

May P9, 1934. Research A Planning Division Files. 
(***) Cork Insulation Plan, June 25, 1934, p. 2. Deputy's Files. 



9825 



-::;13- 



"c. NON-EXCLUSIVE TEHHITORIAL DISTRIBUTORS: For the provisions 
of this plan are here defined r.s those Distributors purchnsing the 
products of this Division under a specific selling agreement with 
one manufacturer or said mnnuf ncturer ' s factory liranch or exclusive 
territorial distributor, for resale within a given non-exclusive 
territory." 

Tnitel states re^^^^i'd-ii^o this section: (*) 

"We do not see the necessity for requiring a purchaser 
performing a distributor's function to be under contract 
with one manufacturer before he can be a distributor. 
Should not anyone performing the functions or services 
of a distributor be so classified^ regardless of 
whether or not he is performing those f-a:ictions or 
services for one or more manufacturers? Also the reason 
for distinguishing betv/een 'non-exclusive' and 'exclusive 
territorial agents and/or distributors' is not clear and 
does not seen sound." 

In a brief filed by the Cork Insulation Co., Inc., against approval 
of this Flan, the follov/ing statement appear? inder the heading "Discrim- 
ination between Classes of Distributors" 5 (**; 

"In Section 2-A of Article III, G-eneral, a distinction is 
made between exclusive territorial agents and/or distri- 
butors and non-exclusive territorial agents and/or distri- 
butors. '»Ve object to r.ny differentiation betv/een these 
two classes of distributors. In the first place, they 
do not represent separate -^'.lo distinct steps in the 
economic ' scale. In tl\e definitions contained in the plan, 
these agents are both limited to definite territories and 
we can see no reason why there should be an;;' division at 
all. In the second place, it is contemplated from the 
definitions in the plan that both classes of agents shall 
be lender contract to one manufacturer for the distribution 
of that manufacturer's products within a given territory. 
They both perform exactly the sajne functions and the only 
difference existing is that one has exclusive distribution 
within a given territory, whereas there may be more than 
one non-exclusive agent within a given territory. Of coiirse 
it is contemplated that there will be a price discrimination 
between these tv/o classes of agents, but the fact that they 
are both operating under contract with one manufacturer, are 
limited to definite territories and perform the s,ame functions, 
leaves no reason for such a discrimination. These agents and 
and distributors will be forced to bid against the agents and 
distributors of other manufacturers and/or the factory branches 

(*) Memo. Taitel to Killipan, May 29, 1934. Research and Planning 

Division Files. 
(**) Cork Insulation Co., Brief, June 22, 1934, p. 4. Deputy's Files. 



9825 



-214- 

of other m.aimf acturers , so that their efforts on 
construction ?/ork, wnich will of coui'se he their 
main tusiness, v/ill be exactly the srirne. We 
helieve, therefore, that this section should be 
chzaxged to elirainate the exclusive and non-exelusive 
features and to combine Paragraphs b and c under 
Section 2-A of Article III General into one para£;raph 
for agents and/or distributors." 

It should be mentioned that the Cork Insulation Company consist- 
ently cast the minority vote in its division, being the only member 
out of the five to oppose the plan. Cons"arners' Advisory Board not 
only objected on the ground of mandatory classification of customers, 
but also because Section 1 of Article VIII of the Code provided for 
each industry member's submitting a merchandising plan, wherfas the 
Code Authority was attempting to establish mandatory plans. 

Despite these major objections Deputy Hooke sent the Flan to 
Major Berry on Aug:ust 20 asking that he as Division Administrator give 
his approval. He stated: (*) 

"It Y;as sumitted with the approval of all the 
members of the industry with the exception of one company. 
The company disapproving the plan is the Cork Insulation 
Co., Inc., which is controlled by British capital - Lord 
Vestry and his brother Sir Edward Vestry. They have made 
nume; ous approaches to American industry to buy them out, 
and I pjn convinced that their opposition to the merchandisng 
plan is only ai'iother move to force the purchase of their 
interests by some American concern. 

"The Armstrong Cork Compa,ny, vmich is by far the 
largest in the industry and normally does about 75/3 of the 
business of the country has voluntarily put this merchan- 
dising plan already into effect, and their business has 
dropped 50 to 60/o and are willing to accept this for the ' 
welfare of the industry." 



(*) Report, Deputy Kooke to Div. Admin. Berry, August 20, 1934 
Deputy' s S'iies. 



9825 



-215- 

Major Berry vrote to '^reneral Johnr.on the next day, sending on 
the Plan for a-n-oroval. (*) 

"May I call your attention to the f-'ct that the code has 
been disnTTorovod "by all of the to'-^ris exceot the Lahor 
Board. 

"I join with De'^ut:' Hookp's rer^omriendr tion. I am -nre- 
TDared to r-i5;n the code and eubmit it to your office, but 
the objections of the bojrds are re-^iDonsible for the de- 
lay. If you want me to sifrn it I will do so and -nronrotly 
submit it to you." 

The Cor'c Insulation Plan was not a-noroved follo'."'ing the corres- 
■pondence ouoted ?bove. Instead, the Plan "as further revised and 
UDon being resubmitted, went to the Advisorj'' Couticil. There the 
TDriraary concern '•'•as '^'ith the form of contract submitted in accord- 
ance v?ith Article VIII, Section 6, which ivill be treated in the 
section on Resale Price Maintenance. The Council did reouire that the 
assent of 85't of distributors be secured, although this was later 
altered at the renuest of the Code Authority to Q5'^o by volume of sales 
and 62-2/3^ by numbers. The classification of distributors had been 
altered to meet the objections raised, and the final reading of the 
cla.ssif ication was: 

"1. FAGTOKY 35Ai:CKES, defined as direct sales offices of 
the Sponsor or of a ^-^holly owned or controlled subsidiary 
of the S-oonsor. 

"2. E}:CLuSIVE TEPEITOP.IAL DISTPIBUTDHS, defined as distributors 
of the S-oonsor in r ^;iven territory in lieu of the Snonsor's 
own sales force and OT)era.ting imder a contract '^ith the 
Snonsor for the exclusive distribution of the S-oonsor 's 
■Droducts ™ithin a restricted territory. 

"3. OTHESS (Fote to S-oonsor: Insert and define any other tynes 
of general distribu.tors, if an^'.)" 

It may readily be seen that the final definition of trade groupings was 
based on the manufacturer's own classif ic^.tion rather than that laid 
down by the Executive Committee and made mandatory for the division. 
As finally ariorcved it vras acce-o table to all of the five members of the 
Cork Insulation Division, the Cork Insulation Co. voting also in the 
affirmative. 



(*) Memo. Berry to Gen. Johnson, Admin., August 21, 193A, 'TJV Files, 
(^iiere "code" is mentioned, "Plan" is intended.) 



9825 



-216- 

2. Marine Goo^ls. 

It has Ijeen mentioned a^oove that all the other nlans were laid 
on the tahle "oending a-n-oroval of that for the insulation groun. After 
the a-onroval of the latter the Marine Goods Plan was suhmitted. In 
this TDlan the only customer classification -''as on the hasis of 
qut^ntity, the -orovision reading: 

"In the marketing of these -nroducts the S-oonsor uses the 
following schedule of quantity 'breckets in the -oricing of 
his products to all purcharers. These Quantity or'^ckets 
a-Dply strictly to all orders for sinrrle shii^ment and single 
delivery to the -n-archaser: 

Life Preservers 

Les? than 12 

12-35 

36-71 ^ 

72-143 Qj 

I'! 4-49 9 

500-2499 

2500 and more 

30-Inch Solid Cork Rinfi: Buoys 

Less than 12 

12-47 

48 find more 

Note to S^oonso r 

"Intermediate classifications betveen any t-^o of the above 
Quantity classifications may he established by the Sponsor 
and included in his individual merchandising nlan." 

< 
There was no objection to this plan. 

3. The Cork StoT^ner. 

The Cork Stot>t)er Pls,n was at ^creat variance with the Marine 
G-oods Plan, being even more rigid than Insulation in its customer 
classification. The "olan as revised, and submitted on June 26, 1934, 
provided the following groupings, with detailed Quantity brackets 
for tyoes 1 and 2: 

"1. ALL PURCHASERS OF CORKS except Wliolesalers, .Jobbers, Dis- 
tributors and Agents as defined below and further excenting 
city. State and Federal G-overnment Denartments and Sub-divisions 
thereof who purchase.... 



9825 



-217- 

"2. WHOLESALERS. For the varri09.e of this r^lfn, s Hirholesnler ' is 
defined as ?ny indivil-uf-.l, w.rtnershi-n, association, corporation, 
or other firm", or a definitely organized division thereof, def- 
initely org.'^nized to render pnd rendering a general distriliution 
service, '"hich buys or mpintrins fit his or its own "business a 
stock of corses for resale, nncl vhich throiigh salesmen, advertising, 
and/or sales-T)romotion devices, sells to retailers and/or to 
institutional, cominercial, nnd/or industrial users, hut v;hich 
does not sell in significrnt .--mounts to ultimate consumers and 
which Durchases .... 

"3. CITY, STATE AND F"5DEHAL GOVEIOJ: tENT DEPARTI/EWTS AITO 
SUB-DIVISIONS THEESOF. 

"4. JOBBERS, DISTRIBUTORS AND AfrENTS 

"A 'jobher' is defined as one who sells Corl-cs to all classes 
of trade in substpntial volume, emiDloyes travelling salesmen, 
carries an adequate stock of Corks, and in general performs the 
same functions in his territory as would a manufacturer's own 
salesmen or warehouses. 

"A 'distributor' is defined as a cork dealer -nossessing the 
same general aualifi cat ions as a jobber and who in addition is 
in a more intimate relationship with his source of supply than 
is the jobber; a distributor usually confines his purchases en- 
tirely to one source and is the exclusive r'^presentative of that 
source in e; given territory. ^(The difference between a jobber 
and a distributor lies princi-nally ,in the condition that the 
latter acts more truly as a direct representative of a manufacturer 
and is substantially an actual substitute for a factory-owned 
branch office and warehouse. 

"Agents. In order to nake provision for outlets for members 
who may not have an adeoijate sales force, any member may at 
any time appoint an agent, provided the member does the billing 
to the customer sold by the agent and otiierwiae handles the 
business as his own." 

As the plan was revised and submitted on February 1, 19^5, following the 
approval of the Marine lood Plan, the customer classification read: (*) 



(*) "1. DISTRIBUTORS, defined as corks de-" lers who sell corks in 
substantial volume to all classes of trade, employ traveling 
salesmen, carry an adeouate stock of corks, and in general, per- 
form the same fxmctions in the territory covered as would a manu- 
facturer's own salesmen and warehouses. A distributor usually 
purchases entirely from one ma.nufacturer and is the exclusive represent 
ative of that manufacturer in a given territory. 



9825 



-218- 

"2. JOBBE'RS, defined as corks de-^lers t)erf orTiing the same 
functions ■^s UistrilDators "but Felling in smaller volume than 
Distrihutors. A Jobber r^oes not always buy from one manu- 
facturer f.nd is not the exclusive re-presentrtive of a manu- 
facturer in a given territor.y. 

"3. WHOLESALERS, defined as those individuals, nartner- 
shi-DS, .?.ssoGiations, corporations or other firms, or a de- 
finitely organized division thereof, definitely organized to 
render and rendering a general distribution service, which 
buy and maintain at their nlaces of business stocks of Corks 
for resale, and which through salesmen, advertising, and/or 
sales-nroraotion, sell to retailers and/or institutional, com- 
mercial and/or industrial users, but which do not sell in 
significant amounts to ultimate consumers. 

"4. CITY, STATE AM) FEDERAL aOVEmTi [EKT DEPART: EEl-JTS AKD SUB-' 
DlVISIOi^IS TI-IEREOF, defined as any governmental denartment or 
bureau, including governmental institutions, -ourchasing corks. 

"5. ALL OTT-IER PURCIiASEHS , 

"The Sioonsor reserves the right at all times to a-oTJoint new 
distributors and/or jobbers and agrees that any new dis- 
tributors and/or jobbers which the S-'ionsor may ar)T)oint will 
confoj. n to the above definition of distributors or jobbers, 
as the case may be, and will be -ore-oared to conduct their 
business on a basis com-oarable with distributors or jobbers 
now functioning as such. " 

In this last version of the r,lr.n ouantity classifications were 
established for grouns 3 and 5. The right of establishing inter- 
mediate classifications was reserved to the s-nonsor, but the ex- 
ercise of this right was limited to twice annually, January 1 and 
July 1. 'Man\afacturers' distributors' was defined to mean distri- 
butors and jobbers as defined. Consuners ' Advisory Board objected 
to the distinction thereby established beti"een manufacturers' dis- 
tributors and wholesalers, and it also disato-nroved "rigid quantity 
classification of wholesalers." (*) 



(*) Reed K. Pond, CAB to Ball, Asst. Deriuty, memo., Feb. 14, 1935 
Consumers' Advisory Board Files. 



9825 



The Corlc Sto^r)er Pl?^n "-r.s intended by its -orononents to follow a 
course throio^h JIllA similai to tiirt of the Insulation Plan. As in the 
case of the Insulation Pl?;n and for tue seme reason an amendment to 
Article VIII vas renuired, and the Code Authoritj-- accordingly ^^iro- 
nosed amendments which would nia':e the earlier ones nlso a-pplicahle 
to corks. But in this case the indn.stry would not amend the customer 
classifications to the satisfaction of the afivifory hoards, pnd the 
conferences 'vhich '^ere held in an attemt)b at reconciliation of 
these differences orolonged the (fisr^te for another montli, until the 
end of March, 19."5. Tlie imo<--nding action of Congress on NPA wpis a 
factor in the Code Authority's decision early in Anril to susnend all 
action on merchandising riif^ns. (*) 

4. Bulletin Board and Floor Tile. 

Little need? to be said of the Plans for the Bulletin and Dis- 
play Board and the Floor Tile Divisions. These t)lans ^ere held in 
abeyance while Insulation "as under consideration, and then again 
when Marine '^oods and Cork StoToers ™ere given -nreference. The only 
action on the Floor Tile fnd the Bulletin Board -nlans was in the 
period prior ^o August, 1954, i-'hen r.ll five plans i-'ere simultaneously 
before ITRk for approval. Neither one met "'ith the apTjrovpl of a 
majority of the advisory boards. 

Of the Bulletin Board "^Irn Consumers' Advisory Board said: (**) 

"We recommend the deletion of Section B since "e believe a 
member should make his own cla.ssification of trade if any. 
Why a member's list of (distributors should reauire the ap- 
proval of the Division '''e do not understand. It seems to us 
nothing short of effrontery to suggest that a member should 
submit tc such -novrer of a-roroval or disanprovrl. " 

Even the Industrial Advisory Bor.rd, consir, tently s.^mipathetic to the 
efforts of the industry to secp.re its en.'s, coi:i:nented in the same re- 
gards: (***) 



(*) Code History, p. 25 

(**) CAB to I.S. Saum, Div. 5, memo., August 21, 1934 
Consumers' Advisory Board Files. 

(***)Ashley, Industrial Advisory Board, to "Tooke, memo., Aug. 5, 1934 
IIRA Files. 



9835 



-220- 

"'Jtiile your Adviser is TDersonally in sympathy with this condition 
and reaD.izss the necessity of same to the industry, it must be recog- 
nised f contrary to Office I.Iemorandum IJo. 267, which virill make en- 
dorsement bv the various boards and divisions difficult to obtain." 

Since the plan was never returned by the industry, it is impossible 
to say rhether the Code Authority would have agreed to a modification. 

Comment on the Floor Tile -oroTjosal was almost identical with the above. 
Consumers' Advisory Board remarked of the classification article: (*) 

"We recommend the deletion of this Article since we firmly believe 
it is within the r^rovinco of the individual manufacturer to set up 
his own classification of trade. It has been demonstrated that such 
classifications as have been made mandatory and uniform have a ten- 
dency to freeze channels of distribution, and to result in price 
fixing. " 

The Industrial Advisory Board suggested that "the interested parties 
should have the opportunity to be heard on these provisions. (**) 

Information on the .peration of the t'''0 merchandising plans which were 
aporoved is not available. One was amended in respect of its customer 
classif ic'-tion uiitil it became quite different from what it v/as originally. 
The other, Marine Goods, did not lay down a classification by function. 
However, some of these plans may have been put into operation before their 
approval and while still in form, objectionable to HRA Advisory Boards. 
For example, there has been quoted above a communication from Deputy Hooke 
which commended the Armstrong Cork Coraoany for "voluntarily" putting into 
effect a version of the Insulation Flan which was distinctly unsatisfact- 
ory to NBA. How general this practice w. -, how effective, and how long 
continued, :o not known, and it is impossible accurately to gauge the 
attitude of independent distributors toward the classifications which the 
manufacture! s were determined to establish for them. 

C. Resal e price Maintenance 

Section 6 of Article VIII of the Code, quoted in full above, states 
that the Executive Committees of the various divisions 

"shall prescribe ao'oropriate forms of contract- to be entered into be- 
tween members of the industry and a.--;ents, jobbers, distributors, whole- 
salers, and/or contractors (excluding retailers'* for the distribution 
of the products of this industry and the observance of such prices and 
terms as those currently filed with the Code Authority at which the 
manufacturer sells such products." 

Then the industry first nresented a TjroDOsed code to NRA, "the industry" 
was therein defined to include only 'manufacturers. At the same time, how- 
ever, it carried provisions (a) that resale buyers should not sell at less 

{*) CAB to Hillinan, memo, J\me 12, 1934 Consumers' (i'lRA files. 'l 

(**) lAB to Hill'ian, memo., June 7, 1934. Industrinl Advisory Board 
Files. (:t:U files'* 

9825 



-231- 



than the manufacturer's published prices and tirms and conditions of sale; 
and (b) that dlstritutors of i'nported cork oroducts should not sell their 
products at a price lower than that of tue domestic manufacturer's lowest 
price. The Code Analysis Section iiraediateiy objected to the first prop- 
osition; and of the second the Cons-ainers' Adviser rexDOrted on September 12, 
1933. (*) 

"I objected strongly to this on the following grounds: price-fixing, 
raising the cost to the consuTier, and non-representation of the imr)orters 
in the membership of the association, said association being a purely 
manufacturers' association. This clause was then omitted from the code, 
but the Deputy (Paddock) then suggested that the wording of Article II, 
Section 1, be changed to include all wholesp.ling of the Cork Products 
and then that would include the wholesalers automatically. I objected 
to this also, for they would still be unrenresented and it would still 
be price-fixing, detrimental to the consuj:ier. Thereupon it was suggested 
that the Importers be notified of the Public Hearing and then they could 
object if they so wished. I am very suspiciou.s of this industry and 
believe they will try by devious moans to include many bad features in 
their next code. Possibly if the Legal Adviser had been present I would 
have received his aid and any inclusion of this in any form would have 
been ruled out of the next code." 

At the Code hearing, where the proposed code apoe red with distribu- 
tors included in the industry definition and with control over resrle prices 
provided for, it was attacked by a representative of the national Retail 
Dry Goods Association who declared that "it .f;ives the right to members of 
the industry to extend the control of prices throu^^h their agents and whole- 
sale distributors, thus creating a, vertical control...." (**) H. W. Prentis, 
President of Armstrong Cork Company and Chairman of the Code Committee 
replied: (***) 

".'., .unless- soEs such provision, as this be provided it is very clear to 
me that industry generally will be faced with .t^TO alternative, one, to 
set up its owp branch warehouses and its own factory controlled branches 
in every important center in order that they may exercise control of 
the price to the point where it leaves the v.'arehouse or that branch 
office and reaches the user. . . "Je cannot exist half with binding open 
prices on the manufacturer who sells his goods straight to the person 
who uses them and with the other half of the industry functioning through 
agents or salesmen who, in tiu-n, are thoroughly free from any control 
and can be used as a smoke screen .... They use the agent to do the 
thing that the manufacturer himself under his filed prices is -unable 
to do." 

The result of the hearing was that Article ^'I, Section 9, reading: 



(*) Karl Hauck, Ccnsu.iers' Advisory 3oard, Report, Oct. 12, 1933 Cons-umers' 
Advosory Board Piles. {i'.?A files; 

(**^ Code Hearing, Oct. 25, 1933, Transcript, p. 68 (YIA files) 

(***> ITlid. p. 80 

9825 



-222- 



"The Cole Authority, suoject to revicv; oy the Adrninistrator, shall 
regalatj the sales to jobbers, agonts or wholesalers who fail or re- 
fuse to observe the resale prices designated by the me:jbers of the 
ind.ustry. " 

was reijlaccd by Article 7III, Section 6, before quoted. The Consiomers' 
Advisory Board, recOrgnizing that the difference was mainly one of wording, 
continued, its opposition. De'cut"'- Paddock in submitting the Code to General 
Johnson for his aro jroval wrote. (*"> 

"The Consumers' Advisor^ Board also objects to Article ■'nil, Section 6, 
regarding the maintenance of resale prices. This provision does not 
exactly maintain resale rrices and is only designed to give the industry 
permission to submit contracts to the Administrator for his aiD'oroval. 
This ^?ould maintain the manufacturer's price to an ultimate purchaser 
where the nanufacturer is selling direct." 

In view of the fact that the prices filed would be those to the ultimate 
consumer, and that distributors would receive discounts, Paddock's inference 
that the system would apoly only "where the manijfacturer is selling direct" 
does not seem quite accurate. Be that as it raa"^ the Code was approved with- 
out change, although unqualified approval had been registered only by the 
Legal Division and the Industrial Advisory Board. The Industrial Adviser 
was Hugh H. Clarke, Vice president of the Armstrong Cork Comijany. It is 
clearly apparent that the resale price maintenance was designed to be most 
advantage to the establishment selling direct and Armstrong Cork Company 
was the greatest user of .factory branches and warehouses. 



c 



(*) Paddock to Johnson, memo, Dec. 27, 1933. ilUA files 



9825 



-223- 

1. Corl: Insxilation. 

Althoiogh there had been no sit^'nificant industry-- opposition in the 
making of the Code, it appeared early in connection with the Insulation 
Lierchandisin^; Plan. G. C. 'Joodv.'orth, President of the Cork Insulation 
Co., con~3laihod't6"th.e^-Industrial Advisory Board that ( *) : 

"The Merchandising Plan referred to ahove is desic^^ned v/ith 
the purpose of elininating agents and distrihutors and placing 
the narketing of the products in the hands of factory ovmed branches. 
Tiiis ... is detrimental to the interests of ovir marketing policy 
and is definitely monopolistic in character. In fact it is the 
avored purpose of the s\ipporters of this Plan to create a monopolj'- 
and to control all resale prices." 

Churchill, T7ho had succeeded Clarke as Industrial Adviser by liarch, 
1934, added "I do not thinl: that in a code any attem-ot should be made to 
carry set prices through the outlet to the consur.:ers". (**) Research and 
Planning Division, Consumers' Advisor;^^ Board, and Legal Division also com- 
plained vigorously at the subjection of distributors to .... manufacturers; 
they T7ere unanimous in expressing the belief that the proposed, contracts were 
designed solely for resale price maintenance. Siis combined protest pro- 
duced the public hearing of June 22, 1934, which resulted in the deletion 
of distributors and jobbers from the jurisdiction of the Code. The real 
struggle at this hearing, .hov;ever, tool: ilace over the issue of the retention 
of Article VIII, Section 5.. 

A. L. Paubel, Secretary of the Code Aiithority, led the supporters of 
the distributor contract system, and marshalled representatives of the six 
divisions of the industry'', thirteen in all, in a plea for its maintenance. 
The argument wa.s s'^onmarized "by 11. 1. Prentis, the President of Armstrong 
Cork, who stated that the plan did not fi" prices but merely secured uniformity 
between local jobbers and manufacturers' branches (or theoretical mantifactur- 
ers' branches). (***) L. K. PlOss of the Cork Insulation Company pointed out 
the parade:: of eliminating jobbers and distributors from the Code and at the 
same' time continuing the section which bound them hy contracts, and in this 
he was supported by the Consumers' Adviser. Martin Taitel of Research and 
Planning had questions to ask, and H. H. Bruns of L. Ilundet & Son, selected 
by Paubel to answer for the industr;^, revealed in replies that general price 
policy on corkboard was to follow the leadership of the largest companj'- in 
the industr;-, that price changes were me,de effective as of identical dates, 
that distributors generally abided by manufacturers' jjublished or quoted 
prices. (****) it was also indica,ted that the industrj'- htid been operating 

(*) Cork Insulation Co. to IA3, Letter, I'arch 13, 1934. Indu.strial 

Advisors'- Board Piles. (il.R.A. files) 
(**) Churchill to IA3, He--)ort, Liarch 20, 1934. Industrial Advisorj^ 

BoradPiks. (r.R.A. files) 
(***) Hearing on Amendment ITo. 1, Transcript, p. 7 
(****) Ibid., p. ,1&8 . , 



9825 



-224- 



on a zoning system. The Cor!: Insulation Co., the- only racm'ber of the 
Insu-^ltion group op;^osing the plan, exiTrossed this view: (*) 

"We arc quite willing, as wc h-^.ve indicated before, to insist that 
our distributors abide by our published prices to customers, but vrc arc 
dccidcdlj" opposed- to pxiblishing the terms of agreements with our dis- 
tributors. ... ¥c believe wc should be left in a position to bargain 
with these distributors who have ostr.blishcd themselves in the business 
over a period of yc:irs rather th-^n be placed in a position of quoting 
them on the basis of published i^riccs v;hich v/ould place our competitors 
in a position to meet or underbid such prices. It has been definitely 
stated by our competitors . that they would prefer to elimina,te all dis- 
tributors entirely as thoy are desirous of creating a monopoly within the 
industry," 

The result of the hearing v/n.s ^-ha.t Deput3' Hoolre deciced t'nat the 
deletion of jobbers and wholesalers from the Code wp,s in order, but that 
there had been a showing of economic necessity for Article VIII, Section 
6. With oncTcxcoptio'"., the advisory borrds disa/'-i'-rovcd of the latter 
decision; the Industrial Advisory Board approved of the retention of the 
section. The Legal Division took a firm stand on the contract system 
In the case of the Insulation Plan: (**) 

"The entire contract is designed to maintain resale prices 
of products in the hands of the distributor. As such, it has been 
contrary to KTA. policy since Oct. 25, 19G3, It was contrary to 
policy \?hcn this code \vas approved on Jan, 12, 1934, It is con- 
trary to policy today and in my opinion should not be approved 
unless yoU are i^rcparcd to justify it a.s being necessary to the in- 
dustry from an economic point of vicY/ and as being a reasonable 
restriction in this industry. Such a, system of contracts for re- 
sale price maintenance is clearly contrary to the Federal Anti-Trust 
Laws and it is real question; as to whether or not Section 5 of 
Title I of th? ITIHA sufficiently relaxes the Federal Anti-Trust 
Laws in view of the fact that Section 3 "(a) of the Act provides 
that :no code shall 'permit monopolies or monoiTolistic practices.'" 

a. Code Amcndinnnt. 

The Code Authority revised the Insulation Plan and submitted a new 
version of September 10, 1934, Although the Advisory Boo.rds pointed 
out that resale price maintenance was retained. Deputy Plooke put it 
through for ..xpproval. In forvrarding it, he st.ited in a covering memo- 
randum that the fact of the Code's having been approved with provision 
for such a contract indicated its acceptability, that the public hearing 
on the Pi?,n ha,d demonstrated a real need for such a system, that the 



(*)" ' Ibid. ,' p".' TS 

(**) Vaughan,, Legal Division, to Hooke, memo., Sept. 12, 1934. 
Legal Division Files. (iT.R.A, files) 



9825 



—225-* 

open price plan intended woiild collir->s^ if factory 'br-.nches had to compete 
v^ith. distributors v.-ho were not re^uli ted on "ricos. Of the contract itself 
he said: (*) 

"The fomi of agrocnieiit submitted ;?or r."-rov;:,l by the 
industry is to bo used by the ir-aiufv.ct-urers \/ith their direct 
and iivanediate distributors only. These distributors are in all 
instances large v/holesr.lers, jobbers and contractors and the 
agreement therefore is not and crnnot be the means of resale 
price maintenance to the consumers tlirough retailers," 

This request for approval was nullified by the action of the Consumers' 
Advisory Board in requesting that the Plan be submitted to the Advisory 
Council, 

The decision of the Council v/as announced on October 4, 1934,, .in a 
memorandum which read as follows: (**) 

"The Council underst;nds the basic f-acts to be as follov/s: 

"Section 6 of Article VIII of the Cork Code 'orovidcs that the Exe- 
culiivc Comiiiittec of each Division shall 'prescribe forms of contra-ct to 
be entered into between members and a/;"ents. Jobbers, distributors, whole- 
salers (excluding retailers) for observance of prices and terms as filed 
vdth the Code Authority -by manufacturers. This is a form of resale price 
maintenance. 

"The situation in the- Industry is tlnat manufacturers' sales a,re for 
the most p-rt through two cha,nncl3: Their ovm branches and exclusive 
territorial distributors. Some, distributors underscl the manufacturers 
and their branches, and to the extent that they do so tend to break dovm 
the open price plan provided for in the Code, The Industry vjishes to 
prevent this by requiring each member to sell to his distributors only 
under an agrotemcnt or coatract re luiring the Ir.ttor to observe the prices 
posted by the; former, 

"On the basis of those facts, the Co-Jiicil i.i?,kcs the follovdng rec- 
omnendat i ons : 

"1, The Committee recogTiiacs the inequity of a situa.tion in which 
manufacturers who ma.y not quickly alter their filed prices conipete with dis- 
tributors who may a-lter ; rices at will, 

"2, The Committee .belicvns that bho logical way to deal with this 
situa.tion is to bring the distributorp under the Code and -thereby require 
them to file thoir prices. Com'oe 'ritivc equs,lity -could also be restored 
by eliminating the waiting period in the Cork Code, T/e recommend that long- 
run policy be directed to both of these ends. 



"(*) Hookc to Jolmson, memo. , Sept. 15, 1934. Deputy's Files. "J.R.A. 
files) 

^**)j.Adv3}soiiy Council to-"Ee-'Uty 'Hooke, memo,, Oct. 4, 1934. Dc:-.utyts 
Files. (IT.R.A. files) • ■ . ' 

9825 



-226- 



"5. Imraediatcly, 'tc reconunodnd d i sa;T ' rov'^.l of tho proposed re- 
sale price iTiaintenance coiitrr.cts on the gro-und thr.t they seek to £:ive 
manufacturers the "benefits vdthout the res--ionsibilit?.es of an agency, 
contract and to impose upon distri'butorf; the hurden of conforming to ' 
a "irice 'orovisicn and to price schedules in whoso slmping they have no 
part , 

"4, Socause the Code conmits UEA to an im.-nediate effort to provide 
relief "Dy inyp.osing contracts upon distributors, we recommend that, 
pending code revision, the deputy and industry formulate a contract in 
v;hich, on condition of receiving from the Code Authority all filed 
price information at the same time and on the sam terms as the members 
of the industry, distrihutbrs . undertake to file, wi Lhout a waiting 
period, their own price terms'^ Alternatively-, we recomi.iend a.pproving 
the rcsaJe price featinre of the plan on a permigr,ive, not a mandatory, 
"basis." 

The Code Authority on Octo"ber 2-'i retui^ncd v/ith -mcndinontr, to 
Article VIII vvrhich v/erc designed to make the Insulation contract pos- 
sitle. This proposal w-as opy.osed by Consumers' Advisory Bo." rd on the 
grounds tliat instead of accepting one of the Council's alternatives the 
industry had incorporated both the permissive contract and the distri- 
butors' price-filing system, Resea.rch and Plcinning also took exception 
to the amendments, and yet the amendments suggested by these advisory 
groups were not forwarded to Deputy Ho oke, I.E. Satiiri, Assistant Deputy 
who had received the proposals, wrote: (*) 

"The proposed amendments contain cert in resale --irice m^^intenance 
provisions which are taken exception to by the Research and Planning 
Division 3,nd the Consumers' Advisory Board.. 

The advisors who attend the public hearing \f7ill, of course ,Ve 
entitled to suggest certain modifications, which you mo.y consider 
before forwarding the amendments to the National Industrial Recovery 
Board for approval." 

At the public hearing of Ilovember 13 there were no distributors present 
and the only objections came from tho Cork Insulation Co. But after the 
hearing Research and Planning, Consumers' Advisory Board, and the Legal 
Division continued the attack. Vauglian of the last-named agency declared 
that the requirement by the coded manufacturers of i^rice filing by uncoded 
distri'butors was illega.l, 3,nd tha,t the permissive resale price maintenance 
provision, while legal, was contrary to policy. It vra,s again requested 
that the Advisory Council review the matter. 

On December 13, 1934, the Council made its stipulations to the 
effect that the amendments be limited in their application to the In- 
sulation Division alone, tha.t the industry choose between the alterna- 
tives previously suggested by the Co-uncil, ::nd that ;:.rovision be mado 
so the ms.nul'acturcr would not become a violator in the event his distrib- 
utor should refuse to sign a contract. Further revision was made in 

(*) Saum, Asst. Deputy, to Hooke, Memo, Oct. 29, 1934 
Deputy's Files. (H.R.A. files) 

9825 , ' ■ '• • 



-227- 

accordancG v;ith these z-Vifiresiio-s.s, "nC t'.ic In^'iLation Flan was approved 
together with the ainencjnent r- on Jami.'i.ry 16, In ioF, final form the plan 
was not accorapaniGd oy a co:-itr?,ct to be ur-od by distributors; an nmend- 
ment to Article VIII applying only to the Insulp.ti-^n Division v/as affixed 
to the Code, which included: (*) 

"Section 4. i'o member of -n, division for which a mcrcliandising 
plan shD.ll lio-vc been ap- roved by the National Industrial Recovery 
Board shall sell any product of said division to or through o,ny 
distributor or distributors, after fifteen (15) days after the 
approval of said merchandising plan, unless and until s?id distri- 
butor, and/ or distributors shall liave o.p.tered into a separate vrrittcn 
agr^mont, v.'hich agreement sh.--,ll contain the following provisions: 

"(a) ?ii?.t such manufacturers' distributor sliall forthv/ith issue 
and file with the Secretary his cr its price list or lists, includ- 
ing therein all prices, terms, rebates, discounts, allowances and 
conditions of sale and any revisions thereof which ma.y be made from 
time to time, relating to or affecting the sale or offer to sell 
of any of the products of the c'ivision concerned, to all classes 
of customers. 

"(b) That said -'^rice list or lists, terms, rebates, discounts, 

allowances and conditions of sale, a.nd any revisions thereof, shall 

. become effective immediately upon receipt of same by the Secretary. 

"Copies of all such se^para-te a:3reements so executed shall be 
filed with the Secret^.rp within five (5) days following the date of 
their execution. Immediately i-qoon receipt of the price terms of such 
manuf act-uxers ' distributors, the Secretary by telegraph or telephone, 
or other equally prompt means, slia.ll notify such manufacturers' 
distributor filing the spme of the time of such receipt and all such 
price terms and revisions thereof shall be immediately and simulatan- 
eously distributed by the Secretary to all members of the division 
and to such manufacturers' 'distributors who have filed price terms 
or revisions thereof f(?r the s a,le or offer to sell of similar products, 
3Jid the sa-me shall bo made .available to all customers affected thereby 
who have apr^lied therefor and have agreed to defray the cost actually 
incurred by the Code Authority in the prepa,ration and distribution 
thereof, and the same shall also be available for inspection by any 
of the said customers at the office of the Secretary, 

"Section 5 . The -provisions of Section 4 of this Article, shall 
cease to be effective sixty (60) days after the date of the approval 
of this Amendment, unless within that time manufacturer's distributors 
of the products of the Corlr Insulation Ivlanufacturers ' Division, to 
the extent of 75^ by nunber and 55'^, by vol-um.o of business, file \7ith 
the national Industrial pLCCovery Board their assent to the provisions 
of said Section 4." 

b. Assents of Distributors. 

(*) Amendment llo . 2 to Cork Code, Codes of Pair Conpetition, Vol XX, 
p. 271 

9825 



-223- 

Article II of the Code \?as amended ty the: aoc-.ition of a, new Section 
T/hich ;orovidcd that "v/hencvei" used in this Code the v/ords 'maniifacturcrs' 
distributors' shall have the niea.nin5 within each Divisio2i as defined in 
the Ivlerchandising Plan for that Division". The amcndnients and the Plan 
"both vv'ere ap;'roved over the dissents of acvisorv agencies which still 
insisted that the result ^-foulC "be resale -irice waintenonce in the cork 
industry?", rnd that there Has no authority for manufacturers to lay down 
stiiiuls-tions hinding u-ion unrepresented distrihutors . Altho\:Lgh the form 
of the Deputy's re-oort forv/ardiiif; the proposals to illPJE for approval 
does not include these dissenting reports from ac.visers, a penciled 
notation rec's "Board Reports included later at Grime's request,." On 
March 29, 19;, 5, the Code Authority forv;?,rded the assents of the requisite 
proportion o/ distributors, hut there is no datj-. to indicate whether the 
plan ever officially went into effect "before May 27. These assents raise 
an interesting-point. It has been mentioned ininediatcly above that 
"raan-ofacturers' distrx"Dutors" vras to have the definition accorded the 
term 'cy er.ch individual Division, The Insulation Plan defined it to 
incliidc; 

1. Pactory "biT-nches 

2. LxclusivG territorial Distributors 

5, Others (to be inserted by the sponr^oring conpany) 

This definition could therefore "De very broad or extremely narro;?, 
depending xrpon whether the fev? firms in the Division chose to write in 
"Others", Should they hy some chance fail to write in additions to the 
two main groups the only genuine "manufacturers' distributors" vrould be 
factorj'- branches and exclusive distributors, and these cl8,soes of dis- 
tributors would be characteristically amenable to the desires of the manu- 
facturers. 

The assents submitted were 116 out of a total of 126 manufacturers' 
distributors listed. Ten failed to reply and one dissented. There was 
thus one objection from 127 manufacturers' distributors, and the Code 
Authority v/as able to report the assent of 91.3 per cent by number and 
99,3 per cent by total volune of business, evidence of extraordinary 
harmony betvireen manufacturers and distributors, Pollowing is the number 
of manufacturers' distribiitors listed by each member of the Division and 
the nnmber of such distributors who are factory branches. 



Armstrong Cork Co, 
Cork Imy.iort Corp. 
Cork Insulation Co. 
Mitchell & Smith 
L. Mundet and Son 
United Cork Co. 

The one dissent came from the ilashvillc (Tenn.) Sales Co., a distri- 
butor for United, and stated that . Krhereas the firm felt that the Plan.; wo.uld 
limit its freedom it vrould "vol-untarily" assent should a majority of other 
distributors approve, 

2. Marine Goods, 
9825 



[anijfacturers ' 


Dii 


3t. 


Factory Branches 


24 






13 


16 






3 


36 






9 


16 






3 


28 






16 


7 






ITone 



-229- 

It wa.s the i^lan of the industry thc?,t the example of the Ins-ulation 
Plan he followed hy other morch=^'.ndisin£; :-il vas pro-iosod by the industry. 
The next plaii to cone "before HllA. wc.s tlir.t for the Marine Goods Division, 
This, however, "beinf a rut.imcnt:.ry outline of the price-^i-'u'blishing 
method to "be used, was not concernec ^.••ith distributors and thus contained 
nothing of resale price maintenance. Therefore little discussion of the 
plan ensuod -^.nC. it was proir$)tly ap:^rovcd. 



9825 



-230- 

3. Cork Sto'oper. 

Vv'hen. the Corl; Sto'oper PTr n '."as presented on FelDruprT 1 the Le.-'^al 
Division, Conrromers' Advisor^.'' Board, and Seseprch and Plarning Division 
all pointed out that it was ainilar in nature to the InsiJation Plan and 
that it, too, could only "be approved after Code sinendrnent. Tlae Code Author- 
ity prepared an amendment designed to malce. the leerraj'- given the Insiilation 
Division airolicable also to stoppers, ■ "but the advisers rao,intained the same 
otjections that the3'- held in the fomier case, llesearch and Planning in its 
comment said: (*) 

"The e:::ecution of an agreement Taetween manufacturers and distri tutors 
(the agreement not "being siihject to the Acijniiii strati on' s approval), to- 
gether with the coincident filing of price terms hy manufacturers and 
distriVitors with the identical agency (not an impartial and disinter- 
ested ?, ;ency) we believe is well designed to effect price fixing and 
resale price maintenance, "both of which are contra.rv- to establislied 
policy and the latter, tinder certain conditions, in violation of law. 

"The filing of Sc'iedul® A, a list of all of a manufacturer's dis- 
tributor;: and .jobbers, rrith discounts off list "orices at which Sponsor 
sells to each, is objectionable. Schedule A, being sn integral part 
of the plan, rasJces known to each nr lufacturer and man~afacturer' s dis- 
tributor all terras of sa-le ijnder which ea.ch does business, thus strength- 
ening the monoiDolistic tendenc;/ of the amendments and merchandising 
plans considered together, and stifling free, open competition." 

After- two "cinferences \7ith the a(?visers the Code Authority cotild come to 
no agreement, a circumstance easil','" ■uaiderstandable in view of the Divis- 
ion's insistence on a form of price control over distributors. When it 
WP.S txBn decided by the inuusti^r that it would abandon the effort to get 
the -plB.n tliTOVLgh, Paubel, the Code Authority Secretary, e-rpressed the re- 
sentment of the industr;^ over the fact that the whole debate ^7ould seemingly 
have had to be gone through again instead of the present plan automaticallj/- 
following the same course as the InsixLation Plan, Assistant Deputy Ball 
replied on April 10: (**) 

"At this time it might be well to point out the fact that this Plan 
as submitted is not similar to the plan for the -Cork Insu!s.tion Division, 
Several nev; paragraphs, such as consignment selling, filing of agent's 
commission, limitation of classification, quantity classification and 
la.ck of clarity in the distinguishing betv:een distributors, jobbers and 
wholesalers and all other purchasers are points which differ materially 
from the approved plan for the Insulation Division." 



(*) Kinnear, P.escsrch and Planning, to Ball, Acr^t. Der)uty, report, Febru- 
ary 25, 1935. Research d- Planning Division Piles. (IHA files) 

(**) Ball t-: Faubel, Secretar-i?-, Code Authorit", letter, April 10, 1935. 
Deputy- s Piles. (iT-iA files) 



9825 



-£31- 

It raa,Y be noted, that the point on which the t'v'O plans did not differ, 
attempted resale price maintenance, was a'paramoimt olDJection in the minds 
of the advisers who had blocked passa-^^e. 

The Bulletin Board and Floor Tile Merchandising Flans, which received 
no further consideration after AucTust, 1934, were also charged with resale 
price maintenance by the advisers who took is!5ue with them. Each provided 
for a uniform contract based on Article VIII, Section 5 of the Code, nnd 
each used the contract to control the distributors' prices. 

Tile industry's attempt at resale price maintenance can be traced easily 
from the simple provision in the proposed code, through the debated Article 
VIII, Section 6, and dovm to the open price system for distributors which 
finally entered the Code for the Insulation Division's use. The Code 
Authority erred in believing that the Advisory Boards would be satisfied 
with a concession in appearances and method, whereas in truth the latter' s 
opposition mounted all through the Code period. However, one important fact 
remains Tinknown -whether or not resale price maintenance was in effect dur- 
ing the time of the discussions and debates in Yifashington . 

D. Price Differentials 

Because it is not ^nown whether the open price system ever went into 
effect, the two merchandising plans approved having come so late in the 
Code period, one cannot ascertain the nature of price differentials. Neither 
the Code, the merchandising plans, nor the distributor contracts made any re- 
ference to the subject. The only basis on which a discussion can rest is 
inference from the customer classifications sought by the industry. 

It appears from the proposed merchandising plans and the discussions 
with regard to resale price maintenance that the use of exclusive distri- 
bution agencies has been on the increase. The Armstrong Cork Company, a 
great power in the industry, distributes mainly through factory branches. 
Smaller companies not financially equipped to maintain this expense have 
apparently coupled with the use of a fev; such branches a dependence upon 
distributors who handle exclusively the products of one manufacturer. Going 
further down the economic scale, majiufacturers whose products will not sup- 
port exclusive distributors obtain the services of jobbers who carry other 
manufacturers' lines. Wholesalers doing a general distribution business are 
available for all. In addition to these regular distribution agencies there 
are industrial users who purchase the products of the industry for incorpor- 
ation in their own fabrications. 

Eie discussion of customer classification in the merchandising plans 
as given above indicates that the Insulation division contemplated originally 
only three types of distributors: factory branches, exclusive and non-ex- 
clusive distributors. Undoubtedly it was planned that in that order prefer- 
ences in price differentials would be established. Resale buyers were to 
receive a better price than consumers on direct sales. One of the reasons 
for believing that this Plan was put into effect before it was approved is 
the protests from contractors who declared that they had been deprived of 
preferential discounts. 

In the Cork Stopper Division the situation was similar. The June 26, 
1934 version of the proposed merchandising plan stated parenthetically in 
its customer classification that "The difference between a jobber and a 
distributor lies princiijally in the condition that the latter acts more truly 

9825 



5 -232- 

as a direct representative of a maniifactiirer and is substa.ntiall3'- an act- 
ual substitute for a ffxctory-onned bra-nch office and r/areliousc'' . It seems 
likely that "the more intimate relationsliip with his source of supply" which 
helped define a distributor v/as repaid with a concession in price. Only 
"Tlholesalers" and "All other p"'archaser s" were bound by q"aantity distinc- 
tions with regard to their further classification. 

It seems fairl;'- definite that while there was debate on the customer 
classifications to be v/ritten into merchandising plans, the real issue 
underlying was the stabilization of price differentials. With the industry,'' 
stratified by definition the discount structure would quickly conform. The 
trend in the industry being toward manufacturer control over distribution, 
the distributive agencies having the "more intimate relationship" would re- 
ceive preference over, for example, a wholesaler who could ^y nature make 
different manufacturers bid for his business. It was precisely to prevent 
the latter contingency that the merchandising plans were submitted. 

Inasmuch as no price differentials were mentioned either by the indus- 
try or b;:- UEA during the Code period, and anj'' specific information on mar- 
gins in the prices to various classes of distributors is lacking, much of 
the above is conjecture. However, considering the fact that all of i'TEA' s 
dealings with the industry were bp.sed on conjecture, it v^ay deserve some 
attention. 

E. Q.uantity Discounts 

1. Marine Goods. 

The Cork Code made no specifications concerning quantity discounts, 
that matter being left to the merchandising plans. Of the two plans ap- 
proved, that for Cork Insulation did not specify quantity brackets; it left 
that for the individual division member to fill in. However, the Marine 
G-oods plan did establish quantity brackets, although the Sponsor was permitt- 
ed to insert intermediate classif ica.tions. 

Life Preservers 40-Inch Solid Cork Ring Buoys 

Less than 12 Less than 12 

12-35 12-47 

36-71 , 48 and more 

72-143 

144-499 

500-2499 

2500 and more 

The privilege of individual members .to make different classifications 
was probably the result of Consumers' Advisory Board objection to the es- 
tablishment of mandatory quantity classifications on the division from above. 
The remark made by Professor J. D. Magee, Administration Member of the Code 
Authority, relative to the making of such a change in the Insulation Plan, 
may apply here. He said of the Individual member's ability to e:xercise the 
prerogative: "TThether he ?/ill do so or not in view of the close agreement 
is another question." (*) 

(*) Vie.gee, Administration Member, Code Authority, to Ball, letter, 

September 17, 1934. Deputy ' s Files. 
9825 



2. Cork Stoirier. 

The Cork Stopper Plan V7:iicli \7'\s rejected b:' tke Advison/ Boards in 
Febiruary and Liarch, 1935, Cc^rried the follo'-7ing q^iantity classifications, 
they being established for only these t'.To groups of purchasers: 

"Qxiantit-- Classification of TT^iolesalers: 

1. Onq single shipment to one purchaser at one 
destination of: 

(a) 100,000 corks or more exceeding $1,000 net in value 

(b) 50,000 " " " valued at $500.00 net or more 

(c) Less than 50,000 coricr; or less than $500.00 net 

"AiD/OR 
Shipments in any quantity to wholesalers "r'no purchase: 

(a) $10,000 net or more per annrjn 

(b) $ 5,000 to $9,959.99' per annum 

(c) Less than $5,000.00 net per annum. 

^ 4c :ii >fi il< -ii ikaf: 

"Quantity Classification of All Other Purchasers 

1. One single shipment to one purchaser at one 
destination of: 

(a) 100,000 corks or more exceeding $1,000.00 net in value 

(b) 50,000 corks " " valued at $500.00 net or more 

(c) 10,000 " " " " " $100.00 " " " 

(d) 5,000 " " • " " " $ 50.00 " " " 

(e) Less than 5,000 ccrlis or less than $50.00 net in value 

">^D/0R 

2. Shiprae.nts in any quantity to purchasers of: 

(a) $10,000.00 net or more per annum 

(b) $ 5,000.00 to $9,999.99 net per ann^jim 

(c) $ 750.00 to $4,999.99 net per anniom 

(d) 300.00 to $749.99 net per annum 

(e) Less than $300.00 net per amram" 

These classifications rere considerabl3^ more lonient than those pro- 
posed in the first merchandising -plsn submitted, of vhich a Research and 
Planning report said: (*) 



(*) Taitel to Hillman, ireno, i.Ia-^ 14, 1934. Research & Planning 
Division Files. (ITA files) 



9825 



-234- 

"Tills division regards as ecoiaoraically ■'onsound any rigid and artifi- 
cial classification of customers nhich is obligatory on all members of - 
an industry. Such methods tend to freeze channels of distribution and 
thereby o-evelop inefficiency in distribution. By forcing each manufact- 
urer to ti.se a fixed customer classification, no leeMS.Y is permitted for 
granting discounts or prices in accordance nith the different services 
which may be rendered by a customer to different manufacturers. " 

"The requirement of $10,000 of purchases for jobbers and $20,000 
for distributors is extremely arbitrary and seems to be unfounded. Are 
there not small concerns performing the fxinctions or services of jobbers 
and distributors which purchase less than the stated limits? 

"The reojiirement of 'specific evidence' of jobber or distributor 
capacity for new jobbers and. d.istribr.tors by placing contracts for 
$5,000 and S15,000 respectively seems unfoijnded. Small firm.s might 
find this a pra,ctical prohibition on entering the field. An added 
force is given to such practical prohibitions by 'H(a)' providing that 
specific future delivery contracts shall be limited to a iseriod of 
three months. " 

It would appear that customers \/ere to be classified and those most fav- 
ored given preferential price diff erentia.ls; wholesalers and "all others" 
could get better discounts in their ovm class on the basis of qtiantity but 
it is a question whether they could buy on as favorable terras as distribu- 
tors or jobbers, q-uantities being equal. The amended Stopper Plan did not 
set' a minirar.i quantity bracket for ddstributors or jobbers, as was origin- 
ally done, but by stratifying the other classes a similar effect was 
achieved. 

The Floor Tile and Bulletin Board plans did not specify quantity 
groups but left them to the manufacturer in filing his prices. 

Since there is no knowledge of the methods of the industry with 
regard to Quantity discounts in the pre-code period, and since the margins 
in discounts contempl3.ted by the industr;'- under the merchandising plans were 
not published, one cannot perceive the effect of the groupings given above. 



9825 



-2o5- 

F. Discov.ntf: other tha--^ oiiP-ntlt^' disco mtr, 

1. Unfa?.:.' f^ractices 

The Corl: Code \iji.dor Article YH - Trr-.de Practices - listed the 
follo'""in.^ jrohibitioi-s desi;-nnd to ^^irevent orico discriniaation: 

"8. To inforn a customer or custoners, either directly 
or indirectly, concc-ning any increases or decreases in 
prices or changes i:i discoi.tnt'n prior to the effective date 
of such new prices or discoiuits. 

* * * 

"13, Prctectir.;^ contracts a;^ainst a docrense or an in- 
crease in -Trice er-xept as to the unshipoed rjorti^n of such 
contracts. 

* * * 

"15. Statin'; in the in'^'oice of any product o,s the d?te 
thereof a date later or eai'lier than the date of the ship- 
ment of such product, or iv:cl,idin-5 in £my invoice any product 
shipped on a. date earlier or later tha'i the dr.te of such in- 
voice. 

"15. The nplzin:^, of p.n7 loan to a custor.er b-'- an;'- nemter 
of the industry or his e-ployees for the purpose of inducing 
the sale of ;500ds. 

* * * 

"18. Perforr.in;.; any extra o .aerations on produoi^sgi-^^uch as, 
"but not li:;ited to, "bravnciU;^ corl; stoj?ers, paraffining cork 
stoppers, cutting half sizes, dzfelnr a.ttachaents tO cork 
stoppers, shaoing- cork stop-^ers, and packing in units less 
tha:.! the acce-oted standards, r-ithout Liaising an adequate charge 
to cover the cost of such operations. 

" 19. The subnorr-ia^l pricing or the granting of a reduced 
price, i-eha.te or other concession on articles not , specif icall';'- 
nentioned in this Code to influence the se.le of articles cov- 
ered "by this Code. 

"20. Supjl^'ing specia"". service at reduced ra.tes or gratis, 
such as service of constn.iction superintendent or forenan, or 
the loan of equip'ient as an induceMent toT^ard MaJcing a sale of 
materials. 

* * * 

"22. Accepting or offering to accept securities, bonds, 
uortgages, or stock as r'hole or part pa"nent for material sold 
or T7ork perforried a.s an induce'iert to obtain ai order." 

Article VIII, Section 5 specified: 

"".0 ne;2ber of the industr^^ sha.ll sell or offer to sell 
under customer's prlva.te labels, or other-.7iGe, Qualities other 
than these -rhich he has filed '7ith the Secretary as provided in 
this article, or use grading of qualities as a method of giving 
bu3rers extra value over that provided in the member's published 
graxles and terms." 

9825 



(L 



-2?6- 
Of this last section it vias said at the Code Hearin,:^: (*) 

"This paragraph ... -/ill linit the ri'-;ht of retailers 
to ohtain froa the ind-j.str-'- any special order or special 
quality that ms.y "be fo"jjid necessary to meet the consumer's 
deraiid. In addition, its -iresence in the code aids in 
"bolstering the price fi::ins pla,n whereT3y retailers are 
lir ' ted to securing for their custo:iers onl''' '^hat the i-aami- 
factiirers see fit to nanufactiire and. at the orice the nemhers 
of the industr" have a;;reed to char/^e." 

Truslow p.nd Fulle, Inc., an industr^?- neyroer, joined ivith the Con- 
sumers' Advisory Board in supporting this ohjectior. Sut the reply 
made "b^r H. ¥. Prentis of the Amstrong Cork Co ipany see:ned. to "beajp 
nore weight ATith the De-inty Adninistrator. He s?,id:(**) 

"It is a situation to find \\ses for all the side 
prodact as it coaes through the corh nanui"ac taring olant, 
particularly in the naJdng of cor.; stop-;)ers. Very often 
there is a production of \That is here deno'iinated a side 
jproduct vfith resoect to nhich, unless there is extreme 
Cfijre used in its Bier chandi sing, leaves an absolute chaos 
and co'iplete destruction of the price structiire, uoon 
which, in tuj.-n, as you gentlenen so well laiorr, the 
atility of this industry and every other ind^istry in 
the Ic'.st analysis nust rest if it is to oa"'' the right 
sort of wages and the ri-ht sort of conpensa-tion generally.." 

There was. no i^iention of this or the other trade practice pro- 
visions on price discrinination suhseouently; the attention of the 
industry'' and I'lElA. was devoted exclusively to the -ierchandising plans 
and nore particularly to the practices discussed, earlier in this 
report. 

2. Freight Charges 

.,\n inportont natter which received scattered attention, ff 

ho^-ever, vras the freight sjrsten. rfesearch and Planning had 
this to say of the first Insula.tion 'olan: (***) 

"The zoning sche.ne for quoting prices is' objection- 
able. Considering the organiz8-tion of the industry aid 
the price leaxlershro of Armstrong, it will tond to 
function so as to malce the Avtstrong factory a "basing 
point - th'\t is, fvinction on a 'Pitts'bur'^'h plus' "basis. 

Also it rrist "be recogni?:ed tha.t ^ones co 'Id he allo- 
cated to manufacturers "b-"- simply arranging "beforehand which 
manufactu.rer was to caiote the lowest price in a particular zone." 

(*) :R. a. i,Ir;xtino, Code Hearing, Oct. 25, 1933, Transcri'Tt , -o.63 

(llEA files) 
(**) H. 17. Prentis, Code Hearing, Oct. 25, 1933, Transcriot, o.79 

(IIEIA. files) 
(***) Taitel to Hillnan, neno, ilay 29, 1934, Research and Planning 

Division Piles. (ICJA files) 
9825 



-237- 

The Consuners' Advicor^- Board also objected, on the ground that 
delivered Tices e'jt --11)11 shed on that T3P.sis "o Id not al^rr's represent 
actual cost of delivc^rj"- frov.i the plpnt Mshin'; the shio.ient. Althoa-h 
prQvision for zonin.-^ was deleted, the follo'lnf; state nent, the only 
evailafcle er^^osition of the i-if^ustr-'-'s poi-it of vie'?, is interesting;. (*) 

"1. In esti-.ati",:; freight fron seahoard to destination con- 
sidorntion nMst "be '.Iven that 1700 pounds of ra'' laterinl is 
reoMired to prodLice 750 to 30C Its. of finished stoclc. ]?rei*:ht 
on ra'T naterials fro:i seaboard to inland pl?i;nts at Beaver ]?alls 
and Detroit eoui'<''alent to '-rf -oer bd. ft. at Beaver ^alls ?-ic". $.0037 
per bd. ft. at 33ctroit. 

"2. If provisions for zone delivered prices a-e deleted fron 
herchandisinj Plan cost to Code Authority for investir^ation of 
frei^^ht differentials \ised on individual quotations bj nenbers 
of industr'- -.vill be exorbitant. 

"C. preiif-ht equalization ha.s bean practiced in industry'' for 
20 years irres^'ective as oo location of inanufacturcr ' s plant. 

* * •^ ¥ ¥ ^^ >.■ * s.-- * ¥ io -,-■ * * 

"Qui' present riet'-iod of selliv: cc^r'; insnlji-'"i ' ^ on a zone 
delivered price basis is a oractical pla,n i7hich differs froii 
the so-called Pittsbiijc :;1\ Plus -.--Ian in that tliS basic raw material 
used in the ^an-ifacture of corl: prodvicts is of forei.?:n origin, 
and cannot be seciared on a. co"" ercial basis locll'^. It necessarily 
enters this conntr ^ thro i-;".i the seaboard :0"''s rnd is shipped inland 
to ;ian"Lif actiu-in,:^ "olants. 

""one rate differentials are based on rates secnred fron some 
650 different points thro-.v:ho -.t the United Stater., Sast of the Hocliy 
liou-itains. Lyi setting uo zone delivered iDrices zones were estab- 
lished so that a f.air avera-^-e freight differentla.l is a;3:)lied to 
ea.ch and every given zone. Act'-ial investira/oion of frei.pit 
differentials ayolied to carload p'Vl less tha,r c-rloa.d shionents 
of corh insula.tion to trTe.ity— f ive different ooi^ts chosen at 
randcr. thron-ihoit the United States -shov/s taat the average less 
carload differential added is sone $.0017 less than the differential 
obtained b" uriin^ PoCtual published tariff 'i; and c j carloa-d 
shipnents this diff ere'^ti.o.l is a:5:roy.i: latel"'- $.001." 

Tr.en the chan^-es -vere -lade in the .-.erchandi sin-; plan their natnro 
was described by the Industrial Adviser: (**) 

"Piiblished prices on a deliverer" basis are no lon^:er raandatory. 
Terns of na-^rnent are no lonfier Tnandator^'', each nenber of the in- 
d.istrv nay fornulate his own terns. No limitations as to tir.ie 
within which truck deliveries r.iust be made, orovision as to 
policy with re.^iard to oooled orders left to the nembers of the 
Indus trv. 



(*) Unsi-PTied str.terent, "Zone Belivored Prines" in Deority's Insulation 

foloer, -July 20, n;34. (iRA files) 

(**)Ashlry to IAS, report, Sept. 13, 1954. Industrial Advisorv Board 

Files. (IPJI files) 
9825 



-238- 

"T:i3 Consuners' A6„viser stated that ap^arentl^^ all the featiores 
or 'il'!.-.:- fo.:"er iIph '-'aica ''eve ob jcctionp.ole to the Consvuiers ' Ad- 
visor"^ Board h'ld 'bee-i eli' iirtef . " 

The.Lari'ie Goods "^la'.i :.:--.e no refere'ice to deliver"" charges. The 
Bulleti.i Board Plan, as last suh fitted on Au-^'-Xst 6, 1934, attached a 
corolete list of freioi^ diff ore-it ials to "be -••dded, h"^ states, for 
noiiiited -nd un-'o-uited cork. The Consu.iers ' Advisory Board challen^-red 
this provision. The Industrial Adviser upheld it, sa^-in^; that the frei;<^ht 
plan had "been created h" traffic exoerts from Korth'^e stern Universit-'- 
and that "Bpsing "ooi'its are the factor^"- loca.tionB of the four manu- 
facturers." He stated also that the f.o.h. factory quotations '.7hich 
Consu-iers' Advisory Board insisted uion \70ald destro^' the entire Plan.(*) 
The Plan was laid a'7a" at tliis TOint and never a^ain ca^e to li<^ht. 
The pro'oosed ITloor Tile Plan di' not include specified frei;2;ht different- 
ials. 

The June 2£, 133-1- version, of the Cork Stooper Ilerchaidising Plan 
carried this provision: 

"Frei'-lit n:pA Transmortatinn Charges. 

"P. 0.3. factor"- and/or branch ^Tarehcuses , Tfith frei'-ht allo'tTed 
on all shipnents of $50.00 or over, provided, ho'-^ve.-, tupt 
freight \7ill he allo''"^:d on shionents for the p.cco mts o:' c istri- 
hutors rnd johhers netting $45.00 or 'lOre, a-.r" oro-'uded f'orther 
that store door deliveries ia->- he nade free of charge on all 
shini'ents regardless of size in all citiet; n'kerc stocks of cor]:s 
are carried '&•'- nanof acturors joh'bers or distributors." 

This gave fi.irther prei ere 'ice to distributors and iohhers; out li]:e nost 
of the provisions designed to frvor these groups, it was opposed !)■;'■ 
Hesearch and Planning and the Cons'uiers' Advisory Board, and did not 
appear in the latest revision of the Stopper Pla,n. In, fact, the Peh- 
ruary 1 1935 Plan nade no stinulations on freight allo',;ances. 

The efforts of tae industr'- to prevent price discri" lination treated 
in this section r-;e corollaries of tlieir cnsto 'sr classification designs. 
In vie'.7 of the difficulties atteidrnt u)en giving the Irtter the statut 
of code provisions, the fornor 'vere never thor^>n''.'hl" disciiasel. It 
it he true that plnns v.'e'^e unauthorized!-'" s^xt into effect, rnd tliat 
industrv '.'as accusto'ned to a zone delivered price hasis, tncn it is 
possible that rieans oxitside the Code T7ere used to -orevent price dis- 
criminatior . Horevcr,no infer :.';t ion on tn.ir3 subject is available. 



(*) Ashle-'^ to lAE, renort, Jtino 25, 1934. Industrial Advi -or-^ Board 
Files. (IIELI files) 



9825 



.-239- 



III. AI^ALYSIS 



The cork industry, small in numtjers and in annual volume of sales, 
is arp?rently dominated ty the Armstrong Cork Company. This comcany 
does more than half cf the dollar volume of t^.e industry. It has the 
'maximum number of representatives on the Board of Directors Tif 'thG'fldrk 
Institute, and its President, H. W. Frentis, was Chairman of the Code 
Committee rhich presented the industry's proposed Code to NBA, Its 
second Vice President, H. H. Clark, acted ag Industrial Adviser dur- 
ing the Administration's consideration of this proposed Code. 

The industry is faced with competition from two directions. The 
first is from imported -oroducts; the second,' from American manufac- 
tured products which may be s'ubstituted for cork. Ttie threat of the 
former is allaved by the possession, on the part of the three leading 
American manufacturers, of factories abroad whicn are as v^ell atele as 
tne native plants to take advant^f^e of cheaper labor and physical 
proximity to sources of ra' material. In thi^^ wise do the leading Ar~ 
erisan cork companies insure themselves against foreign competition by 
sharing in the natural advantages possessed by those competitors. But 
not content with such defense measures, the domestic producers have 
continually exerted prest-ure successiully to raise the tarifi on all 
imported cork manufactures," with the result that foreign rivalsiere 
increasingly unable to 'comioete 'in the American market. By operating 
foreign and domestic factories m accordance "fith the degree of price 
competition offered by importers, tne lar-rre American companies, with 
tne aid of the trend toi-iard revision of tr.riifs upward, seem likely to 
free themselves of foreign competition and secure complete comnend of 
the American m;^rket for cork products. American suostitutes for cork, 
however, must always' be combattec ^'■ita arguments as to price and utili- 
ty, fnd with aovertising. 

Cork manufacturers distrioute their products through wholesalers, 
contractors, direct to the consumer if the volu'me warrants, and through 
factory branches. The Armstrong Cork Company has become the great ex- 
ponent of the factory branch and ""arehouse method of distribution, and 
uses this method more than any other cork manufacturer. The older meth- 
od of de^lin^: through midd'e-.nen has also been revamped in order more 
closelv to anproximate the factory-branch system. Thus wholesalers 
have been grout)ed into classes, the one dealing: only in cork products, 
the oth'er doing a general distribution service for several commodities. 
If the distributor dea s only in cork, he will be encouraged to handle 
the products of but jne manufacture- r, and thus become an exclusive dis- 
tributor for that company. In this case he will be given a preferential 
discount over other distributors and wil] oe given a territory on which 
he may sell exclusively. Such a cistributor resembles a factory branch . 
very closelv, but does not require any investment on the part of tne 
maniufacturer. 

The trend seems definitely toward a distribution system like that 
preferred by Armstrong. This envisages a combination of factory 
branches and exclusive distributors. Non-exclusive distributors 
of cork products (jobners) seive a purpose while exclusive distribu- 
tors are not availabel, but manufacturers seem bent upon self-suffi- 
ciency, A large manufacturer like Armstrong can employ direct sales, 

9825 



-240- 



lectory branches, and exclusive distributors end thup retain comiDlete 
control over the distribution ox ii s products, provided other distri- 
butors do not destroy this control. 

From this' roint of view, t^^'o achieveiiients rere -oossible in a code, 
one the control of imrortations ; t^-o, tne control of distriuutors. The 
first -Droblem w^s -presented to Der)uty. Faddock ^ho pointed out that NRA; 
could not" restrict imcorti;;. Ho' ever, he sui-^e-ested making iinoorters sub- 
ject to the Code, •^nd the industry vas defined' to include jobbers and 
wholesalers. This solution mas found to ;:e inadear.ate inasmuch as the 
control over econo'iic .-groups, not concernec -^iththe formation of the Code 
i"ar Etrikin;"ly meouitrble. So the inethoo was ab^^ndoned and "industry" 
'"'as amended to inclur e only .manufacturers. When this amendinent was made 
the Code Authoritv cla'i.mec the jri ;in-l definition originated i"ith the 
De-Duty. Armstrong' Cork ■.^Ci'inDsny a^'olieo its own storgaps to importer com- 
Detition oy iraportinf^ the ■procuctsof' its O'-'n Spanish factorv to ofiset. 
the difference in -Drice. 

Nor the industry hac disavovec any intention of controlling 
disti-ibutors. But the jnerchandisin;': plans Fhich were to organize 
methods of distribution anr bir.c;' disti ibutors v/itn standard con- 
tracts seemed to have that very end in view. Indeed, the industry 
presented nlans for clai.sifyinc:.'- their custo-ners. in the main, dis- 
tributors, binding tiicm witn contracts anc estaolishing resale price 
maintenance. Thepe plans '^^re consistently supnorted cv the Arm- 
strong Cork Company. 

The Code Aathority and Deputy Administrator were in harmony 
afe regarC'S the desirability jf the Allans presented. Opposed were the , 
Advisory Boar s of Hit A, t"70 or three cork manufacturers, notably the 
Cork Insulation C©. and a few distributors. The first group pointed 
out that econoinic necessity demander sucn a system to prevent price 
cutting by distributors. Tlieir opponents claimed not only that such 
measures were unnecessary, but that tru.-v -'ere designed to produce 
monor^ol'' control.^ no the eliTaination ox ineeDendcnt distributors. 
Let us consider the, aims of the mercjiandising plans submitted. 

The manufacturere sDonsoring the code assumed the control over 
distributors could be establirhed - wnether by inclusion under the 
jurisdiction of the -lanuf acturers ' code, .jy mandatory contracts, or 
what not. This.assuuTotion, -Ithough it w^-^s discovered to ue an un- 
warranted cresu':t!tion, may be granted in order to get a clear vie^" 
of the ..lerchandising plans. 

Distributors were to .;e classified with the factory brariches 
and exclusive cistributors the most favored grouu. Non-exclusive 
distributors and jobbers ranked somewhat below, and wholesalers 'f-ere 
in the leas t-uref erred clasr. Thus w^b definitely indicated the 
manuiacturer 's -oreferment for distributive agencies closely con- 
trolled. Because it had Deen found tnat the wholesalers, although 
m a less acv-' ntageous position, had Deen cuttinJ-; prices in order to 
maintain sales, it was also intended that all distributors should be 
bound unoer the Code to maintain tne manufacturers' resale prices. 
With freight allowances stabilized tnrough a zone deliverea price 

9825 



•241- 



systeia, tae a."nuf?-cturrrs '. oulc unotr thi$; s"stcin <njw>7 control over 
tue cistiibution rn< Qvic- .1 cork rodUcts. Ii' rll uirnuiccturcrs 
were faitjiful in pdherin^ to the plan, t.ie wholesalers '."ould be un- 
able either to b' rgj^in for prices vith manufacturers or to cut prices 
to consumers. 

The system seemed to be priinarily attractive to the Armstrong Cork 
Coiapanv, in?s:iiuch as that or^^pnizrtion ''•as best equipped to r^rofit by it. 
This comppny hpd f vell-estrblished system 01 factory brsnciies, whsre- 
houses, and exclusive distributors pnd had in actuality been maintaining 
the nrorosed system, although subject to praoypnce from the uncontrolled 
wholesalers. The manufr'Cturei's vho patterned their distribution 
metnoos after Armstron'^ plso cesirec tne system. It -^ps onl^J- the 
smaller manufacturers yho must needs live cr the lepvings of Arm- 
strong and its sptellites that opposed the plfn, for to them it 
meant the jutla'^'irg of their best iethod of stp'''inr in exixtence - 
by stri'ing bargains with jobi.ers pna '-'holesalers at more attractive 
ratfcs than the latter could obtain els(--vfhere. With prices stabilized 
through the price-publishing system, i^ith definite schedules of cus- 
t>..mer classes created and discounts fixed, the s'.iial'' er manufacturer 
Would be unable to mr-ke it vorth while for the vrholesaler to carry 
his products. Tre who'' es^ler, in turn, f-ced "ith the necessity of 
mpintpin,-; resale prices on stabilized ..uot: tions fro;rj lanuf acturers, 
would find the price inducement on -f.ich he based his economic ex- 
istence denied to him. 

The Cork Irsulation Co., greatest opponent of the proposed system, 
posses ser probably the nost eiiicitnt plant in the industry, it being 
tne most recf.ntl^ built. The co ipany pref- rs to use independent dis- 
tributors rather tnan factory branches since the latter pre expensive 
to establish and maintain. It barf-^ains vith jobbers pna 'wholesalers 
without particular regard to the exclusive or non-e>-clusive feature 
and arranges terms for the cistribution of its products. Whether, 
like the great bulk of the industry, it folio- s the price leadtrship 
of Armstrong, is unknown. 

The York Ice riachinery Co., largest distributors at' cork in- 
sulation in tne United states, opposed tne s/stem also. The dis- 
tributor it presented little chpice; one could beco.-ne the counterpart 
of a factorv branch pe: the logics'' result 01 adljsring to the 
system, or one could strive for independence and risk the possi- 
bility of bein.^ lanable to -.iecare Merchandise. Being a distribUH 
tor under this arrangement r-ennt almost complete losi-. of independence 
and subservience to the risnufacturin-: group. Tne encroachment o:f 
manufacturers, under the leadership of Armstrong, into the field of 
erection, also trireattned tu deprive distributors -no contractors pf 
an important branch of their activities. 

A" though the projected merphandising t^Iphs '-u ?e not approved 
in the form depired o''- their proponents, t'le cue::ta.on to what extent 
they '"ere actually operative is. real enough to merit investigation. 
NHa at no ti:ne knew anything enlightening on tne sujject of pre- 
vailing practices in the Cork Ircustry, and no check on methods unde| 
the Code cculd have been of value '"ithout an examination of the pre- 
cede situation. The ertire structure of the industry should be examijied 

9825 



-24-2- 



for trends, location of power, and physical factors. -Vith this basic 
infor^nation tne issues over ^-hich r^ contended .'ill begin- to assume 
definite shape and become susceptible of practical solution. 



9825 



-243- 
CHAPTER IV* 

Brake Lining;, and Hclated ?ricti:in Products 

Division of tlic Asbestos Industry 

I. aZLilSHAL UDUSTHY lilFOHi.iATIClI ISLATIilG TO DISTHI3UTIVE RZLATIOilS. 

The Asuestos Industry was defined "by the use of a common raw 
material - asliestos. The code presented for the industry coverGd 
only the manufactures of ashestos products,- the most irqportant of 
which were ashestos paper, ceuent, magnesia, textiles and friction 
materials. 1/ Ihc, latter products were respoiisihle for ever half of 
the industry's dollar vollume of sales. 2_y The products named above 
were grouped into "Divisions'lhy the Code. ZJ Some of the corrpanies 
in the industry were manufactiirers in each of the Divisions and man- 
ufactured other products as well. Others were members of only one 
or more Division. 4/. 

A. The Products . 

The products of the friction iraterials division were brake lin- 
ing, transmission lining and clutch facin^ijs.S/ The asbestos element in 
bralce lining and clutch facings made them incombustible and no products 
of any other composition have as yot been coranercially developed \7hich 
may be substituted for ..them. 6/ Less than 5,:. of the dollar volume of 
these products v/ere cons-amed for industrial purposes, the remainder 
being used in the automotive field.?/ Both brake lining and clutch 
facings were manufactured in a great variety of sizes, v;ith a large 
part of the production concentrated into about a dozen sizes for the 
requirements of the popular, low-priced cars. 8/ A standard numbering 
system for the various requirements, devised by the trade association 
of the members of the Division and revised annually, had been usod 
extensively for years by, the trade. C/ Both brake lining and clutch 
facings were made in different kinds of material, the two general types 

* This cliapter v/as vrritten by Cl-.^yton Gehman. 

* The footnotes to this cliapter upTjear in the back. 

iTote: Unless otherwise noted, the footnote references in this Chapter 
to "Secret...r3r", "Sub-Code Authority", "members", "Plan", end "Division" 
refer to the Brake Lining and Helated Friction Products Division of 
the Asbestos Industry'. Also c.ll Division "Bulletins", "Memoranda", 
"Questionnaires", "Confident i.l Inform^ition Bulletins", "Sales Statis- 
tics Bulletins", and "ianutes" of Division^ Sub-Code Authority and Committee 
meetirigs are referred to_as being in the Deputy's Special" ringbinders. There 
were three ringbinders containing this rrateric.l that were labelled as follows; 
Brake Lining Division Bi'ake Lining Division 

Index Memoranda Confidential ^Information 

Bulletins JDists . .,StJ3d;istiGs ' Miscellaneous 

Brake Lining Division Questionnaires ■ Codes 

Minutes of Meetings 
9835 



-244r- 



"bein;.; woven and mcldodo?/ The dollar voltune of the latter had 
doubled its prooortion to the total sales in the perind from 1929 
to 1933.7/ 

The replacement dcma,nd for clutch facinr^s was much smaller 
than for bra-kc lining' and was often taken care of by the replace- 
ment of clutch plates already lined. 10/ The replacement demand for 
brake lining had declined because of rroality improvements, ll/ but 
in '.1333 it was still responsible for about three-fourths of the dol- 
lar sales of brake lining.?/ All of the transmission lining was 
sold for replacement purposes.?/ The replacement of friction mater- 
ials required concidcrable skill and some nquipraent. The manufacture 
of clutch facings was controlled to some extent by patents. 12/ Clutch 
facings were responsible in 1933 for about 15,;, brake lining about 
83> and transmission lining about 2,j of the total dollar sales of 
friction materials. Total sales in 1932 and 1933 were about one-hs.lf 
of 1929 sales.?/ Standardization as to the q^oality of these pro- 
ducts v;ar, net far advanced. 13/ 

3. The Production of the Products 

Eaw materials c9Gts were high in proportion to the value of 
brake lining and clutch facings because of the large amount of as- 
bestos used in their production. 14/ Domestic mines produced only 
a small amo'ont, of the total conswrotion of asbr^stos. Canada was 
responsible for about throe-fourths ' of the total inports and the 
rest Y/as divided betv/oen Africa and Russia ujitil 1932, when imports 
from Russia ceased, Africa and Russia had the only important sup- 
plies of long fiber. asbestos outside of Canada, 15/ 



In the m.anufacturc of woven materials, long asbestos fibers 
were required for spinnin^ and weaving. 16/ For molded materials 
short fibers were used which e:astcd in abundant quantities at 
low prices, !?/ Asbestos prices, particularly for spinning grades, 
had declined sliaiply since 1959.18/ 

There were forty-five companies manufacturing friction ma- 
terials, 19/ about twenty of whicn had entered- the industry since 
1929.7/ A number of these v/erc small companies with lovi overheads 
who thrived on the buyer's market that existed in raw asbestos and 
the large distribution margin that prevailed for friction mater- 
ials. 20/ S§von of the members wore o?rncd by five other members. 
Still other members vrerc corporately related outside of this in- 
dustry. One was owned by an important brake parts LTan\ifactu.rcr. 
Another was owned by a cor>ooration virtually , controlling the manu- 
facture and sale nf n.11 brake systems, A third was ovmcd by one of 
the fnu.r largest automobile tire manufacturers. Several others were 
subsidiax'ies of rther automotive or industrial parts manufacturers. 21/ 
The controlling interest in Keasboy & Ivattison, ' one of the largest, 
who also owned another member, was purcliascd early in the Code period 
by Turner d Ncy/cII. of Great Britain, the world's largest factor" in 
asbestos, 22/ Although the large mcMbcrs lost' position since 1929, 

9b-^5 



-245- 

in 193-''' the ten lar^iest made over 75;,o of the sales, without ccn- 
sidering the sales of their stihsidiarics.?/ 

The Bralce Lining Manufacturers Association, formerly the 
Asoestoc Brake Lining Association, lip.d 25 members res^ionsihle for 
85,j of the total sales in 1933.33/ The Association liad hecn active 
for some years in developing standard specifications, list prices 
and cost systemiS and a code of ethics. 24/ The Association memher- 
ship vas predominately the larger members, who were horizontally 
and .vertically integrated and who had extensive sales organiza- 
tions. 25/ 

All except a few of the members, who manufactured only trans- 
mission lining, mr.nufacturod brake lining. About half cf the brake 
lining, manufacturers also raa.nufactured clutch facings. Most of 
the members manufactured other products, vhich v/cre usually inciden- 
tal e.nd used to s"orcad selling costs. 25/ 

Inte.^ration vcrtica.lly appears to have been a more important 
factor than horizontal integration. Joims-I/anvillc and Keasbey Sc 
Mattison owied doucstic and Canadian asbestos mines. 26/ These two 
companies 3.nd another American manufacturer, not a member of the 
Division, contrelled the Canadian price level after 1925.27/ Keas- 
bey Sc Mattison, liowever, refused to be governed by a surplus market- 
ing agreement sponsored by the Asbestos Corporation, Ltd., the domin- 
ant Canadian produ.cer,23/ 3arly in 1934 Turner & Newell, who con- 
trolled the African production and possibly agreed vjith Russia to 
allocate the American market to the African and Canadian producers, 
purchased Keasbey c; fettison, and market control vas strengthen- 
ed. 29/ 

The shortage and high prices cf spinning fibers up to 1930 con- 
tributed to the commercial development of m.olded brake linings in 
the United States. 30/ The manufacture of molded materials sliort - 
circuited the textile operations and the ovmership controls of mines 
and mills and. lent itself more to large scale operations.^/ It 
was at this time tlmt American Srakelok, Colt's ?a.tent Fire Arms 
and Firestone and probably Asbestos Li8.nufacturing, Dewey &: Almy and 
Hex-Hide became important molded brake lining manufacturers. These 
newer members did not Iiave jobbing connections and their nev/ market- 
ing met/iods threatened the established channels. Prior to 1330 
facilities for the prodiiction of asbestos yarns and cloths appear to 
have been a cost advanta.ge to the members, but after that time market 
prices for a.sbestos textiles declined slis.roly rith the exroansion of 
the molded product, ,^7 About half of the members in 1933 were also 
asbestos textile manufacturers. 25/ 

C. The Distribution of the Products . 

This industry' v/as i^arked by a very complex distribution system 
due to a number of factors., among them the low value and infrequency 
of sa-le to the average ultimate consumer, the labor service involved 



9825 



-245- 



in the fin-?.l sale, the sint>le price nature of tlie products, the 
ineffectiveness of "brand advertising, the fairly hii^^h value - 
lev/ weight ratio v.'hich operated against any important geographical 
division of the rnarhet, the necessity for national distribution 
to market the production of the larger members, the large inven- 
tory requirements at the ;ooint of consumption, etc. 

Almost a fourth of the larger members sold some of their 

production to other members to complete the lines of the latter. 

Such sales accounted for 3;^ of total dollar voluiae of sales in 
1933.7/ 

Over a fourth of the merabers sold part of their production 
direct to autrmotiue and industrial equipment manufacturers. Over 
a-' fourth of the total dollar sales of the Division were to 'these 
buyers. A third of the purchases of those buyers was used for re- 
placement purposes either in the production of their own replace- 
ment parts, mostly clutch plates, or for resale through their own 
dealer outlets to the consumer or to other dealers. Only the 
larger members sold to thee^mprront manufacturers and these members 
marketed the remainder of their production through the regular 
jobbing trade.?/ In the case of t\7o of the more recently establish- 
ed members, one marketed the remaind.er cf its production through an 
"affiliate" -and mail order houses and the second under its own. brand 
through national distributors. 35/ (The term "affiliate" as used in 
this industry did not iinply coi^porate relationship. It was simply 
a large distributor marketing nationally or over a large territory 
under its own. brand to most of the same classes of trade sold direct 
by the members.) 35/ Prices on materials sold to 'miipment manufac- 
turers ran over a third lower tlian prices to the replacement trade 
for standard brands.?/ It vras madntained, ho?ifever, . by the dom- 
in3.nt members that the disparity of these prices was not responsible 
for any .instability in the replacement market price structure; but 
that any price cutting which existed due to the members not having 
the original equipment business seeking to secure a larger share of 
the replacement rrarket. 54/ Prices and volume to these buyers had re- 
acted favorably to the pick-^urp in car production in the season prior 
to the Code.?/ 

Besides selling through equipment manufacturing channels, all 
of the members except one sold under their own. brands directly and 
through intermediaries to the replacement trade. These standard 

brand sales represented SO^J of the total sales of the industry.?/ 
Probably not more tlmn 15,j of the sales of standard brand materials 
was sold direct to the ccnsuiaers owning large fleets of buses nr 
trucks. Mqst of the remainder liad formerly been sold through auto- 
motive accessory wholesalers and more recently through automotive 
parts houses, both of -^'hom resold to garages and service stations. 
Direct sales to small garages and service stations were relatively 
unirriportant. The development of large one-stop service stations 
in metropolitan areas resulted in their purcliases surpassing in vol- 
ume the purchases of sms,ll wholesalers and these stations were re- 



9823 



-247- 



ceivinb jobbing classifications. ^.Yliolosalc automotive parts houses 
in some cases opened retail brake relinin^; shops and in a number of 
cases created a department with, equipment to reline the brake shoes 
brought in by neighborhood garages and service stations. 34/ In 
order to encourage the jobber to push his particular bran.d the producer 
often gave him a fairly exclusive sales territory. La.rge jobbers often 
sold to other jobbers and dealers occasionally resold to other than 
sonsumers.75/ 

Becau.se of this mingling of functions and because it V7as prac- 
tically impossible to make a separation in sales to a single jobber for 
the amount which he respld, to. dealers and other jobbers, preferred 
jobber classifications y/ere established and colume rebates based on 
annual purchases were used to recognize the additional marketing 
services provided by the larger jobbers. 36/ One of the largest 
members ha.d 600 jobbers through v-hom he reached some 30,000 retail 
outlets. 37/ Another member had about the same number of outlets 
plus about 500 company stations, which serviced consumers directly and 
each 91 which served as wholesaler for the independent outlets in the 
same territory. 38/ Another large member sold to the replacement 
trade through the National Automott/e- Parts Association, composed 
of 38 large jobbers vdth complete warehouses who sold about lialf of 
their purchases to other jobbers and the rest to dealers and consumers. 
This same member used Wagner Eloctric, the largest >;a; stributor in the 
autom.otivc field, as a national distributor with its 25 warehouse 
points. 39/ A small member largely used, as his jobbers, dc.alers who 
sold some irate rial to other dealers. 40/ 

The physical volume of the sales of standard brands was about the 
sarne in the season prior to the Code as it was ip 1932, and the 13,j 
decline in prices from 1932 to 1933 was largely acco^onted for by the 
increase in sales of Clow priced) molded material. However, from 1929 
to 1932 SAles to standard brand buyers and equipment manufacturers had 
declined over a third in dollar volume and more in ph;/sical volume.?/ 

During the same period from 1929 to 1932 the dollar volume of 
private brand sales by the members almost doubled its proportion to 
the total 'sales to the replacement market. The increase in units sold 
was much greater because of the sharp decline in private brand prices. 
In the period from 1932 to 1933 the average price per foot of brake 
lining sold to private brand buyers declined 30,j and the footage increas- 
ed 5Qj, In clutch facings the average prices declined 70''j and the number 
of pieces sold increased IbO]), In 1933 tne number of feet of brake lin- 
ing sold to prive-te brand buyers was almost half the amount sold to stan- 
dard brand buyers. In the case of transmission lining it was more than 
half and in the case of clutch facings it v/as less tnan a sixth.?/ 

Private brand buyers purchased popular quick-moving items at about 
a third lower prices than standard brands wore sold for identical mer- 
chandise.?/ Some of these buyers were large jobbers v.'ho also handled 
standard brands. 4l/ Others were mail order houses and automotive 
chain stores 42/ and the rest were six sales agencies who resold on a 
national or territorial basis. These six comoanies were the so-called 



9825 



-248- 

"affiliates" which, in 1933, were responsihle for a quarter of the 
purchases of private "brands. These affiliates purchased at lower 
prices and in 1933 operated on a j^ross mark-up of about SOyo. The 
affiliates made the btilk of their sales in competition with the 
members. In 1933 less than 1 j of their sales vv'as material resold 
back to some of the membex's and l,j vjas resold to private brand 
buyers. Over 60',j of their sales were to distributors, jobbers, 
dealers aiid consiuners, and about a third of their sales v.-ere tr 
chain stores and mail order hctises.?/ In one case two affil- 
iates purchased from a nev; member v;ho had no established jobbing 
connections. In anothei* case an affiliate with- an established 
trade purchased from one of the smaller members v/ho manufactured 
woven lining and a larger member who manufactured only molded lin-* 
ing. In another case, a member ?;ho liad contracts v;ith equipment 
manufacturers and mail order hoxises soli", through an affiliate to 
the re;2ular distributing trade. Several nf the affiliates also 
manufactured and distributed other products to the automotive trade, 
such as piston rings or brake parts. 33/ 

A standard cons-amor pi'ice list for bra]ce lining, based on the 
cubical contents and volume of sales for each size, had ''oeen in use 
for years in the industry. Heccr.tly there has been added two addi- 
tional lists at lower levels. 43/ These lists appear- to hs.vo gov- 
erned all sales exce-:t lining cut to size for Fords, Chevrolets and 
Plymouths, and also all sales to other members, affiliates, a large 
part of the purcliases of iTiail order houses and cliain stores, and 
exporters. 44/ These list prices appear to liave been generally 
maintained to the avera/:;e consta-nor because of the na.ture of the fin- 
al sale and the use of flat-rate gxiides by the Association and the 
larger members. (Sae.Part I, The Products) . 

Discoxints to large constimcrs were a general practice. Discounts 
to large common carriers ran over 70-j from list, to industrial buyers 
60,:) and to an operator of a single bus or a half a dozen motor ve- 
hicles 45)-). On small orders the discounts were lov;er and were given 
in any case both by the members and by their intermediaries. 45/ 

V/ith the frozen list prices the active price competition in the 
intermediate market brought progressively long.er discounts to the 
intei-mediaries, -ojitil a discoujit of 80-10-10-10-10;i was not un- 
usual,46/ Of course, the txio lower lists- were used by the members for 
most of their production but the tend.ency persisted of using high lists 
to offer long discounts. The fairly inelastic demand for these products 
had created the sentiment in the industry'- that any general reduction 
of prices in the retail market would not materially expand the physi- 
cal volume of sales.?/ However, it does appear that the high lists 
on standard brands restricted their sales to the advantage of private 
brands. 47/ The practice was stated to have developed of jobbers substi- 
tuting^ materials and resellin,, from a higher list tlian tlia.t from which 
materials wore pur cliase, 1.48/ The distribution margin of upwards of 
85,0 of tiie fina.l price provided uiiusual opportunities for new distribu- 



9825 



-249- 



tors and producers. Moreover, most of tlio large private "brand sales 
were made at net prices without reference tn lists. The practice 
of not s^rantin- lower discounts on popular items, v.hicn liad a faster 
turnover, Imd the effect of providing,. a v/ider margin or. these items. 
This accraed "oarticularly to the advanta^-c of private hrand "buyers 
who distrihuted these tjcpular items almost exclusively. 

Prior to the Code the members liad tried a number of ways of 
adjusting their marlcetin^ to the inventory problems in the industry. 
Some had established a number of warehouses, other warehoused with 
customers, others load liberal returned goods nolicies and many v/cro 
consigning- stock or carrying- ledger balances. For the most part 
corjpetitioh between the members iia.d the effect of returning the 
inventory risks to the members. Part of this development was 
probably due to the decline of the old vholesaler and the exten- 
sion of wholesaler differentials to intermediaries who carried 
only limited stocks. Some of the larger corrpanies prior to the 
Code iiad reversed their policy and liquidated oven their own 
scattered warehouse stocks. The inventory problem did not apply 
on sales to other members, equipment manufacturers and private brand 
bu^^ers.49,/ 

Credits for returned mercmndise increased relative to the 
total dollar sales each year from 19,^9 to 1932 and in the latter 
ye-i.r was IjU^j greater tian in 1939,7/ . 

■ Deductions for cash discounts maintained a fairly steady per- 
centage of the total dollar sales from. 1929 to 1933.7/ 

It was a general practice to prepay transportion cliarges on 
larger shipments of friction materials. 7rom 1929 to 1933 dedtictions 
from sales allowed by the members for this pui-pose increased siiarply.T/ 

The relation of volume rebates to total sr.los in 1932 was almost 
double the amo'ont allowed in 1929. 

A number of practices of the nature of indirect pricing con- 
cessions had developed in this industry' prior to the Code. 

Total deductions from sa.les granted lay the members for cash dis- 
counts, prepaid freight, returned goods and volume rebates almost 
doubled in relation to sales from 1929 to 1332. In the latter year 
they were over 0,3 of the gross sales. They declined in 1933, and in 
that year they i-angod from 8,5,.> of the grosb sales to standard brands 
down to 2»9,j of the gross sales to both otner members and affiliates. 
The deductions on sales to the two latter classes were probably only 
for freight and cash disccuiits, 7/ 



9825 



-259- 



II. ■EX?EP.i7'-Gi!: '^y^^i tj-it; 'tipa relating to DISTRIRTTITO KSLATI0"/S 

Th^" As'b'=stos Co'-'i" ^P5 snbnitt^d in S9-ot'=in"ber I'^SS 50/ ty th-^ 
Aslr^stos Institute ?nd a.-D-orov«^d l'Icv<=!n'ber 1, 1^Z3. Th<^ a-o-oroved 
nPT'k°ting -orovisions i^-'^r'^ in sixlDstgnti^lly th" snn'^ form as "Tro'oos^d 
find no i'-Tooi-tant -orot°sts ""=r'? voic.'^d against th'='n, 

Th° Cod"^ -orovid^d for: 

th^ administration of its Divisions by S-at-Code Authorities; 5/ 

an 0T)='n pric'^i syst^^m ^itli a "'aiting iD-^^riod, "ith full discr=!- 
tionary 'oo'^'^rs as to its O'o^rption r'=^s°rvnd to th":^ Sulj-Cod'=^ 
Authorities; 52 f 

a prohibition of sal'^s b^^lo^-^ i^ost; 53 / 

p^nalti'^s in addition to thos'=! ■orovicl'=ir by th=> T-IRA for anj;- 
violation of th'= Cod^^ by Co'?'^ m'^mb'^rs; 54/ 

authorization to th-^^ Sxi.b-Cnde Authoritic's t'^ fl^v^loiD divisional 
nf^rchandisine: plans and cod^s of ethics; 55 / 

power in the Sub-Cori<^. Authorities to adjust comolaints against 
th° merchandising plans; 56/ 

inclusion of affiliates in th° inf'iustry definition, af^^iliates to 
be defined in ^ach divisional merchandising -olan for th^ purpose of 
the -olan; 57 / 

a prohibition of sales to affiliates not abiding by the -oertinent 
provisions of th^ Code; and 58/ 

a -orohibition of sal°s to any bu^'-^r after dat"s to be specified 
by the Sub-Code Authorities, iml°ss the buyer had agreed in 
writing (l) to mal:e no improper use of the members' merchandising 
plans or i^rice schedules or otherwise misrepresent th^ policies or 
products of the member, (P) to s^ll from a list no higher than 
tha.t from '^hich th° 'products wpi-p! purchased, (3) and to observe 
a,ll applicable provisions of the Code, 59/ " The Purpose of the 
provision for affiliates was stated to be to prevent any manufa„c- 
turer from setting up a sal^s company to evade the .provisions of 
the Code. 60/ 

At the organiza^tion meeting of the Bralre Lining I^ivision, 
November 28, 1933, the officers of the Association were elected as the ■ 
members of the Sub-Code Authority. 61 / The Division, after some 
revisions, unanimously voted to adorjt, effqrjtive at once, the Hcsrchan- 
dising Plan which had been in the process of being drafted by the Asso- 
ciation since th° summer of 1933. 62/ There is evidence that only one of 
the smaller companies wa,s not in agreement '-'ith the Plan. Refusal to 
conform ^-fould haye -been difficult for this company because it was de- 
pendent on two affiliates for product outlet, and these affiliates, which 
were obliged to purchase -oart of their product from other companies, 



9825 



-251- 

could not jf^o-oardize th-^ir sources "by liiiying from a oodp violator. The 
coTipany si£:npd thp Code the day follo^-in^ th^ ado-ption of the Kerchan- 
disinfs Plan. 60/ 

The li^rchandisine Plan adopted '"as a detailed ma.ri':eting scheme of 
pome twenty pages and was the first of mrny hundred n&fZ^B of 
regulatory measures, including -orice standardization nractices, devised 
ty th° Division, The importpnt isrovisions of the Plan for the TDr-^^sent 
analysis were: 

Definitions of: 

Affiliates (Defined to he sellers nurehasing sol°ly from Code 
nerahers, who -o=>rfomed -oart of the npnufacturer' s selling 
functions and "ho vere ap-oroved hv the Suh-Coc'e Authority to 
distribute in conroetition '^ith the nanufpcturers, -nrovirled they 
agreed on a ■written form hinding th'^m to the Code and the 
Plan.) 64/ 

Equi-on.°nt rnpt°ri-'is (Priction materials sold to namifacturers of 
recognized standard equi-Dment for use in the -oroduotion of their 
onn units.) 65 / 

Re-olacement matf=ri?ls (Friction materials sold to manufa.cturers 
of recognized standard equipment for distrihution through their 
OTm riistrihutors and dealer outlets for use on equipment of their 
OTOi manufacture.) 66/ 

Private hrands (hrands of friction materials mth which the 
member's name ^as not associated in any manner when the materials 
were resold.) 67/ 

Standard "brands ("brajids other than -orivate hrands) 68/ 

Classification of huyers - 

Industry manufacturer (other nemhers of the Bra''"^ Lining 
Division) 69/ 

Pqui-DH^nt manufacturer (A "builci^r of ai.itcmo"bil°s, industrial 
equiiDment, and automotive and industrial enuiDment loarts) 70/ 

1. A "buy^^r '-'ho "ourchased eqiii-om'^nt materials for use in the 
Tjroduction of his o^'m units. 

2. A "buyer '"ho -ourchased r'=nlacement materials for use in 
replacement through his o-^m organization on eaui-om^nt of 
his 0"Ti manufacture. 

r^. A "buyer '•'ho iDurohased friction materials for use on re-r- 
■olacement iDarts of his O'^m manufacture not used as 
staJidard equi-oment "by autonohile manufacturers. 



98P5 



.. -253- 

■Frivpte "brpncT account (A 'b-uyc'r of nrivrt^ ■bra.nAs) 71/ 

Kptional dist-iloiitor (Any n'^n'b^r of the Hgtional Autonotive Farts 
Association and any buy^r o-o'=!ratins iDlac'=!S of business in tw«-ntj'- 
or 'nor'^ stat=!s, 'oumhasing standard brands primarily for distribu- 
tion through jobbers.) 22./ 

Territorial distribiitor (Any buyer onerating as an °-:clusive dis- 
tributor of the standard brands of a nember under a contract 
pi'oviding for 

(1) definition of the territory served by such buyer, 

(2) siAbdistribution of such b^'.yer's -ourchases -orinarily to 
jobbers, and 

(3) a miniTiram anount of anmial Tourchases by such buyer.) 73/ 

Jobber (An:'' bur^r of either standard or -oriva.te brands vrho 
carried a selected stock of merchandise, bought in ^holfsale 
quantities, '-'arehoused a reserve stock for dealers, and r'^sold 
in -oroTDer unitn to dealers.) 74/ 

Dealer (Any bu'"'er of friction materials xmder standard or private 
brands '^ho bought and sold automobiles and auto-notive pprts and r 
serviced or repaired them or anv other equipment using friction 
materials.) 75/ 

(-'rovision '-^as made that a member could subclassify his jobbers 
and dealers provided that he filed a statement of the basis 
used.) 76/ ' 

Consiimers (Any buyer of standard or private brand materials en- 
tirely for his o-m consumption) 

1. Oppratorc of fleets of busses and trucks (?our sub- 

classifications for different size fleets) 

2. Very large common ca.rriers 

3. Sta.te governments 

4. United Stat'='s government 

5. Industrial buyers tml'^ss falling '-'ithin some other 
classification 77/ 

Listing of Buyers 

(Reouired th" filing of all accounts, er.cept dealers, ^hich vfould 
be k<=pt confidential, errc^pt in case of dispute or upon reau^st 
of 8 member as to^the cls-ssif ication of a particular buyer by 
another member) 78/ 

Prices 

(Eequir'^'l immediate filing of all prices, to b^ available only 



to t}i° Coc''i -T^'-i'b-^rs ooncTnod pnd to th« class^.s of "buyers to 
rrhom th'^y "-r^r^ p.-onlica'blc', »-:n"-it thrt th*? m'^thod of sub- 
classification of jo'b'bers pnd d°aler? should "b^. open to all 
cl?ss'=>s; 79/ 

Lists and Discounts 

(Hoouir'^d sales fro-n lists shoving; the "branding of the -oroducts, 
effective da.tes and the List NuTn"b<^r prescri'bed "by the Division. 
Frovir'ed for the pdontion "by the Division of suprileinonts to the 
Plan providing nui^"bered Brice lists sufficiently comprehensive 
to afford a "ide choice in selling lorices and also nroviding 
schedules of fired trade and volume discounts.) 80/ 

Classes of ShiiDTjin^; Points 

(Defined fa.ctory r)Oints, outsi(^° noints and manufacturers' 
warehouses) 81/ 

Terms and Conditions 

(Fixed terms of ri'^.;"m"nt ; preDa^/Tnent of transnortation charges on 
shipments of less than 100 -ooujids tirohi"bited; lofo service charge 
required on cut iengths and small orders and 20f» for a non- 
stocking jo"b"ber; and contract limitations of various sorts with 
differential treatment for the different classes of "buyers) 82/ 

Returned iierchandise Policy 

(Eight restrictions on returned goods, among them a 10?^ handling 
. charge, a six months time limit, and a lOi^ limitation on the 
ajTiount returned) 85 / 

General 

Registration of Trade I'a.rks 

(Requir^rl all tr^de names to "b" registered ^^ith the Division) 84/ 

i'arking or branding 

(Required marking v-'ith a standard or lorivate "brand all 
materials sold) 85/ 

Seconds 

(Required th=>ir ciestruction) 86/ 

O"bsolete l-°rchandise 

(Required that it "be so n.ark^d '"hen sold) 87/ 



98?5 



-254r- 

Cost Recovery 

(Provision for tli^ d^t^irmination "by an imnaxtial a,":enoy of the 
lo'^f'^sb cost of a r°-nr=!S'=!r?.tp,tive -nera'ber for any typ'? or size of 
materi'-l as arrived at ty th'=5 Cod=!'5 uniform rost formula. This 
dpterF"natioii was to t'^i ';iade at the request of the Su'o-Code 
Aiithor^ty and sales "belcvT the fifr-are det'^^rrained v^re to he a Code 
■violation.) 88/ 

Standard Warranty 

(Product guarantiees exc^^pt the standard '^a.rranty ■orobibited) 89 / 

Code of Ethics 

(Required liquidation in t^-^elve enual monthly installments 
of consign'^d stock. Also contained ahout forty trade practices 
which were declared unfair; among these were restrictions on 
consi^nm.^nts, volum" rehates, cut-lDa,c':s, warehousing with 
customers, samples, advertising allcrances, and purchases and 
salf^s of other "orcducts helon -nrevailing marlcet -prices.) 90/ 

Agreements ' 

(Providfid that' all agre°Tnents "betwp<=n th-^, ni^mhers and th'=>ir 
customers should conform to the Plan and Code.) 91/ 

At the organization me^^ting adoriting the l"I=>rchandising Plan, an 
additional provision was adOTDted; this prohioited sales to any huyer 
who was selling in violation of the Plan, 95/ Resolutions na.ss«d a.t 
this meeting -orovided also that: 

Industrial friction materials "ould not he covered hy the ■olan.Q.S/ 

Sales to national and territorial distributors would he prohibited 
■until they suhscrih^d in writing to all provisions of the Plan. 94/ 

Members woul.d not be responsible for any violations by their 
affiliates or other member customers, 95/ 

Names of national or territorial distributors to whom allowances 
were made on sales direct to jobbers would be filed and op°n to 
Code members. 96/ 

The effective dates of ririce -oublicity to th<=i various classes would 
be stagg'^red but none lat-^r than January/- 1, 1934. 97 / 

The Division also adopted at this time Suppl'=m°nt No. 1 to the 
Plan, covering brake lining Toricp lists and discounts to become effec- 
tive Janiiary 1. 97 / This su-D-olem«»nt contained -orovision for 15 different 
standard price lists, with similar size differentials. Members were 
r-^quired by the Plan to sell from on'=^ of these lists (or compute lower 
on«^s if they wished, provided thf^y observed the same size differentials). 
98/ The supplement also provided the following! 

9825 



!i255- 

Volii'io c'.iscoiu'.to cculcl not be . .'\llo""od ivitil errnccl. Incrse of 
no- . cco-ii:ita s^.o-iirod n.ftor A-n-il 1, -oro-ratr. discoimtr; could be 
-llov'ed for irrt of the year. Le?-il)ers Inii;^ht o::e-;:t fron the 
r.Tplicr.tion of vol-ane disccaiits o:vr gIfss of ip.terinls, oven 
thou;;h such p. clrsa nns included in co^nilin:;; p. total for the 
errnin;? of vo1iv-;l discoma';s on other natorials. 99/ 

Allovfpnces granted to buyers not -^urchrsin.'; directly' fron the 
.eiber;:; should be considered a pr.rt of t;ie p.cnb.fs' discovuit 
to the buyers to -rhon the nenbers ori;";inally sold the nr.teripln; 
thus -.ahi'i:'" the ori :inrl neller res -onaiblc for cny i i-iro-^or 
disoc-iiits in r. subsequent rer;rlc.- 100/ 

An addition-1 10 ; discount could be granted by the s.nall ncibers, 
. if :-^ jrovjo. by the SiO-Godc Avitliority, on Gflc-s to jo'iberf. , 
dealera r-.u-. consiUiOrs. 101/ 

oche.Vale' II of the Suable -;ent -rovided a table of lixed or 'ir::i- 
'non tr"ue aid rroantity dioco Jitj. Di -co-jJits to other ncn bers -"nd 
equi:oi.ient ripnufacturcrs. mrcr^asin : for ori^in.-l eaniTient pnxposes 
■7ere c. litt'od fron the Scaodule. In the crso of equipment nfnu- 
frcturers ■mrchrsin;: for, re-^lr.ce: id-it rar-ooses, or for the oroduc- 
'tion of re-^lac'enontyDPrta,. it Tras irovided thrt the discoujits 

■ ■TTOulc. 0^ set )y 'the Sub-G0'..e Aathority. rJijccwits. to nationrl 
" .'uid 'territorirl distri;)Utors uore to bo not nore thrJi 70-5^. Pre- . 
ferred, jobber:? voro to be ;_jiven riot nore than 3S-2/S/0 plus a 
rrn^-e of volvL-ie discounts, the Irr.vcr jobbers -otirchasing over 
p4500 annuplly to receive 70-5^. Tl\o unpreferred job )er3 Trere to 
receive not i.iore th'ni 53,;. Dealer diocounts i-'crc fixed at not 
More thii-.n 55',c, Disoouiits to consvuTJro ran^-'ed fron 70^ for very 

. Iar3;e connon crrriers dorrn to 40 ' f or ■opera,tor-3 of a bus or five 
notor vehicles. On orders of less than $15 fron dorlors rnd all 

, classes of consuiA^rs the ■-.iscount "r 3^ fi::od at oS-l/S'-. It iras 
nrovided that no list should be used tlirt -.-ould be loi; enough 
•7ith the above discoinits to brin^.; tiie :ict -r-rice belo'v the "all 
in sal3S costs." 102/ 

The "all in ealcs cocts" referred to rr.s a n.i:iinun 'orice schedule 
esta.blish.ed by the Associrtion in Aui;-ust "or the con^etitive nroducts 
adapted to the Ic^-nriced no xilar cars — rord, Chevrolet nnd plyncuth. 
These .ninina rrere set rt three levels. The hi ;hest '-■-'-s to annl"^ to 
sales. to jobbers, ^-ith a level p ; ^rorcinatel-"- lO^j lo'-.^cr for sales by 
snrll .nenbers to joboers, dealin-s rn.d consv^ners, and a level apnroxi- 
nately 10^ loner still on sains to all nrivate brand buj^ers and na- 
tionrl rnd territorirl distributors. 103/ 

All of the nenbers of the As-^ociatio?-'. and five other ne?-ibcrs of 
the Division lied, si jned the Code. 104/ 'J'ull cooner-tion fron all of the 
interests in the Division <and in. the tr-..e -^-yie rod to hpve been assured 
ujitil Aaericrn "'r,a];3bltfk nrotectcd, on Dece-iber 15th, that the buyers' 
ajreen.ents -rovided in the Code hrc'. not been nut into effect by other 
nenbers for their jobbers, r.'hile it i-^as not remitted to sell to its 
distributors U-itil the distributors subscribed to the Plan. 105/ 
The Sub-Coc^e Authority then estrblished robrua,ry 1st as the effective 
9325 



dat--^ for thf^ ■buyers' .ignr^m'^nts, IQr^/ liut H^A.P.A, , on~ of AmRrican 
I5re".:fi'blok' s national distributors, r^fusRd to ar,c^r)t thfi discount 
'Tstatlished for it. Th^ Division dftoid°d, to avoid any question of 
1-gality, that it ^ould nrns-^nt th^ Plan to IT,R.A. for formal 
approval. 106/ It apTj-^ars to have o-^^n th^. "bf^liRf of th^ Division pnd 
c^irtain s^rbions of th": Administration thpt th-= cIpus'' in th'^ Cod-^ maV— 
ing th-^ ra^r:;handising -olans "suhj^ct to r-^vi^"" m'^put that th'^i J'la.n as 
adopted "by bh^ Division ^a.s in ^ff^ct unl"'ss disa-Dprov=!d hv thT 
Administrator, 107/ 

Thn TDrovisions r-^auiring m'^mhers of th"^ Division to purchase 
only from Cod^ ra'^^mhers, Tjrohihiting sal'^s to national ancl 
territorial distrilDutors not agr'-^ing to ahidR "by th^ Flan, and 
iDrohihiting sal'^s to any 'hvy=Ts '/^ho ^■^t'^- violating a'oplica'bl'^ 
TDrovisions of th^^ Cod^ and Pl.an, v^t"^. d^l^t-^d in thf^ Plan proposed for 
puhlic hearing January 18th, 1934. Th^ -sTrovisions in Sunpleraent 
No. 1 r=^lating to volume discOTints, the ^aprahnrs' r'^s'Donsihility for 
alloTB^ances "by buyers, and th^ 10^ ^"tra, discount for small m^-mhers on 
sal-!s of "bra''^n lining "ni-.^ incoruorat^d into th^- proposed Pla,n. 128/ 

Th'^ hearing d^velop^d th"^ otj-ctions of N.A.P.A. and American 
BraV=lilok to the discount sch^dul^, as '^^ll as some from other 
menihers and huyers to oth-^r sections of the Plan, 109/ Ho'^ev'='r, the 
Sut-Code Authority, -rrith supporting telqgrams from the Deputy, con- 
tinued the Plan in eff-ct er-rc-pt for th-^ discount sch-dule, 110/ The 
Deputy, in Pehruary, announced to th^ Division that he ej^Dect-'d the 
Plan to "be approved e:.:cept for a short stay on the disount schedule, 
and it app<^ars that th-^ mera"bers g'^n^rally entered the spring selling 
season o"bserving the Plan in su"bstantially the same form as adopted 
in Nov'^ra"ber, 111 / 

A supplement to the Plan covering price lists and a discount 
schedule for clutch facings was drawn xxo a.hout the first of January, 
1934, The trade pnd volume discounts •nr'^re '^sta"blished 'vith ahout the 
same percentage differentials as for "brak'^ lining, 112/ After consid- 
f-ration of -the suppl^m-^nt, it was a,nnouiiced early in Harch that all 
except one pf the clutch fa.cings manufacturers planned to o"bserve it 
"xactly, alrhough ther^ "as no legal o"bligation to do so, 113/ 
However, after a month's operation of th^ discount sch-^dule it was <' 
decided to stay the discount ^sta'blished for sales to equipment 
manufacturers who purchas^^ for the- production, of replacem-=nt parts 
(clutch plate manufacturers). This was done "because the limitation of 
the discount on clutch fa.cings sol" to three manufacturers piit' thorn 
at a competitive disa-'vantage on th-^ir re sal ''s of lin^d clutch plates 
to car manufacturers who were also "buying direct from the clutch facing 
manufacturers, 114/ 

Provision had "be-^n made "by January 1, 1934 to have the price 
schedules applica"ble to jo"b"bers, dealers and consximers distri"buted to 
the Code memhers. 115/ B'^ginning with-Hrrch 1st, the price schedules 
filed for distri"butors were distri"buted in the same manner, 116/ 
Ahout this sa.me time it wps provided that any Code m=TTi"ber could reau="st 
from the Secretary of the Sut-Code Authority full data 'on the auota- 
tions made "by any other code mem"ber to a private "brand "buyer or nn 



9825 



-r.57- 

-^nuinn^nt n-'^nufpctur'^r •■'hq touftht for th'=' -Droduction of r=!Dlacem'^nt 
■:■•• rts.s llf / ^'he ■oT'^ctic?'- ^ps to advis"- th=5 me'n'ber whos^^ (mota,tions 
v;=re requ«=^sted th^ nnri'^ of the TiT^inter r'^qu'^sting and r^.c^^iving his 
Quotations. 117/ It app^.F.rs that "by May 1st th'^ pric^ publicity T^rovis'- 
ions ^'•^r'^ in full '^ff^-ct nnd oo-iplirnr'^ wps good, 118/ 

Several pirns v^r^v^. d'^vised to control tb^ sal^ of private "brands 
"by th'^ 'n'='m'b=!rs of th^ Division, Prior to thf? Cod^^ th»se sal^s had 
"be-^n ".XD-^nding rp-oidly in dollar volum'? pnd ev^n mor'^ rapidly in 
physical volujn''. ZL Th'^s'^i snl'^'s r'^duc'^d th^ volum'^ of rn^rchandis'^ 
Toassing through th=^ r'^gulpr stand.-^rd "brand r^-olac^n^nt channels and 
had th^^ efffict of incr^asinr th^ d°-n^nd^nce of th*^ Tn«Tn"b'^rs on th-^ir ■ 
intorm=diarins, I'he first plan to limit pric^ diffnr'^ntials to 
privatfj "brand "buyers -pas drafted in D'^c'^m'b-^r, 1933 "by th^ Division, 
This TDlan vrould hav? giv^n ■orivr't'? "brand "buj^'^rs and Pauipni'^nt manufac- 
tur'^'rs, "buying for use on th-dr ovrn r--Dlf c':^n'^nt -oarts, thn -same trade 
and voltim'^ discounts as "t^^ giv^n "by SutdtdI '^ni'^nt No. 1 to T)ref=!rr«d 
jo"b"b'?rs on stand.rrd "brands., "xn^ipt for fJi additional lofo for purchases 
over $50,000 -o^r annum. 119/ This tilan '^s drot)p~'d -^h-^n it '"as found 
that it -orovid'^d a too attractive? nro-nosition to jo"b"bers 120/"bncaus'=, 
i"ith th'= sanp) discounts on such small -ourchps^s, th"^ fact that lower 
list TDricPs TDrevail'^d for nrivate "brands '^ould ha,ve stimulated T)rivate 
"brand sal^s to the c'isadvantag'^ of standard "bra.nds, 

A la,ter nlrn vhich g?ve the spm^ -oorcentcge differentials on 
private "brand lourchases in quantities of t-^n or more times the size of 
■Durches^s of standard "brap.ds, and rssuraed tha.t identical private hrand 
material would not "be sold at -nrices lower than ?ofo "below standard 
hrands, a-D-oeared to "be too restrictive in the other direction, 121 / A 
third -plan I'-^velled out the diff -^r-^ntials "between the "buyers "by 
giving the smaller cha,ins and joh"bers a "bf^tter price relative to large 
chains and mail ord=>r houses. This plan also limited, the differential 
to private "brands to not mor^^ th?n. approzima^tely P0% below standard 
trf:nds; but in the cas-^ of purchases of less than $200, where the ex- 
pense of hand-ling private brand materials became more than that of 
handling standard brand merchandise, it was provid'-^d that the: best prices 
granted should be no lower than those given to jobbers on standa.rd 
brands. 122/ The diversity of inter-^sts did not permit agreement on 
this plan =ither, and it was finally agreed, in February 1934, that, 
until a mutually satisfactory plan was evolved, contracts with private 
brand buyers at prices lower than on stand.ard brands should be limited 
to shipments in on" lot, and of one brand, with a net value of $200,00 
or more. On smaller contracts no differential below th'^ member' s_ prices 
on standard brand materials to Jobbers was permitted. 123/ It was ex- 
pected at this time that the "all in sales cost" provided for sales to 
national and t-^rritorial distributors and private brand buyers -would 
be en effective minimiiyn in controlling th= extent of price concessions 
on private brand orders of over $200'.00. 103/ 

By th° middl-^ of the summer of 1934 large private brand buyers 
came strongly into th^ replacement market, 7/and th=-- fact that N.R.A. 
had given no legal validity to the "all in sa'l^s cost" price floor 
crested considerable .comp'^titive uncertainty among th° members as to 
differentials to th^se buyers. This provoked a. decision to mahe public 

9B25 



to the Code rnornbers who sold wrivp.te brnnds the -nrices filed for these 
buyers when lower than the "all in s'les cost" established for this 
class of customer. l^if/ This "cost" was about 20'3 lovrer than the 
minimum "cost" established for the sale of standard brands to jobbers. 
The sr)ot-li>^hting of these Drices at first increased, the -orevailing 
differentials to pi-ivats brand buyers, but within a month these differ- 
entials dec-'sased to a niivrgin at)X)arently satisfactory to both the 
manufacture IS of molded lining and the integrated manufacturers of 
woven lining. 125/ 

The decision noted above, to have Februa.ry 1st the effective date 
for the buyers' agreemerts -orovided in the Code, was withdrawn, and 
three other dateb set at later intervals were also withdrawn, pending 
formal a-oDroval of the Merchandising Plan. 126/ 

H.^.A. finally aDnroved the Pla-n August 8, 193-.., with the excep- 
tions of: the definition of affiliates; the classification of customers; 
the provision for sales to be made from lists prescribed by the Division; 
the provisions for supulements covering mandatory nrice lists and trade 
and quantity discounts; the provision for the extra 10^ discount that 
could be granted by the small membe:^?; the provision for the lO'l ser- 
vice charge on cut lengths and. small orders; the standard warranty; 
the prohibition of advertising allowances; and the cost recovery pro- 
vision. 127/ 

The following provisions of importance to this study remained in 
substantially the same form in the approved Plan: the definitions of 
equipment and replacement materials and the definitions of private 
and standard brands; the requirement for a listing of buyers; the price 
publicity section; the restrictions on volume disccunts; the provision 
making the members responsible for any allowances granted by their 
customers in rese^lling; the definition of shipping points; the prohi- 
bition against prepaid freight on shipments under 100 pounds; the 
limitations on contracts; the restrictions on returned goods; the 
requirements for the registration of trade names and the branding of all 
material; the destruction of seconds; the marking of obsolete goods; 
and all of the Code of Ethics except for the prohibition of advertising 
allowances. 128/ 

Additions to the original Plan, approved by IIRA at this time, 
were: a clause submitted by the Division requiring a single discount 
on all t.ypes of brake lining for each class of customer and the same 
for clutch facings; a clause removing the mandatory character of code 
provisions about the terras of payment; ,a provision covering costs and 
price cutting; and a provision for the filing of advertising con- 
tracts. 129/ 

Following the action of N.H.A. the Sub-Code Authority gave notice 
to the members that "persuasion, competition and publicity" would be 
used to the utmost to compensate for the failure of N.R.A. to give the 
Division the "weapon of the law" to compel all members to abide by the 
rules originally devised. 130/ The Division resolved to recognize the 
customer classification and the definition of affiliates in substantially 
the same form, as in the proposed Plan. 13i/ N.R.A., in deleting the 

9825 



-259- 

mandatory customer classification in August, Torovided for the submission 
of a -neriaissive classification. 132/ The Division SDent a number of 
months attempting to have U.'R.A." a-oiorovc a classification that ^''ould 
be binding' on all the members. After months of negotia.tion the 
Division finally acceded to the inclusion, before the classification, 
of a carefully rirenared rirearable which s'oecif ically provided that ob- 
servance of the classification reas entirely voluntary. N.R.A. approved 
the classification in April, 1935. 133 / The Division also submitted 
several definitions of affiliates that "rere intended to brin£c the 
affiliates Tonder the Code as members of the Division. TThen N.R.A. 
failed to a.-nprove these definitions, the Division added the affiliates 
as a preferred class in the customer classification which was before 
N.R.A. for approval. The proposed definition of affiliate customers 
provided that contracts requiring adherenise to the Plan and to appli- 
cable provisions of the Code be reouired of them. However, when N.R.A. 
in April, 1935, finally approved the permissive classification of 
customers, it deleted the definition of the affiliate class. 131-/ 

., There w.^s' sentiment among the members, after the failure of N.R.A. 
tO; approve the mandatory customer classification, to have a list of 
jobhers compiled that would be recognised and strictly followed by the 
members.' Concern .was expressed, however, that such a. list would re- 
strict the members from meeting com-petition from members outside the 
Association, and no evidence of further action in this direction is 
a.va,ilal3le. 135 / 

Asbestos prices increased considerably and held firm throughout 
the code period. 136/ This- appears to have been in part due to the 
.extension of T^arrier 5; Newell into' the production of asbestos which 
had the effect of "gtrengthsning ownership controls over the, raw 
material market. 29/ '(See Part I, the Production of the Products). 
Furthermore, the (Jolledtive controls exercised in the asbestos textile 
market 137/ placed the unintegrated members manufacturing woven 
materials at a competitive disadvantage. 'After the minimum prices 
provided liy the "all in sales- cost" broke in the summer of 1934, these 
small members complained about the ' na,rrow manufacturing margin on 
which they were forced too-nerate; 138/ 

Py October, 193.., several members were objecting, to. the require- 
ment for the disclosure to other inembere-df' "their price differentials 
to several classes of customers. 139/ A revie'-' of the cxpOrience of 
the members with the price -nublicity' regulations was made in November. 
The survey revealed th3.t those in favor of publicity to distributors, 
.Jobbers, dealers and c'pns\-imers , and against publicity to private brand 
bu.yers and equipment parts r.ian-Ji'acturers, include two-thirds of the 
twenty largest members, all of the next' ten in size, and a majority 
of the smallest members. The general sentiment was that while pub- 
licity, '-fhen first put into effect, created price instability, the 
ultimate tendency would be toward stability. 140 / 



9825 



-Seo- 
ul. EFFECT j\lID con CLUS I Oils • ■;' ' 

Tlie evidence suggests t'aat this industry's marketing pattern prior 
to the Code was marked by a continuous modification 'of , first, the price 
differentials extended to the marketing agencies and, second, the market- 
ing services performed by these agencies. These modifications were 
mutually dependent on each other and "were a constant expression of the 
innumerable forces affecting the market. 

During- the -period of the declining effective demand that existed 
for this industrj^»s products from 1929 to 1933 these modifications appear 
to have been accelerated. For the most part, the modifications of the 
price differentials extended to the marketing agencies were concessions 
by the members to their intermediaries to secure or maintain the flow of 
their products to the market. The modification of the price differential 
took the form of extending a larger differential than that which had 
previously prevailed for a group of marketing agencies performing a cer- 
tain set of marketing services. Illustrations of this were provided by 
the extension of a longer trade discount to dealers, or the consignment 
of stock to jobbers, or the granting of a lower price on private brand 
than standard brand material purchased by Jobbers, or the failure to 
change extra for small orders from non-stocking jobbers, on the use of a 
higher list price with the same discount to give a wider margin to 
jobbers, et cetera. 

The modification of the price differential also went further and 
took the form of extending a prevailing differential to marketing agen- 
cies that did not perform the customary marketing functions for the par- 
ticular differential. Illustrations of this were provided by the exten- 
sion of a jobber's trade discount to a dealer, or a distributor's volume 
discounts to a jobber, or a jobber's returned goods privilege to a deal- 
er, or a jobber's price guarantee to a dealer, et cetera. 

For the most part the modifications of the services performed by the 
marketing a,?;encies were concessions by the intermediaries to their cus- 
tomers or to the members of the Division to secure or maintain a share in 
the distribution of the products to the market. The modification of the 
marketing services took the form of the agencies either expanding or con- 
tracting, depending on market circumstances, the voliime of their custo- 
mary marketing services. Illustrations of this were provided by some of 
the large dealers reselling to other dealers and assuming jobbing ser- 
vices, or some group of large jobbers securing exclusive territories and 
assuming warehousing services, or some of the jobbers opening retail 
brake shops and assuming dealer services, or some large distributors 
advertising and promoting the sale of their private brand material and 
assuming the complete marketing services of some of the members of the 
Division, et cetera. 

It appears that one of the most Important forces influencing the 
rapid modification of marketing differentials and services since 1929 
had been the entrance of nev^ members without an established market for 
their products. The rapidly changing differentials and services intro- 
duced new elements of risk and uncertainty into the marketing practices 
of those members of the industry who had been relatively well adjusted 

9825 



-261- 

to the previously prevailing pattern of distribution practices and agen- 
cies ;^id Wiio,, ohYioxjly, were predominate in numbers, size, range of 
products' and financial power. Altogether these developments constituted 
a connion problem to the established manbers cUid threatened to further 
disorder and restrict the prevailing flow of their production to the final 
market. The provisions of the Code and Plnn, to the extent that they af- 
fected distribution, were designed to correct or control those practices 
which these members believed were responsible for the disruption of the 
"normal" channels of distribution. 

There is notiiing to show that these provisions for control of dis- 
tributive ralations were for the purpose of controlling prices per se. 
Rather they were conceived by their proponents to be devices or working 
rules primarily and inmediately intended to restore the normal or regular 
distribution of their products. Ibr illusti-ation, the provisions regard- 
ing the distribution of private braiids were designed in general to pro- 
vide information as to the prices at which they were being bought and 
sold and to limit their buyers' marketing advantages in order to preserve' 
the proponents' approach to the market through the regular replacement 
trace. Furthermore, the members were not concerned about price-cutting, 
as such, by the private brand buyers. It was only where price reductions 
by these distributors liad the effect of reducing the volume of products 
passing tlirough the regular replacement trade that control was sought by 
these distributors. 

The code program as conceived by its proponents can be summarized 
as being largely fonxralated to arrest and correct the price differential 
concessions in the intermediate market. The crux of the original pro- 
gran was the mandatory customer classification and the maximum discount 
schedule. A large variety of the otnqr provisions sought were primarily 
designed to malce effective this central feature or else were incidentally 
useful in supporting it. Some of the more important of these provided 
resale price maintenance, tie filing of the names of buyers, and the 
branding of products .and the restrictions on consignments, returned 
goods, price-and product rTuarantees, freight allowances, free goods, 
advertising _allowances, etc. Some of these provisions had directly the 
effect of increasing the sales realizations of the members as, for exam- 
ple, the delimiting of shipoing points. Other provisions, such as the 
sales below cost provision, altho-'Jigh frankly and primarily designed to 
increase the members' sales realization iiad the effect of directly in- 
fluencing distributive relations because of the necessity for different 
price floors for different classes of customers. Another important set 
of supplementajry provisions designed to facilitate the appraisal and 
control of relative price levels were those relating to: standard pricing 
practices covering standard lists, standard service charges for cut 
lengths, standard allowances for cutting losses on slabs, etc. 

The original plan to have affiliates recogiiized as members of the 
Division would have subjected them to all the responsibilities and con- 
trols provided for the maiiufact-oring members. The practice of sales to 
them on an interdepartmental basis was to be continued under the Code 
and Plan. The provision in the Code prohibiting sales to affiliates 
failing to conform to its provisions appears to have been instrumental, 
before IIHA failed to approve the definition of Jiffiliates, in five of 

9825 



-2G2- 

the six aff:'. Liates agreeing to al^ide ty the Code and the Plan. In ad- 
dition, theie were other cbhsiderations such as restrictions. on private 
brand sales, privileges of Code tnemhership in regard to confidential 
information, their dependence, on the manufacturing members, and the 
provision for the lOfo extra discount by small members which made it 
advisable for them to accept the prcgrem of the Division. The evidence 
indicates, however, that the effect of the operation of the Plan was to- 
bring their resale prices up to , the prevailing -iTicelevels' of their suppliers 
and other members and to reduce their share of the replacement market/. 
7/ 141/. 

Tlie customer classification was generally observed throughout the 
code period 142/ and except for the change in the definition of distribu- 
tors the classification remained in substantially the same form for the 
automotive field as it was originally adopted by the Division in Novem- 
ber 1933. It appears that it was only in connection with fixed price 
differentials that any difficulty was experienced. All of the early 
objections to it by the National Automotive Parts Association and sever- 
al of the smaller members were with respect to the accompanying, discount 
and contract requirements. The objections also in the fall of 1934 by 
the members selling to industrial buyers were due to the provision for 
a single discount for all types of brake lining to each class of buyer 
and a single discount for all types of clutch facings to each class of 
buyer. Kiese objections were adjusted to a large degree by a separate 
classification of customers for the industrial field. 

The only major objection to the operation of the discotmt schedule 
originally adopted by the Division in November 1933 was that of the 
National Automotive Parts Association., This Association was a group of 
large jobber:? which had been classified as a national distributor. 
These, jobljers had established warehouses and were performing the market- 
ing functions of their supplier's sales department in contacting and serv- 
ing the jobber and dealer trade. 143/ This association of jobbers in- 
sisted on buying at a price individually determined by their supplier and 
their association. It appeared that the maxiraxim discount of 70-5^ 
established for these buyers was not less preferred than it had been 
previous to the Code, but the effect of limiting their purchase price 
would have placed them at a, disadvantage in soliciting the jobbing trade 
in competition with the members gelling direct who were left free to 
spend an unlimited amount to promote sales to the same jobbers. 

The operation of the extra discount of 10^ allowed on sales of 
small members to jobbers, dealers and consumers brought the objection of 
one of the smaller members to NEA, This member insisted that the amount 
of the differential did not compensate for the differences in merchan- 
dising services provided by the large and small members. 144/ 

Even after the failure of NEA to approve the discount schedule it 
was generally followed and the deviations from it were not of particular 
competitive importance. The narrowing of the manufacturing margin of the 
smaller unintegrated members may allso have restricted them from offering 
longer discounts. At any rate, the evidence si:iggests that the effect of 
the operation of the Plan was to reduce discounts and arrest the tendency 
to larger differentials. 

9825 



-26&- 

> miile no complete program for handling private brand sales was 
finally a^-reed upon by the members throiJghout the Code period, there is 
evidence that the effect of the operation of the Plan was a considerable 
narrowing of the differentials to private brand buyers and a decline in 
their share of the replacement market. One large mail order house com- 
plained that the prices it paid for woven brake lining doubled. 145/ 
On small orders private brand iTiaterial was sold at the same prices as 
standard brands were sold to jobbers. Eccept for the break in the 
market in July and Au^just 1934, the prevailing prices on the larger 
orders of private braiid materials were about 20>!i lower tlian stJindard 
brands. 

Another important part of the original program of the members was 
to have resale prices strictlj'- maintained in connection with the dis- 
count schedule. A number of provisions which directly provided for or 
indirectly supplemented the control of resale prices were provided in 
the Code and Plan. No specific requirem.ents were put into effect, how- 
ever, except for the uniform disco^jnt schedule with its resale feature, 
which was being put into effect prior to the public hearing on the Plan, 
January' 18, 1934. 

Early in January 1934 several of the smaller members protested that 
the effect of tne operation of the resale features of the uniform dis- 
count schedule was, "to restrict their sales, to the advantage of the largo 
members with brands well laiown to the trade. It was maintained that a 
differential of lU-% was not sufficient to compensate for the difference 
in their merchandising services and selling costs and those of the larg- 
er members. Furthermore, evidence was submitted that since the discoxonts 
were limited the large members were eicpanding their merchandising ser- 
vices by making available to their jobbers test cars, factory salesmen, 
and other merchandising aids. One of the small members carried its 
complaint through to the National Recovery Review Board. This agency 
held a hearing on the matter in April, 1934, and declined to pass on the 
merits of the Merchandising Plan; however, it informed the complainant 
that he would not be required to observe the discount schedule since the 
sched"ale had not been formally approved by II. P.. A. 145 / 

In regard to the provision for the buyers' agreements provided by 
the Code, it should be noted that the Division was hesitant to put them 
into effect after the approval of the Plan by H.R.A. In the first 
place, the sharp increase in the volume of sales to the replacement 
market through the equipment manufacturers' chaiinel brought objection 
from some of the members to putting the agreements into effect unless it 
was certain thatthe automobile m.aiiufacturers would also be governed by 
such agreements - which was highly uialikely. Furthermore, the members 
sellin^^ direct to jobbers feared that the members selling to jobbers 
through distributors would be required to sign up their distributors. 
Then those distributors in reselling to jobbers would not be required to 
sign up their jobbers and those jobbers would be able to taJce advantage 
of the jobbers who were sold direct and committed to strict adherence of 
resale prices. The same situation slso prevailed, to a much smaller 
extent, in the case of members selling direct to dealers. In the latter 
part of the code period the na'abers were considering the possibility of 
putting the agreements into effect with equipment manufacturers and dis- 
tributors. 48 / 

9825 



■264- 



In September 1934 it was the opinion, of some of the memtiers that 
the putting into effect of the wholesale automotive codes would mean the 
publishing of resale prices by the au.tomotive parts jobbers and the 
strict adlierence by them to the suggested resale discounts of the 
members. 14?_ ' 

For the most part suf'gested resale prices were generally followed 
throughout the code period and their observance was greater tlian prior 
to Plan. 

A survey of. the members' opinions of the results of the operation 
of the Code and the Plan and their wishes as to the future, conducted 
by the Sub-Code Authority in April, 1935. revealed the following infor- 
mation as to views of the first 16 members replying: 143/ 

One-third opposed a mandatory customer classification. 

One-third opposed any price publicity, another third 
favored it for all the members concerned who filed 
arid the rest favored a plan of having each member 
naming the other members to whom his prices would be 
available. 

One-third opposed the continuance of the single discount, 

One-'fourth opposed the continuance of the quantity dis- 
count restrictions. 

Two of the members opposed the requirement of trade 
mark registration and the bra:ading of materials. 

Three opposed the continuaiice of the restrictions on 
contracts and returned goods'. 

Two opposed the provisions for the destruction of seconds 
and the limitation on advertising allov/ances. 

All except one favored the continuance of the many pro- 
hibitions against indirect price concessions. 

Two-thirds replied that their profits were no greater 
or the deficits were no less in 1934 than in 1933. 
They also replied that they belie ed that their profits 
would have been greater without the Code or Plan. 

One-third favored continuingnthe Plan substantially as 
written, another third favored it with modifications 
and four of the members opposed its continuance. 

Wiih one exception it was believed that any code or 
plan continued after June 16th should be obligatory 
on all the members of the Division. 



98 25 



-265- 

The latest record of the sentinent of the members, in June 1935, 
indicated tliat at least thirty of the members, representing well over 
SO-o of the volume of business, had at^reed to cooperate and continue to 
follow the !iercnandising Plan. 149 / 

Total dollar sales of friction materials gained 15°^ in 1934 over 
1933. Sales to the replacement market alone increased l2'/o. There 
were substantial shifts in the volume passing through the various agen- 
cies serving this market. Purchases of affiliates declined 13-^ and 
their share of this market dropped from 4'') to 3fi. Purchases of private 
brand buyers declined IV^o and their sliare of this market dropped from 
10>j to 8'^. Purchases of staiidard braiids (distributors. Jobbers, dealers 
and consumers or the regular "replacement trade") increased 3>J and their 
share of tliis market declined from 71'^ to 55>o. Purchases of equipment 
manufacturers increased about 82/^ and their share of this market in- 
creased from about I'ofs to about 24-^. 7/ 

Sales of small members who did not classify their sales increased 
12)0 from 1933 to 1934. Inter-member sales declined 30^&. Purchases of 
equipment manufacturers for the production of their omi -units increased 
about 43Ji. Sales for export increased 13>o. 7/ 

Tile extent to which the operation of the Plan was responsible for 
the sharp increase in the sioare of the replacement market in 1934 
secured by automobile manufacturers and their resale outlets can not be 
definitelj/ established. It is reasonable to believe, however, that 
since the Plan did not cover this channel of distribution, the operar- 
tion of the Plan was indirectly responsible, to a large extent, for the 
expansion of the sales tiirow^-h this channel. 



9 325 



•266- 



?'-4:':;:--oii?.pter ;V'a ^ v/rit^^ liy C] p^'ton C-ch;':ir.n. 

The footnotes to this chapter a -peer in the hrck. 



Ho;tc:- UnlcGs otherwise, noted, the for.tnotc references in this 
G:.r.,tci- to; ."Secretary", "S-c-VCodr Av.thority", "members", 
"Pl,':m", End ".■pivi5i'>rJ' refer to the 3ralzc Lining- anc. 
?lC latcd. Ericticn- ProLaicts .Eiyision of the Asoestos In- 
dv-s try. Also all- Division "BuLlletins" , "demoraida", 
"C,veL,tionnaires,''V' "Corifidential Informatiun Bi'.llctins", 
"Ciales- Statistics B;alletin;::" ,, anc, "MirA'.ter " o± Division, 
■ S\.l>-Cod.e Authority' aiidi.Coi.pit tee mew-tin^.s ere rrferre:- 
to ar: hcing in the Dc puty'V-; special riiv.-hindcrs. There 
'.'crc three rinK-hinders contrinina; as folloY.'s: 



"c LiniXLie; Divislan 
Index '- . 

Memoranda 
Bulletins 
Lists 

:e Lining. Division 
I.Ii nut CEO f i Loet iti.; 



Brelce Lining'; Division 

■ Cbnfidcntinl Information 
Statistics 
Mi seal Igneous 
i^iuestionnafres' ■ ,.■ 
Codes • . ■■ 



!_/ Code of ??ir CoiniDetition for the As'bes.toc Industry; Article 
II, Section 5 and Schedule I. 

2j Minutes of p meeting of the Coce Authority for the Asbestos 

Industry, J\ine 21, 19o4; Deputy's files, Code Authority 
Minutes folder. 

3/ Code, 013. cit.. Article II, Section 6. 

4/ Trenscrip-t of p-j.blic rearing on the Proposed Code for the As- 
bestos Industry, Octouer ly, 1^33, pp. 46-47. 

5/ Proposed erchrndisi g ?"i an for the Division rs revised for 
Public Hearing, January 16, 1934, Section I, B. 

6/ Asbestos , Volume XVI, No. 12, page 39. 

7/ Sales Strtistics Bulletins issued b^' tae Secretary of the 
Brake Lining Division to the aembers of the Division 
and the NRA; Deputy's special i ingbinders, (These 
Sales Statistics Bulletins 'ere preppred b/ the Divi- 
sion Office from sales statistics reported by practi- 
c-lly all of the nembers of tne Division at monthly in- 
tervals. ) 

8/ Brief from the Sub-Code Authority to tne Denaty, April 3, 1934; 
Deputy's files, folder No. 30a. 
Proposed tlerchandising Flan, Supplement Fo. 2, Schedule I; 
Deputy's special ringbinders. 

9/ Asbestos , Volu;e-X, -'o.' 9, page 30. . 

10/ Transcript of I-ublic Fe-'ring on the ?ierchandising Flan, Janu- 
ary lb, 1'^'34, pages 3;- -43. 

11/ Asbestos . VoluMe XVi, Fo, ?, pages Ifc and 19. 

1?/ Asbestos , Vclu-ae X, Fo. 2, pages 44 and 45. 

Proposed Merchandising Plan, Supple.aent Fo, 2, Schedule II, 
Note 2; Deputy's special ringbinders. 

Questionnaire Fo, 3-5, ilarch 31, 1934; Deputy's special ring- 
binders. 

13/ Transcript on Plan, or, cit., pages 4b-54. , ■ 

14/ Bureau of • tne Census, Fu-aber oi Establishments. Salaries , 
ti/a ^es. cost ol Ma terial s . Cost of j'uel and Energy , 
and Value of products for iiJstaulish-'nents Reporting 
Only Brake Lining and Clutch Facings. 1^29. 1931 . 
a nd 1933 . This table '^as prepared from r- special 
compilation made by the Bureau for tne use oi tne 
Distributive P.elations Urit. A copy is contained 
in the Unit's files. 



9825 



• 268- 



15/ Minergl Eesources , 1931, Fsrt II, p.-^ge 207. 

Minerpls Yearbook . 1932-33, Pnrt III, ppges 747 snd 750. 



16/ Minerals Yeerboolc , 1932-33, Part III, iDsge 746. 

17/ Mineral Resources , 1930, Fart 11, page 267-6. 

18/ Mineral Resources . 1929, Part II, ve.ge --Go. 

Minerals Yearbook . 1932-::3, Part III, oai^e 750. 

19/ Division Bulletin No, B-66; Deputy's s-oecial ringdinders. 

20/ Asbestos , Voluue XIV, 'Mo. 10, page Id, , 
See also belc". 

21/ Standard Statistics Co., Inc., Standard Corporation Records . 
July 19, 1935, page 2845; Julv 26, 1935, vege 2955; 
AiDril 20, 1934, p.'^ge 389; and Julv 1&, 1-35, page 3259. 
Division Bulletin No. B-66; see 19/. 
Moodv's Industrial Securities , 1932. 

Thomas' i-cegister of American lUanufacturers . 1 934_ edition. 
22/ Asbestos . Volume XV, No. 7 

23/ Division Bulletins Nos. B-26 and B-6b; Deputy's specic>l ring- 
binders. ^ 
Minutes of Division meeting. September 17, 1934, page 7; 
Deputy's special ringbincer. 

24/ Asbestos, Volume, X, Fo. 7, page 16, No. 9, page 30, and Vol- 
ume XV, No. 3, page 20. 
B.L.M.A's Automotive Data Books, 1932 edition. 

25/ Minutes of Asbestos Textile Division Meeting, November, 10, 
1933; Deputv's files, folder No. 36., 

Minutes of Division fleeting, .April 3, 1955; Deputy's special 

ringbinders. 
Thomas, op, cit. 
Asbestos , Volume XVI, Ho. 5, page 1; Volume XIV, No. 7, page 7; 

Volume XIV, No. 7, page^g, Volu:ne XVI, No. 12, page 33. 
Motor, Volume LXIV, No. 5, pages 17-24, 43. 
Moody's, op. cit. 

26/ Asbestos , Volume X, No. 4, page 54, anc No. 7, page 10. 
Mineral Resources , 1928, Part II, page "',00. 
Samuel H. Dolbear, S tatement of jViCts Affecting the Cana- 
dian Asbestos Industry , pages 1 and 4 in his Data 
on the Arbestos Industry . 

27/ Dolbear, Notes , page 4, op. cit. and statement of Facts Af - 
fecting the Canadian. Asbestos Industry , pages 1 et. seq. 
Asbestos , Volume X, No. 7, page 10 ano No. 1, page 9; 

9825 



-23S- 



gc/ Dolberr, Notes , n.'^,'er, 4 and 6, oi^, cit. 
Ascestos , Volume y^l , No. 11, pages 6-10. 

29/ iiinergl r.e.^ources , I'J^'J, Fr-rt II, vf'^.e POO. 

Minerals Yearbook . lb(32-»33, ?--rt III, page 750; 1934, Part III, 

•cage 1011 . 
A sbestos . Volunie V, Ko.7 
Ascestos . VoluMe XV, No. fa, page 18 
Asbestos . Volume XVI, Fo. 1, nage 1. 

30/ h'ineral Resources , 19?3, Part II, pages 9y and 101 and 1930, 

Part II, v!?f.e 267. 
Asbestos , Volume X, Fd. 6, pa^:£ 34; No. 7, pa^e 10; Fo. 8, 

pages ? and 5; Fo. 9, -Dage 34; ^'nd Wo. 11, cat:es 30 and 
51. 

31/ Minerals Yearbook . 1932-33, Part III, loa-i^es 7£0 and 747, 

lineral i esources , 1929, Fart II, page ?''2 and 1931 P-^rt II, 
■Dare 21 J. 

32/ Transcript on Flan, o-d. cit., paf';;es lc-6-9. 

Standard Statistics, ov. cit., September 18, 19>.5, vpge 3061. 

35/ Letter from tne Secretary of the Divifiion to the Denuty, Sep- 
temoer 22, 1934, Deputy's files, folder Wo. 30a. 

34/ Transcript on Flan, or, cit., p.-ges 5&-43. 

35/ Ibid., pages l<7-lo4. See also 56/ and 40/. 

3b/ Minutes of Division meeting, January 29, 1934, pa^-es 4-6; 
Deputy's sioecial ringfeincers. 

37/ Standard Statistics Inc.,' ov. cit., July 29, 1935, pages 4424-5. 

3&y Ibid. , March 22, 1935, page 3927. 

3^/ Transcript' on Fla.n, ov, cit., pages 186-9, 

Brief from tne Sub-Code A-ithorit/ of tiie Division to the Deputy, 
pGbruarv 3, 1954; Deputy's files, folder No. 50a. 

40/ ' Letter from Southern Frlcliion Faoric Products Co, to the 

Deruty, August 14, 1953; Code Kecord, Volume A. page 
2 ^1 . 

41/^ ReiDort of the Division's private 3rand Committee to tne Sub- 
Code Authority, February, 3, 1934; Deputy's special 
ringbinder. 

42/ Transcript on Flan, op. cit., pages 58-43. 
See also 7/. 

45/ Brief from the Sub-Code Authority tu tiie Deputy, Aoril 5, 
1934; Deputy's files, folder t.tq. 30a. 



9825 



-27C- 



44 / Proposed Flan, op, cit. , Section ?, C. 

Attpchraents to the letter from the Secretary of the Division 
to the Deputy, August 10, 1934; DeTD^tv's files, fold- 
er No. 30a. 

Divisions' 'Confidential Information Bulletins No. 1, Seftem- 
her 22, 1934, to No. 53, ,iay 27, 193^; Deputy's special 
rinp;binGL-r. 

45/ Proposed Plan, op. cit.. Section II, H and its Supplement 
No. 1, Schedule II; Deputy's special rin^-^tinder. 

46/ Brief from the Division to the Deputy, Febxniarv 2, 1934; 
Deputy's files, folder No. 30a. 

47/ Division Memorandum No. B-5J March 29, 1934; Deputy's siDecial 
ringbinder, 

48/ Memorandum from the Secretary of the .Division to tne Denuty, 
November 5, 1934; Deputy's files, .reports folder. 

49/ Transcript on Plan, op. cit., pages 103-4. 

Minutes of Division Meeting, September 17, 1934, pa :e 3; 
Deputy's special rir'gbinder. 

50/ Code Record, Volume A. 

51/ Code, Article VI, Section 1 (f). 
52/ Code, Article VIII, Sections 1-4. 
55/ Code, Article IX. 

54/ Code, i^rticle VI, Section 2 (e). 

55/ Code, Article VI, Section 4. 

56/ Code, Article VI, Section 3. . , 

57 / Code, Article II, Section 5 and Article XI, Section 1. 

58 / Code, Article XI, Section 1. 

59/ Code, Article VIII, Section 5. 

dO/ Letter from the Asbestos Institute to tlie Deputy, on October 3, 
1933; Code Record, Volume A, p.-ge 61. 

61/ Asbestos , Volume XV, No. 3, page 20. 

ianutes of Division leeting, Noveuioer 2b, 1933, pages 4-5. 
Deputy's special ringbinders. 

62/ Transcript on Plan, op, cit., pa^-e 45. 
See also oiy. 
Minutes of Division meeting N9veraber 28, 19^3, pages 6-16; 

9825 



;;7i- 



EsTuty ' s sTDecipl ripgbinders. 

65/ Letter fro;a Southern Friction F^'bric Products Co, to the 
DeDutv, August 14, T9o3; Code Se.cord, Volune A. vsge 
201. 

See also 44/, attacnnients to the Au£;uf..t lOtn letter. 

See also 43/. 

Minutes of Division raeetinfc, Kovember 29, 1933, pafje 20; 
TeDuty's special ringbindcrs. 



Article I, E, 

Article I, I. 

Article I, J. 

Article I,X. 

Article I, L. 

Article II, A. 

Article II, B. 

Article II, C. 

Article II, I. 

Article II, E. 

Article II, F. 

Article II, G. 

Article II, last -or-ragraphs of F and G. 

Article II, H. 

Article III. . 

Article. IV. 

Article V. 

Article VI. . 

Article VII. 

Article VIII. 

Article IZ, A. 

Article IX, B. 

Article IX, C. 



64/ 


Proposed 


Plan, 


65/ 


Proposed 


PI an , 


66/ 


FroiDOsed 


Plan, 


67/ 


Pronosed 


Plan, 


68/ 


Proposed 


Pirn 


69/ 


Proposed 


Fl-n, 


70/ 


Proposed 


Plan, 


71/ 


Proposed 


Plan, 


72/ 


Proposed 


-lar, 


73/ 


Proposed 


Plan, 


7Af 


Proposed 


plan. 


75/ 


Proposed 


Flan, 


76/ 


Proposed 


Plan, 


77/ 


Proposed 


Pirn, 


Z6/ 


Proposed 


Plan, 


79/ 


Proposed 


Plan, 


60/ 


-roposed 


Plan, 


81/ 


Proposed 


^lan, 


M/ 


Proposed 


Pirn, 


85/ 


Proposed 


-la-. 


84/ 


Proposed 


? 1 an , 


65/ 


Proposed 


Plan, 


86/ 


Proposed 


Plan, 


9825 







-27J 



£_?/ Proposed "Isn, jT.rticle IX, Ii,' 

88 / ProDOsec Plan, Article IX, E. 

89/ Froposec Plpn, Article X. 

90 / ProTDOsec Plan, article XI . . 

91 / Fro-posed ~lan, Article XII. ' 

92 / ii'iinutee oi iJivision meeting, November "8, 19C-3 pa^e 15; 
Denuty's specipl ringbinder. 

93/ Ibid., pp^'e 5. 

94/ Ibid, pages 8 pnd 9 . 

^5 / Ibid, page 6. 

96/ Ibid, page 15. 

97 / ilinutes of Division fleeting, Fove:iiuer 23, 1J33, pare ?5; 
PeDuty ' s special ringbmders. 

98/ Sui^-Dlenent No. 1 to the P^an, Sections lY," V, And VI; 
Dep-utv's s-oecial ringbinders. 

99/ Ibid, Section VII. 

100/ Ibid, Section VIII, second para.^iarih. 

1 01 / Ibid, Section VIII, third parpgraiDh. 

102/ Ibid, Schedule II. ' ■ 

105/ Divisions confidential ^alletin, "No; 3, December 6, 1933; 
Deputy's special ringbinders. 

104 / Division -Bulletin No. >-l0, December £1, 1933; Deputy's 
special ringbinders. 

105/ Ivimutes of Sub-Code Authority meeting; DeceraDtr 19, 1933, 
Fp.';es 5 and o; Deputy's special ringbinders. 

106/ Ibid, December 23, 1933, prges 1 and 2; Deputy's specirl ring- 
binders. 

107/ Letter from the Chairman of the Sab-Code Authority to the 
members of the Division, December 30, 1933; Code Eec- 
ord. Code Aathority Bulletins, etc. 

108/ Proposed ^lan end its SurjiDleraent No. 1; Deputy's special 
ringbinders, 

9825 



~^^75- 



Set also .le.Tiorrndun No. B-? from the Secretary of the Divi- 
sion to the ;p.embers, Jpnupry 5,- 1934; Code Hecord, 
Code Authority B-alletins, etc. 

109 / Transcript of Futlic Hearint; on the Froposed Flan, January 
18/1934. 

110/ Minutes of Division :aeetinf, Januarj'- 29,, 1'j34, ve^e 3; Deru- 
ty'e spscial- ringbinders. 

Ill/ Ibid, Tebruarv 19, 1934, pa^-es 4-6; Deputy's special rin,;;- 
binders. 

112/ -imutes of the :aeeting of the Clutch Facing Coininittee of the 
Division, Dece.abtr 19, 1933; Deputy's s'oecial ring- 
binders. 
Minutes of the Division l.ieeting, January 29, 1934, TDa.'^e 23; 
De-putr's special, ringbinders. 

113/ Division Bullttin ¥.o. 3-17, .arch 3, 1934; Deputy's special 
ringoindersi 

114/ t.inutes of tae iat;eting of the Clutch. Pacing Comiiiittee of the 
Division, A^^ril" 1], 1934; Deputy's special 
ringbinders. 

115 / :inutes of Su.b-Code A^^tnonty meeting, December 5, 1934; page 
7; Deputy's special ringbini ers. 

116/ Ibid, iarch 2, 1934, uage 8. ■ " ' 

117/ loid, September 17, 19b4, p-.-e 1; Deputy ' r snecial rir^goinders. 

118/ Division J^uHetm No. 3.-2y, April 14, 1934 and No. 3-38, 
May 24, "'934; Deputy's special ringoinders. 

119 / Divisions Confidential Bulletin No. 7, December 12, 1933; 
Deputy's special rin^'-binders. 

120/ Ibid, IIo. ?A, December 13, lij33; Debuty's special ringbinders, 

121 / Ibid. 

Minute? of Sub-Code ^;.thorit:v' meeting, Dece:.iDer 19, 19331- 

pages 2-3; Deputy's special ringbinders. 
Division Questionnaire No. 3-1, Decemoer 2 6, 1933; Deputy's 

ringoinders. 
Divisions Confidential Memorandum No. 3-1, January 2, 1934; 

Dep'aty's special rin ;oinders. 

122/ f.iemorFndum iron tne Division's ?rivate Brand Committee to 
the Sub- Code Authority, February 3, 1954; Deputy's 
special ringbinders. 

123/ Uinutesof Division meeting, February 19, 1934, pages &-y; 

9825 



■274- 



Deraty ' -^ siDecial rim,"bincers. 

124/ Mimites of Suo-Code Authority meeting June 4, 1^34; Deputy's 
srecir-l ringbinders. 

125 / Division Bulletins Nos. B-45, Julv 24; B-458, July 2; B-45t), 
August 4, etc.; Deputy's specipl ringbinders. 

Minutes of Division Meeting, August 14, 1934. pages 10-13; 
Deputy's special ringbinders. 

126 / Division L-iulletin No, B-23, March 20, 1934; Derjuty ' s ringbin- 
ders. 

Minutes of Suh-Code Authority meeting, A"pril 24, 1954, -page 5; 

Deputy's special ringbinders. 
Division Bulletin No. B-31,'Arril 30, 1934; DeiDuty ' s 

special ringbinders. 
Minutes of Sub-Code Authority meeting, June 4, 1934, 

page 5; Deputy's special ringbinders. 
Division Bulletin No. B-39; June 7, 1934; Deputy '? spc-*-- 

iial ringbindorBn 
Memorandum trom the Secretary of the Division to the Deputy, 

November 5, 1934; Deputy's files, Eecorts folctr. 

127/ See the aDp'roved Plan snd compare vith the following parts 
of the proposed Flan: Section I, E; Section II, Sec- 
tion V, A, 1; Section V. B; Section V, h., third para- 
graph; Section VII, C; Section X; Section XI, C, 8,^ d; 
and Section IX, E. 

128 / See the proposed Flan and compai e with the following parts 

of the approved Flan: Article I, sections H, I, J, and 
K; Article III; Article IV; Article V^ Section C; Arti- 
. cle V, Section D, second para/^raph; Article VI; Arti- 
cle VII, Sections, Article VII, C; Article VIII, Arti- 
cle IX, Sections A and B; Article IX, oection C; Arti- 
c"' e IX, Section D; Article X. 

,]J9/ Approved Plan, Article V, Section D. first prra:.<'raph; Arti- 
cle VII Section A, (o); Article IX, Section ji; 
Article X, Section C, 7, d,e, and 1. 

150 / "Statement of the Sub-Code Authority o-^ the Merchandising 
Plan", page 2; De'-uty's special ringbi-nders. 

131 / Minutes of the Division me'eting August 14, 1934; pages 6; 
Deputy's special ringbinders. 

132/ Apcroved Plan, Article II. ' 

135/ See the exchange of correspondence, reports, etc., beginning 
in Noviraber, 1934; Deputy's file, folder No. 29 
Administrative Orr er No, 80-28, issued April 29, 1935. 

9825 



-;37&- 



lo4/ Letter iroin tne Secret'-ry of the Division to the Deputy, 
September 22, 1.34; Deputy 'ti files, folder Few. 30a. 

;.iiinutes of Sut-Code .^.athority meeting, October 23, 1934, 
pages 2-3; Deputy's special ringoinders. 

Letter fro:a the Secret.-r-/ of the I'ivision to tne Deouty, 
November 7, 1934; Deputy's file, folder Ko. 29. 

"Customer Classii ication" , dated November 5, 1934; page 1; 
Deputy's files, folder No. 29. 

Note in the approved classification of custo:.iers the omis- 
sion of Class 2 in A. Classification of Buyers in the 
Automotive Field. 

135/ Minutes of Division neeting, Septenbftr 17, 1934, pages 7-8; 
Deputy's special ringbinders. 

136/ Asbestos . Volume XV, No. 1, page 23; No. 5, page 15; No. 6, 
page 15; No. 7, p--ge 14; pnc No. 9, page 16. 

157/ Bulletin of tne Textile Division, J'-naary 17, 1934; Deputy's 
files, folder No. 6. 
Ibid, April 25, 1934. 
Ibid, July 1. , 1.34. 

iviinutes of the Textile Division Meeting, beptember lb, 1934; 
Deputy's liles, folder No. 6. 

138 / Letter from the Standard Brake Lining Co. to the Administra- 
tor, June 5, 1934; Consumers' Advisory Board files, 
Compliance folder. 
Letter from the ^ecretrry of the Asbestos Code Authority to 
the Deputy, Aurust 9, 1934; Deputy's files, folder No. 
30a. 
Minutes of the Division meeting, August 1-., 1934, ppges 10-13; 
Deputy's special ringbinders. 

159/ Minutes of Sub-Code Authority meeting October 23, 1934, page 2; 
Deputy's speci-l rin binders. 

140/ Division Qi_testionnaire No. 3-11, Octo )er 13,1934; Deputy's 
specipl ringbinders. 
Report on the replies to tne Questionnaire compiled Decemoer 

12, 1934. Copy of the report attached to a copy of the Min- 
utes of Sub-Code Autuority meeting, VTanuary 10, 1935; 
Deputy's special ringbinders. 

141/ Minutes of the Division meeting, Jeoruary 19, 1934, page 8; 
Deputy's special rirgbinders. 

Minutes of the Sub-Code Authority meeting iviarch 2, 1934, page 
6; Deputy's special ringbinders. 

142/ Letter fro:a the Secret- ry of the Division to the Deputy, Jpnu- 
ary Ic, 1935; Deputy's files, folder No. 29. 

143/ Transcript on Flan, op, cit., pages 99-103. 

9825 



-276- 



144/ Letters from Hoosier iriction Products Co. to the oecretpry 
of the Division, Jpnuary 6, Janu'Ty ^5 and ieoruary ?8, 
and Mprch 1, 1954; Deputy's files, Kational ;T.ecoverY 
Eeviev7 Board Folder. 

145 / Letter from Montgomery l>prd and Co. ; contents noted in r re- 
port contained in tne Eesearch and Planning Division 
files. 

146 / See the Deputy's files, National Recovery .evic- Board 
folder. 

147/ Minutes of the Division meeting, September 17, 1934, cage 9; 
Deputy's special ringbinders. 

148 / Division questionnaire B-15, A"nril ?, 1935; Deouty's speci^il 
ringbinders. 

Division Bulletin Mo. B-89, April 22, 1935; Deputy's special 
ringbinders. 

149 / Division Memorandum No. B-37, <June 5, 1935; Deputy's special 
ringbinders. 



9825 



-277- 

Chapter V 
Plunbirit'-;: pi:;turGs Industry 

I. 2HE iidits:;:ry 

A, The product 

1, Tiie function ?nd tcchiiiCtLl development of the product. 
In a publication of the u. S. Department of Commerce entitled 
"RecooLiended Minim-am Requirements for plumbing", (*) plumbing fixtures 
are called "receptacles intended to receive and discharge water, liquid, 
or water-carried wastes into a drainage system with which thej^ are con- 
nected, " The plumbing system, of which the fixtures are a part is defined 
as follows: 

"The plumbing system of a building includes the water 
and distributing pipes; the fixtures and fixture traps; the 
soil, waste and vent pipes; the house drain and hoixse sewer; the 
the storage water drainage; with their devices, appurtenances 
rjid connections all within or adjacent to the building," 

The sponsors of the plumbing Fixt-ure Code included manufacturers of 
the following products: (**) 

"(a) Enameled cast iron plumbing fixtixres, such as 
b?,thtubs, shower receptors, lavatories, sinks, drinking 
fountains, la^mdry trays, closet tanlcs, accessories, and 
the like, 

"(b) Vitreous China plumbing fixtures, such as lava- 
tories, drinlcing fountains, closet bowls, closet tanlcs, 
■arinrJ.3, bath tubs, accessories and the like; 

"(c) Seats of whatever composition, for installation 
on and for use in connection with closet bowls and the like; 

"(d) Sanitary brass plumbing fittings, such as bath 
fittings, shower fittings, lavatory fittings, sinlc fittings, 
drinliing fountain fittings, and other completed fittings 
and trimmings for use in connection with plumbing fixtures 
and the like; 

"(e) Such branches and subdivisions thereof and such 
related industries as may from time to time, with the ap- 
proval of the Administrator, be included ujider the provisions 
of this Code." 

The national Recovery Administr.-^.tion files do not offer much infor- 
mation about either the technical development or the growth of the in- 
dustr;-?- (if indeed it might be called one industry). The one exception 
to a complete absence of such material consists in the description sup- 
plied by Former Governor Kohler, President of the Kohler Company, in 
presenting the proposed plumbing fixtures code at the public hearing of 
August 30, 1933, and this is reproduced here in part: (***) 



(*) U. S. C-overnment Printing Office 1932. 

(**) Article II, Section 1. 

(***) Code History, Special E>iiibit Vol, I. 



9825 



— 273— 

"There rrere conpai'atively fe\7 Bath fixtures rna,nufactured "before 1890 
'.-". the grov;th of the indoor ■bathinf; really iDegan in the follovring decade, 
The grouth of the industrjr was predicated in large measures upon the in- 
stallation of water supply and sewage systems in an increasing nuni"ber of 
comrounities and to the advertisements and e:daiL»its of "beautiful and prac~ 
tial fizitnTes in shovnToons maintained "by the larger .nanufacturers, 

"There are several processes utilized in the making of the various 
kinds of enameled ware, tut in this industry it is confined to the util- 
ization of the so-called drjr process; powder-like enamel applied on ca.st 
iron, 

"The enrjnel, which might "be termed an opaque glass, is a composition 
of silica, spa,r, fluxes and opacifying material which is carefully weighed, 
mixed and melted. After it is withdrawn from the metal furnace it is 
pulverized in dry form to certain standards of fineness ready for use. 
The cast iron article to "be enameled iS' cleaned of its sand and other 
foreign suhstances ty' sandblast and other means, carefully finished, cov- 
ered with a groujid or slush coat, placed in a fx\Tns.ce and hes.ted to a 
temperature of 1600 to 1800 degrees Psiarenheit for a few minutes. It 
is then XTithc'iTawn and the ena.mel, the preparation of which has been "brief- 
ly descri"bed, is sifted thereon in pov.'der form, 

"The fusi"bility of the enamel powder causes it to adhere to the hot 
ground coated iron castii;ig and after several continuous coatings as the 
casting revolves on its turning cradle it is retui'ned to the furnace where 
it remains again for several minutes. It is then virithdrawn and a similar 
coating is applied, W hile some articles 'can "be made with one coat, many 
require two or more, depending upon the nature of the article, the char- 
acter of the enamel, and the purpose for which it is to "be used, 

"The real growth of the sanite.ry cast iron enamel fixture industry 
occurred in the last twenty yesxs, although it was interrupted during the 
war, when its products were classified as non-essential, Ji'ollowing the 
war there was an acceleration of residential "building to meet the dammed- 
up demand resulting from the war period inactivity, and the sales of "ba,th 
tu'bo exceeded 100,000 pieces a month, \7ith corresponding sales of lava^- 
tories, sinlrs and other fixtures. Since 1928, however, the output has 
declined to an extraordinary extent, 

"Wliile all enameled plumbing fixtures formerly sold were white — 
and the majority of them sold today, still are — color was introduced a 
few years ago, complicating the problem of the manufacturer and the dis- 
tributor, for it meant the handling or carrying of eight to ten different 
colored stocks where originally one sufficed, 

"Tlirouf;;h .the introduction of mechanized operations and improved 
methods a,nd processes,- such as lighter and better castings, efficient fujr- 
naces, more effective control, and the use of an acid-resisting enai.iel, 
very fine, superior fixtures are produceii and sold at relatively low prices 
today, 

"The Sanitary Cast Iron Enamel TTaro Association is an old one; ex- 
cept for a few short lapses, there has been an organization of this 'cHar'acter 
since practically the early nineties, 
9825 



-279- 

I'JTor nearly twent"- years there has oeen no sale of so-called "seconds" 
or ciills "o;- enaneled ware manufacturers, _ Because of this there has oeen 
a stabilization of quality and r.n assured protection to the vltimate con- 
sumer that hlenished goods cannot 'oe su'b3tit\ited "bv unscrupulous individ- 
uals for perfect goods ordered and paid for. The elinination of "seconds" 
naturrJLlj- required strict standards of manufacture, but the "no-seconds" 
practice in effect for tuent^''' years has actually redounded to the "benefit 
of the consuxiing public, the worlonen nhose earnings increased as they he^ 
came more skilled oiid careful, as 'jell as to the industry, 

' 'V itreous China plunoinft- Fi::tu res" 

"The present Vitreous China plumbing Fixture Association participat- 
ing in this code is of comparatively recently origin, "but is fully repre- 
sentative of the industry, 

"2he nalring of clay products is one of the earliest arts, dating 
back to the day rrhen primitive nan bsized his vessels of clay in the open 
fire. Vitreous china plumbing fi::tures are among the finest clay products 
made, and compare in composition, beauty of appearance, and serviceability 
rrith the fine china ware so higlily treasured, 

"The composition consists of b.-ill 8,nd chino. clays, spars, and flints 
thoroughly cleaned, treated and r.irced with water, for it is used in liquid 
form in the casting of fi::tures, 

"The T7are is fii:ed for several days at temperatures reaching a peak 
of 2500 degrees Fahrenheit, 

"Wl^ile somp fi::tures in this country are made by the single fired 
process, ncxielj'-, the body, or bisque, and the glass, being fired simultane- 
ously, the majority of fiktures nanui"ac ture d to6.B:j are fired twice; once 
in the clay bod;'- or bisque, a,nd secondly, after being cooled and covered 
with a liquid glass coating, 

"This is a simple description of a process which, if related in ell 
of its raxiifications and details, v/ould talce considerable time, 

"The resulting vitreous china pliimbing fi::tures are the finest clay 
products that can be made for the purpose for which they are used, . 

"The line includes lavatories which, because of their quality, are 
becoming increasinglj'- popular; toilets, for which a clay composition is 
the practical materiel to use; drinlcing fotintains; ^lrinals, and other 
f i::tures, 

"Vitreous chins, bavth tubs, because of their size, have not so far 
been successfull;^ made cOLimercially, 

"The vitreous china industry-, like the sanitary cast iron enamel 
fixture industry, requires constant vigilance and attention to succeed, 

"For centuries the. method of manufacturing and firing pottery was 
essentiell;-- the same, for very few changes were made in the processes, 

9825 



The forning of the article '7as liy- hand and it xrp.s fired in circular or 
I'cohivc kiln::,, a t'fpQ still in practical use in this countr-' and alDroad, 

"In the 'beginning of the- Ipst decade marked advances were made in 
the processes through the substitution of casting for hand moiilding, and 
the firing 07 some na-mfacturers in continuous kilns as long as 400 feet. 
In these, the green articles, previously dried, enter cold on moving • 
trucks at one e^nd-, s.nd pass slowly through the kilns at an increa^sing 
tenper?,t"ai'e up to 2500 degrees Pahrenlieit. They then continue to the 
exit doors through constantly decreasing tenperatui-es, so that uhen they 
come from the furnace -they can "be safelj' handled, 

"Greet ca.re is -required in the manuf a^c ture if perfect good.s and a 
low percentage of defective ware are to "be e^rpected. These resiilts can "be 
accomplished rith careful worlananship, proper supervision and the exercise 
of constant vigilance, 

"As a protection to the public and to stalsilize market conditions, 
the Vitreous China Plurahing Fixture Association, in the formulation of 
this code, has declared itself opposed to the sale of second grade or 
cull fi::t\ixes in this country, 

"Colors coraparahle vith those supplied in enameled cast iron fixtures 
are available in vitreous china, although their production is far more 
difficult than the former because of the extremely high temperatures at 
which china ware is fired, 

"The matching of enameled ware and vitreous china colors introduces 
complications because of the difference in composition, the firing tem- 
peratures and time required in their respective manufacture, 

" plated Brass plumbing rittinf:s " 

"The Sanitary Brass Manufacturers Association and the National Brass 
Association include the leading brass manufacturers in this country, 

"The product of these mrnufa,ctarers involves an ancient art, preceded 
in metal working only by tha.t of copper. The fixtures n,re made in great 
variet-r and. sold at lov/ prices, for there are manj'' raa.nufacturers and the 
competition has been extremely keen, 

"The greatest improvement in quality in recent years has been the 
substitution for nickel-plating of chromium plating, v/hich gives a some- 
what silver-blue coa.ting. It ha.s an extremely longer life than nickel 
plating, 

"As in the anamel and the vitreous china industries, new and improv- 
ed designs are constantly appearing, which in combination with the fi::tures 
of these other industries, present truly beautiful, and hygienic combina/- 
tions, 

"Seconds' or culls are not recognized in the marketing of sanitary 
brass fittings, but there are many grades of quality. 



9825 



-281- 

" Seats " 
"Sanitary seats are made in all the variety of colors availalsle 
in vii-roo';.5^ china. Superior articles are to "be had at I01.7 prices. 

"A difficulty in stabilizing this industry is that the "body of the 
product is made of different materials: Food, hard nitber, and various 
coapcsitions . 

"It is not a large industry, tut its product is supplemental and 
necessary to the china fixtuji'e industry. Some 'seconds' have "been sold 
in the past, but in ai-'.opting the code the industry I'rent on record oppos- 
ing their future sale. 

"Host of the seat manufactvirers in this country are members of the 
Seat Manufacturers Association." 

2. Product relationships as evidenced through IIRA codes. 

Governor Kohler named five groups which sponsored the code and which 
Fere considered to be "the industry", although article II, Section 1 (e) 
of the Code provided for the admission of further groups as opportunity 
arose. The naming of these five groups as the plumbing fixtures industry 
is very likely to be misleading, hov/ever, both because of differences in 
composition and because of differences in function of the four kinds of 
products made by the groups. Vitreous china vrare and cast iron enameled 
v;are are fixtures, but seats and plated brass goods are fittings. Fur- 
thermore, all fo-uT kinds of products are distinct in composition. Cast 
iron, clay, brass and vrood are the respective principal rai? materials, 
each one of -.Thich is processed to greater or less extent. 

Equally important with the distinctions bet\7een the four kinds of 
products listed above is the fact that several industry groups were omit- 
ted from the approved Plnjmbing Fixtures Code althoiigh five or six other 
groups expressed the desire to become members, prior to the code's ap- 
proval. One of these groups, ferrous metal range boiler manufacturers, 
was included later by pmendment to the code. But the whole subject is 
associated so closely -ith that of the entire plumbing system, particular- 
ly as concerns distribution of the products, that it seems desirable to 
retiorn to the concept developed in the Department of Commerce publication, 
with a few words about the products and their relationships. 

The pipes for distributing water may be of lead, wrought iron, steel, 
brass, copper, or copper alloy steel with brass or galvanized cast iron 
or galvBjiized malleable iron fittings. In the early use of piped sinks 
and baths, which we're followed closely by the inside water closet, piping 
was generally run in lead. Lead pipes have been gradually dispensed 
with in favor of the other materials, and at the present tine, an entire 
installe.tion may be effected without the use of lead except for caulking 
joints. (*) The fixtures aind accessories, second stage in the plumbing 
system, may be of enejneled cast iron, porcelain, vitreous china, cement, 
plated brass, steel, wood, or rubber. The waste and vent pipes are gen- 
erally caulked cast iron soil or steel or wrought iron screwed pipe. 
( *) Preliminary Report on the Construction Industry - II .R .A. Division of 
Review, Dec. 17, 1935; Vol. II, p. 22, and! "Recommended Hinim-um Re- 
quirements for Plijmbing", op. cit. pp. 28-35 
9825 



■With a few omnissions the ^jrouuctr. npmori. constitute the whole of 
'.'■i ,t ic nc^^Toirly mernt b;^ the plurfoirip; system, A full comprehension of 
this fact is important for two reasons, first that the final step in 
distrihution,. i, e,, through the plurahin^: contractor (as it has "been in 
the past) is the saue for all of the ahove-named products. All parts of 
the household plumhin^a; supply are usiudly installed hy the plumhing con- 
tractor or master plumher and are frequently sold to the final consuner 
hy the same individual. The second reason for the importance of this 
picture consists in the code relationship a,nd the lines of jurisdiction 
over the -orodu.ctr, developed during the I\HA period. 

It naj'- he worth noting that each one of the products would furnish 
material for an interesting studj^ in distrioutive relations^ At this 
point in the hackground, however, it is principally- necessary to indi- 
cate 'in what industries the products were manufactured and. what associ- 
ations claimed authority. Pipe for pl-'omoing is produced in the follov/- 
ing industries: 

Iron and Steel 

Copper and Srass Mill Products 

Lead 

Cast Iron Soil Pipe - 

The pipe of the ahove mentioned industries is competitive to a 
greater or lesser extent, hut there is little trouhle ahout determining 
what pipe is produced in what industry. The raw msiterial and processes 
of manufacture are fairly exclusive. 

The other products entering; into a plumhing system, such as fittings, 
valves, tra,ps, elhov/s, special pipes, etc., many of which are specialties, 
e^re made not only in the above industries (for which there are well es- 
tablished associations), but also by manufacturers who group themselves 
in po,rt as follows: 

Valve and fittings manufacturers 

Tubular plumbing goods manufacturers 

Sanitnxy brass mrtn'ofacturers 

Brass products manufacturers 

plush valve manufacturers 

Tanl: trim manuf actijrers 

plumbers cast iron specialty manufacturers 

The U. S. Department of Commerce has become well aware in the past 
ten years of the difficulties of' dealing wigh organizational pride in the 
above npjned groups. It has been impossible to segregate the products 
thought reasonably to be included in each -indixs try, even for the purpose 
of raalcing statistical reports. Troubles under the jTRA were still great- 
er, due frequently'- to the different methods employed in the first step 
of distribution. 

In an attempt to define plumbing fixtures by naming them, it is im- 
portant to include not only those products included in the code, but some 
others as vrell, although v/ith many of the latter there is considerable 
question as to whether they are- not really parts of the pipe industries. 
But some of these hold a borderline status bj"- virtue of the fact that 
the Plimbing Fixture Code put them there. Thus, one of the oldest products 
manufactured in the fixtures industry is staple porcelain or all clay ware, 
9825" ■ 



which is still produced in some quantities, but has "been displaced to a 
lsLV£;e cvtent 'b-/ cast iron enanel and vitreous china ware. There are four 
manufacturers, however, who produce sone porcelain fixtures, principally 
laundry trs^j-s and bath tubs. Three of the four malte other products which 
cane under the code; but since porcelain was onitted, the fourth manu- 
facturerwas excluded from the code. Furthermore, the Laundry Tray As- 
sociation, including manufacturers of concrete laundry trays, was omitted 
entirely, 

A mixture of vitreous china and .porcelain is no'7 used to some extent 
in the manufacture of bath tubs and .other Itirge pieces, (this information 
was supplied by the Crane agent in Washington), but these products were 
never deemed distinct enough from vitreous china to warrant separp.te men- 
tion in the code and there is no record of whether they were included or 
not. Steel sinks are one of the newer products in the industry and al- 
though without a doubt falling in the class of products performing the 
function of a plumbing fixture, nevertheless were omitted from the code. 

Plated brass goods such as showers, bath fittings, lavatory fittings, 
etc., were ej5)ressly included in the code and are certainly products of 
long— standing in, the industry, ns the date of the organization of the 
Sanitary Brass Association testifies. It seems, however, that these fit- 
tings and other fittings, such as traps, overflow supply pipes, and val- 
ves, are najnTfactxired by concerns: 

(a) which specialize in pl-^-unbing goods; 

(b) which manufacture still other valves and fittings; 
.(c) which manufacture a full line of copper and brass 

goods and the proportion of whose products in 
plumbing is sma.ll; 
(d) which specia,lize in one kind of plumbing fitting, 
such as flush valves. 

There are also vaj?iations in the above four classes, (*) Again at 
this point it is not so important to know what the v8,rious codes did 
with this conflict as to know that a conflict existed, T5ie first tv.'0 
groups were included in the code by name, appe,aring under names of 
the Scjiitar;' Brass Association a,nd the national Brass Association, re- 
spectively. Two of the specialty groups classed under (d) above, name- 
ly, the flush valve manofacturers and tank trim manufacturers, were placed 
under the jurisdiction of the Code partly by their merging with the 
Sanitary Brass Association and partly bj^ Code Authority action. (**) 



(*) See Code History, Special Sx-hibits Vol, I 

(**) See Vol. B for Sanitary Brass Association letter, of 9/15/33 
and Llinutes of Code Authority Meeting of April 24, 1934, and 
C, A. Bulletin of July 21, 1934. 



9825 



-P84- 

The Plim'bing and Drainage Specialty lianufr.ct-orers , named atove, 
p-rly iyir~iG-tefc ?, cesire to be iv.cliided i".'i the Pliirnliins "iztures Code. 
Xi-:3se v/ere nr;,nufact-.irers prii'-ci-'ally of c '^t iron soil "lipe fittings, 
used s'oecially in plumbinc, "but they ^''ero not accepted in the code 
prior to its ap;"iroval. (*) 

FerrotLS, range boilers are considered a part of the plmhing 
fixtures industry .''.nd were talren into the code "by an aiiiendment ap".roved 
on A ril 23, 1934, iDut the in£>,n"afacturers of non-ferrous range "boilers 
"became governed "by Supplemental Code "o. 14 for the 'Jon-Ferrous Hot 
Water Tanl: Llanufacturing Industry, a division of the Code for the 
5'ahricated lietal Products Industry. 

3 . Industry Size 

1, Trend in Overall Industry Size 

The pluibing indiistry is a ""art of the huilding industry 
and depends for its ;narket principally on the volume of new construction 
as well as somevrhrat on the amo'ont of home an.d other huilding modern- 
ization. Hew construction suffered verj^ severely in the depression, 
Tfaen compa.rcd iiitli the volume of industrial production. And although 
the volu::ie of plumuing installation Aid not suffer so much, neverthe- 
less, this oxitlet for plumbing was considera'bly diminished. Modern- 
ization and maintenance: ordinarily furnisii far smaller, although steadier, 
outlets for pluiiiDing, Under normal condibions these tvro represent "be- 
tween ten and tv;enty per cent of the total, "but in 1933 and 1934, they 
accouiited for over sixty per cent of the plum"bing goods sold. (**) 

Some view of the relative size of the plumhing 
marirot, particularly in the fiel'" of ne'.' construction, may "be if^athered 
from an estimate made in 1929 (***), that 9.3 ceiits out of every dollar 
spent for ouildinc vrent into -Juiiijing, In 193S, another estimate (****) 
indicates 12;v; cnts out of every dollar s^ient for "building materials 



'a 



(•*) Sote: Excluded from the Plunbin/f; Fir.tures Code, this group 
was to its disg\;.3t included in tho Cast Iron Soil Pipe Code 
v/hen the latter was originally approved. The prganization 
finally extricated itself from the latter and dropped into 
the G-ray Iron Poundry Code where it remained ever after and 
where it continued a spirited jurisdictional dispute with the 
Cast Iron Soil Pipe Association, 

(■**) See Preliminary Report on the Co;i,struction Industry, 
Op. Git. p, 148. 

(***■) Copper ai-d Brass Research Association Siirvey reported in the 
Plum'bin,;; and Heating i"arj:ot - j"^.esearch "epartrient of "En- 
gineeririg Publications, Inc." 

(****) Hesea.rch and Planning "Report 

9825 



-236- 

(vhich emits some of the iDuilciinf;; e>roenses includec^ in the former 
dollar) goes into tjl-omhing. Of coarse "TDlumhing" frs wsed in these 
estimates menns the whole plumlDing system and not just fixtures. 

The extent of the market for rjliimbing may readily be demonstrated 
by completely different figures indicating the absence of rilumbing in 
use. Thus, according to statistics derived from the United States 
Census and Real Proijerty Inventory, issued by the Bureau of Foreign 
and Domestic Commerce, and also from data corn-oiled by the Edison 
Electric Institute, 6.85 ner cent of all the urban diyelling units in 
the United States are without any interior water connections, "^3 -ner 
cent are without bath tub facilities, and 16.5 ner cent are without 
inside water closets. In farm dwellings, 83. .- -ner cent are without 
interior water connections and 91.6 "oer cent are without bath tub 
facilities. (*) 

The actual annual volume cf nl-jmbing fixtures has never been 
fully re-oorted by any agency, -oublic or -orivate, for any single year. 
No tiro sources of data are ccm-narable either in coverage or in unit of 
measurement. At the time of x)resentation of the code, the sponsors 
TDrwsented figures which are reriroduced below: 

Agi:re°:ate Annual Sales in Dollars (estimated) (QOO omitted) 

1928 1930 19o2 1933 

Enameled "are $79,000 S3 ",000 

Vitreous TTare 23,000 13, OX 

Pl^ambing Brass 33,000 26,0'^0 

Closet Seats 19 , 500 15.300 

Total $15., 500 S 9 7, 300 *,31,:-50 $31,-:-50 

Obviously the sales for 1932 and 1933 were not the same, but the 
1932 figures were aT)T)arently considered a good enough estimate for 1933. 
The decline from '3l5:-, 500,000 in 1928 to $3 1,- '.-50, 000 in 1932 is consider- 
able, the dollar volume in the latter year amounting to 204 of that in 
the former. 

Census series giving the value of -oroduction in the industry are 
not at all comfoarable in coverage to the above sales data presented by 
the code s-oonsors cither as to products or as to years included. The 
major division entitled "Plumbers Supplies," contained in the Census 
reports, is limited to case iron enamel ware, plumbers bra,ss, sanitary 
seats and range boilers (both iron and co-oner). Total figures from 1923 
through 1933 are re-oroduced belo^ to indicate the trend in -oroduction 
over the period: 



115,000 


■115,000 


5,000 


5,000 


7,200 


7,200 


•:,250 


..•,250 



(*) Preliminary ReDrrt on the Construction Industry; Op Cit. p. 2':c0. 



9B25 



Year 



-236- 
Val-ae of Products (Thousands of Dollars) 



1923 132,665 

1925 167,378 

]_g27 l'i5,262 

1929 129,674 

1931 '70.926 

1933 16,886 



9825 



-287- 

The following census figures cover value of production 
in vitreous china ware, procelain r.-are, concrete laundry trays 
and other plumbing suiTDlies, unspecified. Differences in report- 
ing and in years covered nahe it iripossil)].e to combine these and 
the figures given above (*): 

1927 54,076 

1929 50,499 

1931 22,724 

1935 20,935 

These figures indicate a continuous decline since 1925, 
which is not easily accounted for in view of the fact t liat the 
index of construction reached a perk in 1929. Em-nloyment figures 
also reached a Tjeak in 1925. The Census :of nanx-fac^/urcrs reports 
33,280 wage earners for that yea.r in the "PlumDers' Su-orjlies" 
Industry, 27,960 in 1929, 19,335 in 1931, and 16,221 in" 1933. 

In sum the picture is one of expansion until 1925, and 
then a 75fo decline in production 'from th-r^t year to 1933 in terms 
of tota.l fixtures a.nd a 50fa decline ira employment. Of particular 
significance during the depression period a.re the census figures for 
vitreous china ■■■lumbing fixtures by number of pieces. In January, 
1933, stocks on hand amounted to 500,000 pieces with shipments of 
about 90,000. In July 1933, stocks declined to 320,000 while 
shi-Qments increased to 210,000. By December of the same year, however 
stocks had soared to 600,000 with shipments down to 50,000. A peak 
was reached in -stocks in April, 1934, with over 700,000 pieces on hani 
This figure declined to 300,000 in April 1935, and was 350,000 in 
September 1955. Meanwhile shipments took an irregulg,r course in 
an upward direction, finally reaching a peak in Aiagust, 1935, 
with 300, lOO pieces and 250,000 in September (as reiDorted by 
Bureau of the Census and released on October 26, 1935V • If other 
series are at all comparable, these curves are a, remarkable 
indication of results of the NPA. leriod and afford good oppor- 
tunity for contrast with prices of fixtures over a Deriod of 
years. 

2. Relative ■nositions of component grouns. 

Code STDonsorshi-T) 'by the j oint committee headed, by G-overnor 
Kohler va.?, defeud.ed on the gro^onds that the associations were 
"truly representative" of the industry. The figures given were 
as follows: 



(*) The first series were rc-roduced from Table XIII of 
the NRA, Division of Review, Statistics Section 
publication entitled "Statistical Materials Ho. 204. 
The Plumbing Fixtures Industry", Ja.nuary 1936. The 
second came from Census of x'a.nuf acturers, 1929. Vol. II, 
pp. 973-974, and from the Bureau of Census mimeographed 
release or "Plumber' Supplies", dated September 14, 1934. 



9325 



-238- 

Cast Iron Enamel Ware 

Total concerns in industry'- (approx. ) 21 

" " " association (July 1933) 17 
Representation hy nijjnber SO"^ 

Total industry volume (1932) Sl5,000,000 

" volume of members f:J3,500,000 
pLepresentation by volume 90''o 

Vitreous China Ware 

Total concerns in industry (approx.) 35 

" II II association (July 1933) 23 
Representation by number 6S^^ 

Total industry volume (1932) S5, 000, 000 

II voltune of members $4,500,000 
Represented by volume 90*0 

Plumbers' Srass 

Total concerns in industry (approx.) 100 
II I' II tvfo associations (July 38 
1933) 
Sanitary Brass 26 
National Bra.ss 10 

Representation by number 38^5 

Total industry/ volume (1932) S7, 200, 000 

" volume of members «56,480,000 
Represented by volurae 90^0 

Sanitary Seats 

Total concerns in industry (ap^^rox.) 35 

I' 'I 'I association (July 1933) 23 

Representation by number 66'^ 

Total volume of industry (1932) 'i?4, 250,000 

'I II 'I members ^".3, 825, 000 

Representation "oy volume 90^0 

Obviously the 90*^ representation is nertly rounded so as to 
warrant assuming' that these figures are a"opro::imations. Census 
figures for industry volume in c^.st iron ename] va.re anc? vitreous 
china are considerably larger in 1933 than the o oove figures for 
1932. Very TDossibly the total industr;/ figures given above are low. 
In plumbers brass there are evidently many -lore tha:a 100 concerns 
in the industry, judging from code activity alone, and volume of 
sales is largely unknown. 

To recapitulate, the Tol-urabing fixtures industry in re^lit-" con- 
sists in a group of manufacturing industries depending on a variety 
of materials and resorting to a variety of Tirocesses to -oroduce a line 
of articles for use at the center of iiie modern ssnitar^' system. Al- 
though expansion has talcen place since 1900, nevertheless the -oeak 
was reached about 1925, with a production of over '^200,000,000 and 
employment of aro\ind 35,000. The decline since then has been almost 
as great as in t he construction industr;)r as a v-hole. The iDotential 
market for plumbing, however, seems to be considerable, in view oftho 
undeveloped state of the rural market. 



9825 



C, T^^-)p Mnrnhnrr, of the Ind-J.stry. 



■-> P o_ 



Ihere are over 200 coxicerns in the industry t-rouped in a 
pumter'of associations, five of which sponsored tne PlunMn.^ Fixtures 
Code TT70 of the associations ST)onsorin- the code, namely, the Saa 
it-^ry Cast Iron mamel ¥are rnd Sanitary Brr.ss iPnuf-^cturers, rrere 
or-anized aoout 1895 and reor.T.ani.ed in 19-, The lI:^tional Bras. 
association Tvas on^ani.ed in 19C.2, and the Vitreous China ?lu3ibinr 
Fixture a^o the Seat KanvJ>ctvrers grouos T^ere not or,^ni7ed -antil 
1933. although there 'lay have ^ee.i earlier or-nnizations which were 
discontinued. The first tro a.id the last t-o have the same associa. 3cn 
office and the sa-:ie secretary. . ■, . 

According to an estimate nade ^.y a ^e-.Der oi the industry on 
Decemher 31. 1934 (*) seven companies mahe about gS'^o of the enamel • 
"are- ^hiT e in the T)ottery ind'istry 11 concerns nake ehout 95', ot the 
^are- five of these accounting for 75«i. Several of the companies 
oeloA- to -!ore than one of the associations, but there are really three 
lar.~e membe-s of the industry, i^hich are dominant becruse oi overall 
capitali::ation, extent of national advertising, extent of -lunbing 
lines manufactured, and sales volume. 

1. Stcndard Sanitary Manuf ^.cturi ig Co, 

(a) Position in the Industry. Standard Sanitary T!anufactui- 
in- Co. is the largest coniDany in the industry, manufacturing cast 
iron enamel v^re, vitreous china vrare, seats, and brass goods. The 
conT^any vcs incoroorated in December, 1899, in Fer. Jersey, as a con- 
^•olidation o-f several sanitary raanufacturi--g companies. C ) 
Tn 1929 Standard Sanitary' s caiDital stcckwas acquired by the nerrly 
formed Americ?ji Padiator and Standard Sanitary Corporation. In tne 
ensuing ^rea-s the latter corporation acquired control over enough 
coi^^anie"s to TDlace it in the forefront of oUimbinT and neating sut:- 
T3ly manufacturers. In T929, the nearly formed com3a.ny took over C. F. 
Church 'lifg. Co.. largest factor in the sanitary s eat ' industry, and 
Thomas --pddock's Sons Co., manufacturers of vitreous china plumb- 
in-. In 1931, the Centra"- Supply Co. of Kinneapolis and tne CochraH - 
Sargent Co. of St. Paul, plumbing rnd he- ting jobbers, '-ere acquired, 
(b) Distributing System. 

Standard Sanitary has its o-th far flung distributing system, 
rhich is not confined to the bounds of the United States. There 
are arjTDroximately 80 branch houses in the system -'hich serve both 
as sales centers and showrooms, but which also perform the wholesal- 
ing Sanctions of carrying stock and issuing price lists. These are 
located largely in the Tfest and Middle TTest. The conriany also se]2s 
to indeT^endent wholesalers, sone of which are required to conime 
their T^urchases to Standard, others of which are glad to be the 
representatives of this concern in their respective territories. (f**) 
Products manufacture, under the brand of Standard have aji advanta^ 
over Tjroducts -out out by many conpanies of long standing which are 
not 30 well ^oiown. ^lolesalers mo handle .plumbing fixtures iir 
competition with branch houses receive ^rice protection at the hands 
of the marufpcturer. This is ^oniversally true among manufacturers 



(*) Submitted bv ^.. ". Crane, Pres. 31jer Co., enclosed with letter 

of George Hoffmkn, of the Crane Co., to Asst. Deputy Pilkington, 

Feb. 8, 1935. 

(**) Foody's Industrials 1935, page 350 

{&**) See letter from VTashington -mjer Co. to E. S. Zing, October 2, 

Code History Special Zxhibit, Vol. I. 
S825 



-290- 

who own "branch sales warehouses. Such protection takes the form of 
insuring v/holesalers that "branch houses vdll not sell below the wholesale 
suggested selling price. (*) 

(c) Standard Sanitary I/ifg. Co. vs. U.S. 

The wholesaler, however, 1ms also been the subject of attempted 
regulation by manufacturers. In 1912, the Standard Sanitary Manufacturing 
Co. appeared before the U. S. Supreme Court on appeal of a decision 
charging the company Yiith violation of the Sherma.n Anti-Trust Law. (**) 
One of the chs.rges was tha.t of enforcing resale price ms-intenance on 
wholesalers. The case is of enough interest to warrant further discussion. 

Around 1909, Standard Sanitary became owner of a patent covering an 
invention by a man by the name of Arrott, greatly improving the process 
of applying enamel to cast iron pliirabing goods. At that time Standard, 
produced 50/J of cast iron enameled plumbing ware. T^'/o, other companies 
shortly thereafter took out patents on enameling which were alleged to 
be infringements on the first. In A'ogust, 1909, 31dwin L. Wayman became 
secretary of the enameled iron association and conceived the idea of 
forming a patent pool. He persxiaded Standard, Mott Iron Vforks and L. YJolff 
Mfg. Co. to give him options on their patents, then went ahead v;ith a plan 
for fixing prices and eliminating seconds. (Seconds were particularly 
obnoxious to the three with the new enameling process, because the other 
companies produced them in abundance, and because they existed as effective 
eompetitive products on a price basis). In March, 1910, the association 
had formed a price and schedtile committee of five to establish terms for 
leasing the patents. 3y this time sixteen companies had entered into the 
agreement. The results are best summarized by the court: 

"Defenda.nts (in District Court) represent the Standard as the dominant 
... and the only honest ina.nufacturer, pointing out to other manufac- 
turers the worthlessness of their output, they not having the 
Arrott patent; also the dishonesty of *** putting out 'seconds', 
the inferiority of v/hich was discernible only by experts' *** thereby 
*** 'discrediting the ware and demoralizing the mar'ket and business'. 
To avert those evil results, *** the Standard was willing to forego 
the advantages which its ownership of the Arrott patent gave it and 
confer them upon the other m?,nufacturers. But upon terms, 'First 
and foremost' *** that no 'seconds' should be raa.rketcd. In the 
second place, a standard price m^ist be agreed to so that henceforth 
rivalry should be 'in the qua.lity of the ware turned oiit at a uniform 
price or in any other collateral inducement to the purchaser' that 
would not 'affect the quality of the ware'. Wa-yman's agency and 



(*) The above statements are based on a coinpilation of material -ppearing 
in the Deputy's files particularly the comTlaint letter contained in 
Special Sxhibit, Vols. I-III of the Code History, also from a personal 
interview by the author with the Washington representative of the 
Crane Co., on Janus.ry 10, 1935. 

(**) Standard Sanitary Mfg.' Co, et al vs, U. 3. of America, 226 U.S. 20, 
33, 8 Ct. 9, 1912. 

9825 



-291- 

ofiico *** vn.s that of ''vatchi-.i^- all ^^^^tics and ins-arin^; their. 
fidelity to the ?greoiaent by tho yayincnt of a royalty for the \isc 
of the invention'. And this ***-is 'all there is *** to the case 
at "bar, exce-ot that Mr. Uaymr.n, instead of the Standard Co., v/as 
the originator of the scheme'*** 

"Before the agreements the manufacture rs of enanjeled vrarc v/crc 
independent and comiietitive. 3y the a^^raemcnts they were combined, 
subjected themselves to certain rules and regulations, among others, 
not to sell their nrodu.ct to the jobbers except at a- price fixed not' 
'oy trade and competitive conditions but by the ^decision of the 
committee of six of their nxunbor, and zones of sale v?ere created. 
And the jobbers v/erd bro'oght into the combine ticn and ma.de its 
subjection ccmniete and its -mrpose successful. Unless they entered 
the combination they could obtain no onauoled vrare from any manu- 
facturer who was in the' combination, ■■.nd the condition of entry was ■ 
not to resell to plumbers except at the prices detennined tj the 
manufacturers. The trade w?.s, therefore, practic3.11y controlled 
from prod.ucer tc consumer, and the potency of the scheme was 
established by the cooperation of 85,j of the raan-afacturers and 
their fidelity to it was secured not only by ti'ad-o advantages, but 
by what was practically a. pecuniary "oenalty, not inaptly termed , 
in the ai-guraent, 'cash bail'. The roy?.lty for each furnace was 
$j,00, eo/i of v/hich was to be I forfeited as a penalty' if the 
agreement was violated. And for faithful observance of their 
engagements the jobbers, too, were entitled to rebates from their 
purchases. It is testified tha.t 90'^i of the jobbers in number and 
more than 90;,; in purchasing power joined the combination." 

Standard's slxare in the business li3.s decreased slightly since 1910. 
The source refeired to above estimated that 40;J of the cast iron enamel 
ware is no\7 sold by the company. In vitreous china -^nd in sanitary seats, 
through C. r. Church Co., Standard is the largest producer. American 
Badiator and Standard Sanitary employed 30,350 in December 31, 1934. 
Both becau.se of size and prestige Standard is the price leader in the 
entire plumbing field.. (*) 

As the sfory of the code period v;ill indicate below, the wholesalers 
have not been out of harmony with the move for resale -orice maintenance. 
The coinpany's branch houses are important factors but to v/hat extent 
Standard relies on them is not laiown. How the company's distribution 
system develoed and why it took this particular form are two more of the 
questions that remain unanswered on the basis of the available material. 

2. Crane Go. 

(a) Industry.' Position. 

The l-Azto-ry of Cvane Co. is very similar to that of Standard Sanitary. 
Crane was first organized in 1835, "incorporated in 186^3 to manufactiire and 



(*) See Special 3:diibit. Vol. I and. .II o-p. cit. 
9825 



-292- 

deal in valves and fittings in ^rey ircn, rnpllGablc iron, trass and steel, 
for stea.'n, \7ater, gas, air and oil lines", also to m:^.niifacture sanitary 
enamelnare and pottery, ■ol'oxn'bers' 'brass i^ooCs, vTo^xght pipe, boilers, 
radiators, and general pl-mnDins siroplios. (*) The company jia.s about 165 
branch ho-ases thrcogh the country and some as well in foreign countries. 
It ormloyed on March 1, 1955, about 12,000 ^teople. 

Crane ranlcs next to Standard in ira-ocrtancc from a point of size and 
output. As indicated above, it produces aluost a complete line, including 
enamelvjarc throUi^h Crane Znajaelwaru Co., vitreous china throu^-h Trenton 
Potteries, another affiliate, and bra-ss. In the last named, Crane is 
partic'olarly important, ranking among the largest valve and fittings 
manufacturers, and is the price leader in tJiat industry. 

Trenton Potteries Co., lias been the leader in vitreou-s china, just 
as Standard S3.nitary has led in cast iron onameli;;are. L'he former company 
v:as incorporated in liew Jersey in 1832 and shortly thereafter acquired five 
other pottery com;oanies located in Trenton. In 1924 it absorbed still 
another. The first five were disposed of in one ^'ay or another and 
replaced by two modern -ootteries, em;i3loying 750 people on December 31, 
1934, (**) 

(b) U. S. vs. Trenton Potteries 

In 1927, -'■renton Potteries came into the U. S. Surpremo Court as 
defendant in a govemnent apTJoal on a case involving the anti-trust lav>'s.(***) 
This conrpany and 22 other coi^porations 

"vraro convicted in the District Court of the Southern District of 
New York of violating the Sherina.n Anti-Trust Law. The indictment 
was in two cou.nts. The first charged a combination to fix and 
maintain uniform prices for the sale of sanita.y potter;,'' in restraint 
of interstate commerce; the second, a. combination to restrain 
interstate cciu'aerce by limiting sa-les of pottery to a special group 
known to respondents as 'legitimate jobbers' '♦=***, 

Although the Court of Appeals reversed the iniling of the lower court, 
the Su-preme Court sustained the latter. 

These potteries were organized in the Sanitary Potters' Association, 
m.embers of which manufactured: and distributed 82,j of vitreous china 
plumbing fixtures. The associ^.ti.on did not contend tliat the original 
verdict wa.s not su.p;;oortod by sufficient evidence that the members combined 
to fix ;'orices and limit sales in interstate commerce to jobbers, but 
argu.ed tha.t such price fixing was necessitated by the state of the industry 
and that the prices \'ere reasonable. In a memorable decision the Suoremc 
Court replied in ;^art that:- 

"it docs not follow tiia.t agreements to fix or rrintain prices are 
reasonable restraints • and therefore permitted by the strtute, merely 
because the prices themselves are reasonable." 

T*) Moody's Industrials 1935. page 771 

(**) Moody's Industrials, Page^ 771 

(***) J.S. vs. Trenton Potteries, ot =1, 273 U.S. 392-47 S Ct. 377 - 1927 

9825 



Trenton Potteries fh.s not owned tj the Crane Company at the tim e 
the activities coTD7s.ained of v.'ere soing on. The merger rzas under 
consideration frov 1923 on, and ras finally effected in 1926. Although 
the Trenton Potteries case -as not finally settled in the U.S. Su- 
preme Court until 1927, the liti{^ation had oriq:inated about the sa.me 
time as the first negoti-^tions for absor-otion. Previous to 1926, 
Trenton had Made all of Crane's pottery, and the formerTs trade status 
has al'.7ays "been such that, from 1926 to date Trenton has continued 
sellin,':; soMe pottery \inder its ot-ti "brand name. In this respect the 
Trenton Cora"Dany enjoj'-s a statiis similar to that of C. F. Church Com- 
pany, Standard Subsidiary, (*) 

(c) Distributive System 

At first glance, it see-is 'difficult to luiderstand the in- 
terest of Trenton Potteries, Crane's subsidia-ry, in controlling 
jobbers. Possibly Crane's plan of distribution had not in 1927 
reached the sta "e of d evelopment it has reached now. (But as will 
be seen later. Crane is stil]. interested in controlling distributions *, 
This conpany and its subsidiaries have the services of around 160 
branch houses to distribute all their -oroducts and no independent 
wholesalers, except as independent uholesalers buy fron branch 
'houses, and excetjt T'here the Crane Co, uses a ^ell established 
' T/holesaler in a particular comiunity as nxi e:.;clusive 6 istributor. 
(Discounts given inthe t'-fo cases a""e not similar. In the former 
case 5 to 10 per cent, in the latter, 20 to 30 per cent.) Probably 
Crane's system of distribution is the most com;olete of ajiy inthe 
ind\istry. Unfortunately, data are lacking to indicate how Standard 
Sanitary ajid Eohler, the other members of the 3i^ Three, pomioare i-fith 
Crane either in actual distributive -lethods or in volume of sales. 
(in estimates made to AssistaJit Deputy A(3jninistrator Pilkington, 
Standard V7assaid to produce 40^^ of the enaraelware, Cra,ne, 13^, Kohler 
11-^. All three veve among the five producing 75<^ of the country's 
vitreous china "lottery.) Crahe does not loroduce seats, but usually 
furnishes Br"ansric]:-Ba,ir:e-Collender or Duro-rrood scetr .(**) 

3. The Kohler Co. 

About Kohler there is practically no i'ecordec^ information in 
ITRA files and the company is not listed in lloody's or Poor's, 
The concern is a "oroducer of enamelrare, vitreous china, brass, 
and seats. The most inporta.nt fact evident through MiA history ^ - 
personal influence of Governor Kohler. Kohler vas ClTairman of 
Code Authority throughout the code r)eriod, and his com-oany's If^ai 
counsel, i'r. Chase, was loaned as le^al counsel to the Code Committee 
and then to the Code Authority, and probably had more to do with the 
T.'riting of tne code than anyone else, (***) Hor long Kohler has 

•(*) Prom interview with TTashington re'^'resentative of the Crane Cg 

op, cit, 
(**) Material used in this section obtained from the same sources 

as that used in Section 2 of the discussion of Standard Sanita. ry, 
(***) See Code Authority's Kinutes of Meetings January through 

April 1934. 

9825 



-294- 

maintainecl this position and the e::tent of his influence, i-'ould seem 
■(--^ '.p -'--t inportart to an iinderstandin-'^ of the Industry's prohlems. 
(*) 

D. " Distribution 

It is surprisin;5 ho^'' little is ^-nor'n ahout product distribution in 
this industry. Certain details stand out proninently noTY, largely be- 
cause they were sore points during the life of the code, and rre kno^-m 
that the -aanufacturers have in the -ast given some thought to the su"b- 
ject because it "olaycd an important v&Tt in the tvro anti-trust cases in 
1912 and 1927. Producers in the industry considered it essential to 
exercise some control over "enbers of the industry next in line, most 
of these being wholesale pl-ombers. It was pretty well imderstood that 
if the wholesale -Dlurabers were not averse to control, sales of fixtures 
would be limited to them, and even nore specifically to those among 
their number who observed the manufacturers' trices and conditions 
of sale. (**) 

1. The Kaster Plumbers 

^ven prior to 1912, however, another branch of the plumbing in- 
dustrjr, namely, the Kaster Plumbers, showed activity in this respect. 
In the introduction to the Cast Iron Soil Pipe Code, Uo. 18, as approved 
September 7, 193S, appears a report of Deputy H. 0. King on the final 
draft of the proposed code. In connection with Section 8 of the code 
he said: 

"It is essential to ooint out here that this 
industry, while small, is a part of the large plumb- 
ing goods industry and any decision here ^-'ould have 
'a material effect and possibly set a precedent for 
the whole -olumbing goods industry. ' 

"In 1888 the Taster Plunbers of the United States 
met in Baltimore, Maryland, and agreed that they '-ould 
not buy from any manufacturer or wholesaler i-'ho sold 
direct to the consimer. 

"This arrangement was particularly effective and 
for many years it. T7as practically impossible for any 
consumer to Iswj any plumbing equipment from anyone 
but a plumber, who in turn in almost every case in- 
sisted on installing the equipment or making repairs. 



(*) Kohler uses no branch houses, but e::cluBive distributors instead. 
Interview "ith Washington representative of Crane Co., op. cit. 

(**) See excerpts from court cases, appearing above, also letter of 
December 16, 1933, from Wolverine 3rass TJorl^s to Malcolm Pirnie, 
Deimty Administrator, Code History, Special "Exhibit Vol. II 



9825 



-295- 

''A'.-^o'it t"e'-"it;'--f ive jerrs ago, the nail order 
nouses entered the field pnd a titter figlit has been 
T^aged ever since. The mail order houses have nade 
very considerable headway and in 19?C one firm is re- 
ported to have trpnsacted thirty million dollars' 
■■jorth of 'business. 

"In order to olitain material mid supplies, the 
nail-order houses have patronized certain concerns 
in each branch of the ^Dlurabing goods business and 
thece concerns have in turn been to a large extent 
boycotted by the liiolesalers and plumbers. 

"As a result, there has developed in the -olu'ibing 
goods industrj"- t^jo groups of manufacturers - one smaller 
group selling to mail order houses and the other large 
group selling only through the wholesaler and pl.umber. 

"The Cast Iron Soil Pipe Association, 'dominated 
b;:- those manufacturers selling through the wholesalers 
and plumbers, originally insisted on eliminatiig the 
mail-order houses, but in conference agreed that these 
concerns ha.d definitely established a place in the in- 
dustry, bought in large quantities, carried stocks, 
and "ere entitled to prices eq'iaal to their most favor- 
ed customers, buying as thej did in equeJ.ly large quan- 
tities. 

"At the Public Hearing no one reuresenting the 
pluiabers apiDcared or entered any objection. 

"Three ueeks after the public hearing, over a 
hundred telegrams were sent to the Administrrtion from 
organi 'nations of plmibers protesting the rating of 
nail-order houses and demanding that the nail-order 
houses be classified as retailers, 

"A representative group wafi invited to Washington 
to nresent their case. The;- insisted that /nail-order 
houses be put in the same classification as plumbers 
regardless of the .fact that nail order houses lourchased 
in large quantities, carried stocks, and liad a material 
investment in these stocks. 

"They advised that unless their demands were 
gra-".ted they would flood, the Administrator with tele- 
grams from the fifteen thousand i^lumbers of the country. 

"The mail order houses bu3"ing in large volume 
could easily set xm wholesale p?.umbing divisions and 
the pliynbers could gain nothing by having the ;iail- 
order houses classified as retailers. 



9325 



"Regardless of the question of the nerit of nail- 
order merchandisiiv^, tlie facts are that they have estab- 
lished themselves in our economic system, and it I'ould 
he tmfair to discrininate against them***." 

A '"iscussion hetreen Tie-oaty Adninistrator King and representatives 
of the laster plimbers at a January, 1934, hearing on the Cast Iron Soil 
Pipe Code proved Vr, King to 'be essentially correct ir his statement, 
Ilr. King's a-ccoiint of the 'Baltiraore resolution, after some argument, 
was acknowledged to "be r>u"bstantia,lly accurate. As for the statements 
regarding the time of entrance of mail order houses into the field, the 
amount of business done by. mail' order houses, the extent of the boycott 
against certain manufacturers rho sold to mail-order houses and against 
wholesalers and manufacturers T.7ho sold direct to • consumers, no direct 
evidence is available in the V^RL files. Hany sta.temcnts have been: 
made by administrators, advisory representatives on the codes, members 
of several industries, and others who have had exoerience in the field 
of construction, all tending to bear out King's contentions, , 

2. Customary Distributive "methods in the Industry 

Regardless of the success of any group in attempting to control 
the channels of distribution, the fe'7 facts at hand indicate that the 
customary method of distributing plum.bing fixtures and accessories 
has ^oeen from fixture manufacturer to plumbing wholesaler to plumbing 
contra.ctor or master plumber. The third link in the chain has in the 
past both sold and insta,lled the plu:ibing fixtures. In his capacitj'' 
as retailer, the plumber has usually maintained a regular place of 
business and sometimes a sho^-^room for plumbing equiinment. In the dual 
capacity of retailing and installing, the master plumber col"' ects two 
fees, one for the building labor pua another the retailer's discount, 
which varies from 5 to 50^'o, depending on the products. (*) The state- 
ment ha,s been m.ade frequently that in cases '-"here the consumer bought 
direct from the plumbing wholesaler, the latter sold him at the retail 
price and gave the mr-ster .pluTiber the difference between the two even 
though the sale did not go through . the latter. T^hether the plumber who 
received this pa;},^ent was one who installed the fixture or whether such 
donations v/ere polled within a locality is not- stated n6r is there any- 
thing to prove that the practice has talren place a,t all. 



(*) See brief of Ernest F. Flentje at Pliirnbing Fixtures Hearing 
of Ju].y 24, 1934, letter from plwabing contractors to 
Mansfied Sanitary Pottery, Code History, Exhibit II and 
Special Exhibit Vol. V. 



9825 



3. TLa Fl\mbing '.."holesalei- 

Tlie plum'bing wholesaler as originally defined in the approved 
Plombing Fixtures Code performr- fimctions oi" "purcliasint., in vAclc- 
s-^le- q\i-antitiss", and of "assenblinii, wo.rehousintj, and "bull: sell- 
in-]; of accessory and coiqileuentary products". Farthermorc he 
"sells plurabins su^^plies to retailers or to the retail divisions 
of his o'.Tn "business; has a proper investment in his "business"; 
and maintains "an adeq-uate shovjroom, a v7areho\xse, and sufficiently 
complete stock of such commodities to meet the normal plumhing 
supply requirements of his trade in his territory, and maintains an 
adeq^jate "booldieeping system, sales office, and delivery service". (*) 
Tiien handling the goods of one of the larger comipanies, the plumb- 
ing wholesaler frequently confines himself to the single-manufactur- 
er's line. Tnon wholesaling for sraa.ller companies the short lines 
of several couipanies are pieced together. There are approximately 
1300 such -jholesalers in the country. (**) In order to hold their 
wholesalers, it was customery for the smaller manufacturers to sell 
at a slight differential "belov tliat of the larger manufacturers. 
3xcerots from tvo letters frou the VJashington-Eljer Co. of Los 
Angeles, California, to t3:ie assistant deputy, throw some light on 
the sitvTation: (***) 

"Octoocr 2, 1934.. 

"O-Lit industry, so far as prices and practices arc con- 
cerned, is practically or rholly controlled hy the nation- 
ally advertised manufacturer -./ho manufactures and dis- 
tri"butes their products throijghout the whole United States. 
Some of these manufacturers own or control their distri"bu- 
tors and they can dictate policies to their distri'butors 
and compel them to follow their instructions. 

"****Lct v.s ta'.ce a coMinuiiity, either large or 
small, as the conditio?is e::ist. 

"In said coniraunity you wilj. find a 'oranch of 
each of the national advertised linos and if not a 



(*) rlurnbing jixtiires Code, Article "VIII, Section 7. In view 
these exacting requireruents for meubership in the pliimbin,, 
wholesaling fraternity, which are meant, presumably, to bo 
inJ.icative of the important services performed by that class 
of trade factors, one wonders v;h;y it was necessary to provide 
for the vrholesaler's protection through a v/holesaler-retailer 
differential. 

(**) Engineering Publicati :ns, Inc., Pliimbing & Heating I.iarlcet 
Sei'vice, 

(***) Code Historj^ - Special Exhibit, "'/olujr.e I. 
9825 



■branch the nationally aclvertiEed corrrpanies will 
iiT've piCicecl out tuo largest and "best distri"butors 
in th3.t communit;'- giving them free \/are-hotising 
service, salesman assistance, catalogues, litcr- 
aturu, service, etc.**** 

"It leaves notiiin;; for iiidependent manu- 
facturer so he is conrpelled to estahlish his out- 
lets to the best of his ability for his distribu- 
tion which talces in large master plujnhers, wreck- 
ing yards and direct to yo\:. dealers. These dealers 
are handicapped hy not having the services of hetter 
icnoTm \3ublicly acce-oted mercliandise so they are com- 
pelled to reduce their selling price to, overcome 
this handicap and when this is found. out the larger 
manufacturers reduce the prices to their distributors 
which i-cflects back to the manufacttirers and then it 
is a series of price reductions, uiitil the independent 
ma.nufacturers are forced to close up, throv; men out 
of employment ajif''. add to the do\7nw'ird trend of tu.si- 

"October IC, 1934- 

"As I stated to you before, I feel that the 
Standard Manufacturing Corrpany, manufacVarers of 
enameled ware and "oottery, control the plumbing in- 
dustry on China and enamel ware for the simple 
reason thnt they establish the selling price at 
v.hich our merchandise must be sold. As I outlined 
before, the national acceptance which their product 
has among architects, engineers and even the ultimate 
consumer ma.kes the 'inde-oendents ' morclTandise lia.rdcr 
for the distributors to sell and there arc inany other 
reasons why the nationally advertised manufacturer should 
allow the independents a little differential on selling 
price — I bhould say Five Per Cent." 

The statements of this one comnany are du.plicated by other 
companies which y/rote to Assi-^tant Deputy Pilkington in ansvifer to a 
qxiestion regarding the operation of the code. 

4. Exceptions to the Custoraarj' tiethods 

The raanufa,ct\iror to wholesaler to master plumber relation- 
shir) is not any too sijiiply by itself. And there arc complicating 
factors outside of this line of descent. 

In the first place, Crane and several others ha.ve hranch 
houses which are direct competitors of the ?molesalcrs. In the sec- 
ond place, there are v/holesale l:iardware houses which have no respect 
for the traditional character of plumbing fixtures and which sell such 
goods in the same v;ay as they sell other goods, over the counter, or to 



98213 



-299- 



retailers who sell over the counter. The hardv;arc wholesalers fre- 
quently imndle coiapetirit; lines of plturibing equipment, "but in other 
respects are quite similar to rholesalc pliirabing cstablisliments and 
frequently their sales are niade to master pl-umhers in the roll es- 
tablished manner. Plunbing fixture manufacturers made no attempt 
to distinguish pl-ombing wholesalers from hardware ^.-zholosalers in 
their code, but trouble bctvfeen the t\7o latter groups was enough 
to keep thg Tnoles?le Plrjubing Code from over taking effect after 
approval. (*) 

Third, thore arc the mail order houses and the "direct-to- 
you's", 'vhase share in the v/holesaling business over the past five 
or six years has been variously estimated as from a to 55-1/3',j. 
These concerns combine the retailing function of the master plumb- 
ers with the wholesaling f-unctions of the v-holesale pl-umbers and 
hence eliminate one step. .Plumbing fixtures bought from mail 
order houses and direct-to-you's are usna-lly installed by master 
pl-umbers. Whenever these distributors take the responsibility 
for a unit corr.j.letely installed, they employ master plumbers to 
perform the work. (**) But not infrequencly their sales are to 
cons\"'jners v.-ho inc-tall their o\fn ware. The mail order house method 
of b-uyiiig is as distinctive as the selling method and is presented 
in its most favorable light in a letter from j]. J. Condon of the 
i.Iail Order Association of America, to G-eneral Jolinson on August 30, 
1933, in part as follows: (***) 

"1. A sov.rce of svpply for a given line of goods 
is selected well located from standpoint of ra,w 
material, skilled labor, and distrib^Jition, of 
efficient siso and equipment and vdiose capital 
structure does not require heavy corporate or 
management ex^jenses to be added to prime costs of 
producing goods. 

"2. Orders are usually placed by members of the 
Association for anticipated requirements so tliat 
production of the merciTandise ordered can be car- 
ried on during sle,ck times, thus permitting a 
more even flow of work, steaxly employment, and 
reg'olar incom.e for the raa.nufacturer with which 
to meet overhead expenses during dull periods and 
until the scllin'; season arrives. 



(*) See transcriot of hcaririg on V/holcsalo r'l-umuing Code, Decem- 
ber 17, 197A. 

{**) Brief of I.i, 0. Association of America transmitted to Deputy 
Administrator i.'alcolm Pimic, October 15, 1953. 

(***) Vol-ume 3, Part I, iTPA files. 



9325 



-300-- 



"o. i.ioin'bers of this Association maintain waro- 
houses for their needs throughout the country 
and do not ordinarily requdre such sei'vicc from 
their suppliers. 

"4. Most lines of goods are sold hy members of this 
Association under their own trade name. Each racm- 
her provides its own advertising material in the 
form of catalogs, circulars cr newspaper space, 
and, consequently, receive none of the hencfits 
of a manufacturer's advertisint;; for his dealers 
in the form of displays, advertising material, 
leads or specialty salesmen. Similarly, the cost 
of selling our memhers is low compared to sell- 
ing a like volume of independent dealers hecauso 
one "buyer C3.n decide on s purcliaso equivalent to a. 
thousand or more individual dealers. 

Ifo. Sources selling memhcrs of this Association 
incur no bad collection losses, a-nd, in fact, are 
often assisted financially by having raw materials 
purclmscd for them at advantageous times," 



9825 



The sources of sup"oly mentioned are manufacturers, usually of 
medium size. Ppr example, Rundle Kianufacturing Co., within the past 
t". ree years producing from 10 to 12li cf the enamel ware ii the country, 
sells to mail order houses and so does National Sanitary 'Co. v/hich 
produces Sfo of the enamelware. Both Eljer Co. and Universal Sanitary Co. 
sell to mail order houses, and they are the t-'O which -.vith the "Big Three" 
produce approximately J^fo of the vitreous china in the United States. (*) 

Although contracts bet-'oen vnail order houses and manufacturers have 
not been disclosed, it is well understood that they are on a cost-plus 
basis, calling .for rebates at the end of six months, after the goods 
have been originally sold at the manufacturer's regular wholT!aa.le price. 
Frequently the mail order house takes around 6L'}o of the output of a 
manufacturer. The other UOfi.mcre cr less, is sold through regular channels 
or to direct to you". . (**) 

Merchandising policies cf nail order houses and"direct to you's"are 
thought to be fairly similar, although there is no proof of this in the 
files other than the fact that they were lumped in one class by the 
Plumbing Fixtures Code Authority, 

No accurate figures exist to indicate the proportion of plumbing 
fixtures' volume going through mail order houses. In a brief filed at 
the manufacturers' code hearing on August 30>1933> 'the National Asso- 
ciation of Master Plumbers stated that all but k-^/lifo of the retailing 
of plumbing supplies was done through master plumbers, as shown by the 
1930 Census cf Wholesale Distribution. This figure seems impossible to 
verify. On another occasion the plumbers claimed that no more than Sfo 
of plumbers' supolies are sold by manufacturers direct to retailers, 
as indicated in the 1929 listribution of Sales of Manufacturing Plants, 
and that the publication's definition of "retailer" included mail order 
houses. (***) 

The following table is a composite of the figures given for ■;.-■,;•..(• 
"Plumbers' Supplies" and those for "Vitreous China "<7are" :(***=) . 



(*) Hstiraates all by 5.. E. Crane. President of Eljer Co., and 
another member of thie indtistry to Assistant Deputy Pilkington in 
December, I93U. and undisputed by secretary of the Code Authority, op.cit. 

(**) See eondcn brief to Pirnie. op.cit. 

(***) Bureau of the Census, pp,3H and U9. The questionnaires used by 
the Census in obtaining the information (p. 2) were not definite enough 
to make it certain where sales to mail order houses would be classified. 
In all probabilit:/, because of the r^holesale and better than wholesale 
discounts given mail order houses, individual manufacturers reported 
sales to these factors in with sales to wholesalers. This seems to be 
verified by the figures for vitreous chinaware, alone, in which no sales 
to retailers are recorded. Fo class of trade contends that there were no 
sales of vitreous china to mail order houses in 1929* 



9325 



Eistritution of Sales of "Plumbers' Supplies" and of "Vitreous 
China Plumbing Fixtures" 3y Manufacturing Plants by Type of Customer 
aiid AiS:ency. 1929 » __^ 



Value 




No. of 


Selling 


(expressed 


■-/o 


Plants 


Exclu*. 


in thousands 






sively 


of dollars) 


100.0 






151, U2U 


292 




95,611 


63.2 


2UU 


1U5 


35,67^ 


23.6 


35 


6 


7,792 


5.1 


51 


10 



Total Sales 

Sales to wholesalers 

Sales to ivianufact\irers ' 
Own Vnolesale Branches 

Sales to Retailers 

Sales to Manufacturers' 
Qvm Retail Branches — ^ - - 

Sales to Industrial and 
Other Large Consumers 12,3^7 S.l 76 25 

Sales to Household Con- 
sumers - ,„ _ _ 

The following table is more interesting, however, as it suggests a 

comparison of the sales by manufacturers through the various channels 

broken down into the product groups* (*) Percentages only ate given in 
order to facilitate the comparison: 



(*) Ibid. The breakdoim of "Other Pi-ambing Supplies" was derived by 
the author and represents the difference between the total "Plumbers' 
Supplies (not including pipe and vitreous china sanitary ware)" and the 
figares for "Cast Iron Enamel Ware" and for "Plumbers Brass" which were 
all three given in the publication. This difference probably included 
range boilers, sanitary seats, and other unspecified pJL.urah.ing goods. 
9325 



-303- 



Class 



To wholesalers 

To nanui ac ture rs ' 
0\7n Wholesale 
Branches 

To retailers 



Distribution of Sales 
of All Hinds of PUrnihintV Supplies 
"by Llanufacturim^- Plants. 19.^9. 



Total 










"Plumbers' 


Cast 


Plumbers' 


Other 


Vitreous 


Supplies" 


Iron 


3rass 


Plumbing 


China 


plus 


jlnamelcd 




Supplies 




Vitreous 


Via re 








China 










53.2 


53.3 


75.0 


60.0 


70.3 


2o.6 


46.7 


3.7 


18.2 


26.7 


5.1 


^ 


13.0 


6.2 


- 



To manufacturers ' 
OvTn He tail 
Branches 



To industrial and 
Other large 
constuners 



8.1 



8.3 



15.0 



3.0 



To household con- 
sumers 



The figures presented above she?/ considerable variation in the 
sales through manufactu.rcrs ' branches, the fixtures manufacturers 
placing greater reliance on this outlet tlmn the brass manufacturers. 
The distribution by the latter direct through retailers was propor- 
tionately greater than for any of the other products. But the table 
does not indic3-te what proportion of plumbers' brass goods were sold 
to fixture manufacturers. There are such sales a,nd in considerable qua.n- 
tities. In fact this iray be considered the fourth factor corrrpli eating 
the distributive system in the industry. The air tight rules provided 
in the code were found too rigid for this as well as for other varia- 
tions in the prevailing distributive methods. 

The fifth conplicatinv^ factor is that large indu.strial organiza- 
tions have been able to supply their own needs by buying direct from 
manufacturers. Sometimes the industria-l consumer employs his own 
plu-nber on full or part time, sometimes he maintains a stock of goods 
for his ovm use. The important thing is that such consumers are 
obliged to buy in large quantities and have been able to get favorable 



9825 



-30' 



terras and prices from the manufacturers themselves. (*) 

Another coirrolication v/hich is of great importance to at least 
one section of the country's plumbing market is the fact that the 
manufacturers on the VJest Coast have their o\'m organization and 
their ov7n distribution system. There are on the T/est Coast branch 
factories of the Big Three as well ^.s several independent manu- 
facturers. These concerns have enjoyed a freight advantage over 
the coirraanies in the Laddie West and East, T/hich has enabled them 
to maintain a real separation. The distinction never became so 
important as when a code was negotiated for the country as a vi/hole. 
The effects arc recounted in the next section. 



(*) From personal interview of year ago with representative 
of 'j'ashington Properties, real estate firrii in j'ashington. 



9825 



- 3C 5- 

II. DISCUSSION OF Cim OP-'UTIONS BY COD": PXVISION 

A. The Proposed Code. 

1. Industry participation. 

The proposed coae for the plumting fixture industry was 
presented to the NEA on August 19, 1933. There is very little in- 
formation in the NEA files to indicate the procedure taken by t he in- 
dustry in code-writing previous to its presentation, except what is 
recorded in the transcript of the hearing of August 30, 1933. At this 
time Walter K'ohler stated the code(*)was developed at successive joint 
meetings of the following five associations: 

Sanitary Cast Iron Enamel. Viare Association 
Vitreous China Plumbing Fixture Association 
Seat Manufacturers' Association 
Sanitary Brass Manufacturers Association 
National Brass Association 

Final action on the proposed. code was taken at a meeting or the 
association held at Pittsburgh on July 25, 1933, at which time cite 
code was approved for submission to NEA. The transmittal and ne- 
gotiations with the NRA were to be carried on by a Joint Coordirating 
Committee which was appointed at a meeting of the associations on 
June 21, 1933. (**) 

The transcript of the August 30th hearing also contains the 
names of the members of the industry who favored submission of the code. 
Included as signatory parties to the code were all those who either 
voted for the code at the July 25th meeting, where the vote was unani- 
mous, or returned a copy of the code bearing the company's signature 
indicating acceptance. Mr. Kohler'a statement at the hearing contained 
this list of compardes and also notations as to their membership in the 
trade associa'f:ions and their dissents, if any, to specific rules of 
the codel(^**) 



.''(*)P. 6, Transcript of Hearing on Proposed Code for the Pl\imbing 
Fixtures Industry, August 30, 1933, 

(**)lbid. , p. 78. The Committee consisted of the following: 
Walter J. Kohler, pres. of Kohler Co., Chairman 
John Berryman, Pres. of Crane Co. 
George A. Harper, Pres. Burlington Brass Works 
Henry Held, Pres. Rundle Mfg. Co. 
H. M. Reed, Pres. Stancard Sanitary Mfg. Co. 
and the following associate memlBrs: 

L. A. Cornelius, Pres. Wolverine Brass Works 
W. Keith McAfee, Pres. Universal Sanitary Mfg. Co. 
George Van Arnam, Pres. Van Arnam Mfg. Co. 
Counsel for the committee was Lucius P. Chase, of the Kohler Co. 

(***)lbid., p. 5 and Sxh. A of Kohler' s statement. 



9825 



-306-* 

Meanwhile other groups affiliated \7ith the plumbing industry had 
already expressed a aesire to cooperate but had not yet, "by July 25, 
joined in presentation of the coae. These Incluaed the Plumb i rg and 
Drainage Special ty Association, the Shower Stall Manufacturers' 
Association, the Flush Valve Association, and the Hange Boiler Manu- 
facturers' Association. 

2. The original proposed code. 

(a) Contents. 

The date of foruial presentation to IIEA by t he Joint Coordinating 
Committee followed some slight revision which had taken place as a 
result of an informal presentation on August 8. There is no record of 
the results of this, informal hearing with the Assistant Deputy and 
advisers, except Mr. Kohler's statement(*) that after the conference 
changes were made and the four identical coaes for the four industries 
were combined into one. The proposed code presented to the IIEA on 
August 19, 193iJ, contained the follo"dng general classifications: 

Group A - Employment 

Rule A-1 Child Labor 

Rule A- 2 Wages and Hours 

Rule A-3 General Regulations 

Rule A-4 Employment Reports 

Group B " Unethical Trade Practices 

Rule E-1 Discrimination (between purchasers 

of the same class) 

Rule B-2 Secret Rebates 

Rule B-3 Post-Dating and pre-iDaiing 

Rule B"4 Inducing Breaahz.'of CdnbraQih'. 

Rule B-5 Repudiation of Contracts 

Rule B-6 Lump Sum Bidding 

Rule B-7 Trade Marking 

Rule B-8 Misrepresentation 

Rule B-9 Substitution 

Rule B-10 False Statements 

Rale B-11 Coinmercial Bribery 

Rule B-12 protection (price advsEce or decline) 

Group C - Marketing Policies 

Rule C-1 Orders (stock 30 days, specific Job) 

Rule C-2 Invoices 

Rule C-3 Standardization of Products 

Rule C"4 Grading 

Rule C"5 Inspection 

Rule C-6 Consigned Stocks 

Rule C-7 Classification of Customers 

(*-' Ibid. , P. 9 
9825 



3C7- 
C-rp-gp D - Costs ana Frices 

Rale D-l Selling "bolo-/ cost 

Rule ]>-2 iiinirawn Prices 

Rule D-3 Tfcrras of Sale 

Rule D-4 putlished Lists 

Rule D-5 Close-outs 

Rule D-6 Resale Prices 

Group S - General 

Rule E-1 General Definitions 

Rule E-2 Enforcement 

Rule E-3 Monopolies 

Rule E-4 Amendment and Termination 

Rule E-5 Presidential Control 

Rale E-6 Effective Date 



Schedule U - j'ajciraiur. Hours, I^inimura W^^es 

Schedule V - List prices - Determination d'-:ferred 

for present . 

Schedule X — Trade Discounts " " " 

Cash Discount - 
Credit Terms - 
Freight Allo^^ances - P.enain unchanged 

for present . 
Showroom. Discount - 
Schedule X - Resale Prices - Determination deferred 

for present . 

There follovred the constitutions and memhership lists of the > 
five respe ctive associations. 

Group A and Schedule U after some revision appeared as Articles 
III and IV of the approved code. Rule E-1 appeared as Article II. 
Rules E-2, S-3, E— i, E-5, E-6 'oecame Articles IX through XII of the 
approved code; all after slight revision. ¥ith the aforc-;iientioned 
provisions this report is not primarily concerned, except incidentally 
with the effects of omitting certain industry groups from the code, 
the incidence of coae enforcement, and the unusual clpuse proviaing 
for modification "by the President. The provisions of principal imporf 
tance to this report are of course those having to do vrith distritution 
and prices included in Groups C and D and Schedules V, W and X, and 
also the trade practices of Groups B and C where they affect the 
distrilrution problem under the coae. 

Many of the proposed trade practice clauses are easily identi- 
fiahle in t he approved code and were approved '-'ith little change. 
The proT."isions of most importance to this study, however, were also 
those CT'Br which there was the greatest amount of controversy "both 
Defore cjid after approval of the code. Even so, the pre-approval 
discussion of the provisions gave no forewarning of the degree of 
opposition to them (even in considerably revised form) after the 

9825 



-SOS- 
code "became effective. These distritution, price and cost provisions 
will receive preliminary disciission as a group because most of the 
early coniments linked them together and also because they vere re- 
vises as a group. 

(b) Industry acceptance of th^' original code. 

As indicated above, Kohler's statement included a list of the 
companies assenting to the code and their objections to specific 
clauses. (*) Industry by industry this list inaii ates that of the 19 
kno\7n manufacturers of cast iron enameled ware," 18 approved the code 
and one aiid not participate in the presentation. All but tvro of the 
19 were members of the association (the non-participaiLt being a member). 
Seve 1 of the 18 participants objected to one or more of the provisions, 
only one of the seven having an objection to a labor provision, all 
the oi"hers to trade practices. 

Of the 34 known manufacturers of vitreous ware, 26 participated 
in the presentation, five of the remaining eight signifying a desire 
to cooperate. Only three of the 26 ^-ere non-members of the associa- 
tion, while only three of the remaining eight were members. Six of 
tiie 26 signers participated conditionally and those six included the 
three non-association members. AH objections were to trade practice 
provisions. 

Sixteen manufacturers of sanitary seats presented the code for 
the indastry. Al 16 were association members and participated un- 
conditionally. There were 15 more seat manufacturers who did not 
participate, however. Eight of these were also members of the 
association and these eight and one non-member signified a desire to 
cooperate. There is no indication in the files of what expression 
was considered indicative of a desire to cooperate in connection 
with this or with any of the other groups. The record does indicate 
that during the course of the code history, some cf these became 
code members.** 

Fifty-two manufacturers of plated trass fittings are listed in 
Mr. Kohler's statement but a note at the end of the list adds that 
estimates of the number manufacturing some of these products range 
from 75 to 150. Forty-eight of the fifty-two participated in 
presenting the code. Ten of these 48 „-were members of the Sanitary 
Brass Association, 2'i were members of the Fational Brass Association, 
and 14 were members of neither. The four who did not participate 
all signified a desire to cooperate. They were, all four, members 
of the Sanitary Brass Association. Twenty-eight of the 48 gave 
unconditional a^-proval to the code. Eighteen of the other 20 
objected to various trade practice provisions; the other t'^o to the 
general industry aefinitions. (Rule E-1) 



* Ibid. Kohler's statement, Exh. A. 
** See Code Authority Bulletin No. 15. 

9825 



309- 

In all, 1'~'8 companies participated in presenting a code for the 
industry, but this mom'ber includes duplications because of membership 
in more than o ne association. Excluding these duplications and all 
affiliations, 93 separate concerns signed the proposed code and 26 
(or approximately ZO'-i) of these objected to individual trade practice 
provisions. There i^ere 22 objections to Rule D-2, Miniiirum Prices; 
13 to C-6, Consignment; 11 to E-1, Selling below Cost; and 10 each to 
Rules C-7 and D-5, Customer Classification and Close-outs, respectively, 
and a scattering among the other provisions. 

3. Organized Objection to the proposed Code. 

(a) Pacific Coast Manufactui-ers . 

Two companies situated on the Pacific Coast sent representatives 
to the Jvly 25th meeting of the five associations in Pittsburgh. These 
two, Washington-El jer and Westcoast Ssnitary, were both members of the 
Sanitary Cast Iron Enamel Ware and the Vitreous China Plumbing 
Fixture Associations. At the industry meeting Ur . Bomier and Mr. 
Troeger, the respective representatives of the two concerns, assented 
to the proposed code with certain objections, and on August 24, 1933, 
Washington-Eljer and Westcoast Sanitary joined with nine other 
companies (one affiliated with Washini-ton-Eljer) in submitting a brief 
attacking the trade practice provisions previously criticized by the 
first two.(*) All 11 companies assented to the code but objected to 
the form, although not the purpose, of Rules C-6, Consigned Stocks; 
C-7, Customer Classification; D-1, Selling below Cost; D-2, Minimum 
Prices; I>-5, Close-outs. Changes in some other clauses were also 
suggested but criticism of thi foregoing was more fundamental. 

The whole point of the group objection is contained in the 
follov'ing paragraphs from the brief. (** ) 

"We sur:gest the insertion of the following 
immediately succeeding the present preamble in the Code, 
andimmediately preceding Group 'A' - Employment: 
' For the purpose of this Code the United States shall 
be diviaed into rer^ional territories, of which, at 
least oie, shall be the Western Territory as hereinafter 
defined, namely California, Oregon, Washington, Arizona , 
I-Ievada, Western Texas, Hawaiian Islands, Philippine 
Islands, and Alaska. ' 

" Purpose of above Sua-gestion ; 

"We feel that the above suggestion is necessary 
because of th ; fact that the cost of manufacture of 
products of this industry on the Pacific Coast is 
higher than the cost of similar products when manu- 
factured in the East; ana. further because the cost of 
like materials to Eastern manufacturers when delivered 

(*)Brief of ".'estcoast Snitary, et al, Aug. "S-l; 1933, Voll'-A"-' 
(**)l-bid. , p. 2. 



9825 



-310" 

into this territory is higher than T-hen delivered to other 
sections of the United States not in this territory if 
their costs are accurately computed hy adding the actual 
freight required to move their products from the Eant 
into the so-called TlTe stern Territory." (original under- 
lining - L.B.L. ) 

The "brief goes on to point out that costs of raw materials 
and hourly wage rates are toth higher in the West than in other parts 
of the country and that the wage minimum reouired in California ty 
law is higher than that provided in the proposed code. To Rule A-2, 
Wages and Hours, which enjoined failure to comply with code wages and 
hours, the Western manufacturers proposed the addition of the phrase 
"for each territorial division of this code". This change, of course, 
would have made territorial wage rates desirable. B-1, Discrimination, 
prhibited discrimination "in prices, terms, discounts, allowances, 
guarantees, or in any other way "between purchasers of the same class" 
to which the Western manufacturers suegesteu the addition of the phrase 
"in the same territorial division" .(* ) 

Rule C-6 in the July 25th proposed code read as follows: 

"It shall constitute unfair competition to consign 
stocks of the products of this industry to distributors, 
contractors, manufacturers' agents, and/or others '(**) 

This the Western group would have amended to permit consignment 
to wholesalers "as long as the manufacturers maintain warehouse 
stocks at other than what are commonly known as manufacturing points", 
which points are najned in the proposed revision, and to allow existing 
consignment contracts with distributors to run until their expiration 
dates.C**"^ This proposal, like the others, was designed to place the 
Western companies in a better competitive position with the warehouse 
of the 'big three" located on the coast. These w arehouse stocks, at 
other than the commonly known manufacturing points, so the argument 
ran, were used to supply wholesalers in small quantities at the same 
prices which the latter obtained at manufacturing points. "This tends 
to discriminate against the small manufacturer who is not in a 
position to maintain warehouse stocks to parallel those of other manu- 
facturers at locations other than manufacturing points and would 

be forced to charge his customers the difference between LCL and car- 
load freight on small shipments." 

The eleven Western manufacturers considered customer classifi- 
cation to bethe,HJost important industry problem and proi30sed an 
entirely new Rule Q-1 to take the place of the provision accepted by 
the industry. This proposal had as its theme the "Reclassification 

(*) Ibid. , p. 5 

(**) See July 25, 1933 proposed Code in Vol. A. 

(***) Brief of Westcoast, et al, op. cit. p. 6 



9825 



-311- 

of customers on a promotional sales basis". Visible merchandising 
effort "by the distributor, rather than mere volume of piirchases, was 
to govern the classification scheme. The Western manufacturers not 
only urged a proper classification but heartily favored the fixing 
of trade discounts for each class or sub-class, such discounts to be 
uniform within the sub-class and mandatory on all manufacturers.(*) 

Three general classes vrere proposed - vrholesalers, retailers, 
consiimers. The first was deS'iiieS. as one who sold to retailers, the 
second as one who sold to consumers. Manufacturers, when selling 
through branch houses were included in th . definition of wholesalers. 
Three sub-classes of wholesalers were provided, depending on the size 
of showroom maintained. Retailers were given four sub-classes , the 
first applying to chain retailers having showrooms. The variations 
in retailers depenaed on the number of sales locations as well as 
showroom size. As an exception to the inle, all CrOvernment purcliasers 
were placed in the second sub-class of retailers. 

A complete set of trade discounts was also furnished in the 
proposal, to take th^ir place in Schedule W. 

Revisions proposed in the original Rules D-1, D-2, I)-5 and I>-6 
were in line with the contention by the Pacific Coast manufacturers 
that the code should enforce territorial distinctions. Rale D-1, for 
example, prohibited sales below a "reasonable standard cost of producing 
and marketing" the products. The 'Western manufacturers suggested 
placing both the "cost" and the "sales" on a territoi^ "basir.. The rule 
would then have prohibited selling products "in any territori^ di- 
vision of this country" below the "cost" in such "territorial division 
of the U. S." Changes proposed for Rule I)-6, Resale Prices, were very 
similar. Rule E-2, Minimum prices, was to be amended in a sinilrr 
manner and it was suggested that the minimum prices for the Western 
territory be "at least ten per cent higher than the minimum prices for 
the Eastern territory on the same articles until uniform cost finding 
methods have developed actuai cost differences. " (**) 

Rule E-5 in the July 25th edition of the code permitted the sale 
of "close-outs" below cost, under supex vision of the pertinent 
association. The clause proposed by the Western group would have per- 
mitted these sales "only in the territorial division in which said 
products were produced". The evil to be legislated against in this 
case, so the argument ran, -ras the practice of dumping engaged in by 
Eastern manufacturers selling on t he Pacific Coast. (***) 

The manufacturers on the Pacific Coast felt very strongly on two 
subjects; first, what they termed a territorial discrimination 
centering around freight absorption by the Eastern manufacturers, and 
second, a demoralized distributive market. In regard to the latter, 
the Western group felt, if possible, even more strongly than the other 

(*) Ibid. , pp. 6,7 ar.d 13 
(** ) Ibid. , pp. 7 - 9. 
(***) Ibid. , pp. 8-9. 

9825 



-312- 

manufacturers in the plumbing fixtures industry. The former Relieved 
in a rigid and aetailea customer classification and definitely proposed 
the discounts to "be put into effect through code action. 

(b) TFftiolesalers. 

Wholesalers' associations registered three objections to the code 
proposed for the plumbing fixtures industry on August 19, 1933 (i.e. the 
July 25th edition). 

At the hearing on August 30, Mr. Claude W. Owen, representing the 
Joint National Committee of Wholesalers appointed by eight wholesalers' 
associations, objected to Hale C-7, Classification of Customers. This 
provision, as originally proposed by the manufacturers, established 
five principal classifications as follows: wholesalers, contractors, 
mail order houses and "direct-to-you" houses, retailers and consumers. 
Definitions were provided for each class and separate definitions for 
mail order, houses and :^or "direct-to-you' s" . The rule ended with the 
statement that: 

"Any of the above classes may be further sub- 
divided by t he association on the basis of volume 
of purchases or any other valid distinction." (* ) 

The objection of the wholesalers to this provision was rather 
fundamental and consisted in t he contention that there should be 
only two classifications, namely, wholesalers and retailers; the 
mail order and '-'direct-to-you" houses to be included in the latter. 
Any singling out of the group of nail order and "direct-to-you' s" 
meant, so Mr. Owen feared, a special price consideration for that group. 
In both the oral and the later written presentation, the Joint 
National Committee stressed the importance, in numbers, of wholesalers, 
handling 80^ of the wholesale business, and master plumbers, of whom 
there was an estimated 25,000. The wholesale associations decried any 
discrimination aganst these two groups. (** ) 

In a brief of September 5, 1933, the Joint national Committee 
of Wholesalers e xpressed opposition to Rule D-3 and Schedule W of 
the original proposed code. The rule prohibited giving purchasers 
more favorable treatment than that established in the maximum credit 
terms to be found in Schedule W. The wholesalers objected to the 
terms a_jpearing in t he schedule on the gro'unds that two discount 
periods, as proposed, would work a hardship. They requested.' instead 
that 2^ 10th of the month following delivery be substituted. 

Schedule A also provided for trade discounts, although de- 
termination of these was deferred. The wholesalers, in the brief of 
September 5, expressed themselves as very anxious to know what mandatory 
discounts would be provided, contending that "the discounts in effect 
have been the source of a bitter depressing argument for many years". 

(*) Proposed Plumbing Fixtures and Fittings Code as submitted 

August 19, 1933, pp. 4-5, Vol. A- 
(**) See Transcript of Hearing, Code Record, Vol. Ill, p. 103, and 

Septemts r 5, 1933 letter from E. G. Schafer to pirnie in Vol. B, 

Part I. 
9825 



-31&- 
Furtherinore, they registered a resolution urging: 

"Th^it new adjusted List Prices on Enamelware, 
Vitreous China, Brass and Seats, subject to a 
discount to ^lolesalers of 40^ on Staple Items and 
40-10^0 on slow moving items (subject to such further 
preferential for volxime as may "be suitable to 
Manufacturers) subject to cash discount terms of 
2^ instead of the cu.'rent 5^, be issued and made 
effective at the earliest possible timeJ' (*) 

( c) The plumbers. 

The National Association of Master prornbers presented a statement 
for the plumbers at the public hearing of August oO, 1933, and also 
filed a brief on September 9 which covered the same points. (**) 

In the first place the plumbers' association objected to Rule 
C-4, Grasps, .which, as proposea by the manufacturers, read as follows: 

"It shall constitute unfair competition 
for a manufacturer to sell in this country other 
than first grade material guaranteed against 
manufacturing defects. Such guarantee shall be 
uniform among all manufaQturers, and shall pro- 
vide for furnishing new material of the same 
type and size to replace that which has proved 
defective on the same basis as the original 
purchase, but it shall not cover charges for 
laK ?j ; or jponsequential daiiiages, nor shall it 
specify any guarant ^ pp period. ' ' 
(underlining mine - L.B.L. Author). 

The plumbers recommended elimination of the portion underlined 
above on the grounds that it was "unfair to have the contracting 
and retail branch of the plumbing industry assume the entire expense 
in connection with the replacement of the manufacturers' defective 
items". In fact, a recent report of a special committee of the "SAMP 
has stated in rather strong terms the conviction that manufacturers 
should stand the entire expense of upholding "their natiun-wide and 
liberal guarantees on such goods to the consuming public." Such 
expense would, of course, include the cost of labor and incidental 
materials. But this committee had taken in its positive recommenda- 
tions what it considered a cooperative attitude, in proposing a kind 
of joint responsibility, with reserve funds set up and held by the 
manufacturer, ^ith either individual settlement by the manufacturer and 
master plumbler, or with settlement through the use of a representa- 
tive committee, for the damage or defect and the work expended in 
replacement. This procedure the NAI.tP suggested for inclusion in the 
manui'acturers' code. (***) 

(*) See: Brief of Joint National Committee of T7holesalers of 

Plumbing and Heating Supplies - Vol. B, Part I. 

(**) Transcript of August 30 Hearing, pp. 75-85 for former. 

Vol. B, Part I for the latter. 

(***) Transcript of Hearing, pp. 75 - 82. 
9825 



A second criticism of the proposed coae applied to RiJ.le C-7, 
Classification of Customers, and in this the positions of the pacific 
Coast manufacturers, the Joint National Committee of rjholesalers and 
the National Associcticn of l.aster pliunbers appear remarkably similar, 
at least in their objection to 'the "prominence" given to the nail 
order houses and the "d-t-u's". 

The mastei- plumbers offered the follOTang as a ■^utstitute for 
the rule as it appeared in the July 25th edition of the proposed code; 

"Customers shall "be classified as wholesalers. Con** 
tracting and Retail Master Plumpers, 'other sources' and 
consumers, according to the position in the distributing 
process which they occupy respectively 

"For the purpose of this Code a '^.'holesaler ' of 
plumbing supplies' is defined as an establishment buying 
plumbing supplies in Ip.rge quantities, and stocking and 
distributing them exclv.sively to plumbing contractors. 

"A Master Plumbei shall be d f in-d as follows: 

"1. He shall have passed a satisfactory examination 
covering technical training and have haa satisfactory 
experience in t he engineering and manual aspects of this 
industry. 

"2. He must have a license in conformity i-7ith the 
requirement s of the area in vhich he operates, or be capable 
of making a satisfactory installation under the "Code of 
Minimum! pliimbing Requirements" issued by t he U.- S. Bureau 
of Standards or the National Plumbin;: Code adopted by the 
NAM? in June 1933, where no licensing law exists. 

"3. He must be an employer of labor, and must have 
an establishecL place of business, devoted to the plumbing 
business. 

"With the exception of the Wholesaler and the Liaster 
Plumber, defined in the foregoing paragraph-, all others 
engaged inthe business of purchasing and selling plujnbing 
supplies shall be classed as retailers. 

"All other purchasers of pltimbirg supplies are defined 
as consumers. 

"Any of the above classes may be further subdivivied by 
the Association on the basis of volume purchases." 

As in the case of the wholesalers, the changes recommended by 
the master plumbers indicated a fear of the mail order and "d-t-u" 
establishmeitts and resulted in similar proposals, nanely, refraining 
to place these concerns in a separate category. !.7ithout the establish- 



9825 



-315- 

ing of mandatory discounts, as provided in Schedule W, which could 
have enforced such a status, however, the evil (namely, favoratle 
treatment of mail order and "direct-to-you" establishments) anticipated 
"by the wholesalers and the master plum"bers was still a possibility. No 
one of the groups criticizing the original proposed Rule C-7 wished to 
eliminate entirely the differentiation on the basis of voliime - witness 
the last sentence in the amendment offered by the master; plumbers, 
quoted above. No matter what class the mail order houses were placed 
in, if the individual manufacturers were alloed to make their own 
discounts, the forner might easily be given special consideration. 

Distrust of the manufacturers' interest in trade differentials, 
as well as the fear of a general lowering of the discounts to master 
plumbers, led the NAMP to object to the reference to Schedules V and W 
in Rules D-2, D-3 and D~6. Schedules V and W were incomplete inasmuch 
as their reference to list prices ahd trade discounts, respectively, 
included merely a deferring of their establishment . The master 
plimbers asked that these Schedules be omitted from the code until 
it was possible for the manufacturers to propose price lists and 
discounts, which might be reviewed by the NAMP. The^atter felt that 
the recent consumer list prices and plumber discounts published by 
the manufacturers had failed to allow the plumbers a fair margin of 
profit. (*) 

The NAMP also objected to the maximum credit terms stated in 
Schedule W and joined the wholesalers in requesting a continuation of 
2^0 10th proximo instead of the two payment periods. 

Finally the plumbers' association stressed the importance of 
the contracting branch of the industry with its estimated 25,000 
memte rs (the NAlvIP boasted of a representation of 15,000), the public 
health angle of the plumbing' system, the need of conducting sales 
through the regular channels and the installation by registered 
plumbers, and deplored the entrance of the nail order and other forms 
of distribution into the field. 

(d) The "Direct-to-- You" Houses. 

The National plumbing and Heating Material Supply Association, 
representing "direct-to-you" concerns, came to the defense of Rule 
0-7, Customer Classification, as originally proposed by t he manu- 
facturers. Although in a telegram of August 25, 1933, Hr, Franz 
Nielson of that organization had filed objection to a proposed Rule 
0-7, the purport of the Association's brief of August 30 would indicate 
that the objection ap.^liedonly to the substitute Rule C-7 proposed 
by the National Association of Master plumbers. (**). 



(*) Ibid. , pp. 106 - 107. 

(**) Telegram of August 25 and Brief of National Pluinbing and 

Heating Material Supply Association dated Au-Sust 30, 1933, 

both to be foundin Vol. A, Part III. 



9825 



-315- 

The 3-T-U association contended that, "in the Taster Pltunoerr, ' sr.bsti- 
tute for the marrxfactiArers proposed rule C-7 there is no recognition 
of the economic position of the mall order, house ax'd the direct-to- 
you distrihutor, " rjid toolc "exce-!:)tion to the entire master plumbers' 
memora-ndi™ on the subject of C-7, Classification of Customers", and 
r/ished to support "the provision for the classifica,tion of customers 
as" a-ppearing in the man'ofacturers' propo'sed code under rule C-7." 
Tlie D-T-U association go.ve in defense of its position tlie follo'7in:'^ 
argument: 

"The direct-to-you house thru the maintenance 
of showrooms of large ctopks, thrvi ertensive rdver- 
tising and the use of iar^e numbers of competent and 
aggressive salesraen, has been largely responsible 
for the sales of plw.ibing supplies for re'olacement 
purposes. Prior to the advent of these channels of 
distribution almost, cill of the busines.-, in this indu-strj^ 
Vv'as confined to installations in nc^' cor str'uction 
TTork. The cause, thereof, v'e.s that the plumber 
while e;cpert in installation 'res and is not o • r 

merchandiser. 

"This morning the spo::e3raan for the manu- 
facturers stated that as a matter of fact con- 
sumers are able to "buy more cheai-)ly because of the 
mail order and direct to 3''ou houses. Any im'orooer. 
classification that limits the direct to 3'"ou and mail 
order houses rnd creates an added burden in the cost of 
distribution which must be borne by the consumer will, 
6.irectly harm the purchasing public." (*) 

Another brief of the iJational Plumbing cL Ee;-.,ting Ilaterialc 
Supply- Association included estimates of the am.ount of business being 
done hy chain, org.ani nations such as the "direct-to-you" and mail order 
houses, and reproduced the stp.tement of the President of the Burlington 
Brass T7orks to the effect that in recent years at meetings of manufa,ctur- 
ers, opinions e^rpressed as to the proportion distributed through these out~ 
lets ranged from 5^ to So-l/S'L Tiie one source of information on the sub~ 
ject, where comparatively acci.irate statistics had been gathered, was not 
willing to divulge such information. (**) 

TTnile talcing a favorable position toward tho original Eule C-7, the 
r.P. & H.i.'.S.A. (D-T-U organization) opposed Poile D-4, Published Lists, 
if this was intended to permit different discounts for different classes or 
sub-classes of purchasers. Tlie Association felt the,t "direct-to-you' s" ■ 
should be entitled to thesame discounts as- v/holesalers since the;^ per- 
formed the same functions as the latter e::cept for sales to retailers. It 
also requested an opportunit;'' to examine and comr.ient on Schedule 1 before 
the adoption of Rule D-3, Terras and Discounts. (•***) 



(*) Brief of August' 30, 1933, .pio. 3-4 Vol. A, Part III, also 

Transcript of Aug. 30 Hearing, pp. il2-].16. 

(**) Brief of' Sept. 9, 1933, Vol, 3, Part I. 

(***) Brief of Aug. 30, p. 2, Trans, of .'learing, pp. 112-113. ilote: The 

last ste.tement as it appeared in the brief mentioned Schedule V 
but tJiis VO.S because a revision in the proposed code effected 
during the hearing changed the lettering making Schediile '^ Scliedule 
9825 V. 



-317- 
(e) The mail order houses 

In a letter of August 28, 1933, to the iHU^, the Mp.il Order Associr.'- 
tion of Arjerica took exception to the follor/ing provisions in the origi~ 
nal draft of the Pliain'bins Fixtures Code: 

Rule B-1 - Discrinination 

Eule B-3 - Post -Dating and Pre-Dating 

Rule B-9 - Suhstitution 

Pi-ule 3-12 - Protection 

Rule C-1 - Orders 

Paile C— 2 - Invoices 

R-ole C-4 - Grading (iast 2 lines) 

Rule C-6 - Consigned Stocks 

Rule C— 7 - Classification of Customers 

Group D - Costs and Prices (the entire group) 

In e. hrief dated A-agust 30, 1953, and apperring in the collection 
of oriefs conpiled in the Appendix to the August 30th transcript of hear- 
ing, the Mail Order Association gave in more detail the reasons for oh- 
jecting to the particular provisions.* Rule B-1 prohibited discrimina- 
tion "in prices, terras, discounts, allOA7ances, gua.rantees, or in any 
other '-gy hetween purchasers of the seme cltss or suh-class." To this 
the mc.il order houses s^jggested the adcition of a clause secaring to each 
manufacturer the right to select his own custoniers in iDona fide trans— 
actions or to estahlish his own suh-classes, for fear the originfjl pro- 
hihition irould work to the disadvanta/^e of the manufacturer's mail order 
cus toners. 

The effect of Rule B-1, when seen in conjunction with Rule C-7, 
Classification of Customers, was such as to cause alarm to the mail order 
houses. In the opinion of the latter, the two together constituted an 
attempt "to establish selling prices without regard to the type or cost 
of service reo_uired. " Por example, one retailor night require more ser- 
vice than another, and the same might a-oply to a mail order house or to a 
wholesaler. One distributor night talce goods in off seasons, night help 
finance the small manufacturer during slack seasons; while another concern 
in the sane class might reouire the hulk or all of his goods dioring the 
height of the season, might not make prompt payments, might roq^uire small 
deliveries, etc. One wholescder night use his o\7n hrands, do his own 
advertising, selling, and distrihuting; while another wholesaler might 
require the manufacturer's nationally advertised brands, circulars, sales 
helps, possibly the manufacturer's salesmen. There seemed no logic?! 
reason for selling the two distributors at the same price in spite of 
their being in the same classification, and the me.nuf acturer should be 
allowed to classify them differently. Hence the lfe.il Order Association 
suggested a change in the last sentence of Rale C-7 substituting "a 
manufactuxer" for "the association" as indicated by the underlined words 
in the following: 

(*) Brief of August 30,1933. Appendix to Aug. 30 Hearing, pp. 4-13, Code 
Record Vol, III. The discussion of individual provisions is pre— 
fe.ced in the brief with description of the nail order house methods 
of operation, v.iiich hss been rejoroduced in -izivt in Section I of 
this Chapter. 

9825 



-318- 

"Any of the a"bove classes may "be fiurther subdivided ty a 
riiar-irfact-urer on the "oasis of vol-ume of purchases or any other va.lid 
distinction. "* 

In rerard to Exile B-3, the Mail Order Association pointed out thc.t 
it was the policj'' of its nerahers to spread the work in manufacturing 
plants ''oj huying goods during quiet or off seasons and in such cases it 
T7as custoT;iar3r to give datings. The deletion of this rule "-as recomnended. 

Under the conditions mentioned in respect to Rale B~3, Rule C-1, 
Orders, novld also entail a handicap. The latter rule included the 
follov/ing sentences: 

",o«Only orders for stock for shi-onent i7ithin thirty days of 
date 0+ receipt of order and orders for specific johs will be ac- 
cepted at the TDrices in effect at the date of receipt of order. 
All other orders shall he subject to the prices in effect at date 
of shipment. . „ " 

Tlie Hail Order Association considered the rule "designed to handi- 
cap the sua.ll nanufp.cturer as against the large, Y.'ell-financed manufact- 
urers, who ce:n. build up stoclcs and suoply their trade from time to time 
as thedema^nd required,"** 

.. RuJ-OD D-4, B-2 and C-2 ra^t objection in common. D-4 provided for 
publication and filing of prices and all conditions of sale B-2 pro- 
hibited the "payment or allownace of secret rebates, refunds, credits,,, 
or the e::tension to certain purchasers of services or privileges not 
extended to all purchasers of the same class under like terms a,nd condi- 
tions.,,," C-2 provided for t he filing of copies of invoices, credit 
memorojada and all other sales doc'i^ments with the Secretary a.s and when 
directed b3'" the interested Association, 

The lir.i]. Order Association ejrpressed strong antipathy to compulsory 
open price filing and all its trappings. It believed that whether or not 
a firm v/ished "to disclose its prices or terms to its competitors should 
be left to the judgment of those responsible for conducting the affairs 
of that firm, and the government sho'.ild not insist that the efficient 
corapan;- open its records for the inspection of competitors," In the 
opinion of this organization there was nothing to "prevent any raanufac-' 
turers v/ho wish to do so from joining open -orice associations, but so 
long as a manufacturer or distributor does not sell below his cost, he 
should not be req_uired to make public those confidential relationships 
that e::ist between the buyer and seller. Pr.st experience has clearly 
demonstrated that such open price associations tend to raise orices and 
work a hardship on the smaller manufacturer. " 

(*) Ibid,, pp. 11-12 
(**) Ibid-,, pp,9-lC 
9825 



To Rale D-1, Selling Belon Cost, the Liail Order j^sr-ociction sii^,_;-est- 
ed the r.dc.ition of a sentence reading as follows: 

"LlanTxfacturers na^'^ allocate general expenses such as advertising, 
srJ.es exroense, had dehts, etc, to custoners, according to services 
recToired to sell such customers," 

The ohjection to Rule D-3, Terms of Sale, applied principally to the 
terminology used, although one change suggested nas rather fundamental, 
Ibr er:ar.nle, the manufacturers conteniplated esta.hlishing manimum "terns, 
discounts (including trade discounts), allowances, and conditions of 
sale," Hie I.Iail Order Associc.tion suggested, for clarification, the 
folloTTing '"ords in place of those just quoted: "collection terms, c^.ch 
discounts, freight allovrance r.nd shor--roor.i discount," Thus one amenc>j.ient 
amoTonted to naking the provision more cx;:3licit, another to omitting "trr.de 
discounts" from the field of regulation, 

Tixe Association opposed B'Ule D-3, Resale Prices, for some of the 
same reasons it opr^osed Rule 0-7 ajid B-1, namel", on the hasis of com- 
parative services involved in the various schemes of distrihution. 
There was a feeling that resale price maintenance through the mail order 
houses uoiild he ouite isroracticahle, because most of the articles coming 
under the Pltimhing Fixtures Code rrhich thev distributed r;ere sold under 
the trade— name of the distrihutor,* 

We get from the above discussion a rather clerr idea of the mail 
order house philosophy to\7ard the trade practice functions of a code. 
The AsGOciation opposed sales belo:-' cost either ^oy manufacturer or 
distributor but felt that cost finding should give individual treatment 
with each -ourcha-ser in a separa,te claus judged accoring to volume and 
services rendered. Customer classifici tion vras permissible but in effect 
was only possible of apiDlication if each customer vas in a distinct cla-ss. 
In fact, a manufacturer should be allowed to give any customer any price 
he plea.sed, nithin the bounds of the costs of dealing v/ith that customer, 
ajid shovld not be reauired to disclose either the orice or the name of 
the customer to his competitors. Although opposed to all other "regimen- 
tation" the Association seemed to have no antipathy to ma.nda.tory maximui.! 
cash and credit terms. 

(b) Code Ox>eration - Provisions Imiaediately Affecting Distribution . 

A n-onber of -orovisions in the proposed code and almost as many in 
the Code as finally approved for the pliombing fixtures industry in J^jiu— 
ary, 1934, verjr directly affected the industry's channels of distribution. 
In fact, distribution of the products is such an important part of the 
industry's economy that oractically all the code trade practice provi- 
sions may be sa.id to affect distributors. This section, hovrever, is 
concerned '-.'ith those provisions which were designed to restrict seriously 
certain distributive channels, to favor one channsl as against another, 
or to establish the price returns to tho various distributive agencies. 
Again, almost all of tho trc-do practice provisions appear through the 
life of th, code to have had one or nor; of the above effects. For ex- 
ample, Article YIII, Section 1 of tho approved code restricting stock 
orders, rras diametrically opposed to the mail order method of purchasing 
and ha.d as r:uch effect as any of the other code provisions in bringing 
a code breaizdorm, 

r*) . Ibid,, TDt). 13-14. ~~~ 



"32C- 

In this first soction, hoincvor, the discussion rrill "bo liraitcd to 
such su^bjccts as: customer clascif ication, rcsclo price maintenance (and 
price fixing), differentials end trede discounts, restriction of sales 
to specific outlets, etc., prefaced -rith a general sumriary of the re- 
sults of the precodc negotiations, 

1, Negotiations Leading to Approval of the Distrihutive 
Relations Provisions in the Pliun'oing Fixtures Code, 

(a). The proposed means for restricting cnejincls of 
. distritution. 

The record of negotiations following prosonte-tion of the proposed 
plumbing fixtures code on August 19, 1933, is extremely incomplete. 
What material there is indicates the.t most of the discussion and revi- 
sion applied to the provisions iThich are the suhjcct of this section. 

The Joint Coordinating Coitoittee of the five manufacturers' associ- 
ations never cxolaincd puLlicly xfhy it wa? thought desirable to present 
the particular code -orovisions vhich r/ ere offered to the 1®A for a.pproval. 
There vcs, in the Public Hearing of'August 30, 1933, a short statement 
regarding distribution in the industry, but l^r. Kohler seems to have 
inserted this more for identifying the industr3r than for justif3^ing the 
ctjdc provisions, although justification might have s>jcmed necessary i.i 
view of the objections already ra.iscd by individual industry members,* 

The provisions in the proposed code of July 25, 1933, \7hich are in- 
cluded in the discussion of restrictions on distribution, are the follo\7- 
ing: 

Classification of Customers 

Minimum Prices 

Terms of Sale 

Hesale Prices 

List Prices ■ 

Terms, Discoujits, Allorrances 

R-sale Prices 

Rule C-'7, as already -described in a pr';Vious section, provided for 
classific8.tion of customers as either wholcsal..rs, contractors, mail order 
houses and direct— to-you houses, retailers, or consumers. Deviation from 
such a classification in the c^uotation of price torms constituted unfair 
competition. The prcrcquisitcss for a v/holesaler included: substantial 
and proper investment in his business, buying in bullc, maintaining rrare— 
house and complete enough stock "to meet all normal r jquirements", making 
major sales to contractors and' others who purchase for resale, maintain- 
ing office, s ales and delivery service, not performing the functions of 
a plumbing contractor, 

(*) IFor Eohler statement on channels of distribution see Transcript of 
August 30, 1933 Hearing, pp, 22-24 

9825 



Etac C-7 


- 


E.ile B-.2 


- 


E\uc 1-3 


- 


Puj.e 1-S 


- 


Sehcdnle 


1/- 


q, /I ir..-'- '; ,1 


W- 


Sched-ole 


X- 



-321- 

The -oro-oosod code f-urthv.r provid d that a plxunlDing contractor r.iust 
"be liccnsod, rmoro required "by ordinance, and is ono vrho "installs 
TDliambing cwpplics rrhich he sells to the constMn^r. " For code p-ur;oos-s 
federal, stcte and local governments ucre classed as contractors. 

The definition of a mail order house v;as very similar to that of a 
wholesaler except that in place of the qualifications of major sales to 
contractors e.nd others for resale, and the maintenance of office, sales 
and delivery service there uas substituted the qualification of major 
business selling to consumers h^^ mail. The "direct-to-you" house was 
sirailarly defined, and in place of the preceding qualifications \7as re- 
quired to Maintain an adequate showroom and its major "business must he 
selling to the consumer from stores. 

Rule IV-2 and Schedules V and ff must he considered together. The 
former prohibited a manufacturer from selling "his products (except on 
close-outs) below the prices established from time to time for different 
classes of customers a.nd nanufacturers and approved by the President." 
Schedule 7 was designed to provide the list- prices and Schedule U the 
mandatorjr trade discounts. The determination of both sets of prices was 
deferred when the code was originally presented to the ¥Rk. The rule and 
both schedules were to be "construed in the light of, and be subject to, 
Rule D~l" which i^rovided for cost-finding. 

Rule I)-3 provided not only terms of sale but also, in conjunction 
with Schedule 17, mandatory trade discounts. As indicated above, the 
actual discounts had not been determined. 

Rule IK5 r.iadc it "unfair competition for any manufacturer to permit, 
where ,,, within his power to prevent it, the resale of his products to 
consumers at prices less than his established resale prices or less than 
those established from time to time pursuant to i-JIRii.. " In no event 
should the resale price be less than the minimum prices appearing in 
Schedule Y, but the currently approved minimum resale prices \70uld be shown 
m Schedule X (where their determination again was deferred).* 

The above provisions, coupled with cost finding and price filing, 
as proposed in the original edition, indicate the seriousness with which 
code proponents viewed the industry price demoralization, Whether it 
was thou.ght ths,t all the provisions w^re necessary in order to effect a 
cure, or whether it was expected that not all of the provisions V70\ild 
meet final approval, is not indicated in the record. 

(b) Reconstruction of the objections to these provisions. 

As indicated earlier, the largest number of individual industry 
member objections filed applied to Rule D-2, for which the score was 12 
(not including the Pacific Coast group of lO), A representative express- 
ion of the view of the individual companies is that of Mr, Carbeau of the 
ELwood ITo-'andrj'- and Machine Co. in a letter of Atigust 21, 1933 to the Cast 
Iron Enajncl TJe/rc Association ** 

(*) See •Jul3'- 25 edition of proposed code for Plumbing Pixturcs, pre- 
sented to IIRA on August 19, Vol, A. 
(**) Elwood Poundry letter of August 21, 1933, Vol. A. Pt. III. 
9325 



-322- 

in which he contended ths.t RuJLc I)-2 vrps p price fixing agreement and 
that : 

"Siich an agreement and such a provision is not at all necessary 
to effectuate the main p-urposo of the KIEA. The piirposG of the act 
is to eliminate unfa ir- competition. It is not intended to olirtiinatc 
all competition which, in fact, v/ould result from the ador)tion of 
E.u2c B— 2 and Schedule V therein contemplated. It certainly would 
"bo a tendency toward monopoly and wou.ld ho a discrimination tending 
. to oppress small enterprises. This will he apparent when the snail 
manufacturer, a few months hence, goes to his customer offering his 
goods at the same price and on the same terms and conditions as the 
larger manufacturer whose advertising program is and has "been nation 
wide," 

The Elwood Foundry and Machine Company favored price filing and 
cost finding, however, as did the large majority of the other companies. 
Price fixing was placed in another category altogether, although this 
distinction seems to have applied more to list prices than to discounts, 
for there were onl;'- five ohjections to Rule D-3. This seeming complete 
acceptance of the distribution features of the proposed code is all the 
more remarkahle when seen in relation to wholesale defiance of these 
provisions during the life of the code. 

The above discussion, although representative of the prevailing 
views of the industry membership toward the proposed code, does not 
adequately describe the position taken by the Pacific Coast manufact^^rers. 
The suggestions and criticisms of these members centered primarily in 
demand for territorial distinction (to be discussed in another section), 
but this was supplemented by demands for a. more rigid classification of 
customers, for a practical application of the provision enabling fixing 
of discounts, for placing mail order houses in the retailer class, and 
for promoting sales effort on the part of wholcselers and ma^stor pliombers. 

The who" es-'^l-,.-"s and the master plumbers were critical of the code 
becaik,.- of .7;;;v: & :':racd to them a favoritism shown the mail order houses 
and '"'.!.• I-"l.' ^ ', Th'jj considered such distributors to be interlopers and 
to be olasf'Td as retailers. Tliey also wanted vcr-y much to have a hand 
in the fixing of trade discoiints, whenever that might take pla.ce, both 
because of the considerations frequently being granted the mail order 
houses and because they were afraid of a general lowering of the discount 
levels. 

The "dircct-to-you" concerns came to the defense of the original 
customer classification and were willing to have trade discounts fixed 
but were a,nxious to receive discounts as favorable as those accorded 
wholesalers. 

Mail order houses opposed a group of provisions, all of which they 
considered designed to hinder the individual manufacturer's right to 
make his ovm choices, whether of cu.stomcrs or of prices and terms to be 
accorded such customers. The Mail Order Association did not oppose 
customer classification provided the individual had the right to define 
his own sub-classes. This association was as firmly opposed to price 

9825 



-323- 

'filing.as to price fixing Tiut did not oppose cost finding nor the fixing 
of uaximiira cash torias (whish provisions rrill "bo discussed in later seo- ■-. 
tions). The following parngraph taken from a mail order Tarief is a use- 
f\.il summary of this position: 

"While the racm''ocrs of the objecting Association hclievc that 
merchandise should not he sold helow cost yet they do not think that 
the selling price should he determined hy any arhitrf^ry regulation, 
hut hclievc that the same should he determined hy sound accounting 
principles and based or at least have some relation to actual cost 
of manufacture, distribution and service rendered. The rules ond 
classes of SF.id code rrhich arc objected to attempt to fix prices of 
the manufacturer to the retailer and of the retailer to the consiimer 
and to restrict and hamper the relationship ' that shoxild normally 
exist betv;een the manufacturor and the retailer, and the retailor and 
the consvmer. "* 

The follOTTing, then, T/erc the ^oartics at interest to the formulation 
of a Plumbing Fixtures Code: (a) the Joint Coordinating Committee of the 
five manufacturers' associations, (b) the large body of industry members 
who T7cre r.ot yet distinct as to size or methods of doing business or 
location, (c) the nestern group of manufacturers, (d) the Joint 
National Connittce of Wholesalers, (o) the IJational Association of Master 
Plumbers, (f) the DTU association, (g) the Mail Order Association, Each 
took a vigorous and frequently a conflicting part in the pre-code nego- 
tiations over the group of provisionii included in this section; for each 
of them lia.d its orm conception of rhat \7£'s, in terms of the Mail Order 
Association, "the relationship that should normally exist" between 
manufacturers, distributors and consuiaers, 

(c) Selected phases of the negotiations. 

(l) The "reciprocal ru.lo". 

There is probably no more interesting phase of the negotiations be— 
t^een the public hearing and final code a-roroval, both because of its 
direct connection vith the historical relationships in the industry as 
well as because of what it argued for successful code operation, than 
the attempt of the "legitimate" wholesalers and master plumbers to per-» 
suade the T-anufacturers ' code co,nriittee to accept the so-called "recipro- 
cal rule". This statiis had already been reached by the wholesalers £.nd 
master pliijnbers in negotiations centering around their respective codes 
as is indicated b;"- the following pe.ssage from an !'TAi.iP brief of September 
11, 1955, filed in support of the Plumbing Contracting Proposed code: 

"T7ith reference to the 'Tholcsalers ' Code v.^e wish to state first 
that there have been many conferences betv.'cen the Joint National 
Comnittee of Wholesal-e Plnombing Products and our Code Committee, The 
purpose of these conferences was principally to attempt to establish 
reciprocal rules between the Wholesalers and the Contractors in that, 
first , the Wholesalers would exclusively confine their sales to the 
Plunbing Contractors, and second , the Plui.ibing Contractors \70uld 
exclusively confine their purchases to the WliOlcsalers. " . :, ■. • . ■• 

(*) Brief of Mail Order Association Aug. 30, 1933, p. 6, Arjpendix to 

Transcrir)t of Hearing of August 30, 1933, Vol. III. 
9825 



Such reciprocal arrangements TDctncon the ITholesalers and Contractors 
TTO-uid he especially advantageous. This plan trould eliminate the . 
increasing tendency of the Plumhing Contractor to shut tho, TJhole- 
saler out of the line of distrihution ty purcha-sing direct f-^om the 
manufacturer, Tliis, the Pluiihing Contractors have found necessary 
to do as a ma,ttcr of self-defense and preservation in order to meet 
the increasing tendency on the part of wholesalers to sell -nl-urahing 
products direct to the consuming puhlic where they felt that such 
series would not hccomc known to the Master Plumhers. A reciprocal 
arrangement hctween the IJholcsalcrs and Contractors wo^ild eliminate 
hoth of these unfair praxjttcos and ",'ould restore orderly distrihution 
in the industrj?-. "* 

The ver;"" fact that the wholesalers and master plur.ihers had made 
such an agreement '7as houjid to affect manufacturers. Anj'' manufacturers 
who depend on the retail market wonld have to find nev; distributors or 
go out of business , But the plumhcrs and wholesalers knew only too well 
that a portion of the sales (no one seems to have 1-cnown how much) made 
"by manufacturoros was ro\ited over an entirely different trail to con" 
sumers, naxioly, through mail order and i'd~t~u" concerns, Uhilc it was 
desirs-ble to have the manuf actuors ' acceptance of the "reciprocal rule" 
anywav, the presence of these other elements in the market made the 
manufacturers' coooeration in upholding the principle far more important. 

Later sections concerned with a discussion of code o-oera.tion v;ill 
indicate to what e.xtcnt the raanufacturers acceded to the reciprocal r-ulc 
proposition. Suffice it to say at this point there was a partial accopt*- 
ance of the principle after man;?" lengthy and hitter o.rgunents between 
manufacturers and. various groups of distributors, and after the appoint- 
ment by the Administrator of a committee of three industrial advisers to 
reconcile the divergencies, and after a split in the ranks of the manu- 
facturers' Joint Coordino.ting Committee. In the final vote on acceotancc 
of the code, December 18, 1933, the previous unanimity of the latter 
committee wr.s broken by the dissent of Henry Hold of the Rundlc Manufact- 
uring Co., who had outstanding contracts with mail order houses,** The 
committee as a whole, however, was not in accord with the kind of air- 
tight reciprocity desired by the two groups of distributors, as \7ill be 
indicated b3r the follovzing passage from a letter, of L, A. Cornelius, 
President of the TTolverine Brass Works, and an associate member of the 
Coordinating Committee, to ilalcolra Pirnie, Assistant Deputy, on December 
16, 1933: 

"This letter centers unon the inclusion of the so-called 
reciprocal clause which aopeared in the three codes of the industry'" 
as revised by the Coordinators and by them submitted to the manu- 
facturers, Wliolesalors e.nd Retailers branches during the week of 
Ncvcri.ber 2 last. 



(*) Brief of FAilP, pp, 5-6, Plumb. Contract., Vol. A. 
(**) Sec Vol. II. iiHA Files. 
9825 



-52&- 

"Ilost of the tin; from November 2 until llovembor 18 the 
Manufactiircrs' Code Cominitteo, of which the 'vritcr is a nomber, met daily 
and nearly every night in a strenuous effort to again revise the 
original code and its subsequent revision (upon Thich many weeks of 
thoughtful effort had becnsoont), in order to coordins^to as far as 
practically possible v.dth the v/holesalc and retail codes. 

"liniile many changes were thus effected, th^ so-cr.llcd recipro— 
ccl clause vras rejected unanimous 13'- and the concensus of the ilLinu— 
facturcrs' Code Comr.iittec's judgment vas embraced in the final 
voluntary code filed '-'ith you on or about ITovoinbcr 17. 

"The manufacturers full"'' concur in the ^isdom and necessity of 
sanitary ■ol''jmbing goods being ftirnished and installed by licensed 
and efficient Master Plumbers; thej'' recognize the wholesaler's 
function and possible usefulness in the distributing system of 
staple material, but recognize, also, that new designs, new and 
improved s^/stems and material have and probably will continue to be 
almost e::clusively developed by the manufacturer; further, that the 
proper continuance and improvement of the industry largely depends 
upon the Master Plumber's acceptance of such changes. Therefore, 
there is the necessity in certsiin ca.ses for the manufacturer to 
introduce and supply his specisJ and individus2 linos and qualities 
direct to the Master Plumber — to the one who installs, xrho must 
sp.tisf;'- the cons^'omer and who by definite experience and contacts 
csji judge best the q'oalit;'" and results, 

"It is pertinent to note that some of our most im-Dortant and 
forward looking manufacturers who raeJke quality material, have deemed 
it neccssa.ry to establish branches to present their goods direct 
to the Master Plumber instead of attempting to merchandise their 
output through the independent wholesaler, 

"You inquired why m^'' concern as a raanufactiorer could not dis- 
tribute through the wholesaler; and, therefore, withdraw objections 
to the reciprocal clauses? 

"The following, while not complete, gives sufficient reasons 
to prove that such change in our merchandising system vrcald be con- 
fiscatory'', 

"The outlet through wholesalers is restricted. All too many 
wholesalers have had such hard going that they are dependent uwn 
sources of supply amd credit contacted in former years, wliich nssy 
carrj'- them through this period and iintil their business is again 
profitable, 

"There is the further elimination of the many wholesale brcjiches 
of the CraJio Conipany, the Standard Sanitary Manufacturing Company, 
and others who as manufactiu-crs could not consistently buy our pro- 
duct s , 



9825 



"ITliilc V7e for those many ycors ho.vo 'been "building the founda- 
dation of o-ur sclos "by supplying the Lic^stcr PlimlDer, there ere man;'- 
TToll laiOTTn responsible manufacturers, such as the Kohler Compair/, 
ivluellcr Company, Spcakman Conpany, Jajoca, Etc., nho have very 
propcrlj'- close working ari-angemcnts a.nd so-called 'loyaltj'- customers, ' 
and SLich nholcsalers could not be orripocted to tra^nsfcr their good 
vrill to us, 

"Of-r plant is not organized to manufacture for T7holosn,lcrs, 
T/e maJ.cc a large variety of special goods of high grade, ma:ay of them 
of unusual utility'", and some of TThichai'o not required in large 
q-ua-ntitles. To profitably supplj'' most Trholusalers, one should ma,l:e 
a limited line of medium quality and produce in large volmac. 

It is our belief, based on many years' c:q-)erioncc, that vrholc— 
salers coi^ld not sell our line unless thoy organized a sales force 
compars,ble to our own v/ho possessed the ability and v/cro given the 
training to sell on ajiality and lasting function, instead of first 
price, "* 

(2) Attitude of IIEA Advisory Boards and Divisions 

The position of the Industrial Advisor^'' Board has been indic£.tcd 
in the preceding section. A committee of throe industrial advisers was 
very active in an attempt to promote a bettor understanding between 
manufacturers, wholesalers and --(iTijabors. On December 22, 1935, the 
Board gave its unconditional approval to the final draft of the same date. 

Representatives of the Lr-gal Division had opposed the air-tight 
"reciprocal rule" at one point in the proceedings,** but on December 22 
the Division approved the final draft, containing provisions which may 
have seemed not ouite so air-tight. 

On December 18, Research and Planning submitted a report strongly 
criticizing the draft of October 16, 1933, The record seems to indicate 
that this Division v;as not asked to r eport on later editions. It is in- 
teresting to note further that no memorandum of P.esearch and Planning rras 
attached to Assistant Deputy Jacoby's reiDort to the Administrator trsns- 
mitting the final draft, although the objections raised in the December 
18 raemorraidvja a>.pplied with eq-oal force to the final- edition, 

Mr, James Hughes, of Resea.rch and Planning, cxoressed himself as 
follows, in regard to the -oro-oosod -orovisions rcgi,i2ating distribution: 

"TliG provisions of this s ection are definite attempts to freeze 
the chci^ncls of distribution after the products of this industry have 
l':-:''t the hands of the mam-rfact-urers. It seems that this is an 
attempt to j.egisl.ato beyond the scope of the industrj?- pjid to dictate what 
the operrticriS shall be under the wholesaling ajid retailing codes. If 
'orovisioiis cr-ch as this arc allowed in codes generally it would soon 
frooze o-ar method of distribution so as to prohibit increased efficiency of 
distribution and lov/cr oricos to connumcrs, " 



(*) TTolverinc Brass letter of Dec. 16, 1933 to Pirnie, Vol. B. 

(**) Letter of Uolverinc Brass - passage not re- prodiic^d in preced- 
ing section. 



~337— 

A ncnorr-ndvjn of the Consumers kCjrivory Board, of Decorator 22, ex- 
pressed vic'-'s in substantial agreement ritli the atove, and went into 
aoinewhat r.ore detail. Assistant Deputy Jacoby socnt the greater part 
of his nor.iorandum to the Administrator, of the same date, ansvfering 
these charges one hy one; hut as it turned out, there was no better 
forecast of the Code's failxire thrji the very points raised in this Con- 
s-umers' Advisory Board Hemorandtira. Because the criticisms related to 
the code as approved on January 13, 1934, they will be reprodxicod in 
the discussion, to follow, on the operation of the code, 

Resxilt of prc-codo nof:otiations. 

The first of the original proposals to bo dropped in the period 
between the public hearing of A-ugust 30, 1933 and January 13, 1934 was 
rule D-2, Ilininum Prices, 'Thich wa.s eliminated imr.:ediatcly after the 
hearing. At the same time the part of Hale D-6, Resale Prices, which 
referred to price fixing by the industry was also eliminated, althoTjgh 
a manufacturer was still prohibited from permitting, "where ,,, within 
his power to prevent it, the resale of his products to consujiiers at " 
prices less than his established resale prices," Schedule X was dropped 
along with Schedule V.* 

The la.st industry proposal to receive KRA approval was Section 7 
of Article YIII which incorporated the remaining parts of Rales C-7, 
Customer Cla.ssif ication; D-3, Trade Discounts; and D-6, Resale Prices, 
Section 7 of Article VIII was subjected to further revision even after 
the official a'oproval dc^to of the code a.s a whole (January 13, 1934) 
and changes in the section were recorded in Amendment ITo, 1 approved 
Jan-U£-.,r3'- 31, 1934, 



(*"l See cop-- of proposed code, in Vol, A, identified by penciled 

notation, "Pirst rewrite". This drtift is undated but was written 
in the eaxly part of September 1933. In the Public Herring itself 
the rnaiiufacturers committee clininn.ted Schedules V and X although 
the record is not clear on whnt hap")ened to Rales D-2 e.nd D-6. 
See 'Transcript of August 30, 1933, ricaring pp, 118-119. 



9825 



-328- 
2. Customer Classification 

(a) The approved code provision, Article VIII, Section 7. 

We have tal^en note, in the preceding section of the report, of a 
revision which took place in Article VIII, Section 7, immediately after 
the code's aoproval. This was the result of a stay placed on the provi- 
sion in the original Administrative Order of Approval, ostensibly for the 
purpose of receiving the proposal for determination and enforcement of 
a wholesaler-retailer differential. But when on Jojiuary 31, 1934, 
Amendment No» 1 was approved, there was no change in the plan for a 
differential hut rather a change in the definition of a wholesaler. The 
new version, hy defining the "f/holesaling function" rather than the 
"wholesaler" was intended to switch mail order and d-t-u concerns form 
the retailing class into the wholesaling class.* 

The second paragraph of Section 7 "before revision, defined the 
wholesaler as one who assemhled, warehoused, and sold in hulk the "ac- 
cessory and complementary products" of this and other industries and who 
tought in wholesale quantities. As revised, this paragraph lumped in 
one class all who performed the "wholesaling functions such as assembling, 
warehousing, and huying in hulk of these products and of accessory and 
complementary products hy individuals, firms, or corporations either ex- 
clusively or in conjunction with the performance of the function of re- 
tailing. " 

With this introduction we pass on to a description of customer 
classification as provided in the code, although it is hardly possible 
to treat this subject separately. In fact, the class distinctions were 
merely an instrumentation for applying the differential, discount and 
sales restriction provisions. 

Customer classification in the Plumbing Fixtures Industry Code was 
contained altogether in Section 7 of Article VIII, although other code 
provisions directly affected the classification. The opening statement 
of Section 7 pronounced that: 

"The functions of manufacturing, wholesaling, and retailing 
the products of these industries each constitute a separate busi- 
ness," 

The paragraph which followed attempted to define wholesaling, re- 
tailing, and by implication, consuming, and outlined a plan for enforc- 
ing the distinctions. As revised, wholesaling included "assembling, 
warehousing, and buying in bulk" the products of the industry and ac- 
cessories. Even when performing retailing functions, individuals might 

* The record is very incomplete on the subject of Amendment No. 1. 

Assistant Deputy Pilkington, in his Code History of -che Plumbing Fix- 
tures Industry, p, 15 f , intimated that the mail order houses applied 
the pressure which resulted in the stay and the revision; but this 
seems no more probable than that the stay was the result of a combina- 
tion of considerations including advisory borad objections, mail order 
objections, the Eu-ndle dissent to final approval of the code, end a 
general ffllA feeling of hesitation in approving restrictive distribu- 
tion provisions against substantial opposition. 

9825 



be included in the wholesaling class. The second paragraph of the sec- 
tion named further qualifications for memhership in the class: having a 
"proper investment in his husiness", maintaining "an adequate showroom, 
a warehouse, and sufficiently complete stock o'f such commodities to meet 
the normal plumhing supply requirements of his trade in his territory" 
and maintaining "an adequate bookkeeping system, sales office, and delivery 
service," 

All others who purchased for resale were placed in the retailing 
class; and those who purchased for their own use, i.e., not for resale, 
were in the consuming class. 

But the fifth paragraph of the section provided for another class 
entirely, and also for a division in the wholesaling class. The addition- 
al class was made U"o of manufacturers subject to the code, to apply to 
their purcha,ses from other manufacturers subject to the code. Tlie sub- 
class included members of the wholesaling class who because of volume of 
purchases or other special considerations warranted individual treatment. 
^ The latter was the only group which the individual code member was allowed 
P to define for himself and the inclusions in which were not subject to 
disapproval by the Code Authority, 

In addition to mentioning the four classes of purchasers — manufactur- 
ers subject to the code, wholesalers and the sub-class special whole- 
salers, retailers, and consumers — the section directed every manufacturer 
to apply the classification to his own business. The seventh p aragraph 
reads as follows: 

"Any manufacturer engaged in more than one level of the Plumb- 
ind Industr;/" (raan\if acturing-wholesaling-retailing) shall conduct 
each business separately and with an individual system of account- 
ing for each in accordance with the respective codes for the various 
levels of the Industry." 

This, of course, applied to manufacturers' branch houses and was 
^ one of the signs of the reciprocity considered so desirab]'e by organized 
^ wholesalers and master plumbers. 

The means of enforcing the classifications was supplied in the sixth 
paragraph, reading as follows: 

"Each mezLiofacturer shall file .with the Code Authority, when 
required by it, but in confidence, the names of customers sold by 
him on each price level, his schedule of special discounts, and such 
other information as the Code Authority may require. If the Code 
Authority, after investigation, finds that any manufacturer has 
classified a ciistomer contrary to the provisions of this Section, 
it shall so notify the manufacturer and require him thereafter to 
sell such crastomer on the proper level," 

(b ) Manufacturers 

The subject of the classification of manufacturers came up as early 
as the code authority meeting of March 20, 1934, although to no immediate 
end except to sched'ole the matter for discussion at the next meeting, fit 
9825 which time Mr, Chase, Counsel for the Code Authority, was to report on 



-33C- 

the matter«(*) At the next meeting, on April 3, 1934, Mr. Chase detailed 
the restrictions on sales between manufacturers subject to the code, but 
made no statement in regard to the classification itself, except that in 
his o-pinion Section 1 of Article VII, the standard clause prohibiting 
discrimination bet^7een purchasers of the same class, implied that all 
manufacturers subject to the code were in the same class. According to 
the Counsel, sales between manufacturers, when the purchaser was alsa a 
code member, were subject to the following code provisions: prohibition 
of sales below cost, price filing, regulation of stock and specific job 
orders, etc.; but were not subject to the provision naming the wholesale 
level plus 5Jo discount as the best price available under the code(**). The 
discussion resulted in issuance of a Code Authority Bulletin (No. 16) on 
April 13, 1934, nalcing the explanations public to the members of the in- 
dustry. ' 

Bulletin l!o, 16 went one step further, however, in distinguishing 
between manufacturers subject to the code and those not subject to the 
code, in the following language: 

"Manufacturers who are not subject to this Code, such as 
railway car builders, shipbuilders, etc., cannot be sold at 
better than your wholesale price level and they may be sold only 
on the basis to which their functions entitle them .... 

" If they buy material for their own use, they are consumer s .... 

"If they buy for resale, you may sell them only on the retail 
purchase -price level , unless they perform all of the functions in- 
cluded in the definition of the wholesale level set forth in Sec- 
tion 7 of Article VIII. 

"If they do perform those functions, you may treat them as 
wholesalers. In that event file their names with the Code Authority 
»... as required by Bulletin #5. "(***) 

Manufacturers then might be found in all of the classes, which was 
very probably true before the code came along. But the novel regulations 
affecting sales between manufacturers must have meant, as is evident from 
the number of times the subject was discussed, a considerable re-shuffl- 
ing on the part of some of the manufacturers; and the situation was fur- 
ther complicated by the fact that closely allied groups of maniif acturers 
who had not been included in the code, at the last minute, were placed at 
a disadvantage. 

In the Code Authority meeting of April 24, 1934, the subject came 
up again. This time an attempt wa.s made to draw . a distinction between 

(*| Code Authority Minutes of Meetings, 3/20/34, Code History, 
Exhibit C. 

(**) Administration Member Report No. 2, Code History, Exh. D. 

(***) Code Authority Bulletin No. 16, Code History, Exh. P. 

9825 



— Sol- 
sales to manufacturers subject to the code when the latter were in the 
same "branch of the industry as the code memters from whom they "bought, 
and sales when the purchasers were buying parts from manufacturers in 
other branches in order to complete the assembly of products. An example 
of the former would be the sale of vitreous chinaware to a manufacturer 
of vitreous china; and example of the latter, the sale of brass fittings 
or trim to a manufacturer of vitreous china. 

The Code Authority drafted a rule for distinguishing between these 
classes on the basis of the particular transaction involved. This rule, 
in effect, placed all sales between manufacturers subject to the code in 
the class of manufacturers' sales to wholesalers, exceiDt when the trans- 
action was in a particiiLar category which might be designated specifically 
from time to time by the Code Authority. The latter transactions were 
to be subject to all the provisions of the code, i.e., also to that pro- 
vision giving manufacturers subject to the code a separate classifica- 
tion. The first three exceptions listed included the sales of tank trim 
to tank manufacturers, closet spuds to closet manufacturers, and closet 
seat hinges to closet seat manufacturers, all of which were sales of 
brass to vitreotis china ware manufacturers, (*) 

The Counsel for the Code Authority was sent to Washington irith the 
rule and reported back at the next meeting on May 11, 1934, that nothing 
could be done about the matter without amending the code. (**) 

(c) Wholesalers 

In the meeting of February 28,- 1934, the Code Authority first dis- 
cussed the subject of classification of wholesalers and issued Bulletin 
No. t on March 3 calling for the filing of names of customers being sold 
on the wholesale iDurchase price level, the names of customers receiving 
special discounts, and the amounts of such discounts. (***) 

Every Code Authority meeting following this one of February 28, 
1934, recorded discussion of the wholesale classification, the important 
lohases of which included the classification process as exercised by the 
Code Authority and associations, the willingness of industry members to 
file their lists of ?/holesalers, and the general effects of the procedure. 

In the classification procedure, the call for wholesaler lists from 
code members was necessarily the first step. Cn March 20 the Code 
Authority decided to have composite lists of wholesalers made up from the 
lists sent in. At the same time the sources of the latter were to remain 
confidential. The composite lists, one for each of the four product 
branches of the industry, would then be checked thro\igh wholesalers and 
"direct-to-you" a,ssociations to indicate the "propriety" of their classi- 
fication. (****) ^^^ 

(*) Code Authority Minutes 4/24/34, Code History, Exhibit C. 
(**) Administration Member Report Koi 6, Code History, Exhibit D. 
(***) Code Authority Minutes of Meetings 2/28/34, Code History Exhi- 
bit C, Bulletin No. 5, Code History Exh. P. 

(****) Administration Member Report No. 1, Code History, Exh. D. 



9825 



The action tclcen at this last meeting raises three interesting points. 
In the first place, there was nothing in the code giving the Code Author- 
ity the right to maice up composite lists end the very jirocess would tend 
to make the findings depend less on vi^hether the wholesalers qualified 
under the code definition and more on whether the manufacturers as a whole 
agreed that the concerns in question were wholesalers. In the second 
place, "by checking through wholes^ers' association membership lists, an 
unwarranted qualification was added to the code clauses themselves. In 
the third pls,ce, the Code Authority quite evidently understood that 
"direct"to-j''ou'' organizations were to te given wholesaler treatment under 
the code. The last point was verified "by a direct statement a month 
later to the effect that these concerns if 'belonging to the recognised 
direct selling associations, "v¥0uld "be considered, for the time "being, 
as meeting the code definition of 'v/holesaler'" (* ) 

At the same meeting, April 24, progress was reported in the compila- 
tion of lists. I'jc complete plan for dealing with the classification 
matter ever appears in the minutes of the meetings or in the Administra- 
tion Member reports on the meetings, "but it seems to have "been under- 
stood that each association would elect a classification committee which 
would have the responsihility for this jo"b. Something of the procedure 
attempted is indicated "by the following passage from the minutes of the 
meeting of ^ril 24: 

"The Secretary reported that the cards containing the names 
of Enamel Ware Wholesale customers were ready for the Classifica- 
tion Committee to start work, and that the Committee would commence 
going over them the following day. 

"It wa,s agreed that customers who "belong to any of the recog- 
nized wholesr:.le associations or a recognized direct-to-you associa- 
tion, together ^.vith mail order houses- and those other customers on 
whose status all five associations agree, would "be considered, for 
the time "being, as meeting the code definition of 'wholesaler'. 
The doubtful cases would all be presented to the Code Authority for 
consideration. After the classification is completed, changes may 
be made from time to time, as may be necessary. On the completion 
of the classification, the Secretary will write each company, in- 
forming it of the names of its customers whom it must discontinue 
selling as wholesalers." (**) 

In the same meeting, two issues were raised which the Code Authority 
was never able completely to cope with. The seat manufacturers request- 
ed through their association that department stores be placed in the 
wholesaler class, on which the Code Authority ruled that the matter coiold 
be handled in the regular course of classifying, which was just getting 
under way. This simjDle request was the indication of a deep seated 
distinction, which became evident later, between the business methods of 
the seat marnof acturers and those of the fixture manufacturers. The in- 
cidence of the difference rested on customer classification, 

(*) Code Authority Minutes of Meetings 4/24/34, Item 23, Code History 
Exh. C. 

(**) Ibid. ' ' 

9825 



-3S3- 
The second important issue was the status of manufacturers' "branch 
houses. These were Vrholly owned manufacturers' sales and warehouse 
■branches, \Thich the code had evidently intended shou.ld he treated no 
better than independent wholesalers. The apiolicahle clause in Section 
7 of Article VIII, however, forced the manufacturer to conduct each level 
of his "husiness se-oarately and T/i th an individual system of accounting 
for each in 3,ccordance with the respective codes for the various levels 
of the Industry," This did not oblige the manufacturer to give his 
branch houses no better prices than to wholesalers, and by malting the 
branches separate entities it left the latter to make their own prices 
to retailers until the ITholesale Code should be approved.' The Code 
Authority considered it undesirable for manufacturers to be allored to 
quote their branches at sx)y other, tlian the wholesale level, and hence 
at the meeting attempted covering the subject with the following rule: 

"Manufacturing wholesalers should not be permitted to buy at 
lower prices thcji other wholesalers simply because they are also 
manufacturers. " 

Tlie counsel was sent to Washington to see if this covered the loop- 
hole, only to report back that nothing could be done without amending the 
rode. It was impossible completely to classify the branch houses as 
wholesalers without such action. (*) 

In a Code Authority meeting of June 15, 1934, the wholesaler lists 
were again referred to. The lists prepared by the classification com- 
mittees of the pottery and enamelware association were examined and the 
Code Authority decided to give each manufacturer an opportunity to com- 
ment on any of the nrunes of his wholesalers who were omitted. The com- 
mittees were urged to expedite the matter so that the lists might be 
available by the time the wholesalers' code was approved, because the 
proposed code for the wholesalers contained classification provisions 
which continued where the manufacturers' code left off (as will be seen 
in a later section of this report) (*) 

Before any of the composite lists were completed the question had 
arisen as to v;hat to do with them. It was hoped that they could be 
distributed as mandatory lists and the Code Authority meeting of May 11, 
1934, records a, discussion of the subject by the Counsel and the Secre- 
tary of the Code Authority. As reported by the Administration Member, 
Major Clay: 

"Mr, Chase and Mr. Hanson discussed the matter of publishing 
the list of wholesalers which is now being compiled 'by the Classi- 
fications Committees of the various Trade Associations, This list 
must not assume the form of a 'black list.' It is merely the rec- 
ommendation of this Committee and gives everyone buying on the 
wholesale level an opportunity to present his case for considera- 
tion in the event that his name is not on the wholesale list pre- 
pared by the Classification Committee. Mr. Hanson reported that 
Mr. Jacoby advised him that such a list could be published provided 
it was conrpiled in the form suggested above. "(***) 
T*l Ibid., Item 4. ' \ 

(**) Administration Member Report No. 7, Code History, Exh. C. 
(***)Administration Member Report No. 6, Code History, Exh. D, 

9825 



-334- 
The subject did not come up again until Septerater 28, 1934, when 
there was a discussion of the list prepared ty the range "boiler committee. 
Apparently the subject had teen referred to Washington since the last 
discussion and the Code Authority Secretary was anxious to know what dis- 
position could he made of this list. The Assistant Deputy in charge of 
the code had changed. Now if was Pilkington, not Jacoty; and after some 
discussion with the former, who happened to he at the meeting, it w£^ 
decided to refer the list to his office for a legal opinion. The fact 
that the names of their customers had been filed "by individual manufactur- 
ers in confidence seemed to make the Code Authority hesitate, (*) 

On Octoher 2, the matter was placed before the Administration by the 
Secretary, At the same time the latter enclosed a copy of a bulletin 
which had been sent out to the industry, in which the Code Authority had 
attempted to define the term "a.dequate showroom" which appeared in the 
code definition of a wholesaler, (**) 

Mr. Pilkington referred the matter to the Legal Division in a memo- 
randum in \?hich the following are the pertinent -Daragraphs: 

"My interpretation of the relevant provisions of the Code is 
that each member of the Industry shall file with the Code Authority 
a list of those concerns whom said member sells on the wholesale 
purchase price level and if the Code Authority finds, upon investi- 
gation, that any concern on this list is not entitled to buy the 
products of the Plumbing Fixtures Industry at the vi/.holesale purchase 
price level, such name shall be striken from the list until it 
qualifies according to the provisions of the Plumbing Fixtures Code, 
To me, this means that each member of the Plumbing Fixtures Industry 
has the right to determine whether a concern is so qualified within 
the limits of the classification set up in the Code, 

"On the other hand, I see nothing in the Code permitting the 
Code Authority to compile a composite list of such qualified whole- 
sale purchasers other than for their own reference, even though such 
a composite list would not divulge which wholesalers represent which 
members of the Industry, thereby violating confidence, A composite 
list made public would, however, in my opinion, promote the possi- 
bility of the establishment of a black list, and further have the 
effect of restraint of trade. 

"Your attention is also called to the Code Authority's defini- 
tion of an adequate show room. While the Code may not provide for 
Administrative approval of a definition of the word "adequate", I, 
nevertheless, am of the belief that once again the Code Authority 
is exceeding its prerogative in so definitely establishing a defini- 
tion of the word "adequate" and thereby extending Code provisions in 
that respect, 

k) Administration Member Report No, 11, Code History, Exh. D. 

(**) Hanson letter to Pilkington, 10/2/34, Deputy Files, 

An "adequate showroom" v^as deemed to include one each of a bathtub, 
lavatory, closet combination, kitchen sink, closet seat, range 
boiler, laundry tray, complete set of plumbers' brass for all fix- 
tures, 
9825 



— o3{>» 

"I oelieve this is a very important matter, as I understand 
that the other Divisions of the Industry are taking like action and 
will -nroceed in like manner tovmrcl the establishment of a componit^ 
list of aporoved wholesalers unless a, definite ruling is issued "by 
the Administration circumscri'bing the limits of the procedure. " (*) 

Later in the spxie month the Secretarj'' presented the Code Authority 
with the final enemelware snd pottery lists and the latter voted to dis- 
tribute these lists to the members of the respective industries, but the 
Administration Member pointed out that a reply from Mr. Pilk-lngton on the 
range boiler list was still being awaited. (**) On Tecember 11th still 
no word had been received from Washington, and the two lists were being 
combined, with the possibility that in the near future the list made up 
in the brass line would be merged also. There was no mention of either 
range boiler or sanitary seat lists. At the same meeting, however, a 
letter from E. L. Ilentje of the Plumbing and Heating Contracting Tivi- 
sional Code An-thority was read, requesting lists of approved wholesalers. 
The manufactui'ers' code authority agreed to advise Mr. Flentje that no 
lists had been ^proved. (***) From the history of the plumbing industry 
it appears probable that the request for such lists by the master plum- 
bers meant one or both of two things; first, a criticism of the classi- 
fication of "direct-to-you" and mail order houses as wholesalers; second, 
an attempt to boycott wholesalers not on the lists. To the latter 
possibility, Lajor Clay, Administration Liember, had apparently given some 
thought, for in his report of the next meeting, January 15, 1935, he 
posed the question (to" the Assistant Deputy): "Would it be good policy , 
to secure the cooperation of the Master Plumbers Association?" (****) 

One wholesalers' association had alrea.dy registered its bitter 
disappointment at the classifications allowed "d-t-u" and mail order 
concerns by the code and given them by individual manui'acturers, and 
there is no doubt that in doing so the New York State Association of 
Wholesalers of Plumbing and Heating Supplies was e::pressing the senti- 
ments of the plunbir.g contractors aS well as of the other "regular" 
wholesalers associations. This letter was sent to all the manufacturers 
by the Plumbing Fixtu-res Code Authority along with the bulletin of 
August 3, 1934, and several paragraphs of it bear reproduction here as 
follows: 

"We deny that the word 'Wholesaler' can be interpreted to 
include a person, firm or corporation having only one retail custo- 
mer and having thousands of cons-omer customers. 

"We deny that a mail order house can be fairly classified as 
a wholesaler just to enable purchase at the wholesale level for the 
purpose of getting merchandise to several hundred self-owned retail 
stores at much below any other retailer's cost and for the purpose 



i*) Pilkington memorandum to W. W. Swift 10/6/34, Deputy Files, 

(**) Ibid, No. 12. 

(***) Ibid. Eo. 13. 

(****) Ibid, ilo, 14, - - 



9825 



-336- 

of assemlDling in three or four mail-order-houses warehouses merchan- 
dise, not to he sold to retailers,, but to consumers. 

"¥e deny that any so-called "direct-to-you firms" classifying 
itself as such, can be fairly classified by some other authority as 
a wholesaler when the self-styled "direct-to-you" entity, by thus 
styling its own fxmctions, so clearly indicates, negatively, that 
■ the firm is not in the wholesale business. 

"Some measure must be found by some one in authority for de- 
■ terraining, amongst other things, how many retail customers (not 
consuming customers) are served by a wholesaler to represent the 
current performance of a wholesale function. Until there is a 
differentiation between the wholesaler and the big retailer we will 
suffer from an oppression of small enterprises and from a definite 
rapid trend toward monopoly in the distribution of staple' plumbing 
fixtures." (*) , 

Complaints against the customer classification procedure and code 
provisions came from manufacturers also, and may be placed in three cate- 
gories. In the first place, there were the manufacturers who refused to 
■file the names of customers ipho- would come in the sub-class of wholesalers 
to receive special discount. These may not be considered strictly as 
com.plainants, because-, as a matter of fact, complaints were filed against 
them, as we shall see below in the discussion of mail order house con- 
tracts. Nevertheless, their refusal implied a judgment of the code pro- 
vision, in the second' place, there were those industry members whose 
wholesale customers could not stand the scrutiny of the association class- 
ification committee. The following excerpt from a letter of the Com- 
mei*cial Enameling Company of Los Angeles to the Administration Member needs 
no interpretation: 

"¥e were forced to discontinue selling practically all our 
customers, in order to live up to the provisions of the Code. This, 
because these customers did not qualify as wholesalers. We have 
bravely dropped these customers and now find ourselves with such a 
narrowed outlet for our ware, that it becomes serious for us. 

"I have spent forty years in the enameling business. Some six 
years ago I S;t;arted this concern. We went through the agony of being 
born, gave the concern the hardest work of my life, put up no end 
of sacrifice and did a lot of patient waiting; and we have provided, 
in our small way, a means of livelihood for some twenty people, 

"In addition to this, it took money to introduce our line and 
we have arrived at a time where our ware is recognized and we did 
have a line of customers to give us volume commensurate with our 
plant. We want td do our bit, although as conditions now exist, our 
opportunities to do our bit have practically ceased. 



(*) Higinbotham letter of 7/18/34 to P.F. Code Authority with C. 'A. 
Bulletin of 8/3/34, Code History Exh, P, 



9825 



"Cur old customers who have 'been cut off cannot understand why 
they Cannot continue to "buy from us, same as heretofore. They say 
we have "been selling them for years, they paid for what they 'bnuf^ht 
and have the money to pay for v/hat th'^y want to "buy from us now - 
and seemingly they have stock from some one else." (*) 

There were other manufacturers who complained of the same effects 
in letters in reply to the rilkington aupstionnaire. 

■ In the third place, there were manufacturers who disliked filing 
their lists of wholesalers for fear of making a present of the wholesal- 
ers to their competitors. The Public Service Brass Co., for example, 
■wrote the MA as ecTly as March 9, 1934, taking exception to the procedure 
required under the code. In effect, the company stated: 

"TJe have no ohjective to furnishing price sheets hut we do 
most emphatically protest against our "being compelled to furnish a 
list of our customers to our competitors for this is information 
that is sacred to our organization and we feel that it is asking too 
much to compel us to make this sacrifice, for it will mean a tremen- 
dous loss to us, if not actually closing our plant, and while I 
make personal reference, however, we are confident that we are ex- 
pressing the thought of practically all like manufacturers." (**) 

When in Deceraher, 1934, the Administration issued an interpretation 
qualifying the filing agent, mentioned in Article VIII, Section 7, Para- 
graph 6, as the recipient of lists of customers and special discounts, 
calling such an agent a confidential agent ("a representative of the Code 
Authority who shall not he in the employ of any employer under the Plumb- 
ing Fixtures Code"), it expected to he in a position to answer criticisms 
similar to the one made by Public Service Brass. (***) But the latter 
company pointed out in its letter of August 15, 1934, that "confidence in 
this subject required not so much refusal to disclose the manufacturer's 
name but refusal to publish to the industry a list of prospective custo- 

The general effects of the wholesale classification cannot be fully 
ap-preciated until we have discussed the price provisions of the code. It 
can be seen already that trouble arose over thf' provision itself and the 
way it operated. One whole division of the industry wanted to classify 
as wholesalers, department stores (and later retail hardware stores also), 
although these could not have qualified under the code provision. Some 
of the smaller companies were literally being classified out of existence 
because of the association classification committee's power of review. 
Other companies were in danger of losing their customers, even if they 
qualified, whenever the composite lists should be exposed. But still 
T*) Letter from Commercial Enameling Co. to W. L. Clay, 7/2/34, 

Deputy Files. 
(**) Pablic Service Brass Letter 'to Administrator 3/9/34 Deputy Files. 
(***) Administrative; Order ITo. 204-21, Dec. 3, 1934, Deputy Files. 
(****) Public' Service Brass Letter Of 8/15/34, op. cit. 



9825 



-338- 

greater t roubles were arising through the comhination of price and classi- 
fication provisions. 

(d) Mail Order. Houses 

As indicated atove in the section on "Wholesalers", the mail order 
houses were early classified as wholesalers under the code. (*) This 
action was a far less controversial suhject, however, than the question 
of what price return was to be accorded these concerns in the general 
class of wholesalers. If the recipients of the 5')o differential, i.e., 
the members of the .favored sub-class of wholesalers, had been called 
"super-jobbers",' the mail order houses, based on their probable or sus- 
pected price terms,: were worthy of the designation '"super-super-jobbers". 
Although this is partly a story of classification, it can be told more 
accurately in three further sections of the report, namely, on the dfo 
differential, on price filing, and on the limitations on stock orders. 

(e) Retailers 

The Plumbing fixtures Code classed as retailers all who T/ere not 
wholesalers and who purchased for resale; (**)' There was not a great 
deal of recorded ezperia nee with' this clause. The predominating desire 
of distributors was to qualify as wholesalers, and hence there was less 
dispute ver the retail classification. Large industrial and real e state 
concerns had before the code bought in some quaritities direct from the 
manufacturer and probably ranked somewhere between wholesalers and re- 
tailers. The code' provision that caused them the most damage, however, 
was the one prohibiting sales to consiomers, and this will be discussed 
in a later section. 

The Code Authority, never' reqiaired the filing of lists of retail 
customers, Ihe assumption being, possibly, that the "resale" limita- 
tion was easily enough enforced. The "resale" qualification certainly_ 
entailed little interpretation, but there is no doubt that it proved to 
be a considerable hardship, with wide enough effects to make any real 
enforcement dubious. 

The one positive act' of classification performed by the Code 
Authority in regard to retailers was to place "group purchasing agents" 
in this class. (***) These agents were not defined, but in the meet- 
ing of March 3, a. bulletin, issued,' it was thought by a group of pur- 
chasing agents, was read tc5 the Code Authority. The bulletin, in ef- 
fect, offered aidto jobbers' who wished to get around code difficulties, • 
particularly as to quantity discounts. There was discussion of the 
matter at the meeting and a caJ.1 for investigation but no further action. 

(*) See II B 2 (c) "Wholesalers", for action taken by Code Authority 

in this respect, March 20 and April 24, 1934, ■■ i 

(**) Pl-umbin;;- Fixtures Code, . Art. . VIII, Sec. 7, Par, 4. 
(***) Code Authority Minutes of Meetings 3/6/34, Code Hsitory, Exh, C. 
(****) Admin, Member Report iTo. 2, Code History, Exh, D, 



9825 



••ooS** 



(f) Cons\ijners 



The subject of classification of consumers is again ono that can 
better "be discussed in another section, one on restrictions on sal no Ha 
classes of buyers. The code prohibited manufacturers' sales to anyone 
who did not resell the products. The actual classifying of consumers 
by itself amounted to no more than confirming the purpose of the code 
provision. For example, on March 3, 1954, the Code Authority a^vr-od 
that ship lines, railroads, hospitals, asylums, office b^iiidinr'^, etc, 
were all nonsiuncro (and h-^noe oonid not bo paid iidi-o»-.i; ^, (*) 



(*) Administration Member Report No. 2, Code History, Exh. D. 
9825 



-34C- 

5'jn.Tnary 

In geiioral customer classification in this industry's codc^was an 
active process. The Code Authority and classification committees act- 
ually attorrrptod to classify cr.stomers. There is no douht that the class- 
ifications were restrictive, hut the outstanding conclusion to ho dray/n 
is tkat in the plumhing fixture industry at that time any attempt to 
Gstahlish a uniform scheme of classification v/as hound to ho extremely 
restrictive and was also hound to fail. There was too many uncertain 
quantities in the industry and methods of distrihution were changing too 
rapidly to permit of classifying tho cliannels in use. 

3., Distrihution Differentials and Trade Discounts. (*) 

The a"r3roved Plumhing Fixtures Code contained tvra provisions dir- 
ectly affecting trade differentials. One specified the nature of tho 
discount hased upon the quantity purchased; this is discussed in the 
subsection on Quantity Discounts. The other provision, permitted the 
CocLo Authority to cstahlish a minimum v/holesaler-re tailor differential. 
This read in part as follo\¥S: 

"In recognition of the fact that the products bf these 
industries cannot he installed in ultimate service with- 
out the perfonnancc of wholesaling functions such as ass- 
emhling, warehousing, and huying in hulk . . . individ- 
uals, firms, CO r^:) orations, or other persens, performing 
such wholesaling function and purchasing in wholesale 
quantities, shall receive a trade discount from published 
prices greater than the trade discount accorded to any 
individuals . . . who do not perform the wholesaling 
function hereinabove described. The difference between 
the trade discount allowed to those individuals . . . 
performing such wholesaling function and the trade dis- 
count accorded to other purcha-sers for resale, sliall be 
determined by each individual manufacturer in establish:. - 
ing his wholesale purcliase price level and his retail 
purchase price level; hut in no case shall the difference 
be less thfin the percentage determined by the Code Auth- 
ority, with the approval of the Administrator,, subject 
to modification made therein from time to time with the 
approval nf the Administrator, such percentage and such 
modifications therein to be confirmed by immediate stud- 
ies of the value to the consumer of the functions involv- 
ed. 'Such studies shall be made by an impartial fact 
finding agency under th.^ direction of the Code Authority," 



(*) Minutes of the Code Authority Meetings, and Administration 

Member's Reports are respectiveily .Exhibits C and D of th* Code 
History. ' All other material hearing on Differentials is in the 
Deputy's Files. 

(**) Paragraph 2, Art. VIII,, Section 7, revised in Amendment 1, 
January 31, 1934. 



-341- 

The code originally proposed contained vc.rious restrictive devices, 
including minimum prices, resale price maintunanco, mandatory disco-unts, 
etc. 2he alDovo ouoted provision •:3n,s the remnant oi' the more ela'noruto 
inductrj- attsr.pt to rej-ulato the conrcxjtitive situation thro\ie;l^ price 
control; and this clause, alter proposal, v/ar continuously disap-oroved 
"by "both the Ccns-uraors' Advisory Board, and the Division of Research and 
Planning . 

The entire industry, manufacturing' and cictriljutinof vjas split into 
two factions on this subject. It ve.s again a case of the firmly entren- 
ched enterprisers seelcin;; me-ns of r?t?.inin^ their advantae;cs of 'oeing 
the traditional channels of distriou.tion; and the noFComors seeking to 
prevent the freezing, of distribution into only the existing channels. (*) 

At the Ich-rxiSLiy 15, 193-4, meeting of the Code Authority, ,the ace-- . 
ountinfc; company of Ernst and Ernst war. authorised to maize a preliminary 
study of distrioution costs in the industry. Based upon their findings, 
it \'^as cecidcd at the Pehi-ua.iT 28, 1934 meeting, that 20,j should be the 
minim-tun mark-up over the v,'holesale purcl:iase level. The ITRA was informed 
of the industrj'-'s drive for a 20,j differential and was ur^cd tr iiasten 
approval of the mai-king in order to cffectua.te the price filing system 
and the distinction between the two levels of distribution. Fiu-themore, 
the proponents were very anxious tlmt the minimum differential be written 
into the manufacturing- code at the s-?xae time tria.t the vdiolosale code v/as 
approved, since any lag in the a-rolication of the differential to diff- 
erent types of vendors must result in com^oetitive advantage to one. (**) 

On July 24, 1934, a public hearing to consider the proposed diff- 
erential of 20;j was held. At this time the master plumlicrs indicated 
they had no objection to the 20,j differential; tliat on the contrary, tlio;y 
considered it reasonable. The Central Suroply Association, on the other 
hand, representing 325 plurabihg wholesalers, submitted average figures on 
sales, gross margins and operating expenses for 1930 a-s proof tha-t 25;j 
mark-up was necessary. The Association also claimed that a. differential 
as low as 20>j would force 7jhnlesalers to meet on many commodities the 
quoted prices of manufacturers 'vho sold direct to the plumbers. (***) 

The Lia.il Order Association of America objected to the establish- 
ment of s.ny differential on the grounds that in operation such provisions 
resulted in price fixing. The Association was particularly onposed to 
the figure proposed by the pl-umbing manufacturers because it v/as an aver- 
age, and advocated prices based on each actual transaction, pointing out 



(*) For a fuller troatiaent see above, the subsection -»n Customer 
Classification. 

(**) See minutes of the Code Authority mGctings of Liarch 20, April 3, 
•June 15, 1934, E>±iibit C and Exiiibit D of the Code History for 
the Plumbing Fixtures Industry. 

(***) Statement of E. L. Flontje, member of Division Code Authority 

of the Pl-cmbing Contracting Division "f the Construction Industry 
at the July 24, 1934 hearing. 

9325 



that its members sold r. limited niimlie-- of standai--. styles, ccncentra.ting 
on vol"ame, thus affording the manufacturer the sc-vings accruing from mass 
production, and moreover, tha.t the dollar volume of retail sales hs.ndled 
by a mail order house vjas larger than that li^^ndled by most retailers.' (*) 

In a letter dated September 14, 1934, from Secretary Hanson hi the 
Code Authority, to Assist'\nt Peputy Pilkington, the Advisability of declaring 
a/n emergency in the industry was discusseru The coc-.e h3.C. no such prov- 
ision, and V70uld have required amendment; instead Mr. Hanson urged action 
on the differential and the cost accounting system. (**) 

Ho differential ha-d been approved at the time the trade practice 
provisions of the Plumbing Fixtures Code T;ere delated by Amendment Ho. 3 
on March 23, 1935. In addition to the usu£-.l delays attendant upon putt- 
ing into effect a code " enabling" jjrovision, the proposal for a differ- 
ential met a definite clia-nge in HEA policy in Office Memorandum Ho. 267 
issued on June 8, 1934, v/hich declared, in effect, tha.t no proposed cust- 
omer classification clauses '■dth any fixed differential vrauld receive 
HEA approval. From the time of the he3.ring on to March 2J, 1935, the 
position of almost all the advisory boards and divisions was in definite 
opposition to the differential and the Acministration wa-s very hesitant 
about attempting to push it. Objections to the ■■ a.deq,us.cy of the evidence 
offered in support of the differential ?rere joined \7ith the objections on 
grounds of policy. The opinion of Research and Planning, as exprer.sed in 
a memorandum from R.D. Winsted to Assistant Deputy Pilkington on August 1, 
1934 cxem-)lifios this opposition and is repi^oduced below: 

"It is not believed that a-oproval of the proposed 
differential c^^.n be properly considered at this time 
dcrpite the lifting of the stay and the i^evision of 
Section 7, Article VIII, of the above Code on January 
13, . 1934 and Janua.ry 31, 1934. Office Memorandum 
Ho.' 267 states tlia.t the policy against the use of 
stipulated prices, disco-ants or differentials for 
classes of customers should bo substantially foll- 
owed " wherever provisions for classification of 
customers are included in Codes." 

"Aside from such policy considerations the follow?- ,. 
ing facts vjere developed at the Hearing and Con- 
ference on July 24, 1934: 

"The data submitted as the study which vfas to be 
made by the independent agency cited in Section 7, 
Article VIII of the Code, ?/a.s a. presentation by a 
representative of Ernst and 3rnst of summary data 
compiled in 1930 by the Bureau of Research, Harv- 
ard University, of material supplied from 203 
wholesaling firms by the Central Sujuly Association, 
an organization of v.'holcs-^.le plumbing firms. The 



(*) See .brief of the Mail Order Association of America presented 
at the July 24, 1934 Public Hearing. 

(**) Code Authority meeting of September 25, 1934. 



-545- 

represent^.tivG of Ernst mid 3rnst vho nads the study st-'-.teL. 
that he lisd not seen nor cx-?Triined the individual reports 
suoniitted "by the 205 v.'holcs-^ling; firms, nor had any rochoo:;:-- 
ing ^r ror.nalysis of the basic dr-.ta Leon uiidcrtakcn. 

" The saniiile of 20 > fiiros out of the a-Tproximato 2000 whole- 
sale -.'jlunibing firms in the industry is too small a srjirple to 
^ive any reliable d-^-.ta. IJo chcckiiig report of any kind was 
submitted in support rf the Harvard suiimary fi^^ures. 

"The d'lta for the year 1370 showed about 4 per cent hi^'her 
costs of operation of v-holcs?le houses than for any previous 
year. The point advanced tiiff.t 1950 volume was closer to 
average volume than any other year which the Harvard dnta 
covers may be ^-iven v^reit-ht, but it is v;ell Icno'.vn that during 
1950 overhead anc operating costs vcrc overload.cd due to 
efforts at carrying executive, sales and office personnel 
in the face of declining volume. In 1951 these overhead 
costs were cut drastically. This point is clearly shovm on 
page 25 '^f the Transcript nf the Hearings wherein the OonirsI 
Supply Association states: "\7holes-lors liave made drastic 
reductions in operating expenses during the past two and a 
lialf years. Executive salaries and expenses havo boon cut 
to the bone. 

" Despite those well laiown factors, the representative of 
Ernst and Ernst stated tlis.t no conEidomti on had been givon 
to the possibility that operating costs for 1950 were not 
typical of present day costs and tiaat no study had been made 
to shoT7 whether there was any similarity between present 
costs and those in 1950. Obviniisly the hi:^,■h costs revealed 
for 1950 by the Harvard summary cannot bo tykcn as indic- 
ative of costs since 1951. 

"The dsta submitted in support of ?. differential wrs based 
on a summary study of interquartile operating expenses of 
the total 205 finns sunimarized by the Harvard study. The 
number of firms in this interquartile ^roup was not dofin-- 
itely given but v;as mentioned as about 100. However, 
after submiscion of this data, v/hich, in the letter to 
Kohlor of March 2, 1954, indicated a 20 per cent minimum 
differential, the Code Authority ordered the lower quar- 
tilo data to be used in me.king the amplication. ^ This 
was claimed also tc> ^hov/ Jastif i«atipn for c 2'',. mininTUjn 
differential. Hewever, nr statistical brepJcdoT/n of the 
lower quartile figures were given; hence the basis for 
the application that v/as finally made d-^es not appear in 
the record and 'na.s not been examined. Ho information is 
given as to hnw many firmis are represented in this lower 
quartile data, but prosum-ably it ir; in the neighborhood 
of fifty. 

" In none of the material submitted by Ernst and Ernst 
has there been sho^^n any itemization of the elements in- 
corporated in arriving at the operating expenses. It is 
stated in the letter of lia.rch 2 to Mr. Kohlor that ware- 

9825 



house occupaiae^j delivery service and executive expense 
represents " alDout" 7-l/2 per cent of the 35 per cent to 
gross sales covering total costs of doing husinoss. 'The 
■balance of the cost of doing husiness percentage* is said 
to 'represent selling, office e^qpense, provision for credit 
losses, allowances, etc.', this statement "being the only 
infonaation given. 

"It is intimated in the letter to Mr, Jacohy of March 16, 
1934 tlis.t the lower quartile figures show somev'hat lov/er 
percentage costs' for warehouse occupancy, delivery sei'vice 
and executive expense though ther>e fii,.ures are not d.efin- 
itely shown except "by computation. In fact it appea.rs th3,t 
' the estahlishment of all the lovrer qua.rtile data,' together 
v.dth the recommenda.tion for a 20 per cent differential ba.sed 
on this data, was arrived at as a result of computation rather 
^han factual study. 

"In short it appears, from the methods tised "by Hnnst end 
Ernst, that the datef from the entire 203 firms indicated a 
20 per cent differential to. that firm. A second corrrout- 
ation "based on interquartile, data also indicated a 20 per 
cent differential.. Then to cap the clima.x the computation 
of loMQT quartile data is also claimed to justify a 20 per 
cent differenti-al. Statistically such claims are insupport- 
a"ble. 

"It was acknowledged tliat no- study v/as ma.de of costs of large 
volume direct shipments from manufacturers to contractors or 
other consumers, which vrould "be the transactions largely aff- 
ected 1)y the differential.' 

"Since the individual repor;ts,on vrhich the Harvard data were 
"based were not examined, no data as to ranges in operating- 
costs in either the lov/er q'uartile data finally decided upon 
as a proper "base or. ranges in the interquartile data origin- 
ally decided "Uj^^on as a, "base were loiom to Ernst and Ernst rep- 
resentatives, nor are they available for study. 

" 0"bviously the r-anges.'botween high and }.ow operating costs 
in any statistical group, particularly in a small sample, are 
essential in determing so important a question as a minimum 
differential. 

" It was further bro-ught out at the.. Conference tmt 
the data published' as the Harvard study was conrpilcd by the 
Central Suroply Association and forwarded to Harvard for check- 
ing and publication under its a=athoritative name. It v;ould 
appear, therefore, that such a study can ,be questioned as to 
its independence and .as to whether any independent study of 
any kind has been made in this prcscnta tion, as rcquii-ed -under 
the Code provisions. 



9825 



-545- 

••Decause of the a'oove inadequacies of data, in- 
adequacies of nethod of study and tte inconclusive 
nature of the presentation, this Division can see 
no justification for 'believing that any case has 
"been made for ajiy specific differential, 

"It is, therefore, reconmended that the application 
for the differential be disapproved on the trro 
counts that the differentials are contrary to policy, 
and that no material has "been presented to justify 
the differential applied for," (*) 

Tlie discussion of the subject of differentials naturally centers 
around the code provision nhich has "been treated above. There were 
several other aspects, hovrever, which occupied important positions in 
industry- discussion. One was the natter, of maintaining separate levels. 
The code stated that there should be a wholesale purchase price level 
and a retail price level and a considerable amount of energy was spent 
by the Code Authority in attempting to keep th»m distinct. Furthermore, 
the Code Authority felt called on to indicate to whom producers might 
sell at each level. Since this action had to do largely with customer 
classification, it had been discussed in the preceding section. 

rron an interview with the representative of the Crane Company in 
Washington on January 10, 1936, it appears that the. trade discount to 
plumbers had ^een lowered to 20,3 and less by the industrj^ in the spring 
of 1934. The discounts to wholesalers had also declined. The reason 
for the changes lay partly in the fact that manufacturers were having 
to meet nail order competition on the ultimate consumer level and partly 
in a more general use by manufacturers of b distinction in price between 
fast and slow selling items. Of course, raail order houses specialized 
In the faster items, and hence the reductions upon these items may have 
teen one aspect of mail order competition. 

The first results were apparently a lowering of discounts on the 
Staple or volune items from 25^ to 20;o for plumbers and from 30^o to 25fj 
for T-holesalers. Later, hor/ever, the discounts wefe again reduced. 
Plunbere received IT--^-^^ on staple and 20}o on other items, while whole- 
salers received 20^ and 25fa., At the eamc time manufacturers reduced 
their own net realizations, and hence the reduction in the consumers' 
list was considerable. 



(*) Exhibit "II" of the Code Kistorj'', 



9825 



-346- 

4. Quantity Disco-unts (*) 

Neither the TDroposed nor the a-n-oroved codes s-oecified the use of 
quantity discoimt schedules. The apriroved code mentioned Quantity in con- 
nection with the maximum differential discount. The question of quantity 
discount was directly involved in the Interpretation of the following 
section of the Code: 

"No raan-ufacturer shall sell the Droducts of these In- 
dustries to anyone except to manufacturers subject to 
this Code at "better than his wholesaler purchase price 
level. Customers who qualify for such level ma.y he 
further classified by each manufacturer on the basis 
of volume of purchases or on any other basis as specified 
in his published prices and other conditions of sale which 
he has filed with the Code Authority in accordance with 
Section 10 of this Article, but in no event shall the 
special discount exceed five (5) per cent beyond the 
net price for the wholesaler level. 

"Each manufacurer shall file with the Code Authority, 
when required by it, but in confidence, the names of 
customers sold by him on each price level, his schedule 
of special discounts, and such other information as t e 
Code Authority may require." (**) 

Preferential discounts are also discussed in the sub-sections on customer 
classification, and on mail order contracts. 

At the February 38, 1934, Code Authority meeting it was voted to 
call for the filing of lists of customers being sold at the wholesale 
level, together with the discoimts, if any, being granted them. There 
is no material as to the number of lists filed in response to this 
request. However, it is known that about four or five companies did 
refuse to file the names of their customers receiving special discounts 
and the amounts of these discounts. One, the Rundle Manufacturing 
Cmpany, in a letter to the Code Authority dated March 6, 1934, refused 
to file the requested information until after the outcome of the general 
Code Authority meetings of March 5, 6 and 7 ih. Washington. The Code 
Authority's response was Code Authority Bulletin #7, which discussed and 
explained several provisions of the co(?e, including the five per cent 
discount. It was annoxmced that the list of customers receiving this 

(*) Sources: Code Authority Minutes of Meetings - Code History, 
Exhibit C Code Authority Bulletins, Code History, 
Exhibit P Administration Member Reports - Code 
History, Exhibit D All other correspondence on the 
subject may be found in the Deputy's Piles. 

(**) Paragraph 5, et. seq., Article VIII, Section 7 



0825 



C 



-34.7- 

discovjit roiild "be kept confidential "by the Code Atithority. 

Tliere -TvS a conflict of intei-pretations conccmin:'- the five per 
cent discount. The Code Authority interpreted the atove quoted sec- 
tion of Article VIII to nean that no ranvifacturer could gr.?r.t eoiy cus- 
toner, classified as a vholesaler, a price rrhich vras nore thaii five per 
cent less than the price quoted any other cxistoner in the sa'nc classifi- 
cation, regardless of the differences in quantities purchased "by "both. 
This linit rras not to ap'jl?/ to sales ar.iong nanixfacturers all "'oound oy 
the code. (*) 

Tne UFA issued an inter^rretation, sayin-s that the code clause 
providing the special discomit did not prohi"bit the nanu.facturer from 
having separate "basic prices for stocl; orders and for specific jo"b 
orders to each of \7hich the five per cent applied. At its nesting, the 
Code Atithority tentatively decided that a five per cent discount being 
given ""o;^ so-.ie nanufactv.rers on purchases of naterial for $50.00 or no re 
did not interfere nith the five per cent discount T/hich "by an earlier 
interpi-etation TJas to be hept confidential. Sr.iall nanufacturers nere 
couplainiug that the larger nanufact-'orers had stopped giving them the 
five -oer cent spot disco'ont, fonaei-ly granted then. The large manufac- 
turers explained tha,t the smaller ones ^jere undermining the wholesale 
price level "because these r/ere granting some uholesalers a five per 
cent e::tra discount as r/holesalers, and another e::tra five per cent for 
acting as manufacturer's agent. 

The r?nge boiler naimfact-aring industry attempted to solve the 
problem of the d,'i disco-ant by ashing ths.t the Code Authority prohibit 
the u.se of any preferential discounts for any member of this industry. 
The reouest tras declared to be beyond the authority of the administra- 
tive body. It vras decided that each member nal:e a statement in his orm 
price list covering the subject. (**) 

As a result of this controversy, the l.aj- 15, 1934 Code Authority 
Bulletin, Ko. 21, uas devoted entirely to the question of subterfuge 
concerning the use of the five oer cent discount. This read in full, 
as follOTTs: 

"TO T;3 IIi.I3Eil 0? T?IE IITDUSTHY ADDi'GSSLD: 

"A manufacturer's basic -'holesale level, according to an 
official ilT.H.A. interpretation of Section 7 of Article VIII 
of the Code, nay consist of one price for stocl' orders and 
aiiother rjrice for s'oecific job orders, both prices to be 
published, filed, distributed and adliered to as provided for 
ir. Section 10 of Article VIII. ITo division on any other 



(*) Ac- ministration hembers .leport if2, A;oril 3, 1934. 

(**) Aeiiinistration llember ?.eport #6, hay 11, 1934, and Lieeting 
of the Code Authority, for sa le date. 



9325 



-343- 
liasis is authorized, ho'jever. 

"The sar.e section provides for special discoir-its beyond 
the tase prices "xor the iTholesale level of not e;:ceeding 
5Jj. ITo other special discouiit is perni tted by the Code . 

"These authorized sp e c ia]. di s co'ont s up to 5,:> nay he given 
for ajiy reason ',7hat soever, out the basis on v;hich they are 
given nu st b e published to the customers to vhon they are 
available pjid must be filed ^-ith the Code Authority. The 
Code Authority filing department will keep these special 
discounts co nfidential if thej are published separately 
from the regular price lists, but in no event caji there 
be a special disco'tuit vhich has not been filed pith the 
Code Authority. 

"If, hoTTever, you include on your published price list, in such 
a m.y that it cannot be hept confidential, any special dis- 
co-ant, such as 5)0 for a given value of merchpaadise, • you rrill 
none the less ho.ve u sed -jp the only s7Decic2 di secant provided 
by the Code, and there can be nothing more beyond . 

I'TfHEZB A IvIAIIUTACTUaER FAYS A CUSTOLEH A TTAHSHOUSE FES OH A 

coi-.'n.;issiOM as a sales aoeitt. or sole othes such specia l 

COMFEi; SATIOL', THE CODS AU THORITY WILL COIISIJER IT PRIIA FACIE 
EV II)Ei :0E OF A H IL LE^^AL SPHl GIAL .D ISCOl-i TT, AIIF FROCEEDIITGS TJILL 
3E I]" .-:> TITUIFr FOR VI OLATIOU OF Qj-TE OR l.IORE OF THE F0LL0T7IITC 
SECTIOhS OF 'HIE COFE: 



"Article VII, Section 1 - Discrimination 



v:i, 
yiii. 



XI, 



2, - Secret Rebates 

1 - Orders 

2 - invoices 

6 - CcnLiigned Stochs 

7 - Distribution 

10 - Published Lists" 



This bulletin aroused some members of the 'trade, who demanded 
different rates for carload and L. C. L. shipments. The matter was "j 
put up to the lEA and reported bj'- the Administration i.iember as follows: 

"At this jooint there was a discussion of quantity dis- 
coujits ajnd the Secretary of the Code Authority vras re- 
qu.ested to write the Assistant Deputy Administrator for 
interpretation of the Code as noi,7 approved. The inter- 
pretation will iDertain to Section 7 of Article VIII 
which states: 'but in no event shall the special discount 
exceed d{o beyond the net price for the wholesale level' . 
In other vrords, must manufacturers file one set of prices 
as their wholesale level for each particular item beyond 
which the maximum 5fj discoxmt only can be given; or can 
manufacturers file a set of prices for each item and 
quote various discounts for quantity, in addition to the special 



9825 



-349- 

disco-iuit of 5;j authorized "by the Code. For example, 
su;.riose a manufacturer files a price r?ith the Code 
Autliority on a particular item and allows the discount 
of G5-5)j. Accox'diu.?: to the Code, this manufacturer can 
grant the additional special discount of 5-^ on this 
particular item. However, assurae that the manufacturer 
has a lar,];e contract for this and other items uith a 
nail order house. Could this nanufactiirer then file 
his priced with the Code Authority on the following 
basis: 'For guaranteed annual piirchases of $300,000 
of these items, the follorin,'^ discovmts will apply: 
35-5-lO^j' . Certainly contracts for large tonnage or 
lar;2;e volume are £.lven greater consideration in ordi- 
nar3- business dealings than orders placed on a regular 
wholesale level. Since there is considerable differ- 
ence of opinion on this subject, it is requested that 
careful considera,tion be given to the inteirpretation 
of the code on this particular matter when it is sub- 
mitted Dy the Secretarj^ of the Code Authority." (*) 

whether a qiiantity disco'ont caine under the 5;'j maximum disco-ant 
continvted to be argued. The question focused around the query raised 
by the :.:ilwaukee Flush Valve Comp?jiy in its letters to Code Authority 
Secretar;'-, H. H. Hrjison, dated Au^^ust 20, 1934, which said in part: 

"'The Code Authorities ruled that no 5} confidential 
discount can be given if the highest, and the lo'jest 
selling price is more than 5;j, either in list or dis- 
count; for example, if a certain faucet sold in single 
lots for $1.00, in thousand'_lots the price could not 
be better than 95(5, and if it was 95rf in thousand lots, 
then the 5'^o confidential discount could not be given in 
addition. 

"Our attorneys, and the writer, claim that any published 
price, as long as it is not below cost, can have a dif- 
ferential of any size, and an additional 5^.j caji be given, 
providing it is posted with the Code Authorities beyond 
that -jrice." 

Discussion b;-' members of the Code Authority a.nd 1J3A representatives 
continued for a month. The letter of the lllwaulree Plush Valve 
Compaiij'- was transmitted to the NHA, ^oy the Code Authority's Compliance 
Co-onsel. At the instance of .'Assistant Deputy Pilhington, Assistant 
Co^onsel J. u, Gallagher of the Legal Division expressed his opinion that 
the code clause should be interpreted as ruling out quantity schedules. 
However, because of possible hardship on some manufacturers, it was 
recomiuended that the Assistant Deputy suggest modification of the pro- 
vision feo the Code Authority. 



(*) July 13, 1934 - Administration l.iember Report Ho. 9, Item 3. 



9325 



Adiuni'otration hemTDer Clay irrote ;;r. Pilltirii'^ton on SeptenlDer 4,1934, 
that the former endorsed- the LalwauLiee Plush Valve Coupany' s stand, 
that q,-aantrty discotint schedules vere pentiissitle. The Deputy replied(*) 
endorsing the atove mentioned interpretation of the Legal Division. 
Ur, Clay \7as not satisfied, and again enumerated the rea.sons for believ- 
ing that his interpretation, T7as ^^roper. 

"I sun still of the opinion that paragraph 5, Section 7 
of Article VIII of the Code can he interpreted either way. 
It is not clear to me that the v.'holesale price level means 
only one hase price and I still agree vrith the attorneys of 
l.Ir;~Judell that various disco'unts can he puhlished for 
various quantities, as was always customary in the Brass 
Industry "before the Code went into effect. Wlien these dis- 
cO'onts have been published and filed with the Code Author- 
ity, the manufacturer can then give a special discount of 
5)0 to the customer on the basis of volume of purchases, or 
any other basis, etc. To ray mind the words 'other condi- 
tions of sa,le' are qualifying words "which mean that a manu- 
facturer can publish more than one price, provided he states 
the conditions which establish that price. 

"If the interpretation made by you and ilr. (Jalla-gher was 
strictly adhered to, it would mean 'that there could be no 
discount for carload lots, which is common practice of the 
Industry, and shipments would have to be made by carload 
at the sarae rate as less than carload. I shall bring 
this natter up at the nest Code Authorit;/- meeting for fur- 
ther discussion and hope that you will be present at that 
meeting, as the Milwaulcee Plush Valve Company is only one 
of the many companies that have questioned verbally this 
• portion of the Code. A.t this time we can determine 

whether the Code Authority desires to recommend any modifi- 
cation of these restrictions provisions. In the meantime I 
shall hold my reply to the Llilwaiilzee Plush Valve Company. (**) 

There was no solution of the problem before the Schecter decision. 
She last specific mention of the subject is found in the report of the 
Code Authority meeting of September 28, 1934, and this ended upon a 
controversial note: 



(*) September 10, 19S4, Letter from' Assistant Deputy 
Pilkington to Administx'ation Liember Clay. 

(**) September 15, 1934, Letter from Administration Lember 
Clay to Assistant Deputy Pilkington. 



9825 



-551^ 

":;r. rioifnan nointed out tliat he could sec no objection 
to oziy rianufr.cturer filing' prices for various qtian- 
tities a.s the price fot* the largest quantity \70uld con- 
stitute the uholesale level and TTOuld be the lo\;est 
price, vrhile the sualler quantities would call for high- 
'ei' prices cjnd \70uld do no da^ia^gc to the price structure 
of the Industi-y." 

The provision rras loosely dravn, ?.nd lent itself re?.dily to intci 
pretation according to tne desires of the various nemhers of the indur 
try. 



•9825 



5. Restrictions on Sales to Consiimers 

The consumer vrss one of the classes named in the customer classi- 
fication provision of the TDronosed code. However, no restrictions on 
sales to consumers were stiecified. The code as finally approved con- 
tained the following clause, "oassed over the -general objection of 
Research a.nd Planning and the specific objection of the Consumers' 
Advisory Board: 

"Manufacturera' sales to all others ■nho -ourchase the products 
of these Industries for resalt; shall he on the retailer pur- 
chase prico level, and no manufacturer shall sell the products 
of these Industries to pn;'- one other than for resale, excer)t 
to ermoloyees for their or/n use," (*) 

Just a,3 the minimum differentir^l 'rp.s intended to protect 
wholesalers, this clause was designed to protect master pltunhers. As 
measured "by volume of corres'oondence and discussion, the operation of 
the restriction was felt xiarticularly at three points,, It affected 
sales to the Government, the general sale of brass repair and replace- 
ment parts to all tj.'pes of consumers, and the total sales of faucets 
by one manufacturer, who was accustomed to sell all of his faucets, 
both original and replacement, direct to consumers. Since the actual 
classification of consumers has already been discussed in connection 
with customer classification, the present section will be devoted en- 
tirely to these three -noints. 

(a) Sales to Government: Administrative Order 
X-48 and Executive Order 6757 

On June 12, 1034, General Johnson issued Administrative Order X-48 
which read in part as follows: 

"It is hereby ordured that members of industry subject to 
codes of fair competition vfho bid or may bid on contracts 
to be awarded by governmental agencies be and tney are here- 
by exempted from compliance v.rith any provisions of such 
codes governing the making of Quotations to governmental 
agencies which prohibit any of the following practices and 
such members, notwithstanding such prohibitions contained 
in such codes may: 

(a) Q^aote prices and terms of sale to governmental agen- 
cies as favorable as those permitted to be quoted to any com- 
mercial buyer for like ouantities; 

(b) Qiiote definite prices or terms of sale, not subject to 
adjustment resulting in increased costs during the life of the 
contract, for definite quantities and for definite periods not 
to exceed three months (unless a longer period is now permitted 
by any such code) ; 

(c) Q;uote definite prices or terms of sale, not subject 



(*) Paragraph 4, Article VIII, Section 7. Plumbing Fixtures Code. 
9825 



to adjustment resulting in increased costs during the life of 
the contract, for indefinite nv.antities and for definite loeriods 
not to exceed six raontas (luiless a longer -oeriod is now permitted 
by an;' such code) ; 

(d) Qjiote -orices and terns to a-ooly on contracts to become 
effective not more than sixty days froin the date of the opening 
of bids; 

(e) .Quote -orices ?.0.B. point of ori,-;in and/or F.0. 3. des- 
tination. 

PROVIDED, H0'..'EVI:R, th.-t the exemption hereby granted shall 
be limited to and OToerativc only in connection with quotations 
made by such members to governmental agencies; that nothing in 
this order contained shall o-oerate to per-mit deviation from or 
abandonment of open price and cost protection provisions now or 
hereafter contained in any such code; and that nothing in this 
order contained shall relieve any such member at any time from 
the d\ity of complying with all other provisions of such codes." 

On June 29, 19S4, the President issued Executive Order 6767 which 
authorized a cut of up to 15-''o belo'j the lowest filed price on bids for 
government purchases. The Code Authority objected to both the Executive 
and the Administrative Orders. On July 5, a Special bulletin was sent 
out by the Code Authority including the reproduction of a telegram from 
Assistant Deputy Jacoby as follows: 

"Adminis tractive Order X Forty Eight, does not reauire nor per- 
mit deviation from your code in ouoting direct to the Govern- 
ment, " 

On August 2, Assistant Deputy Pilkington wrote the Secretary of the 
Code Authority that the Legal Division had ruled X-48 applicable to the 
plumbing fixtures industry on the grounds thp.t it overrialed any code 
provision with which it might conflict. 

Prom this time until the end of October there ensued a conflict 
bet'^een the Administration and the Code Authority, culminating with the 
latter' s circulation of a special bulletin on October 4, 1934, as 
follows: 

"TO THE I.ffil.QER OP CODE 110. 204 ADDRESSED: 

"With reference to Qiaotations to G-overnment, 
State and Ilunicipa-litie s 

"On Quotptions to Federal, Str-te or Municipal projects covering 
Plumbing Fixture requirements for a period beyond thirty days, 
kindly refer to Article VIII, Section 1 - ORDERS - which is as 
follows: 

•ARTICLE VIII, Section 1. ORDERS - All orders over $100.00 
shall be signed and cover specified articles to be delivered 
on or before a definite date. They shall be either accepted 
or rejected by the manufacturer vrhen received. Only orders 
for stock for shipment within thirty days of date of receipt 
of orders, and orders for specific jobs, will be accepted at 

9825 



the prices in effect at date of receipt of order. All other 
orders shall "be subject to the prices in effect at date of 
shipment. The minimum size and maxiraura delivery time for 
sToecific job orders shall be prescribed from time to time, 
and exceptions to this rule allo'^ed by the Code Authority. ' 

"Any departure from this section of our Code is a violation. 
Me wish to call your attention to the fact that our co(ie, 
which prohibits sales to anyone other than for resale, can- 
not be modified except in accordance \Yith the provision of 
Article IX. In this connection, Administrative Orders X-48 
and 6767, which may be considered under Section 1 of this 
Article have not been accepted by the Industry. On the con- 
trary objections have been registered with the Administration 
concerning them. " 

In a letter to Pilkington on October 3C, however, the Code 
Authority reversed itself and stated that under advice of counsel it 
ha,d no right to prohibit sales to Government at other than the published 
prices. The controversy arose from the importance of government orders 
for plumbing; indeed, at one time the statement was made that practically 
all of the good business was at that time coming from government 
purchasing agents. (*) 

(b) The Sale of Brass Repair and Replacement 
Parts to Consumers 

The subject first came up in the Code Authority meeting of April 3, 
1934. As reported by the Administration Ilember, the Code Authority 
agreed that the code provision prohibiting sales to consumers should 
apply. On April 23, 1934, however, F. S. Jeffries, Secretary of the 
National Brass Association, reported to the Code Authority that the 
Association (at a meeting in Cleveland on April 18) favored permitting 
manufacturers "to sell repair and replacement parts of their own manu- 
facture to be used in connection with fittings of their ovvn manufacture 
to consumers" and proposed to so amend the code provision. 

On April 24, 1934, in a letter to the Code Authority, the Sanitary 
Brass Association endorsed this opinion, but the Code Authority had 
not changed its opinion. On May 22, 1934, the Sa:nitary Brass Associa- 
tion applied to the Code Authority again in a letter which reads as 
follows: 

"G-entlemen: 

"The Sanitary Brass Manufacturers' Association feel that their 
petition for some liberty in the distribution of repair parts 
could not have been clear, and as the need for it is so vital 
and apparent, they respectfully reouest reconsideration of the 



(*) Sources: Code Authority Minutes of Meetings, Code Authority 
Bulletins, Administration Member's Reports, Deputy's Files, 

9825 



subject hy the Code Authority. 

"The original resolution set forth the following reasons for 
their iDetitiou: 

"Ic That repair parts are individual to each manufacturer and 
are not of interest or conpetitive to any other manufacturer. 

"2. That repair Darts are of vital xjart of the service rendered 
by mechanical equi-or.ient and, therefore, contain an obligation to 
the consumer, 

"3. Taat if reiDpir narts can not be secured promritly and with- 
out restrictions it will often 'vork a hardship that will create 
ill will for the manufn.cturer, 

"4. That re-oair parts can be imitated by manufacturers not in 
our industry and not subject to our Code restrictions, which 
will provide unfair competition for us, and through inferior 
quality will increase the maintenance cost to the consumer as 
well as reflect on us. 

"Under the first reason they wish to make it clear that the re- 
pair parts referred to are those to be furnished by each manu- 
facturer for his own product . 

"Under the second reason they wish to make it clear that it is 
their policy to distribute their repair parts through the regu- 
lar tra.de cnanncls wherever this can be done without delay, un- 
satisfactory service, or exorbitant cha.rges to the consumer. 

"Under the third reason they wish to make it clear that it is 
onlj' where a purchaser can not je -oro-oerly and promptly served 
through the regular trade channels that they desired some lib- 
erty in the distribution of re-oair parts. This occurs where 
the repairs reauired in a locality are so small that they arc 
not carried in stock by either jobber or pltunber, or repairs 
for a discontinued item, for which the O'Tner must usually con- 
tact the manufacturer. 

"Since the Code was adopted, a number of instances have occurred 
which emphasize the need for the liberty requested. One manu- 
facturer reports several cases of large installations in iso- 
lated localities where the o^Tier was referred to his local plumb- 
er. After trying to get repairs, not only in his own town, but 
in several surrounding towns without success, the owner notified 
the manufacturer that the use of his product would be discontin- 
ued unless he could secure the sarae prompt service he had before. 
Another case was reported where a large Government institution 
discontinued the use of a product because it was referred to the 
trade for repair pa.rts. 

"It is the opinion of the Sanitary Brass L'anufacturers' Associ- 
ation that there is nothing in the Code which governs the dis- 
tribution of repair parts — that the use of the word "product" 



9325 



-356- 

throufthout the Code clearly indicates that tais vra.s intended to 
mean a complete product and not a repair part, which is also 
evidenced hy the exception of repair parts in the last paragrarih 
of Section 7 of Article VIII. Conseauently, ^^e do not helieve 
it is necessary to make any chan^je in the Code, or to hand down 
any. ralin.5 or explanation, but simply to state as a fact that 
the Code does not cover the distribution of ^epair parts." 

In the meeting of June 15, 1934, the Code Authority voted to 
petition NRA for a limited stay on the clause, in accord with the re- 
quest of the brass groups. On August 13, 1934, the LIRA issued a "No- 
tice of Opportunity to be Heard" requesting submission of information 
before August 23. On the 15th the Divisional Code Authority for the 
Plumbing Contracting Division of the Construction Industry wrote object- 
ing to such a stay on the ground that it "would encourage violation 
of State and local ordinances" and that it would seriously affect the 
health of the nation. The plumbing contractors further claimed that the 
true purpose of the proponents of the stay had not been revealed. 

"If it is their desire to sell fixtures direct to the public, 
and encourage violations of State and loc'al laws and ordinances, 
they should be franlc in saying so and not attempt to bring about 
such a condition through representing that they propose to sell 
merely repair and replacement parts." 

In reply to an inauiry from the Corn'oliance Council Assistant Deputy 
Pilkington telegraphed the Code Authority to the effect that the stay 
had not yet been granted. It never was. (*) 

(c) The Bashlin Co. 

On August 23, 1934, J. E. Hazeltine, Treasurer of the Bashlin Co., 
Warren, Pa. , wrote General Johnson that the compsnv had signed up under 
the Fabricated Metal Products Code rather than the Plumbing Fixtures 
Code, becuase of the respective rates of assessment. On September 27, 
1934, Assistant Deputy Pilkington "^eplied that code jurisdiction depended 
on the products manufactured, and that he thought the company should 
come under the Plumbing Fixtures Code, 

By October, 1934, Mr. Hazeltine had examined' the Plumbing Fixtures 
Code and Code Authority and expressed willingness to come under the 
code, if the provision prohibiting direct sales to consumers were stayed,: 

"An examination of our catalog, gladly sent under separate 
cover, will reveal the fpct that ours is in cost not a 
competitive product. Actually, Bashlin faucets cost the 
• user about 50 per cent more than do others of good grade 

and it is our job to convince the prospective customer that 
this extra cost is offset by unusual service of these fe.ucets. 



(*) Sources: Code Authority Biilletins, Minutes of Meetings, 
Administration Member's Reports, Deputy's Files. 

9825 



-557- 

This selling effort is made 'b/ nanuf acturers' re-ore sentatives 
working on a coranission b^-.sis, costly ex-perience having 
proven to us tnnt neither the -olunber, too objected to the 
renewable features, nor the Jobber \70uld help us. 

"To avoid conflict with the plunbing fraternity, re began 
about 30 years ago the introduction of Bashlin faucets to 
State and Federal i'nstitu.tions and to hosnitals as well as 
large tublic schools r/Lo habitually employ their o\fn 
registered -Dlunbero During these years a valuable trade in 
these channels has been built and now the Code Authority 
says ":e may not deal direct with these institutions whose 
patronage is the life of our business. 

"Jobbers never have and -'ill not heep on hand even a modest 
assortment of our goods nor have they, exce-nt in one instance, 
helped in their introduction, al'7a^'s argainr, 'The Drice is 
too high. ' Now the Code demands that our representatives refer 
orders to the jobbers a.nd thus share with the jobbers the 
commission really earned by our agent. ,V/e contend that, 
having no 'investment of tine or money in the sale of Eashlin 
faucets, the jobber is not entitled to a position that bars 
our transactions direct with the institutions mentioned, 

"Our 'oroduct is in reality a s-oecialty not con-oetitive with 
the usual type of faucet or plumbing fixture. We ha.ve, as 
already described, onened a channel of trade th^t years ago 
avoided conflict with the plumbers' organizations and now are 
■threatened with the loss of our business by the imposition of 
a factor that will disturb the direct contact with long 
established patroiiage which mast now be charged a still higher 
price in order to compensate the jobber unless our agent, 
who has done all the work, relinauishes to the interloper a 
portion of his well earned commission." 

After further correspondence, iffiA granted the .company complete 
exemption from the clause (*) on December 14, 1934. 

6, Resale Price Maintenance 

The first proposed code of the pltunbing fixtures industry contained 
a resale price maintenance provision which, if approved along with 
the price maintenance provisions in the proposed codes for the pltunbing 
wholesalers and for the plumbing contractors, would have ma.de the 
enforcement of resale prices an actuality. None of these was approved. 
There were, however, several clatises in the approved code for the 



(*) Sources: Deputy's Files; Administrative Order 205-23. 



9825 



-358- 

pl-ambing fixtures industry which indicated the manufacturers' desire to 
maintain resale prices. (*) 

The two distributing industries were not ahle to have such provisions 
approved in their codes, largely due to a strengthening of KRA policy. 
Nevertheless, since the sentiments of manufacturers, regular wholesalers, 
and master plumbers seem to have been in harmony, this feeling might 
have been expected to achieve resale price maintenance by the use of 
Section 7 of Article VIII of the Plumbing Fixtures Code. As a matter of 
fact, it is rather difficult to determine the effects of the ap-oroved 
code provisions on resale nrices. 

The clauses in the approved code having a bea,ring on resale price 
maintenance include among others the last paragraph of Section 7 of 
Article VIII, vihich reads as follows: 

"In order that the consumer may be informed of the fair prices 
of products of the Industries, each manufacturer shall publish 
and distrib^ite a suggested fair price for sales to the consumer 
of each of his products, except parts and specialties." 

The other pertinent provisions centered largely around the attempt 
to protect the more or less accepted method of distribution; these 
include the power to determine a minimum wholesale-retailer differential, 
the prohibition of sales to consumers, the reouirement that members 
segregate their levels of business for accounting purposes, and the 
provisions which implemented the foregoing rules, namely customer 
classification, the filing of lists of distributors, and price filing. 
This array of provisions made possible the achievement of resale price 
maintenance despite the fa,ct that the provision originally proposed was 
not approved. 



(*) See: Rule B-5, Resale Prices of the proposed Wholesale Plumbing 
Code, September 23, 1935 edition, also Article VII, Section 31 of 
the January 17, 1934 edition; Article VI, paragraphs (a) and (c) 
of the proposed code for the Contracting and Retail Division of 
the Plumbing and Heating Industry, AUt'^st 25, 1933 ed. 

Complete resale price maintenance very possibly could only have 
been effected if all trade factors had been brought under one or 
the other of the two distributors' codes. Tb.e realization of 
this fact was to a large extent responsible for the delaj'' in 
approval of these two codes. The fact that the direct resale 
price provisions were eliminated from all the plumbing codes 
made it all the more important for all parties to enforce coi'tain 
■uniform code re,;julations which would have restricted in no small 
measure both the costs to the distributors and their prices to 
the next level. Such regulations included those enforcing 
segregation of levels of business, prohibitions on direct sales, 
and any other clauses tending to standardize manufacturer - 
wholesaler - retailer - consumir price levels. 



9325 



• -359- 

The exoectation among raanui^ac^turcrs seemed to "be that by protecting 
wholesalers and plumbers, manufacturers would in turn receive ■prciu.-ti^m. 
As has been indicated above, there were grounds for such a belief. As 
l.'^te PS March, 1934 (the PlunDing Fixtures Code wa's approved January 13, 
1934), the proposed Wholesale Plumbing Code contained provisions making 
it unfair competition for any v.-holesaler to quote or sell at lower than 
the manufacturer's published price levels, renuiring any wholesaler who 
performed retailing functions to segregate' his levels of business, 
prohibiting sales at wholesale prices to other than retailers and 
industrial users, and authorizing price filing. The last proposal was 
desi-neti to "spotlight" those Vmolesalers who ^ere not observing the 
manufacturers' list prices, thus making it possible for 'both the or- 
ganized manufacturers and the master plumbers to boycott such concerns. 
As approved, the '^/holesale Plumbing Code contained all but the direct 
resale price provision. However, its customer classification had been 
made less rigid and several other restrictive provisions had been 
deleted* 

In the minds of the manufacturers probably the two most important 
obstacles to the maintenance of resrle prices during the life of the 
Plumbing Fixtures Code were mail order house competition and the long 
dela^r in approval of a code for the wholesalers. In the meeting of 
ilarch 20, 1934, there was some discussion of the problem raised by the 
absence of a wholesalers' code and the effect of this absence on manu- 
facturers who sold direct to retailers. Apparently such manufacturers, 
a large proportion of whom were in the brass division of the industry, 
were very reltmctant to file prices because they wanted to be in a 
position to meet the competition of wholesalers. (*) 

This desire for exemption from the price filing provision of the 
Code, in so far as it applied to the retail level, became paramoiint 
in the case of the John Douglas Company, which was accused of violating 
the Code by selling to plumbers and not filing prices for such sales. 
The company corresponded with the ITRA on the subject. Eventually 
exerrotions from filing prices on the retail level and from the code 
provision forbidding lump sum bidding were granted. The company had to 
withstajid the competition of wholesalers on lump sum bidding, which 
was prohibited by identical provisions in both the approved Wiolesale 
Plumbing and Keating Code and the Pluinbing Fixtures Code. (Article VII, 
Section 8 in the former; Article VII, Section 6 in the latter.) 

The following is an illuminating passage from the Code Authority 
minutes of jTine 15, 1934; 

"The Secretary reported receiving notice from the K.R.A. Legal 
Division that several unnamed complainants had filed complaints 
direct with the Government against the John Douglas Company for 
failure to file their published prices for the retail level, 
and that he had received a 'phone call from Mr. Gallagher, of 
the Legal Division, stating that no action would' be taken 



(*) Administration Member's Report No. 1. op. citi 
9825 



-360- 

against Douglas unless Standard Sanitary Manufacturing 
Convany and. Crane Company are also forced to file their 
prices for the retail levels. The Secretar^'" rras instructed 
to write the IT.R.A. to the effect that they could tal:e 
'whatever action against the latter two companies they 
saw fit, and call their attention to the difficulty of 
controlling sales on the retail level until the wholesalers' 
code has been approved." (*) 

The particular problems faced by the John Douglas Company were 
stated in a letter from the compan^'^ to Assistant Deputy Jacoby, which 
read, in part, as follows: 

"In reference to this subject you '-'ill remember tha,t 
'^'e had considerable correspondence v/ith you at the time 
the plujnbing fixture industry code was being arranged and 
at that time we advised vpu that our position \7as a rather 
unusual one owing to the fact that, while we were manufacturers 
. the sane as all pthers in the industry, our merchandising , /i 

policy was entirely different in thp.t '-'e sold at least 95 \l 

per cent of our product to the plumber or retailer and 
practically all of the other manufacturers ''ere selling to 
the wholesaler or 'Direct to You' houses. 

"In view of our situ-^tion it ip impossible for us to publish 
. net prices to the pl-'ombsr or to fix the plum.ber's discoiont 
until such a time as the wholesaler's code has been signed 
and until the maximum, discounts which the wholesaler will 
allow the retailer have been definitely decided -rnd which is 
provided for in section seven, article eight of the Plumbing 
Fixtures Industry Code. 

."As matters now stand the manufacturers may have some uni- 
formity of discounts to the wholesaler which of course 
establishes the wholesaler's cost but as long as one whole- 
saler is privileged to add 25 per cent and another wholesaler /■ A 
may be adding only 5 per cent to his cost it is certainly 
impossible for us in competition with such wholesalers to 
establish oux price to the plumber. Under the circumstances 
we have to meet competition as ■■'e find .it and .to be publish- 
ing a price to the plumbers under such circumstances knowing 
that we could not adhere to it, would be only subterfuge,, 

"We again ask that our proper classification and status 
\mder the Code be determined so that we will understand 



(*) Code Authority Ilinutes of Meetings, June 15, 1934, Code History 
Exhibit C. 



9825 



— oSl— 

whether re rifchtfully "belon;- under the ivholespl'^r' s code or 
the raanuf-^.cturer' s code." (*) 

This delR7 in the a-6t)roval of the Vnoles-le code affected not only 
the willingness of manufncturers to file their retail price level, but 
also the desire of the Code Authorit;/ to expedite the establishment of 
a wholes-^ le-retailer differential, as is discussed in an earlier sub- 
section of this section. Soth actions anounted to a refusal to bind 
manufacturers to nrice levels until the 'wholesalers themselves were 
bound. This view of the importance of a Pliombins ^fiiolesale Code may be 
illustrated' by excerpts from the -eiDort of the Administration Member, 
of Anril 3, 19-34: 

" Item 8 »' There was considerable discussion of the lack of 
market stability and the fact that the Jobbers Code had not 
yet been issued. A motion was made, seconded, and passed that 
the Administra,tion Keraber be asked to request the Administration 
to expedite the 'Tfliolesalers and Retailers Code in order to 
bring about greater stability in prices. Accordingly, the 
Administration Member makes this request as .a part of this 
report and cites several instances to sustain this request for 
early action. 

"For example, at the present time it is understood that 
secondhand dealers can purchase from' wholesalers, even though 
manufacturers are not authorized to sell secondhand ware under 
the terras of their code. Again, it was pointed out thp.t 
certain purchasing corporations were publishing letters to 
various of their clients in which they malce deliberate attempts 
to avoid the provisions of the code pertaining to the Plumbing 
Fixtures Industry. .. "(**) 

On June 15, 1934 the Administration member reported as follows: 

" Item 15. EeTQort of Clr.ssif icption Committee; 

The list of wholesalers prepared by the Classif ica.tion 

Committees of the Pottery and Enamel Groups were .e.-:amined. 

It was decided to give each manufacturer an opportunity to 

comment on the names of any of his so-called whole spJers who 

were omitted from the list before any publishing is done. The 

committee was urged to expedite this matter so that the lists 

might be available by the time the ''.Tholesalers Code is approved'C***) 

(*) Letter of Jione 15, 1934, from C.T. lietz, President of the 

John Douglas Co., Cincinnati, Ohio - Deputy's Piles, Note: the 
exemption was granted July 31, 1334, and it was terminated December 
31, 1934 largely because the wholesalers' code had been approved. 

(**)Administration Keraber Report llo. 2 op. cit. 

(***) Administration Lleraber Report ITo. 7 op. cit. 



9825 



-S62- 

It is evident from these rmd other similar comments that certain 
manufacturers were thinking very definitely in terms of price levels 
within each one of which the individual prices would be uniform. 

The effect of mail order house co-nnetition on the prJcR level and 
the influence of the declining price level itself tended to raako r^r 
less important the maintenance of resale nrices. When the <^^t& of 
approval of the Plumbing and Heating Wholesale Code arrived, the 
existence of such a code was of very little significance. (*) Early 
in 1935 every manufacturer who was still in operation was devoting 
himself to meeting strong competition in the final market. , There was a 
considerable lowering of the price level to consumers, consisting in 
reduction both in the net price to manufacturers and in the discounts to 
distributors. Far less emphasis was placed on helping to maintain a 
price level and far more in meeting demands of distributors that net 
costs to them be such as to allow them to stay in the market and meet 
the local price level. The story of the effects of the code on the 
price level and vice versa will be told in more detail in a later section. 
It is here necessary only to note thnt an important price situation 
existed and to suggest its effect on resale price maintenance. 

Another development anplied specifically to the clause, quoted 
above, directing manufacturers to publish suggested prices to the 
consumer. Apparently the manufacturers did not consider the provision 
mandatory, and, as reported by the Compliance Counsel in a letter to 
Assistant Der)uty Pilkington, this feature was omitted from many of the 
price sheets issued by members of the industry, I'r. Parker, the 
Compliance Counsel, in the letter referred to, requested an NEA ruling 
as to whether or not the provision was mandatory. (**) In the Code 
Authority meeting of December 12, 1934 the subject was discussed, 

" Item 12; (a) Consumer Prices . It --as pointed out that 
manufactures could not publish consumer prices under present 
conditions. It was stated thr.t prices published by mail order 
outlets fluctuated to such an extent in various sections of 
the country th-'t it would be impossible to publish cons\iraer 
prices and adhere to them. The Chairman stated that a list 
'of suggested prices could be published but no action was taken. "(***) 



(*) It is QUite true that even when finally approved the wholesaler's 
code did not become effective. The controversy over the exemxjtion 
of wholesale hardware houses and the half-hearted support of mail order 
houses kept the provisions mentioned above from becoming ooerative. 
On the other hand, it is very doubtful if price filing would have given 
any more aid to wholesalers than the nrovision in the manufacturing 
code gave to manufacturers. The market was altogether too unstable, — 
Author, 

(**) I'l.K. Parker letter of October 9, 1934 to D.G, Pilkington, Deputy Files. 
Action was never completed by the Administration, 

(***) Administration Member Report No. 13, Item 12 op. cit. 

9825 



The reason given for the irapossitilit"- of miOlishing consiimer 
•orices went back, at least partially, to the effects of the mail order 
house competition and of the price level. 

There is practically no record of any discussion of the provision 
reouiring the manufacturer to segreg.'^te his levels of business, and 
the other provisions vhich ^"^ere designed to restrict manufacturers and 
protect distributors seened not to have had any particular effect on 
resale prices. These provisions are discussed in other sections of 
this chapter. In sum, the relative importance of certain other 
developments in the industry in the code period apioarently overshadowed 
completely the original desire of the code proponents for resale price 
maintenance. The logical conclusion seems to be thnt resale prices 
"ere not maintained and further, that in many cases manufacturers did 
not want them maintained. 



9825 



-364r- 



C. The L'ail Orc.ei- H o-q. sc Conilict 

Tlae co:'i:"lict r.bout -f.il oi'i e: (.".istri'ration pro''cl^.■'Jl;;" •ir.c tlie iiost 
i voortJ.nt '.evelop ^ent unJ-er the Flu. I'ln." ~i-;tures Coue« Althou/^'h it has 
oep.n -lentioneo. in the c iscusrlon of custo :er clasr.if icr.tionj it cannot 
oe adecraately suu:r i.r.rizeo- in the cisciission of an;' sin.'^'le code provinioni 
The strate:-]:;^ o" the conflict cepenc.ec iipan the joint effect of custoner 
classification, pi-rf erential f.iscounts, price fili,nj;, prDhi"bition of 
sales '■•elo'.T cost, and the code restriction on orders. 

1, Introdiiction - Ti^e Three Sta^jes of the Conflict . 

The pre-cof'e conflict het-'ecn lail order Kou-ses and the code pro- 
ponents arose vhen the t-.'0 classec o-f so-called re'p.lrr distrihutors 
proposec that the .anufacturerr; chr,n."e the custovier classification pro- 
visions acpearin." in the original proposec. code. (See Section I of this 
Clirpter.) '.'ail order houses anc "("irect-to'-yoii" concerns constituted 
one of the five clashes of ciisto :ers nr-^ec, in the ori.';inal code. This 
first proposed coce rlso -pave the Code Authority po"^er to fi:: trade dis- 
counts. Although the discounts '"ere not specified and there is no indi- 
cation of "hat treatment -'as to "oe accorded the five proups, the 'Thole- 
sale and '.rster plu.foer associations "ere afraid that '.ail order houses 
;U"ht 'be p'i-,-en wholesale rnd possihl]'- hetter than '-'holesale discounts. 
The:" -ere in coToleto ta-Tee;ient that .nail order houses "ere retailers. 

The Cofe, as rpproved on Jrn. IJ , lS5''-j is nitnes"^ to the 
"oarga-ininp po'"'er of the wholesalers and the :;:aster plunhers. Article 
VIII, Section 'J, of the Code dofinec". c- •.•holesaler in such a •larr as to 
eliminate nail orc'er houses iro:; that clrs-,, hp such recuirenents as that 
■•holesalers sell in bul]: as -veil as liup in jllII:. d^at the clatise "as 
stayed in the Order of Approval, and f,s finally revised, defined the 
ftinction of "holesalin'; in such a -•ap as to a-'-ait .lail -order houses. 
This aefctionsettle'd for these concerns thB quefeiion of' customer classl • 
floation as such and thereby ended the first stage of the conflict. 

The second stape '"'as one of non-conpliance It the fir::s supplyinp 
;iail order houses. Several code provisions reuained as restrictions on 
the lail orc'er iiethod of '-oinp jusiness. ilather thr-n suonit to any of 
these refpilrtions, the nail order houses and the manufacturers sixpplyin^ 
then refusec'. to ( isclo'ie their ..larlretini?; prs.ctices, preferring- not to 
coi'.pl;' 'Tith the piiolicitp requirements of tlic code. Since this proolen 
■vas never settled ourin;' the life of the code, the second stape of the 
conflict never ended. 

The third s':,a-;o of ti:e conflict tool: the forn of c. price ■^,'ar. The 
attention of the ind^^stry as a --hole beer :e "ocused on the consuiiers' 
jrice level, -'hich 'vas hcinp considerahl" "upset hy nril order house prices 
r.nd Ir,:- the actions of Strnda.rd Sanitary ilanxifacturinp Conpany in neeting 
these prices on r nrtion-"i("e scale. This third stape led to general 
dissatisfaction "ith all of the important code provisions a.nd eventually 
to a. complete brea";do"n of coce operation. It --ill oe described further 
in Section IV, 



SS25 



2. The Seconc. St;v:e - r.efvir.cl to 7iln '.ril Oroerr Gontrr.cts, 

(a) ?rcli i;ac ry Code A\it,Lorit3- Actions, 

The :"irst Offici?.! !3v.lletins issued ""07 the ?liii.)iA'; ]7i;:tui'es Code 
Autliority, ?e'o. ?1, lS3-f-i P-ii^ii; other th?.n,';s, c;.llec :"or the filing 
"'-'ith your -ii-o-oer Apsociation on or jeiore the date indicated, the 
follo-^in^'s: 

.,... copies of cAl price listn, c'.iGcount .sheets, frei-'ht 
allc'a.nces a.nd. other sales anc. service literature •"hich in 
any ''-a- affects your net deliverec" price to the -.urchaser, "( *) 

On ilc-rch 3. ''-93'+» Offici?.l .lulletin Ko, 5 ""'^^ issued, requirin,::; 
"nenlDers of the industry to file on or "before Ilarch 17, lS3^'-» ''ith the 
proper reportin;"; afjency for the particular industry"-", the follo'''in.3;: 

"1. I'he na-ies of all casto:nerr. oein': sole" on harch 1 
or rt the pre'-ent date on t?ie --holesale purchase price 
level. 

"2. T';o li-^.ts of the -nrr.e::- of c\isto.,iers to -Thoa "soecia.l 
(confidential) discoimts \'ere ^given, clasiiiicd according 
to the a:ioxint of epch such s"Jccial discount. 



J* 



in effect a? of ;;arch Ist, 133^j errtendin;;;; "beyond thirty (30) 
da3"s fron liarch Ist, v/hethor on a cost plus,' fir.ed piice or • 
other oa,sis. (Such contracts are part of "oar pxihlished 
prices -and should have 'ijeen filed prior to re''.)raary 23, lS3^''j 
i-ith price li"ts and other sa.lcs literature ccl.led for in 
Official lulletin vl." (**) • 

The first tvo parts of the aoove bulletin "ere specifically 
authorized in para-j;rayh " 6 of Art, VIII, Sec, 7; on the other hand, the 
third T/as not. The Coce Aiithority here seoi^s to have tahen the lihert;' 
of ^appl-'in.'; the price filiny clcuse of the code to the provision placing 
restrictions on orfers, Sec. 1 of Art. VIII, The latter recjo.ired all 
orders over $100.00 to "00 signed and to co^'er "specified 0-rticles to 
"be delivered on or oefore a definite date," Such ordei'^rere "to 'be either 

accepted or rejected "b;,' the "lanufacttirer 'Then received anc! "onl"" orc.ers 
for stoch for ■ship'ient "-ithin thirty cays of da-te of receiy^t of order, 
and orders for specific .-^ohs" r.iyht he "accepted at the prices in 
effect rt date of receipt of order." 

The 30 ^-^'7 interpretation in the Code Authority's hulletin "as 
apparently ha-sed on this clause of the code. The ri lit to iialie such an 
interpretation ':7as not questioned -antil soue t^TO ;ionths later. It nee;is 
fairl;' apparent that the hind of "ou'blicity ca-lled for hy the price 
filinr,' "■^rovi?io:;? included the ouhlir^hin-y and f ilin ■ o"f rll 'orices ?nd 



(*) Code Authority BvLlletin lie, ''., Coc.e History, Z::hihit F. 

(**) Code Authority IXilletin "0, 5> °P» cit. Ori In; 1 underlining;. 

S-25 



-366- 

conoitions oi sale» In other nords, the rctual price terns contc.ined in 
the con'-racts -jere of i-.roortance. It is no't so r... :;r.rent, ho'7ever, tho.t 
th'j conti-p.c'-s the ".Pelves, incl'af infj nrnen of "buyer rnc". seller, -'ere to 
have oecone piiolic. - '"either i'' it clear vrhy the c^ll for the contracts 
shoulo. have heen linited to t'.icse of 30 or ;-:ore da-ys duration. I\Lrther- 
nore, rnd nore i:roortant, it is not clear -rhrj the ter:s conta.ined i:i su.ch 
contracts -rere interpreted a,s ter:;is applicaale to a "cla-ss of purchaser" 
rather tlian as special ter":s conparahle to the specirl, and henre confi- 
dential, diu;co--i-nts provic.ed in para^^raphs 5 ^-'^^ S of Art. VIII, Sec. J. 

(h) Hon-Comli'nce --ith the Call for :;ail Order Contracts. 

(l) The Point of Yiev of the Code Authority, 

P.egardleSo o'f an;' such questions and although non-conplirnce ex- 
tended to several other code provisions, the refusal hy certain na.nu- 
facturers to file their contracts hecane the focal point of the attrcl: 
hy ■.■enhers of the Code Au.thority. 

In the Code Authority iieetin:: of April 3, 193^+1 iir. Chase, Counsel 
for the Code Authority, suhnitted couplaints against s.ppro::imr.tely kZ 
conpanies, principally on the c''Ov:nC.s of refusal to file inforuation 
called for in the Official' Dalletin, Seven of these coMple.ints r'ere 
arjainst concerns '-'ho -ere suspected of havin;; nail order contracts and 
'7ho '7ere accased of f-ailinf to file these and their special c'.iscounts 
and other tens of sale, "he co:ipanies complained a.gainst, in this 
connection includec": 

handle Ilf;:;. Go. 

national Sanita.ry Co. 

Cone;i,au3;h Iron '.Torlrs 

California I'oundry and a-ffiliated conpanies 

Eljer Conp any 

Universal Sanitary h'f^. Go. 

■7aohin''ton-P!ljer Co:-ipan.;' and affiliated conpanies (*) 

The :"irst discussion centered aroiind the very points raised in 
Section (a) ahove, The report of the Adndnistra-tion lienoer on this 
particular one seenr: '-'orth reproducing;. 

Accordin;!; to -xgor Clay, Adninistration 'ienoer: 

I' The Secretary reported that the -National Sanitary Co. had 

furnished infornation T7ith respect to terns of sale contained in 
their contracts, or.t recuired that the'^'e ter is :^e l:ept confidential. 
The Conenau::h Iron 7or!;s also filed data pertriiin-;- to their con- 
tracts hut insisted that tl:.ese data he l-cpt ccngidential until all 
contracts fro i other ; manufacturers ','ere received, Considerahle , 
discussion ensued ahout the filin,f; of these contracts existing 
"between manufacturers cnC. nail order houses, llr. Chase read Sec. 
10, Art. VIII of the Code nhich applies to the filin,;; of thene 
data, 

(*) Code Aiithority hinutes of lieetinr; - April 3, 1S3^. op- cit. 
SS25 



"jTiils Sec. 7 cf Art. VIII str.tos tliat the na-ies of customers 
sole" l):' irnufacturers on each price ?.evel shf.ll 'oeO-cept confidential, 
it doer, not require that r-ctuel conditions of sc.le shall be \7ith- 
held fron other p.e-roers of the code. In fr.ct, the Code Authority 
is required 'oy Sec. 10 of Article VIII of the Code tS distribute 
such price infornatioh' ercccpt the special discounts provided in 
Sec. 7 of the Article, to all :i;;jr\factarcrs of the respective 
ind\istry. The secretary stated that he had ?.noth&r contract _ fron 
a seat manufacturer nhich had ijeen fonvarded to hi"! without any 
restrictions as to the release of the data contained therein, 

"The pi'ocurc-ient cf co;oiss of these contracts is a nooted 
cuestion and caused a f.-rea'^ aior.nt of discussion on this suhjec^. 
As the natter ste^ids r.o'v, the Secretary has one contra.ct the terns 
of "hich cm he released '-without restriction, -hile two others 
have "oeen filed -rith restrictions on the release of the or.ta con- 
'tained therein. Others he.ve refused to file to ■.'ate. A notion 
T7as lade hy iir. 2eed, and seconded and ^oassed that- the contracts 
filed nith restrictions he returned hy the Secretary vith the 
statement thp.t conplo.intF "ould oe filed as the lanufpcturers had 
not conplied ■•ith the code. Mr. IIcAfee stated that he helieved 
that sone conpanies '.7ere holdin'; up this info:- rtion hecause they 
questioned the legality of fui-nlshin-; copies vif the contrrcts to 
the code Authority. Iir. P.eec'. nade a further nction --hich res 
seconded and passed that the one contract of the sear -.anufacturers 
nou held hy the Secretary'- heietained in liis possession until the r 
other contracts -,'ere received fron the ve.rious }:anr:^acturers 
involved, 

"This subject of nail order contracts -as referred to in, the 
last _-ara:;ra:h of Iten Q of report ilo. 1, suhnittcd hy the ivader-!"' ■ ■ 
si^'ned. It p.ppears that rll nanufacturers are a.rcious to ohta,in 
the infornation -Tith respect to conditions of Ga.le, as set forth in 
these nail order contracts. • 3^artLer, the Code AutViority plans to 
release the infornation contrined in nuch contracts as are filed as 
soon as a svifficient nufoe:' ho.ve heen filed -ithout restrictions, 
in accordance 'dth the terns of the code. 

"17nile Section 10 of Art. VIII states thrt this infornation 
nust he filed "ith the Code A^ithority anc the Code Av.thority shall 
distrihute such price infornation, e;:cept the special discount as 
pro-'ided in Section, f of Art. VIII, the question T'as raisec. as to 
whether the conditions of sale as set forth in the contract ninht 
not he constr-aed to he specia-1 discounts '-hich the Code Authority 
is not e,u.thorized to distrihute to other •:anv.frct\''-rers in the in- 
dustry-. This point is hrc"v;ht out as it nay arise at a later da,te 
uhen the Code Aiithority publishes inforiation contained in the 
copies of contrp.cts filed vdth it. Son.e nanv.ft-.cturers ':ay ohject 
to this procedure rnd reruest the ter;-;s of their contracts he hept 
confidential and :iot distrihuted to other iianafacturers, in ac- 
cordance nith his unferstandinii; of Sec, 7 '"i"^^"- 10 of Article VIII, 

"As a res"alt of conplaints oeine- filed a':rinst those "ho have 
not suhnitted their copies of contracts to the Code Authority'', it 

o:^pc 



Ih ■'jeli'^veo. that other co:iorni-s 'Till fnrn: sh this info rr.iat ion at 
a later c.ate. Ho"'ever, it cm "be seen that there are arTuiients on 
both sides as to whether the ter:is of these contrE.cts shoulc. he nade 
avp-ilahle to ;,11 nanLifacturers. The A(":aini strati on nenher helieves 
thrt the te.-as of the contract shof-ld he ade avrilaole to all nfimi- 
fp.cturers if ■■•e are to o"oere.te \inrestrictedl-- under the oX)ea -orice 
polic:-. "(*) " ' . - - 

T'-'O "entlerien -'ho tool;: prominent parts in the discussion included 
hr. Henry M« 2ecd, Fresif'.ent of the StPiida-rf Sanitar" h:""/"-;. Co., and 
hr. 1. Ileith lIcAfee, President of Universal Sanitary I'fr:. Co., one of 
the co'ipanies co;rjlrined against. The Ac. linistra/oion iienher reported 
that : 

". . . .i>L'.rin" the ■.'.iscu.ssion of the suhject of the lail order con- 
tracts, it '7ac. oroui ht out that I'r. '7. IZeith hcAfee, e- --enher of 
the Code Authority-, is also the operating; heex. .if the Universal 
SanitP.ry h'f."". Co. •v.ich co. .pany has not filed its lail order con- 
tracts and thus has had a trade practice co::rolaint filed r ;;ainst 
it. The chair lan of the Code Authority ra,ised a qiiestion as to 
'jhether any leioer of the Code Authority could sit on that oody 
and at the sa -.e ti;ic represent a -.anufactiarer -rh.o fails to cowolir 
■■'ith the ;:ro""isionr, of the coc'.e, ^t is understood that ether 
■lamifacturers are cor.r :entin' on this particu].ar phase of the natter. 
In otlier "ords, \iv, IIcAfee as a Code Au.thority wen".;er, is called 
upon to support action rnc" conplrlnts a,.;;r,in3t other violators of 
the coo-B, uhils at the sane tine nis o'/n conpany refuses to conply 
^7ith code provisions. Cert- inl;- i 1: iij an enharrassin^ nosition 
for hr. xlcAree, 

"As .?. result of the c'iscussion, hr. hcAfee as;,;ed to' 'Tithdra-r 
tenporaril''- fro^i the Code Authority session ii order that he •.i^.'ht 
contact his .lone office and l.is custoner involved in the ^ail order 
contract. After several Imv.i-z, hr. ilcAfee reported hack to the 
session and stated that his co '.pan;"- -Tas very an::ious to file their 
contract and have its provir.ions puolislied hut could not do so until 
the:" 'i"'^-- 'the p'^rn.ission of their custoner and the custoner could 
not he reached 'oi^ telephone. . I'darther, hr. hcAfee stated that his 
conpany had no copy of the contract; tnat the Sears-f^pehuch Con- 
pany had retrinod hoth copies. He added that the Sears-Hoehucl: Co. 
'.-'PS no" pEyiny the full joh'^ers price for tlieir ,-oods. Accordinyl", 
the natter nas held i:i aheyancc oendin'- the further report fron 
hr. hcAfee in reyar^. to the decision o:'^ his cur.,tor.er. " (**) 

Tnc Coce Autho:uty decided to rend a teleyran. to T/a^h-in'-ton aslrin^;; 
the Con_vlirnce Director to tc^'e i~:::ediate action to force "these 
recalcitrants to suppl^' the scie information "'hich their conpetitors 
have alread'" railed," henhers o" the Core Authoritry ar.'ued that -rhile 
..lan"- of the nanuif actf.rei s l.aviny ::ail orc.er contracts had filed their 



{*) Adnnist-Etion lie dier _leport ilo. 2, op cit, 
0**) Ac-iinistration ^"enher 2oport Y\o. 'j-, op cit. 
5S25 



-359- 

v:holesr.le price licts, tlie^'' hr,.". not :?iloc. Vnc- conc.itions of. sale Under 
■..:ail order contracts ivno. tlierefore -^ere in effect operating; on t-TOJ 
rholesale _:rics levels, an", that CL^stcuer I'.icrinination rras therefore 
involved. 

(2) iJefen'je 03;^ -^he Go ipanien Conplfined Afjr.inst. 

Corolaints ar;r.inEt tha co.rpaniec listed aoove .'ere filed \7ith the 
i\F3A. shortl].' after the Code A'Q.thorit3- .:eetin^'; in rhich their nc:ues '.'ere 
read. On ..V.;,'- 1, five of the .innufacturers filed e. hrief -Tith Assistant 
Deput;.'- Jacoj" in support of their position in refusing; to disclose the 
contracts. This "orief '.7a.s acco'.roaniod hy 21 letter from eo.ch of the 
five detailinf^' the reasons -rhy it '-ould "oe particailarly i/.ipossilDle for 
hin to cor.iply. The "jriei itself read, in part, as follons: 

"".'e, the iindersi 2;ned :.\f,.nt\factL\rers, are aerahcrs o'" the 
Flix.ioin^' ?i::t-a.res indastr;-, operatln.-; under Code ITo, 20U, ap- 
proved Janr.arj' 13, 1S3^'-- '-''e are all payin-; ..:ore than the r.iiniMui.i 
ve^e required oy this Code, are respecting the i.a::inur.i hours and 
all other laoor provisions, r.nd heartily approve the three sections 
coveviiij; labor provisions es -'ell as lost of the other provisions 
contcined in the Code. 

"There are, ho'-ever, certain provisions ii this Code that are 
pemittinr; :.-!onopoli£tic ":rrc"!;ices e,r.C- if relief is not f:ranted to 
the snail nrnufacturers it 'Till eli".ine.te, oppress, a-nd discri'u- 
ha.te r:;?inst sraall enterprises. 7e have held a, :.ieetin:; and subnit 
the atta.ched letter? outlining; our individual prohlens, 

""Je object to the follo'.inj provisions of this Code for the 
reasons ste-ted in tlie attaahad T^ette'rs anc" ash that e::ceptions be 
Cr?,nted us u'nc er these sections,,-.:, 

"Article 7, S ection.- 1 

"That -.^e be allced to conpensate those ■'.•holasale distribu- 
tors Tfho perfor 1 a Tiarehousin;-'-, distributinp, rjid sellinf; fu.nction 
for us on a different basis than that basic on "hich '-'e sell those 
distributors rho :ierel"" use us as a convenience during- the busy 
season, "jid that -;e be not restricted to the 5 pe^ cent differential 
referred to in this para,.';r?oh and a":ain in Section J, Article S. 

"Article S, Section 1. -^30 Day Clause 

"77e request that' -we be not required to conforn to that portion 
of this clause requirin-; all order be ta]:en for shipnent in 30 
days. 

"Article g. Section 7 . 

• "Tha.t "c be relieved cf all restrictions set forth in this 
■oara;'-ra;h becruse: 



952== 



-370- 

"A. As srip.ll :ir.nufe-ct"arers -^e c'o e. con'jidoraV'le portion of our 
lousiness ■•'ith other ■ir.imfact\ire:.-s '-'ho r.re not ■•.^•■oers of tliis 
Coc'e, '^itli I'F.ilrOr-c'.s, ■'i';!. lr,r;;.;e cor;;orationG 'ViO ^ovcj continuo-asly, 
Gove::iiient, Str.tes, mc lainiciprlitien, '''.o the Coc-e Authority 
classes f-s con^'u- :ers. 

"r^. rivo '^^cr cent in no ''vj :e''sures tJie c'.ifference in the tyoQ 
of service perf or led h-' different t^'pes of distrihutors for us, 
■Je are dependent tipon certain lar^-e distrilxators "ho perfor"i the 
services for us that the lar-'-:e ■-:araj.fp.ctu.rers perforn for then- 
seH-ves -rith their hii.ndreds of nareho-cses, lar-e sables ori-^janization, 
advertising^, etc,, etc. 'fnis costs the lar^e lamifacturers nuch 
:iore than j per cent, and --e :.ust he allo--ed to co-ipensate our 
distrihutors for the services the.7 "■^er:''"orn. On the other hand ne 
have iianp distriox\tors ''ho do not perfor.: a lihe service £^nc. 'tIio 
are not ceservinf; of r. liI:o consideration..... 

Respectfully suonittod, ^ 

Randle -r.nufacturln^' Conpany 

J" K. Held, rres. 

Strncrrc". I'rrf: a.nd Seat CoMpan" 
h;- A. 'J. Stechian, rres, 

Univorsr.l Sanitary .'.fr,* Co ^pa,ny 
'.rj fred A. C'lenn, Vice Fres. 

.Jil-.7a-\f.;ee Jlash Valve Go;r_ian7 
h'- J. S. Judell, Fres, 

h'ational Sanitarv Co'ipan-'- 
l3y f. S. Crrno, Fresl!(=^) 

One of the ifive, hil'Taidiee Fl'o.sh Valve, in its letter sulinitted ^ith ( 
the hrief, fjave the reasons for its reliance on :^.ail order houses: 

"Until 1526 oUr coirpany catere'"- entirely to the so-called 
le, ;itinate jolhing rrade, The. three lar;-;e nationrlly hio'vn 
nanv.fe-cturers -.rere anonf; our custoner^ and took a very 
larj2;e percentaj;c :" our outpxit, IIo'TCver, in I'^^T-o "e noticed 
a considerable frllin • of'' of our husiness pri:<rril3'' due to 
the fact that hi,'; nationaTly ;;no'7n nanufacturers started 
to 'ir.he ."11 their o"'n yoo'fs and further tooh a^ray sone of 
our cuBtoners ^oj huj'-ini^i the:? "ap and ■icdiin.';,' hrrnches of 'then, 
-herefore, after dx\e conr-idoration "e found it necessarj'' to 
find other oritlcts and tooh on nail order and D-T-U "usi- 
nesG, • hich ^yavo us a ne ■ lepse on life. In tricing on this 
husiness --e found oirr selling; errpenses -rcre pr.actically nil. 
Our advertisin;; cost and crec.it losses --ere cut to a. nininix;:. 
Last hut not least it yave us a volune and .yavc it to us p.t 
e. tine ".iien our 'jlr,nts noiild orj.cticall-' have to fshtit do'-'n. 



(*) Code Histor", Special Srdii'^jit, Volume I 



:C2S 



-371- 

nr. lelj', ;v.i'iiv; tie c'-U?^]. ::cn'cl:s. It ':rve lis r.n opirortunit^'' 
to ".caufccture on ,". .-lore even hr.sis PziC. sprer.c our e;iplo;."iGnt 
over the '711016 :'ea:-, mc. not h?.ve to. liire a ?.ot o:? :en cairing 
the rurh nea'son r.nc". Ir.;,' then off '.uri;r; the call ser.son. 

"7e vere aisle to ;pa;'- a "better than rvera^-e va/ye an;.' ";ive 
steac.7 eiplo^^'-snt thro-u;;hout the ^-.'hole c".e.ress:on anC at 
the srjne ti -e sta;' in "blacl:, " (*) 

The National Sciiitarj' Co ipan;- ref ?rrec. to tiie conC.ifenticl natwre 
of the information reouestef. b;'- the Code Authority'' anc. e:?pressed the 
fear that even if the Infornation -rere not c.istrihuted to -le-iTDers of 
the industry it --oulc". be disclosec". to lorfoers of the Goc e Authorit;,'. 
At the saroe ti::e the co "pan^" proposed sho-'in-"; the "contracts to IIRA 
officip.ls at "Jashin'jton for their confidential ir.-.-QrMation and cyr; 
survey they cp-re to :i?J:e. " IJational Sanitary '^-ent or. to a cescription 
of their :2ethods of doin/'; "business and the position of the lail order 
houses in the follo-"riny -vorf s. 

"Certain 0' the larrjer :?.nufrct\irers in ov.:? industr-- o'-'n their 
c"n distrilsutin'; outlets, hc.ve '7a.rehouses anc. sho-r roons at 
stra.tej;ic points, Piid perforn tlie conolete distri"'outin::j function 
v:g to file point r-here the -^are is old to tlie contractor durin.;; 
the installation. Other ■ :anuf a,cturers sell their products 
direct to t"ae contractor. Other iianufactr.rers sell their "ro- 
cuct to I'.r/ye "Tholesale houses '"ho handle plufjin." -laterial as 
they do other lines pnc. tuo in turn sell to retril hard'Tare 
houses. Still others ("ispose of a lar;;i'e part of their pro- 
ducts to ;:ril order ho^i.scs and direct to consuier houses 'vho 
tahe the uarefron the ship "in- platfom e.nC. perfom the 
functions of ..distri"bution to the ulti:iate consu":er. It is 
o"ovious the.t in the fiunctioi o-" c istri'.'tition 'tj these several 
factors there are involved vprious iten.s of eijDense incltidir.^' 
Torehov.siny, advertising; and selling-, "both --holesale and 
retail. 

"For the ajove reasons it is not ".ossi'ble to enco:.:pass 
'"Tithin the 5," differentiaij. referred to in t".ie Code a 
sufficient spread to cover all of these various functions. 
The pri::e tliou';ht of a 5/J spread nanef. in the Code \7as that 
of a quantity discoLint to larr^e "'ou^^ers; "but "'hen it is 
"borne in .-dnc'. that sone ria-nufacturers perfo"^'ii '".'arehousin;-^ 
and. other f-o.nctions that cost luch More tha.n the 3f5 i^ • 
the a^cre^ate, the r etup as descri"bed .in Article VIII does 
not provide a "orkeJole solij.tion for the sviall nrmifacturer 
•""ho is ;'.ot. so or."jrnized as to "oerfor:i s'o.ch -^xnction hin- . 
self. It is obvious that tlie distrilrator -.'lio perfor js the 
"rea.ter niijfoer of ser^'-ices should receive "price considerr,- 
tions s"afficient to cover s-ach '.7areho"as:-.n/;; and ot"hcr services 
thus rendered as corroa-red ri^h the distri"butor "ho does 
little -oxe than act as a "broher. 

( =*) Ihid 



"7e feel that tb.e clrr.se in tla^e "_pr,rc,"r;'.ph thr.t refers 
to uooi'in;; Oa'd.ers for thirty t.rvR req-aire:ienti: "^'liicli 
':r-- be a.-;>lica':ile ir. certain t^'pes of cMstri jution is 
not appli cable -rliere . the :ir.nufacturer sells a ■pi'ot'xict 
that tahes appro::ina/tel7 J)0 ce-i's to --lani-.f ccture and 
TThich in certain instances because of the nan'ifactv.rer' s 
dpendence u.pon the or:";anization of t^pes of c'istribu- 
tion involving catalo^in", advertisin:; rjid sales planning, 
;aJ:es it necesaar;- for the contract of s. r.mch longer period 
than the 30 dr^s referred to in said Section VIII, 

"ZTor the above reasons "6 respectf^ally reqv.est er.ception 
as refjards the r^bove filin;; of docunents of a confiden- 
tial nature e::cept with the 1!2A officials at '.feshinrjton, 
■Je further request an er.ception as regards the na::i:iuin 
of 5'7J spread and the 30 ca;-s contract period therein it 
applies to the confidential contracts referred to herein 
and other deals of sinilar nature," (*) 

The nail order contracts -'ere entered into al ost i.r -.ediately 
prior to the code. In the lain thny •'■'ere jear contracts --.'ith cost 
plus teiT.is, to be fi;:;u.red at the end of each si:: ;ionth period. In other 
'7ords, the -lail order houses totiglit on the ':rholesa].e price level current 
in the larket, but a,t the end of every sir. ;)onths vrere rebated the dif- 
ference betireen the vholesrlo level and the : :anufactu.rer' s cost plus a 
prescribed nargin. Although this iiargin r,'a'-- never disclosed in any of 
the correspondence or discussions, statements appearing in the letters 
froLi the five nanufacturers to I'BA. of liay 1 inplied that the price terms 
s.nounted to better than 5/J lo"er than the 7holesale price level, Tlisese 
terms the conpanies considered confidential information r.nd it is quite 
evident that the nail order houses die. too. The effects of disclosure 
of the infor.-.iation coxild hardly have been estimated. The object of the 
donina,nt members of the Code Autliority seemed to h?.ve been to "eliminate 
the special considerations, limitin.g the extra discounts to mail order 
houses. The dissenters argued, ho-e"^er, that the acttial effects rrould 
have been to lo- -er the entire price level to that occupied by mail 
order houses. This vie',7 vp.s e:rpressed ''oi' l.'r. Judell of hili.7aul;ee Plush 
Valve "hen Jae appeared personally before the Code Authorit" in its 
meetin':s of Jrily 12, IS'3^' 

"The filin.^" of our contract -ith the II?.il Order Houses 
for Pl'ambing 3ra,ss .':oods "ould i.vrech the price struc- 
ti^re no'"' er.i sting in the Inraistry, "(**) 

nevertheless the five or lore companies nho soir to io.il order 
houses S'^er.ed to consic'.er the transactions -.•ere made on an equitable 
basis and that they ■7ere not forced to sell belor; cost. The;'- felt that 
certain services performed by the mail ordei' houses — a<j.vertising, 
TrarehovuSing, buying in bulk, soreadi-ng purchases over a period of time, 



(*) I'oid 

(**) Administration .Member f.eport, "Jo, ;! , op. Cit. 

SS25 



-373- 
etc., — '-ariT.ntec". the ■o"e"'"e:.''-:'itir.l trer^tncni;, (*) 

(3) At".-i"Air>tr -ti-/?. Action - Tlio "Ivmi'le Case 

"Jiie I72k '-'.as ir/e to feci the ':.::iort''nc^. of the -'.cil orc.er houce 
sitiir.tion in I,Ir.rcL,;j.S3"i-» -^^-e conplr.ints lentioued aljove ''oro filed 
earl^-- in Ai-iril. On I.e.- 1 .and ?, I'r.jor ^Iv.y, A' :inlst:-rtion Menber, and 
Assif^tant Counsel C-^'.llr.ThGr r Toed that in. -.Gdiatc action uas necessar^- 
hecraise the entire cods trade pi-actice "rovisionc, .pa/j.'ticu.larl7 the 
price filin^'; clause, -.-ere at pta]:e, Ther a reed also that: 

"all nanufact-j'-rers holding; ::ail order contracts and a^/ainst 
rriioa coaplaints have oeen filed h;,' the Code Authorit;'', he 
requested to furnish orl-.'inals of tru.e copies of their con- 
trr cts to the Division Ac :.iinic'.tr.ator in ■,Tashin:.;ton "or 
perusal and 'transmission to the De.7j.t7 Adiinistrator and 
the Legal- Division handl-'n • such affairs, TJ..'On receipt of 
these contracts in the Lef;al Division the provisions there- 
of ••ill he chec]:ed a-iainst the recuire'icntti of the Codes 
of the rl\iinhin_; Fi::tures Industry. T/liere it ic r,ho'7n 
that .-Ihese contracts clearly viola.te the coce, it is 
reco'tiended tha.t the ;ianr.facturer i'n'"olved he inforied 
of such fact and he requested to arran"e "'ith hi3 cu-stoner 
to cancel_ the contract h- nut\i?.l a^-ree-^ent or change the 
terns. to con.for-i to the ".rovisions of the code no'-.' in 
erastencc. In cases -fhere it is ir-possihlc throiv;h le'^jrl 
considerations to chan-e tl..e contracts or cancel. .the s"-,e 
as this time, it is rcco" • ■.andef tl\at such action he tahen 
Then the first date specified for rcne^r.l arrives." (**) 

On :ipr- 11, the ITational Co-:pliancc :.3oa.rd held a hearing in 
TJa-shin-toja on the co:iplai:its, as the res-c.lt of •■'hich, at the ne::t neet- 
ing, the Code Authorit:/ n.;:foers erroressed thcnsnlves to the Adiinistra- 

tion h'cnher as "rrther discours,;ed There ^■'as ^■. .■'."eeling that 

efforts -.'ere hei'n' na.de tr. circuj.:vent the :^'ilin-: of nciil order contracts 
and that the Adiinistration "'a-s not puE.hing this natter, "(***) 

Follo'-ing another "."lea.ring held ~:," the Cojipliance Hoard on Jiine 
11, the Board tiirned the cases over to the Litigation Division for en- 
forcenent. As detailed in a Code Authority hulletin re'oortin-; on con 
pliance activities, foiir con"ola.ints -'ere filed a.gr-.i-nst enanel v.T.re 
nanufa-ctui'ers, three a;^ah-nst vitreov-s '.'are nan.-'.factv.rers, ?-nd one. 
aga.inst a seat namifacturcr. (****) 



(*) In letter of Octo her 'j>', 1S3^ fron a .:e :her of the industry to Assis- 
tant Dcput;.- ?il;:ington, horrever, the state lent is -ade tliat "Having 
fonerly sold Sea.rs^F.oe'buch '7e ca-n testi";/ that any -lanufact^rrer -.'ho 
sells then •pliinoing fir.tures does so at a loss a,nd this is particul.arly 
true today at the pres?"nt price'.- of vitreour; china closet conhinations. " 
Code Histoi-y Special E:iiihit, Volu-.e Y, 
(**) Auni"nistration henher Report No, 'l, op. cit, 
(***) Adninistratiq-n liernher llepoft No; 6, op, cit, 
(****^)_Code Authority Bulletin ITo. 2^,. C/2S/3';-, Code Sistory E>diihit P, 

9c25 



-?7>- 

"."^he Liti"T,ti-rn Division "oroparac cnsss o.-T.inst three co rocnie?. , 
not for reiiisc.l to file . .a,il orc'e:-.' lioxise contrs.cts , jut to secure injuinc- 
tions r.f";pinst "'•iolr.tions of the cot'^e 'Thich the Core Authority's conplaint 
inficatec- :.ii-:ht oe container in the tens of these contracts, (*) 

A test case a-rinst the r^an^Me Jlaniifactv-rin;'"; Coioan:' vd.s c'.ecirec. 
ti.pon h;~ the Liti-'-ation Division a:if. "as araied "before the United States 
District Cotirt at h'il'7a-al-:eo on Julj' 20 anc" PI, The case ^ras still tm- 
decic.ec. at the ti;:eof the Schechter c'.ecision. 



1, hail. Order Ilov-se Prices - The Third Sta;;;e of the Conflict 

The third sta';e of the conflict pfoout :ail order hoii.ses ■■'as a 
price '.rar. The doi.rina-nt Code. Authority iienhers -'ere representative not 
only of a larfje ele lent ff.non.';; nan\''.facturers, "out .also, to a considerable 
e::te"it, of the or;^;;anized plinnhini^ tTholesalers and -laster ■pluidoers. Other 
uonters of the industry, on -'che other hand, '7ere de"oende"nt on the Tiarhet 
provided Idj the ;iail order houses; and a.lthon/\;h tliey had heen placed on 
the defensive hy the appearance of ha^vin,:; flo^ated. the code, nevertheless 
they nere in an inpregnaole position oecause of lach of conplete iT?A 
afjreenent vrith the Code Aiithority's actio^nr and hecause their punishi'ient 
finally depe^nded on a court decision -.'hich 'r.E -not forthcor.iin£^' during 
the life o^f the code. 

A series of prices collected fron Sears-lloehiLch sho'-rs an e.lnost 
unhrolcen descent fron June, 1S3'+ throxifhh'arch, 1^j5 "^C) the lovest point 
ever reached in the indrastry. In llpy, 153^ there v;ere indications that 
the ••■lail order ho"ases theiselves 'ere tahin- the offe^nsivc i^n a price 
rrar. These prices shor/ed a continaous decli'ne fro.n l^^SS to iiarch, 1S'33« 
j3y iiarch, 193^» they hac risen onlj^ hack to their 1S32 level. The 
Dureau of Lrodr Statistics co':positc ^'holesrle price inde.:: of five iteiis, 



(■■') '.'e.'.ora-Qdu-i of Aa^a^t 3» '^-53'-fj fron Assistant Go"o.nsel J, h. Galla^jher 
to Assistant De'ov.ty D. 0, Pilhin:'ton, Deputy's "iles, The n.e'iorandvj.i 
uas in reply to one f:.'o-..i the latter rec-aestxn;; an opinion as to the 
ri;'";ht of the Code Authority to -'ithold the i'Vj.e Tle^:;le fron these co ipanies, 
G£illp,.^'her ^-rent on to sa-' i^n his reply that to the "best o:" his hno'Tlet^^^ie 
the Cojipliance i3oard never ruled direct vio"',ation nor that the Blue 
Ea";les of the respondents shoulc", he vithdra'n or '•itlih.eld. He considered 
it very inportant that the natter he n^ade clear to the Code Authority, 
Later, Dece i">er 5, J-i>3'"i^i i^i ^ no' lorandu:! .-^ron Assista'nt Coirnscl 
"J. 'f. S'nft to rilkingtOn(DGputy' s files, ; very si.iilar opinion ^ras 
C'iven on the ri-jht of ths re'ores.entative o-f a conpa-ny, '-'hich the Code 
Authority considered to he in violation of the code, to sit on the 
Code Authority/. 'H'ae precedent ■■iven is reference '"ras Office Order 55i 
and the individ\ial to v-hon' the Cor.e Authority referred nas of course 
■J, Keith licAfee. S^ift stated that the office order prohahited service 
oh the code authorities of persons vdio had heen (a) convicted of a code 
violation hy. a court of covpetent jarisdiction, or (h) f'lily deprived 
of the ■j.se of 1mA insinnia "ir^ the Con"olir.ncc Division, 



-375- 

on the con^.rary, sho\7S prices in the Ir.ttcr part of 153'-^ hi:';her than. 
the index of harch anc. April, 1333 '"'hich stood at 5S.8 '.vhen converted 
to a 1929 'base. Corinents o;'' inuustry •.en'bers and the nortality of 
concerns in the industry svig'^iest that the Sears-Hoebuck prices nore 
accurately reflect indtistry conditions for present purv;oses. It should 
be borne in nind that they s.rG retail prices and that the Bareau of 
Labor Statistics does not talce accoiint o;'.all chani2;es in terns of sale 
during the code period. 

Price changes donnrrard by these trade factors vrere bound to cause 
consternation anonc: plunbers and vjholesplers as uell as among nanufacturers 
who distributed through these channels, 

Llenibers of the Code Authority first tool: notice of the price 
situation in the r.eeting of ilay 11, 193'+» '-^hen the vien v/as expressed 
that a price nav rras in process and that this was ^oj.e in part to the 
attenpt to enforce the filing of nail order contracts, (*) 

In a neeting of July IS, the conplaint '7as iiade that mail order 
houses vrere selling plumbing goods a.t prices even loner than some of 
the smaller iianufacturers cou.ld sell to their wholesalers. . On this 
se^me date (**) the lien York State Association of irnolesalers nrote the 
Plumbing Pixture Code Authority complaining seriously about the price 
situation and placing the blame on the mail order uouses. This Associa- 
tion felt that the industry should: 

"be declared in state of acute emergency and that the 
GovernMent should be appealed to for an investigation 
of the deplorable conditions whereby uanv^facturers 
long since insolvent seem bent on dragging the re- 
maining solvent firms down to their level of in- 
solvency and that the sinister influences exercised by 
large retailers in an effort to constantly buy from 
manufacturers be t reated with 

"The wholesale Division, finding it impossiLle to obtain 
a Code of Pair Competition is helpless to offer organized 
cooperation with your Code Authority, The Pronbing Fix- 
ture Code is held up to complete ridicule through lack of 
enforcement of the provisions of the Code designed to 
make competition fa.ir. Mail order houses, depa.rtment stores, 
owned and operated by mail order houses, direct-to-you 
firr.is, wholesale hardware houses, purchasing service com- 
panies, etc. , constantly publish and advertise selling 
prices, becaiise of preferential costs, below the wholesale 
level, enabling them to undersell any and all true vrhole- 
sa.lers, Discrimina.tion is rrmpant. The Distributive 
Division of this inc'ustr;' which built up, over the years, 
the -'holesale outlet on a nationwide scale for Sanitary 

(*) Acjiinistration Ilenber Hep..iTo..6 
(**) Ad:-i:iistration l.ember Hep, i>Jo, 9 
8225 



-376- 

Fliinoin.-; Jir.tures str.nc.r. at this ti le, in r, state of rapid 
liqiiication, " (*) 

Apparentl;- the price cutting rras not clone altopether through the 
periodical r.iail_ order catalo':s. In fact, more frequently the price 
changes ^lere local, heralded hy advertisei.ients in the loca.l ne-jspapers, 
For example, Hr. George Hoffr-ian, ^Tho represented the Crane Covrpany on 
the Code Authority, -jrote to Assista-nt Deputy ?il!:ington on August 22, 
I93U, as follows: 

"I an in receipt of a copy of an advertisenent appearing 
in the 'Post-Standard' of S^-racuse of Friday, August lyth, in 

^7hich offer a conplete three-piece hathroora oiitfit, 

nithout indicating the size of the ''oathtu'b or the size of the 
lavator;'', at $3^«S5> ^^d they state that the value is $5^4,50. 
The ad also states ths.t only five short nonths ago this high 
quality sold for ^UU.S5» This is nost unusual advertising' 
a.nd it offers the^ products of the manufacturers 'vhose goods 
they are advertising at prices lo'Ter than any k:io\7n current 
price sheet of a aan-c.facti:.rer uhich nay he filed nith the Code 
Authority, 

"It is possihle that they -lay have had this material 
on hand, and it is more than lihely that they a.re still buying 
it currently on a contract at lo'ver prices than the current 
puhlished prices of the manufacturer or nanufr.cturers vho nay 
"be supplying material, 

"To enahle other retailers to approximate these prices 
to the consumer, it will oe necessary for all mr.nufacturers 
to materially reduce their piihlished 'orices, 'Tiiich ijill 
result in further losses, and perhaps reductions in lahor, 

"Unless mail order houses -jho are competitors of 
wholesalers and Plui.ihing Contractors thro\\gh A7hora ^-'e distri- 
"bute, are compelled to comply rrith a Code of Fair Competition, 
the NBA '-ill fail in its e::pressed prog'ram to prevent the 
destruction of small industry, Uy selling a.t a lo'/er price 
than any other manufacturer or any other outlet, it is a 

logical conclusion that ^-Till oecome a monopoly, and 

something should he done to get some constructive contrihu- 
tion from the nail order houses to'Tard- the carrying out of 
the expressed purposes of the President's Reenplo^ient 
Agreement and the HIEA, Just yrho ce.n set up the proper 
investigation of the mail order ta.ctics?"(**) 

(*) Letter of July IC, 1S3^ to Plumhinfg Pixt\ires Code Authority - the 
Code Authoritj'' Secretary sent copies of the letter with a. covering 
Bulletin to all memhers of the Pluiuhing Fixtures Ind-'istry, Code Autho- 
rity Bulletin of August 3, IS3U. Code' History, Exhihit P. 
(**) Code History, Specia.1 E:diihit Vo.IV. Si.iilar acvertisements appear- 
ing in WeT7 Orleans e.nd in Jaclisonville papers r'ere enclosed r/ith letters 
from other menhers of the industry". See also Item 12 (a) of Administration 
i.'Iemher Report No, I3, Deceinber 11, 133^i ^^ ijhich the variation in mail 
order prices ',7as said to be such p.s to nalce impractical the publishing of 
suggested consumer prices by industry members. 
9S25 



~S77- 

Tho 1S3''' ~2.11 Cr.tc^.locs of the irll order houses -lac.e these loce.l 
recuctions £;enerr.l. One coupr.ny bailee", to the Adninistration TierilDer a 
copy of a notice ap'oearin;- i'l the Sears, ?joe1)ucl: Fall CatrlOi'T, in ''hich 
the na.il order house callec. attention to the price decreases in riany 
lines of floods appearing in the catalo;;, nhich -jere pafe at the possible 
sacrifice of profit, and "despite advances in ra,--' Materials, najje i-ates, 
and increased e:rpense in practically every direction," As the principal 
reason for such a policy, the conpan;' cited the decreases in inco;.ie of, 
uany of its custoriers in the dro^o^'iht area, and its --ish to cooperate 
with the Federal G-overmient ' s efforts to "brin/;; ahout national recovery, (*) 

Possijly the ■■lost inportant effect of the price decline led by 
nail order houses -'as the al..iost in 'ediate decision of Standard Sanitary 
lianufacturin-s Conpany to r.ieet the nail order prices, 'Thile the Actions 
of the nail order houses '.Tere serious enough, their conpetition uas not 
very inportant in ^.p.n-j areas, particularly in the ur''.)rn connunities in 
the I'orth, ".Then Standard deter lined to leet the prices, ho^rcver, every 
conpany in the incustr^^ rras affected. 

Another effect of the price decreases '.7as to convince nany nenfoers 
that the companies selling to mail 6rder hoxises --e^L-e doinf; so "both helovr 
their filed prices and helon their individual cop:ts. (The cost systen, 
althou'rh approved, 'xas not in effect.) Since the nanufacturers v;ere not 
responsihle for the actions of their nail order house distributors, an 
autonatic findin^;; of guilt a;jrinst the -lanvifacturers n&s inpossihle, 
tThat T7as possible, hoirever, -.'as to strengthen the denand for the filing 
of nail order contracts and also to canvass the possibilites of a 
declaration of an energency and the fixing of \7holeEale and retail price 
levels. (**) 

2. The ?a.rt Flayed h-^ Standard Sanitary 

Every evidence points to the fact that Standard Sanitary Ilanufactur- 
ing Conpany rrP.s the price leader in the industry durin" the code period 
just as it had been for 3-ears before I'JEA. (***) It vras the company's 
contention, hor/ever, vihen startir-g its nove to neet nail order prices, 
that it T7as the smaller nanufacturers -'ho set the prices for the 
industry because these snail companies sold to nail order houses. In 
other \7ords. Standard felt called on to neet the nail order prices in 
order not to ?-Ose its position in the industry. As e:rpressed by one 
nenber of the Industry; 

(*) Sheet attached to Ac:::uni strati on ?.eport Ho. 10, August 2o,lS3^'^« The 
Adiinistration h'enber indicated in his report No, 13", of DeGe:.:ber 11, 
193^» that Code Authority l.'e?-i';ers e:.pected the ir.il order cata.logs of 
?ebn.iary, 1S35 ^^ shcj still fu.rther decreases in j.luf.'ing ■■joods prices. 
(**) See letter of 'Jestco-ast Sa.nitatry IJanv.facturin • Co. to Administration 
l.enber Cla-y, Aug, 21, lS3^j enclosed --ith Adninistratxon liember Feport 
HclO, See also con.nents of Clay on n-ail order house price situation 
in his reports llos, 9~13« 

(***)See the previous section on Sta-nda.rd Sanitary in the treatnent of 
the Flu.nbi:\" Fixtures Industry background, in-jnerouia. letters to the Ad- 
ninistrator dtiring the code period testified to the continued leadership, 

SS25 



-378- 

"Tlie trouL)le ^7ith Strndarc. is that ;.'e.sr.rd?;.ess of conditions 
they have' al'ja^s lipset the p.arhet "by price cuttini' vhen they 
felt that" the7 -rreVe not fstting their share of the "business 
available. They. refuse to_ recognize that in tines of depres- 
sion people huy as chea-ply as possihle so in the case of 
plximhir.;'^ fictures they purchase then fron the catalog and 
the direct-to-you houses and in lost cases do their o'tp. 
insta.llatioh ;7orl:. This gives these so^^rces of "supply a 
larger chare of the snail volune of >j.siness availaole then' 
under normal tines uhen Standa.rd, Crane and Ilohler do an 
enornous volune on specified rrorl:, Ai the present tine, 
and for the past three 3'ears, there has "been very little ■ ' 
specified work so the voltu.ie of the Big Thtee has siiffer- 
ed." (*) 

The letter' uBnt on to sp-j that Standard cut the price' in lip^y 
appro::inately 155^' ?.nd pointed ou.t thr.t this did not increase the volune 
of husiness "one penny," 

"As a natter of fa-ct, there nas an imec'iate recession of 
orders "because "buyers do not pxirchase on a falling narhet. 
The only effect of the cut in price, -ras therefore, to 
reduce the,- in,cone of all. vitreous china plunloing fi::ture 
■ ^lan'ufa.cturers "by 15^^, ^"'hich i'riediately presented a serious 
• ■ 'pro"blera :for the snaller nan\ifacturers ■jho, even hefore the 
ci-i.t in ■price, nere just nsjiaging to get an even hreat, "(**) 

"Sts,ndard. Sanitary nade its first i.roortant price cut of the code 
period in Jiay, 193'+» ■'^'t appro::ina,tely the sane tine the conpany'.s 
representative on the Code Authority, Lir. H.M» Reed, 'Tithdrevr fron that 
"body, his letter of resignation indicating Stanciard's general dissatis- 
faction 'jith i7ha,t ^vas terned the refusal of I'JEA to enforce the provisions 
of the Plun-oing Fi::tu.res Code as it applied to :!ail order- houses. (***) 

(*) Letter to Acting Division Ac'iiinistrator Barton 7. -iurray, July 
25", 193^4. Code History, Special E::hi"bit, Volune V. 

(**) I"bid, Note here tha-t the ivriter of the letter and Standard are not 
using the tern "sna.ller nanafacturers" in the sane sense. To Standard 
all other nen"bers c^ the indiistry, e::cept possi'ol;' Crane and Kohler, 
are the "sno.ller" conpanies, sone of '-'hon have -.ail order contracts. 
As a natter of fact it ^vas those conpanies i-.r.iediatel" ne::t to the 
"3ig Three" in point of volu-ne of production and size nlio solo to nail 
order houses. There "ere other najaufa-cturers still snaller, of uhon 
the T7riter rras spea!;ing, Thefe'e, the third group in point of size, nere 
caught "bet'Teen the other tno groups during the code ;-ieriod, 

"('***) H. li. Reed, letters to Secretary ?.. i:. Hanson and to Salter 
Eohler, Chairnan of the Code Authority, lis-; 16, 1S3--I-* Code History, 
Bpecia.l E:±ii';it, Volume I'V, . ■ 



9S25 



In Se':tf.- V5e:-, S "• anf-arcl effected mother price cut, sr.ic. "by 
coipetitors to be about 20)j, to meet the prices appearin^^- in the nail 
order house fall catalogs. The lar/;est price chan2;es 'vere iiade in the 
faster sellin::; itens, 'Thich \-.'ere directl,-/ competitive '7ith the arti- 
cles sole, by :iail order hoxices. 3ecrus3 of state lents resenbling very 
closely those in the Sea.rs, ltoe>JLCkcannouncemv3nt, Standard's 
"i>Iotice to the Jobbin^-; Trade of September I5, 153^ is reproduced here: 

"To the Jobbing Trade: 

'Tor a :';reat ;any years the distribiition of Fltuibin;; Fixtures has 
been driftin:"; - conflicting;;: lethods inter "erin • one :7ith the other, 

"In the face of e::istin'- clver^-^ent opinions, this Conpany still 
believes in iiaintaininr the Ion.'-; established prr.ctice of selling 
to the consirier throu';h re^Tilar channels; namely, rnanufa-cturer 
to '"'holesa-ler to pluinber. Toward the end of further strengthening 
this distributive chain, 've no'"' offer a chan^-e in the nanner of 
pricing "Standard" Plijuijing -"i::tures, 

"Effective at the close of business Septenber I5, lS'3^'j "ti^s fol- 
lo".7ing enclosed Price !Dool:s reflectinr Trade Costs ^ill apply: 

ST-1, dated Septe iber I7, 193':-, cove:, in- "Standard" Enanel 

TTrre. 
YT-l, C-C.'-ec. Septe.iber I7, 153^4, covering' "Standard" VitTeaus 

Chin©. 17are. 
:[T-1, dated Septe ber I7, 1S3'', coverinr; "Standard" Brass 

Goods 

"'.Tiiolesalers' discounts f re 1 the above are as fcllo-7s: , 

:"on-r!.nderlined itc.is - - - - -20','j 
Underlined ite:.is - - - - - -25^ 

"Ite:as purchr.sed for Sho'7roo' Bisplay ;our^Dose3 are subject to a 
further 20'p I'iscoimt as outlined in bulletin QrlyG, dated harch 5, 
133^. 

"Preifjht allo"'anceG are. as set forth in Trei^'ht Allov'ance Sheet 
rA-2, attrched, 

"Credit Terns renain as outlined in Tretisiiry Departnent btilletin 
letter of Ilarch 2, 1S3U, 

"All previous prices are "ithdra-7n, 

"Prices sr.bject to chan.'.'o '7ithout notice, 

"O-ir practice of pu'.-lishin" consu'ier lists hc.s been discontinued. 
TTierever such lists nay be required, it is our reconnendation 
that you coopers,te T7ith yo'or pluibin" dealers in arran'iin'; 
sug.fjested consur:er resale prices •-'hich -^111 conpare favorably • 
f7ith prun" ing fir.ture' prides -being offered in your territory. 
Prices displayed in Sho'7roo;.is should be on that basis. 



"38C- 

"A stucj' of these Price r.oohs vill convince -jov. that, under this 
nev' pirn of action, ^e nakc it 'possiLile for yoti to offer the 
consi:u,un£; pu"blic na.tionally advert i sec"', arid universally accepted 
"Standard" Fliufoinrj rir.tures, ■"'■ith continued uniatched service 
CirLiririi"; constraction and thereafter , r.t prices co roars/3le, qualit]' 
considered, -vith those of oth'-rr channels. 

"In CO ipilin;;: these Trade prices, ■iJ^/niifacturin-j' costs, adiiinis- 
trative overheads, etc., have l)een disref^arded, profits sacri- 
ficed, and onl-- consuners' present ahility to purchase, considered. 
Despite advances in ro;,' .materials, lahor, Piid increasing; expenses 
in every depart' :ent of operation, ".''ou -'ill note that prices in 
these sheets are ^lenerallp leer. 

"7e have foeen cooperatini;^' fulljr vith the ?ederal C-overn:nent in 
its national Puecovery Pro;;ran. ks this letter goes out to irow, 
daily noiafent'ua is ooin/;; '■ ained in the Better Eousinc Prorran of 
of the Pedoral Housing; ACninistration. Our announcenent is oppor- 
tune . 

ST .IjD^JD SA1TIT.-.HI MEG. CO." 

The direct results of these price cuts '•/ere considerahl;' iiore 
far reachinp than those attendant \ipon the ::ail order prices. Standard 
'.■fa.s .-'the price leader and its prodticts "7ere self ever--^here. rarthernore 
Standard filed the do^n'.'ard revisions -'ith the Code Authoritjr. Aeaction 
'7as imediate and universal.- It '"'as a case of neeting those prices or 
"oi 'J out of business, and not infreni^ently the forner led to the latter. 

One of t'70 tienbers vainl;^ attenpted to use code .^eans to stop the 
lajidslide, Conplaints of selliTi_; helo'.? cost --jere filed against Standard 
rith the lULt, Dut as the co'ipany pointed out. Standard vras 'leeting 
price co:rpetition and tiii s ','as permitted h; the code (in a nost anhi- 
£,uous sentence); rnd. oeaides, the industry's cost syste.n did not 
hecoue effective until Se"tcifoer 25, 133^'- ^-'^■^- it ''2-s never rerlly 
put into operation hy the Code Authority, (*) 



(*) See correspondence het"eon Svondff.rd'^Sanitary and Assistant 
Beouty Pilkington fron Septo'.her 2U, 1S3^ throu,':h October 
12, 1S3'-I- "-nd "betvean Pilkin^ton^ahd Assistant Counsel 7.7. 
S'.7ift of ITovenber I7 and Eeconbor ^3) 1'33^ " Code History, 
S-cecial 21:-±Libit, Vol. IV. 



"381- 
3. The Znc'. of the Trcxe Practice Provisions 

■"men Assistrnt Z)ep\it;' Pili;in':ton ua-: plr.ceo. in chr.r<%-e of the 
Code he proceeclec. to send a letter to every .lenoer of the industry 
(Septenber 10, 135^) » as]:ir.'; the c[uestion -.-'hether or not the Coc.e nas 
srtisfr.ctory r.nd ^hat chan^;es the lenoer :iif;;ht su/y^est, if any. The 
reception' accorded this inquiry v/as startlin;^' even to those nho had 
oeen convinced the Code could not '■rorl:, As tarailated end classified 
oy the Assistant Depvity hinsolf thr; replies sho'vn the follov/in^- results: (*) 

Sp'-^ci^ic Conplaints A^rinst the Code UU Letters 

No r.nforrericnt IS " 

Code Satisfrctory as "Jritten 17 " 

Seplies Valueless l6 " ■ 

The complaints emphasized the "belief that small producers nere at 
a disadvantage xind.er the cod.-: 

"The Code "orice stiuctiire e.B it is '^ritten is un'-'orfeaole 
a-~d does not per: lit the siall :ip;n"o.facturers, ::ai:in.^ only one 
line, to e::ist. The snail nanufacturer of a sinfjle line, 
such as ourselves and nui-foerous others, ruist have a concession 
in price "because '/e cpjinot render the service to the jo'bTDer 
that the large nanufactu^r, nakin;'; all o" the finturos lines, 
including pottQr3'', "brass, onanclcd 'rare, etc., can -five. To 
Tit, in the- city of Pitts^bur/jh, the Ilohler Conpany i-fho nahe a 
complete line of enaneled- ■'.Tare, potter^', "brass, "boilers, 
ra-ciation, etc., have one distri"butor, ^'ho is their erxlusive 
ELgent, Tlie Ilohler Conpany, r t their cvn e::pense, laintain a 
she--' roon and a cre'7 of nen to call on the architects, O'lners 
and contractors and all jo"bs tahen or prouoted jy' these nen 
are passed on to their vholesaler at no erroense to hin. The 
sin';le line nanuf^-cturer cotild not afford the erroense of this 
shoT7 roon a.nd pronotion '7orl:, etc., so to offset that v.'ith the 
dealer he nust pernit the dealer to "auy ais product e.t a less 
price. Another exanple is the Crane Conpi",ny or the Standard 
Sanitary '-'a-nufacturin^; Conpr.ny, "..^ho o'vn their -'holesale 
"branches and distrioute- throufjh those "branches. There is 
ncthir/;; that prevents these "branches fron selling;; ^-joods at 
any -orice that they '-^ish, --hile the independent ua-nufacturer 
can only sell to his -wholesaler at his pu"blished -price. 
Presunahly the Standard Sanitary llffj. Co., or the Crane Conpany 
sell to t'iieir ovn "brrnches at their "pu""olished -price "but their 
"branches crn dispose of the material at any price they nish, 
even at r loss "be"^ o'l their cost, hecruse, of course, it only 
cones ov