Dual Distribution and its Impact on Marketing Organization

U.S. Cong., House, Subcommittee No. 4, Select Committee on Small Business, A Report of Subcommittee No. 4 on Distribution Problems to the Select Committee on Small Business, 88th Cong., 2nd sess., 1964. (Cited hereafter as Report.)

Ibid., Hearings, The Impact Upon Small Business of Dual Distribution and Related Vertical Integration, I-IX, 88th Cong., 1st sess., 1963. (Cited hereafter as Hearings.)

Hearings, I, 1.

Ibid., 4.

U.S. Department of Commerce, Bureau of the Census, Enterprise Statistics: 1958, Part I: General Report.

Ibid., p. 26, Table E.

Hearings, VIII, 1733.

For example: Mr. Kluczynski: “Am I correct in assuming that typically the companies distributing through the franchise methods would not engage in dual distribution?”

Mr. Mauk (vice president of International Franchise Assn.): “We do not … I am not familiar with the methods of operation of other member companies. To my knowledge, there are none… .” Ibid., 1736.

In addition, an ice cream manufacturer testified that he was being driven into formal integration, both forward and backward, as a result of FTC objections to his method of franchise operations. Ibid., 1760–1762.

However, licensees of the Hertz car rental system submitted a formal statement representing “the culmination of 2 years of united action and deliberation by the membership” describing the Hertz franchise system as a “feudal autocracy” under which “no licensee in the system is secure.” Ibid., 1753–1756.

Those listed were: General Foods, General Mills, Kellogg, Quaker Oats, Pillsbury, Ralston Purina, Continental Baking, National Dairy, Borden, Carnation Milk, Standard Brands, Armour, Nestle, Procter and Gamble, Lever Bros., Colgate-Palmolive, American Home Products, Sterling Drug, Carter Products, S. C. Johnson, Johnson and Johnson, Helene Curtiss Industries, Texsize Chemicals, Gulf Oil, Standard Oil (New Jersey), Standard Oil (Indiana), Firestone, Goodrich, and Westinghouse Electric. “The Secret Hand in Private Brands,” Sales Management, Sept. 16, 1960, pp. 35 ff. For recent evidence, see “Battle of the Brands: Price Conscious Buyers Help Private Labels Expand Market Share,” Wall Street Journal, May 24, 1965, p. 1.

Hearings, VI, A284–290.

A partial listing of primary and secondary brands of major gasoline companies (ibid., III, 651) is as follows: Conoco Western, Malco, Kayo Pure Super Par Humble Hoosier Pete Phillips Paraland Sinclair Simpson DX Freeway

For a detailed analysis, see Barron J. F. , “Mandatory Functional Discounts: An Appraisal,” Journal of Business, XXXV:3 (July 1962).

U.S. Census of Business, III (1954), 9–17, Table 9D.

U.S. Federal Trade Commission, D. 8512, Columbia Broadcasting System, Inc. and Columbia Record Club, Inc., June 1962; D. 5897, Doubleday and Company, Inc., Decision, Aug. 1955.

See testimony of Leon Holmes, Hearings, III, 528–529.

Warshaw Martin R. , Effective Selling Through Wholesalers, Michigan Business Studies, XV:4 (Ann Arbor: Bureau of Business Research, University of Michigan, 1961), 8–34.

Hearings, VII, 1528.

U.S. Census of Business, I, Retail Trade (1958).

Op. cit., p. 38, Table 1.

U.S. Small Business Administration, Size Structure of Manufacturing Industries, 1958, pp. 5–8.

Report, p. 6.

Hearings, II, 425–440.

Ibid., IV, 853–933.

Adams Walter Dirlam J. B. , “Steel Imports and Vertical Oligopoly Power,” American Economic Review, LIV (Sept. 1964), 639–640.

Hearings, II, 261.

Report, pp. 79–80.

See Report, pp. 82–83, and Hearings, III, passim.

Hearings, III, 667.

Cf. similar conclusions reached in Lessig v. Tidewater Oil Company, 327 F. 2d 459 (9th Cir. 1964), and Simpson v. Union Oil Company of California, 84 S. Ct. 1051 (1964).

Report, p. 87.

For some evidence of the variability of gasoline and other products sales among service stations, see Miller R. A. , “Sales Variability in Service Stations,” Journal of Marketing, XXIX (April 1965), 28–32. My general statements are also strongly supported by Miller's “Exclusive Dealing in the Petroleum Industry,” Yale Economic Essays, III (Spring 1963), 223–247.

Hearings, III, 667.

See testimony of Sidney Zagri, Legislative Counsel, International Brotherhood of Teamsters. Ibid., III, 771–799.

U.S. Federal Trade Commission, “FTC Institutes Broad Inquiry into The Problems of Competition in The Marketing of Gasoline,” News Release, Dec. 30, 1964.

Rowe Frederick M. , Price Discrimination Under the Robinson-Patman Act (Boston: Little, Brown and Company, 1962), p. 201.

Ibid., p. 196.

Report, p. 107.

See Cook Paul W. Jr. , “Decentralization and the Transfer Price Problem,” Journal of Business, XXVIII (April 1955); Dean Joel , “Decentralization and Intra-company Pricing,” Harvard Business Review (July-Aug. 1955); Gould J. R. , “Internal Pricing in Firms When There Are Costs of Using an Outside Market,” Journal of Business, XXXVII (Jan. 1964); Hirshleifer Jack , “On the Economics of Transfer Pricing,” Journal of Business, XXIX (July 1956).

Penrose Edith , “Middle East Oil: The International Distribution of Profits and Income Taxes,” Economica, XXVII: 107 (Aug. 1960), 203–213.

The 100 largest manufacturing companies increased their share of total value added by manufacturing from 21 per cent in 1947 to 30 per cent in 1958. U.S. Bureau of the Census, Concentration Ratios: 1958, Part I, 8.

Statistical evidence may be found in a number of sources— Gort Michael , Diversification and Integration in American Industry (Princeton: Princeton University Press, 1962); U.S. Department of Commerce, Bureau of the Census, Enterprise Statistics: 1958, Part I, General Report; U.S. Cong., House, Select Committee on Small Business, Staff Report of the Select Committee on Small Business: Mergers and Superconcentration, 87th Cong., 2nd sess., 1962; etc.—but the most cogent narrative account of the matter is in three articles by E. B. Weiss from the feature section of Advertising Age, Nov. 2, 9, and 16, 1964, reprinted in Hearings, IX, 1897–1928.

U.S. v. Aluminum Company of America, 148 F 2d. 416 (2d Cir. 1945), as cited in Report, p. 13. This viewpoint was reaffirmed by the recent comment of Rep. Joe L. Evins (D.-Tenn.), Chairman of the House Select Committee on Small Business: “The House Small Business Committee is alert to the new merchandising concepts being applied on such a wide scale today and is seeking diligently to find methods whereby the more than 4.5 million small businesses can be assured that their share of the market will not be taken from them and the free enterprise system preserved” (House Small Business Committee, “Small Business Faces Increasing Giantism,” News Release, March 2, 1965).