Mrs. GOODWIN. Mr. Chairman, I would in all fairness suggest that the speech in its entirety be placed in the record, in order that it not appear that I misrepresented it.

Senator HART. It will be so ordered.

(The material referred to may be found on p. 479.)

Mr. WILLIS. Then the entire speech should be in. I can send you a copy of my speech made before the soap organization in New York, whatever date it was.

Mrs. GOODWIN. This was made before the television broadcast

ers

Mr. WILLIS. That is another one.

Mrs. GOODWIN. (continuing). In which you are urging the television people to give you the same type of editorial cooperation you have been given by the publishers.

Mr. WILLIS. It was a complete misstatement on the part of the magazine and we have totally ignored it because they were so inconsistent with what my statement was.

Senator HART. Will you send to us, in order that we may put into the record, the speech made at the television meeting?

Mrs. GOODWIN. They say that they are printing it in full, Mr. Willis. If they are saying anything that is in error here, it should be pointed

out.

Mr. WILLIS. I don't know what is in there, but I can tell you what I said and I will be glad to send you a copy of a speech.

Mrs. GOODWIN. Sponsor reprints it here in full, with an editorial comment on the page.

Senator HART. I suggest you send us the speech, and if there is a discrepancy, the committee will note it.

Mrs. GOODWIN. I would suggest also that the editorial be made a part of the record, because I feel it would be pertinent. And there is about a half-page story in March 1963 issue of Changing Times in this connection that I would like to be made a part of the record.

Senator HART. They will both be made a part of the record.

(The editorial referred to may be found on p. 483. and the article in Changing Times may be found on p. 496.)

Mr. RAITT. Mr. Chairman?

Senator HART. Mr. Raitt.

Mr. RAITT. I get the distinct impression from what counsel has been asking that there is something wrong about articles about a product of an industry appearing in periodicals. I am aware that often, articles about new cars appear and in many industries this certainly is commonplace.

I am sure counsel did not mean to infer there was anything unlawful, unethical, or anything improper about this. I just wanted to clear up

the record.

Senator HART. I don't know what was in counsel's mind. The record will speak for itself.

Mr. RAITT. This was my impression. Maybe I was in error. But I seemed to detect this inference. I wanted the record straightened out for the benefit of its readers.

Mr. WILLIS. Mr. Chairman, to complete this record, would you be interested in having letters from the magazines and get their reactions to my visit with them, to which this reference is made, and let them tell you whether or not there was any insinuated pressure put on them?

Senator HART. Why don't you send such mail as you think would be relevant? If in the judgment of the committee it is relevant, we will make it a part of the record.

Mr. WILLIS. I think in fairness to the total picture, we should have the whole picture presented and not a bobtailed one, or a prejudiced

one.

Senator HART. Any further questions?

(No response.)

Senator HART. Thank you very much for your patience.

Mr. WILLIS. Thank you, Mr. Chairman. I seem to enjoy coming here visiting with you.

I would like at this time to introduce our general counsel, Mr. Frank Dierson. While Mr. Dierson appears in the capacity of general counsel of GMA, it might be of interest to note that he is also editor of the Food, Drug and Cosmetic Law Journal; secretary of the Antitrust Law Section of the New York State Bar Association and an officer of the Food, Drug, and Cosmetic Law Sections of the American Bar and the New York State Bar Associations.

Mr. Dierson?

Senator HART. Mr. Dierson, we welcome you. Any reader of the record will be impressed by that title.

STATEMENT OF F. T. DIERSON, GENERAL COUNSEL, GROCERY MANUFACTURERS ASSOCIATION OF AMERICA, INC., NEW YORK,

N.Y.

Mr. DIERSON. Thank you, Senator.

The bill S. 387 proposes much more than the regulation of deceptive packaging and labeling referred to in its title. Powers granted by the bill are so broad and its antitrust purpose so restrictive that in actual operation it is likely to work serious injury to consumers, to industry, and to the national economy.

Members of the Grocery Manufacturers of America, Inc., urge the subcommittee not to risk these dangers of the bill especially since strong, existing legislation is adequate to deal with the practices in question with full protection of consumers and competing manufacurers. We believe that enactment of the bill is unnecessary and unwise for the following reasons.

Both the Federal Trade Commission and the Food and Drug Administration now possess plenary power to prohibit all deceptive and misleading practices in connection with packaging and labeling. Commission Chairman Paul Rand Dixon and Food and Drug Commissioner George P. Larrick testified to that effect before this subcommittee last year.

Furthermore, Federal law is supplemented by similar State statutes which require conspicious labeling and prohibit deceptive packaging. The GMA supported the enactment of these laws and approves their fair and vigorous enforcement.

S. 387, however, would substitute a system of discretionary control for our traditional legal standards. We oppose this change because it violates the essential nature of American law, namely, that the Government shall exercise power only through definite rules based upon explicit general principles. We are also opposed to the bill because

its purpose is inconsistent with antitrust objectives and because it omits fair procedural safeguards.

The bill is offered as an amendment of the Clayton Antitrust Act and is presumably intended to maintain competition. But its operation would actually restrict competition by nullifying the intensely competitive activities of producers in all of the many aspects of competition save the one aspect of price.

The introductory statement on the bill refers to nonprice competition as obscuring price competition and fostering monopoly. Although the term "nonprice competition" does not appear in the antitrust laws it is employed by economists, particularly in discussing a questionable theory of "perfect" competition.

The antitrust application of that theory was urged upon this subcommittee last year by Dr. Ruby Morris. She endorsed it as set forth back in 1933 by Prof. Edward H. Chamberlin, of Harvard, in his book entitled "The Theory of Monopolistic Competition." In that book the author proposed a purely theoretical ideal of "perfect" competition in which all sellers are selling goods of identical type and quality and in which no individual seller can appreciably affect the market price by his own individual sales.

Professor Chamberlin defined nonprice competition as including product differentiation, advertising, and trademarks. He denounced these activities as wasteful and monopolistic and recommended their elimination. Advocates of this theory also argue that America's resources can be better allocated if quality differences among products are eliminated by compulsory standardization.

The foregoing theory has been refuted by eminent scholars who sharply disagree with it. For example: Prof. J. M. Clark, of Columbia, in his book "Competition as a Dynamic Process" (Brookings Institute, 1961) declares that the kind of competition we really have in today's market is much better than so-called perfect competition because it makes for progress.

Prof. Lawrence Abbott in the book "Quality and Competition" (Columbia University Press, 1955) exposes the errors of the "perfect" competition theory by showing that it wrongly ignores the social benefits of nonprice competition as represented by efforts to attract customers through quality differences, quality changes, and advertising. He then proves that no theory of free competition can be formulated without allowing for these nonprice elements.

A final citation-in his book "Individualism and Economic Order" (University of Chicago Press, 1958), Prof. F. A. Hayek takes a simple definition of competition-endeavoring to gain what another endeavors to gain at the same time. Then he puts the question:

How many of the devices adopted in ordinary life in that endeavor would still be open to a seller in a market in which so-called perfect competition prevails?

He says:

I believe that the answer is exactly none. Advertising, undercutting, improving "differentiating" the goods or services produced are all excluded by definition "perfect" competition means indeed the absence of all competitive activities.

This concludes my reference for authoritative rejection of "perfect" competition as a model for reconstruction of our economy.

In order to achieve the American ideal of dynamic competition and growth producers must be left free to engage in market, consumer, and product research. The fullest consumer benefits can only result when the producer is given liberty to introduce quality and packaging innovations, and has unrestricted freedom to inform consumers about them.

We believe that the antitrust purpose of S. 387 is unsound and incompatible with established antitrust objectives of free competition. In this respect a practical caution is in order: the small businessman receives no competitive protection when his rights of innovation and sales promotion are restricted; and any dominant firm in an industry may well obtain a monopolistic franchise by Government fixing of rigid product standards which bar entry to newcomers and innovators. In defense of a free market economy we hold that advertising contributes the real advantage of informing consumers more fully about price and quality changes. Furthermore, advertising provides necessary incentives for quality improvement, and by enlargement of mar kets permits production economies resulting in lower unit costs and favorable consumer prices.

In the Journal of Political Economy of August 1960, Prof. Marshall I. Goldman reports on his investigation of a recent change that took place in the Soviet Union. Serious national problems of quality deterioration and wide consumer dissatisfaction had resulted from official pressure for cost reduction in the manufacture of standardized products.

The Government correction which followed took the form of encouraging product differentiation, trademark registration, and advertising, in order to reestablish pride and responsibility on the part of the various State-owned factories and to promote quality competi

tion.

Professor Goldman goes on to describe the prohibitive cost of Russian product standardization in terms of excessive official inspection functions and the swollen bureaucracy required to perform them. Let us profit by the lesson of Soviet experience.

I can't resist quoting at this point a news item which appeared in the Wall Street Journal of Monday, March 18, on page 1, Senator. It is there reported in this language:

"Corn flakes and potato chips should be produced in Russia for home consumption," Premier Khrushchev declared. He told the Presidium of the Communist Socialist Party Central Committee that he sampled those products while in America in 1958 and found them to be nourishing, tasty, and pleasant.

Senator HART. You know, we are approaching Easter and the spirit of peace and good will should abound. I think I ought to voice a note of caution to the Kremlin. If they follow that advice, I hope for them that they do not find that there are 69 packages of potato chips under 3 pounds in their supermarket.

Mr. DIERSON. I am sure they will have your hearings as a basis for understanding that, Senator.

S. 387 would empower the FTC and the FDA under mandate of the economic policy described, to initiate and promulgate compulsory standards for packaging, labeling, and related advertising.

In addition to other objections we protest the following procedural defects of the bill. There is no provision for a public hearing on

regulations, no requirement of substantial evidence as a basis for regulation, and no right of court review with respect to any contested regulation. It is also important to note that the proposed controls cover not only materials currently in use, but in addition all packaging, labeling, and promotional materials to be used in the future. Under this rule no manufacturer could safely risk introducing product improvements without first submitting them to the Government for clearance, which presents a new hazard. On such submittal the agency would have to look for guidance to the economic policy of the bill-one which wrongly considers nonprice competition as an illegal instrument of monopoly. In this situation what chance has a producer, as a minority of one, of securing official clearance of his product improvement if the effect of that approval were to give him a substantial competitive advantage over all rival producers?

We disapprove the bill's proposal to substitute Government license control for a system of objective regulation according to definite legal standards. Although reduction of penalties is irrelevant to our principal objections, the foregoing change is especially significant when examined from the standpoint of penalties now imposed by the basic statutes: Under the Federal Trade Commission Act, $5,000 fine per day and exposure to injunction litigation by competitors. Under the Federal Food, Drug, and Cosmetic Act, 3 years' imprisonment and $10,000 fine, multiple seizure of shipments, injunction, and exposure to private antitrust litigation. These penalities apply regardless of the defendant's knowledge or intent, and without proof of any injury to competition or to competitors. The same penalties, presently imposed for violation of the statutes, are generally accepted because they are applied under a rule of law with procedural safeguards. But they are shockingly severe under the proposed scheme of arbitrary control by administrative discretion.

We believe that the bill would defeat the desirable antitrust objective of free competition, because its policy wrongly condemns public differentiation, quality improvement, and other forms of nonprice rivalry. The following comments are offered to show that the bill in actual operation involves the application of that policy:

Mandatory regulations under paragraph (C) of the bill must establish rigid specifications of place and size of content statements; they must absolutely prohibit any qualification of such statements; and must ban any price promotion on the label. This procedure not only forecloses opportunity for future label improvements as changing circumstances may require, but it will effectively discourage them.

Absolute prohibiton of qualifying language for weight and price statements also sets the alarming precedent that practices inherently nondeceptive may now be unconditionally outlawed simply because they are misused in exceptional cases. Inconsistently, cents-off and related promotions which would actually stimulate price competition, are completely banned, with no place left for consideration of the question whether such promotions should be permitted where no deception is involved.

Paragraph C(5) authorizes the Government to grant discretionary exceptions, but it promptly frustrates that hope by subjecting relief to this new and ambiguous antitrust standard: Exceptions are to depend upon an assurance of "rational comparisons between or among competing products." If, as we believe, price comparison is the sole