some traditional services performed for their retail
customers and added the others. The added services
were in the area of retail location analysis, fore-
casting, financing, and store layout. The wholesalers'
latest strategies in the drug and hardware channels
have been establishment of wholesaler-sponsored and
retailer-sponsored cooperatives.

The most important observation to be made in this discussion of

changing environment of businesses is that no statute can stop

nor should it attempt to stop the functioning of consumer preference.

Whenever a business runs into difficulty because it is losing sales to

a competitor, the reason for the seller's loss is usually the customer's perceived gain. When given a choice between two competing ways of doing business, customers will "vote" with their purchases as to which price/product/service mix they prefer. Thus, "part of the cost

savings of supermarkets was the result of the consumer's willingness
to assemble her own order, arrange for credit elsewhere, and deliver
her own orders to her home" 323/ in return for a lower price. This
trade off between price and service permits people to make choices based
on their own incomes and preferences, a fact which was noted in the 1935
final report of the Federal Trade Commission on chain stores: 324/

[I]n the smaller towns, at least, people of lower means
patronize the chain stores to a greater extent than do
those with larger incomes. Those who state that they
purchase more than half from chains amount to 17 percent
of the persons with larger means replying to the Commis-
sion's inquiry, 22 percent of the medium-income group,
and 35 percent of those with smaller means. The most
frequently stated reason for patronizing chain stores is
lower prices, and no other one reason for buying from

chains approaches it in importance. The reason most
often advanced for buying from independents is credit,
followed by delivery service, and by loyalty to local
enterprise.

One of the witnesses testifying for the Review Group, William Woods, Washington representative of the National Association of Retail Druggists, seemed to acknowledge that consumer choice did play a part in the growing market share of larger chain drugstores versus that represented by small independents: 325/

Mr. Flexner: Mr. Woods, might not one reason for this
decline in market share that apparently is currently
evidenced and has been happening over time be simply
the result of the consumers' choice?

Mr. Woods:

both ways.

Well, it could be, but you can argue that
We know of consumers complaining about the
thing I just read, but, perhaps a factor in some places,
and consumers are not all alike.

If a consumer wants to drive many miles or have
some inconveniences to save a few cents, that is his
business, but I do not think that the person who would
like to have convenience of a pharmacy near him, such as
an older person who does not want to go that far and
is willing to pay more for service, I think he should
have that opportunity.

The hard fact is that presented with the choice between

low service and inconvenience at a low price and high service and

convenience at a higher price, relatively more people may opt for the especially poor people. If those who complain about low

low price

service and inconvenience form a sufficient number of persons to

support a retail establishment catering to their needs, that establishment will survive. If those people wanting the higher service and the higher price do not form a sufficiently large population to make such an

establishment viable, such an establishment simply will not survive

in that form without at least some indirect subsidy from those consumers who would prefer a lower price, poorer service option. No amount of legislation designed to prevent price discrimination can reverse the trend.

Most of the factors, then, leading to the success or failure of a small businessman are outside the control of Robinson-Patman.

According to a Dun and Bradstreet report on business failures,
"regardless of a recession or a boom, inexperienced or inept
management is the underlying factor in nine out of every ten
failures. But the problems which prove insurmountable to the
untried or incompetent businessmen change with the economic
climate." 326/ In retailing particularly, it is the first few
years of a business operation, when experience is the least,
in which most failures are likely to occur. Of the 4,234 retail
failures which occurred in 1974, 40.5 percent involved

businesses in existence three years or less, 66.2 percent involved those in existence five years or less, and only 15.4 percent involved

businesses of more than 10 years' experience. 327/

326/ DUN & BRADSTREET, THE BUSINESS FAILURE RECORD, 1974, at 3 (1975).

327/ Id. at 10.

b.

Large Scale Businesses Have Other Advantages Over
Small Businesses Because Of Flexibility And

Efficiency Which Are Beyond The Reach of Robinson-
Patman

Large firms have many competitive advantages with which Robinson

Patman cannot deal. The Act's restriction to commodities of "like grade

can be avoided by large purchasers, as explained by the

Director of the Bureau of Economics at the Federal Trade Commission: 328/

[G]iant business corporations enjoy more strategic
options than their smaller rivals. If you tell a firm
like A&P or Dart Industries that its suppliers cannot
pay it a brokerage allowance, it can adapt in a variety
of ways-e.g., by integrating vertically and producing
its own requirements, or by dealing only with suppliers
who serve it exclusively, or by ordering private-label
items differentiated from the merchandise its suppliers
sell other retailers. Much smaller retailers lack such
flexibility, and the tactics they must adopt to hold their
own against the A&Ps and Safeways and Rexalls often bring
them into conflict with Robinson-Patman while the giants
go unscathed.

More importantly, large firms often have long run.

advantages which do not involve price per cost of goods

sold, and are hence beyond the reach of the Act. For

example, large firms may have lower costs for the entire channel of distribution of which they are a part. Such lower costs may result from more efficient actual operation or from the integration of various wholesaling and retailing functions and consequent elimination of certain costs associated with independent wholesalers. This fact was dramatically

demonstrated by the 1935 final report of the FTC's chain study. The report found that only a relatively small portion of the chains' lower price was explained by these lower prices for purchased items, including

328 Prepared Statement of F. M. Scherer, Subcommittee Hearings, pt. 2 at 145.

all special allowances granted to the chain. The figures for grocery stores, depending on whether the advantage was weighed on the basis of chain store or independent sales volume, range from 16.6 percent to 19.9 percent in Detroit, 19.16 percent to 35.8 percent in Memphis, 20.5 percent to 23.6 percent in Washington, D. C., and 3.01 percent to 4.8 percent in Cincinnati. 329/ In the retail drug trade, the figures as to the percentage of selling price difference explained by purchase price differences, again depending on the weighing factor used, were 9.7 percent to 10.8 percent in Washington, 7.7 percent to 5.4 percent in Cincinnati, 5.3 percent to 3.9 percent in Memphis, and 17.4 percent to 18.3 percent in Detroit. 330/ It is obvious that even with the complete elimination of lower sales prices to chains (and some of these lower prices were cost justified), the remaining 80 percent to 90 percent of the cost difference would have remained and the smaller stores would have continued at a disadvantage if competition were confined solely to price.

A 1939 study by the 20th Century Fund also found that in many areas of retailing, particularly the grocery store trade, chain stores had a lower cost of retailing than did independents. 331/ Just as importantly, that same study concluded that in six out of the seven types of businesses surveyed, including food and drugs, the cost of chain store warehouse

329/ 1935 FTC CHAIN STORE REPORT 55.

330 Id. at 56.

331/ TWENTIETH CENTURY FUND, DOES DISTRIBUTION COST TOO MUCH? 13440 (1939).