'Fair Trade' was a policy established in the post-WWII era in
response to what consumer retail groups considered business-ruining
cost cutting by dealers who offered to sell products at or barely
above cost in order to steal profit from other stores. So-scheming
stores planned to make up for the low profit margin with high
sales volumes. Doing so drove a lot of the local competition
out of business, leaving the crafty dirty dealers to later raise
prices. Stores that had manufacturer-sanctioned service shops
often got screwed because they were obligated to repair items
like TVs and radios that were bought from another dealer who
did not do service work. Profit margins on repair work - at
least from honest shops - were typically very low, so the owners
depended on new product sales to help raise the bottom line.
It all caused a very contentious environment in the fledgling
television industry. This article does a good job of detailing
Note: There is a modern-day version
called World Fair
Trade Organization, as well as numerous other groups.
Is Fair Trade the Answer to TV Price Cutting Problem?
By Carle Christensen
This type of advertising is familiar in the
television field, yet you will notice the exception made in
referring to Fair Traded items. Would the Fair Trading of most
makes of television receivers eliminate or minimize price cutting
in the television field? This is the question discussed by the
author in the article.
Other industries have proven beyond a doubt that Fair Trading
reduces cut-throat price cutting.
There is little doubt but that price cutting is the number
one problem facing the television dealer today. As the department
manager of one of the country's leading department stores put
it recently: "We can't afford to handle television receivers
in the current market. We're seriously considering discontinuing
"Just about everyone who comes into this department talks
in terms of a discount of from 15 to 30 percent that they have
been quoted by some dealer. With overhead, personnel, and advertising,
it costs us 30 to 35 percent to handle an article. So how can
we possibly afford to continue handling merchandise that must
be sold in the face of cut-throat competition that is working
on a margin of from two to twelve percent above cost?"
Or consider the comment of a small appliance dealer. Asked
if he felt the pressure of price cutting, he answered, "Feel
it? Are you trying to be funny? If someone were to come in that
door and offer to buy a television receiver without asking for
a discount, I think I'd drop dead of surprise!"
"They usually tell me quite frankly where they can buy it
for about what I pay for it. So what can I do? Chase them out
the door? Oh no! I bargain and use all the salesmanship I can.
"But don't kid yourself, it's tough going; because regardless
of how much salesmanship I use, the prospect still knows the
dealer down the street will give him the same set at a discount.
So I usually end up giving him a discount, too, or a free installation
- or sometimes both."
The problem of price cutting is not a new one. It has been
faced in recent months and years by every major industry as
the sellers' market has changed to a buyers' market.
In many industries, such as the drug field, the photographic
field, and the liquor field, price cutting has been kept under
control - at least to the extent that there is no cut-rate advertising,
and the great majority of sales are made at list so that the
dealers are able to operate on a normal margin of profit that
permits sound growth and adequate servicing.
Yet, in the field of television, price cutting has grown
to such proportions that millions of dollars in profit have
been lost, and good will forfeited, creating a widespread uncertainty
in the minds of the general public as well as the dealers as
to its future. To quote a recent statement issued by the Philadelphia
Retail Merchant's Credit Association, "Discount selling in the
television field has reached such proportions that it is not
only a menace to the new industry, but it is also detrimental
to all retailing."
What has brought about such a difference between these two
pictures? What have the drug, photographic, and liquor industries
done that the television industry has failed to do? And could
the same solution that has been successful in minimizing price
cutting in these other fields be applied in the television field
It is very obvious that a retail merchant must make a profit
to stay in business, and the only way he can do this is to sell
his merchandise or services at more than they cost him.
Here are typical advertisements that clearly
show the need for price control in the television field. If
Fair Trading were applied to the television industry, such
advertising would be kept to a minimum.
key men in industries upholding Fair Trade agreements strongly
support the Act.
Uncontrolled, unwarranted price cutting will not allow him
to do this. What might normally be a thriving, successful business
can very rapidly go on the rocks if everything must be sold
at a discount. Only as the leechlike influence of discount
selling is eradicated will a healthy retail operation be possible
in the television field.
As was mentioned before, other major industries have at one
time suffered from the same blight of indiscriminate price cutting
that now plagues television. Yet today, they are in a continually
improving position which permits them to sell the greater part
of their stock at list prices, upheld and protected by agreements
between dealers and manufacturers. This has been made possible
by the Fair Trade laws of their respective states and the Miller-Tydings
Amendment to the Sherman AntiTrust Act.
In all of our United States, except for Missouri, Texas, Vermont,
and the District of Columbia, Fair Trade laws have been passed
which permit the manufacturer of a product "which is in open
competition with commodities of the same general class produced
by others" to enter into contracts with dealers (or wholesalers)
to sell the product at the price named by the manufacturer.
Moreover, in many states, not only the manufacturer, but a vendor,
who has exclusive distribution, coupled with a sufficient interest,
tantamount to ownership, may Fair Trade a product.
In either case, however, once a price has been established
under Fair Trade, it becomes binding on all dealers, whether
they have signed the contract or not, and if, thereafter, they
willfully and knowingly advertise or sell such a commodity at
less than the specified price, it is unfair competition, permitting
legal redress by an injured party.
To illustrate: Let us suppose (as is the case in Chicago)
one of the distributors has established a line of television
receivers at certain list prices, under Fair Trade laws. Let
us further assume (as has occurred) that a dealer advertises
or is known to have sold one of these sets at less than the
agreed price. What happens? An injunction is immediately obtained
restraining the dealer from making any further cut-price sales,
and should he continue, he is open to punishment for contempt
of court. Some courts punish for contempt by fine, and some
by imprisonment. Resort to court action is, however, seldom
necessary in enforcing Fair Trade regulations.
Or let us take a recent case in the photographic field. Mr.
Justice Walter, in the Supreme Court for New York County, recently
handed down a permanent injunction against a dealer who used
phrases such as "store demonstrator" and "like new" as a subterfuge
to permit him to sell Fair Traded products at less than list.
Justice Walter spoke of such practices as being "nothing
more than a ruse to defeat the law," and forbade the dealer
to continue such practices to evade charging and advertising
list prices. In other words, in the framework of the Fair Trade
laws, there is a power which when properly applied and enforced
is capable of establishing and maintaining list prices for any
commodity that is Fair Traded.
First, it should be made clear that while Fair Trade laws,
when enforced, prevent uncontrolled and unwarranted price cutting,
they do not prevent price adjustments at any time the manufacturer
may deem it advisable. If he feels that a 20 percent reduction
in the price had been made possible by lowered manufacturing
costs or better distribution, the reduction is made. But it
is made available to all the dealers, on the same basis.
Second, Fair Trading does not permit a manufacturer to hold
his prices up at an excessive level, because he is permitted
to Fair Trade his product only if it is "in open competition
with commodities of the same general class produced by others."
Naturally, the desire to sell against such competition will
prevent his placing his Fair Trade prices any higher than he
would normally do. Fair Trade does, however, permit the manufacturer
to know that his goods will be sold at the Fair Trade price
and that he can keep his faith with legitimate dealers by using
the law to enforce observance of this price.
In fact, the effect of Fair Trading has been to keep prices
considerably below the normal trend. To quote John W. Dargavel,
Secretary of the National Association of Retail Druggists:
"Above all, Fair Trade has enabled the drug industry to achieve
a price performance in the public interest, unequalled, to my
knowledge, in any other industry. By 1939, over-all prices in
the drug field, under Fair Trade, had dropped one percent from
pre-Fair Trade, depression prices. This was revealed by a study
made by staff members of the University of Minnesota's School
of Business Administration and published by the Druggists Research
Bureau in 1940. The study analyzed the effects of Fair Trade
on the prices of 50 leading trademarked products in 42 Fair
"During the war and postwar inflation, an unprecedented 'holding
of the price line' was achieved. The Fair Trade prices of 7334
drug products rose only 3.1 percent in the period between 1939
and 1947, according to a study made by the National Association
of Chain Drug Stores. During this same period, Bureau of Labor
statistics showed that food prices have risen 93 percent; household
products, 81 percent; the over-all cost of living, 59.3 percent;
miscellaneous items 38.5 percent; and drug products as a whole,
Third, it should not be felt that Fair Trade is a new vehicle
of government control, as is sometimes suggested. As we pointed
out previously, Fair Trade merely permits the manufacturer or
vendor to establish a minimum price and gives him the power
to maintain it, if he chooses to do so.
Fourth, Fair Trade laws are merely to encourage fair trading
and should be thought of as rules necessary to maintain fair
competition in distribution, in just the same way that rules
are necessary to ensure fair play in baseball, football, or
any other group activity.
Predatory, unwarranted, uncontrolled price cutting is "cheating"
of the most vicious sort and will erode and destroy any industry
in which it is permitted to go uncontrolled.
Fifth, Fair Trade laws may not be used for vertical price
fixing within an industry. That is to say, two or more manufacturers
may not get together with the purpose of establishing similar
prices on like products so as to control the field. Such practices
are still in violation of the Sherman Anti-Trust Law, are expressly
prohibited in State Fair Trade laws.
But now, let us consider for a moment, what the widespread
application of Fair Trade procedure could mean to the television
industry. Can you imagine what it would mean to be able to talk
to a prospect and to know that he could not go anywhere else
and buy the same receiver for 15 to 30 percent below list? Can
you imagine how much more salesmanship you would be able to
use by knowing that price alone would not be the final deciding
factor, regardless of what you might say? Can you imagine how
much more willing and complete could be your service on a set
that you had sold at a legitimate profit, and how much more
recommended business would come as a result of such service?
Actually, it would mean a return of the radio and television
business to the status of a stable industry promising a good
future to anyone who was properly trained and willing to apply
himself. Today it has fallen into the hands of cut-throat price
manipulators who think only in terms of rapid turnover and immediate
profits (if any!).
Of course, like all dreams, this one is not capable of 100
percent realization - for a time at least. But the success of
Fair Trading in other fields promises that it is possible for
the radio industry to gradually build into its fiber the sound
elements of price regulation and to eliminate the evils of widespread
To quote Augustus Wolfman, Editor of National Photo Dealer
in a special statement made for Radio & Television News:
"Fair Trade, when effective, benefits every bracket of an
industry as well as the consumer. It prevents destructive price
competition which eventually ends in the failure of a number
of retailers with consequent loss to manufacturers and possible
failures among this group as well.
"As far as the consumer is concerned, a series of failures
of this type will first of all decrease the number of available
jobs. Secondly, in order to meet the pressure of retailers who
are fighting a price war, manufacturers may decrease the quality
of their products in order to reduce prices, and again the consumer
"As far as the photographic field is concerned, Fair Trade
is not yet fully effective. However, one of the most noteworthy
gains in the photographic industry, made possible by Fair Trade,
is the elimination of retail advertising which contains cut
prices on new merchandise.
"In addition, may I point out that in a recent survey conducted
by National Photo Dealer magazine, 53 percent of photographic
dealers replying stated that Fair Trade was working in their
areas, 26 percent indicated that it was partially successful,
and only 21 percent mentioned that it was not successful.
"The two principal reasons for the failure of Fair Trade
wherever it is not working are the inability of the dealers
to co-operate to make it work and the indifference of manufacturers
towards enforcing their Fair Trade contracts.
"The fight for more effective Fair Trade is still being carried
on in the photographic industry and we are looking forward to
achieving our goal in the not-too-distant future."
The Problems of Enforcement
Naturally, the application of Fair Trade laws presents problems
- some of them quite serious. But, none of them are so great
that they could not be solved by the same genius for organization
and planning that has brought us the modern television receiver.
A most important problem, as mentioned by Mr. Wolfman, is
that of enforcement. Fair Trade laws in themselves impose no
penalty. They are, in the terms of the lawyer, "permissible"
rather than "mandatory" laws. They permit the manufacturer or
vendor to establish Fair Trade prices, but they are only effective
if someone enforces them. It has been definitely and repeatedly
proven that where Fair Trade laws are properly and consistently
enforced, uncontrolled and unwarranted price cutting is reduced
to a minimum and cutprice advertising is eliminated. Therefore,
where such enforcement is lax or entirely lacking, the resulting
failure cannot be charged to Fair Trade laws but rather to the
failure to enforce them.
Actually, when an article is Fair Traded, anyone who is injured
by the price cutting may obtain the necessary injunction to
cause the offending party to cease. However, because of the
legal complications and the expense involved, it is hardly practical
for a single dealer to undertake such enforcement, and it is
generally done by the manufacturer or a distributor.
For example, in the case already cited in Chicago, it is
the distributor who initiates the enforcement, though it must
be admitted, since his is the only line in that area that is
Fair Traded, it is in some ways a thankless task.
On the other hand, many of the photographic dealers in the
Chicago area have organized themselves into the Chicago Area
Photographic Retailers Association under the leadership of Mr.
Harry Graw, President of the General Camera Company.
Since most of the items sold in photographic stores are Fair
Traded, the primary task of this group has been to police their
markets and to see that Fair Trade prices are upheld.
To do this they have hired shoppers who periodically check
on the prices at which various items are being offered, and
when it is established that price cutting has been practiced,
preliminary warnings are given; if these are ignored, the matter
is turned over to the Association's legal counsel.
A similar plan of procedure has been adopted by the Guild
of Photographic Dealers of New York, Inc., and other groups
are gradually being formed over the country in an effort to
give protection to dealers who wish to carryon a legitimate
While cases where manufacturers in other fields, have successfully
used Fair Trade to control price cutting are too numerous to
list here, one of special interest to us in the television field
is the recent suit of Allen B. DuMont Laboratories to restrain
R. H. Macy and Company from advertising and selling DuMont television
receivers at cut prices. Legal action was instituted against
Macy's after the store ran newspaper ads in New York papers
offering DuMont sets at 20% off.
At the time of publication of Radio & Television News,
Macy's had been legally restrained from representing themselves
as DuMont dealers.
DuMont has disfranchised eight or ten dealers for price cutting
in the past, but this is the first instance of legal action
to protect the manufacturer's price structure.
As previously mentioned, because of the limitations of space,
it has been quite impossible to completely present the story
of the possible advantages and the problems of Fair Trading
as a means of controlling price cutting in the television industry.
We have, however, sought to establish the basic principles involved
and to illustrate the manner in which it has been successfully
applied in other fields.
Naturally, there are many questions that will arise in the
minds of our many readers, and we refer them to two sources
from which they may obtain additional, accurate information
on the matter. They are: The American Fair Trade Council, Inc.,
at 11 E. 44th Street, New York 17, N. Y. and the Bureau of Education
on Fair Trade at 205 East 42nd Street, Suite 1909, New York
17, N. Y.
In closing, we feel we can do no better than quote a special
message to Radio & Television News readers from Mr. Don
White, Executive Secretary of the National Association of Visual
Education Dealers whose group has the benefit of many years
of experience with the problems of price control.
"The best way I know to explain the effect of Fair Trade
on the audio visual business is to compare it to the Bible.
That is, not everyone abides by the rules it sets up, but we'd
be in a dickens of a fix if we didn't have it at all.
"Most of the products in the audiovisual field are now covered
by Fair Trade contracts. Our experience with these has been
that when properly enforced, they serve to protect the manufacturer,
the dealer, and the customer.
"The manufacturer is protected against the loss of his good
name, which occurs when his product is price-cut. The dealer
is protected against cut-throat competition and can afford to
get out and develop sales, confident that he will not lose them
to price-cutters. And the customer is protected because he knows
he is buying the Fair Traded product at the lowest price at
which it can be sold by any reputable dealer. He is relieved
of the necessity of 'shopping' for a better price.
"In these days of competition for every consumer dollar,
each industry needs to build up, at the dealer level, a hard-hitting
and effective sales force - not just order takers, but a sales
force that can create the desire to buy.
"The only way such a sales force can be maintained is through
protection against price-cutting. And a solidly enforced Fair
Trade contract is the only sound means of providing that protection."
September 22, 2015