Voices from the Past: South Bend and the FTC (1922)

We've been on a bit of a South Bend history kick lately. Today, we're looking at a rather dark day in South Bend Bait Co. history -- how the firm was caught by the FTC for discrimination in pricing controls. It's a rather interesting decision covered in depth by the April 1922 issue of Hardware Review. Of greatest interest is the fact that South Bend sold 5-8% of all fishing tackle sold in America during this time, and that -- shockingly -- they only sold in the 1921 season 2.2% of all net sales directly to customer.

South Bend Bait Co. Must Cease Discrimination

Federal Trade Commission Rules Against Arbitrary Classification of Purchasers by Manufacturers — All Buyers Entitled to Same Price on Same Quantity of Same Products — Decision Detrimental to Jobbers

The South Bend Bait Co., South Bend, Ind., its officers and agents and employees have been ordered by the Federal Trade Commission to cease and desist from discriminating in net selling prices by any method or device between purchasers of the same grade, quality and quantity of commodities. Transportation Costs Legitimate

The commission's order, which was dated March 14, provides nothing therein contained shall prevent discrimination in price between purchasers of commodities on account of differences in the grade, quality or quantity of the commodity sold, or that makes only due allowance for difference in the cost of selling or transportation, or discrimination in price in the same or different communities made in good faith to meet competition.

This order is the result of an investigation made by the commission and is founded on facts as follows:

That the total net sales of fishing tackle and artificial bait in the United States by all manufacturers is approximately $7,950,000 net per annum, or about one-third of the volume of all "sporting goods" manufactured and sold within the United States. That the South Bend Bait Co. sells from five to eight per cent of all such fishing tackle, artificial bait and similar products sold within the United States.

Classified Customers

That during the three years last past the South Bend Bait Co., in the course of its business has put into effect a plan for the allowance of trade discounts and the making of prices to purchasers in the marketing of its products, substantially as follows, to wit: It has classified its customers in four classes, namely, "jobbers," "wholesalers," "dealers or retailers" and "consumers," and sells to "consumers" at fixed or list prices named in catalogues, circulars and other advertising matter and in some cases marked upon the article offered for sale; that respondent sells its products to purchasers who are "retailers," by it so classified at a discount of 33 1/3% off list prices, provided that if said "retailers" or "dealers" purchase $300 worth net, or more, at a single purchase, said "retailers" or "dealers" so buying are given a discount of 40% off list prices; that respondent sells its products to purchasers who are "wholesalers" by it so classified, at a discount of 40% off list prices regardless of the amount purchased; that respondent sells its said products to purchasers who are "jobbers" by it so classified at a discount of 50% off list prices regardless of the amount purchased: . that respondent suggests to retailers that they shall sell such products to "consumers" at prices identical with list prices to "whole salers" and "jobbers" that they shall sell to "retailers" at a discount of 33 1/3% off list prices; that respondent insists on the maintenance by "jobbers," "wholesalers" and "retailers" and "dealers" of such suggested resale prices to the extent of, in one instance, cutting off the supplies of one dealer who failed to maintain list prices to consumers; that in exceptional cases other and different discounts are given in the sale of its products to purchasers who are "jobbers," "wholesalers" and "dealers" or "retailers" by it so classified and designated; that respondent in making said classification defines purchasers as follows: "Jobber" that they must be a recognized jobber—meaning that they travel salesmen, issue a catalogue, and conduct a jobbing business, that is, calling on and selling to the retail trade and not doing a retail business; "wholesalers" as customers doing a combination retail and jobbing business; "retailer" or "dealer" as a "customer who maintains a store, carries stock and sells fishing tackle to the consumer;" "consumer" as the "user; he is the party who buys the tackle to fish with.

How Sales Totalled

That sales of said products made by respondent to single customers who are "jobbers" for a period of twelve months ending in July, 1921, varied in volume from $15.92 net, to $12,351.39 net, and that many sales to purchasers who were "jobbers" in said period were in volume less than $300 net; that sales made to single or individual purchasers who were "wholesalers" as classified for a period of twelve months ending July, 1921. varied in volume from $10.80 to $635.79 net, and that respondent made many sales to said class of "wholesalers" in said period less in volume than $300 net, and respondent made several sales larger in volume than $300 net; that sales made to single purchasers who were "retailers" or "dealers," as classified, varied in volume from 55 cents or less net, to $312.27 net and that several sales made by respondent in said period to said "retailers" or "dealers" were greater in volume than $300 net, while the great bulk of sales to "dealers" or "retailers" were less than $300 net in volume during said period; that the average purchase by "jobbers" was $1,460; by "wholesalers," $410; by "dealers" or "retailers," $57; that the total volume of sales to all purchasers for the eight months ending May 31, 1921, were $427,568 net, of which $9,363 net or 2.2% of the whole were made to purchasers who were "consumers" as designated; $65,888 or 15.4% of the whole to "dealers" or "retailers;" $50,499 or 18.8% of the whole to "wholesalers:" and $301,865 net or 70.6% of the whole to "jobbers" that the business of respondent has been and is rapidly expanding in volume of sales; that the total volume of net sales for the year ending September 30, 1912, the first year of its business career, amounted to $10,546; that for the year ending September 30, 1920, the total volume of business had increased to $399,879 net; that for the eight months ending May 31, 1921, the volume of respondent's business totaled $427,568.

Trade Discounts Discriminatory

That said plan of trade discounts made and applied in the sale of its products, as described, are discriminations in price between purchasers of products for use, consumption and resale within the United States; that the tendency and effect of said plan of discounts so made and applied is to make discriminating prices to purchasers who are distributors, and to compel purchasers who are consumers to pay a fixed or list price for said products from whatever source said consumers may purchase; that the effect of such discrimination in price between distributors of its products may be to substantially lessen competition in the sale of fishing tackle, artificial bait and like products in the sale of such products in interestate commerce. This plan the commission states is not a discrimination in price between purchasers of said products that made only due allowance for cost of selling or transportation; that cost to respondent of selling and transporting its products to some purchasers classified as "retailers" or "dealers" has been a less percentage of the selling price of said products than the cost of selling its products to some "jobbers" or to some "wholesalers," such latter cost being reckoned also as a percentage of the selling price.

Also the plan is not a discrimination in price between purchasers of products because of difference in quantities sold to purchasers; that some purchasers designated "dealers" or "retailers" and allowed a trade discount of 33J/$% off prices made in its catalogues, etc., actually have purchased at a single purchase or for a fixed period, greater quantities of the products than did some purchasers, designated as "jobbers," at a single purchase or for a similar fixed period, but said "jobbers" were allowed trade discounts of 50% off lists and that the plan was not a discrimination because of differences in grade or quality, that said respondent sells but one grade or quality of products; nor a discrimination in price in good faith to meet competition; nor a selection of customers in bona fide transactions and not in restraint of trade.
-- Dr. Todd