EDITOR'S NOTE

Dr. Charles F. Phillips, student,

teacher, consultant, and author on
matters of economics in general
and marketing in particular, has
been president of Bates College at
Lewiston, Maine, since 1944. This
article was first presented as an
address before the 26th Annual
Boston Conference on Distribution,
October 19, 1954.

Published February, 1955

Permission to reprint granted without
special request. Printed in U.S.A.

THE FOUNDATION FOR

ECONOMIC EDUCATION, INC.
Irvington-on-Hudson, New York
 COMPETITION? YES, BUT ...

WHAT 1 AM going to say to you is not the

usual Conference on Distribution talk - at
least, it is not like the other four I have deliv-
ered to these Boston gatherings. Usually, a
talk at this Conference is scientific in nature;
it is based upon an analysis of facts and at-
tempts to reach conclusions based upon
those facts. What I have to say today, how-
ever, is more of a statement of faith - a faith
which I cannot prove statistically - but one
in which I believe deeply. Specifically, it is
the faith that the preservation of a competi-
tive society is important to the preservation
of our way of life -and, further, that all
too many of us who profess to believe in the
competitive economy actually engage in
actions harmful to its future.
To ask an American businessman -
whether he be grocer, baker, or candlestick
maker - if he believes in competition is al-
most like asking for a sock on the nose. Of
course, he believes in competition- and he
raises his voice to add emphasis to his answer.
But, after he has cooled off a bit from your
question, you may find that he has his own
3
definition of competition. For example, let's
walk with him down the street toward the
grocery store of which he is the proprietor.
Across the way in a window of one of his
competitors is a large sign: "Sugar, X cents
per pound." You call it to his attention and
at once his brow knits. "That's unfair com-
petition," he says. "That so-and-so has cut
his price again to attract my customers." I
remind him that he believes in competition.
"Why, yes," he replies, "but not unfair and
ruthless competition." And, if you then ask
him, "But why is it unfair for a competitor
to cut his price?" he will explode, "Why,
any darn fool knows that it is unfair to sell
sugar for X cents. You can't make any
money at that price. There ought to be a
law in this state against such practices."

WE ARE FOR FREEDOM, BUT

I WONDER if the reaction of our friend, the

grocer, does not illustrate a simple truth
which can be expressed in the short but in-
complete sentence: "We all like competition
but ..."
We all like competition since we know it
is essential for our type of economy, and we
like the freedoms which our economy gives
to each of us - the freedom to enter or with-
4
draw from any specific field or career; free-
dom to set our own prices; yes, even free-
dom to undersell somebody else and take
business away from him.
But . . . all too often when a competitor
really acts like a competitor and does some-
thing which hurts us - cuts a price, sells
harder, improves quality -it becomes "un-
fair competition" and we run to our trade
association, our resources, or the govern-
ment for protection.
Of course, you think I am exaggerating
the situation, and to a degree I am; but per-
haps less than you think. Let's take a little
look around this distribution world of ours.
We might begin by a little historical ex-
cursion in the retail field. If we go back to
the turn of the present century, we find that
small country merchants were going through
the mail-order scare. Following the lead of
Montgomery Ward Company and Sears,
Roebuck & Company, mail-order firms were
springing up in many parts of our country.
To the small country retailer, this newer
form of retailing was unfair. It did not em-
ploy salespeople. It did not involve the oper-
ation of a retail store. It could purchase in
huge quantities. For these and other reasons,
the local merchant was undersold and he ob-
jected to this result. Obviously, such compe-
5
tition was unfair! In a number of communi-
ties, "trade at home" clubs were organized
while some local retailers organized mail-
order catalogue burning parties.

UNFAIR, THEY SAY

ALoNG ABOUT the same time, the "unfair"

competition of the department store was also
growing. As a matter of fact, by 1895 the
department store had developed to such an
extent that a group of retailers meeting in
convention, "after an exciting debate,"
passed a resolution condemning this form of
retailing, as it would "result in oppression of
the public by suppressing competition (note
that word 'suppressing') and causing the
consumer in the end to pay higher prices
and ultimately create a monopoly ... and,
further, that it (would) close to thousands
of energetic young men who lack great capi-
tal the avenue of business which they should
find open to them"• Once again, the bogey
of unfair competition had reared its ugly
head. Yet, it is probably not being cynical to
remark that what these retailers really were
opposed to was the fact that the department
store was a formidable competitor.
•Quoted in C. F. Phillips, Marketing (Boston:
Houghton Mifflin Company, 1938), p. 308.
6
 What happened in the late Twenties and
early Thirties in the chain store field is known
from personal experience to practically all of
us attending this Conference today. Based
on charges that the chains were monopolis-
tic; that they used such unfair practices as
loss leaders; that they were a detriment to
community life because of their absentee
ownership, unfairness to local bankers, fail-
ure to pay their fair proportion of taxes; and
that they were unfair to their employees
through long hours, low wages, and offering
little chance of advancement, smaller retail-
ers spent much time, effort, and money in
attacking this new method of unfair compe-
tition. Customers were urged to curtail their
purchases at chains. The Robinson-Patman
Act was sponsored, the misnamed Fair Trade
laws were encouraged, and in over twenty
states special taxes discriminating against the
chains were enacted.
We all like competition, but ...
Of course, this excursion into retail history
belongs to the past, and you may ask: Is any-
thing like this going on at the present time?
The answer is "yes"- and in practically
every area of business. Let's note a few illus-
trations.
Pick up the trade paper of today, and you
will discover that discount houses are a form
7
of unfair competition. All over the country,
they are rapidly springing up on the basis of
underselling the so-called established retail-
er, which means, and I now quote the execu-
tive secretary of the National Association of
Retail Druggists, that they are trying to de-
troy "every established retailer in the United
States ... by unfair competition.... """ And
he goes on with two sentences which might
well have been lifted verbatim from dozens
of speeches made against the chain store
twenty-five years ago.
Unless the discount house is effectively
curbed ... there will inevitably be anarchy in
the market place. The American public must
ask itself whether it wishes to sacrifice the
legitimate retailers who make outstanding con-
tributions to our economic and community life
and who are the backbone of our mass distri-
bution system.
Discount houses are even pointed to as
being unfair to the consumer because, after
all, they do not offer him all the services of
the established retailer. Incidentally, whether
the customer wants those services or not is
rarely considered when this argument is ad-
vanced.

•Quoted by Cameron Day, "More discount houses

everywhere - is this a threat to advertising?"
Printers' Ink, April 30, 1954, p. 33.

8
 SOLUTION BY ELIMINATION

ANn, what do the established retailers offer

as a solution to the discount house? Is it an
honest effort on their part to meet this new
competitive factor by reducing their own
margins and prices-which, if history proves
anything, must be the way to meet it in the
long run? In a few instances, the answer is
yes. To illustrate, here is a refreshing state-
ment from the chairman of the board of
Sears, Roebuck & Company, Theodore
Houser, who says:
I have no patience with people who say that
there ought to be some way to stop the dis-
count house. The important thing is to bring
down the price to the consumer. If the discount
house can do that, good. It's Sears' job to get
in there and pitch. •
But Houser's statement is really the excep-
tion which proves the rule. The majority of
established retailers act as if they think the
answer is more Fair Trade- despite the fact
that it is the wide margins set by Fair Trade
which are playing an important role in en-
couraging the growth of the discount house.
Consequently, they clamor for the manufac-
turer to cut off the flow of merchandise to
•"For Sears: A New Era and a New Problem,"
Business Week, May 1, 1954, p. 44.

9
the price cutter and to enforce his Fair Trade
contracts. In brief, they say: Let's not meet
competition; let's have someone eliminate it
for us.
Another form of what some of today's re-
tailers refer to as unfair competition can be
discovered by talking with a downtown mer-
chant in any city where one or more major
outlying shopping centers have been devel-
oped. "Here I am, a well-established re-
tailer," he will tell you. "I have been in this
location for thirty years, and I have always
given good service to the public. Now, some
real estate operator has come along and de-
veloped a shopping center five miles outside
of this community, and my customers are
driving out there where they have ample
room to park and where they can shop dur-
ing the evening. In view of all I've done for
this community, I don't think it is fair."
Or, again, talk with the president of one
of today's drug chains. Twenty-five years
ago his organization was the culprit. At that
time, he was the unfair competitor - the
price cutter - but, today, he finds that the
supermarket has added a drug section and is
underselling him.• Whereas he opposed re-
•for a study of this trend, cf. "Grocer Horns in on
Druggist," Business Week, February 16, 1952, p.
158 ff.

10
sale price maintenance laws twenty-five
years ago, today he is one of their strong
advocates. His own definition of unfair com-
petition has shifted rapidly, depending upon
who is being undersold. Incidentally, this
same shift in opinion is becoming evident
among the executives of the older and well-
established food chains, and the leading trade
paper in this area is now an advocate of Fair
Trade.•

MAKE COMPETITION ILLEGAL

WE SEE another aspect of the Fair Trade

fight in New Jersey. Here- as elsewhere-
the supermarkets began to sell packaged
medicines at reduced prices. The regular
druggists' reaction was not to meet compe-
tition in the market place, but to try for a
court ruling to prevent sales of packaged
medicines in stores not having registered
pharmacists.£ This method of fighting com-
petition is catching: It has also appeared in
Minnesota, California, and other states.ff
•cf. Godfrey M. Lebhar's editorial on "Is Fair Trade
in Jeopardy?" in Chain Store Age (Grocery edi-
tion), June, 1954, p. 51.
f "New Jersey Supers Resist Druggists' Smears,"
Super Market Merchandising, May, 1954, pp. 191-5.
ff Printers' Ink, September 12, 1952, p. 7.
11
 We all like competition, but ...
Or, again, consider the so-called plight of
the automobile dealer during these past sev-
eral months. For a number of years now, he
has been riding the gravy train. Cars were
hard to get; he was in a sellers' market and
he made money. But, late in 1953, it became
apparent that a shift was occurring; and by
last spring, it was clear that the tide was out.
The sellers' market turned into a buyers'
market.
Many dealers who had grown up in the
industry during its easy selling days and
had never been trained for the "hard sell"
suddenly found themselves in trouble. Their
profit margin disappeared; they went into
the "red." Some of them began to appear in
Dun & Bradstreet's failure statistics. Of
course, said the dealers, it was all the manu-
facturer's fault. As the dealers put it: "The
real trouble is that auto-makers are produc-
ing more cars than dealers can sell,"• and
they urged their resources to reduce their
production. Oh, the dealers would admit that
they might have had some part to play in the
situation, since some of them were bootleg-
ging cars - selling them to so-called illegiti-
mate dealers who in turn would sell them at
reduced prices. To check such so-called un-
•Time, June 7, 1954, p. 104.
12
fair competition, the National Automobile
Dealers Association even asked the United
States Justice Department to come to the
dealers' rescue and prohibit bootlegging!
But, we do not have to limit ourselves to
illustrations from what we normally con-
sider the retail field. Did you follow the ten-
month strike of Local15 of the United Hat-
ters and Millinery Workers International
Union against the Hat Corporation of Amer-
ica? The strike started in July of 1953,
brought on basically by the Union's demand
that the company sign a contract containing
a clause that would prohibit it from opening
new plants outside of the Norwalk area and
from transferring work now done in Nor-
walk to any outside plant.
What the Union wanted was a limit on
competition. It did not want its members
to compete with workers in some other area
where Hat Corporation might establish a
factory. Fortunately, after ten months, the
Union lost its fight. It is worth contemplat-
ing, however, what would have happened
had a similar strike been won when the
United States was still located on the East
Coast only. Obviously, it would still be lo-
cated on the East Coast only; and equally
obviously, its standard of living today would
be far below what it now is.
13
 AGRICULTURE AND EXPORTS

THEN, of course, there is the farmer -the

so-called individualist, the man who stands
on his own feet, and, as the politician puts it,
"is the backbone of the nation." Here, of
course, is someone who believes in competi-
tion. Yes, he does, but again there comes that
but - and the but in his case is a big one, so
big that through powerful lobbies he has
forced through Congress price support laws
which give him protection far in excess of
even that provided for the retailer through
Fair Trade.
In the foreign trade area, we can find this
same attitude. A Randall Commission was
appointed; and last January it came up with
a program which could be described by the
phrase, "more trade, less aid." For a time,
it seemed as if practically everyone in the
country was in agreement that this slogan
would be a good one to put into practice.
It looked as if we were going to make prog-
ress in minimizing some of our tariff barriers
which limit competition and result in lower
standards of living both here and abroad.
Yet, when a specific program to accomplish
these ends was proposed last March, many
of those who, at their trade association meet-
ings, are warm advocates of competition,
14
suddenly found that there were certain wage
cost differentials which led them to oppose
lower tariffs "as posing a grave threat to the
domestic economy."• As they warmed up to
their subject, they pointed out that lower
tariffs would throw American workers out
of jobs, curtail purchasing power, and send
us into a depression. The fact that domestic
difficulties in specific areas would be far
more than offset by benefits in other areas
is something with which they were not con-
cerned.
We all believe in competition, but .. .
I can even illustrate this attitude in the
field of education- college education at
that. Throughout the United States, colleges
use scholarships to capture students -and I
use the word "capture" deliberately. Some-
times we want them for their I.Q., sometimes
for their A.P. (athletic prowess) and some-
times for both. At my college, of course, (or
president Jones' college if he is the one doing
the talking) we limit these scholarships to
students who are in serious financial need;
but, unfortunately, (that is the word used

•For more details on these arguments, cf. "U. S.

Foreign Economic Policy," in National City
Monthly Letter on Business and Economic Condi-
tions, May, 1954, pp. 55-59.

15
by college presidents when several of them
gather together in a room to discuss the situ-
ation) there are a few colleges which use
scholarships as an unfair method of price-
cutting. Don't you think, their conversation
continues, our regional association can do
something about this?
Even educators like competition, but ...

ANTI- COMPETITIVE ATIITUDE

BY No MEANS is this anti-competitive atti-

tude confined to the United States. As a
matter of fact, we are probably less prone
to accept this attitude than businessmen
throughout the world. In Guy de Carmoy's
excellent little article on "What's W rang
with France?" he suggests that:
In great part the French crisis is moral. Too
many Frenchmen have developed the habit of
seeking government protection. Industrialists,
already protected against domestic competition
by cartels, want the government to shield them
against foreign competition by high tariffs and
restrictive quotas. The peasants want govern-
ment subsidies to enable them to buy the highly
priced French manufactured goods. The work-
ers want the government to supplement their
inadequate wages with generous family allow-
ances and other social benefits, while demand-
ing at the same time the closing of borders to

16
 foreign labor, even when it is needed for ex-
pansion of the French economy.•
He then adds that, while "the French believe
that they still have a free economy . . .
(what) they actually have ... is the competi-
tion for subsidies of innumerable groups,
each of which presses the state to protect its
acquired position by artificial means." To
underline his point, he adds that currently
35 per cent of the national budget of France
goes for direct and indirect subsidies to busi-
ness, industry, and agriculture.
Apparently, France believes in competi-
tion, but ...
Now, as I conclude, let me be sure that I
am not misunderstood as to the point I am
trying to make. Please do not think I am say-
ing there is no such thing as unfair competi-
tion. When a competitor resorts to false and
misleading advertising, engages in misbrand-
ing, and makes false and disparaging state-
ments against competitors or their products,
he is engaging in practices which all of us
would denounce.
What I am saying is this:· Much of what
we daily refer to as unfair competition is
really just keen competition. It is the kind
of competition that is essential to our type
•de Carmony, Guy, "What's Wrong with France?"
Reader's Digest, May, 1954, pp. 117-122.
17
of economic system. If we want to maintain
the freedoms which our system gives us -
to enter businesses of our choice, to produce
the merchandise we please, to set our own
prices - then we must accept the competi-
tion which is essential to that kind of an
economy. We must not always look to our
trade association or our government to pro-
tect us from the actions of our competitors.

DO WE WANT ANOTHER SYSTEM?

OF COURSE, there are other kinds of eco-

nomic systems. I studied one at first hand
last winter when I spent several months in
India. There I discovered that if you want
to make a substantial capital investment in
your plant, you must get the approval of the
government licensing committee and this is
not easy to do. To illustrate, during 1953,
the textile industry in India - as in the
United States -was not having a very happy
time. A number of companies decided to in-
stall automatic looms to reduce their cost
and, hence, to compete better both in the
domestic and in the world markets. During
the year, ten applications for such installa-
tions came before the government licensing
committee: All ten applications were re-
fused: The committee felt that the automatic
18
looms would create unfair competition for
the firms not installing similar equipment.
As a result, India's textile industry finds
itself increasingly unable to compete in
today's market and, what is even more
important, Indian customers were continuing
to pay the higher prices required by the
older, less efficient and, hence, more costly
looms. Perhaps it is this kind of reasoning-
perhaps it is this limitation on competition -
which plays a part in explaining why the
average per capita income in today's India
is about $39.00 per year.
I would make this positive suggestion. Let
us spend more time - in our offices, stores,
conferences, and trade association meetings
- improving our operations and less time
trying to curb our competitors. Not only
will individual companies be better off, but
so will society. If America wants to continue
its long-time development toward a rising
standard of living, we need to encourage
more, not less, competition.
When Stuyvesant Fish was president of
the Illinois Central Railroad, there walked
into his office one morning an Irishman, hat
on and pipe in mouth, who said:
"I want a pass to St. Louis."
"Who are you?" asked president Fish,
somewhat startled.
19
 "I'm Pat Casey, one of your switchmen."
Mr. Fish, thinking it was a good chance
to impart a lesson in etiquette, said, "Now,
Pat, I'm not going to say that I will refuse
your request, but there are certain forms a
man should observe in asking a favor. You
should knock at the door; and when I say
'Come in' you should enter and, taking off
your hat and removing your pipe from your
mouth, you should say, 'Are you president
Fish?' I would say, 'I am. Who are you?'
Then you should say, 'I am Pat Casey, one
of your switchmen.' Then I would say,
'What can I do for you?' Then you would
tell me, and the matter would be settled.
Now you go out and come in again and see
if you can't do better."
So the switchman went out. About two
hours later there was a knock on the door
and president Fish said, "Come in.'' In came
Pat Casey with his hat off and pipe out of
his mouth.
"Good morning," he said, "are you presi-
dent Fish of the Illinois Central Railroad?"
"I am. Who are you?"
"I am Pat Casey, one of your switchmen.''
"Well, Mr. Casey, what can I do for you?"
"You can go to hell. I got a job and a pass
on the Wabash.''"'
•Botkin, B. A. and Harlow, A. F., A Treasury of
Railroad Folklore (Crown) 1953.
20
 Pat Casey might have spent the rest of his
life cursing president Fish and voting for
congressmen who pledged themselves to
work for the removal of Fish as the president
of the Illinois Central Railroad. Instead, he
exercised his ingenuity and got a job and a
pass on the Wabash. Rather than spending
our time cursing our competitors and mak-
ing efforts to limit their competitive activi-
ties, some of us need to get a job and a pass
on the Wabash.

21
"If, topleaJe the people,we offer
what we ouTJe!veJ dilapprove,
how can we afterward! de-
fend our work? Let uJ rarie
a Jtandard to which the wi1e
and hone~/ can repair. The
event i1 in the hand of God."
Attributed to G eorge Washington
during the Constitutional Convention
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