1.—13 A,

Whereas the manufacturer of bulk and unbranded goods ceases to be further concerned as soon as he has sold the goods to the wholesaler or retailer, the manufacturer of price-maintained branded goods continue to be interested until the goods pass into consumption. As he aims at getting the goods into the hands of the public at a fixed price the distributors' margin must be fixed and it must be fixed at a figure which will encourage, or at any rate not discourage, the mass of distributors to stock the goods and to undertake, and perhaps to push, their sale. On the other hand, it may be assumed that it is not in the manufacturer's interest to allow to the distributors an unnecessarily high margin. The width of the margin will depend upon all the circumstances of the case and upon his policy. Fixing of Retailer's Profit. In general, the manufacturer has to bear in mind that his goods may be in competition with similar branded goods of other makers, with goods sold by the retailer under his own label and with unbranded goods ; and the profit margin which he allocates to the distributor as well as the final selling-price to the consumer may be assumed to be influenced by these circumstances. The Proprietary Articles Trade Association refuse to place on their protected list articles in respect of which the percentage margins proposed to be allowed to the wholesaler and retailer fall below a certain minimum. Position of the Wholesaler. The wholesaler is, under modern conditions, in many trades a factor of diminishing importance, the tendency being increasingly for manufacturers to sell direct to retailers. The wholesaler can, however, seldom be entirely eliminated ; and, while the larger retailers may buy direct, the smaller retailers often find it advantageous (having regard to prices or other considerations) to buy through middlemen. The wholesaler who trades in price-maintained branded goods buys from the manufacturers in quantities sufficient to obtain best terms, and sells to the retailer at a price which is usually prescribed by the manufacturer. Practically, nevertheless, the wholesaler may be regarded as trading on a fixed margin. He has thus no opportunities in the branded-goods trade of performing what are sometimes regarded as the distinctive functions of a merchant —that is to say, of buying supplies in a cheap market and selling them in a dear market. It has not been suggested, however, that he feels any objection on this account to dealing in price-fixed goods, provided the margin allowed to him is adequate. His opportunities for making large profits are certainly diminished, but so are also the chances of incurring heavy losses. The wholesaler appears to be on the whole less directly interested in price-fixing than either the manufacturer or the retailer. So far as we could judge, his point of view in regard to the question is not widely different from that of the retailer, particularly the small retailer, in whose existence and prosperity his interests are, of course, closely bound up. Position of the Retailer. We pass now to consider the position of the retailer. Although in case of price-maintained goods he has no say as regards the price he has to pay for the goods or the price at which he may sell, he is in theory quite free to decide whether or not he will stock price-maintained goods, and, if so, which particular goods ; and he is therefore in theory also free to refuse to stock those which do not yield him what he regards as an adequate profit. He may lose a customer if he does not stock a particular proprietary article which is asked for by name. On the other hand, he has considerable power of influencing demand by salesmanship. He can choose which article to exhibit prominently in his windows and on the counter, and when a particular brand is not asked for he can sell the brand which yields him most profit, or an article under his own label, or a non-branded article. He is by no means wholly under the thumb of the manufacturer of branded goods. Another effect of the price-maintenance system upon the retailer is that competition with other retailers ceases to be on a basis of price in so far as proprietary goods are concerned, and in so far as the prescribed retail prices are observed. No doubt price is seldom the sole basis of competition, but as a result of the price-maintenance system all those aspects of competition which are comprised in the word " service " are of much greater importance than formerly. In the case of non-price-maintained goods, of course, competition on a basis of price continues, in so far as it is not checked by agreements among retailers themselves. We were informed that in certain trades the fixing of .retail prices at figures yielding a reasonable profit to the shopkeeper has mitigated the incentive which existed under conditions of price-cutting for the shopkeeper to make exorbitant profits on non-proprietary articles of a kind whose quality and value could not be readily judged by the public. Price-cutting, we were told, by promoting such practices, is prejudicial to the best standards of business conduct. Position of the Consumer. The position of the consumer in relation to price-maintained goods is similar to that of the retailer in so far as he can refuse to buy any particular brand of goods and buy instead other brands or, where such exist, non-branded goods. We were informed that a point which has also told in favour of the brand system in recent years is the careful and hygienic way in which many branded articles are now packed. Another point which was put to us by several witnesses relates to the psychology of the consumer in relation to price-cutting. We were told that where the prices fixed for branded goods are not enforced consumers lose confidence in the quality of the goods, in the reasonableness of the price ordinarily charged, or in the good faith of the manufacturer. Conversely, it was stated that consumers are very ready to buy price-maintained goods provided they regard the price as reasonable, and that they appreciate the knowledge that they can buy similar goods at the same price wherever they happen to be. The price-maintenance system, we were told, tends to promote an atmosphere of harmony between the retailer and his customer and to make selling easy and expeditious. Practices directed to controlling the Number and Qualifications of Retailers. So far as we can ascertain, it is uncommon for associations to impose exacting tests in regard to admission to the ranks of recognized retailers or to pursue a policy aiming at a definite limitation of their number. The regulations appear to be intended, as a rule, rather to keep out any who are not likely to conduct a regular business or a business which will attain a reasonable standard of efficiency, or to effect a distinction between wholesale and retail trade. Meaning of " Public Interest. " We do not think it necessary to try to define very precisely the meaning which we attach to the words " public interest " in matters of this kind. In the first place we have to consider whether in existing conditions the trade practices operate in such a way as to produce effects harmful to the efficient and economical service to the public. This implies that regard must be paid not merely to the question whether goods are being supplied to the public cheaply and plentifully, but also to the question whether the effect of the practices upon the producers and distributors of the goods is such that they can continue to produce and supply the goods with undiminished and, if possible, increasing efficiency. But in the second place there is another consideration which appears to us to be of at least equal importance. The extent to which the exigencies of the day and the trend of social and commercial development may justify legislative interference with the freedom of contract and the right of combination is a matter which attracts acute controversy. But where a particular form of interference is asked for we conceive that the burden of justifying it upon grounds of public policy as distinct from individual grievance lies upon those who advocate it, and that we ought only to recommend a change in the law if we are satisfied that it would be in the public interest. It appears to us that the maintenance of freedom of contract and the right to combine is as much a matter of public interest in the sphere of commerce as it is in that of employment. It is inevitable that this freedom should lead to hardship in individual cases.

10— T. 13A.

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