Miller-Tydings Act Legalizes Retail Price Maintenance Summary

  • Last updated on November 10, 2022

By allowing manufacturers to maintain minimum prices, the Miller-Tydings Act promised small retailers protection from chain-store competition, but adverse court decisions and changing economic circumstances diminished the impact of the law.

Summary of Event

The Miller-Tydings Act of 1937 amended the Sherman Antitrust Act of 1890. Sherman Antitrust Act (1890) It legalized retail price maintenance, and in doing so it allowed manufacturers to maintain minimum prices for the sale of their goods. Manufacturers used retail price maintenance to protect their goodwill, hoping that high prices would keep retailers from cutting services to customers. Independent retailers hoped that retail price maintenance would eliminate price competition from chain stores. Prior to the act, the courts had held retail price maintenance to be in violation of the 1914 Federal Trade Commission Act. Federal Trade Commission Act (1914) [kw]Miller-Tydings Act Legalizes Retail Price Maintenance (Aug. 17, 1937)[Miller Tydings Act Legalizes Retail Price Maintenance (Aug. 17, 1937)] [kw]Act Legalizes Retail Price Maintenance, Miller-Tydings (Aug. 17, 1937) [kw]Retail Price Maintenance, Miller-Tydings Act Legalizes (Aug. 17, 1937) [kw]Price Maintenance, Miller-Tydings Act Legalizes Retail (Aug. 17, 1937) [kw]Maintenance, Miller-Tydings Act Legalizes Retail Price (Aug. 17, 1937) Miller-Tydings Act (1937)[Miller Tydings Act] Anti-chain-store movement[Antichain store movement] [g]United States;Aug. 17, 1937: Miller-Tydings Act Legalizes Retail Price Maintenance[09550] [c]Trade and commerce;Aug. 17, 1937: Miller-Tydings Act Legalizes Retail Price Maintenance[09550] [c]Laws, acts, and legal history;Aug. 17, 1937: Miller-Tydings Act Legalizes Retail Price Maintenance[09550] Levy, Herbert Miller, John E. Tydings, Millard Celler, Emanuel

The Miller-Tydings Act embodied the anti-chain-store sentiment prevalent in the 1920’s and 1930’s. During the early twentieth century, independent retailers had confronted new types of competition as department stores appeared in large cities and mail-order houses began to sell goods throughout the nation. The rapid rise of chain stores in the 1920’s further eroded the market share of small businesses. Chain stores attracted customers by offering prices lower than those of their single-store competitors. Retailing;chain stores This form of mass marketing spread rapidly as the automobile connected small towns to larger urban markets. Chain-store sales continued to increase during the cost-conscious Depression years, and by 1935 the chains handled nearly one-fourth of all retail sales.

Independent retailers responded by sponsoring advertising campaigns encouraging Americans to “trade at home” and by boycotting those manufacturers that sold to chain stores. Ambitious politicians also seized on anti-chain-store sentiment to attract the votes of independent merchants and others critical of big business. The anti-chain-store movement gained additional momentum in the South and West, where politicians played on the populist fear of “outside” corporations that could control local economies. This movement found expression in state laws that discriminated against chain stores. During the 1920’s and 1930’s, almost every state imposed punitive taxes on chain stores.

During the early twentieth century, organized merchants had tried to overcome the competitive advantage of mass marketers by urging manufacturers to fix minimum retail prices, a practice known as retail price maintenance or “fair trade.” The Supreme Court, however, ruled against retail price fixing. Manufacturers and retailers interested in retail price maintenance then sought to secure the passage of laws legalizing fair trade. Fair trade legislation The American Fair Trade League American Fair Trade League (AFTL) and the National Association of Retail Druggists National Association of Retail Druggists (NARD) led this drive for fair trade. The AFTL represented manufacturers of trademarked goods that wished to use fair trade as a means to protect their goodwill. By maintaining minimum prices, manufacturers hoped to attract those retailers interested in emphasizing quality and service rather than price. As chain stores increased their market share, however, many manufacturers sought higher sales volume and abandoned retail price maintenance.

The druggists hoped to increase their profit margins and reduce chain-store competition. The NARD, widely considered to be one of the most powerful trade associations in the country, conducted intense, well-organized campaigns in support of fair trade legislation. In 1931, California enacted a fair trade law drafted by the NARD, and several other states quickly followed suit. In 1936, the Supreme Court upheld the constitutionality of these laws. Thereafter, fair trade advocates met with virtually no opposition on the state level. In 1937 alone, twenty-eight states passed fair trade laws, and by 1940, a total of forty-four had enacted some form of this legislation.

At the federal level, however, proponents of fair trade met resistance from within the executive and legislative branches of the government. The Federal Trade Commission had always opposed fair trade legislation on the grounds that it lessened competition and violated the spirit of antitrust legislation. Since 1914, Congress had also rejected bills aimed at legalizing retail price maintenance. As a result, the impact of state fair trade laws remained limited because products sold in interstate commerce, under federal law, could not be subject to fair trade agreements.

Having failed to secure a national fair trade law, the proponents of retail price maintenance sought the passage of permissive legislation allowing states to settle the issue. In 1935, the NARD enhanced its influence by hiring Herbert Levy, a law partner of Senator Millard Tydings (Democrat of Maryland). Levy persuaded Tydings to sponsor a bill drafted by the NARD. Representative John E. Miller (Democrat of Arkansas) introduced a companion bill in the House of Representatives.

Tydings’s bill met with opposition from Representative Emanuel Celler (Democrat of New York), who feared it would reduce price competition. President Franklin D. Roosevelt Roosevelt, Franklin D. Roosevelt, Franklin D.;Miller-Tydings Act also expressed his belief that the bill would increase the cost of living and slow recovery by removing purchasing power from the economy. Congressional supporters, however, played on sentiments in favor of states’ rights by emphasizing that the law merely gave the states the right to determine their position on fair trade. In July, 1937, Tydings hoped to avoid a presidential veto by attaching his bill as a rider to a bill granting appropriations to the District of Columbia. Despite the opposition of consumer groups and nearly all economists, Congress passed this legislation by an overwhelming margin. President Roosevelt criticized the use of this evasive tactic but signed the bill into law on August 17, 1937.

By amending the Sherman Act, the Miller-Tydings Act granted an antitrust exemption for retail price maintenance agreements. Manufacturers of trademarked or brand-name goods could now prohibit retailers from selling their product below a minimum price. Tydings neglected to incorporate a nonsigner clause that would make retail price-maintenance agreements binding on all merchants within a state. This defect would later allow the U.S. Supreme Court effectively to nullify the law. Although technically an antitrust law, the Miller-Tydings Act did not authorize the Federal Trade Commission to police resale price agreements; instead, Congress left it to manufacturers to enforce their own fair trade contracts.

The Miller-Tydings Act failed to satisfy the demands of independent retailers hungry for higher margins. Ironically, the high margins on fair trade products attracted mass marketers, and thereby intensified competition. Although the price of fair trade products increased after passage of this act, the NARD and other trade associations still criticized manufacturers for setting their minimum prices too low. These associations also found it difficult to persuade many manufacturers to abandon volume sales and adopt fair trade. As a result, several of these organizations decided to engage in coercive practices prohibited by the Miller-Tydings Act. The act allowed manufacturers to set minimum prices voluntarily, but retailers could not legally conspire to force manufacturers into fair trade. Nevertheless, the NARD proceeded to boycott and blacklist manufacturers that did not maintain minimum prices.

The rise of new types of competition also limited the impact of fair trade. During the 1950’s, discount chains spread rapidly, and department stores responded by carrying a greater number of private brands. R. H. Macy & Company, for example, carried more than fourteen hundred products under its own name. By 1954, fewer than nine hundred manufacturers sold fair trade products, and the number continued to dwindle through the end of the decade. In 1956, a Senate Small Business Committee survey of retailers revealed widespread pessimism about the future of retail price maintenance.

During the late 1930’s and the 1940’s, the courts upheld the constitutionality of the Miller-Tydings Act, but this favorable treatment did not last into the 1950’s. In 1951, the Supreme Court ruled that fair trade agreements could not be enforced against nonsigners in interstate commerce. Congress overrode the Court by passing the McGuire Act (1952), but the Court’s strongly worded indictment of fair trade continued to influence the thinking of lower courts. Critical studies by economists and the Federal Trade Commission also fostered a judicial climate of opinion hostile to fair trade. During the 1950’s and 1960’s, state courts throughout the United States invalidated all or part of their fair trade laws, and by 1975 only eleven states had fair trade laws on the books.

The Miller-Tydings Act finally fell victim to the inflationary climate of the 1970’s. In 1937, the sponsors of the act had hoped to raise prices in a deflationary period, but policy makers in the inflationary postwar years became more concerned with reducing prices. Economists estimated that fair trade raised the nation’s cost of living by several billion dollars per year. In 1975, President Gerald Ford urged repeal of fair trade legislation as part of his WIN (Whip Inflation Now) program. Senator Edward W. Brooke (Republican of Massachusetts) introduced legislation to repeal the Miller-Tydings Act. His bill gathered overwhelming support from both liberals and conservatives. The resulting Consumer Goods Pricing Act [p]Consumer Goods Pricing Act (1975) repealed the Miller-Tydings Act and ended the experiment with retail price maintenance.

Significance

The Miller-Tydings Act of 1937 expanded the marketing options of manufacturers by allowing them to emphasize quality and service rather than price. The act also reflected congressional concern with the fate of small business. Along with other legislation, such as the Robinson-Patman Act of 1936 Robinson-Patman Act (1936)[Robinson Patman Act] (which limited the quantity discounts available to chain stores), the Miller-Tydings Act aimed to reduce the competitive advantage of discounters. Independent retailers hoped that the elimination of price competition would enable them to compete more successfully with mass marketers.

The impact of the Miller-Tydings Act varied from trade to trade. Retail price maintenance flourished in oligopolistic industries with trade associations strong enough to enforce compliance with fair trade agreements. Manufacturers found that they could maintain minimum prices on luxury goods that already sold at a high profit margin. Thus retail price maintenance spread most rapidly in drugs, cosmetics, jewelry, alcoholic beverages, tobacco, books, electrical appliances, cameras, and hardware. In 1950, the number of manufacturers engaged in retail price maintenance peaked at approximately sixteen hundred.

Despite the success of retail price maintenance in these fields, less than 10 percent of all goods were sold under fair trade contracts. Several factors limited the appeal of retail price maintenance. First, manufacturers using this tactic still faced price competition, so the minimum prices set could not be too high. In addition, mass marketers responded to retail price maintenance by adopting an increasing number of private brands, especially in the grocery trade. Discounters also found ways to evade retail price agreements, such as by offering rebates and accepting trade-ins. Many price cutters simply flouted the law, confident that manufacturers could not afford to enforce their fair trade contracts. Indeed, several leading consumer goods manufacturers, including General Electric and the Sheaffer Pen company, initially pursued a policy of price maintenance but abandoned this marketing strategy because the costs of enforcement were too high. Other manufacturers paid lip service to fair trade while at the same time seeking high sales volume through chain stores. Miller-Tydings Act (1937)[Miller Tydings Act] Anti-chain-store movement[Antichain store movement]

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Blackford, Mansel G. A History of Small Business in America. New York: Twayne, 1991. Provides an overview of the changing role played by small business in the American economy as well as its impact on society at large. Chapter 3, “Government Policies for Small Business, 1921-1971,” examines the political influence of small business. A good general history of American small business.
  • citation-type="booksimple"

    xlink:type="simple">Bork, Robert H. The Antitrust Paradox: A Policy at War with Itself. New York: Basic Books, 1978. A critical study of the American antitrust tradition. The author shows how government enforcement of antitrust laws has deviated from original legislative intent. Bork combines economic theory with legal analysis in arguing for a consumer welfare test of antitrust policy. In chapter 14, “Resale Price Maintenance and Vertical Market Division,” Bork develops arguments in favor of legalizing retail price maintenance. Assumes some knowledge of antitrust law.
  • citation-type="booksimple"

    xlink:type="simple">Crews, Wayne. “Reexamining Antitrust: Can ’Anticompetitive’ Business Practices Benefit Consumers?” USA Today (Society for the Advancement of Education) 130, no. 2862 (March, 2002): 1-28. Advocates a skeptical approach to study of antitrust policy, particularly with regard to modern corporations such as Microsoft.
  • citation-type="booksimple"

    xlink:type="simple">Gellhorn, Ernest, William E. Kovacic, and Stephen Calkins. Antitrust Law and Economics in a Nutshell. St. Paul, Minn.: Thomson/West, 2004. This volume is a consistently accurate guide to the confusing world of antitrust law. It gives special attention to the roles of evidence, the granting of immunity, and government intervention.
  • citation-type="booksimple"

    xlink:type="simple">Hawley, Ellis W. The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence. Princeton, N.J.: Princeton University Press, 1966. A well-researched study of business-government relations in the New Deal period. Hawley presents a picture of an administration hopelessly divided among antitrusters, central planners, and those favoring close cooperation between government and business. The attention to detail is sometimes overwhelming, but the author provides an excellent summary of his findings in the concluding chapter.
  • citation-type="booksimple"

    xlink:type="simple">Palamountain, Joseph Cornwall, Jr. The Politics of Distribution. Cambridge, Mass.: Harvard University Press, 1955. The standard work on the politics surrounding the anti-chain-store movement of the 1920’s and the 1930’s. The author analyzes the legislative history of the Miller-Tydings Act from the perspectives of manufacturers, retailers, and wholesalers. Heavy on theory in some parts but generally easy to read.
  • citation-type="booksimple"

    xlink:type="simple">Strasser, Susan. Satisfaction Guaranteed: The Making of the American Mass Market. New York: Pantheon Books, 1989. A lively account of the rise of mass marketing and its impact on the business practices of large and small firms. Chapter 8, “The Politics of Packaged Products,” discusses the debate over retail price maintenance. Written for a general audience.
  • citation-type="booksimple"

    xlink:type="simple">U.S. Federal Trade Commission. Report of the Federal Trade Commission on Resale Price Maintenance. Washington, D.C.: Government Printing Office, 1945. Summarizes the findings of a six-year study of the effects of retail price maintenance. This work provides a wealth of data, including results of public opinion surveys and the changing price levels of fair trade products.
  • citation-type="booksimple"

    xlink:type="simple">Yamey, B. S., ed. Resale Price Maintenance. Chicago: Aldine, 1966. A collection of essays examining the impact of fair trade legislation in the United States and abroad. In “United States of America,” Stanley Hollander discusses the efforts of congressional small-business advocates to strengthen fair trade legislation in the aftermath of adverse court decisions.

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Robinson-Patman Act Restricts Price Discrimination

Natural Gas Act

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