(continued) 2. Reductions in these prices shoud be decided by the Board of Trade in
consultation with the two enterprises. 3. The Board of Trade should encourage the companics to agree that at
least a 40% cut in selling expenses could accompany the price reduction. 4. In such event, consultation with the companies might well begin on the
basis of an average cut in prices. . 5. In the long term, the Board of Trade should consider the possibility of introducing some form of automatic sanction that would discoursge excessive selling expenditure in the field of household detergents and should continue to keep a watch on prices. Unilever had in 1964, 4% of the market, and Proctor and Gamble 43%, their combined sales being £62.4m. The report says, “During the period 1954-56,. both of the major suppliers adopted price cutting as » main means of competition, bringing abot substantial changes in the market situetion. However, by June 1956, both companies are stated to have brought their prices into line for comparable products and since thot time the emphasis © in competition had sgain been placed on -dvertising snd seles promotion." Here we have a "classical" example of modern oligopoly pricing inpractice; heving carved out their respective share of the market, the two giants opted out of the price war, which vas becoming too costly for them in terms of profit margins. The report discloses that in 1964 both of these firms spent something over £8m. each m selling expenses etc., i.e. two firms spent over £16m. on what can only be described as socially wasteful expenditure, If one compares this with the£212m. spent in the same year on National Assistance, one begins to see the crazy type of society we live in. A spokesman for Lever Bros., commenting on selling costs said, "In fact we believe that we compare well with other industries in totel distritition costs." If this is so, then the report has only lifted one small corner of the curtain that covers the tremendous misuse of resources within the British economy, for the report gives as its opinion that selling costs play . more significant part in determining price patterns than do manufacturing costs. In sum, the selling costs are estimated to be 25% of the price of detergents.
Each company in its evidence said that its profits on these products were earned by efficient production and distribution. They argued that these — products hed to be improved year by year, not only beecnuse of competition from the other, but also to prevent an opening for new companies hs = . to come into the field. However, ths Commission estimated that Unilever's profit inl965, on detergents, was 23.4% on 2 historic cost basis, and 16.4% on replacement basis on capital employed. For Proctornnd Gamble the figures were 53.2% and 37 respectively. These figures show that both companies obtnined profits substantially above average for manufacturing industry. The reasons given by the report for other firms not entering this field were that for those who could do so, e.g. I.C.I., the terms of entry would be too costly, not so much from the .mount of scapital investment required, but because their entry would intensify the competition in promotion expenditure. This would obviously lead to a decline in existing profit margins, both to the detriment of existing producers and to the new entrants. Therefore there has been the tendency to let sleeping dogs lie for the mutual benefit of all concerned; all, that is, except the consumer!
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