The Advertising Industry— An Unlikely Monopolizer

Published date01 December 1974
Date01 December 1974
DOIhttp://doi.org/10.1177/0003603X7401900401
Subject MatterArticle
THE
ADVERTISIN'G
INDUSTRY-
AN
UNLIKELY
MONOPOUZER
by
WILLIAM
E.
RUTH·
The role of advertising in the competitive process under-
lying
our
free
market
system has been a
matter
of contro-
versy
for
many years. The importance of this subject to
antitrust
lawyers, however, did
not
become
apparent
until
the filing by the
Federal
Trade
Commission of its pending
proceeding against the
four
leading ready-to-eat cereal manu-
facturers
under
Section 5 of the
FTC
Act.'
The business of
advertising
has
now become the focal point of this
important
test
case as to what right,
if
any, the Government has
to
reor-
ganize aconcentrated industry. The agency's proposed
order
against
the four leading firms calls
for
"divestiture of assets
...
for
the formation of new corporate entities."
The
central theme of the agency's complaint,
and
its
es-
sential ingredient, is
that
advertising, in sufficient quantity,
makes
it
possible
for
advertisers to use a proliferation of
brand
names and to differentiate
their
products
from
com-
peting makes. The
FTC
claims
that
such advertising shields
manufacturers
from
competition and, more specifically, is
responsible
for
monopoly conditions in the cereal industry.
If
the agency ultimately prevails in this approach, several
other industries,
particularly
those making consumer goods
Ziegler, Dykhouse, Wise &
Ruth,
Detroit, Michigan.
1Proposed Complaint, Kellogg Co., undocketed,
FTC
File
No.
711 0004 (released
Jan.
24, 1972), complaint issued,
FTC
Dkt. No.
8883,
Apr.
26, 1972 [hereinafter cited as Cereal Complaint]. The
four
manufacturer
respondents
are
Kellogg Co., General Mills, Ine., Gen-
eral Foods Corp.
and
The Quaker Oats Co. The complaint is based
entirely on Section 5
(a)
of the
Federal
Trade
Commission Act, ch.
311, 38
Stat.
719 (1914), as amended, 15 U.S.C.
§45(a)'
(1960). The
FTC
has no jurisdiction to enforce Section 2 of the Sherman
Act
which specifically applies to monopolization cases. See note 18,
infra.
653
654
THE
ANTITRUST
BULLETIN
which rely heavily on
brand
advertising to '.'presell"
their
products, could be confronted
with
similar
FTC
action.
It
is
important
to note
that
the
Cereal case was approved
by only a 3 to 2 vote of the Commission. Two of the
majority
have since
left
the Commission, as well as both of the dis-
senters."
The
new
FTC
Chairman, Lewis Engman, con-
ceded
during
his Senate confirmation
that
the assumptions
underlying the Cereal case are-
far
from universal,"
While this
theory
has superficial appeal to those aiming
at
the immediate realization of the social, political
and
eco-
nomic advantages of dispersal of power;
brand
advertising
is too
important
to be disposed of in such avacuum.
Both
Congress
and
the courts,
for
example, have built up a con-
siderable body of law designed to protect such advertising.
This suggests
that
the question of the culpability of
brand
advertising as an
unfair
trade
practice necessarily involves
a policy decision requiring abalancing of
varied
interests.
The
structure
of this article is intended to provide the
reader
with areasonable basis
for
making such a decision.
The
FTC's
economic theory
(and
concept of jurisdiction in
the Cereal case) is analyzed
and
weighed
against:
(1) the
protection of
brand
advertising under federal
trademark
law,
(2)
past
antitrust
cases in which
brand
advertising was favor-
ably construed, (3) marketing considerations which indi-
cate
that
brand
advertising is either apositive competitive
factor or benign,
and
(4) the weaknesses of the
private
brand
alternative.
It
is the
writer's
conclusion
that
brand
adver-
tising is
far
from amonopolizing practice and, in fact, is
an
important
competitive activity.
. . ,
2The
majority
consisted of Commissioners Dixon, Jones
and
Kirkpatrick. Only Commissioner Dixon remains.
The
dissenters were
Commissioners Dennison
and
McIntyre, both of whom have
left
the
Commission.
SCCB
TRADE
REG.
REPORTS
No. 59
at
p. 4, Feb. 12, 1973. The
motion of General Mills for summary judgment in the Cereal case was
denied recently by an Administrative Law judge.
Matter
of
Kellogg
Co.,
3CCB
Tr.
Reg. Rep.
1f20,
520 (Feb. 19, 1974).

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT