FTC Labeling Rules Foster Monopoly

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Since 1966, any item sold in American stores has been labeled with the name and address of the company making, distributing, or purveying the product. This requirement originated with the Fair Packaging and Labeling Act, which set forth clear standards of disclosure for both groceries and other merchandise. According to the text of the statute, the direct provision of this information to the consumer is "essential to the fair and efficient functioning of a free market economy." 15 U.S.C. §1451. However, though the Federal Trade Commission has enforced this rule for over fifty years, an important exemption in the statute has precluded the true transactional transparency Congress attempted to implement.

The current federal regulations on the subject, promulgated by the FTC pursuant to this law, specify that packaging must "specify conspicuously the name and place of business of the manufacturer, packer, or distributor. Where the consumer commodity is not manufactured by the person whose name appears on the label, the name shall be qualified... such as 'Manufactured for __,' 'Distributed by ___," or any other wording that expresses the facts." However, the identities of such wholesalers and jobbers are likely of secondary importance to the consumer, as these organizations have no ultimate responsibility for defects in their goods and no effect on competition among producers. Since manufacturers are not compelled by any law to disclose their names and locations, the eventual buyer has no way of determining the true source of a given product. A legal framework allowing citizens to access information on distributors and middlemen, while imposing no absolute requisites on manufacturers, clearly fails to achieve the goals set forth by the legislature.

Exploitation of this loophole has become commonplace. Basic commodities such as milk and purified water are often marketed under the names of distinct distributors but bottled in identical receptacles, indicating that "different" brands often originate from the same plant. Generic versions of ubiquitous items, such as breakfast cereals, cheeses and butters, paper towels, chips, soaps and shampoos, canned foods, first aid items, cookies, laundry detergents, crackers, and sodas, are frequently manufactured by the same company as other store-brand equivalents and the trademarked alternative. Even items represented as fresh or locally made can be marketed in this same way: the bread sold at Walmart bakeries nationwide, for instance, is advertised as "freshly baked every day," but the raw dough from which it is made is actually purchased in bulk from Pillsbury (this fact has not been disclosed by Walmart, but can be easily verified by checking the item's listing on a store receipt).

This statutory scheme provides about as much valuable information as an automobile adorned in several places with the insignia of its dealership but bearing no indication of its make. The most obvious inconvenience in this hypothetical case would fall upon the purchaser, for whom the safety, quality and origin of the vehicle would not be ascertainable. The industry as a whole would also suffer, however - as distinct cars created and competitively marketed by separate companies would coagulate into an indistinguishable Brand, it would become nearly impossible to determine whether a variety of options were still available to the customer. Though such an occurrence may seem patently impossible, this is in fact the situation presently confronted by antitrust enforcement under the FTC rules.

Monopoly in the manufacturing sector is difficult to disband and nearly impossible for the consumer to detect, since companies frequently refuse to disclose the names of their licensees or subordinate production divisions. Although the DOJ and the FTC both have investigative powers that could compel disclosure, the majority of their suits commence with complaints from consumers or competitors - who, in many cases, cannot obtain the necessary evidence or information to prove specific instances of misconduct. For those reasons, consolidation at the very top of the supply chain continues nearly unfettered, and the resulting price inflation is routinely passed along through several middlemen to an unknowing public. As Justice Brandeis once said, when stressing the importance of transparency in his landmark work Other People's Money, "Sunlight is the best of disinfectants; electric light is the most effective policeman... It is now recognized in the simplest merchandising, that there should be full disclosures. The archaic doctrine of caveat emptor is vanishing." One hundred and four years later, this principle has yet to be accepted by regulators and politicians. 

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