Trading Stamps S&H and the FTC’s Unfairness Doctrine

The Federal Trade Commission\u27s authority to prohibit unfair methods of competition was broadly interpreted more than a decade ago by the Supreme Court in FTC v. Sperry & Hutchinson Co. That decision allowed the FTC to bar business practices, including restrictions on the distribution of trading stamps, upon a finding that consumers were being injured even though no injury to competition was identified. The FTC since has applied the unfairness doctrine expansively and often without regard to its impact on consumer welfare. Proposing the application of a consumer welfare standard under the Commission\u27s unfairness authority, Dean Gellhorn demonstrates that the FTC and the Supreme Court misunderstood the function of trading stamps and the purpose of the restrictions relied upon by Sperry & Hutchinson. As a result, retailers were denied an effective promotional device for seeking consumer patronage, especially in changing markets. With the assistance of economic analysis, Dean Gellhorn then closely examines the FTC\u27s unfairness doctrine, as applied during the past decade in both the decision of cases and the promulgation of rules. Finding the results uniformly unsatisfactory, he concludes that the unfairness doctrine is unnecessary and should be repealed or, at least, should be confined by a more explicit economic rationale