FOR YOUR INFORMATION........................March 23, 1987

     The Federal Trade Commission staff has recommended that the
New York State Assembly pass a bill that would lower milk prices
by removing restrictions on milk distribution in the state.  The
FTC staff estimates that current restrictions on milk
distribution cost New York City consumers alone over $56 million
annually.
     The Assembly is considering a bill that would revise a
current licensing law limiting the distribution of milk.  The
proposed bill "would open New York's milk markets to increased
competition," according to the staff's letter to the Assembly.
"This, in turn, would result in greater efficiency in milk
processing and distribution and lower prices to consumers."
     The FTC staff dismissed arguments that entry into a milk
market may result in so-called "destructive competition," driving
weaker dealers from the market and leaving some accounts
underserved or overcharged.  If milk dealers are driven from the
market, "it is because their costs are higher than those of the
new entrants, and indeed are too high to enable them to survive
in the more competitive environment.  If high-cost sellers exit
the market, consumers are not harmed," the staff said, adding
that instead, consumers will benefit as other, lower-cost, firms
compete to replace exiting dealers.
     The staff also recommended that a provision of the current
law that prohibits below-cost pricing be repealed rather than
modified, because it "has the potential to stifle honest
competition."  For example, it could prohibit a new entrant from
using "loss leader" pricing, "in which brief episodes of below
cost pricing are used to develop goodwill and, ultimately,
increase patronage in general," the staff said.  Prohibitions on
below-costs sales are unnecessary, according to staff, because
state and federal antitrust laws already prohibit predatory
pricing.
     The staff's letter noted that the Commission, the Chairman,
and the FTC staff have addressed the milk licensing regulations
several times.  The most recent action was a letter from Chairman
Daniel Oliver to Governor Mario Cuomo on Oct. 29, 1986.  The
staff also noted that a Federal judge ruled in January that the
decision to deny a license to a New Jersey distributor to
distribute milk throughout New York City was unconstitutional.
     The letter represents the views of the FTC's New York
Regional Office and the Bureaus of Competition, Consumer
Protection, and Economics, and does not necessarily reflect the
views of the Commission or of any individual Commissioner.
     Copies of the letter are available from the FTC's New York
Regional Office, 2243-EB Federal Building, 26 Federal Plaza, New
York, N.Y. 10278; 212-264-1207; and from the FTC's Public
Reference Branch, Room 130, 6th St. and Pennsylvania Ave. N.W.,
Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502.
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MEDIA CONTACT:     Susan Ticknor, Office of Public Affairs,
                   202-326-2179

STAFF CONTACT:     Edward Manno Shumsky, New York Regional
                   Office,
                   212-264-1200
(NYMilk)