No, Reviving the Robinson-Patman Act Will Not Lead to More Competition or a Better Economy

By Trelysa Long of Information Technology & Innovation Foundation. Excerpts:

Here is one quote that comes again later "of the 564 companies in violation of the RPA, only 6.4 percent had annual sales of $100 million or more while more than 60 percent had sales below $5 million."

"KEY TAKEAWAYS

Neo-Brandeisians want to bring back enforcement of the Robinson-Patman Act in an attempt to protect small firms from competition.

 

Economics and history make clear that the Robinson-Patman Act’s prohibition of both primary- and secondary-line price discrimination would raise prices for consumers and reduce overall economic welfare.

 

The Robinson-Patman Act does not address any anticompetitive behavior that is not already covered by other antitrust laws.

 

Neo-Brandeisians and critics fail to justify the Robinson-Patman Act on Rawlsian or “fairness” grounds, or under substantive equality or equity. Both rationales are flawed frameworks for competition policy.

 

The act’s prohibition of secondary-line price discrimination also harms the same small businesses it is trying to protect because they cannot receive discounts from buying as part of an association or otherwise compete by undercutting larger rivals.

 

The new Congress should repeal this fundamentally flawed legislation once and for all."

"The passing of the RPA led to the Department of Justice (DOJ) filing a suit against A&P, the largest retailer of its time, for violations of the act. In United States v. New York Great Atlantic & Pacific Tea Co., DOJ claimed that A&P had used its buying and market power 1) to restrain interstate commerce in food product markets and 2) to create a partial monopoly in multiple food products."

"while DOJ claimed that A&P sold below costs, in reality, A&P did not suffer from a temporary loss. Indeed, MIT economist Moris Adelman asserted that “if there is no temporary loss suffered—as there is none in the A&P case—the defendants were still considered as selling below cost.”"

"the government did not sufficiently “draw the line between ‘predatory’ and ‘competitive’ price cutting.”45 Furthermore, DOJ did not measure the impact of price discrimination in favor of A&P on individual buyers, but rather simply assumed that price differences automatically led to harm against competitors that did not receive them.46 Finally, DOJ could not provide evidence that A&P had monopsony power or had intimidated competitors to prove that A&P had used its buying power to secure lower prices compared with competitors."

"the RPA resulted in a slew of other cases—almost 1,400 RPA complaints that the FTC filed from 1937 to 1971—that had similar negative results."

"The Morton Salt case is worth special attention as a case study in RPA enforcement gone wrong. As the company argued, the FTC’s theory was flawed because the discounts were available to all buyers as long as they purchased the same large quantity.54 More importantly, the FTC’s argument that the system favored large buyers was also problematic because, as Morton Salt Co. argued, its policy was one where a small buyer purchasing 50 cases of a carload receiving a 10 cents discount could get another 10 cents discount when they purchased 5,000 cases.55 However, the large buyer that originally bought 5,000 cases would only get an additional 5 cents discount despite purchasing 10 times that of the 50-case buyers.56 In other words, the large buyer received a lower discount and could arguably be seen as being discriminated against, rather than favored. Channeling these concerns, a dissenting opinion by justices Jackson and Frankfurter quipped, “The law of this case, in a nutshell, is that no quantity discount is valid if the Commission chooses to say it is not,” even if it benefits consumers."

"the alleged harms from price discrimination do not result in the “supreme evil of antitrust”: collusion.58 Rather, PL (primary-line) price discrimination, or below-cost pricing, encourages firms to lower prices and outcompete their rivals to gain more customers. As a result, firms are constantly changing their prices when they reduce them, resulting in a lower probability that two firms can collaborate to reduce output and fix prices. Similarly, SL (secondary-line) price discrimination, or the ability to offer varying discounts to buyers, can undermine a collusive pricing structure when sellers are allowed to offer discounts to certain downstream customers, leading to price differentiation. Commentators have observed that “the Act facilitated price discussion and price communications among sellers, fostering price stabilization if not collusion. For sellers could seek to legitimize such price discussion as necessary for their compliance with the Robinson-Patman Act.”59"

"the RPA’s prohibition of SL price discrimination is unnecessary to address anticompetitive behavior because this practice does not result in exclusionary conduct."

"exclusionary conduct constitutes behavior that creates, enlarges, or helps maintain monopoly power by excluding rivals.62 However, SL price discrimination clearly fails this criterion. In the upstream market, SL price discrimination is not exclusionary because offering discounts to buyers promotes greater price competition with other sellers. In the downstream buyer market, SL price discrimination also does not result in exclusionary conduct but, at worse, reflects the exploitation of buyer power, which, as noted, can be a result of efficiencies. That is, SL price discrimination involves larger, more efficient buying firms simply using their existing market power to obtain discounts from sellers rather than using anticompetitive methods to obtain market power."

"the possession and exercising of market power is not illegal."

"predatory overbuying . .  . is already covered by antitrust laws"

"predatory overbidding could be done to raise the costs of downstream rivals.66 However, as before, this was precisely the sort of behavior the Supreme Court condemned long ago in United States v. Aluminum Co. of America"

" cases where overbuying practices do result in exclusionary conduct that also harms consumers, the Sherman Act already makes it unlawful"

"Congress did not intend to outlaw price differences that result from or further the forces of competition. Thus, ‘the Robinson-Patman Act should be construed consistently with broader policies of the antitrust laws.’”"

"price discrimination is generally beneficial to society because it increases consumer and total welfare. First, a ban on PL price discrimination will raise consumer prices because firms will be prohibited from lowering their prices to below the cost of doing business (even when recoupment is not feasible) and thus be unable to compete vigorously on prices. As a result, consumer prices will rise. Similarly, a ban on SL price discrimination will also raise prices for consumers because buying firms will be prohibited from receiving price concessions from manufacturers despite their efficiency. As a result, these buying firms pass on the higher cost of purchasing goods down to consumers in the form of higher prices."

"This theory is consistent with the empirical evidence. For example, a paper by Blair and DePasquale summarizes previous research by Hovenkamp, which concludes that the RPA results in higher consumer prices, as well as findings by Carlton and Perloff that the RPA inhibits buyers’ benefits of scale economies, thereby raising consumer prices.71 Moreover, according to a paper by O’Brien and Shaffer analyzing SL price discrimination, while firms may benefit from the RPA because their rivals cannot gain a cost advantage due to the RPA provision prohibiting sellers from charging buyers different prices, this is usually at the expense of consumer and total welfare because buying firms are unable to bargain for lower prices that are subsequently passed on to consumers."

"when buying firms have access to more than one supplier—which is the case in many industries—prohibiting price discrimination could reduce consumer surplus and welfare because it is likely to stifle downstream firms’ incentive to enhance efficiency."

"ndard Motor Products Inc. violated the RPA for making rebates to its distributors, many of which were small businesses.76 Indeed, as the court opinion wrote, “Commission’s order is directed against Standard’s practices of making rebates to its distributors based on volume sales … petitioner sells a substantial portion of its output to distributors who have joined together in cooperative buying groups.”77 As a result of cases such as this one, small businesses could not form associations to buy at a discount, thereby increasing their costs and affecting their ability to compete on price."

" in neo-Brandeisians’ eyes, the RPA’s provisions are an excellent tool to promote equity because they prohibit more efficient firms from using scale economies, lower costs, and greater efficiency to gain discounts—a competitive advantage—against less-efficient, small firms."

"the RPA served to hurt small buyers that tried to organize against big business but as a result of the act could not receive discounts based on their combined power. Thus, the RPA did not help small businesses succeed against their larger rivals in the competitive market, but rather hindered their chances and thereby paradoxically contradicted the goal of empowering small businesses and achieving equity"

"of the 564 companies in violation of the RPA, only 6.4 percent had annual sales of $100 million or more while more than 60 percent had sales below $5 million."