Risible Regulator Revs Up Revival of Robinson-Patman Rate Rules
The FTC dusts off one of the odder laws in the U.S. Code.
In the coming weeks, Politico reports, the Federal Trade Commission is likely to bring its first lawsuit under the Robinson-Patman Act in decades. That’s a shame. The FTC (like the Justice Department before it) stopped enforcing the Robinson-Patman Act for a reason. As the Supreme Court once explained, the law flowed from a desire “to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers.” Got that? Big firms bad. Low prices bad. Small local firms good. The Robinson-Patman Act is fundamentally about protecting not competition but competitors. Reviving it would be a step backward for consumers.
The Robinson-Patman Act is an odd little statute. Enacted in 1936, as an amendment to the Clayton Antitrust Act, it bars a firm from “discriminat[ing] in price between different purchasers of commodities of like grade and quality, … where the effect of such discrimination may be substantially to lessen, … or to injure, destroy, or prevent[,] competition.” The first thing to notice is that this provision omits the sale of services, as well as of products that aren’t uniform. The law covers a small fraction of the nation’s economic activity. This is because it’s a piece of special-interest legislation: it grew out of small retailers’ hatred of the successful A&P grocery-store chain.
Robinson-Patman claims fall into two categories. “Primary-line” cases involve price discrimination intended to harm the defendant’s direct rivals. “Secondary-line” cases involve price discrimination intended to favor some of the defendant’s customers over others. Almost thirty years ago, the Supreme Court concluded in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (1993) that a primary-line price-discrimination claim under the Robinson-Patman Act should be treated almost exactly like a predatory-pricing claim under the Sherman Act. In both instances, the Court said, a plaintiff must show that the offending firm possessed market power; that it sold goods below-cost, with the plausible aim of driving a competitor away; and that it planned upon its rival’s demise to raise prices and recoup its losses.
While Brooke Group aligned the Robinson-Patman Act with the Sherman Act for primary-line cases, secondary-line cases have not received a similar update. The Court’s most recent treatment of the subject appears in Volvo Trucks v. Reeder-Simco GMC (2006). Volvo affirms that, in principle, the Robinson-Patman Act should be read in line with the rest of antitrust law, such that it protects market competition rather than discrete market competitors. But the decision does not directly refashion the rules for secondary-line cases—rules which, by focusing on the wholesale prices paid by some “disfavored” retailors (and not the retail prices available to consumers in the market as a whole), seem to do the opposite.
If one takes seriously the Court’s pledge, stated in both Brooke Group and Volvo, to construe the Robinson-Patman Act “consistently with broader policies of the antitrust laws,” there is little (though not no) benefit to bringing a claim under the Robinson-Patman Act rather than the Sherman Act. It’s fair to assume, though, that in seeking to revive the Robinson-Patman Act, the FTC seeks also to turn back the clock on how the statute is understood.
In the bad old days, almost any difference in the prices a firm charged could give rise to a Robinson-Patman claim. Mistakenly, from an economic standpoint, the statute targets not true price discrimination (selling at prices that aren’t equally proportionate to a firm’s marginal cost), but literal price differences ($10.99/lb in Seattle; $8.99/lb in Omaha). A firm could in theory defend itself by establishing that a price difference was cost-justified—by, say, showing that it spends more on freight to Seattle than to Omaha—but this defense was extraordinarily narrow in practice. (It’s surprisingly hard to allocate a firm’s overhead costs. Also, the FTC long pushed to keep this defense as narrow as possible.) Alternatively, a firm could establish that it cut a price in a specific market to meet a competitor’s price there—a defense that, perversely, invited firms to exchange price information and collude with each other.
On its website, the FTC gives some hints that the old understanding of the Robinson-Patman Act is the one it’s keen to enforce. The agency treats the need to show market power as unsettled. And it warns firms about “price differences in the sale of identical goods that cannot be justified on the basis of cost savings or meeting a competitor’s prices”—a restatement of the limited defenses that, before the Supreme Court stuck up for consumer interests in Brooke Group, were the statute’s only real escape hatches.
The FTC reportedly plans to kick off its Robinson-Patman adventure by bringing secondary-line claims against the nation’s largest alcohol distributor, Southern Glazer’s Wine and Spirits. The alcohol-distribution market is apparently rather concentrated. According to the Politico article, Southern Glazer’s and one competitor “account for the bulk of alcoholic beverage distribution in the U.S.” Now, if you wanted these firms to keep prices high, you could hardly do better than to scare them off of so-called price discrimination. Prices rarely drop everywhere all at once. They tend to drop here and there, gradually taking a market down to a new long-run equilibrium. Similarly, the collapse of a cartel usually starts not with abrupt, open defections, but with furtive price nips and tucks. By penalizing opportunistic price cutting, the Robinson-Patman Act can help firms maintain a malign price “stability.”
The FTC will likely counter that whatever price differences it elects to attack are persistent, and thus presumptively anticompetitive. If a plaintiff bore the burden of convincingly showing that a price difference is not cost-justified, an emphasis on price persistence might get us somewhere. Persistent, non-cost-justified price discrimination arguably signals that a firm both has market power and is up to something fishy. As I noted earlier, however, courts in Robinson-Patman cases have often condemned differences of price that the defendant had no meaningful chance to show were justified by differences of cost.
As support for renewed Robinson-Patman enforcement, Commissioner Alvaro Bedoya has cited the cost of groceries in Pine Ridge, South Dakota. All he’s saying, in effect, is that he wants to grant the people of Pine Ridge an indirect government subsidy, in the form of artificially low prices relative to the cost of shipping things to a remote area. This is poor antitrust law, to say the least. It might not even be sound politics, for it’s quite possible that a spate of Robinson-Patman lawsuits won’t lead to lower prices for anyone.
The FTC was once notoriously dubbed the “national nanny” for its overbearing efforts to protect consumers from themselves. It’s amusing, therefore, that the agency’s test case for dusting off the Robinson-Patman Act will likely be a bid to help people get more alcohol. Too bad this economically illiterate gambit will probably backfire. If the agency does move ahead, I’ll need a stiff drink.