Needless to say, a comparison for Robinson-Patman purposes between sales to a larger retailer under a long-term supply contract and sales to smaller retailers and wholesalers on what is more or less a spot basis, becomes very difficult if not meaningless. Some cases hold that deliveries of goods under a long-term supply contract are not to be considered sales contemporaneous with purchases of goods in spot market transactions. 289/ To the extent that such is the case, the type of marketplace which is necessary for meaningful Robinson-Patman enforcement becomes further removed from the reality of today's business environment. 6. The Assumption That Predatory Pricing Is A Another major assumption underlying the Robinson-Patman Act's primary line provisions is that "predatory pricing" is a relatively common way in which incipient monopolists try to gain a dominant position in the market place. This idea has persisted well beyond the end of the Depression into our present inflationary period. In 1970, for example, one judge remarked "price cutting, after all, is a time-honored tool of the aspiring monopolist." 29 Recent empirical studies, however, have shown that genuine predation, i.e., pricing below short-run marginal costs, is rare. Moreover, such predation which can actually threaten competition and consumer well-being does not require the 289/ 1969). See Texas Gulf Sulfur Co. v. J. R. Simplot Co., 418 F.2d 793 (9th Cir. 290/ National Air Carriers Ass'n v. CAB., 436 F.2d 185, 194 (D.C. Cir. 1970). Robinson-Patman Act for prevention since it can be reached independently under the Sherman Act. One witness before the Reveiw Group hearing, Professor Kenneth G. Elzinga, summed up the situation: 291/ There is an expression: those who do not learn from history are condemned to repeat it. It is also true, I am convinced, that those who remember their history can be difficult to disabuse if their history is wrong. The phenomenon of predatory pricing illustrates my point Under predatory pricing, a large firm, selling in This conclusion was based on empirical studies by several researchers of the actual court records and evidence in a large number of antitrust cases in which the defendants were found guilty of monopolization, and in which predatory pricing practices had been alleged. 292/ In those few cases where 291/ 292/ Statement of Kenneth G. Elzinga, at 1-2, DCRG Hearings (fn. omitted). McGee, Predatory Price Cutting: The Standard Oil (N.J.) Case, 1 research showed that the alleged "predation" involved pricing below fully allocated costs, further analysis found that the "predation" which did occur did not harm competition in any meaningful sense. 293/ The reason why genuinely predatory pricing, that is, pricing for an extended period below the incremental cost of producing the good, 294/ is relatively rare is that such a process is expensive and risky for the predator. It is expensive because if a firm wishes to engage in below-cost pricing tactics, the effort must be subsidized either through the revenue from higher prices being charged in relatively non-competitive markets or from other financial resources of the predator. Additionally, money itself is not free and by using firm financial resources to pay for a predatory pricing campaign, the firm will be foregoing the opportunity to invest money in profitable activities in other areas of the economy. The prophets of predation generally overlook these elements. But the fact is that in order for the firm to gain financial benefit in a predatory pricing campaign, it must reasonably expect that all of its financial losses will be outweighed by subsequent increases in the price and profit level. But this is not usually a realistic expectation: first, because a successful campaign will be highly visible and therefore likely to result in a Sherman Act prosecution and possible conviction under a felony statute; and second because monopoly profits will not materialize unless the 293/ Testimony of William K. Jones, DCRG Hearings, Tr. 25; Koller, supra note 292, at 108. 294/ See Statement of Kenneth Elzinga at 6, DCRG Hearings; Areeda & Turner, Predatory Pricing and Related Actions Under Section 2 of the Sherman Act, 88 HARV. L. REV. 697, 701-03 (1975); International Air Industries. Inc. v. American Excelsior Co., 517 F.2d 714 (5th Cir. 1975), cert. denied., 44 U.S.L.W. 3488 (1976). firm can be guaranteed that no new entry will occur thereafter. An assurance of higher prices in the long run is unlikely since the inflated price necessary to recoup the price-war losses will attract new entrants able to produce the product profitably at lower prices. Even rivals driven out of business may reappear when prices become more attractive. should be noted that two researchers have found that in the Standard Oil It and du Pont monopoly cases, which were prosecuted prior to the passage of the Clayton antimerger law, individuals who were forced to sell out to these companies voluntarily reentered the industry and sold out again hardly evidence that these businessmen had been frightened into permanent submission. 295/ This is not to say that predatory behavior does not happen - it may occur when a predator fails to realize the potential loss from such an activity, or because the predator undertakes such a venture for personal, not profit making, reasons. Rather economic logic, coupled with empirical research, indicates that predation is not likely to be a frequent occurrence. Similarly, supporters of Robinson-Patman oversimplified when they equated predation with price discrimination. One witness before the Review Group identified at least four economic conditions which must be present in order for price discrimination to be tantamount to predation. 296/ First, as just discussed, the price must actually be below marginal cost; if the discriminatory low prices are profitable then the alleged predator does not require higher prices elsewhere in order to subsidize the lower prices. Second, the customers paying the low price 295/ See Statement of Kenneth Elzinga at 7, DCRG Hearings. 296/ Prepared Statement of William K. Jones at 305, DCRG Hearings. must in some manner be separated from those paying the high price. If the predator and its rivals all have access to the same customers throughout the country, then the alleged predator and its rivals will compete for the same customers and the predator will not suffer any less harm than its rivals. Third, for the same reason the predator must have more extensive access to customers than its rivals, and particularly to additional customers who can be forced to pay a higher price. Fourth, the low price sales must force at least some of the predator's rivals to curtail their operations or otherwise abandon the market. Unless this occurs, of course, the predator will simply be wasting his money since there will be no benefit from the campaign. In this regard, it should be noted that unless a predator is more efficient than its rivals, it will have to lose relatively more on each sale than its rivals in order to drop the price below the competitors' costs. Consequently, the relationship between price discrimination and actual predation is fortuitous. 297/ Hence, while it is possible that truly predatory discrimination may occur from time to time, both economic logic and empirical evidence demonstrate that the practice has not been and is not likely to be a significant source of anticompetitive behavior. Contrary to the belief of those who enacted Robinson-Patman and the original antidiscrimination provisions of Clayton Section 2, there is little need for a specific statute directed toward this type of discrimination as a supplement to the antimonopolization provisions of the Sherman Act. 297/ It is also worth nothing that companies which produce many products would not need to engage in price discrimination in order to engage in predatory pricing. A large conglomerate corporation, for example, could use profits generated in other products to finance a predatory price campaign in different markets. |