c. There Is No Evidence That Repeal of Robinson-Patman A key argument of Robinson-Patman proponents is that the Act in the long run helps consumers. The argument is made that any price reductions created by more short term vigorous competition among buyers are outweighed by the prospect that such lower prices will drive smaller merchants out of the market, thereafter giving the larger merchants a license to raise prices to a higher level than before. As discussed in Section A, 371/ of this Chapter, where sellers have market power, prices are often higher than those which would be set in a competitive market. One of the most effective ways to reduce high, oligopolistic, prices is the exercise of countervailing buyer power to obtain price concessions. If the concession cannot be made to those in a strong bargaining position, but must be made on an allor-nothing basis, the likely outcome is that no price concession will be made and prices will remain high. Proponents of Robinson-Patman argue that any lower prices obtained by the consumer from such bargaining advantage would be a "fool's paradise" leading, as the small merchant disappeared, to prices high enough to outweigh the lower prices which would occur in the initial period following the Act's repeal. This would result if the absence of Robinson-Patman would decrease the competitive nature of retailers and would lead to the establishment of high oligopoly prices in that market. There is no evidence to support the argument made by Robinson Patman proponents that unleashing buyers in price negotiations would Indeed, the evidence points to ultimately bring harm to consumers. an opposite conclusion. In order for such bargaining flexibility to have an adverse long run impact on consumers, four conditions must exist. First, the price reductions obtained by a purchaser with bargaining leverage must never become generalized throughout the industry. Second, lower prices based on a uniquely lower cost of goods purchased must cause the elimination of several weaker but competitively significant rivals, thus strongly increasing the oligopoly power of the purchaser. Third, the favored purchaser, after the elimination of several of its competitors, must raise its prices not merely to the level that existed before the firm received its price advantage, but to a higher level. If prices rise only to their pre-discrimination level, consumers are no worse off than if no discount had been allowed. In fact they are better off because in the interim they would have received lower prices. Fourth, post-discrimination high oligopolistic prices must be maintained for a long enough period to outweigh the savings obtained by consumers during the previous period of vigorous price competition. The evidence available to the Review Group demonstrates that such a series of events is quite unlikely. With respect to the first necessary condition, that the lower prices will not become widespread, most witnesses before the Review Group stated, to the contrary, that once a price cut becomes known, and it usually becomes known because the lower price results either in a lost customer or in a lower resale price the movement in the industry is towards a general reduction of prices from higher oligopolistic levels. In such a case, the temporary exclusive benefit of the recipient of the price cut becomes a general benefit to all as manufacturers' prices fall. On the other hand, if the favored purchaser does not switch suppliers, or if he does not lower his resale price, the price discrimination may indeed remain unknown for some time. Of course, if the purchaser does not lower its resale price, then there is no harm to any of its competitors since without the price reduction, there will be no diversion of customers. The only result is that the favored purchaser makes higher profits on the sale of that item, that is, he obtains part of the oligopoly profits that would have accrued to the manufacturer. One Most sectors of the retail industry are quite competitive. witness before the Review Group, Mr. Douglas Wiegand, of the Menswear Retailers of America, evidenced this competition by his observation that "Retailing has historically been a low profit, low return on investment industry." 372/ Mr. Wiegand thought that in spite of this competition, demonstrated by the low rate of return, any price discounts would not be passed on: 373/ Apart from possibly emasculating small business, we To the extent that this result is true, there would be no "emasculation" of smaller businesses because if prices were not lowered, there would 372/ Prepared Statement at 7, DCRG Hearings. 373/ DCRG Hearings, Tr. 395. be no change in the competitive relationship among the different classes of stores. And if prices were lowered, then there would be a net benefit because the decreased revenue to the manufacturer would be passed on to the consuming public. As for the second necessary condition, if the favored purchasers do pass their price savings on to their customers, it is unlikely that the result will be the elimination of significant number of the firm's competitors; at least not enough to increase its oligopoly power. As noted, small and large businesses most often do not perform the same function and are thus not engaged in full "head-to-head competition." Large firms may not regard the potential for price competition from small firms offering greater convenience as being significant enough to affect their own pricing practices. Thus, a major chain indicated that it considered most local independent food stores as capable of only "soft" competition and did not consider the presence of small firms in deciding whether to enter a given market. What really concerned the chain was the existence of other local or regional chains in the vicinity, because it was they, not the smaller businesses, which the national chain felt could actually engage in "hard" competition. 374/ Similarly, a Review Group witness representing independent tire dealers stated that after an extended period of alleged discriminatory pricing to one retail tire establishment, a businessman was forced to close two of his tire stores in an area, but that as far as he knew there were still several other competing tire stores in the area. 375/ No 3741 National Tea Co., 69 F.T.C. 226, 321 (1966). 375/ Testimony of Philip Friedlander, DCRG Hearings, Tr. 429-30. specific examples of instances in which secondary line discrimination so depleted the number of competitors in an industry that oligopoly power was significantly increased were presented to the Review Group. Given the very limited nature of Robinson-Patman protection, and the dynamic nature of the channels of distribution, it is unlikely that such instances exist to any important degree. Indeed, one attorney who testified before the House Small Business Committee in favor of Robinson-Patman, and who felt that the elimination of Robinson-Patman would, indeed, reduce the number of small businesses, nevertheless stated that competition among the firms remaining in a given market would be "vigorous." 376/ The head of the FTC's Bureau of Economics, in discussing the appropriate policy for enforcing Robinson-Patman stated his skepticism about the procompetitive effects of many proposed cases: 377/ Specifically, is the goal in assessing competitive Still, it is also evident that maintaining vigorous competition in the short run might conflict with long-run vigor. Competition in the short run could conceivably be so intense that many viable, efficient competitors are driven from the market - 376/ Prepared statement of Jerrold C. Van Cise, Subcommittee Hearings, pt. 2 at 222. 377/ Prepared statement of F. M. Scherer, Subcommittee Hearings, pt. 2. at 149. |