whether the Robinson-Patman Act in fact has the
effects that I am arguing it does. What we are
left with, since we do not have the laboratory
experiment that we had with Fair Trade, is a much
more tentative basis of judgment and logic and
inference. I have argued on logical grounds
that predatory pricing would be a very rare
occurrence as a monopolizing device; it simply
doesn't wash from a standpoint of logic. The
evidence that has been gathered as to where
predatory pricing has allegedly occurred has
generally shown that it did not occur or did
not have the effects that it was thought to
have had. We can look at that type of logic
and that type of evidence. Also we are left
with the use of inference inferring from
existing Robinson-Patman Act cases what the
effect would be on the market process.

-

I would like very much to be able to quantify
to what extent these prices are raised and that
resources are misallocated. I am afraid that
that is not perhaps ever going to be possible
unless some brilliant economist devises a test
that heretofore has not been observed.

The costs to society of Robinson-Patman are both direct and indirect. The direct costs arise from the higher price levels brought about by the Act's inhibitions on the competitive, price-setting process and its encouragement of price-fixing activity. Indirect effects occur when businesses operate less efficiently, pay high legal fees or otherwise incur greater costs because of Robinson-Patman, and when Robinson-Patman places a relatively greater burden on smaller businesses than on large companies.

Following the process of logic and reasonable inference, a witness argued to the Review Group that the probable effect of Robinson-Patman is to raise retail prices in affected sectors by one-half to one percent,

plus other losses from inefficiences.

81/ If such a price increase

were evidenced in all retail sales, which total around $600 billion, the potential loss caused by Robinson-Patman would be in the neighbor

hood of $3 to $6 billion. The analysis below shows this to be a not

unreasonable estimate.

1.

a.

The Act Reinforces Price Rigidity and Stability
to the Detriment of Consumers

The Act Discourages Pricing Flexibility on
The Part of Sellers and Thus Leads to Higher
Prices

As shown by analysis of the statute as applied, the key purpose of the Robinson-Patman Act is to prevent the granting of discounts, i.e., lower prices to fewer than all buyers, unless a cost justification or meeting competition defense can be proved. As the preceding analysis has shown it is very easy for a plaintiff to make out a prima facie case, and much more difficult for a defendant to make out any of the defenses. Consequently, the Act serves to mandate extreme pricing caution to the point of inhibiting lower prices even those which ultimately would be

found not in violation of the Act.

There are several reasons why the filing of private treble damage

suits, Federal Trade Commission enforcement actions, or threats thereof would serve to deter price cuts even if the seller believed his action would be lawful and that he would ultimately prevail in a trial.

First, the defendant may reasonably feel that the cost of litigation, even were he to succeed after trial, would be greater than the profits

81/ Testimony of William F. Baxter, DCRG Hearings, Tr. 53.

which could be made by granting the discount and gaining additional

business.

Legal services and accounting studies needed to make out a cost justification defense are extremely expensive. Moreover, significant opportunity costs are associated with the delay necessary to evaluate

a price-cut decision. A former vice-president of the RCA Corporation

Mr. Bennett: Yes; I can give you an example that

occurred within our own branches. Started
with our Chicago branch but we went a
little further than a single independent
distributor would go, because we anticipated
that once we found some answers that made
some sense we would then prevail through
the rest of our network of our own branches.
And I recall one incident, that was used in
the compilation of costs. We were out at a
navy pier in Chicago and they ran the elevator
up and down with twelve [television] sets on,
which would be one sale, versus six sets on,
which would be a second sale to another dealer,
versus three sets. And, they determined the
cost involved in running the elevator. I
thought that was a very interesting study.

82 Testimony of Martin Bennett, DCRG Hearings, Tr. 80-81.

Mr. Flexner: How much did it cost you?

Mr. Bennett: The total study cost us $300,000.

Mr. Flexner: In situations where you would have to
do that kind of costing to make a decision about
price, were there opportunity risks involved?

Mr. Bennett: Yes. Very frequently, you know,
you throw the baby out with the wash water, you
go through all this mammoth study, only to find
that the condition that caused you to undertake
it was no longer existing. That the market place
had changed, or whatever reasons, there are many
possibilities, and your opportunity was gone
because of the time required the effort of many,
many people.

The chairman of the American Bar Association Committee on the

Robinson-Patman Act testified before the Review Group that it is very difficult for businessmen to compile cost justification data with the certainty ultimately required to prevail in litigation: 83/

The expense and difficulty of cost justification are
partly due to the fact that a different type of
accounting is involved than is employed in the day-to-
day business operations. The collection and allocation
of cost data relating to individual customers is not
the type of accounting that is done on the current,
day-to-day business by companies. It is a method of
accounting that, in fact, is unfamiliar to most
accountants. Accountants who are called upon to make
cost studies in litigated cases usually cannot do so
on their own, but have to be guided every step of the
way by the legal counsel because of the legal standards
that must be complied with as set forth in the
Robinson-Patman Act, the decisional law, and task force

reports.

Nothing, obviously, can be done to change this as
long as cost justification remains a defense under
the Act. However, part of the expense and difficulty
with cost justification are due to the Federal Trade

83 Testimony of Paul H. LaRue, DCRG Hearings, Tr. 206-07.

Commission's insistence on the use of actual
costs and on exactness in the calculations which
are made. Much of the expense and difficulty
of cost justification could be avoided, therefore,
if the Commission were to permit the use of
reasonable estimates in lieu of actual costs, and
be satisfied with a showing of approximate rather
than exact cost differences. The uncertainty

as to the validity of cost studies, which
continues all during a Robinson-Patman Act
proceeding until a decision is rendered, is due
to the unduly adversary stance adopted by
Commission counsel and accountants in many such
proceedings. Their strategy in some cases has
been to withhold comment and criticism on

procedures adopted in the making of a cost study
until it was too late to make any substantial
changes.

The problem in meeting the cost justification defense is heightened by the fact that businesses often do not make expense records for individual customers, particularly when those customers are small businesses, but only for classes of customers.

While it is permissible

to give discounts on the basis of class data, it is impossible for a business to know with any degree of assurance whether a class is properly defined and whether a cost justification defense exists for the class. 84/ For that reason a businessman may refrain from offering a discount to

a class of small businessmen, even though he believes they deserve it. Litigation has other direct and indirect costs which deter price reductions believed to be legitimate. Of particular concern to businesses is pre-trial discovery, the legal process by which parties in litigation find out facts under the control of the opposite parties. 85/ Since

the key issues in a Robinson-Patman trial involve prices and costs,

84 See FTC v. Borden Co., 383 U.S. 637 (1966).

85 See FED. R. CIV. P. 26-37.