otherwise "have to" make. 101/ A recent antitrust case is in point. 102/

Testimony was given at trial that one of several competing bakeries
became concerned that industry discounts would cut into its profit
margin and persuaded the Federal Trade Commission to commence an investi-
gation into discriminatory pricing in that area. 108/ Further testimony
was heard that after the investigation closed without further government
action, the bakers agreed to eliminate discounts. 04/

The role of "discriminatory" discounts in oligopolistic industries
is demonstrated by a comprehensive Federal Trade Commission report on the
structure of the food industry. That report found that "the most
pervasive" discriminatory pricing in the food industry occurred in fluid
milk, ice cream, and bakery products, industries which are particularly
concentrated in localized markets. 105/ The report also indicated that,
along with coffee, these same industries evidenced the greatest vertical
integration, i.e., food store manufacturing: 16/

The preceding analysis indicated that food retailers tend to integrate most extensively into the most concentrated food manufacturing

101/ Testimony of Thomas E. Kauper, DCRG Hearings, Tr. 334-35.

102/

United States v. Cotton, Inc., Cr. 75-43, M. D. La., verdict (August 29, 1975). 103/ The investigation, ironically, was sought to establish that the discriminations would injure competition among the purchasers of bakery products.

104/ Upon trial of the antitrust charge, the defendants argued that the agreements were simply designed to avoid giving discounts which would violate the Robinson-Patman Act. The judge instructed the jury that an agreement to eliminate discounts would not be a violation of the Sherman Act if it was not motivated by a simple desire to raise prices. The defendants were acquitted.

105/

FEDERAL TRADE COMMISSION, ECONOMIC REPORT ON THE STRUCTURE AND COMPETITIVE BEHAVIOR OF THE FOOD INDUSTRY, 186 (1966) [hereinafter cited as 1966 FTC FOOD STUDY].

106/ Id. at 71.

industries.

As explained above, concentrated
food manufacturing industries tend to have
higher profits and larger marketing margins
due to heavy promotional expenses than do the
less concentrated industries. Hence, these
findings support the hypothesis that large
retailers integrate into food manufacturing
so as to share in these oligopolies
and/or to enhance their own profits by
eliminating the high costs of achieving

product differentiation. (Footnotes omitted)

Again, it is not surprising that this should be the case, since purchasers will have an incentive to go into business themselves to escape oligopoly pricing practices. The important question is whether the oligopolists, once realizing that many of the larger buyers will integrate rather than pay the high oligopoly prices, will offer lower prices to those buyers to avoid losing the customer entirely. Of course, the answer is that the Robinson-Patman Act may prevent the oligopolistic seller from granting the Because the oligopolistic seller will almost never lower

selective discount.

its price to all of its customers, the large buyer may very well be forced to integrate. This situation helps neither the seller, nor the remaining customers, because the latter might now have to pay that portion of their supplier's overhead which could have been recovered through sales to the larger buyer.

The result is price inflexibility, as the most comprehensive study of the effects of the Robinson-Patman Act concluded: 107/

There is a consensus of opinion among both buyers and sellers that the result [of RobinsonPatman] has been to diminish the flexibility of prices; indeed, many of the persons interviewed

107 C. EDWARDS, THE PRICE DISCRIMINATION LAW 630-31 (1959).

regard this as the chief virtue of the statute.
It is probable that in oligopolistic industries
the outlawry of discriminatory concesssions has
reduced the principal kind of price competition
that still existed under conditions of concen-
trated production and sale. It is probable
that, in an industry that has achieved conspiracy
by direct agreement . . . the elimination of
unsystematic price cuts has removed the principal
weakness of the conspiracy. Proof of neither
of these propositions has been obtained during
the study; but it was not to be expected that
evidence pointing to possible violations of the Sherman
Act would have been volunteered by participants in
such arrangements. However, the interviews
strongly support the inference that the reduced
pressure of buyers for concessions and the

enhanced risk of the seller who makes concessions
have tended to make sticky prices stickier and thus to
reduce the flexibility and responsiveness of the price
system. The effect has been great enough to be
prominent in the thinking of businessmen who like it
as well as businessmen who do not like it.

Some proponents of Robinson-Patman have stated that requiring price changes to be uniform actually helps lower prices in oligopolistic

industries. This is so, it is argued, because when a large buyer negotiates and this will be through lawyers rather than business

with his supplier

men ——

the buyer will "require" that the seller lower his prices uniformly, thus giving the smaller purchasers an unexpected break. 108/ But the Edwards' study found that one effect of the statute was that "price change

tends to take place only where the pressures toward it are great enough to justify an upward or downward movement of the entire price structure." 109/ It is highly unlikely that in most industries there will exist a buyer so powerful that it can force down the price levels in the industry as a whole.

108/ Testimony of Jerrold C. Van Cise, 1976 House Hearings, Tr. 159-60. 109/ EDWARDS, supra note 107, at 630.

Indeed, if such a buyer does exist, the fact of his power bodes ill for

that firm's smaller competitors, who would seem to be in deep trouble In most industries, as former Assistant

with or without Robinson-Patman.

Attorney General Kauper noted, list prices will remain "sticky" and if Robinson-Patman makes a price cut an all-or-nothing affair, in most oligopolies, the answer will surely be "none." As one witness put it: "One could describe the Robinson-Patman Act as a form of fair trade legislation at the manufacturer level because that is exactly what its major thrust is."110/

Federal Trade Commission orders enforcing the Robinson-Patman Act

may also serve to increase industry pricing inflexibility by decreasing the
likelihood that discounts will be granted. According to a former FTC
Commissioner, the FTC had asked executives of companies subject to
Robinson-Patman order to describe the effect these orders had on their
companies, a survey taken in conjunction with the Brooks' Report, p.
infra: 111/

Some of the comments we received were very
revealing. One of them, for example, gave this
summary of his experience with our orders in
this area; "there is less vigor," he told us,
"in competitive pricing now. Prices are "more
set" than before the [FTC] ruling. . . . We
don't have to football as much as before,
therefore [it is] an advantage to us." Another
commentator explained: "It is probable that
the final furniture prices by suppliers affected
by FTC action to IFB's clients would have been

238

110/ Testimony of William K. Jones, DCRG Hearings, Tr. 32.

111/

Statement of Mayo J. Thompson, Hearings Before the Joint Economic Committee, November 18, 1974 at 7.

lower by 10 to 20 percent without the FTC
decision.

Finally, Robinson-Patman has one other effect on pricing which has only recently come to the fore as a problem. By requiring uniform prices to most purchasers, and permitting discounts only where they are cost justified, the Act inherently tends to establish a "cost plus" criterion as the pricing norm. Consequently, businessmen become more interested in pricing on the basis of cost rather than in responding to changes in demand. 112/ Experience with the recent inflation suggests that many corporations now seem to price solely to recover their costs rather than in response to demand conditions. Thus, businessmen may tend to raise

their prices even in the time of fallen demand, an approach that in great part may stem from the cost justification provisions of recent wage and price controls.

This phenomenon has caused much concern with respect to

the ability of our economy to respond to

macroeconomic policies. Το

the extent Robinson-Patman may encourage the continuation of this type of pricing practice after the demise of controls, the Act stands in contradiction

to the vital goal of bringing inflation under control.

fundamental premise of the antitrust laws is that businessmen must

make independent decisions about price if the free market system is to work properly. For that reason courts have interpreted the Sherman Act to ban any price agreement. Similarly, exchanges of price information which tend to produce uniform or coordinated pricing among competitors have been

112 P. KOTLER, MARKETING MANAGEMENT 78 (1972).