such a policy might undercut the vitality of the bargaining process. It therefore refused to require a seller to disclose that an offered price was below that necessary to meet that of a competitor. Any other outcome, the Commission noted, would serve to make a mockery of the antitrust goal of preserving hard bargaining to bring down non-competitive It is a fact of business life that over time an inertia builds up in the buying habits of customers. Whether because people generally feel more comfortable operating out of habit, because consumers have learned the quality of a product marketed under a brand name, or because a businessman believes a steady supplier will serve him more effectively, purchasers are reluctant to switch sellers absent the promise of compelling 122/ Id. at 21,040, citing Forster Mfg. Co. v. FTC., 335 F.2d 47, 56 (1st Cir. 1964), cert. denied, 380 U.S. 906 (1965). benefit from the change. While the possibility that a new supplier will provide a better product or better service plays a role in a decision to switch suppliers, a more important reason is the ability of a new supplier to offer a commodity at a lower price. The necessity for a competitor seeking a new customer to offer a price advantage will be all the greater if the current seller is a firm of established reputation, and the prospective seller is a relative newcomer to the area or new entrant to the industry. The ability of firms to enter new markets is, of course, a key to keeping such markets competitve. Particularly in local or regional markets where the number of competitors is relatively small, the most effective deterrent to the establishment of collusive or oligopolistically high prices and profits margins is the likelihood that these conditions will attract new business into the area. Hence, unless some sort of barrier to entry is erected around a local monopoly or oligopoly, entry or the threat of entry will serve to constrain the power of entrenched firms to charge monopoly prices. As will be shown, Robinson-Patman serves as such a barrier because it discourages firms from undertaking a promotional pricing campaign in connection with an attempt to enter a new market, unless that campaign is conducted on a nationwide basis or reflects some special cost saving of serving that market. Such foreclosure of potential competition is directly contrary to antitrust purposes embodied in Section 7 of the Clayton Act. 123/ 123/ See United States v. Penn-01in Chemical Co., 378 U.S. 158 (1964). As one In many sectors of the economy, the most likely source of new entry is from firms already selling a commodity in other areas. economist described the importance of geographical expansion to entry: 124/ Basically there are only two ways [to enter De novo entry is certainly not unheard of The first way in which Robinson-Patman erects entry barriers is through Section 2(a)'s prohibition of primary line price discrimination. The leading case here is Utah Pie. 125/ In that case, a local pie manufacturer had a 66% share of the frozen pie market. Several national pie 124 Prepared Statement of Kenneth G. Elzinga at 16, DCRG Hearings. 125 Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967). See text at pages 15-17, supra. manufacturers sought to enter this market by charging prices which were lower than those charged by them in neighboring states, but were not clearly below the variable costs of each price cutting firm. Vigorous cost competition broke out; yet at all times, the local firm, Utah Pie, remained profitable. Moreover, at the end of the period of "discrimination" Utah Pie remained dominant in the market with a 45% share. The Supreme Court also found that the frozen pie market in Salt Lake City was highly competitive, that Utah Pie was at times the leader in moving prices down and that the defendants were the leader at other times. On these facts, the Court concluded: 126/ We believe that the act reaches price destructive impact. In this case, Under the Robinson-Patman Act, as interpreted by the Supreme Court, a declining price structure could be the basis for a jury finding that the price cuts met the statute's test of potential harm to competition. Similarly, under the Act, Utah Pie's dominance was viewed by the Court as "Nor does the fact that a local competitor has a major share irrelevant: of the market make him fair game for discriminatory price cutting free of Robinson-Patman Act proscriptions."127/ Finally, under Robinson-Patman evidence of "predatory intent" could be inferred from the fact that the 126/ 386 U.S. at 703 (emphasis added). 127/ Id., at 703 n. 14. selling price in the Utah market was less than direct cost plus an allowance for general corporate overhead. 128/ One economist speaking before a congressional committee felt that the result in Utah Pie was justifiable because the Utah Pie Co. was a small business and national firms should not be given the opportunity to use discriminatory pricing to impinge upon the ability of the local company to maintain good profits. 129/ The most important result of this case, however, was not the actual resolution of the dispute between Utah Pie and its competitors, but the rules of competitive restraint which the Court established under Robinson-Patman for all geographic pricing patterns in the United States. Thus a leading antitrust attorney testified before the same congressional committee that a major effect of the case was to establish as precedent the conditions under which firms would be subject to treble damage liability. The irony of the Utah Pie precedent is that it rests on facts normally associated with healthy, non-injurious competition: Far from being injured, the plaintiff remained the leader in the market, met and even undercut the defendants' prices, increased its sales, and operated profitably. Consumers benefited from the lower prices 128/ Id., at 698. 130/ 129/ Testimony of Robert Brooks, Subcommittee Hearings, pt. 1 at 426-30. 130/ Prepared Statement of Paul H. LaRue, Subcommittee Hearings, pt. 2 at 227. |