The number of FTC civil actions under Section 2 has declined in recent years. The FTC is presently considering whether to increase B. The Types of Price Discrimination to which the Robinson- Price discrimination, 4/ the basic concern of the Robinson-Patman Act, means in economic terms the sale of different units of a good or service at prices which differ by more than the cost of supplying those different units. Thus, selling units of equal cost at different prices is price discrimination, as is the sale of units of differing costs at the same price. The Robinson-Patman Act does not regulate all types of price discrimination. For example, the Robinson-Patman Act applies only to the sale of goods in interstate commerce, and not to transactions involving 2/ Testimony of Owen M. Johnson, Hearings before the Ad Hoc Subcommittee on Antitrust, the Robinson-Patman Act and Related Matters of the House Committee on Small Business, 94th Cong., 2nd Sess., pt. 2 at 204 (1976) (hereinafter cited as Subcommittee Hearings. The conclusions of the Ad Hoc Subcommittee are set forth in H.R. Rep. No. 94-1738, 94th Cong., 2nd Sess. (1976). 3/ Testimony of Donald A. Frederick, Hearings on the Robinson-Patman Act 4/ The word "discrimination" has a pejorative connotation derived from its use in other contexts, e.g., racial or religious discrimination. A proper understanding of its use in economic terms requires a conscious effort to disassociate the word's social meanings. services. Furthermore, the Act applies only to discrimination in which there is a price differential charged, and not to a transaction involving units of differing costs sold at the same price. The statute prohibits only those price discriminations which have the required adverse effect upon competition. Where the price discrimina tion allegedly injures the competitors of the seller granting it, there is said to be "primary line injury." Where the effect of the price discrimination is alleged to injure the competitors of the buyer receiving the preferential discriminatory price, there is said to be "secondary line injury." Primary line cases under Robinson-Patman occur where a multi-market seller lowers his price in a market with the effect of economic injury to his local competitors. Such conduct was widely believed to have furthered the Standard Oil and American Tobacco trusts. 5/ The chief objective of the Robinson-Patman Act, however, was not to prohibit primary line injury; that situation was already covered by the Clayton and Sherman Acts. Rather, the Act's main purpose was to prohibit price differentials which affected competition at the secondary line. The Act forbids sellers from charging discriminatory prices which are injurious to competition unless the differential is cost-justified or is a response to competition. In addition, discriminations disguised as brokerage or promotional allowances are absolutely prohibited. To complete the scheme, buyers are prohibited from knowingly inducing or receiving an unlawfully favorable price. This prohibited conduct was perceived as the tool by which the emerging chain stores, principally the Great Atlantic & Pacific Tea Company, were driving small retailers out of business. 5/ F. ROWE, PRICE DISCRIMINATION UNDER THE ROBINSON-PATMAN ACT 6 (1962). C. The Question Presented The Robinson-Patman Act is a piece of depression-era legislation, reflecting the social and economic concerns of that period. The 1930's saw rapidly falling prices and an increase in the mortality of businesses of all types and sizes. During this time much of the enacted legislation reflected a deep-seated belief that free competition was hopelessly inadequate to the task of regulating the market place. It was this period, for example, which spawned the National Recovery Administration, whose provisions combined the efforts of government and industry to raise prices and protect established relationships in distribution for the purpose of returning the country to full employment. Congresses convened during this period were particularly sensitive to the argument that small retailers and their immediate suppliers were in danger of being eliminated by the development of mass merchandising techniques, and that, as a result, the public interest was threatened by a long run reduction in consumer choice and tendency toward monopoly. The controversy surrounding the Robinson-Patman Act in the 1930's was intense; the debate pitted those who stressed the consumers' interests in low prices and efficiency in distribution against those who claimed that Robinson-Patman-type legislation was the last hope for the survival of the small businessman and a free market system. Debate of this sort has recurred throughout the history of the Robinson-Patman Act from the 1930's to the present. At one extreme supporters of the Act have viewed it as the "Magna Carta" of small business; at the other, opponents have regarded it as "thoroughly discredited." 6/ In recent years the debate 6/ Elias, Robinson-Patman: Time For Rechiseling, 26 MERCER L. REV. 689, 689 (1975). has assumed a new and important dimension which focuses the issue in more fundmental terms: does the Robinson-Patman Act have adverse effects on competition and consumers and, if so, does the Act, in fact, offer any concrete countervailing benefit to small businessmen which cannot be achieved by less harmful alternatives? The Report This Report will offer an answer to this question. begins with an analysis of the social costs of Robinson-Patman: its effects upon pricing and efficiency in distribution and thus upon the consumer. Next, the Report describes the Act's genesis, its causal relation to social and economic conditions at the time of enactment and its legislative history. The Report then analyzes the Act's economic assumptions and current justifications to determine whether they are supportable in theory and in fact, and to determine further whether they establish goals capable of being achieved by RobinsonPatman. The Report concludes with a recommendation. Chapter II. ANALYSIS OF THE EFFECT OF ROBINSON-PATMAN UPON COMPETITION, PRICES, EFFICIENCY AND THE CONSUMER Fundamental to an understanding of Robinson-Patman is the fact that the Act places a complex series of legal restrictions on the central process of a market economy--the setting of prices between buyer and seller. Consequently, if Robinson-Patman does have an effect on business behavior--and if it had absolutely no effect there could be no justification for it--that effect is to distort prices from those that would otherwise prevail in the marketplace. As recent experiences with wage and price controls have demonstrated, governmental tampering with the market can lead to unforeseen results which have an adverse effect on workers, businesses, and the consuming public. It should not be surprising, therefore, that Robinson-Patman can be shown to have many adverse effects on the economy. To be sure, there are some who do not recognize these effects or who argue that they are outweighed by benefits to specific sectors of the economy, notably small business; to competition by preventing increased concentration in a line of commerce; and to public values in general by establishing as a legal norm the concept of "fair dealing" in pricing. But any discussion of the benefits of Robinson-Patman can be made only with a clear understanding of the burdens that the statute places on American economic activity. This section of the Report makes such an analysis, starting first with a discussion of the Act's legal impact upon businessmen, then proceeding to a description of the actual effects of the statute on the economy. |