guides reported the status of 216 respondents. Of those 216 listed respondents only 35 had sales exceeding $100 million while 101

definitely had sales of less than $10 million. The remaining 354 respondents could not be located in any directory, and were

The Robinson-Patman Act has several significant costs to society. Its most pernicious effects are its reinforcement of pricing rigidity among sellers in oligopolistic industries, the introduction of pricing inflexibility, and the encouragement of price discussions among competitors which may lead to violations of the Sherman Act. To the extent that new entry is impeded by Robinson-Patman, the Act also serves as an artificial "barrier to entry" protecting highly concentrated local markets. Finally, because of restrictions on purchaser behavior, the Act discourages buyers from engaging in "hard bargaining" with large sellers, further enhancing their ability to charge noncompetitive prices.

This direct protection by Robinson-Patman of higher prices is compounded by the higher costs which are generated by the Act. The provisions of the Act tend to preserve a layer of additional middlemen even though integration of certain distribution functions might be more efficient. The Act encourages the granting of useless promotional allowances and the proliferation of product brands and physical differences in manufactured goods. Moreover, by reducing the ability of businesses to utilize empty truck backhauls for the carrying of merchandise, Robinson-Patman encourages the wasteful use of energy and other

scarce resources.

Finally, Robinson-Patman can actually make it more difficult

for manufacturers and distributors to help small businessmen meet competitive challenges. At the same time, the brunt of enforcement

of the Act has fallen on smaller businesses, and increased legal and administrative costs associated with this regulatory scheme are relatively more burdensome for smaller enterprises.

The Report in the next two chapters will show that the adverse effects of Robinson-Patman were the inevitable result of the process by which Congress adopted this legislation; that Congress justified the statute on the basis of faulty economic assumptions and illusory objectives; and that Congressional misunderstanding of the competitive process guaranteed the enactment of a statute which would dramatically distort rather than preserve the beneifts of that process.

Chapter III.

THE ECONOMIC, POLITICAL AND LEGISLATIVE HISTORY
OF THE ROBINSON-PATMAN ACT

A. The Economic and Political Crisis of the 1930s.

Much of the economic thought of the 1930 s was preoccupied with recovery from the depression. No legislature convened during that period could ignore the catastrophic failure rate of businesses of all sizes, declining wages, and the rapid decrease of the gross national product. 173/ The disruption of economic life was such that ordinary people lost confidence in the free enterprise system; people clamored for government protection, not competition. The spirit of the times was captured in

the testimony of one Review Group witness: 174/

[T]he Depression understandably generated desperation
and fear, a desire to do anything, something, anything.
It was a period of profound disenchantment with
competition, which was widely thought to have
contributed to the deflation of the day. This
disenchantment was fully reflected in what I would
call the 'Blue Eagle Spirit' of protectionism and
government supervised cartels.

This compulsion to regulate rather than allow competition was more than

a popularly held sentiment; loss of faith in the free enterprise system was pervasive even in academic and intellectual circles.175/

173/ J. GALBRAITH, THE GREAT CRASH (1954); W. CHANDLER, AMERICA'S GREATEST DEPRESSION (1970).

174/ Testimony of Donald I. Baker, DCRG Hearings, Tr. 268.

175/ Id., 276-77.

That [the Blue Eagle Spirit] was alive in 1936 is nicely
shown in a book written that year, appropriately entitled,
The Decline of Competition. Its author was a young
economics professor at Columbia University named Arthur
Robert Burns
He stressed on the first page 'a
growing doubt concerning the capacity of competition to
survive, or where it survives to produce satisfactory
results.' Remember, this was in 1936, the year the
Robinson-Patman Act was enacted. Then he went on to
say, 'Adam Smith's unseen hand has been brushed aside
by the half-seen hand of self-government in industry,
and it cannot be restored by law. Contemporary develop-
ments all point in one direction, viz. that
leaving it to competition is a state policy with
which no one is satisfied and upon the meaning of
which there is no general agreement.

176/

Almost simultaneously with the depression came a second, and to some

equally threatening development, a revolution in distribution.

During

the late 1920's and early 1930's chain stores grew rapidly as a new channel of distribution. The Federal Trade Commission, in a final report summarizing an extensive six-year study of chain stores, found a "marked increase" in the number of chain stores reported in operation; 177/ it found that the number of operating chain stores increased from 58 in 1900 to 1718 chain stores in operation by 1928.178 / Significantly, this chain store growth took place during the period of increased small business mortality. Congress perceived the chain store growth and small business mortality as related; it is not surprising, therefore, that the changes in patterns of distribution were viewed with alarm.

The dynamics of the evolutionary cycle in distribution are described in Section B(1) of Chapter IV, pages 170-180, infra.

176/

177

FTC, FINAL REPORT OF CHAIN STORE INVESTIGATION, S. DOC. No. 4, 74th Cong., 1st Sess. (1935) (hereinafter cited as 1935 FTC CHAIN STORE REPORT).

178/

S. DOC. No. 100, 72nd Cong., 1st Sess. 54 (1932).

It is unclear, however, whether the small business sector was actually threatened more than any other segment of the economy. While the FTC study focused mainly on the growth of chains in terms of numbers, rather than market share by sales, its figures on sales showed that in 1929 chains, taken as a whole, accounted for less than 20 percent of all sales made in retail distribution. 179/ The House Judiciary Committee, in its hearings on the Robinson-Patman Act, nevertheless believed that the chains were much more powerful. Representative Wright Patman, testifying before the Committee, stated that only 18 percent of the cash business in groceries was done by And during the debates on the floor of the House of Representatives figures from the Census of American Business were introduced to show that the chain stores' market share by sales ranged from 44 percent

independents. 180/

The evidence concerning the mortality rate of small businesses was also far from clear, although it is undisputed that the failure rate for businesses of all sizes increased greatly between 1925 and 1932. 182/ Opponents of the Robinson-Patman Act offered testimony tending to show that between the years of 1929 and 1933 the number of small businesses had in fact increased and that the number of chain stores had decreased. 183/

179/ 1935 FTC CHAIN STORE REPORT 4.

180/ Hearings on H.R. 8442, H.R. 4995, H.R. 5062 Before The Committee on The Judiciary of The House of Representatives 5, 74th Cong., 1st Sess. (1935) (hereinafter cited as Sumners Hearings).

181/ 80 CONG. REC. 8116 (1936) (Remarks of Rep. Patman).

182/ DUN & BRADSTREET, THE BUSINESS FAILURE RECORD, 1974 cover p. 2 (1975).