The Robinson-Patman Act Has No Future: Competition Corner

Issue #35

Hello again,

Few things are worse than an annoying houseguest who pretends not to notice or care that they only have a few days left to vacate the premises. One would at least hope that they don’t raid the fridge on the way out.

In his dissenting remarks to the Biden administration Federal Trade Commission (FTC)’s Fall 2024 “regulatory plan and regulatory agenda,” new agency chair Andrew Ferguson chastised his democrat colleagues for passing their “plans for the future” on their way out given that the outgoing administration has “no future.” Of course, this has not stopped former chair Lina Khan and her allies from cobbling together a series of last-ditch efforts to cement their policy agenda. These include saddling the incoming administration with cases that have low prospects of success, threaten to waste agency resources, and hardly align with the new administration’s priorities. The crown jewel of these are the Khan FTC’s attempts to revive enforcement of the Robinson-Patman Act (RPA) through issuing two complaints- one against liquor distributor Southern Glazer’s, and another against PepsiCo.

A quick recap

As I wrote in a 2023 policy brief, the RPA is a 1936-era amendment to the Clayton Act that prohibits price discrimination through suppliers’ provision of exclusive discounts and certain kinds of promotions to some buyers over others. It was intended to shield smaller firms from competition from bigger rivals who were better positioned to negotiate exclusive discounts from their suppliers at a time when smaller retailers faced increasing competition from large chains. It was immaterial that these discounts are often passed on to consumers through lower prices.

Over time, government agencies, judges and economists grew critical of the RPA for its discouragement of pro-competitive business practices and its potential to raise prices and harm the poorest consumers. Courts began narrowing the statute’s applicability and expanding the defenses available to better align the RPA with the wider goal of antitrust laws, that is, promoting competition rather than protecting competitors. Antitrust enforcers also soured on the RPA because complaints became harder to win, since predatory pricing is already punishable under the Sherman Act, and because RPA complaints were a poor use of the FTC’s and DOJ’s limited resources, given their mission of protecting consumers and competition. The FTC ceased to bring RPA complaints in the early 1990s. In 2007, the bipartisan antitrust modernization commission noted that despite agency non-enforcement, businesses continued to comply with the RPA by adopting inefficient business practices to avoid the threat of lawsuits, and recommended the statute’s abolition.

In 2021, the Biden-era FTC instead promised to revive RPA enforcement, making no bones about their desire to use it to promote “fairness” for small businesses regardless of whether consumers end up paying more. Indeed, neither of the FTC’s recent RPA complaints allege that consumers are injured through higher prices, less innovation or choice, or reduced product quality as a result of the alleged price discrimination. This was a surprising policy shift, considering that the post-pandemic economy was already plagued by inflation and cost-of-living woes at a time when most Americans had come to shop at big-box retailers and supermarkets. Smaller retailers and boutiques continue to thrive by servicing different customer segments or offering unique products and user experiences.

So what happens now? Probably not much. And here’s why.

1. The FTC’s recent RPA complaints are duds: The complaint against Southern Glazer’s alleges that the nationwide liquor distributor offers large retail chains a lower price for its products than boutique stores. The RPA applies only to goods sold in interstate commerce and applies to head-to-head competitors for the same market of consumers. As I’ve noted previously, “the grim patchwork of legal regimes governing alcohol sales and distribution in different states means that most sales between alcohol distributors and retail stores occur intrastate. It’s also hard to argue that independent alcohol stores compete “head-to-head” for the same consumer base as big retail and supermarket chains.” Even the FTC acknowledges that boutique stores and supermarkets compete for different customer bases. In their successful attempt to block the proposed merger of Kroger and Albertsons supermarkets last year, the FTC posited a market definition of “supermarkets” that excluded competition from “specialty stores” like Whole Foods and Trader Joe’s as well as “superstores” like Walmart- even though there is arguably a significant overlap between their customer bases. This definition was accepted by the district court.

For a more comprehensive analysis of the Southern Glazer’s complaint, see my op-ed in Discourse magazine.

The FTC’s PepsiCo complaint has even lower prospects of success. It accuses the beverage manufacturer of violating Section 2(d) of the RPA by selling its products to a big-box chain at a lower price than it does to smaller retailers, and of providing the big-box chain with promotions that it doesn’t provide to other retailers. Section 2(a) of the RPA makes it illegal to “discriminate in price between different purchasers,” which is a clearer characterization of the harm alleged in the complaint than Section 2(d), which prohibits offering payments or services that are not offered to the favored purchaser’s competitors on “proportionally equal terms.” Although Section 2(d) dispenses with Section 2(a)’s requirement of showing injury to competitors due to the alleged discrimination, both subsections require evidence of disparate treatment by PepsiCo of at least one other retailer relative to the big-box chain in question. The complaint cites no evidence of this. The FTC doesn’t just face the tenuous task of arguing that a difference in price captured by Section 2(a) is actually a “payment” not offered on “proportionately equal terms.” They are also going into court without evidence that there is even any discrimination to begin with.

2. The Supreme Court has moved towards interpreting the RPA as protecting competition, not competitors: The RPA punishes two kinds of injury: primary-line and secondary-line. Primary-line injuries occur when a firm’s competitor sells its goods for a lower price in the firm’s geographic market relative to other markets. Secondary-line injuries occur when a buying firm’s supplier gives a price advantage to the firm’s competitors that it doesn’t receive. Since the 1993 Brooke Group Supreme Court decision, RPA claims of primary-line injury depend on a finding that the defendant not only engaged in price discrimination between two geographic markets, but that they also had reasonable prospects of recouping losses by raising prices afterwards and thus harming consumers and competition through predatory pricing. This is the same standard required for predatory pricing claims under Section 2 of the Sherman Act.

In its 2006 Volvo decision, the Supreme Court indicated that the RPA’s treatment of secondary-line injuries should also be aligned with promoting competition rather than protecting competitors, and that promoting inter-brand competition (where sellers compete in the resale of a supplier’s product to the same customer base) is key when reading the RPA. With a conservative majority on the Supreme Court, future RPA battles that reach its doors are likely to further affirm this point of law while contradicting the Biden FTC’s outdated reading of the statute as being about protecting competitors. This view is inconsistent with the wider antitrust laws of which the RPA (as a Clayton Act amendment) is a part.

3. Republican support for the RPA is limited: Republican antitrust leadership hasn’t completely disavowed the RPA. Despite dissenting on the FTC’s recent complaints, Chair Ferguson opines that the law shouldn’t be left unenforced as it’s the legislature’s job to repeal it if it is indeed bad policy, as recommended by the 2007 bipartisan antitrust modernization commission. Ferguson further opined that the RPA could be used to protect consumers and competition by focusing on cases involving purchasers with substantial buying power, noting that price discrimination that favors dominant, asymmetric buyers can harm competition. (By the same token, price discrimination between dominant suppliers and their reseller buyers with dominant market power can also eliminate “double margins” and may lead to lower prices.)

New republican nominee to the FTC Mark Meador echoed similar points in a pro-RPA op-ed, where he argued that the RPA ought to be used in specific industries and markets that are susceptible to the ‘waterbed effect,’ that is, where an exclusive discount demanded from a supplier by one buyer allegedly incentivizes the supplier to raise prices for all other buyers- leading to higher prices and less competition across the board.

Notably, both these use cases involve competitive harm that would be captured under other antitrust theories such as exclusionary conduct or monopolization. It is thus likely that a republican-led FTC will tack on allegations of RPA violations to complaints under other antitrust statutes. Ferguson also acknowledges the importance of bringing cases backed by hard economic evidence, unlike the speculative harm theories and complaints of the Biden FTC. He notes that (despite his support for enforcing laws that are on the books) the agency should prioritize its limited resources by choosing cases that are both likely to succeed and promote competition. Despite Ferguson and Meador leaving the door open for future RPA complaints, enforcement is thus more likely to look like it did prior to the Biden administration.

So what of the two standing complaints that continue to wind through the court system, draining agency resources despite low prospects of success? Unfortunately, withdrawing them isn’t a simple matter. Until Mark Meador is confirmed, the FTC remains in a 2-2 deadlock along party lines. Once he’s confirmed, a commission vote to discontinue the litigation would likely succeed. This would free up agency resources for enforcement that better protects consumers, punishes those who harm them, and upholds the competitive process.

Antitrust & Labor

Last month, I wrote about how Lina Khan was wrong to paint her victory in the Kroger-Albertsons merger case as a win for integrating antitrust and labor policy concerns. Writing for Forbes, Mercatus senior scholar Alden Abbott argues that the Biden administration’s other efforts to integrate labor goals with antitrust lack a future.

Anticompetitive Trade Distortions

With new tariffs on Canada and China set to take effect, and tariffs on Mexico under delay, everything from gas at the pump to tomatoes and other fresh food could get more expensive. Writing for Forbes, Alden Abbott argues that trade policy should be viewed through the pro-competitive lens of avoiding market distortions that will do more harm than good for the US economy and our wallets. In an interview for CNN, senior scholar Christine McDaniel also criticized the short-sightedness of the Trump administration’s tariffs on key US allies and trade partners.

Net Neutrality

Alden appeared on the Freedom Works radio show to discuss the Supreme Court’s decision to get rid of the FCC’s net neutrality rule. He previously wrote about the decision and the prospects of similar rules being taken down for Forbes.

Merger Enforcement

Finally, Alden appeared on Yahoo Finance TV on January 30, arguing that DOJ may be in a strong position as it seeks to block Hewlett-Packard’s proposed acquisition of Juniper Networks.

That’s all for now. See you next month.

Satya Marar
Visiting Postgraduate Fellow (Innovation, Competition & Governance)
Mercatus Center at George Mason University
Project on Competition