Will the FTC Reinvigorate an Antiquated Law that Raises Prices?

By: Alden Abbott (Truth On The Market)

The Federal Trade Commission (FTC) and Congress are showing renewed interest in the Robinson-Patman Act, a Great Depression-era law that discourages sales discounts. This development could be detrimental to American consumers, who have faced over a 20% increase in prices since February 2020. Reviving enforcement of the Robinson-Patman Act (RPA), a statute originally designed to protect less-efficient small businesses from robust competition, seems difficult to justify. The FTC should carefully weigh the significant downsides of RPA prosecutions before taking action.

RPA Background and Key Provisions

The 2007 Report of the Antitrust Modernization Commission (AMC), a bipartisan group of antitrust experts appointed by Congress to recommend legal reforms, advised that Congress repeal the RPA entirely.

The AMC explained that Congress enacted the RPA in 1936 to address concerns of small businesses, like “mom and pop” grocery stores, which were losing market share to larger supermarkets and chain stores and sometimes being forced out of the market. These small businesses complained that they couldn’t secure the same price discounts from suppliers that larger businesses received.

To tackle this issue, the RPA prohibits sellers from offering different prices to different purchasers of “commodities of like grade and quality” if the price difference harms competition. Different discount levels or lower prices can be offered only if:

• The same discount is practically available to all purchasers;
• A lower price is justified by a lower per-unit cost of selling to the “favored” buyer;
• A lower price is offered in good faith to meet (but not beat) a competitor’s price; or
• A lower price is justified by changing conditions affecting the market or marketability of the goods, such as perishability, seasonality, business closure, or bankruptcy.

Other RPA provisions promote the goal of equal pricing by, for instance, restricting the use of commissions and promotional programs.

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