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Introduction
This law was passed to eliminate price discrimination. It prohibits traders from selling the same types of goods to different sets of consumers at different prices unless certain conditions arise. It was designed to protect small retailers from undue competition from large retail chains that could use their buying power to get price discounts. The Robinson – Patman Act is a statute that was passed in 1936 (15 USCA § 13(a-f))
This topic is important to me because I plan on starting my own business in the future. It will be a small enterprise, so this may put me at the mercy of large retail chains. I need to familiarize myself with the concept to use that knowledge in my practical transactions.
The paper will start with a written statement of what the legislation entails; some definitions will be given at the end of this section. This will be followed by a look at the purpose or the goal behind the Act and a subsequent case law analysis will be done. These latter steps will be critical in establishing how the law has been applied. That goal will be summarized through a look at the social impact of the legislation.
Legislation
Robinson Patman Act 15 USCA § 13
Price selection of customers
It is unlawful to directly or indirectly discriminate on price when selling goods of the same grade and quality to different consumers, where the products are sold for consumption or resale in the United States, and the effect of that discrimination is to build a monopoly or reduce competition in whichever line of commerce or prevent or destroy competition with the person who gains from the discrimination. This section is applicable provided that no such thing exists to necessitate a price differential such as delivery costs, selling costs, and delivery costs that result from the quantities and methods used to sell the commodities. Additionally, provided that the FTC (Federal Trade Commission) does not place quantity limits after investigating the concerned parties, and revises these limits as it finds necessary depending on the class and type of commodity, or when the buyers are so few in number as to cause differentials discriminatory or monopolistic. The latter parties shall not enact quantity-based price differentials that exceed the set limits. Furthermore, the above is applicable provided that nothing shall hamper traders from choosing their buyers’ invalid transactions, and no restrictions of trade arise. Lastly, these conditions are applicable provided that nothing exists to impede price alterations in response to modification in the marketability of the commodities; like perishable commodities, obsolescence, good faith sales in discontinuance of business, or distress sales for those undergoing court processes.
Rebutting prima-facie case
When proof has been made during the hearing of a complaint on price discrimination, the burden of disproving the prima facie is placed upon the person who has been charged with the violation. Unless it can be justified, the FTC has the authority to terminate the discrimination provided that; nothing will prevent the trader who is rebutting the prima facie from showing that his or her lower price was done in good faith in order to meet a competitor’s low price.
Acceptance or payment of brokerage, commission, or different compensation
It shall be deemed as unlawful if a seller accepts something of value such as brokerage, compensation or commission except for payment for the services offered in regard to the procurement or sale of merchandise, wares, or goods directly or issuance of compensation to a representative, agent or intermediary when the latter party is acting on behalf of another party.
Services payment, sale, or processing facilities
It shall be deemed unlawful for a person to contact or pay a customer anything of value in the course of trade in consideration of the sale, putting up for sale, processing, handling, furnishing facilities, or offering services, unless such considerations are available to other customers.
Handling or processing facilities and furnishing services
A trader who discriminates against a customer who plans to resale the commodity, on the basis of furnishing, contribution to furnishing or contracting to furnish facilities or services related to the sale, processing, handling, putting up for sale, and sale of a commodity bought will be committing an unlawful act unless the terms are accorded to all other buyers.
Knowingly receiving or inducing discriminatory prices
Any person involved in commerce will be committing an unlawful act by knowingly receiving or inducing price discriminations.
Definition of terms
Discrimination: The Robinson-Patman Act defines price discrimination as the act of charging different prices to purchases. Bad intent is not a prerequisite.
Like grade and quality: This refers to the physical traits of the commodities under question. If the products have similar chemical and physical composition then the law will require identical pricing
Injuring competition: Price discrimination is regarded as unlawful if it can be shown that it will cause an injury to the buyer’s competition, or the seller’s competition.
Rationale
The Robinson-Patman Act was passed in the 1930s when grocery chains had started emerging. Independent stores wanted Congress to protect them against the use of price discounts to drive out the small retailers from the market. Therefore, this Act was passed in order to deter market abuses of large buyers. It was seen as a complement to the Sherman Act after Congress realized that the Clayton Act did not address price discrimination based on quantity. This is the reason why the legislation was passed. It was designed to level the playing field between traders regardless of whether they bought goods in bulk or smaller quantities. By imposing an even-price requirement, small and large sellers would all acquire merchandise at the same prices. No one would have a greater advantage due to the buying price of their merchandise. It should be noted that price differentials are permitted in certain circumstances, but when based on quantity then this is expressly prohibited. The Act is designed to safeguard competition by protecting competitors in a buyer’s line and competitors in the seller’s line, which represent secondary and primary line competition respectively. Therefore, this Act is only applicable when sales have been made at different prices to more than one buyer. As a result, the Act is intended to curb monopolies created from price differentials.
Case Analysis
Feesers, Inc. v. Michael Foods, Inc., 96 F. 477 (M.D. Pa 3rd Cir. 2009)
Facts
The case involved Michael Foods- a food producer, Feesers Inc- a food distributor located in Pennsylvania, and Sodexho – a food service company. Feesers claimed that its supplier-Michael Foods- was giving Sodexho favorable prices that accorded it an unfair advantage in getting contracts from providers of food services. Feesers Inc., therefore, claimed that discriminatory pricing was going on. It sought a court order that would prevent Michael Foods from selling favorably to its competitor Sodexho. Initially, the court ruled in favor of the plaintiff i.e. Feesers. The court decided that Michael Foods had taken part in price discrimination, and was ordered to stop it. In response, Michael Foods decided to terminate its partnership with Feesers, but gave them the option of selling to the food supplies at the original high price if Feesers consented to a stay of the concerned injunction. Feesers then filed a motion for contempt by saying that Michael Foods was not observing the injunction by terminating its sales to the company.
Issue
The major issue in the appellate case was whether the Robinson Patman Act was applicable in a case where the trader was exercising his right to select a customer. In other words, it needed to determine whether price discrimination was still ongoing when Michael Foods gave Feesers conditions for future transactions with Feesers.
Law
The Robinson Patman Act Section 2 (a) was applicable. It states that liability can arise when discrimination in price occurs, and two consummate sales have been authorized by the same seller to different buyers who are buying goods of the same grade and quality and has the effect of reducing competition substantially or creating a monopoly.
Analysis
It was established that the court had a mandate over the matter because Michael Foods was violating the terms of its injunction. It further held that Michael Foods was prohibited from refusing to supply its produce to Feesers on the same price basis as Sodexho. This was a case of price discrimination since the supplier still wanted to provide Feesers with potatoes and eggs at the historically higher prices. In any case that relies on the Robinson Patman Act, the parties involved need to prove that there was a destruction of competition. Since the two buyers were in the food industry, then they were subject to the law.
Conclusion
The case illustrates that price discrimination is valid even when the defendant chooses to terminate its contract with the buyer, and even when the two sellers come from different industries.
Volvo Trucks North America, Inc. v. Reeder Simco GMC, Inc., 04905 S.Ct. 43971 (2006)
Facts
Reeder Inc. was a truck dealer that specialized in the Volvo brand. They would get bids from their clients and then turn the specifications over to Volvo to get wholesale prices on their products. Reeder believed that Volvo wanted to reduce its distributors so it used discriminatory pricing to give discounts, and thus intended on putting the firm out of business.
Issue
It was necessary to determine whether there was any threat to competition in this situation.
Law
The Robinson-Patman Act was applicable in this case. Section 2(a) states that there ought to be two or more simultaneous purchases of commodities that have the same quality and grade. The legislation also requires the buying parties to compete with one another.
Analysis
The Supreme Court reversed the ruling made by the trial court. It held that the evidence shown by Volvo was not sufficient enough to illustrate destruction of competition. The Court was demonstrating that it is not enough to simply show differential pricing; it must be done to buyers who are in the same market or to parties who sell to the same clients (or clients in similar geographic regions) if it is a secondary line case. A plaintiff needs to demonstrate that there was some diversion of profits from that entity to make a competitive injury claim. This court illustrated that the Robinson Patman Act still applied to situations that involved differential pricing through competitive bids. If Reeder had statistical evidence that other distributors were favored consistently over this organization within a long period, then it may have won.
Conclusion
Plaintiffs must demonstrate that there was an injury to the competition when making price discriminatory claims.
Conclusion
Social Impact
Only a few litigants rely on the Robinson Patman Act to argue their cases. This is because the act is characterized by very complicated language. One only has to read section 2(a) of the Act to understand why many hold this opinion. Furthermore, the Sherman Act still regulates monopolistic tendencies and does so in much simpler terminologies.
Some economists also claim that the Act defies basic economic principles. They claim that it is quite difficult to sustain discriminatory pricing long enough to eliminate or minimize competition.
Personal Opinion
I still think that this Act is quite helpful in curbing the threat of monopolies. The imperative is placed upon the plaintiff to look for sufficient evidence that can support claims made on injury to competition. I believe that if the Act is used in conjunction with case law, then it can prove to be very useful in protecting smaller retailers in the market. Furthermore, its very existence is proof of the government’s commitment to predatory acts in the marketplace.
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