Will The FTC Reinvigorate An Antiquated Law That Raises Prices?

The Federal Trade Commission and Congress are showing renewed interest in a Depression-era law, the Robinson-Patman Act, which discourages sales discounts. This is bad news for hard-strapped American consumers, who have had to cope with prices that have risen over 20% since February 2020. As such, reinvigorated enforcement of the RPA, a statute which was designed to protect less efficient small businesses from vigorous competition, appears hard to justify. The FTC may wish to consider the major downsides of RPA prosecutions before it takes action.

RPA Background And Key Provisions

The detailed 2007 Report of the Antitrust Modernization Commission, a bipartisan congressionally appointed group of antitrust experts charged with recommending possible legal reforms, recommended that Congress repeal the RPA in its entirety.

The AMC stated that Congress passed the act in 1936 to respond to the concern of small businesses—such as “mom and pop” grocery stores—that they were losing share to larger supermarkets and chain stores and in some cases being forced to leave the market. Small businesses complained that they could not obtain from suppliers the same price discounts that larger businesses demanded and received.

To address this concern, the RPA prohibits sellers from offering different prices to different purchasers of “commodities of like grade and quality” where the difference injures competition. Different discount levels, or lower prices, can be offered only where:

(1) the same discount is practically available to all purchasers;

(2) a lower price is justified by a lower per-unit cost of selling to the “favored” buyer;

(3) a lower price is offered in good faith to meet (but not beat) the price of a competitor; or

(4) a lower price is justified by changing conditions affecting the market or marketability of the goods, such as where goods are perishable or seasonal or the business is closing or in bankruptcy.

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

Private parties can recover triple damages for RPA violations. In addition, the federal antitrust agencies, the FTC and the Justice Department, may sue to block violations of the Act. The Justice Department has avoided RPA enforcement entirely, deferring to the FTC, which has brought no RPA cases since a 2000 settlement with McCormick, the spice company. Prior to that, its last RPA enforcement action had been a 1988 prosecution of several book publishers, which the court dismissed.

The Real-World Impact Of The RPA

The AMC concluded that the RPA has reduced discounting generally and therefore has likely caused consumers to pay higher prices than they otherwise would. This harm to consumer welfare is at odds with the Supreme Court’s teaching, since 1979, that the antitrust laws are designed to promote consumer welfare.

Moreover, the AMC found that the act increasingly appears to be ineffective even in protecting small businesses. Over time, many businesses have found ways to comply by, for example, differentiating products so they can sell somewhat-different goods to different purchasers at different prices. Such methods are likely to increase the seller’s costs—and thus increase costs to consumers—but do nothing to protect small businesses. In short, the act generally appears to have failed in achieving its main objective.

Indeed, a 2023 analysis of the RPA by me and Satya Marar explains that the “targets of RPA enforcement have mainly been the same small and medium-sized businesses” the act was designed to protect. The analysis cites a 1990 study by economists Frederick Scherer and David Ross, which found that during the heyday of FTC RPA enforcement, 1961-1974, only 36 (6.4%) of the firms cited in FTC complaints had $100 million or more in annual sales. Even more startling, over 60% of those companies had less than $5 million in sales. Smaller firms, of course, are less able to afford the costly legal advice needed to avoid running afoul of the RPA’s complicated legal requirements.

Key cases illustrate how private RPA enforcement may involve “strategic abuses of the antitrust laws,” as explained in a 2004 article by economics professors Preston McAfee and Nicholas Vakkur.

Specifically, “regional firms may utilize antitrust legislation in order to curtail aggressive price competition from larger national firms.” This is illustrated by the Utah Pie company’s successful use of RPA litigation to fend off price-cutting by larger out-of-state companies seeking to enter the Utah market. Economic data showed that the discounting would have driven down long-term prices, benefiting consumers.

RPA may also be used to “prevent a successful firm from competing vigorously.” McAfee and Vakur illustrate this by discussing the Brooke Group case, involving Liggett tobacco company’s RPA challenge to cigarette price discounts by its rival tobacco company, Brown & Williamson. The challenge was aimed at ending a price war between the rivals that was lowering prices to consumers. The Supreme Court eventually ruled against Liggett on the ground that Liggett had not met the legal test for showing predatory pricing.

Subsequent judicial decisions have made it a bit harder to win RPA cases by establishing a greater emphasis on showing “competitive injury” (related to consumer welfare) and by expanding the scope of RPA defenses. RPA is not, however, a legal dead letter. The statute remains on the books and businesses must still take it into account in their planning.

A 2015 empirical study of RPA judicial decisions by law professor Daniel Sokol “suggest[s] a weakening of Robinson-Patman over time,” but notes that “bad [RPA] Supreme Court precedent that has not been explicitly overruled still creates potential negative outcomes for consumers.” Accordingly, “firms must still incorporate some low level Robinson-Patman risk into their planning, which may be costly and potentially lead to less efficient outcomes that may hurt consumers.”

The FTC’s New Emphasis On RPA Enforcement

Prior to the Biden Administration, the FTC, focused on consumer welfare concerns, had in effect stopped enforcing the RPA. This changed dramatically with the installation of new FTC Chair Lina Khan in 2021. Khan’s arrival coincided with President Biden’s issuance of a July 2021 Executive Order on Competition, calling for far more aggressive enforcement of antitrust law.

Since then, the FTC and the Biden Administration have taken specific steps to spotlight the RPA:

· In releasing a June 2022 FTC policy statement on drug-related rebates and fees, Khan stressed that RPA prohibits illicit “compensation [of] anyone who owes a duty to another party in connection with the purchase or sale of goods.”

· In a September 2022 speech entitled “Returning to Fairness,” new FTC Commissioner Alvaro Bedoya argued that the FTC should reemphasis fairness and apply the RPA to support small businesses.

· In January 2023, Politico reported an FTC investigation into discriminatory pricing by Coke and Pepsi in the soft-drink market.

· In March 2023, Chair Khan indicated that the FTC would bring an RPA lawsuit “in short order.”

· The FTC revealed publicly in October 2023 that it is investigating possible RPA violations by wine and liquor distributor Southern Glazer’s.

· In April 2024, Commissioner Bedoya argued for revitalized RPA enforcement at the American Bar Association Antitrust Section’s Spring Meeting.

The Next Steps

There is good reason to believe that the FTC may publicly announce an RPA enforcement action at any time. First, though, it should carefully weigh the downsides.

While perhaps cloaked in “fairness,” a major RPA lawsuit could discourage business discounting at a time of public concern over excessively high prices.

Relatedly, an RPA lawsuit that tends to discourage price reductions is in tension with the White House’s March 2024 launch of a new interagency task force on unfair and illegal pricing, which specifically seeks to “lower prices.” As Marar recently pointed out, renewed RPA enforcement “not only fails to address the problem” of higher prices, it “worsens it.”

Also, two newly arrived Republican FTC commissioners (who already have dissented from the FTC’s issuance of a controversial new rule to ban non-compete clauses in employment contracts) may decline to support a controversial RPA lawsuit. A split FTC vote on authorizing the first RPA lawsuit in decades could prove problematic to reviewing judges.

Most generally, litigating an RPA case that is at odds with scholarly opinion and a prior bipartisan consensus against enforcing the statute could threaten the FTC’s reputation. It would also further strain the FTC’s resources at a time when it already faces a major legal challenge to its rulemaking authority and pursues path-breaking antitrust cases against Amazon and Facebook.

All things considered, the FTC would be well advised to avoid “reviving” the RPA. At the very least, before acting, it would benefit by carefully considering the consequences for its institutional reputation and for consumer welfare.