What Is the Robinson-Patman Act?

What Is the Robinson-Patman Act?

Let me explain the Robinson-Patman Act to you directly: it's a federal law passed in 1936 to outlaw price discrimination. This act amends the 1914 Clayton Antitrust Act and aims to prevent what lawmakers saw as 'unfair' competition.

Understanding the Robinson-Patman Act

You need to know that the Robinson-Patman Act requires a business to sell its products at the same price regardless of who the buyer is. It was designed to stop large-volume buyers from getting an edge over small-volume buyers. This applies only to sales of tangible goods completed in a reasonably close timeframe, where the goods are similar in quality. It doesn't cover services like cell phone plans, cable TV, or real estate leases.

The law emerged to fight unfair trade practices that let chain stores buy goods cheaper than other retailers. It was the first legislation to tackle price discrimination head-on. Sellers must offer the same price terms to customers at the same trade level. The act includes criminal penalties for violations but exempts 'cooperative associations.'

Enforcement has been tough over the years due to the act's complexity and conflicts with normal business practices of price competition and other antitrust laws. In the late 1960s, federal enforcement stopped for a while under industry pressure, leaving it to private lawsuits, which are hard because the law is so complicated. There was an failed repeal attempt in the mid-1970s. The Federal Trade Commission brought it back briefly in the late 1980s, but enforcement has dropped again since the 1990s.

How the Robinson-Patman Act Works

Here's how it operates: the act prohibits sales that discriminate in price to equally situated distributors if it reduces competition or gives favored customers an unfair market advantage not tied to their efficiency. Price means net price, including all compensation like advertising or services. Sellers can't add extra goods or services to effectively lower the price. Injured parties or the US government can sue under the act.

Charges can arise from sales involving discrimination in price on at least two completed sales from the same seller to different buyers, where sales cross state lines, are contemporaneous, involve commodities of like grade and quality for use, consumption, or resale in the US, and the effect is to substantially lessen competition or tend to create a monopoly.

A Hypothetical Example of the Robinson-Patman Act

Consider this example to grasp it: the act requires that if Wholesale Company ABC sells two 32-inch flat-screen televisions of equal quality—one to Target on August 10 and one to Mom and Pop's Shop on August 11—both must pay $250 per TV. However, it doesn't force Wholesale Company ABC and Wholesale Company XYZ to both sell those TVs to all big-box retailers for $250.

Criticisms of the Robinson-Patman Act

Economists and legal scholars have widely criticized the Robinson-Patman Act. From the start, it's been seen as potentially anti-competitive and at odds with other antitrust laws, favoring some businesses over consumers, and open to abuse.

Since the act penalizes lower prices, it risks punishing beneficial price competition. It often involves business-to-business deals where lower prices come with larger volumes, so critics argue it protects higher-cost resellers who charge more, hurting consumers who want lower retail prices.

Charging different prices is common in all industries, and with limited antitrust resources, prosecutors must pick cases selectively, or rely on private suits. This setup invites abusive prosecutions or opportunistic lawsuits not truly aimed at societal economic welfare.