Skip navigation. A seller charging competing buyers different prices for the same "commodity" or discriminating in the provision of "allowances" — compensation for advertising and other services — may be violating the Robinson-Patman Act.
This kind of price discrimination may give favored customers an edge in the market that has nothing to do with their superior efficiency. Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller's attempts to meet a competitor's offering.
The Supreme Court has ruled that price discrimination claims under the Robinson-Patman Act should be evaluated consistent with broader antitrust policies.
In practice, Robinson-Patman claims must meet several specific legal tests:. Competitive injury may occur in one of two ways.
For example, it may be illegal for a manufacturer to sell below cost in a local market over a sustained period. Businesses may also be concerned about "secondary line" violations, which occur when favored customers of a supplier are given a price advantage over competing customers.
Here, the injury is at the buyer's level. The necessary harm to competition at the buyer level can be inferred from the existence of significant price discrimination over time. Courts may be starting to limit this inference to situations in which either the buyer or the seller has market power, on the theory that, for example, lasting competitive harm is unlikely if alternative sources of supply are available.
There are two legal defenses to these types of alleged Robinson-Patman violations: 1 the price difference is justified by different costs in manufacture, sale, or delivery e. The Robinson-Patman Act also forbids certain discriminatory allowances or services furnished or paid to customers. However, price discrimination can sometimes be a concern, for example if it has exploitative, distortionary or exclusionary effects.
In recent years, the scope for near perfect price discrimination in the digital economy appears to have grown, and there has been debate as to whether the rules and case law that apply to distortionary effects of price discrimination have an economic basis.
In November , the OECD held a roundtable to discuss how jurisdictions in which exploitative or distortionary price discrimination is an offence should respond to these developments. And should we worry? Summary of contributions. Costa Rica. Moreover, the Favored Company makes direct sales to retailers at prices that cannot be matched by distributors that do not purchase their finished widgets from the Favored Company but must instead purchase them at higher cost from direct competitors of the Favored Company, such as the Disfavored Company.
Many of these distributors find themselves run out of the markets in which they formally conducted a thriving business — the markets for wholesale deliveries of finished widgets to retailers for final point-of-sale delivery to end users.
On these facts, the Disfavored Company, other disfavored manufacturers of finished widgets, and affected wholesalers can all sue the Price-Discriminating Supplier for unlawful price discrimination under federal antitrust law, since the supplier has practiced price discrimination charged differing prices to different customers for the same or similar products sold at around the same time in a manner that has undermined competition in downstream markets.
Each disfavored customer must prove that the price discrimination has been persistent, and that it or its customers compete directly against the a favored customer. In addition, the Disfavored Company and the other harmed businesses can sue the Favored Company for inducing unlawful price discrimination, if it has used coercion or inducements to prevail on the Price-Discriminating Supplier to offer it discriminatory prices that it knows will allow it to undersell and thereby undermine competition in its markets.
This is the stuff of unlawful price discrimination. A Prerequisite to Proving Unlawful Price Discrimination: Price discrimination rises to the level of an antitrust offense only when it threatens competitive conditions in at least one affected market. See Federal Trade Commission v.
Morton Salt Co. There are three different kinds of harm to competition that can arise because of price discrimination, and the first kind, which is called primary-line injury, is so difficult to prove under the modern standards that it likely should be excluded from the list.
But since it remains a recognized category, I will include it in my list, but also explain how it has been rendered toothless by the modern rule on predatory pricing.
Primary-line cases arise when the price-discriminating seller is a dominant firm that sells its products for an extended period at prices that are lower than its costs, thereby imposing intolerable pressure on its direct competitors, who cannot remain in business if they must match these prices, and who in consequence either stop competing or agree to join a price-fixing cartel organized by the price-discriminating seller.
Proving these points is not a practical endeavor, at least in any case that I have ever examined, so that primary-line harm as a practical matter can no longer be proven, at least in most cases. A simple hypothetical example makes this point all too clearly. Suppose that Samsung started to sell its smartphones at a penny per phone to all customers all over the world. The rival makers of smartphones would find that they could not compete any longer against Samsung. While some customers might continue to buy smartphones from other makers at dramatically higher prices, most would begin to purchase their smartphones only from Samsung.
Yet even this spectacular development would not suffice to establish unlawful price discrimination or predatory pricing under the modern federal doctrines. Rather, Apple and the other excluded competitors must also show that Samsung, after running its rivals out of business, planned to charge unreasonably high prices for its smartphones i. Alternatively, Apple and the others might be able to prevail by proving that Samsung planned to browbeat them into submission with its price of a penny per phone until they agreed to participate in a price-fixing or market-allocation cartel orchestrated by Samsung.
Needless to say, the above standard is just about impossible to meet — a point that the antitrust courts likely understood when they established it. The standard, which is the modern doctrine on predatory pricing, was first used in predatory pricing cases brought under Section 2 of the Sherman Act and later adopted for primary-line injury cases brought under the Robinson-Patman Act.
Notably, California antitrust law has rejected this doctrine and still allows claims for predatory pricing when the predatory firm sells its goods below cost in order to eliminate rivals.
See Bay Guardian Co. While a claimant still can prevail on this kind of claim under California law, a federal claim along these lines under the Robinson-Patman Act or under Section 2 of the Sherman Act is likely doomed from the start. Don Quixote stood a better chance of vanquishing the windmills of Spain than does a firm of proving a predatory pricing or primary-line harm under the modern federal doctrine.
It might thus be said that, under federal law, there are three kinds of harm to competition recognized in price discrimination cases, and one of them exists in theory only! In contrast, secondary-line and tertiary-line harm to competition can give rise to actionable claims for unlawful price discrimination. This offense can still be shown upon presentation of sufficient proofs. Typically, the claim arises when seller offers market-beating prices to a dominant customer that has demanded that the seller do so.
Even so, a favored customer that wrongly induces price discrimination might remain responsible for inducing several sellers to give it preferred prices, even if each seller might be excused on the ground that it merely matched the prices offered by the others. The above points constitute the necessary essentials of price discrimination.
If this article has already proven more dry and less interesting than you first expected, you can safely disregard the remainder. But if you wish to have a deeper understanding of these points, I offer the following discussion below. Stated with precision, the federal rule against price discrimination is set forth in the Robinson-Patman Act at 15 U. See 15 U. Michael Foods, Inc. See also Energex Lighting Industries, Inc. North American Philips Lighting Corp.
American Appliance Mfg. Even then, a seller can avoid liability for unlawful price discrimination by showing that it has offered the lower prices to a favored customer for a pro-competitive purpose that on balance justifies the harm caused to competitive processes in affected markets; or that it has offered the lower prices in order to match comparable prices offered by a rival seller; or that it has done so because the favored customer buys such large quantities of its products that it enjoys economies of scale on these sales.
See also Brooke Grp. The availability of statutory defenses permitting price discrimination when it is based on differences in costs, changing conditions affecting the market for or the marketability of the goods concerned, or conduct undertaken in good faith to meet an equally low price of a competitor, confirms that Congress did not intend to outlaw price differences that result from or further the forces of competition.
Thus, the Robinson—Patman Act should be construed consistently with broader policies of the antitrust laws. To cut to the chase, either the seller means to run its rivals out of business by its prohibitively lower prices, after which it will establish a monopoly or force its rivals to join a price-fixing cartel a scenario that is prohibitively difficult to prove ; or the seller has made discriminatory sales at lower prices to its largest customer, which is typically a dominant firm, giving it an insuperable advantage over its own rivals in downstream product markets, and the price-differential cannot be justified by economies of scale or other pro-competitive responses to market conditions e.
This is the stuff of actionable price discrimination. In the modern era it is usually a difficult claim to plead and prove. The elements of the offense can be listed as follows: There must be 1 commercial price discrimination , — i. Under specific circumstances, it is unlawful to induce unlawful price discrimination. The rule against inducing price discrimination is set forth in the Robinson-Patman Act at 15 U.
According to the Supreme Court, this rule does not prevent a buyer from negotiating the most favorable possible prices for its supplies, unless it obtains these prices precisely in order to prevent its competitors from competing against it in one or more affected markets. Thus a commercial customer commits an antitrust offense if it induces its supplier to give discriminatory prices that the customer correctly anticipates will disrupt competitive processes in secondary or tertiary markets, nor can the customer knowingly accept such prices from its supplier.
See also Automatic Canteen Co. It limits itself to cases of knowing receipt of such prices. This rule is aimed at dominant buyers that would otherwise prevail on their suppliers to give them market-beating prices on a wide range of products, leaving their competitors unable to compete with them in an ever larger number of markets. But the rule also illustrates the difficulty of enforcing the price discrimination statutes in furtherance of the stated aim of antitrust law, which is to promote competition on the merits and prevent anti-competitive cartels and monopolies from suffocating or sabotaging competition.
After all, a business that seeks market-beating prices would seem to be engaged in the very kind of pro-competitive activity that the antitrust laws are supposed to protect and champion.
But the anti-competitive danger arises when a small number of dominant buyers in each market prevail on their suppliers to give them price advantages that are ruinous to any would-be rival, so that over time the dominant buyer in each market can exclude most or all of its rivals. Even so, this rule has troubling implications, as it could be used to discourage firms from using commercial acumen to obtain low prices for necessary products.
The rule against inducement should therefore be invoked only when the price discrimination is blatant, cannot be justified by a pro-competitive rationale, and clearly undermines competition on the merits by allowing the dominant buyer to undersell its rivals until they are ruined.
Although it is problematic see above , the rule against inducing price discrimination is intended to further a key if not the principal aim of the law on price discrimination, which is to protect smaller competitors from the excessive market power of a dominant purchaser. Otherwise, the dominant purchaser could use its purchasing power to oblige suppliers to give it better prices that it could then use to undersell and thereby ruin its direct competitors. The disfavored customers would find themselves unable to compete on price against the favored customer, and over time they would go out of business or accept anti-competitive terms of trade proposed by the dominant customer.
See F. Fred Meyer, Inc. Alza Corp. Here is a full statement of the doctrine from a recent decision rendered by a United States Court of Appeal:. Feesers, Inc. See Bel Air Markets v. Foremost Dairies, Inc.
See generally Volvo Trucks , supra , U. Primary-line cases entail conduct — most conspicuously, predatory pricing — that injures competition at the level of the discriminating seller and its direct competitors.
Inman Oil Co. See, e.
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