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2014
“Antitrust's Least Glorious Hour”: The Robinson-Patman Act “Antitrust's Least Glorious Hour”: The Robinson-Patman Act
Roger D. Blair
University of Florida
, roger.blair@warrington.u=.edu
Christina DePasquale
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Recommended Citation Recommended Citation
Roger D. Blair & Christina DePasquale,
“Antitrust’s Least Glorious Hour”: The Robinson-Patman Act
, 57
J.L. & Econ. 201 (2014)
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S201
[ Journal of Law and Economics, vol. 57 (February 2014)]
© 2014 by e University of Chicago. All rights reserved. 0022-2186/2014/5701-0034$10.00
“Antitrust’s Least Glorious Hour”:
e Robinson-Patman Act
Roger D. BlairUniversity of Florida
Christina DePasqualeEmory University
Abstract
In e Antitrust Paradox, Robert Bork explored many of antitrust’s misadven-
tures. Specically, Bork severely criticized the Robinson-Patman Act, which he
characterized as “antitrust’s least glorious hour.” In this paper, we explore Bork’s
criticism of the Robinson-Patman Act along with those of other legal scholars
and economists. We analyze the central prohibitions of the act and explore their
competitive implications. We also show that the act’s unfortunate prohibitions
have been muted by the antitrust agencies’ benign neglect and three recent Su-
preme Court decisions.
1. Introduction
In e Antitrust Paradox, Robert Bork explored many of antitrust’s misadven-
tures. At the time, not everyone agreed with his assessment of merger policy and
the whole array of vertical restraints. When it came to the Robinson-Patman Act,
however, Bork was neither rst nor alone in his condemnation. He severely crit-
icized the Robinson-Patman Act, which he characterized as “antitrust’s least glo-
rious hour” (Bork 1978, p. 382). He referred to the act as “the misshapen progeny
of intolerable drasmanship coupled to wholly mistaken economic theory” (Bork
1978, p. 382).
1
Bork found this ill-advised statute to be beyond repair and called
for its repeal.
In this paper, we explore Bork’s criticism of the Robinson-Patman Act along
with those of other legal scholars and economists. We analyze the central prohi-
bitions of the act and explore their competitive implications. We also show that
Without blaming them for what follows, we thank Dennis Carlton, Kenneth Elzinga, Herbert
Hovenkamp, Keith Hylton, and Daniel Sokol for helpful advice. We also thank the participants in
the symposium e Inuence of Robert H. Bork on Antitrust Law: A Retrospective, which was held
at the Yale Law School (September 27–28, 2013), for their comments. Finally, we thank an anony-
mous referee for constructive suggestions. We are grateful for nancial support from our respective
institutions.
1
Although other critics may have been less colorful, Bork acknowledges that there were plenty of
them. He contends that “no other antitrust statute has been subject to so steady a barrage of hostile
commentary as the Robinson-Patman Act” (Bork 1978, p. 385).
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S202 The Journal of LAW & ECONOMICS
the act’s unfortunate prohibitions have been muted by the antitrust agencies’ be-
nign neglect and three recent Supreme Court decisions.
In Section 2, we examine the Robinson-Patman Act’s concern with protecting
competitors rather than competition, which puts it at variance with the central
focus of antitrust policy. In Section 3, we explore Bork’s views on the Robinson-
Patman Act along with those of other commentators. In Section 4, we turn our
attention to primary-line cases. Here we explain how the Supreme Court has now
muted the eects of earlier decisions. In Section 5, we examine the secondary-line
cases and explain the still-present mischief of earlier decisions. In Section 6, we
explore future prospects for the Robinson-Patman Act. Finally, we close with
some concluding remarks in Section 7.
2. The Robinson-Patman Act
In 1914, the Clayton Antitrust Act (15 U.S.C. sec. 12) was enacted in an eort
to provide some specicity that the Sherman Act’s broad language lacked. In the
wake of Standard Oil Company v. United States (221 U.S. 1 [1911])
2
and United
States v. American Tobacco Company (221 U.S. 106 [1911]),
3
section 2 of the
Clayton Act took dead aim at predatory pricing. Rightly or wrongly, Congress en-
visioned large multimarket rms that could use predatory prices in isolated mar-
kets to bankrupt single-market rivals as a means of extending monopoly power
into those markets. By the 1930s, however, the aim was protectionism. Chain
stores began to make life dicult for small, inecient, locally owned stores. e
source of this “problem” of low prices allegedly was the purchasing power of the
chains. In 1936, the Robinson-Patman Act (15 U.S.C. sec. 13) amended section
2 of the Clayton Act in an eort to protect mom-and-pop stores from the large
retail chains. Such protectionism was ill-advised since consumers obviously pre-
ferred the lower prices of the more ecient chains to the higher prices oered by
smaller, owner-operated stores. (e premise of the act is that free markets were
rife with unfair and anticompetitive practices
4
that threatened competition, small
business, and consumers [Bork 1978].)
5
As amended by the Robinson-Patman Act, section 2a of the Clayton Act pro-
vides that
2
On the basis of a searching review and analysis of the trial record, McGee (1958) argues that
predatory pricing did not occur.
3
Burns (1986) argues that sustained bouts of very aggressive, perhaps predatory, pricing were
used by American Tobacco to soen up small rivals and reduce their acquisition cost.
4
Bork observes that superior eciency is not popular with those who must compete against it,
and it never seems well understood by lawmakers. On the origins of Robinson-Patman, see Sokol
(2009).
5
Ironically, the act largely failed to protect small businesses. Scherer and Ross (1990) report that,
of the 564 companies named in Federal Trade Commission complaints about the Robinson-Patman
Act violations between 1961 and 1974, only 36, or 6.4 percent, had annual sales of $100 million or
more at the time of complaint. More than 60 percent had sales below $5 million. us, the brunt of
the commission’s eort fell upon the same businesses that Congress sought to protect. See Hoven-
kamp (2011).
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Robinson-Patman Act S203
[i]t shall be unlawful for any person engaged in commerce, in the course of such com-
merce, either directly or indirectly, to discriminate in price between dierent purchasers
of commodities of like grade and quality, where either or any of the purchases involved
in such discrimination are in commerce, where such commodities are sold for use, con-
sumption, or resale within the United States and where the eect of such discrimina-
tion may be substantially to lessen competition or tend to create a monopoly in any line
of commerce, or to injure, destroy or prevent competition with any person who either
grants or knowingly receives the benets of such discrimination, or with customers of
either of them. (15 U.S.C. sec. 13a)
6
us, the Robinson-Patman Act protects competitors of the discriminating
seller from what is known as primary-line injury. In addition, the act extends
protection to disfavored customers from what is known as secondary-line injury.
ere are two armative defenses to charges of unlawful price dierences. First,
in section 2a, there is a cost justication defense. If the seller can show that any
price dierence is equal to the dierence in the cost of making the sales, then the
price dierence is lawful. Second, there is a meeting competition defense in sec-
tion 2b. If the lower price is oered to meet (but not beat) an equally low price of
a competitor, the resulting price dierence is lawful.
3. Bork’s Central Concern
e theme of e Antitrust Paradox is that antitrust policy should promote
competition in order to promote consumer welfare, but its implementation has
oen been at odds with that goal. e Robinson-Patman Act, however, is dier-
ent. It was intended to protect competitors instead of competition. Rather than
enhance consumer welfare, therefore, the act harms consumers. is deliberate
inconsistency with the broader goals of antitrust policy cannot be rationalized.
Although the Robinson-Patman Act speaks of price discrimination, it actually
challenges price dierences. Actual price discrimination occurs when there are
diering price-to-marginal-cost ratios across customers (Stigler 1987, p. 210), but
this is not what constitutes price discrimination under the Robinson-Patman Act.
e act requires only dierent prices. Bork argues that price discrimination will
seldom if ever be anticompetitive. Consequently, antitrust challenges to price dis-
crimination are misguided. He also points out that price dierences are not nec-
essarily discriminatory but that the cost justication defense is not up to the task
of identifying the instances of price discrimination. Persistent price dierentials
are apt to reect cost dierences across customers. ese dierences may be due
to service costs, selling costs, purchase volumes, wholesale functions performed
by the buyer, and the like (Bork 1978).
7
To the extent that the Robinson-Patman
Act inhibits such price dierentials, more ecient rms will be denied a lower
price, which in turn harms consumers. Contemporary antitrust scholars are in
6
Bork (1978, p. 383), observes that although the statute speaks of price discrimination, it is settled
that the act merely means price dierence.
7
Bork notes that if the cost justication defense actually worked, these price dierentials would
be lawful.
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S204 The Journal of LAW & ECONOMICS
general agreement with Bork’s assessment (Sokol 2014).
8
For example, Hoven-
kamp (2011) observes that a necessary result of the act’s protection of less e-
cient rms is higher consumer prices. Similarly, Carlton and Perlo (2005) ex-
plain that the Robinson-Patman Act has denied the benets of scale economies to
buyers and thereby leads to higher consumer prices.
Volume discounts provide an excellent example of this unfortunate outcome.
Bork explained that volume discounts tend to be procompetitive: “Some discount
schedules can be oered with reasonable condence that certain identiable large
buyers will take advantage of [them] and this enables the seller to plan the vol-
ume of his output giving him the possibility of most ecient production for that
volume” (Bork 1978, p. 393).
is, of course, allows the seller to oer lower prices that ultimately benet
consumers. As the Antitrust Modernization Commission (2007) pointed out,
however, a principal objective of the Robinson-Patman Act was to impede vol-
ume discounts.
Volume discounts are not the only victims of the act. In many business envi-
ronments, bargaining over price is routine. List prices are not transaction prices.
Instead, list prices provide a starting point for negotiations. e bargaining in-
volves discounts, rebates, credit terms, incentives, and other inducements. As
Dewey (1959) observes, the Robinson-Patman Act outlaws bargaining, since the
resulting transaction prices will inevitably vary across customers.
e act also fails to recognize that price discrimination can serve as a market-
adjustment mechanism and as a way of competing in oligopolistic markets. Bork,
of course, did recognize this and pointed out that price discriminations that are
“characteristic of active markets are favorable to consumer welfare because they
are part of the mechanism by which markets are enabled more rapidly to respond
to and balance the forces of supply and demand” (Bork 1978, p. 394). In oligop-
olistic markets, price discrimination may be a way of pursuing marginal sales.
To the extent that either overt or tacit collusion is present in the market, price
discrimination can undermine the collusive price structure (Kaysen and Turner
1959; Hovenkamp 2011). e results are lower prices and enhanced consumer
welfare.
9
Because of these concerns, Bork recommended outright repeal, rather than re-
vision, of the Robinson-Patman Act. So far, Congress has not seen t to repeal
the act, but recent decisions of the Supreme Court have done much to under-
mine its original intent. It is doubtful that Bork would have applauded this quasi-
legislative action by the judiciary.
8
Sokol (2014) provides an analysis of Bork and vertical restraints, including Robinson- Patman.
9
In truth, the welfare eects of price discrimination are ambiguous. See, for example, Schmalen-
see (1981), Varian (1985), Katz (1987), and Schwartz (1990). To the extent that scarce resources are
consumed in eorts to engage in price discrimination, social welfare is reduced because such invest-
ments are not socially productive. e Robinson-Patman Act, however, was never concerned with
consumer welfare. Instead, its aim in the rst instance was to protect competitors from predatory
pricing. Subsequently, it also aimed at the cost advantages enjoyed by large chain retailers.
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