Price Discrimination Under the Robinson-Patman Act

The price discrimination provision is the odd member of the antitrust family. It was written to protect independent retailers and wholesalers from chain buyers with superior bargaining power, and it does so by restricting a seller's freedom to charge different customers different prices. That purpose sits at an angle to the rest of the antitrust laws, which are indifferent to the fate of any particular competitor, and the Supreme Court has responded by construing the statute consistently with broader antitrust policy wherever its text permits.

Scope, and the gaps in it

The section makes it unlawful for a person engaged in commerce, in the course of that commerce, to discriminate in price between different purchasers of commodities of like grade and quality, where the goods are sold for use, consumption or resale within the United States and the effect may be substantially to lessen competition or to injure, destroy or prevent competition with any person who grants or knowingly receives the benefit of the discrimination, or with the customers of either.

Several limits are built into that sentence. The subject is commodities, so a seller of services, advertising, credit, licenses or intangible rights is outside the provision entirely, and a lease is not a sale. At least one of the transactions must be in interstate commerce, and the jurisdictional test is narrower than the effects test used under the Sherman Act. A separate statute exempts purchases made by schools, colleges, libraries, churches and charitable hospitals for their own use, an exemption that has generated substantial litigation about what counts as own use in a hospital that also runs a retail pharmacy.

The elements a claimant must assemble

A claim requires two or more completed sales, reasonably close in time, by the same seller, to two different purchasers, of goods of like grade and quality, at different net prices. Each element does real work. Because completed sales are required, a refusal to deal, a quotation never accepted, or a single sale cannot support the claim. Because the sales must be reasonably contemporaneous, a seller may change its prices over time without creating liability.

Like grade and quality is judged by physical and functional characteristics. Goods that are physically identical remain of like grade and quality even if one carries the producer's brand and the other a customer's private label, though brand preference may bear on whether any competitive injury occurred. Price is measured net of all terms that affect the amount the buyer pays — freight, discounts, rebates, credit terms — so a uniform list price accompanied by differing rebate programs is a differential.

Three levels at which competition may be injured

Primary line injury is harm to the discriminating seller's own competitors, typically through geographically targeted low prices intended to drive a rival out. The Supreme Court has held that such a claim requires the same proof as a predatory pricing claim under the Sherman Act: pricing below an appropriate measure of cost, and a dangerous probability that the defendant would recoup its losses afterward. That holding effectively merged the two doctrines and made primary line cases as difficult as predatory pricing claims against a dominant firm.

Secondary line injury is harm to competition among the seller's purchasers — the favored buyer versus the disfavored one. Courts have long permitted an inference of injury from substantial price differences sustained over time between competing purchasers, but the Supreme Court has narrowed the inference by requiring that the favored and disfavored buyers actually compete for the same customers. Where dealers bid for discrete, non-overlapping projects, a differential does not injure competition between them because they were never competing for the same sale. Tertiary line injury reaches customers of the purchasers and is pleaded rarely.

Cost justification and meeting competition

Two complete defenses appear in the statute. The first permits differentials that make only due allowance for differences in the cost of manufacture, sale or delivery resulting from the differing methods or quantities in which the goods are sold or delivered. It is a defense of arithmetic, requiring a cost study that ties the differential to identified savings, and it fails more often than it succeeds because sellers rarely keep records in the form the defense demands.

The second, and the more useful, allows a seller to rebut a case by showing that its lower price was made in good faith to meet an equally low price of a competitor. Good faith is judged by what a reasonable and prudent person would conclude from the information available, and the seller need not verify the competing offer independently; it must, however, have acted defensively to meet rather than to beat the rival's price. A separate proviso permits price changes responding to changing conditions affecting the market for or the marketability of the goods — deterioration of perishables, obsolescence, distress sales under court process and going-out-of-business sales.

Brokerage, allowances and furnished services

The allowance provisions are strict in a way the price provision is not. Payments for advertising, handling or processing, and services such as display fixtures or demonstrators, must be made available to all competing customers on proportionally equal terms. A program that only a large buyer can practically use — a payment conditioned on a full-page newspaper advertisement, for instance — is not available on proportionally equal terms even if it is offered to everyone. Cost justification is unavailable here, so the seller's only route is to design a program with alternatives suited to smaller customers.

Buyer liability is narrower than sellers often assume. A buyer is liable only for knowingly inducing or receiving a discrimination that would be unlawful for the seller to grant, which means that if the seller has a good faith meeting-competition defense the buyer cannot be liable either. Aggressive negotiation is not inducement; representing a competing offer that does not exist is a different matter.

Who brings these cases

The Commission may proceed administratively and has done so unevenly over the statute's life, with long stretches of near-dormancy followed by renewed attention. Private claimants sue under the general treble damages provision, subject to the same requirements of antitrust injury and standing that govern other claims, and subject to the additional difficulty that the measure of loss must be proved rather than inferred.

Disfavored buyers in franchised and dealer networks are the most frequent claimants, which places these disputes alongside the vertical questions treated under exclusivity and tied sales and under resale pricing programs. Many of the same relationships are also governed by state statutes that regulate terminations and pricing between suppliers and their networks, so a dealer with a weak federal claim may have a stronger one under the state dealer protection statutes that operate independently of the antitrust laws.