The Industrial Buyer and the Robinson-Patman Act

The Robinson-Patman Act (referred to as the Act) prohibits discrimination in price for commodities of like grade and quality.[1] It was intended to strengthen the Clayton Act's prohibitions on price fixing. Instead, the Act has inhibited legitimate price reductions among businesses.[2] The Act, as it is now applied, should not prevent industrial sellers from granting (or buyers from receiving) discounts, or prevent competitive pricing. Antitrust lawyers generally agree that the Act is one of the most complex, least understood, and confusing of the antitrust laws. The focus of this article is the application of the Act to goods purchased for use in producing other products - namely, industrial purchasing. The first section explains the Act. It begins with an overview of the Act and a historical perspective of the Act as antitrust law. Next, it summarizes how key aspects of the Act have been interpreted by the courts. Finally, Federal Trade Commission (FTC) enforcement is explained. The second section of the article summarizes some industrial purchasing cases to provide further insight into applicability of the Act. The third section contains an abbreviated business literature review. The concluding section focuses on a summary of the authors' findings to help guide pricing actions on the part of the buyer, as well as policy development by purchasing management THE ESSENTIALS OF THE ACT: WHAT IT WAS INTENDED TO DO AND NOT DO The language of the Act constitutes a broad prohibition against differential prices, whether they are the result of competitive pricing or not. A complainant must show two sales to different purchasers of commodities of like grade and quality at two different prices. He or she must also show that the effect of the differential pricing may be substantially to lessen competition, to create a monopoly, or to injure competition with another person or his customer. A complainant who proves the existence of one of these conditions has established a prima facie case, and the burden of rebutting the charge of price discrimination shifts to the organization charged with violation of the Act. It is thus apparent that the Act is an invitation to litigate in court and to report frequently to the FTC. According to the language of the Act, the burden and expense of justifying price differentials among customers falls upon the firm charged with violation of the Act. In addition, sections 2(d) and 2(e) prohibit indirect price discrimination in the form of promotional services; such as co-op advertising. Finally, section 2(f) places liability upon buyers who knowingly induce or receive illegal price discriminations as described in the Act; it is this section that alarms purchasing personnel in all organizations. The Act recognizes, and both sellers and purchasers know, that there are numerous justifications for selling a similar commodity to different customers at different prices. Consequently, administration of the Act has proven to be difficult and costly for both government and business. History of the Act Two questions arise from examination of the Act's language. First, did Congress intend that all businesses be deprived of discretion in pricing? Second, did Congress intend to make price competition illegal? Both questions can be answered in the negative; however, throughout the history of the Act's administration both questions have not been answered this way. As regards the first question, the legislative history indicates that Congress' intention in enacting the Act was to protect small businesses from the large chain stores that could underbuy and undersell the independents. Industries considered during Congressional hearings were those that purchased for resale, primarily the grocery store chains. Nevertheless, when the statute was drafted, it did not limit its application to retail industries. Perhaps Congress in 1936 did not envision the Act being applied to industrial purchasing, but the language of the Act does permit such application. …