What the revival of a 1936 competition law would mean for consumers.
What the revival of a 1936 competition law would mean for consumers
T he Biden administration wants us to believe it is doing everything in its power to reduce prices for consumers. It seems that its most recent appointee to the Federal Trade Commission didn’t get the message. Alvaro Bedoya, who joined the commission in May, argued during a recent speech that the agency should resurrect the Robinson-Patman Act. For consumers, that will mean higher prices, exactly the opposite of what the Biden administration claims to be working toward.
The Robinson-Patman Act of 1936 was passed to address the rise of big retailers. Before people worried about Amazon taking over the world, they worried about Walmart, and a few generations before that, they worried about the now-defunct A&P grocery chain. A&P was so efficient that it grew to a large scale. It was then able to use its scale to cut costs, and it passed the savings on to consumers.
Critics of A&P claimed it leveraged its buying power to “extract better terms from suppliers” than its smaller competitors could. Congress stepped in to stop this. As the Supreme Court interpreted the Robinson-Patman Act in FTC v. Morton Salt Co.:
Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer’s quantity purchasing ability. The Robinson-Patman Act was passed to deprive a large buyer of such advantages . . .
As International Center for Law and Economics CEO Geoff Manne pointed out in testimony before the House Judiciary Committee: “‘solely because of the large buyer’s quantity purchasing ability’ is another way of saying ‘efficiency.’” As Herb Hovenkamp puts it in his antitrust law textbook, the Robinson-Patman Act “was designed to protect small businesses from larger, more efficient businesses. A necessary result is higher consumer prices.”
Economists call it “price discrimination” when a company charges different prices to different buyers. The Robinson-Patman Act is an anti-price-discrimination law. But price discrimination reduces prices in two ways. First, it encourages buyers to achieve scale (as A&P did) and buy large-enough quantities to reduce the cost per item. It’s cheaper per pound to send 1,000 pounds of chicken to a retailer than to send 100 pounds. The cost savings get passed on to consumers.
Second, even without these scale economies, price discrimination allows firms to set lower prices for those least willing to buy a product, who are often the poorest customers. For example, offering coupons at a grocery store allows those who most need to save money an opportunity to enjoy lower prices. A ban on coupons would only raise prices for the poorest consumers. A ban on other forms of price discrimination does the same thing.
Instead of the incoherent aims of the Robinson-Patman Act, antitrust enforcers and courts over the past few decades have followed a general approach to antitrust called the “consumer welfare standard.” The basic idea is that the goal of antitrust decisions should be to choose whatever outcome helps consumers. Does this business practice (like price discrimination) help consumers? If so, it should be allowed.
Importantly, the consumer-welfare standard does not accept “harm to competitors” as a legitimate antitrust harm. Smaller, more inefficient retailers cannot go to the courts and complain that a big retailer is too efficient.
The Robinson-Patman Act has been rightly abandoned as completely out of step with the goals of modern antitrust. For example, in its report to Congress and the president, a bipartisan commission to modernize antitrust was unambiguous in its views: “Congress should repeal the Robinson-Patman Act in its entirety.”
Against this, there has been a more recent attempt to revive the act as part of a larger push by a new group of “neo-Brandeisians” who have been working to spurn the focus on low prices and consumer welfare. Instead, they argue that antitrust policy should just target big (i.e., successful) companies.
In a review of a book by Tim Wu (who now works in the White House on tech and competition policy), FTC chairwoman Lina Khan wrote: “As used by contemporary antitrust reformers, ‘antimonopoly’ refers to a framework that seeks to control and check private concentrations of economic power. Promoting antimonopoly does not categorically require promoting competition.” Given the close connection between competition and low prices for consumers, Khan is also letting on that the goal is not low prices.