Part 11- Regulation of Business, Chapter 50: The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities, Note 4

Key Takeaways on the Robinson–Patman Act and Primary-Line Price Discrimination 1. Price Discrimination under the Robinson–Patman Act (§ 2) The Robinson–Patman Act addresses three types of price discrimination: 1. Primary-Level Price Discrimination: o Direct harm to competitors of the seller due to discriminatory pricing. o Example: A large seller sells products below cost to drive smaller competitors out of the market. o Competitive Injury Standard: Requires proof that the price discrimination harmed competition, not just a competitor. 2. Secondary-Level Price Discrimination: o Price differences harm competition between customers of the seller. o Example: A manufacturer charges chain stores lower prices than independent retailers, giving chains a competitive edge. 3. Tertiary-Level Price Discrimination: o Harm occurs to the customers of the seller’s buyers (e.g., wholesalers giving discounts to certain retailers, affecting their competition). o Example: A wholesaler receiving a discount passes it on to favored retailers, disadvantaging other retailers who cannot compete. 2. Elements of a Price Discrimination Claim (§ 2(a)) To establish a claim under § 2(a) of the Robinson–Patman Act: 1. Two or More Sales: The seller must have made at least two contemporaneous sales of commodities to different buyers at different prices. o Mere price quotations or refusals to sell do not constitute a violation. o Applies only to tangible commodities, not services or intangible goods. 2. Commodities of Like Grade and Quality: The products must be substantially identical in quality and grade. 3. Competitive Injury: The pricing must have a probable anticompetitive effect. o Harm must be to competition, not just a specific competitor. 3. The Brooke Group Case on Predatory Pricing  Background: Liggett (plaintiff) accused Brown & Williamson (BW) of using predatory pricing to maintain its market position and limit competition in the economy cigarette market. o BW offered volume rebates to wholesalers, allegedly driving prices below Liggett’s costs. Supreme Court's Key Findings: o  1. 2. 3. Two Prerequisites for Primary-Line Injury:  Below-Cost Pricing: Plaintiff must prove that the defendant's prices were below an appropriate measure of cost (e.g., average variable cost).  Recoupment Likelihood: Plaintiff must show that the defendant had a reasonable prospect of recouping losses through subsequent supracompetitive pricing. Recoupment in Oligopoly Markets:  Challenges of Tacit Collusion:  In an oligopoly, achieving price coordination through tacit collusion is highly uncertain due to reliance on ambiguous signals.  Predatory pricing becomes less plausible because benefits from supracompetitive pricing are shared among all market players, including the predator's competitors.  High Threshold for Success:  For BW to benefit from predatory pricing, it would need to generate $9 in profits for every $1 spent on predation, with the remaining $8 going to competitors. Impact on Consumers:  Predatory pricing, if unsuccessful, benefits consumers through lower prices. Antitrust law does not punish this unless harm to competition is proven. 4. Antitrust and Oligopolies   Tacit Collusion: o Tacit or conscious parallelism (where firms implicitly align prices without explicit coordination) is not illegal unless proven to harm competition. o Predatory pricing schemes in oligopolistic markets are particularly unlikely to succeed without explicit agreement. Court's Caution: o While the Court acknowledged that interdependent pricing could, in theory, enable recoupment, it requires strong evidence of both intent and probability. 5. Summary of Outcome   The Court affirmed the need for rigorous evidence of competitive harm in predatory pricing cases under the Robinson–Patman Act. Liggett failed to prove that BW’s pricing strategy met the high bar for predatory pricing, particularly the likelihood of recoupment.