Will the FTC Reinvigorate an Antiquated Law that Raises Prices?

A version of this piece originally appeared at Forbes.com.

Cite this Article
Alden Abbott, Will the FTC Reinvigorate an Antiquated Law that Raises Prices?, Truth on the Market (May 29, 2024), https://truthonthemarket.com/2024/05/29/will-the-ftc-reinvigorate-an-antiquated-law-that-raises-prices/

The Federal Trade Commission (FTC) and Congress are showing renewed interest in a Great Depression-era law, the Robinson-Patman Act, that discourages sales discounts. This is bad news for hard-strapped American consumers, who have had to cope with prices that have risen more than 20% since February 2020. As such, reinvigorated enforcement of the RPA, a statute that was designed to protect less-efficient small businesses from vigorous competition, appears hard to justify. The FTC may wish to consider the major downsides of RPA prosecutions before it takes action.

RPA Background and Key Provisions

The detailed 2007 Report of the Antitrust Modernization Commission (AMC), a bipartisan congressionally appointed group of antitrust experts charged with recommending possible legal reforms, recommended that Congress repeal the RPA in its entirety.

The AMC stated that Congress passed the act in 1936 to respond to the concern of small businesses—such as “mom and pop” grocery stores—that they were losing share to larger supermarkets and chain stores and, in some cases, being forced to exit the market. Small businesses complained that they could not obtain from suppliers the same price discounts that larger businesses demanded and received.

To address this concern, the RPA prohibits sellers from offering different prices to different purchasers of “commodities of like grade and quality” where the difference injures competition. Different discount levels, or lower prices, can be offered only where:

  1. the same discount is practically available to all purchasers;
  2. a lower price is justified by a lower per-unit cost of selling to the “favored” buyer;
  3. a lower price is offered in good faith to meet (but not beat) the price of a competitor; or
  4. a lower price is justified by changing conditions affecting the market or marketability of the goods, such as where goods are perishable or seasonal, or the business is closing or in bankruptcy.

Other RPA provisions promote the goal of equal pricing by, for example, restricting the use of commissions and promotional programs.

Private parties can recover triple damages for RPA violations. In addition, the federal antitrust agencies—the FTC and the U.S. Justice Department (DOJ)—may sue to block violations of the act. The Justice Department has avoided RPA enforcement entirely, deferring to the FTC, which has brought no RPA cases since a 2000 settlement with the spice company McCormick. Prior to that, its last RPA enforcement action had been a 1988 prosecution of several book publishers, which the court dismissed.

The Real-World Impact of the RPA

Prior to the Biden administration, the FTC—focused on consumer-welfare concerns—had, in effect, stopped enforcing the RPA. This changed dramatically with the installation of new FTC Chair Lina Khan in 2021. Khan’s arrival coincided with President Joe Biden’s issuance in July 2021 of an executive order on competition that called for far more aggressive enforcement of antitrust law.

Since then, the FTC and the Biden administration have taken specific steps to spotlight the RPA:

  • In releasing a June 2022 FTC policy statement on drug-related rebates and fees, Khan stressed that the RPA prohibits illicit “compensation [of] anyone who owes a duty to another party in connection with the purchase or sale of goods.”
  • In a September 2022 speech entitled “Returning to Fairness,” new FTC Commissioner Alvaro Bedoya argued that the FTC should reemphasis fairness and apply the RPA to support small businesses.
  • In January 2023, Politico reported on an FTC investigation into discriminatory pricing by Coke and Pepsi in the soft-drink market.
  • In March 2023, Khan indicated that the FTC would bring an RPA lawsuit “in short order.”
  • The FTC revealed publicly in October 2023 that it was investigating possible RPA violations by wine and liquor distributor Southern Glazer’s.
  • In April 2024, Commissioner Bedoya argued for revitalized RPA enforcement at the American Bar Association Antitrust Section’s spring meeting.

The Next Steps

There is good reason to believe that the FTC may publicly announce an RPA enforcement action at any time. First, though, it should carefully weigh the downsides.

While perhaps cloaked in “fairness,” a major RPA lawsuit could discourage business discounting at a time of public concern over excessively high prices.

Relatedly, an RPA lawsuit that tends to discourage price reductions is in tension with the White House’s March 2024 launch of a new interagency task force on unfair and illegal pricing, which specifically seeks to “lower prices.” As Marar recently pointed out, renewed RPA enforcement “not only fails to address the problem” of higher prices, it “worsens it.”

Also, two newly arrived Republican FTC commissioners (who already have dissented from the FTC’s issuance of a controversial new rule to ban noncompete clauses in employment contracts) may decline to support a controversial RPA lawsuit. A split FTC vote on authorizing the first RPA lawsuit in decades could prove problematic to reviewing judges.

Most generally, litigating an RPA case that is at odds with scholarly opinion and a prior bipartisan consensus against enforcing the statute could threaten the FTC’s reputation. It would also further strain the FTC’s resources at a time when it already faces a major legal challenge to its rulemaking authority and pursues path-breaking antitrust cases against Amazon and Facebook.

All things considered, the FTC would be well advised to avoid “reviving” the RPA. At the very least, before acting, it would benefit by carefully considering the consequences for its institutional reputation and for consumer welfare.