Robinson-Patman Act of 1936
The Robinson-Patman Act of 1936 is a significant piece of U.S. legislation aimed at preventing price discrimination in interstate commerce. Named after its sponsors, Senator Joseph Taylor Robinson and Representative Wright Patman, the act prohibits sellers from offering different prices to competing buyers in a way that may harm competition or create monopolies. This legislation emerged during a time when large chain stores were able to leverage their size for better pricing compared to independent retailers, highlighting the need for fair competitive practices.
Under the act, price discrimination is defined broadly to include any compensatory arrangements that effectively alter the net price, such as discounts or rebates. Both buyers and sellers can be held accountable for violations, and the act empowers injured parties to sue for treble damages. Notably, it does allow for quantity discounts when cost savings can be justified based on larger orders. The law requires that sales involved must occur simultaneously and that the goods sold are of like grade and quality.
While the act aimed to promote fairness in pricing, its enforcement has been inconsistent, with fewer court cases than anticipated. Overall, the Robinson-Patman Act has made a notable impact by reducing price discrimination and fostering a more level playing field in the marketplace.
Robinson-Patman Act of 1936
The Law Amendment to the federal Clayton Act of 1914 that outlawed price discrimination
Date 1936
Also known as Anti-Chain-Store Act
The act prohibited price discrimination that damaged competition within a market. The act applies to both buyers and sellers in that it is just as illegal to accept a discriminatory price from a vendor as it is to offer a discriminatory price to a buyer. The act does not apply to export sales.
Named for the bill’s sponsors, Senator Joseph Taylor Robinson and Representative Wright Patman, the act bans sales that discriminate in price between equally situated customers in interstate commerce when the effect of such sales would reduce competition or create a monopoly. The act came about because of practices during the 1930’s wherein large chain stores were given lower prices than independent retailers.
Price refers to net price and therefore includes all compensation paid. This means that the seller cannot disguise the price by giving discounts, commissions, or rebates to special customers. An injured party may sue for treble damages, or the Department of Justice or Federal Trade Commission (FTC) may bring an action under the act. To stop the practice of price discrimination, the act applies to both buyers and sellers; both can be found guilty if there is price discrimination.
Price differentiation between customers is permitted on the basis of quantity purchased if it can be shown that there is a cost savings with the larger order. In other words, the cost savings of large shipments can be passed along as a quantity discount if the savings can be documented. To be discrimination, the sales in question must be contemporaneous in time and the goods must be of like grade and quality. Matching the price of a competitor is a defense, which means that the harm-to-competition requirement is the determining factor in winning or losing a case.
Impact
The act seemingly scared businesses into compliance. Court cases have been surprisingly few. Some writers have claimed that the act has not always been vigorously enforced by the FTC. However, because this is a federal law, the sales must cross state lines; in other words, they must be in interstate commerce. Thus, the overall impact has been positive because the act basically eliminated price discrimination among different competitors.
Bibliography
Gellhorn, Ernest, William E. Kovacic, and Stephen Calkins. Antitrust Law and Economics in a Nutshell. 5th ed. St. Paul, Minn.: Thomson/West, 2004.
Kintner, Earl W. A Robinson-Patman Primer: A Guide to the Law Against Price Discrimination. New York: Macmillan, 1979.