The Robinson-Patman Act increased the pressure on large corporations to stop engaging in anti-competitive behaviors. In this lesson, you’ll learn why it was necessary, what it says, and what impact it ultimately had on US businesses.
Summary of the Robinson-Patman Act of 1936
The Robinson-Patman Act of 1936, also called the Anti-Price Discrimination Act, made it illegal for companies to engage in price discrimination. Price discrimination is a practice where a company will charge two different customers different prices for the same good.
At the time the Robinson-Patman Act was passed, price discrimination was seen as an anti-competitive practice – the type of behavior the government tried to stop with the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914.The Robinson-Patman Act set forth a number of conditions that must be present for actual price discrimination to occur. The transactions had to be interstate commerce (cross state lines), had to be from the same seller to two different buyers, had to be the same or a very similar product, had to occur at roughly the same time, and had to have the intended effect to ‘lessen competition or…create a monopoly.’ If price discrimination could be proven, the injured parties could recover claims from the defendant.
Enforcement of the Robinson-Patman Act
After the Robinson-Patman Act was passed, the Federal Trade Commission (FTC) did enforce the act and a number of companies were found in violation.
One well-known case, primarily because of the size of the violating company, was FTC vs. Morton Salt. Morton Salt was found in violation because they offered volume discounts to large buyers but, because their product was a commodity, could not demonstrate that the ‘net price’ was different between the customers.Enforcement became more difficult in the late-1900s, partially because of the complexity of comparing ‘net price’ between customers and partially because of pressure from the business community. While cases have been brought by both the FTC and injured parties, none have been successful in court.
Most Robinson-Patman cases in the last 50 years have been overturned or settled out of court.
Volume Discounts and Robinson-Patman
In the last thirty years it has become a common business practice for producers to offer volume discounts to customers that buy large quantities of products. At first glance, this may seem to be a violation of Robinson-Patman because two different customers are purchasing the same good for different prices. The Supreme Court, however, has interpreted the term ‘net price’ to mean the per-unit cost of producing a good. Manufacturers can claim, rightfully so, that the more of an item they produce, the lower the per-unit cost will be.
This argument is why volume discounts are not violations of Robinson-Patman, and part of why Robinson-Patman has been very difficult to enforce since the 1970s.
When this lesson ends, you should be ready to:
- Define and describe the Robinson-Patman Act
- Recall the legislation that preceded the Robinson-Patman Act
- Discuss how the FTC was able to enforce this act with a well-known case
- Identify how volume pricing does not violate the Robinson-Patman Act