Last week, five senators and 11 members of the House, including Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.), wrote to the Federal Trade Commission urging the antitrust agency to promote “fair competition” in the food industry by reviving enforcement of the Robinson-Patman Act. The act is an old anti-price discrimination statute prohibiting certain exclusive discounts and rebates offered by suppliers and wholesalers to retailers.
It’s true a mom-and-pop grocery store could find it harder to negotiate favorable terms with suppliers than a large chain, and that high grocery bills are plaguing American consumers. But aggressively enforcing the Robinson-Patman Act won’t address the underlying issues and will likely make matters worse.
The legislators cite a recent FTC report showing elevated prices and profits among a group of grocery chains during and after the pandemic as evidence that they “took advantage of supply chain disruptions … to hike up prices to increase their profits.” However, the report expressly states that it does not “measure the wider prevalence of observed practices or the magnitude of their impact on competition,” and does not test whether the companies surveyed “increased their prices by more or less than their input cost increases.”
In other words, it provides no evidence of antitrust violations, price gouging, or any pattern of anticompetitive conduct in the food industry. And even if there was, the Robinson-Patman Act wouldn’t be the answer.
The law is an oddity. It was enacted in 1937 when independent grocery stores faced increasing competition from chains that could negotiate better trading terms, exclusive discounts and promotional fees from their suppliers due to superior size and dominant market position. Unlike other antitrust statutes, which mean to uphold competition and protect consumers rather than businesses from their competitors, the Robinson-Patman Act’s language and history make clear that it was intended to help smaller businesses regardlessof whether they already operate in competitive markets.
Large businesses can negotiate better deals because they can offer suppliers bulk orders and greater certainty of regular, frequent and repeated business. Consumers benefit through lower prices than they’d otherwise face. From the same consumer-focused standpoint, undermining the freedom to negotiate lower prices through the threat of lawsuits inevitably places upward pressure on prices.
And though forcing suppliers to offer the same price to all retailers may lead to smaller stores purchasing supplies at lower prices than they do now, it’s still unlikely to lower prices across the board. Economists find that price differences faced by different buyers incentivize them to compete more vigorously by adopting more efficient practices, offering promotions or other services or purchasing larger quantities to secure discounts from suppliers that can be passed on to consumers.
The vast majority of Americans live in urban, suburban and rural areas serviced by large retail chains and supermarkets, with 9 in 10 U.S. households obtaining their groceries from one. Robinson-Patman Act enforcement risks making inflation and cost-of-living pressures worse for these families. For those Americans living in isolated areas serviced only by independent stores, the act’s enforcement won’t guarantee lower food prices.
These issues were recognized by the bipartisan Antitrust Modernization Commission in 2007. Contrary to assumptions that a less concentrated market of smaller grocers would better serve consumers, it found the growth in larger chains with better scale economies has indeed benefited us through lower prices.
It also found that suppliers resorted to a range of tactics to escape the act’s liability, such as selling slightly different products to different buyers to charge different prices. Resources directed towards Robinson-Patman Act compliance or evasion mean fewer resources directed towards benefiting consumers through lower prices or product improvements. The commission thus recommended the act’s repeal, with antitrust enforcement agencies since the 1990s declining to enforce it due to its anti-consumer implications.
Ironically, small businesses also stand to lose big from Robinson-Patman Act enforcement. Some suppliers have avoided liability by simply refusing to service smaller buyers. This could explain why, during the heyday of the act’s enforcement between 1961 and 1974, only 36 out of 564 companies receiving Robinson-Patman Act complaints had annual sales exceeding $100 million. Sixty percent of these firms had sales lower than $5 million, indicating that small and medium-sized enterprises were the Robinson-Patman Act’s biggest casualties. They also face higher litigation costs than large firms relative to their resources and size.
Reckless government spending and debt, energy supply bottlenecks and growth of costly, onerous regulations have contributed to the inflation paining Americans, and have also hurt businesses both big and small. Reviving Robinson-Patman Act enforcement not only fails to address the problem but worsens it.
Satya Marar is a visiting postgraduate fellow specializing in innovation, governance and competition at the Mercatus Center at George Mason University.