The Robinson-Patman Act is a very bad law. Enacted during the New Deal, it is a relic of the muddleheaded antitrust thinking of the time. It was explicitly intended to protect the small businessman from larger, more efficient competitors, even if this should leave the customer paying higher prices for worse products. It has fallen into abeyance, but is still on the books, waiting for a future administration to call upon it.
It forbids charging different prices to different people, unless painstakingly justified to the FTC as being a direct function of cost, or as part of a good-faith effort to match a competitor’s price. If, for example, a manufacturer of salt (let’s hypothetically call them “Morton’s”) wished to charge a lower price to companies which bought a greater quantity of salt, they would be unable to do so. (The case is not so hypothetical; it is FTC vs Morton Salt Co: 1948). Now, why would a company wish to charge a lower price to their biggest purchasers? They may desire certainty in who is buying from them, and wish to guarantee their revenue. The reduction in cost from this is extremely hard to demonstrate to regulators, or to anyone. Smaller buyers have a greater ability to cancel their contracts. By paying a higher price, they are in essence buying an option. How could this value be plausibly demonstrated to an unfriendly regulator? The justification of products being different costs is also, in practice, impossible to achieve. What of the firm which produces multiple goods? What of joint costs? In practice it gave carte blanche to regulators to regulate the prices of any company, anywhere. And the exemption if they are trying to meet a competitor’s price in good faith is a thin reed to hold onto. Businesses must often make pricing decisions without knowledge of their competitors. Is it now illegal if they set prices too low? It brings to mind the old saw: that under antitrust law, if your prices are too high, it’s monopoly; if they’re too low, it’s predatory pricing; and if it’s the same, it’s collusion.
Robinson-Patman is not about the consumer’s welfare at all, which is the point of antitrust law today. All people are consumers in the end — to choose what maximizes their welfare is to maximize the world’s. Competition is indeed good for consumers, but to favor small businesses over large ones is to mistake the symptoms of competition for the actual thing. The result of free competition could be many small firms, or it could be a few large ones. You do not know in advance. Neither can you infer the degree of competition from the number of firms. The free operation of competition is compatible both with many firms, and with few firms. Indeed, it is possible for there to be only one firm, and yet it still does not have monopoly distortions.
The law has fallen into abeyance because people — especially judges — got a sounder grasp of antitrust law. UChicago played an important role educating judges in law and economics seminars. The Henry Manne seminar series causally made judges more friendly to mergers and acquisitions. (See Ash, Chen, and Naidu 2022). Judges began considering the impact upon consumers instead of upon businesses. What was created by judges, though, can be undone by judges, and the sword put down by one administration can be picked up by another. We must repeal the act to increase the friction in returning to a New Deal understanding of antitrust law.
It reminds me of a dark mirror of the Civil Rights movement. The Civil Rights movement had the great advantage that it largely did not need to write new law, and did not need to invent new principles for us to believe in. Liberty and equality were written into the constitution, though we had fallen away from it. It could position itself as not a great change, but a restoration of what we all believe. Much of its progress came through convincing the courts to honor the laws which were plainly written in the books.
In a like way, the Robinson-Patman Act makes it extremely easy for an activist, anti-business administration to take action to stifle efficiency. Such an administration would not need to write new laws to justify its decisions (and good luck with Congress), only restore the laws which are on the books. We cannot rely upon the intelligence and positive sum thinking of every administration to come. Just one is sufficient to disincentivize large capital outlays.