The Law and Economics of Price Discrimination in Modern Economies: Time for Reconciliation?

Abstract:     
This paper examines the forms, goals, and results of price discrimination. It reviews various economic analyses and critiques of the three Pigovian types of price discrimination. It observes that economists' traditional concern with aggregate welfare has not, until recently, been accompanied by a similar concern by lawyers. Until the late twentieth century lawyers tended to focus on "fairness" instead. These different concerns have impeded mutual understanding, as have the various meanings that lawyers and economists have attributed to such basic terms as "monopoly power," "market power" and "competition" in the price discrimination context.

The paper examines the principal laws of the United States and the European Union that deal with price discrimination, focusing especially on the Robinson-Patman Act and Article 82(c) of the Treaty Establishing the European Union. The paper compares the operation of these two provisions, finding superficial resemblances but significant differences in practice. While the Robinson-Patman Act was designed to prevent powerful buyers from forcing price concessions from often weak producers to the detriment of small buyers, enforcement of Article 82(c) is directed differently. Although the language of Article 82(c) suggests that it is designed to protect purchasers-for-resale from discrimination by their suppliers, the European Commission employs Article 82(c) to protect competitors from aggressive pricing by dominant (generally producer) firms. The paper also examines the developing law on loyalty rebates on both sides of the Atlantic, again finding that the approaches of the two jurisdictions differ significantly, at least as exemplified by the most recent cases. It distinguishes between loyalty rebates offered by the seller of a single product and those offered by a multi-product seller. The paper's main message is that price discrimination is an essential element in an effectively competitive economy and should be treated that way under the law.

Keywords: price discrimination, Robinson-Patman, primary line, secondary line, Article 82(c)

JEL Classifications: D43, K21, L11, L13, L40, L49

Working Paper Series