The Robinson-Patman Act and Vertical Relationships

50 Pages Posted: 18 Sep 2019

See all articles by Koichi Yonezawa

Koichi Yonezawa

Cornell University - Dyson School of Applied Economics and Management

Miguel Ignacio Gomez

Cornell University - Food Industry Management Program

Timothy J. Richards

Arizona State University (ASU) - Morrison School of Agribusiness and Resource Management

Date Written: September 9, 2019

Abstract

Bargaining between consumer-product manufacturers and their retail customers is at least nominally constrained by the prohibitions on price discrimination of the Robinson-Patman Act (RPA) of 1936. However, because the RPA is generally regarded as being inconsistent with the anti-trust principle of protecting consumer welfare, it is not often enforced by the Federal Trade Commission (FTC) or the Anti-trust Division of the Department of Justice (DOJ). Because of the perceived ineffectiveness of the RPA, it is unclear whether manufacturers follow the letter of the law, or actively bargain with their downstream customers. In this paper, we use data on wholesale and retail prices for yogurt products, and a Nash-in-Nash vertical bargaining model, to test whether the RPA represents a real constraint on bargaining between manufacturers and retailers. We find that this is not the case, and that vertical markets for consumer goods are more accurately characterized as bargaining-markets than markets regulated by the RPA. Our findings imply that welfare outcomes in consumer good markets may be closer to the competitive ideal than critics of the RPA would suggest.

Keywords: bargaining power, Nash-in-Nash equilibrium, retailing, The Robinson-Patman Act, vertical relationships

JEL Classification: D43, L13, M31

Suggested Citation

Yonezawa, Koichi and Gomez, Miguel Ignacio and Richards, Timothy J., The Robinson-Patman Act and Vertical Relationships (September 9, 2019). Available at SSRN: https://ssrn.com/abstract=3450838 or http://dx.doi.org/10.2139/ssrn.3450838

Koichi Yonezawa (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Miguel Ignacio Gomez

Cornell University - Food Industry Management Program ( email )

Department of Applied Economics and Management
Ithaca, NY 14853
United States
607-255-8472 (Phone)
607-255-4776 (Fax)

Timothy J. Richards

Arizona State University (ASU) - Morrison School of Agribusiness and Resource Management ( email )

7171 E. Sonoran Arroyo Mall
Mesa, AZ 85212
United States
480-727-1148 (Phone)

HOME PAGE: http://www.east.asu.edu/msabr/faculty/richards.htm

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