The Robinson-Patman Act and Vertical Relationships
50 Pages Posted: 18 Sep 2019
Date Written: September 9, 2019
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: Suggested Citation