Can Robinson-Patman Enforcement Be Pro-Consumer?

Abstract

Antitrust agencies are once again interested in the Robinson-Patman Act, a dormant Depression Era statute that prohibits discriminatory wholesale pricing. This paper is the first to empirically study retailer market exit caused by discriminatory pricing-a key concern for the Act's drafters. In doing so, it addresses and refutes the central objection to the Robinson-Patman Act-that the Act protects small retailers at the expense of consumers. The paper employs an economic model to identify three forces that determine consumer welfare effects of discriminatory pricing: heterogeneity in consumer preferences for retailer attributes, wholesaler-retailer bargaining, and retailer exit. The model shows that while chain stores often secure wholesale discounts under discriminatory pricing, this advantage can drive independent stores out of the market, ultimately reducing competition and harming consumers. An empirical analysis of the U.S. liquor sector-currently under FTC investigationsupports these conclusions, showing that discriminatory pricing results in an annual consumer welfare loss of $4.91 per individual, totaling $529 million in a year across the industry. These findings challenge the prevailing arguments in the ongoing legal debate, which often lean toward categorically permitting or prohibiting discriminatory pricing. Instead, this paper recommends a nuanced, case-by-case evaluation of price discrimination, emphasizing the importance of considering the interaction between the three forces.