Economic significance of the Robinson-Patman Act
Coogan, Peter Francis
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The Robinson-Patman Act, approved by the President on June 19, 1936, has now been on the Statute Books for five years. Seldom has any single law created so voluminous a literature. Trade Journals issued special Robinson-Patman issues. Legal and economic discussions were plentiful. The surprising thing is that business men and attornies were unable to answer some of the simplest questions about the application of the Law or the effects of the Law on business problems. To understand the reasons for this confusion is to make considerable progress towards understanding and evaluating the act itself. When one decides whether the Act is one to promote Competition he has taken at least one step in tracing the irregular pattern of this Law. It is now fairly clear that the Act belongs to the special field of regulating the plane of competition. The Act is limited to defining the type of price discrimination which shall be prohibited to both buyer and seller when the effects of that price discrimination would give an unfair competitive advantage to either the buyer or the seller. It is part of the law regulating market practices. Discussion of the legal aspects without the marketing aspects of this topic is almost worthless and vice versa. The economic background and political pressure that produced the Act are more important than the words of the Act itself. For some years, the so-called "orthodox" or "regular" channels of distribution have met increasingly strong competition from a new rival—-the mass distributor. The mass distributor has caused changes far beyond the amount of business he took directly from the old-style channels because of the changes from the former easy-going ways of the independent forced on the little merchant by the chains' rivalry. In an atmosphere where a resort to the law was the order of the day, the small merchant, much more numerous than his mass distributor opponent, followed the procession of manufacturer, farmer, and laborer to the Legislature "hat in hand" and asked for a law to make things right. The Legislature attempted to do this, but the Act coming out of the legislative mill was a product of far more than the single Patman Bill that was intended to crimp the style of the mass distributor by taking away the advantages of buying in quantity. The Bill, as it emerged, incorporated some of the results of years of investigations on the part of the Federal Trade Commission, particularly its investigation of the chain store. Because the Federal Trade Commission had found that chain stores on the whole were desirable institutions it would not subscribe to the theory of the independents who wished to legislate them out of business. The Federal Trade Commission's "Final Report on the Chain Store Investigation" had, however, found a real abuse in certain unfair buying advantages that accrued to the large buyer not because he was more efficient, but because he was a better bargainer. The Robinson-Patman Act was made an amendment to the Clayton Act, which, in turn, was an attempt at clarifying the practices prohibited by the Sherman Anti-trust Law. It is written in the language of the Law not in the language of business. The business man had heard of the Patman Bill written by the counsel of a wholesaler's association—-a law that was frankly aimed at crippling by political power a rival who seemed to be winning the economic battle-—but it was not the Patman Bill that had been passed by Congress. Action on the part of the Federal Trade Commission to whom the Act was entrusted for enforcement was necessary before a reasonable interpretation was possible. As case after case came before the Commission a meaning slowly emerged. A definition of the price discrimination against which the Act was now clearly aimed began to take shape. Trial by cost accounting came into its own only to demonstrate that cost accounting was unfitted for the job. A new type of analysis of distribution costs is being developed by the Commission and the business men coming before it. Some manufacturers who feared that they might not be able to justify fairly small savings in cost found that their price structures required not the use of a keen-edged tool but a broad axe to lop off some practices that had "just growed." Some real pricing evils had developed for which there was neither rhyme nor reason and most of these have now been partially corrected. The Robinson-Patman Act has not had the effect of being any great stumbling block in the path of the mass distributors because it still allows differences in price where those differences represent savings in the cost of the seller's marketing changes. Because the chains have by no means depended only on the unfair advantages secured by their bargaining efficiency as opposed to their operating efficiency the Act has had no great bearing on the growth of the chains. It may have an adverse effect on the very group of independents it was meant to protect—-the groups of independents who banded together for buying purposes under the non-corporate chains. The manufacturer so far seems to be the only clear gainer because the pressure for extra discounts has been partly lightened. In some countries it is necessary to bargain for each individual article one buys. In America this "higgling" has been largly replaced by a one-price policy. Each customer at one particular store at one particular time will pay the same price. This is not true of non-retail sales. Just as the one-price policy in retailing allows different levels of prices at different stores and in the same store on different days (sales, etc.) so, the adoption of a one-price policy in non-retail selling would also allow for price changes. The non-retail seller has the additional problem of classifying his buyers. The Robinson-Patman Act will probably have a strong tendency towards the establishment of a one-price policy for each individual class of buyers. This tendency has been under way for some years but will, no doubt, be intensified. The Robinson-Patman Act represents a departure from previous anti-trust legislation in that it substitutes the effect of certain action as the reason for condemning that action rather than the intent of the actors. As the Sherman Act was interpreted under the rule of reason, mere size or power over an industry was no offense if that size or power had been secured without unfair methods. In the Robinson-Patman Act some methods heretofore considered perfectly legitimate are condemned not because of intent but bedause the effect was believed to lead to monopoly if that practice were unchecked.
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