Money  /  Antecedent

The FTC May Crack Down on Price Discrimination. Will It Matter?

The Robinson-Patman Act was supposed to prevent price discrimination — but consumers wanted cheap goods.

In 1909, the Kellogg Toasted Corn Flake Company offered a “Square Deal.” Hoping to get its flakes on more grocers’ shelves, Kellogg set the cash price for wholesalers at 6.8 cents per box. Wholesalers were required to charge retailers 7.8 cents. Kellogg permitted no volume discounts, placing the neighborhood grocery store “on an equal footing with every other retailer, great or small.”

Consumers paid 10 cents a box, a 47 percent markup over the factory-gate price, no matter where they purchased their corn flakes. This price-fixing pleased mom-and-pop grocers, but shoppers didn’t buy it: As bargain hunters sought out cheaper cereals, Kellogg cut prices for its largest customers, and the Square Deal faded away.

This history is worth keeping in mind as the Federal Trade Commission tries to revive the Robinson-Patman Act, an 83-year-old law against price discrimination. According to news reports, the FTC is investigating whether soft drink bottlers and an alcohol distributor violated that law by selling to big retailers on better terms than small ones. On March 27, Lina Kahn, the FTC’s chair, said the commission will move to enforce Robinson-Patman “in short order,” and her fellow commissioners have also called for reviving enforcement of the law. If the FTC does so, it will wade into a dispute that has pitted advocates of efficiency and low prices against supporters of small, independent businesses for well over a century.

As chain food stores first emerged in the early 1900s, complaints spread that suppliers unfairly favored them with discounts and inducements not available to smaller wholesalers and retailers. “The general working rules should be, ‘A fair price and the same to everybody,’” an official of the National Association of Retail Grocers demanded in 1914. Just as federal regulations kept railroads from favoring one shipper over another, the reasoning went, the law should require manufacturers and growers to charge all buyers the same price for the identical product. The Clayton Antitrust Act, passed that same year, gave small businesses half a loaf, prohibiting price discrimination when the effect “may be to substantially lessen competition or tend to create a monopoly.”