Antitrust Treatment of Price Discrimination
 | The relevant antitrust statute is section 2 of the Clayton Act as amended by the Robinson Patman Act of 1936. |
| Viscusi, Vernon, and Harrington correctly note that the Robinson Patman Act is the most maligned of all antitrust statutes among economists. The case history lacks depth. |
We make the distinction between primary line price discrimination, where the practice of price discrimination by a firm visits economic injury on its rival sellers, and secondary line price discrimination, wherein the injury is suffered on the demand side of the market.
| Thus if Kellogs gained favorable shelf space at Wal-Mart outlets by granting volume discounts, Post might suffer primary injury. |
| But Wallace and Owens may suffer secondary line injury if they are unable to match Wal-Mart on price with respect to cereal. |
Primary line injury: the Utah Pie case [Utah Pie v. Continental Baking, et al. 386 U.S. 685 (1967)].
| This was a private suit brought by Utah Pie, a family-owned company located in Salt Lake City. Utah Pie sought an injunction and treble damages in the suit filed against the three principal players in the frozen pie industry--Continental Baking, Carnation, and Pet. |
| Utah Pie entered the frozen pie market in Salt Lake City in the late 1950s. It quickly achieved a large share of local market sales in the frozen pie segment. Its success was based on several factors including (1) accrued brand loyalty (it had long been a distributor of fresh baked pies in Utah); and (2) its plant was located in Salt Lake City; whereas rivals shipped from California. |
| Upon entering, Utah Pie charged $4.75 per dozen. Within 44 months, it was forced to reduce price to $2.75 to remain competitive. Even so, its market share plummeted beginning in 1958. See chart . |
| For its part, Pet indicated that it regarded Utah Pie as an "unfavorable factor." It resorted to espionage to produce evidence that Utah Pies were "not up to Safeway standards." [Safeway being the #1 grocery retailer in Salt Lake City]. |
| There was no doubt that the Big 3 were pricing at levels substantially below those established in other geographic markets. Moreover, Pet did not deny that it suffered losses in the Salt Lake City market. |
| Click here to read the opinion of Justice White. |
| Click here to read the dissenting Harlan and Stewart. |
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Postscript: Utah Pie folded in 1971 |
Secondary line injury: The Morton Salt case [FTC v. Morton Salt Company , 334 U.S. 37 (1948)].
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The FTC complaint charged that Morton's practice of offering volume discounts on its premium Blue Label salt diminished competition. Specifically, the FTC argued that only the giant grocers such as A &P bought quantities sufficient to qualify for the discounts--putting Mom & Pop at a disadvantage. For example, a 25 cent per case price break was available to companies that purchased 50,000 cases in a 12 month period. |
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Click here to read the opinion of Justice Black. |
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Justice Black weighs in on legislative intent underpinning the Robinson-Patman Act. |
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