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According to the FTC, powerful retailers used “on-time, in-full” policies to “pressure their suppliers to favor them over rivals” during the pandemic supply chain crunch.
It’s a big deal when America’s top monopoly cop, the Federal Trade Commission, spends its finite time and resources studying an industry. The agency was created a century ago precisely to figure out which markets were working and which weren’t, but for decades the agency did very little of that kind of inquiry. Under Joe Biden, the FTC’s leadership has rekindled that core function, and last week the agency published the results of its examination of one of the decade’s most vexing problems: the fracturing of the grocery supply chain, and the subsequent and ongoing price hikes seen during and since the COVID-19 pandemic.
The FTC’s supply chain study, two years in the making, was succinct but clear: Documents and data from some of America’s largest grocery retailers, producers, and wholesalers showed that in those first months after the onset of the pandemic, dominant mega-retailers had flexed their muscle as the country’s largest buyers of food, shampoo, toilet paper, and every other consumer good to demand their suppliers fill their shelves first, likely at the expense of smaller stores around the country.
The formula the FTC laid out in its findings suggested as straightforward a display of power as one can find in industry. The onset of the pandemic sparked chaos throughout the supply chain, disrupting manufacturing, shipping, and every other step along the path from factory to market. According to the FTC, powerful retailers used “on-time, in-full” policies to “pressure their suppliers to favor them over rivals.” The pressure worked to ensure those monopoly retailers had preferential access to products in short supply, because “suppliers feared the financial penalties” those retailers could and would inflict on them if they didn’t deliver the goods. The FTC specifically named Walmart’s requirement that 98 percent of its orders be delivered on time and in full to avoid significant cash penalties.
The findings weren’t exactly shocking. Walmart’s policy had been reported elsewhere, and there are dozens of examples of small stores and shops that have been unable to access the same goods, at the same prices, as their much larger rivals. Some of that access discrimination can be attributed to the same pandemic-era muscle-flexing the FTC found in the report, like Home Depot president Tim Decker bragging in 2021 that his company had gained market share during the pandemic because its size and buying power often put it at the front of the queue when its suppliers ran short on goods.
But though the FTC focused on the pandemic in particular, the economy is filled with examples of supply discrimination outside of that historic disruption. Small toy stores, for example, have been shut out by toy makers like Mattel, unable to afford the mandatory minimum number of toys they’re required to buy. Small brewers have struggled to access cans at a competitive price after Ball, the country’s largest aluminum can maker, raised both the price of cans and the minimum amount it required small brewers to purchase, according to the Brewers Association. It’s a chain-reaction epidemic, where power buyers demand preferential treatment, and big manufacturers are willing to grant it to ensure access to those powerful chain stores. Meanwhile, local shops and makers are often left out.
There remains a question about whether and how the antitrust laws might apply to the kind of access discrimination the FTC found.
The FTC’s report didn’t focus on recommendations, but in a public meeting announcing the findings of the investigation, agency chair Lina Khan said that if any of the conduct identified in the report violated the antitrust laws, including the long-dormant Robinson-Patman Act, the agency would take action.
But there remains a question about whether and how the antitrust laws might apply to the kind of access discrimination the FTC found. Congress passed the Robinson-Patman Act in 1936 to help stop the growing supermarket chains of the time from using their size and power to bully suppliers into giving them discounts that weren’t available to smaller stores. Like all of the antitrust laws, Robinson-Patman has been somewhat limited by the courts, and it has been largely unenforced for the past four decades, allowing Walmart and other chain retailers to bully their suppliers with impunity. But it’s still good law, on the books.
But Robinson-Patman is largely about the prices retailers command. In its current form, it’s unclear whether the law could stop a powerful buyer from using its clout to keep products off the shelves of smaller stores. Even though access discrimination can do far more harm to competition than price discrimination—after all, how can a smaller retailer hope to compete if it can’t even stock the same stuff as the chain stores—the law specifically excludes access from its scope. The agencies likely must look elsewhere for tools to stop this kind of bullying.
Could the signature anti-monopoly law, the Sherman Act, stop this kind of discrimination? Possibly. The concept of “refusal to deal,” when a powerful company refuses to provide a rival with a product or service they need to remain in business, has a long and inglorious history in antitrust law. For better or worse, the current state of the law says companies can do business with whomever they please, unless that refusal serves to build or reinforce a monopoly. That certainly leaves the door open for enforcement; the FTC has already accused Amazon of abusing its online retail monopoly, and challenged the Kroger-Albertsons supermarket merger over monopoly concerns. In the case of retail supply discrimination, the discrimination appears to be a bigness-begets-bigness conspiracy between powerful retailers and big manufacturers that ultimately leaves smaller stores out in the cold. A monopoly case against chain stores or conglomerate suppliers because of their refusal to supply small stores with the same goods is a real, if tricky, proposition.
The other option—also real, also tricky—is for Congress to do what it’s done many times in the past, and update the antitrust laws to reflect the way markets are actually functioning. Adding a ban on access discrimination to Robinson-Patman would go a long way toward stopping what we saw during the pandemic, and indeed continue to see in many retail markets.
There’s a right and wrong way to amend Robinson-Patman, of course; any statutory change must not do more harm than good. But as the FTC study showed, supply discrimination may have tilted the competitive scales even more in favor of big retailers. Any kind of corporate conduct that distorts competition in that way should be subject to the antitrust laws. If the FTC can’t find a path to stop such discrimination under existing law and precedent, it may be time for lawmakers to take action.
Regardless of the ultimate solution, the FTC’s study added yet another layer of evidence to the thing we’ve all instinctively known for the better part of three years: For the biggest and most powerful companies, the pandemic was an invitation to use their monopoly leverage to turn the screws on both smaller rivals and consumers alike. America’s top monopoly cop knows the problem; hopefully, whether at the agency or on Capitol Hill, the solution is on the way.
