![Miller-Tuttle-RPA 081324.jpg Miller-Tuttle-RPA 081324.jpg](https://prospect.org/downloads/21613/download/Miller-Tuttle-RPA%20081324.jpg?cb=d4f22a3e9dd089d84dd168fb22225d7c&w={width}&h={height})
Clarence Hamm/AP Photo
With sugar prices rising, a woman purchases a generous supply with her grocery order, September 7, 1939, in a Kansas City, Missouri, shop.
Politicians and commentators love to talk about the importance of small business to the American economy, but who is actually looking out for the little guy? That is what Congress tried to answer when it passed the Robinson-Patman Act (RPA) in 1936, aiming to stop price discrimination against small retailers. Since the 1970s, however, Chicago school antitrust enforcers and scholars have sought to delegitimize Congress’s goal, branding the law as “out of step” with antitrust principles—the “Typhoid Mary” of antitrust, according to Robert Bork.
In our view, that description is a fundamental misreading of the purpose of the act. Congress passed RPA to address concerns that are at the very core of antitrust: to prevent the development of monopoly and monopsony power. While the act has not been used to achieve this goal in decades, if ever, we believe RPA can still be a powerful tool to detect and stop monopoly and monopsony power before it grows out of control—or as Congress put it, to use RPA to “catch the weed in the seed.”
Why pass a price discrimination law in 1936? That year, A&P—a massive grocery chain—was rapidly extending across America, using its unequaled buyer power to disadvantage smaller, locally owned rivals. Critics in 1936 (and today) cast RPA as a “protectionist” anti-A&P bill aimed at destroying one business model and protecting an outdated one. But this label is motivated by political ideology and mischaracterizes congressional intent. RPA was as much an anti-A&P bill as the Sherman Act, the foundational antitrust law, was an anti–Standard Oil bill. With RPA, Congress identified conduct, exemplified by one business, that they deemed harmful to the country’s prosperity, and acted to stop that conduct.
Congress sought to prohibit the coercive exercise of buyer market power, just as the Sherman Act sought to prohibit the coercive exercise of seller power.
In the case of RPA, the harmful conduct was the manipulative and coercive practices of chain grocers, exemplified by A&P. As the largest grocery buyer, A&P would demand lower prices from wholesalers and producers, often through hidden discounts, such as demanding large fees from the supplier simply for displaying the product on their shelves. This pressure forced those wholesalers and producers to make up for lost profits with higher prices to independent grocers. Legislators saw how this coercion would reduce diversity in the marketplace and the dynamism of the economy in the long term. It would force smaller businesses to close or join with A&P and leave it as the last monopolist standing. In other words, Congress sought to prohibit the coercive exercise of buyer market power before it resulted in monopoly, just as the Sherman Act sought to prohibit the coercive exercise of seller power.
RPA was not the first time Congress attempted to address buyer power by making it illegal to charge higher prices to independents. Long before the rise of A&P, Congress enacted Section 2 of the Clayton Act in 1914, which made it unlawful “to discriminate in price between different purchasers of commodities … where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly.” This language is almost the same as Section 7 of the Clayton Act, which prohibits anti-competitive mergers. Section 7 remains the center of anti-monopoly enforcement today. The Supreme Court has interpreted that section as “a mandate from Congress that tendencies toward concentration in industry are to be curbed in their incipiency”—in other words, to stop excessive concentration before it becomes a serious problem. In using the same language in Section 2, Congress recognized an important economic reality: Monopsony power can be accumulated through mergers, but it can also be accumulated through conduct that forces competitors out of the market.
But the conservative courts of the 1920s read the Clayton Act’s Section 2 so narrowly that it failed. After two decades of proof that the language was insufficient to stop the harms of buyer power, Congress passed RPA. Lawmakers realized they needed to tell the courts exactly what type of coercion they meant to prohibit. Congress therefore passed the Robinson-Patman Act to accomplish the original purpose of Section 2 of the Clayton Act.
Why would Congress be interested in preventing monopsony power? It was concerned for generally the same reasons economists understand monopsony power to be undesirable today. When a monopsonist has the power to demand a price below the market rate, suppliers produce less. This distortion results in a loss to the economy as a whole. Monopsony harms everyone except the monopsonist: Workers see fewer job openings or have less bargaining power, producers earn less and produce less, and consumers can see increased prices, reduced quality, and reduced services, all while the monopsonist reaps higher profits.
Despite a firm theoretical basis for the negative consequences of monopsony power (and setting aside all the harms to small businesses and local economies) critics of the law continue to claim that RPA’s goal of stemming buyer power is out of step with the antitrust laws. After all, don’t the lower prices coerced by the buyer lead to lower consumer prices and therefore benefit consumers?
This idea fails on three grounds: legally, practically, and because it is contrary to sensible policy.
First, the legal grounds: Under even the most traditional antitrust theories, you cannot justify an anti-competitive harm in one market with a benefit in another. Buyer coercion results in a traditional antitrust harm: The supplier must reduce output due to the demanded lower prices. The harm to competition in buyer markets is not an efficiency. Furthermore, it would be inappropriate to balance out-of-market benefits to consumers with anti-competitive harm to the small retail buyers or wholesalers.
Ensuring that small competitors receive fair prices for goods bolsters competition in the long run and benefits communities.
Second, the practical grounds: Large corporations cannot be trusted to pass through lower costs to consumers, at least not permanently. Any Econ 101 student could tell you that cost savings are only passed through to customers because of competition. If these large firms do not face the competition necessary to force those savings to be passed through, the consumer will suffer. Instead, the firm can just boost their profit margins with the savings from these coerced discounts. This shift from predatory prices to extraction once the monopoly is secured is sometimes called recoupment. Recent spikes in corporate profits provide circumstantial evidence that corporations are already doing this today.
Finally, the sensible policy grounds: Ensuring that small competitors receive fair prices for goods bolsters competition in the long run and benefits communities.
RPA provides a rule of conduct that prevents the supplier from shifting the ill effects of buyer power onto other smaller buyers of the product. It ensures that these small buyers have access to fair pricing that enables them to compete, even with firms that otherwise wield substantial market power. This competitive force is good for consumers because it encourages the power buyer to pass cost savings on to consumers instead of using them to pad their profit margins. And it allows for competition to moderate prices over time.
By targeting coercive buyer power, RPA enforcement stops the development of monopsonies in retail markets. Excessive bargaining power is an indicator of the beginnings, or “incipiency,” of monopsony power. In a monopsony, a single buyer can set the price with sellers because the sellers are dependent on it. This power does not accumulate overnight; it is built through the slow process of eliminating competitors one by one.
When the other antitrust laws have failed to stop the emergence of excessive buyer power, RPA enforcement was intended to be the backstop, curbing monopsony power in its incipiency. If buyer power is the symptom, then monopsony is the disease. Failing to enforce RPA allows the disease of monopsony to spread, eradicating small retailers across the economy.
Even in the absence of monopolies, the exercise of buyer power can still harm consumers. If suppliers make up their lost profits due to forced discounts from power buyers by raising prices on independent retailers, the consumers of those retailers, most often found in rural or urban communities, pay the price. Why should consumers in rural and urban communities subsidize the low prices at big-box stores in affluent areas?
The goal of RPA was not to create a permanent Jeffersonian agrarian republic of exclusively small businesses. It was to preserve a diverse economy of big and small businesses. Congress recognized that the needs of communities and people—whether in their role as consumers, business owners, or workers—are varied and diverse. A handful of large chains would never be able to meet all those needs in every community, especially if they are granted pricing power.
History has proved Congress right: In low-income and majority-minority communities in urban and rural America, small independent grocers are much more likely to be consumers’ best or only option. This reality is becoming clearer as the few big-box stores that have opened in these communities are closing in droves in these communities and locating only in the most profitable population centers.
Choosing to enforce RPA again is about more than stopping “price discrimination.” It is about making a choice about what type of economy we want to have. In the RPA debates during the New Deal, Rep. Ford of California argued: “If these chains are permitted to continue in their present trend, we shall at no distant future see the retail trade of this country in the hands of four, five, or six great merchandising institutions … We are getting to the point where the great distributing chains in this country are able to dictate the price to the producers of many articles; and when they have eliminated competition, they are going to dictate to the consumer the price he pays; and, let me tell you, this price will be all the traffic will bear.”
Do we want an oligopolistic economy of four or five giant companies fighting in a clash of titans with no hope of new entrants? Or do we want to choose a different economy—a dynamic one where many businesses rise and fall—where there is room for small and big companies to continuously compete on the merits? Congress made this choice in 1936, and we need to make it again today by vigorously enforcing RPA.
The views expressed in this article are those of the authors and do not necessarily reflect the views of Commissioner Bedoya or the Federal Trade Commission.