What is Robinson-Patman Act
The Robinson-Patman Act is a federal law passed in 1936 to outlaw price discrimination. The Robinson-Patman Act is an amendment to the 1914 Clayton Antitrust Act and is supposed to prevent "unfair" competition. The act requires a business to sell its products at the same price regardless of who the buyer is and was intended to prevent large-volume buyers from gaining an advantage over small-volume buyers. The act only applies to sales of tangible goods that are completed within a reasonably close timeframe and where the goods sold are similar in quality. The act does not apply to the provision of services such as cell phone service, cable TV and real estate leases.
BREAKING DOWN Robinson-Patman Act
The Robinson-Patman Act does not require, for example, that Wholesale Company ABC and Wholesale Company XYZ to both sell 32-inch flat screen televisions to all big box retailers for $250 per television. What it does require is that if Wholesale Company ABC sells 32-inch flat screen televisions of equal quality to Target on August 10 and to Mom and Pop's Shop on August 11, that Target and Mom and Pop's Shop are each charged $250 per television.
The law came about to combat unfair trade practices in which chain stores were allowed to purchase goods at lower prices than other retailers. It was the first legislation to attempt to prevent unfair price discrimination. It required that the seller offer the same price terms to customers at a given level of trade. The act instituted criminal penalties for violations, but contained a specific exemption for "cooperative associations."
Bowing to industry pressures, federal enforcement of the Robinson–Patman Act ceased for several years in the late 1960s. Enforcement was mostly driven by private action of individual plaintiffs, which most likely led to a decrease in enforcement because of the difficulty individuals had fully understanding the Act. In the mid-1970s, there was an unsuccessful attempt to repeal the Act. The Federal Trade Commission revived its use in the late 1980s. Enforcement has declined again since the 1990s.
What the Robinson-Patman Specifically Prohibits
The Act generally prohibits sales that discriminate in price on the sale of goods to equally-situated distributors, when the effect of such sales is to reduce competition. Price refers net price and includes all compensation paid. The seller may not throw in additional goods or services. Injured parties or the US government may bring action under the Act.
Charges may be brought on sales that involve:
- Discrimination in price on at least two consummated sales from the same seller to two different purchasers
- Sales must cross state lines
- Sales must be contemporaneous of "commodities" of like grade and quality sold for "use, consumption, or resale" within the United States
- The effect must be to "substantially to lessen competition or tend to create a monopoly in any line of commerce"