Fresh analysis of Volvo v Reeder reveals economic implications of the Robinson-Patman Act

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Case and referencesVolvo v Reeder
CourtUS Supreme Court
Cause of actionAnticompetitive conduct

A seminal court case, Volvo v Reeder, demonstrates the potential difficulty in practically applying the legal tests of the Robinson-Patman Act. In Volvo, the Supreme Court found that Reeder had not successfully proven that it was in direct competition with other Volvo dealers that received more concessions than it and consequently did not demonstrate any alleged injury due to Volvo’s price discrimination.

Volvo thus outlines the burdens placed on plaintiffs and defendants in presenting and rebutting an alleged secondary-line violation of the act. Based on Volvo, plaintiffs alleging a secondary-line violation must show that they directly “compete[d] with a favored purchaser” over sales to the same end consumer. One aspect of this analysis, presumably, would involve analysing the relevant market(s) for the purchasers. Plaintiffs likely would identify the overlapping geographic areas where they competed with other sellers for the same customers, and defendants likely would highlight where they diverge.

Volvo also noted that the act is geared more toward protecting the “stimulation of competition” rather than ensuring the “protection of existing competitors”. Given this interpretation, an economist likely would undertake a systematic study of harm to competition, something Reeder was criticised for not providing in Volvo. Such a study could require rigorous econometric analysis to demonstrate either adverse pricing or output effects stemming from the challenged conduct.

An economist might also examine the conditions giving rise to the appearance of differential pricing. Such an evaluation might demonstrate that the differential pricing, such as through volume-based discounts, was functionally available to all buyers. Alternatively, an economist might evaluate whether the differential pricing provided to one buyer was in response to that buyer having to meet competition from a different brand of product. This is known as interbrand competition, which is distinct from intrabrand competition or when two retailers of the same brand of product compete against each other. Additionally, an economist might conduct a study comparing the differences in prices to the differences in costs associated with serving those specific buyers.

Further, since the Robinson-Patman Act presides over goods of “like quality and grade” that are sold on an interstate basis, any economic analysis assessing the substitutability of the good(s) in question should be able to confirm or undermine the “likeness” of the good. Both empirical and qualitative research on the good could help strengthen the argument for or against the similarity of the two goods.

Given these hurdles to demonstrating a violation of the act, class action lawsuits directly challenging price discrimination might be difficult to bring. As noted by a classic text discussing the first-class action related to an alleged violation of the act, “an individual investigation of each favored and each non-favored customer was still necessary to determine if each plaintiff was in actual competition with a favored customer”. One could see, however, indirect purchasers potentially bringing claims (in states where they are permitted) alleging overpricing in instances where a supposedly disfavored retailer was itself allegedly charged too high of a price. For example, in the context of soft drinks, if the FTC were to successfully demonstrate that a given retailer was overcharged, a class of indirect purchasers might be able to bring suit. Such a proposed class would then need to be certified for the case to proceed, an outcome far from guaranteed.

In conclusion, the legal requirements imposed by the Robinson-Patman Act, as well as the Supreme Court’s interpretation of the act, open the door to a variety of analyses that could be used to prove or disprove an alleged violation. With a renewed focus by the Federal Trade Commission on the act, the future of Robinson-Patman’s application, as well as the various statistical and econometric procedures used in Robinson-Patman litigation, look ripe with possibilities.

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