The Robinson-Patman Act

Q. Which of the following would be illegal under the Robinson-Patman Act?

• A. ExxonMobil sells gas at a higher wholesale price to independent gas retailers than to ExxonMobil retailers.
• B. General Mills and Kelloggs decide to merge.
• C. ExxonMobil and BP Oil elect the same person to their boards of directors.
• D. Ford and General Motors meet to fix the price of cars

Answer

A. ExxonMobil sells gas at a higher wholesale price to independent gas retailers than to ExxonMobil retailers.

Step 1: What is Robinson Patman Act of 1936

The Robinson Patman Act of 1936 was created to protect small businesses from being driven out of the marketplace by big companies. The big franchised companies can disadvantage small businesses through means such as discrimination in pricing, promotional allowances, and advertising.

The Act protects wholesalers and retailers against being removed from the supply chain. Some companies may decide to move goods directly from the source to the consumers limiting the effectiveness of all other intermediaries. It is considered illegal for a company to discriminate retailers by charging different prices.

Step 2: Which option is covered

The Act would consider the action of ExxonMobil as a violation of its provisions. ExxonMobil charges different prices to different retailers, discriminating independent retailers.

Revision

Terms in this set (13)

Original
Sherman Act
applies not only to buying and selling activities, but also to manufacturing and production activities. Is broken up into 2 main sections and has been used to regulate monopolies. Requires that monopoly position be gained because of a superior product as opposed to purposeful conduct to exclude competitors by other means. (microsoft).

Clayton Act
“no corporation shall acquire the whole or any part of the assets of another corporation where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to create a monopoly”. I.E. no merger that hurts the market will be allowed. In order to merge, large enterprises must give written notice to the (FTC) and to the head of the Anti Trust Division of the Department of Justice. (AT&T acquisition of T-Mobile). This also prohibits price discrimination. Makes the giving and receiving of price discrimination a crime.

Robinson-Patman Act
Prohibits price discrimination. Makes it illegal to charge different prices to buyers when the marginal costs of the seller of those goods are the same. Example, offering free advertising to one buyer, and not to another would be considered a violation.

What do Antitrust Laws regulate?
the relationship between and among competitors, know as horizontal restraints

Section 1 of the Sherman Act
“Horizontal Price Fixing” or any agreements to charge an agreed upon price or to set maximum or minimum prices between or among competitors are “per se” in violation of this. (Applies to agreements, conduct, or conspiracies to restrain trade; i.e. price-fixing, tying, and monopolization)

Price-Fixing
competitors agreeing on credit terms, or exchanging cost information

Section 2 of the Sherman Act
prohibits monopolization or attempting to monopolize by companies or individuals

market power
the ability to control price and exclude competitors. Looks at both the geographic and product markets. I.E. a company may have power nationally, but may be underrepresented in one state based on the popularity of a state product. Cheerios versus California o’s.

divestiture order
a decree requiring the defendant in a monopoly suit, to dipose of such interests.

Price discrimination:
occurs when a seller charges different prices to different buyers for commodities of like grade quality. Think of the pie case and the company that gave the same pies different “brand names” in different stores and distributed the pies for different prices.

When Price Discrimination is Permitted
1.) difference in grade quality or quantity
2.) the cost of transportation involved in performing the contract
3.) good-faith method to meet competition
4.) differences in metods or quantities that is marginal cost differences
5.) deterioration of goods
6.) a close-out sale of a particular line of goods.

Sherman Act: Civil and Criminal Penalties
Criminal: the punishment for violation of the Sherman Act is punishable by fine, or imprisonment or both at the discretion of the court. Civil: any individual harmed may bring action for treble damages (three times the damages actually sustained)

tying
occurs when the seller makes a buyer who wants to purchase one product buy an additional product that he or she does not want.