The Robinson-Patman Act and the consumer effects of price discrimination.
In the early twentieth century, the United States was particularly weary of firms with significant market power. In 1911, the most famous antitrust case in U.S. history resulted in the Supreme Court's breakup of John D. Rockefeller's Standard Oil Trust. (1) In the wake of Standard Oil, among other cases, the Clayton Antitrust Act was passed in 1914 to address predatory pricing. (2) Over the next twenty years, Congress became more focused on the protection of "mom and pop" stores. Specifically, legislators were concerned with multimarket firms that priced differently across markets in an effort to force local competitors to exit their markets. In 1936, the Robinson-Patman Act amended Section 2 of the Clayton Act to account for price differences across markets. The Act aimed to protect small businesses from paying higher prices than large firms for goods that were intended to be resold. (3)
The Robinson-Patman Act is meant to protect against price discrimination. Economists define price discrimination as differences in price for the same good that are not based on cost. Unfortunately, the Robinson-Patman Act does not make a distinction between price dispersions that are cost-related and those that are not. (4) This has led to much heartache, as many feel that the Act has been used unnecessarily and ultimately inhibited competition. For example, the notorious Utah Pie case served mainly to eliminate competition in the local market for frozen pies, a case where price discrimination improved consumer welfare. (5) Robert Bork (6) even went so far as to call the Robinson-Patman Act "antitrust's least glorious hour."
While price discrimination may improve consumer surplus, for example, Utah Pie, this article will demonstrate other situations when price discrimination leads to both lower consumer surplus and overall deadweight losses to social welfare. In these cases, relying on the Robinson-Patman Act to curb discrimination is necessary to protect consumers and increase consumer welfare.
In this article, I examine the consumer effects of price discrimination and discuss three Robinson-Patman cases and their positive effects on consumer welfare. I then discuss the theoretical and empirical literatures on price discrimination and their implications for the effects of the Robinson-Patman Act on consumer welfare.
The article proceeds as follows: Section 2 examines the single-price monopolist, while Section 3 lays out the main types and methods of price discrimination. Section 4 examines the effect of the Robinson-Patman Act on the consumer welfare effects of price discrimination. Section 5 discusses the theoretical and empirical literature surrounding the welfare effects of price discrimination, and Section 6 concludes with a discussion of the current state of antitrust scrutiny of price discrimination as well as suggestions for going forward.
2. The Single-Price Monopolist
Before discussing a price discrimination and its welfare implications, we must first understand the pricing strategy of single-price monopolist. All rational firms try to maximize profit. That is, they are trying to maximize the following relationship:
Profit = Revenue - TotalCosts
Profit maximization occurs where marginal revenue (MR) is equal to marginal cost (MC). The profit-maximizing price and quantity are illustrated in Figure 1. The monopolist will sell [Q.sup.*] at the point where MR--MC. Since demand tells us the price a consumer is willing to pay for a certain quantity, Q, the price the monopolist will charge is [P.sup.*], the point where [Q.sup.*] hits the demand curve.
Intuitively, this makes sense. If marginal revenue is greater than marginal cost, then this implies that the very next unit the producer makes will bring in more revenue than it costs to make. Thus, the producer will keep producing. If marginal revenue is less than marginal cost, this implies that the very next good the producer makes will bring in less revenue than it costs to make. Thus, the producer will scale back production. The equilibrium occurs when the marginal revenue earned on producing the good equals the cost of producing that good.
Figure 1 also reveals the surplus enjoyed by both the monopolist (the producer) and the consumer. Consumer surplus occurs when consumers pay less for the goods than they were willing. Therefore, the consumer surplus is the area below the demand curve and above the price paid (triangle ABC). Similarly, the producer surplus is measured by the difference between what the producer was willing to sell at and the price at which the good was sold. In our graph, that is the difference between [P.sup.*] and marginal cost (rectangle BCDE). In the case of the single-price monopolist, we are left with an area of deadweight loss. Deadweight loss occurs due to the inefficient quantity being sold. Under perfect competition, the firm would sell [Q.sub.C] goods where MC = Inverse Demand. Given that a monopolist profit-maximizes by suppressing quantity and charging a higher price, we have a deadweight loss equal to triangle CEF.
3. Price Discrimination
From Figure 1, we see that even a monopolist leaves some consumer surplus on the table. This is a result of charging a single price. Imagine that instead of charging [P.sup.*] for all goods sold up to [Q.sup.*], the monopolist charges a higher price for at least one of these units. As long as this higher price is not outside the consumer's demand curve, the consumer will pay it, transferring some consumer surplus over to the producer.
It is clear that monopolists face a trade-off. They can charge consumers who value the good very highly a high price, or they can charge a low enough price to entice the consumers who do not value the good as much. Nonuniform pricing avoids this trade-off and captures the additional consumer surplus by raising the price to customers who are willing to pay more money. Therefore, in an effort to extract additional consumer surplus, firms may attempt to price discriminate, that is, charge two different prices for two identical goods.
Before discussing the different ways in which firms price discriminate, it is important to note the three conditions required for them to be able to do so. First, a firm needs to be able to accurately segment the market. For instance, suppose a theme park attempts to price discriminate with its theme park tickets. It faces consumer A who is willing to pay up to $60 for the ticket, while consumer B is only willing to pay $40. The theme park knows these reservation prices but does not know to which segment a particular consumer belongs. (7) If the theme park guesses incorrectly, it sells to only one consumer and sells the ticket at a lower price than it otherwise could. Segmenting the market correctly means the producer can distinguish between consumers with different valuations.
Second, a firm must be able to prevent resale, or arbitrage. Suppose the theme park in the above example tries to discriminate against out-of-state residents and sells its tickets at a price of $40 to in-state residents and $60 to out-of-state residents. The theme park requires showing a driver's license to prove residency and prevent imposters. If resales are possible, the in-state consumer will buy two tickets at $40 each and sell one of the tickets to the out-of-state consumer, perhaps for $50. This yields the in-state consumer $10, while the out-of-state consumer enjoys a surplus of $10. The theme park gets only $80 instead of $100. Firms typically prevent resales by requiring identification, placing maximums on the amount a customer can buy, and not allowing transfers between parties, among other precautions. (8)
Third, a firm must have market (or monopoly) power. Without market power, a firm is operating in a competitive market and will not be able to charge different prices without losing its customers. The price discrimination literature, however, has shown that price discrimination exists even in markets with free entry. (9) Therefore, it may be that this condition is not as necessary as once thought.
3.1. Types of Price Discrimination
There are three different types of price discrimination. Each type revolves around the same strategy and the same goal: maximize profit by segmenting the market and extracting additional consumer surplus.
3.1.1. First-degree price discrimination. If a monopolist had perfect information about its consumers and was able to price discriminate, presumably it would price along the demand curve that it faces. In other words, the firm would charge every customer exactly how much he or she was willing to pay for the good; this method is known as first-degree price discrimination or perfect price discrimination.
When a firm price discriminates, it will sell up to the point where marginal cost meets the demand curve. Referring to Figure 1, this would be quantity [Q.sub.c]. Given that each good is sold at the price the consumer was willing to pay, the consumers enjoy zero surplus. Conversely, the producer extracts all surplus for itself, triangle ADF. This type of discrimination is efficient in the sense that social welfare is maximized, that is, there is zero deadweight loss, but it clearly hurts consumers even when compared to the case of the single price monopolist.
3.1.2. Second-degree price discrimination. Another way firms can price discriminate is through volume discounts and two-part pricing. Both are considered types of second-degree price discrimination, which generally involves quantity discounts. While both of these forms of second-degree price discrimination have welfare implications, this article focuses on volume discounts because they are more relevant to the context. (10)
Volume discounts allow buyers to purchase a higher inventory at a reduced price. While this benefits the high-inventory buyer, it obviously hurts the low-inventory buyer who is forced to pay a higher price. This buyer may then be less competitive in the downstream market.
3.1.3. Third-degree price discrimination. Third-degree price discrimination occurs when firms segment the market into high-demand groups and low-demand groups. In general, perfect price discrimination is not likely to be a feasible option for a firm, as it is unlikely to have perfect information regarding consumers' willingness to pay. A more practical option is to group consumers by what the producer perceives their price elasticities of demand to be. For instance, movie theaters sell discounted tickets to students and senior citizens and higher-priced tickets to other adults. This is not because theaters disdain the middle-aged. It is because students and seniors likely have more elastic demand for movies than adults. A variety of reasons go into this thinking, but they include the lower incomes of students and seniors compared with other adults, additional "Friday night" alternatives available to students, and the higher tendency of seniors to spend their nights indoors. As long as it is not profitable to ignore this group of consumers entirely, the movie theater needs to lower its prices to induce such groups to purchase.
If the movie theater charged a uniform price to all three groups (students, seniors, and other adults), the price would fall somewhere between the discounted price and the regular price. (11) In such a case, the many adults enjoy a higher surplus, but the students and seniors who still purchase tickets enjoy a lower surplus. The numbers of individuals buying tickets under the two pricing schemes will determine the net welfare effects.
Monopsony is an oft-forgotten market structure. While this article has discussed price discrimination in terms of sellers discriminating against buyers, it can also happen the other way around. In other words, firms with high buying, or monopsony, power can discriminate in favor of a preferred seller. A profit-maximizing monopsonist restricts purchases and lowers prices. (12)
If a firm faces an upward sloping supply curve, it may be able to exploit monopsony power, in which the firm will behave like the firm in Figure 2. Profit maximization occurs where the marginal revenue product (MRP) equals marginal expenditure (ME). Thus the monopsony quantity is [Q.sub.M] and the monopsony price is [P.sub.M]. If the market was competitive and responded to natural forces of supply and demand, the number of units sold and corresponding price would be [Q.sub.C] and [P.sub.C]. This is clearly more than the number of units sold under monopsony. In addition, the competitive price is higher than the monopsony price.
The buyers in such a market are able to extract additional surplus from the sellers when compared to the competitive market. Additionally, there is deadweight loss in this market equal to triangle ABC.
There is another effect of monopsony that is not clear from Figure 2 but is relevant to the discussion of welfare effects. Consider a market with multiple buyers and one of those buyers has significant monopsony power, that is, high buying power. Such a market will result in decreased surplus for both the weaker buyers as well as the consumers of such buyers. First, when the strong buyer exerts its monopsony power, it will secure a lower price from the seller than its competitors and becomes what is known as a "favored buyer." This is considered a form of price discrimination, as there are price differences that are not based on costs, but simply resulted due to one firm's market power. The weaker buyers, that is, the "disfavored" buyers who pay the higher price to the seller, enjoy less surplus than if they had secured the same low price as the favored buyers.
This favored/disfavored buyer market may lead to two possible outcomes in the downstream market in which lower consumer surplus results: (1) in order to cover these relatively higher costs, the disfavored firm sells its goods in the downstream market at a higher price, resulting in lower consumer surplus for its customers than if the firm was able to sell its goods at a lower price; or (2) if the favored firm passes on its cost savings in the form of a lower price to the consumers, the disfavored firm must sell its goods at a lower price than would be optimal based on its costs in order to compete with the favored firm. This low price will not be sustainable in the long run, the disfavored firm will exit the market, and the favored firm will have a monopoly. This new monopoly will be able to charge higher prices and consumer welfare will ultimately decrease.
3.3. Price Discrimination in Practice
There are two ways that parties that are discriminated against may be affected by price discrimination. The first is known as primary-line injury, in which the injury is suffered by direct competitors of the firm practicing the price discrimination. The second is known as secondary-line injury, in which the injury is suffered by a disfavored firm at the hands of the producer.
The legal theory of primary-line injury cases depends on the assumption that a multimarket firm can reduce its price in one geographic market to inflict harm on a localized rival. (13) The multimarket firm may price predatorily in one market and finance this venture with profits earned in other, less competitive markets. The localized rival is not able to use similar tactics because it does not operate in any other market and, therefore, has no source of economic profits with which to counter the competitive attack. As a result, the localized firm will eventually fail. After the local firm exits, the predator will then raise its price and recover its initial investment in acquiring the monopoly. (14)
Secondary-line injury is said to occur when a producer sells an identical product to two firms at different prices. For instance, suppose a producer sells its output to some of its customers/firms at one price and to other customers/firms at a lower price. If these firms then compete among themselves in the resale market, those that paid the lower price will have a competitive advantage over those that paid the higher price. Similar to the discussion in Section 3.2, this will lead to the following scenarios: the disfavored firm will either have to (1) sell its goods in the downstream market at a higher price, thus losing retail consumers to the favored firm; or (2) lower its prices to unsustainable levels to compete with the favored firm. In other words, to the extent that a favored firm makes sales at the expense of the disfavored firm, there is secondary-line injury. The disfavored firms clearly see a reduction in their surplus.
As we can see, while some firms and other consumers may benefit from price discrimination, there are many instances where consumers are worse off. Primary-line injury cases as well as secondary-line cases have frequently been brought to court under violations of the Robinson-Patman Act, which is discussed in the next section.
4. The Robinson-Patman Act
The Robinson-Patman Act was passed in 1936 in an effort to protect "mom and pop" stores from large retail chains. The Act was an amendment to Section 2 of the Clayton Act, which addressed predatory pricing. In the early twentieth century, Congress was concerned with large multimarket firms extending their monopoly power using predatory pricing in certain markets and bankrupting rivals within those markets. By the 1930s, the focus shifted to protecting small, locally owned stores from the low prices and purchasing power of large chains. Thus was born the Robinson-Patman Act, which provided in Section 2a of the Clayton act that
It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefits of such discrimination, or with customers of either of them. (15)
Therefore, the Robinson-Patman Act protects competitors of the discriminating seller, that is, it protects some firms from primarily-line injury. The Act also extends protection to disfavored customers as well, that is, those that may suffer from secondary-line injury. While the Robinson-Patman Act justifiably has its critics, it can and does have positive impacts on consumers. The protection afforded by the Act came under fire as consumers obviously preferred the lower prices of the larger chains to the higher prices offered by mom and pop. (The premise of the Act is that free markets were rife with unfair and anticompetitive practices that threatened competition, small business, and consumers. (16)) This, however, is confined to a short-run view, while in the long run, the protectionism of mom and pop stores may be warranted from a consumer welfare standpoint. As discussed in Section 3, price discrimination can result in negative consumer effects. In this section, we will discuss three cases and their potential effects on consumers.
4.1. Robinson-Patman Cases
Many Robinson-Patman cases have been brought in the past eighty years. Some of these cases are infamous and their decisions highly controversial, for example, Utah Pie. Critics of the Robinson-Patman Act cite the Act's tendency to protect competitors rather than competition and its ability to challenge price differences rather than true price discrimination. (17) Opponents are concerned that such issues result in harm to consumers. While these concerns are justified, there are instances where the Robinson-Patman Act likely served to help some consumers.
In FTC v. Morton Salt, (18) volume discounts were brought to task. Morton Salt offered volume discounts on its Blue Label table salt to all of its customers, large and small. Their customers were both wholesalers and large grocery chains. The wholesalers sold the salt to smaller grocery chains that did not directly buy from Morton Salt but were typically in competition with the large chains that did. The price schedule is given in Table 1.
While these discounts were available to all customers, only five firms ever purchased enough salt to qualify for the $1.35/case price-large grocery chains. Due to this discount, the large grocery stores were able to underprice the smaller grocery chains that purchased from the wholesalers. As a result, the firms that did not receive the discount argued that they could not be competitive in the market. Morton Salt argued, on the other hand, that table salt does not constitute enough of a store's revenue to swing competition in any direction. In its ruling, the Supreme Court decided that these persistent price differences are sure to have competitive effects. Accordingly, the Court also determined that such volume discounts are illegal unless they can be cost-justified. While it is the prevailing opinion of most economists that the Morton Salt ailing was unjustified due to the lack of a requirement to demonstrate injury, it is clear that not only were small firms hurt by these discounts, but so too were the customers of these stores who paid higher prices. (19)
In Texaco, Inc. v. Hasbrouck, Hasbrouck and other independent gas retailers accused Texaco of engaging in illegal price discrimination under the Robinson-Patman Act. In the case, Texaco sold gasoline in the Spokane, Washington, geographic market at different prices to two groups of customers. (20) During the 1970s, Texaco gave discounts as high as six cents per gallon below the dealer tank wagon (DTW) price to two distributors, Gull and Dompier. The other group of firms in the area were Texaco-branded independent retailers, which paid the full DTW price. During the early 1970s, the Spokane gas market saw seven of the twelve independent retail gas stations close. Gull and Dompier, however, saw its monthly sales almost triple during the same period.
In its ruling, the Supreme Court determined that such substantial price differences among firms engaged in direct competition with one another implies an injury to competition. As a result, Texaco was found guilty of a Robinson-Patman Act violation.
In another and more recent decision in the case of Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., the Supreme Court reaffirmed the Morton Salt inference of injury in the presence of price differences, but it did clarify that this inference is only relevant when the favored and disfavored customers are competing for the same book of business. (21) This is an important point as a common thread to the most criticized cases is the failure to correctly, or at least reasonably, define the market in which the firms in question are competing.
In a case like Texaco, the impact of discriminatory prices on competition in a relevant market was not examined. The market shares of the gas market held by Gull and Dompier in comparison to the independent Texaco stations was measured as though Texaco was the only gasoline sold in Spokane. Of course there are many other brands of gas, and the Court did not consider the effect of the discounts offered by Texaco on the entire gas market in Spokane. This is not to say there was not a negative impact, but it is nonetheless necessary to explore to prove an overall injury. Fortunately, this has recently been rectified in the Volvo case.
While Robinson-Patman cases have been in steep decline since the 1990s, indicating resistance by the Federal Trade Commission and the Department of Justice to enforce the Act, there is an active case in the U.S. District Court in Madison, Wisconsin--and this case may well be justified. In October 2014, Woodman's Food Market, a Wisconsin-based chain of supermarkets, filed a lawsuit alleging a Robinson-Patman violation against Clorox after Clorox forbade Woodman's to sell bulk-packs of Clorox products. (22) Woodman's claim is that it can no longer compete with warehouse type stores such as Costco and Sam's Club who are not subject to the same prohibition. Clorox attempted to have the case thrown out in February 2015, but was denied. In order to analyze the effects of such a prohibition, it is first important to note that Clorox products are not simply just the branded bleach, but also include Glad products, Hidden Valley, Burt's Bees, and Brita, among others. That is, many of Woodman's goods are affected. Second, as discussed earlier, Woodman's only has a relevant claim if they are competing for the same customers as warehouse stores. For instance, if there is there is a warehouse store within ten miles of Woodman's, the harm would be much larger than if the nearest warehouse store were one hundred miles away.
5. Theoretical and Empirical Evidence of Price Discrimination
While there is lack of empirical examinations of the impact of price discrimination on Robinson-Patman cases, there is a large literature documenting both the theory of price discrimination and the firms and industries that price discriminate.
5.1. Theoretical Literature
The welfare analysis of price discrimination has a rich history and goes back at least as far as Pigou's The Economics of Welfare (23) and Robinson's The Economics of Imperfect Competition, (24) Over the next eighty-five years, the welfare effects of price discrimination have continued to be a source of debate because the overall impacts are ambiguous.
Theoretical work examines the effects of third-degree price discrimination of monopolies and oligopolies. The monopoly literature finds a decrease in welfare from price discrimination unless there is an increase in output. (25) More recent work implies that price discrimination increases consumer surplus but is contingent on a variety of conditions. Aguirre et al. show that price discrimination can increase consumer surplus depending on the marginal costs faced by the firms as well as how similar the demand functions are for each consumer. (26) Cowan supports Varian's earlier findings but also shows that third-degree price discrimination increases consumer surplus when the demand functions for each consumer are parallel. (27) Bergemann et al. show that consumer surplus differs wildly depending on the level on information known about that consumer. (28) Of most relevance to the Robinson-Patman Act, perhaps, is Katz's work, which examines the welfare effects of price discrimination by a monopolist in the intermediate goods markets. (29) He shows that price discrimination prohibits vertical integration and can lead to higher prices charged to all consumers and total output is reduced, therefore decreasing consumer surplus. Furthermore, Katz concludes that since vertical integration can only occur when price discrimination is banned, that price discrimination only serves to prevent inefficient integration. (30)
There is also a broad literature detailing the theory of price discrimination in oligopolistic markets and markets with free entry. Borenstein and Holmes examine imperfectly competitive markets as well as markets with free entry. (31) These studies illustrate that third-degree price discrimination may increase or decrease output--there is no consistent direction. Instead, the direction of output depends on the elasticity of demand as well as the competition in the market and the availability of substitutes. Other work extends the literature by examining price discrimination by firms who strategically locate (i.e., a Hotelling model) and face consumers purchase all products from a single firm. (32) These studies find that when consumers have private information about their preferences, it is socially optimal to offer a cost-plus-fee pricing scheme.
5.2. Empirical Literature
The empirical literature examining price discrimination covers a variety of industries as well as many different market structures. There is no shortage of studies detailing the harmful consumer effects of price discrimination. Shepard shows that the behavior of firms can deviate substantially from the competitive model even in a reasonably competitive market like gasoline. (33) For instance, Shepard shows that full-service gas prices increased nine cents per gallon as a result of price discrimination. Other studies examine the effects of price discrimination when firms are competing for customers. (34)
The airline industry is examined in great detail and is found to extract more consumer surplus through price discrimination. Borenstein and Rose as well as Chen show that even though price discrimination among competitive firms can result in lower prices, consumers incur search costs that result in a deadweight loss and lower consumer surplus. (35) Gale and Holmes find that advanced-purchase discounts offered on airline tickets extract more consumer surplus than not having such discounts. (36) In a slightly different setting, Clemons et al. examine online ticket agencies and find that after controlling for differences in ticket quality ticket prices still vary by 18%. (37)
Price discrimination studies are not limited to the gasoline market or the market for airline tickets. For instance, it has been shown that banning wholesale price discrimination increases welfare, some demographic groups are able to extract lower prices from car salesmen than others, and movie theaters are able to extract more consumer surplus by "metering" concession sales and using this information as a proxy for willingness to pay for movie tickets. (38)
To the best of my knowledge, no empirical studies find unambiguous positive effects of price discrimination on consumer surplus. There are a few, however, that find a neutral or ambiguous effects. Another examination of the airline industry, this time in Australia, finds that consumer surplus is constant whether there is uniform or non-uniform pricing because the average price stays constant. (39) Price discrimination in the market for Broadway tickets causes a redistribution of consumer surplus among the various segments and overall leads to an insignificant effect on consumer surplus. (40) Ambiguous consumer welfare effects are found in an examination of competing exports from both the U.S. and Germany. (41)
The monopsony literature is much less conflicted than that of monopolies, oligopolies, or monopolistic competition. Gould shows that monopsonists who price discriminate extract more surplus from consumers, sometimes even from parties with whom they do not contract. (42) Furthermore, Inderst and Valletti show that uniform pricing unambiguously results in an increase in consumer surplus. (43)
6. Concluding Remarks
The Robinson-Patman Act has been the subject of criticism for almost eighty years. This is partly because some believe price discrimination to always be procompetitive, while others point to the tendency for the Act to protect competitors instead of competition. (44) This article is not contradicting those conclusions. This article does, however, detail the textbook, theoretical, and empirical evidence for the harmful consumer effects of price discrimination. To the extent that the Robinson-Patman Act has curbed the harmful effects of price discrimination, it has improved the outcome for at least some consumer groups.
The Robinson-Patman Act is not perfect, but the Supreme Court has made efforts over the years to improve its use. Until a suitable replacement is enacted, we must rely on this Act to minimize the harmful consumer effects of price discrimination.
I would like to thank Roger D. Blair, Mark A. Glick, Desmond Toohey, and an anonymous referee for helpful comments and suggestions.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
The author(s) received no financial support for the research, authorship, and/or publication of this article.
(1.) Standard Oil Company v. United States, 221 U.S. 1 (1911).
(2.) See United States v. American Tobacco Company, 221 U.S. 106 (1911).
(3.) Creation Without Restraint (Christina Bohanna & Herbert Hovenkamp eds., 2012).
(4.) Richard A. Posner, The Robinson-Patman Act: Federal Regulation of Price Differences (1976).
(5.) 386 U.S. 685 (1967).
(6.) The Antitrust-Paradox: A Policy at War with Itself (Robert H. Bork ed., 1978).
(7.) The assumption that the firm optimally segments consumers as well as that it knows the reservation price of each consumer is a simplifying assumption for the sake of exposition. Of course, this is likely unrealistic, and firms in reality make mistakes in regards to segmentation and only have estimates of reservation prices. (See Henry J. Claycamp & William F. Massy, A Theory of Market Segmentation, 5 J. Marketing Res. 388 (1968) for a discussion on the difficulties of market segmentation.)
(8.) For a full treatment on the economics of price discrimination, see The Economics of Price Discrimination (Louis Phlips ed., 1983).
(9.) Severin Borenstein, Price Discrimination in Free-Entry Markets, 16 RAND J. Econ. 380 (1985); Thomas J. Holmes, The Effects of Third-Degree Price Discrimination in Oligopoly, 79 Am. Econ. Rev. 244 (1989).
(10.) For a discussion of two-part pricing, see Walter Oi's seminal paper: Walter Y. Oi, A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly, 85 Quart. J. Econ. 77 (1971).
(11.) Posner, supra note 4.
(12.) Monopsony in Law and Economics (Roger D. Blair & Jeffrey L. Harrison eds., 2010).
(13.) Federal Antitrust Policy: The Law of Competition and Its Practice (Herbert Hovenkamp ed., 2011).
(14.) This section borrows from the theory laid out in Roger D. Blair & Christina DePasquale, "Antitrust's Least Glorious Hour": The Robinson-Patman Act. 57 J. L. Econ. S20I (2014).
(15.) 15 U.S.C. Section 13a. See Bork, supra note 6.
(16.) Bork, supra note 6.
(18.) 334 U.S. 37 (1948).
(19.) Of course, consumers are free to purchase from the large retailers who are likely to sell salt at a lower price, but as Borenstein and Rose show, there is a search cost to doing so that will result in a decrease in consumer welfare. Severin Borenstein & Nancy L. Rose, Competition and Price Dispersion in lhe U.S. Airline Industry, 102 J. Pol. Econ. 653 (1994).
(20.) Texaco, Inc. v. Hasbrouck. 496 U.S. 543 (1990).
(21.) 546 U.S. 164 (2006).
(22.) Woodman's Food Market Inc. v. The Clorox Co., 14-cv-00734, U.S. District Court, Western District of Wisconsin (Madison).
(23.) The Economics Welfare (Arthur C. Pigou ed., 1920).
(24.) The Economics of Imperfect Competition (Joan Robinson ed., 1933).
(25.) Richard Schmalensee, Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination, 71 Am. Econ. Rev. 242 (1981); Hal R. Varian, Price Discrimination and Social Welfare, 75 Am. Econ. Rev. 870 (1985) [hereinafter Price Discrimination]', Hal R. Varian, Revealed Preference and Its Applications, 122 Econ J. 332 (2012) [hereinafter Revealed Preference].
(26.) Inaki Aguirre, Simon Cowan, & John Vickers, Monopoly Price Discrimination and Demand Curvature, 100 Am. Econ. Rev. 1601 (2010).
(27.) Simon Cowan, Welfare-Increasing Third-Degree Price Discrimination (Working Paper, 2013); Varian, Price Discrimination, supra note 25; Varian, Revealed Preference, supra note 25.
(28.) Dirk Bergemann, Benjamin Brooks, & Stephen Morris, The Limits of Price Discrimination, 105 Am. Econ. Rev. 921 (2015).
(29.) Michael Katz, The Welfare Effects of Third-Degree Price Discrimination in Intermediate Good Markets, 77 Am. Econ. Rev. 154 (1987). Varian, Price Discrimination, supra note 25; Handbook of Industrial Organization (Richard Schmalensee & Robert Willig eds., 1989).
(30.) Katz, supra note 29.
(31.) Borenstein, supra note 9; Holmes, supra note 9.
(32.) Mark Armstrong & John Vickers, Competitive Price Discrimination, 32 RAND J. Econ. 579 (2001); Jean-Charles Rochet & Lars A. Stole, Nonlinear Pricing with Random Participation, 69 Rev. Econ. Stud. 277 (2002).
(33.) Andrea Shepard, Price Discrimination in Retail Configuration, 99 J. Pol. Econ. 30 (1991).
(34.) Id.', Severin Borenstein, Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry, 20 RAND J. Econ. 344 (1989); Borenstein & Rose, supra note 19; Yongmin Chen, Oligopoly Price Discrimination by Purchase History, in Pros and Cons of Price Discrimination (Mats Bergman ed., 2005). Marcus Asplund, Rickard Eriksoon, & Niklas Strand, Price Discrimination in Oligopoly: Evidence from Regional Newspapers, 56 J. Ind. Econ. 333 (2008).
(35.) Borenstein & Rose, supra note 19; Chen, supra note 34.
(36.) Ian Gale & Thomas Holmes, Advance-Purchase Discounts and Monopoly Allocation of Capacity, 83 Am. Econ. Rev. 135 (1993).
(37.) Eric K. Clemons, Il-Hom Hann, & Lorin M. Hitt, Price Dispersion and Differentiation in Online Travel: An Empirical Investigation, 48 Mgmt. Set. 534 (2002).
(38.) Sofia Berto Villas-Boas, An empirical investigation of the welfare effects of banning wholesale price discrimination, 40 RAND J. Econ. 20 (2009); Ashley Langer, Demographic Preferences and Price Discrimination in New Vehicle Sales (Working Paper, 2012); Ricard Gil & Wesley R. Hartmann, Empirical Analysis of Metering Price Discrimination: Evidence from Concession Sales at Movie Theaters, 28 Marketing Sci. 1046 (2009). These are just a few of the papers. For a survey of the literature, see Mark Armstrong, Price Discrimination (MPRA Paper 4693, University Library of Munich, 2006).
(39.) Tim Hazledine, Oligopoly and Price Discrimination: Theory and Application to Airline Pricing (Working Paper, 2005).
(40.) Phillip Leslie, Price Discrimination in Broadway Theater, 35 RAND J. Econ. 520 (2004).
(41.) Michael M. Knetter, Price Discrimination by U.S. and German Exporters, 79 Am. Econ. Rev. 198 (1989).
(42.) J.R. Gould, Price Discrimination and Vertical Control: A Note, 85 J. Pol. Econ. 1063 (1977).
(43.) Roman Inderst & Rommaso Valletti, Third-Degree Price Discrimination with Buyer Power, 9 B.E. J. Econ. Anal. Pol'y 1 (2009).
(44.) Bork, supra note 6.
Christina DePasquale, Department of Economics, Emory University, 1602 Fishburne Drive, Atlanta, GA, USA
Christina DePasquale, Department of Economics, Emory University, Atlanta, GA 30322, USA.
Table 1. Morton Salt Price Schedule. Less-than-carload purchases $ 1.60/case Carload purchases $ 1.50/case 5,000 case purchasers in any consecutive 12 months $ 1.40/case 50,000 case purchasers in any consecutive 12 months $ 1.35/case
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|Title Annotation:||To Defend or Reform? The Law and Economics of the Robinson-Patman Act|
|Date:||Dec 22, 2015|
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