Among the more recent flurry of litigation in this area was a suit in October 1993, in an Arkansas Chancery Court claiming that Wal-Mart Stores, Inc. had violated state law by selling some drugs and health and beauty aids below cost in its store in Conway, Arkansas. Judge David Reynolds ordered an end to the practice and awarded the plaintiffs, three independent Arkansas pharmacies, nearly $300,000 in damages.1 At the trial, a company official said Wal-Mart's pricing policy was designed to make a profit, not to injure competitors. Wal-Mart, however, admitted in the two day trial that it priced certain items below cost ("loss leaders") as a strategy to draw customers, but not to drive local druggists out of the market.
Judge Reynolds based his ruling in part on Wal-Mart's in-store price comparisons of products sold locally by the plaintiffs in Conway, as well as other competitors.
The three pharmacies accused Wal-Mart of violating state laws against predatory pricing by selling as many as 200 items--ranging from Crest® toothpaste to over the counter drugs, below cost in its supercenter store in Conway, Arkansas. The plaintiff originally sought $1.1 million in damages. The case was brought under Arkansas' 1937 Unfair Practices Act.
The Arkansas statute forbade selling or advertising for sale items below cost "for the purpose of injuring competitors and destroying competition." 2
When this suit was announced antitrust experts pointed out that many state laws provided retailers with a better chance to win a predatory pricing suit than the federal law. States apparently have broader definitions and distinct causes of actions that don't depend on federal precedents. 3
The conclusions at law warranting the decision against Wal-Mart follow: 4
"Act 253 of 1937, 'The Unfair Trade Practices Act,' Ark. Code Ann. §§-75-201 through -75-211, ('the Act') specifically sets out the legislative intent of 'the Act':"
"The Arkansas Supreme Court recognized 'the Act's' purpose in Beam Brothers v. Monsanto [1976-1 Trade Cases ¶60,720]. 259 Ark. 233, 532 S.W. 2d 175 (1976):"
"The purpose of 'the Act' is not to protect small business from large business, downtown from malls, or to guarantee any business a share of the market, but to encourage 'fair and honest competition.' The protection afforded by 'the Act' is from 'unfair competition'."
"'The Act' makes it unlawful for a business to sell, or advertise for sale 'any article or product' at less than the 'cost thereof.' 'Cost' in this instance is defined as:"
"The prohibition against sales below costs does not apply to the sale below cost of seasonal, damaged, deteriorated and perishable items; good faith closing business sales; and court ordered sales."
"Wal-Mart contends that the court should look at 'market-basket' cost rather than single product or article cost. While the Court can find no Arkansas judicial decision construing this issue the Court finds that Ark. Code Ann. §4.75.209 is clear -- 'the Act' applies to 'any article or product' and not 'market-basket' or 'overall product line' cost."
"The burden of proof is on Plaintiffs to establish three essential elements: that Conway Wal-Mart sold, offered to sell or advertised to sell products (1) at less than the cost to Conway Wal-Mart, (2) for the purpose of injuring competitors, and (3) for the purpose of destroying competition. Ark. Code Ann. §4-75.209 (a)(1)."
"The evidence is clear that Conway Wal-Mart advertised and sold pharmaceutical and health and beauty products below invoice or acquired costs (without taking into consideration the 'cost of doing business') on a regular basis. These below cost sales do not fall within the exemptions set out in 'the Act.'
"The Court finds that purpose to injure competitors and destroy competition cannot be inferred from below cost advertising and sales alone. There must be other proof of intent of purpose. A person's purpose or intent, being a state of mind, ordinarily cannot be proven by direct evidence, but may be inferred from other circumstances. Alford v. State 34 Ark. App 113. 806 S.W.3d 29 19911."
"The court finds from the following circumstances that Conway Wal-Mart advertised and sold pharmaceutical and health and beauty products below cost for the purpose of injuring competitors and destroying competition:"
1. "The number and frequency of below cost sales."
2. "The extent of below costs sales."
3. "Wal-Mart's stated pricing policy -- 'meet or beat the competition without regard to cost'."
4. "Wal-Mart's stated purpose of below cost sales -- to attract a disproportionate number of customers to Wal-Mart."
5. "The in-store price comparison of products sold by competitors, including Plaintiffs."
6. "The disparity in prices between Faulkner County prices of the relevant product lines and other markets with more and less competition."
"Plaintiffs' request to enjoin Conway Wal-Mart from selling below cost as defined by the 'Unfair Trade Practices Act' is Granted."
"Plaintiffs's request for damages is Granted and the Court awards damages as follows:"
"Plaintiffs' request for treble damages and costs is Granted."
"Plaintiffs' request for attorney's fees is denied due to the lack of statutory authority for such allowance."
Wal-Mart immediately announced that it would appeal Judge Reynold's predatory-pricing decision to the Arkansas Supreme Court. Wal-Mart subsequently appealed the decision and had it reversed by the Arkansas Supreme Court; but not without dissent. 5
In Chapter VI on Predatory Pricing, the writer will discuss in more detail some of the data, expressed by the lower court as well as the majority and minority views of the Supreme Court in the appeals case won by Wal-Mart.
The tendency to litigate continued to grow when a large number of independent drug store owner/operators, from the traditional proprietorships to small chains, decided that pricing differentials were not fair and decided to take legal action not against the large chains, but against drug manufacturers and wholesalers. The issue in what was to become a class action suit was whether the price differences for prescription drugs at the retail level were based upon economies of scale present in large drug chains and generally justifiable.
The small drug stores saw the enemy as the drug manufacturers, and not always the retail chains. The proposed class action suit wanted the manufacturers to prove not only how they can justify selling at lower prices to higher volume customers, but additionally how they could justify selling at lower prices to lower volume customers, such as buying groups who purchase drugs for hospitals, HMO's, nursing homes and clinics.
However, there were a number of these lawsuits involving price discrimination in pharmaceuticals, one of which included large and small drugstore chains that challenged primarily the high discounts offered to HMOs and buying groups.
The plaintiffs (pharmacists), numbering in the hundreds, filed a class action suit in federal court in Chicago in November, 1994 6 against at least thirty drug manufacturers and wholesalers. The suit was an antitrust suit, alleging specific violations of the Sherman Antitrust Act and the Clayton Act. The suit related to pricing, variable discounts, combinations and conspiracy in unreasonable restraint of trade and concerted action.
Later in this text, the author will detail various cases and precedents which might have relevance with respect to protecting the nation's small retailers against possible monopolization, predatory pricing, restraint of trade and various antitrust activities by the nation's major retail chains as well as the mega-retail discount giants.
Nowhere in this text will the author recommend company versus company litigation, but he hopes to make his observations available to Congress, State Legislators and federal and state regulatory agencies with the recommendation that fair trade practice laws be reviewed and where more surveillance is necessary to protect the small retailer, that it be done.
In August 1994, Representative John La Falce (D. N.Y.), Chairman of the House Small Business Committee conducted panel hearings with respect to the growing dominance of the nation's major retail chains as well as the major retail discount chains, and what appeared to be behavior harming small business and entire communities, such as (alleged) predatory pricing, unfair labor practices and market saturation. A detailed discussion of these meetings and their findings can be found in Chapter VI.
The committee indicated that the growing powers of the retail-chains ought to be a continuing review responsibility of the Federal Trade Commission (FTC), and additionally expressed that as of August 1994, two of the five seats on the FTC still remained vacant. 7 Further action by the Committee has not been taken.
Since the hearings, Robert Pitofsky was nominated by President Clinton to head the Federal Trade Commission. Wall Street Journal articles heralding his appointment emphasized Pitofsky's belief in the active enforcement of antitrust laws. Pitofsky, a Georgetown University Law Professor had served as a Commissioner of the FTC, 1978-1981, and was Director of the FTC's Bureau of Consumer Protection from 1970 to 1973.
Among the witnesses at the hearings was Thomas Muller, a Fairfax, Virginia economist and the author of a report on the impact that three proposed Wal-Mart stores would have on northeastern Vermont communities. Muller stated, "In a few years, given (that) current trends continue, one corporate entity may have a substantial share of all retail trade in the United States." 8
In addition to citing certain important statutes, the CBO researchers interpreted several sections of the Robinson-Patman Act with respect to predatory pricing.
The Sherman Act prohibited "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations." 12 It also made it illegal to "monopolize, or attempt to monopolize, or combine to conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations." 13 Violations of those provisions were misdemeanors punishable by fines, imprisonment, or both, U.S. attorneys could obtain injunctions to prevent or restrain violations. Furthermore, private parties injured by violations could bring suit against the perpetrators and recover treble damages. 14 However, violations of the Sherman Act are now deemed to be felonies. Furthermore, private parties can now sue for injunctions.
The courts have long interpreted the Sherman Act to prohibit predatory pricing. Without a showing of predatory intent, price discrimination and selling below cost are not held to be violations of the law. 15
Predatory intent is an element of proof in some violations of the Sherman Act, i.e., monopolization and attempted monopolization, but not in conspiracy cases.
In the past two decades, the courts and the Federal Trade commission have become more skeptical of claims of predatory pricing than they were previously. They tend to look for evidence of such factors as prices below average variable cost (not merely below average total cost), large enough market share and sufficient barriers to other firms' entering the market to make monopoly and subsequent price increases feasible, and local price cutting in particular markets rather than general price cutting in all markets. 16 Mere price discrimination or selling below average total cost are not generally sufficient for demonstrating predatory pricing.
FTC proceedings are administrative and prospective (that is, the FTC can proscribe future behavior, but cannot punish past behavior). When the FTC believes a firm is engaging in unfair competition, it issues a complaint that is heard before an administrative law judge. If the judge agrees there is a violation, he or she issues and order for the firm to cease and desist. That order can be appealed to the courts. Assuming the order either is not appealed or is upheld on appeal, the firm is subject to fines if it continues the behavior. On judicial review, a decree to obey the order can be issued, in which case violations make the firm liable to be held in contempt of court.
Section 2 of the Clayton Act was the first law to restrict price discrimination outside the railroad industry. 19 It prohibited charging different prices to different customers when: (1) the price difference did not reflect differences in cost, grade, quality, or quantity; (2) it was not a good faith effort to meet competitive pressures; and (3) "the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly." 20
The Clayton Act authorized the Federal Trade Commission to enforce the act's provisions through the sort of administrative and prospective proceedings described above. 21 It authorized U.S. attorneys to obtain civil injunctions to prevent and restrain violations of the act, and it gave private parties the right to obtain injunctions to protect them from violations of the antitrust laws generally. 22 It also gave parties injured by violations of the antitrust laws the right to sue for treble damages. 23 Finally, it made individual directors, officers, or agents of corporations violating penal provisions of the antitrust laws guilty of misdemeanor violations, if they directed, ordered, or carried out the corporate violation. 24 In addition, it subjected them to punishment by fines and imprisonment.
The Robinson-Patman Act amended the Clayton Act to make it unlawful "to discriminate in price between different purchasers of commodities of like grade and quality" where the effect "may be substantially to lessen competition or tend to create monopoly in any line of commerce, or to injure, destroy, or prevent competition [emphasis added] with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them." 26 Exceptions were made for price differences resulting from differences in cost, charging low prices to meet those of a competitor, disposing of deteriorating perishable goods or obsolete goods, and disposing of goods in a closeout or bankruptcy sale. The act also prohibited buyers from knowingly inducing or receiving a prohibited discrimination in price. The act made some violations criminal offenses punishable by fines and imprisonment. However, the criminal provision of the Robinson-Patman Act has not been used in decades and is unlikely to be used.
The following memorandum to the author is, in a sense, a further analysis and interpretation of the historic and current meaning of the antitrust statutes summarized earlier in this chapter as a result of reviewing Congressional Budget Office reports and analyses.
It becomes obvious to the reader that the statutes on antitrust and their interpretation do provide an umbrella for federal governmental agencies to prescribe anti-competitive activities on the part of major retail chains, but only if appropriate evidence is found of such conduct.
The purpose of this study is not to stimulate litigation by government against any retail chains or manufacturers, but to alert Congress and the appropriate federal agencies that the laws protecting small business do exist since the 1890's, and if federal agencies make it known that when anti-competitive misbehavior is noted, and alleged, that surveillance and investigations might suggest to the mega-retailers that they consider putting a stop to the "roller coaster" which is eliminating the small retailer from the competitive scene. Further, Congress should hold hearings to be alerted to the possible excess of anti-competitive behavior or monopoly power by the huge retail chains; and further to consider legislation to amend the Sherman, Clayton and Robinson-Patman Act (and other statutes), originally designed to maintain a free market and protect small businesses in their rights to enter the market and survive as viable firms. The survival of small business, which was the desired aim of the 1995 President's White House Conference on Small Business is necessary for a balanced economy and for industrial and collective security, both economically and sociologically.
In addition to the review of federal statutes on antitrust, the federal government should review the Tax Code as a means of limiting chain abuses.
There follows Davis, Cowell & Bowe's memorandum to the author dated August 1, 1994, on the subject of "The Basics of Federal Laws on Monopolization and Predatory Pricing" prepared by Andrew J. Kahn, Esq. and Marjorie M. Alvord, Esq.
The Basics of Federal Laws on Monopolization and Predatory Pricing
To: Dr. Edward B. Shils
From: Davis, Cowell & Bowe
Counselors and Attorneys at Law
100 Van Ness Avenue
San Francisco, CA 94102
Date: August 1, 1994
This memorandum sets out a brief overview of basic federal antitrust law on monopolization and predatory pricing.
I. Basic Definition of Monopolization
Section 2 of the Sherman Act makes it a crime to monopolize or attempt to monopolize commerce. See 15 U.S.C. §2. Unlawful monopolization is typically defined as the possession of monopoly power plus some element of deliberateness, i.e., conduct intended to acquire, use or preserve that power. As was stated by the Supreme Court:
See U.S. v. Grinnell, 384 U.S. 563, 570-71 (1966) [emphasis supplied]. The principal dilemma faced in making the analysis is that the same conduct used to obtain and/or maintain monopoly power (e.g., low pricing, customer discrimination, integrating into different markets, introducing new products) are also often seen as generally beneficial competitive strategies which ought to be encouraged. See, e.g., Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986).
On the location side, the relevant geographic market is said to be the area in which the seller operates and in which the buyer can reasonably turn for such products or services. As stated by the Supreme Court:
In persuading any government agency to investigate antitrust implications of "Big Box" warehouse stores, market definition will be crucial. A more narrow market definition may make it easier to demonstrate a market share large enough to support a monopoly power presumption. However, too narrow a definition will not be seen as credible. For example, in one case the definition of the relevant market as shopping centers with more than 50,000 square feet was rejected as too narrow when sellers of the product regularly operated in smaller centers, strip centers, hardware stores, variety stores and drug stores. See American Key Corp. v. Cole Nat. Corp., 762 F.2d 1569 (11th Cir. 1985).
One might be able to get away with a relevant market definition of retail department stores in the semi-rural U.S., southwest or west. It could be argued that such a definition constitutes a "pragmatic, factual approach" necessary for promoting the purposes of antitrust laws.
II. Predatory Pricing
A demonstration of predatory pricing practices may be one way to establish the deliberateness prong of the test. Predatory pricing has been defined as "pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run." See Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 117 (1986).
One of the complaints frequently heard about the "Big Box" warehouse stores is that they aggressively price in order to put the local competition out of business. As the above discussion implies, however, one should bear in mind that aggressive pricing is not per se unlawful under the Sherman Act. It is important to show use and abuse of monopoly power in the relevant market.
In addition to Section 2 of the Sherman Act, the Robinson-Patman Act regulates pricing policies. Section 2(a) of the Clayton Act as amended by the Robinson-Patman Act provides:
See 15 U.S.C. §13(a). Actions for predatory pricing have often involved claims under both provisions.
In 1993, the Supreme Court issued its decision entitled Brook Group Ltd. v. Brown and Williamson Tobacco Corp., 113 S.Ct. 2578, 61 L.W. 4699 (1993), which substantially undermines the availability of a predatory pricing action based on federal law, either under the Sherman Act or the Robinson-Patman Act. The Supreme Court indicated that the appropriate legal analysis in a predatory pricing case is substantially the same whether the action is brought under the Sherman Act or the Robinson-Patman Act.
The Brook Group case is referred to as the "Liggett" decision because that was the former name of the plaintiff cigarette maker. In that action the plaintiff was a struggling cigarette maker which introduced a line of generic cigarettes. The defendant Brown and Williamson responded by coming out with its own generic brand. Liggett alleged that Brown and Williamson was selling its generic cigarettes at a loss with the intent to monopolize and/or injure competition. In essence, Liggett was raising claims both under Section 2 of the Sherman Act and under Section 2(a) of the Clayton Act as amended by the Robinson-Patman Act.
The Supreme Court in the Liggett decision indicated that whether a claim alleges predatory pricing under Section 2 of the Sherman Act or primary line price discrimination under Robinson-Patman, the essential prerequisites to recover remain the same. First a plaintiff must establish that the Company is pricing the product below average variable cost. Next the plaintiff must establish that the competitor had a reasonable prospect or (under Section 2 of the Sherman Act) a dangerous probability, of recouping the investment in below cost prices. As the Court noted:
The Court in essence stated that below cost pricing which is not ultimately recovered is a "boon to consumers" and therefore can't be found unlawful. Finally, the Court indicated that the cause of action is not available unless the plaintiff establishes injury to competition or use of monopoly power.
The decision makes it all but impossible for a private litigant to bring and prove predatory pricing action under federal law. As discussed above, the analysis of the existence of or use of monopoly power is extremely complicated both in terms of defining the relevant market and in establishing that power itself exists. Additionally, information on a competitor's average variable cost is extremely difficult if not impossible to obtain legally. Because these hurdles will almost always prove too costly or otherwise insurmountable for private litigants, it may be especially appropriate to request government investigation if one can produce evidence of abuse of monopoly power and/or predatory pricing activity.
III. Price Discrimination
Actions under federal law for price discrimination where there are competing buyers, as opposed to competing sellers, may be more viable than actions for predatory pricing. To bring a price discrimination claim the purchaser must establish at the outset that: 1] sales in interstate commerce 2] have involved a cognizable difference in price between two or more buyers, of 3] commodities of similar grade and quality, and the 4] such discrimination may substantially injure competition. See Texaco, Inc. v. Hasbrouck, 110 S.Ct. 2535, 58 L.W. 4807, 4810 (1990). Additionally, the action is available only to distributors who are actually damaged by the unlawful price discrimination. In addition, the plaintiff has to establish price discrimination regarding products of the same grade and quality and that the practice tended to injure competition.
Although the price discrimination cause of action remains viable, it is far from easy to maintain to victory. The action can be defended by proving various approved justifications for the discounts.
For example, Section 2(b) of the Act creates a defense when the seller acts "in good faith to meet an equally low price of a competitor." This "meeting the competition" defense is an absolute defense to other prohibited price discrimination. See Standard Oil, Co. v. FTC, 340 U.S. 231, 251 (1951).
Section 2(a) of the Act permits price differentials that make "due allowance in cost of manufacture, sale or delivery resulting from the differing methods or quantities" in which goods are sold. Thus, there is the so-called "cost justification defense" under which the seller shows that the actual cost savings in dealing with one buyer is equal to or greater than the price reduction offered, based upon the factors enumerated in the statute. See Morton Salt Co., 334 U.S. 37, 48 (1948). Pricing differentials are also allowed when they represent functional discounts, that is, when the buyer assumes all the risk, investment and cost involved in connection with actually performing a certain function related to the sale. See Texaco, Inc. v. Hasbrouck, 110 S.Ct. 2535, 58 L.W. 4807, 4811 (1990).
In part because the price discrimination action depends upon actual injury to a specific buyer, it makes less sense to seek government investigation of such issues.
IV. Other Issues
Apart from predatory pricing, one might argue for an investigation to determine whether "leveraging," that is, the use of monopoly power in one market to gain an advantage in another market, has been used in violation of Section 2 of the Sherman Act. This notion stems from remarks made by the Supreme Court that monopoly power cannot be used "to beget monopoly." See U.S. v. Griffith, 334 U.S. 100, 108 (1948).
The notion of illegal "leveraging," however, is an extremely controversial one. The question is whether one violates the Sherman Act when it uses monopoly power in one market to achieve a competitive advantage in another, even though there is no attempt to monopolize the second market. The Second Circuit has said that such a violation exists so long as an actual abuse of monopoly power is shown. See Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir. 1979).
Using this notion, one might argue that "Big Box" warehouse stores violate Section 2 in unfairly "leveraging" monopoly power enjoyed in the Southern U.S. market to gain advantage in the Western U.S. market. However, apart from the difficulties in establishing the existence of monopoly power in the Southern U.S., or the "abuse" of such power to leverage into the Western market, the Ninth Circuit has made such an argument much more difficult by expressly rejecting the leveraging notion. After noting that antitrust laws tolerate monopolies arising from efficiencies, the Court of Appeals in Alaska Airlines v. U.S., 948 F.2d 536 (9th Cir. 1991) stated:
Thus, the leveraging concept is rejected as far as activities in the Western states (Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Washington) are concerned. The continued viability of the leveraging concept in other jurisdictions is questionable.
Monopolization and predatory pricing issues under federal antitrust laws should not be confused with potential remedies under state unfair trade laws. For an example of the latter, see the attached copy of the lower court decision in American Drugs, Inc. v. Wal-Mart Stores, the Arkansas predatory pricing case Wal- Mart lost at trial. The matter is now on appeal. It is important to recognize that this lawsuit was brought under Arkansas' own unfair trade statute, not under federal antitrust laws. Thus, the fact that the judgment was against Wal-Mart in this predatory pricing case does not suggest that there would be a similar result in a federal antitrust lawsuit.
There are a number of reasons why the sale-below-cost claim under Arkansas law was easier to maintain than it would be under federal antitrust laws. First, as is true under a similar California statute, See Turnbull & Turnbull v. ARA Transp., 219 Cal. App.3d 811, 268 Cal. Rptr. 856 (1990), the Arkansas law uses a "fully allocated cost" measure (i.e., replacement cost plus attributable overhead) on the cost basis. Federal courts generally use "average variable cost" (which does not generally include fixed costs or overhead) as the cost basis. Under federal law, the cost basis against which sales-below-cost will be gauged will necessarily be lower, making it much more difficult to attack predatory prices under federal law.
Secondly, the Arkansas court rejected the "market basket" approach to analyzing sales-below-cost (as California courts have, See Western Union Financial Services, Inc. v. First Data Corp., Cal. App. 4th, 25 Cal. Rptr.2d 341 (1993)). Rejection of the market basket approach means that an aggrieved plaintiff can recover in a state law sales-below-cost claim as to a particular product even if the retailer overall maintains a healthy profit margin.
Finally, in the Arkansas case, (in the lower Chancery Court) the judge determined that the plaintiffs need not show monopoly power or injury to competition (involving complicated expert analysis of relevant markets and so forth). Instead, the plaintiffs only needed to show the company had an intent to injure the competition, which could be inferred more directly from the company's stated policies and purposes.
1. Many states (24) according to the research division of the Library of Congress had state "Below-Cost Sales Statutes." This list included Oklahoma, where Wal-Mart was sued, and additionally such large states as California, Massachusetts, Pennsylvania, Wisconsin and others (See Chapter VI for more details).
2. As a result of the case of American Drugs Inc. v. Wal-Mart Stores Inc., where at least in the lower court the plaintiffs won, there has been engendered an increased interest in the law of predatory pricing, generally with concurrent interest in state below-cost pricing statutes.
3. The reader should understand from the Congressional Budget materials as well as the legal analysis provided the author by the law firm of Davis, Cowell & Bowe of San Francisco, California, that while predatory pricing comes under the purview of the Sherman, Clayton, Federal Trade Commission and Robinson-Patman Acts at the federal level; that nevertheless it should not be construed that any "below cost sales," at least at the federal level are not necessarily to be interpreted in the same way as would be the case of litigating in the twenty-four state jurisdictions having "below-cost" pricing statutes.
4. Nevertheless, the Wal-Mart opinions, both at the Chancery level (when Wal-Mart lost) and at the Arkansas Supreme Court level (when Wal-Mart won) do create interest in the subject of predatory pricing and should stimulate the Federal Trade Commission and possibly the U.S. Justice Department to review appropriate federal regulatory statutes which might result in greater protection for the small retailer.
5. Further, most states have enacted "baby" Sherman Acts which track the federal statute, and the below-costs sales provisions, themselves are often contained in the more general pricing statutes that are similar to the federal Robinson-Patman price discrimination law--either of which may be used advantageously to challenge truly predatory pricing behavior.
6. Chapter V also mentioned that a group of retailers took a different tack on pricing differentials by suing both manufacturers and wholesalers. The author's study shows that more and more of the chain's ability to lower prices is due to the massive discounts available to them for large volume purchases. Not only are these unit prices not available to small retailers, but wholesalers, who used to sell the small retailer are disappearing as the chains buy "direct" from the manufacturer.
7. In August 1994, the House Small Business Committee met and listened to witnesses who were concerned about the survival of the small retailer in the face of the growing power of the mega-retail discount chains. Although the 1995 and 1996 Small Business Committees of both the House and Senate have continued this type of public hearing, the outcomes or results are minimal with practically no legislation passed to protect the small business.
8. In order to open the question in public forums and elsewhere as to which regulatory statutes available at the federal level might pertain to the behavior and growing power of chain stores, materials obtained from the U.S. Congressional Budget Office were included in this chapter. Their interpretative comments and analyses of the Robinson-Patman Act were particularly valuable. CBO describes "how in the 20's and 30's, large chain retail stores rose to prominence." The market power of some of these chains enabled them to negotiate lower prices from manufacturers than the traditional small independent retailer could obtain. For that and other reasons, the small retailers found it difficult to compete, leading to pressuring Congress to do something to help them. The pressure and dissatisfaction with the lack of success of the Clayton Act to prevent price discrimination led to the passage in 1936 of the Robinson-Patman Act.30
| Go To: | Top of Page | Table of Contents |