Competitive Injury and Damages Under the Robinson-Patman Act

• Author: Ted Tatos,Keith Leffler
• Published date: 01 December 2015
• Date: 01 December 2015
• DOI: http://doi.org/10.1177/0003603X15602400

Article

Competitive Injury and Damages

Under the Robinson-Patman Act:

Morton Salt and Statistical Analysis

Keith Leffler* and Ted Tatos**

Abstract

When a competitor, who sells a homogeneous product in the same market, receives a wholesale cost

advantage from a manufacturer, economists should expect some competitive injury absent extraor-

dinary circumstances. Competitive injury refers to a disruption of the competitive process, that is, a

reduction in competition in the marketplace where the manufacturer’s customers compete. A plaintiff

may show competitive injury directly through lost sales or profits, or competitive injury may be

inferred through the ‘‘Morton Salt’’ presumption, from FTC v. Morton Salt Co., 334 U.S. 37 (1948). Once

competitive injury is established, a plaintiff can quantify the extent of the competitive injury by mea-

suring the impact of the price discrimination on its profits in order to compute damages. Statistical and

econometric evidence often play a large role in damages calculations and, to a lesser extent, the

establishment of competitive injury. We present a case study in the gasoline fuel market, where

competitors engage in a high degree of price-matching and intense competition. We discuss the

computational challenges and our solutions to them. In addition, we discuss the implications of this

case study for future Robinson-Patman cases.

Keywords

Robinson-Patman, Morton Salt, competitive injury, statistics, regression

For some sixty years, the Robinson-Patman Act has been the unloved stepchild of the antitrust fam-

ily. The Act has been labeled contrary to the public interest,

1

and as the most controversial of our

antitrust laws.

2

The Antitrust Modernization Committee has called for repeal (or substantial over-

haul) of the Robinson-Patman Act since 1955.

3

In 1975, the Department of Justice called for the

*

Private practice, antitrust economics

**

Empirical Analytics, Salt Lake City, UT, USA

Corresponding Author:

Ted Tatos, Empirical Analytics, 4486 S Zarahemla Dr., Salt Lake City, UT 84124, USA.

Email: ttatos@eaecon.com

1. Edward H. Levi, The Robinson-Patman Act: Is it in the Public Interest?, 1 A.B.A. ANTITRUST SEC. 60 (1952).

2. Frederick M. Rowe, The Robinson-Patman Act—Thirty Years Thereafter, 30 A.B.A. ANTITRUST SEC. 9 (1966).

3. See ANTITRUST MODERNIZATION COMM’N,REPORT AND RECOMMENDATIONS iii (2007).

The Antitrust Bulletin

2015, Vol. 60(4) 318-344

ªThe Author(s) 2015

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DOI: 10.1177/0003603X15602400

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repeal of the Act,

4

and neither it nor the FTC enforces the Act. Robert Bork wrote that ‘‘If the new

economics is right, there is never a case in which price discrimination injures competition.’’

5

The

Act is described as ‘‘Antitrust’sLeastGloriousHour.’’

6

Some academics have categorically asserted

that the Robinson Patman Act is anticonsumer because it ‘‘undoubtedly leads to higher prices for

consumers.’’

7

The fundamental distain for the Robinson-Patman Act arises from a belief that the Act is used to

protect competitors from competition, and it thereby is contrary to consumer welfare. We disagree

with such assessment.

8

Indeed, we suggest that the real problem with the Act is its emasculation based

on a narrow and improperly static conception of competition. In the next section, we argue that the

protection of competitors from price discrimination in fact protects dynamic competition, such that,

when properly applied, the Robinson-Patman Act serves well both consumer welfare and economic

efficiency. We argue that the misunderstanding of the welfare effects of Robinson-Patman Act results

from a failure to recognize the role that competition plays in fostering innovation. As a consequence,

we suggest that the true threat to dynamic competition is not the Robinson Patman Act but rather the

narrowing of its enforcement.

In the third section of the article, we discuss a very recent case in which a federal district court

applied an improper but accepted static consumer welfare approach in (mis)judging the competitive

impact of a situation of substantial price discrimination between directly competing gasoline retailers.

9

We first discuss the court’s rejection of the Morton Salt inference of competitive injury and the faulty

economic analysis behind that rejection. We then discuss how the rejection of the competitive infer-

ence necessitated difficult complex economic and statistical evidence to address competitive impact.

10

We focus on how such implicit shifting of the burden of proof effectively tips the scale in favor of the

defendant, and that this tipping is most consequential in the exact situation where the price discrimi-

nation can have the greatest impact on the disfavored purchaser—a market that is highly competitive

but for the price discrimination. We conclude by exploring how the focus on static competition and the

increasingly accepted emphasis on static consumer welfare to judge competitive impact will likely

lead to inefficiency and less robust competition.

The Robinson-Patman Act: Competition, Efficiency, and

Competitive Injury

The Robinson-Patman Act arose during the growth of chain stores and the demise of smaller family run

businesses. No doubt, the effective lobbying of the small stores against the ‘‘chain store menace’’

11

was important in the passage of the Robinson-Patman Act.

12

Nonetheless, under the Act, price discrim-

ination is illegal only if the effect of the discrimination ‘‘may be to lessen competition, ... or to injure,

destroy, or prevent competition with any person who either grants or knowingly receives the benefit of

4. Hugh C. Hansen, Robinson-Patman Law: A Review and Analysis, 51 FORDHAM L. REV. 1113 (1983), at note 12.

5. Tamar Lewin, Business and the Law Antitrust Ideas: 3 Problems,N.Y.TIMES, Mar. 8, 1983, D2, http://www.nytimes.com/

1983/03/08/business/business-and-the-law-antitrust-ideas-3-problems.html.

6. Roger D. Blair & Christina DePasquale, ‘‘Antitrust’s Least Glorious Hour’’: The Robinson-Patman Act,53J.L.&E

CON.

S201 (2014) (quoting ROBERT H. BORK,THE ANTITRUST PARADOX (1978)).

7. Hugh C. Hansen, Robinson-Patman Law: A Review and Analysis,51FORDHAM L. REV. 1113, 1118 (1983).

8. We concern ourselves only with secondary line cases.

9. Western Convenience Stores, Inc. v. Suncor Energy (U.S.A.) Inc., Civ. Action No.1:11-cv-01611-MSK-CBS, Dkt. No. 319

(D. Colo., Feb. 13, 2014) (Opinion and Order Directing Entry of Judgment in Favor of Suncor Energy (U.S.A.)) (entered

Aug. 22, 2014).

10. The authors were both experts for the plaintiff in the case, as was Professor Mark Glick.

11. U.S. DEPT.OF JUSTICE,REPORT ON THE ROBINSON-PATMAN ACT (1977).

12. See,e.g. PHILLIP E. AREEDA &HERBERT HOVENKAMP,ANTITRUST LAW,{2302 (2d Pck. ed., Aspen Pub., 2001).

Leffler and Tatos 319