Price discrimination and related conduct

• Pages: 265-322

CHAPTERVII

PRICE DISCRIMINATION ANDRELATED

CONDUCT

Pricediscriminationisan oddball in the antitrustregime governing

product distribution.Asdiscussedin other chapters,assessing the legality

of verticalrestraints under Section 1 of the ShermanAct or allegedly

monopolistic conduct ina case brought under Section 2 may require

rigorous economic analysesto define therelevantproduct and geographic

markets,assesstheimpact of the challengedconduct on competition

within those markets,andweighthe procompetitive benefits of the

challenged conduct againstitsanticompetitiveeffects.Insuchcases,

economists and antitrustlawyersforthemostpartutilize a common

vocabulary grounded in economic theory, and the conclusion that a

businessarrangement or practiceis procompetitive inan economic sense

generallymeansthatitisalsolawful.In contrast, price discrimination as

itis understood by economists isnotnecessarilypricediscriminationas

antitrustpractitioners understandit,and procompetitiveprice

discriminationis not necessarilylawful.

Simplisticallystated,froman economist’s point of view,price

discriminationoccurswhendifferentcustomerspay pricesthatdifferin

theirratioto the seller’smarginalcostsofsuchsales. Economic models

look at whether and under whatcircumstancesparticularinstances of such

price discrimination are harmful or beneficialtotheseller, the buyer, and

consumer welfaregenerally.Forexample,inthemergercontext,

economic analysismay be deployed toassesswhetherthepost-merger

combined entitycan impose sustainable,supra-competitivepriceincreases

upon—i.e., whether itcanpricediscriminateagainst—a targetedclass of

“core”customers.1 Proof ofthe potentialforsuchpricediscriminationcan

evidence the relevantmarket,themeasurement of marketshares, and the

evaluationof the proposedmerger’slikelycompetitiveeffects.2

1.SeeU.S.DEP’T OFJUSTICE&FEDERALTRADECOMM’N,HORIZONTAL

MERGERGUIDELINES § 3,at 6 (Aug.19,2010)[hereinafter2010 MERGER

GUIDELINES].

2. Id.See,e.g., FTCv.WholeFoodsMkt,Inc.548F.3d1028,1038,1041

(D.C.Cir.2008)(rulingthatevidenceofthepotentialforprice

265

266AntitrustLawandEconomicsofProductDistribution

Within the framework of U.S.antitrustlaw, notably the Robinson-

PatmanAct3(“RPA”),pricediscrimination“isjust a pricedifference,”4

whichoccurswhena sellercharges different pricestodifferentbuyers in

atleasttworeasonablycontemporaneous salesofthesame product or

service.So-called predatory pricing, characterized by “pricing below an

appropriate measureofcost for thepurpose of eliminating competitorsin

the shortrun and reducing competition inthe long run,”5is actionable

under the RPAasprimarylinepricediscrimination (i.e., whereprice

differentials tend tolessencompetitionbetween the sellerand its

competitors).SincetheSupreme Court’s decisioninBrooke Group v.

Brown & Williamson Tobacco Corp.,6 the analysisofsuchclaims has

mergedwiththeanalysispredatory pricing as a monopolistic practice

under Section 2 of theShermanAct.Insuchcases,the economist playsan

important roleinestablishing or defeatingliability by addressing the

extenttowhichthe defendantpriced “below cost”(aconceptstillevolving

in the courts), and, ifso, whether the defendant has a “reasonableprospect”

discriminationbetween“core”and“marginal”customerscouldsupport

FTC’smarketdefinitionof“premium,naturalandorganicsupermarkets”),

citingMarylandPeople’sCounselv.FERC, 761F.2d780,786-87(D.C.Cir.

1985)(vacatinganticompetitiveagencyorderpermittingpipelinesto

transportgasatloweredpricesto“noncaptiveconsumers”—largeindustrial

enduserscapableofswitchingto alternativefuels—withoutanyobligation

toprovidesameserviceto“captiveconsumers,”suchaslocaldistribution

companiesandtheirresidentialcustomers).

3. ActofJune19,1936,15U.S.C.§§13–13b,21a,amendingSection 2 ofthe

ClaytonAct.TheRobinson-PatmanActandtheextensivebodyofcaselaw

interpretingitscomplexprovisionsarediscussedinABASECTIONOF

ANTITRUSTLAW,THEPRICEDISCRIMINATIONHANDBOOK(2012)

[hereinafter PRICEDISCRIMINATIONHANDBOOK] andABASECTIONOF

ANTITRUSTLAW,ANTITRUSTLAWDEVELOPMENTS497-565(7thed.2012)

[hereinafter ANTITRUSTLAWDEVELOPMENTS(SEVENTH)].

4. FTCv.Anheuser-Busch,Inc., 363U.S.536,549(1960);MathewEnter.v.

ChryslerGroupLLC,No.13-cv- 04236-BLF,2014WL3418545(N.D.Cal.

July11,2014).TheRobinson-PatmanAct,however,doesnot“banallprice

differenceschargedtodifferentpurchasersofcommoditiesoflike gradeand

quality.”VolvoTrucksN.Am.,Inc.v.Reeder-SimcoGMC,Inc.,546 U.S.

164, 176, (2006)(citing, Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp.509 U.S. 209 (1993)).

5. Cargill,Inc.v.MonfortofColo.,Inc.,479U.S.104,117(1986).

6. BrookeGroupv.Brown & WilliamsonTobaccoCorp.,509U.S.209,222,

224(1993).

PriceDiscriminationandRelatedConduct267

or “dangerous probability” of recouping its investmentin below-cost

prices by meansof monopoly pricing after meaningful competition has

beeneliminated.7

Incontrast, the economist’s roleina secondarylineprice

discriminationcase under theRPA (i.e., where a seller’spricedifferentials

affectthe ability of the seller’s customers to compete witheachother)—if

he orsheplays any roleatall—iseffectivelylimitedtoaidinginthe

determination of whetherthe defendant’s pricedifferenceswerejustified

by and no greaterthanactualcostdifferences,8 whether a privateplaintiff

has therequisiteantitrustinjurytoobtainreliefpursuanttoSection4(a)of

the ClaytonAct, and ifso, the nature and amount of theplaintiff’s

recoverabledamages. 9Theeconomist’s rolemaybe evenmore

circumscribedincases involving stateprice discrimination lawstothe

7. Thevariousapproachestakenbycourtstotheanalysisofprice-cost

relationshipsandthepossibilityofrecoupmentinpredatorypricingcases

arediscussedin ANTITRUSTLAWDEVELOPMENTS(SEVENTH),supranote3,

at276–86.

8. Thisisthe“costjustificationdefense,”codifiedinSection2(a)as a proviso

totheoperativeprohibitionagainstpricediscrimination:

[N]othinghereincontainedshallpreventdifferentialswhichmake

onlydueallowancefordifferencesinthecostofmanufacture,sale,

ordeliveryresultingfromthedifferingmethodsorquantitiesin

whichsuchcommoditiesaretosuchpurchaserssoldor

delivered. . ..

For a moredetaileddiscussionofthecost justificationdefense,seeinfra

notes104–09andaccompanyingtext.

9. 15U.S.C. § 15(a),whichprovides,inrelevantpart:

[A]nypersonwhoshallbeinjuredinhisbusinessorpropertyby

reasonofanythingforbiddenintheantitrustlawsmaysuetherefor

inanydistrictcourtoftheUnitedStatesinthedistrictinwhichthe

defendantresidesorisfoundorhasanagent,withoutrespecttothe

amountincontroversy,andshallrecoverthreefoldthedamagesby

himsustained,andthecostofsuit,including a reasonableattorney's

fee.

For a moredetaileddiscussionoftheroleofeconomicanalysisin

establishingantitrustinjuryanddamagesinpricediscriminationcases,see

infranotes199–215andaccompanyingtext;seealsogenerallyABA

SECTIONOFANTITRUSTLAW,PROVINGANTITRUSTDAMAGES:LEGALAND

ECONOMICISSUES275–89(2ded.2010)[hereinafter PROVINGANTITRUST

DAMAGES].