Price discrimination and related conduct
| Pages | 265-322 |
CHAPTER VII
PRICE DISCRIMINATION AND RELATED
CONDUCT
Price discrimination is an oddball in the antitrust regime governing
product distribution. As discussed in other chapters, assessing the legality
of vertical restraints under Section 1 of the Sherman Act or allegedly
monopolistic conduct in a case brought under Section 2 may require
rigorous economic analyses to define the relevant product and geographic
markets, assess the impact of the challenged conduct on competition
within those markets, and weigh the procompetitive benefits of the
challenged conduct against its anticompetitive effects. In such cases,
economists and antitrust lawyers for the most part utilize a common
vocabulary grounded in economic theory, and the conclusion that a
business arrangement or practice is procompetitive in an economic sense
generally means that it is also lawful. In contrast, price discrimination as
it is understood by economists is not necessarily price discrimination as
antitrust practitioners understand it, and procompetitive price
discrimination is not necessarily lawful.
Simplistically stated, from an economist’s point of view, price
discrimination occurs when different customers pay prices that differ in
their ratio to the seller’s marginal costs of such sales. Economic models
look at whether and under what circumstances particular instances of such
price discrimination are harmful or beneficial to the seller, the buyer, and
consumer welfare generally. For example, in the merger context,
economic analysis may be deployed to assess whether the post-merger
combined entity can impose sustainable, supra-competitive price increases
upon—i.e., whether it can price discriminate against—a targeted class of
“core” customers.1 Proof of the potential for such price discrimination can
evidence the relevant market, the measurement of market shares, and the
evaluation of the proposed merger’s likely competitive effects.2
1. See U.S. DEP’T OF JUSTIC E & FEDERAL TRADE COMM’N, HORIZONTAL
MERGER GUIDELINES § 3, at 6 (Aug. 19, 2010) [hereinafter 2010 MERGER
GUIDELINES].
(D.C. Cir. 2008) (ruling that evidence of the potential for price
265
266 Antitrust Law and Economics of Product Distribution
Within the framework of U.S. antitrust law, notably the Robinson-
Patman Act3 (“RPA”), price discrimination “is just a price difference,”4
which occurs when a seller charges different prices to different buyers in
at least two reasonably contemporaneous sales of the same product or
service. So-called predatory pricing, characterized by “pricing below an
appropriate measure of cost for the purpose of eliminating competitors in
the short run and reducing competition in the long run,”5 is actionable
under the RPA as primary line price discrimination (i.e., where price
differentials tend to lessen competition between the seller and its
competitors). Since the Supreme Court’s decision in Brooke Group v.
Brown & Williamson Tobacco Corp.,6 the analysis of such claims has
merged with the analysis predatory pricing as a monopolistic practice
under Section 2 of the Sherman Act. In such cases, the economist plays an
important role in establishing or defeating liability by addressing the
extent to which the defendant priced “below cost” (a concept still evolving
in the courts), and, if so, whether the defendant has a “reasonable prospect”
discrimination between “core” and “marginal” customers could support
FTC’s market definition of “premium, natural and organic supermarkets”),
citing Maryland People’s Counsel v. FERC, 761F.2d 780, 786-87 (D.C. Cir.
1985) (vacating anticompetitive agency order permitting pipelines to
transport gas at lowered prices to “noncaptive consumers”—large industrial
end users capable of switching to alternative fuels—without any obligation
to provide same service to “captive consumers,” such as local distribution
companies and their residential customers).
3. Act of June 19, 1936, 15U.S.C. §§ 13–13b, 21a, amending Section 2 of the
Clayton Act. The Robinson-Patman Act and the extensive body of case law
interpreting its complex provisions are discussed in ABA SECTION OF
ANTITRUST LAW, THE PRICE DISCRIMINAT ION HANDBOOK (2012)
[hereinafter PRICE DISCRIMINATION HANDBOOK] and ABA SECTION OF
ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 497-565 (7th ed. 2012)
[hereinafter ANTITRUST LAW DEVELOPMENTS (SEVENTH)].
Chrysler Group LLC, No. 13-cv- 04236-BLF, 2014 WL 3418545 (N.D. Cal.
July 11, 2014). The Robinson-Patman Act, however, does not “ban all price
differences charged to different purchasers of commodities of like grade and
quality.” Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S.
164, 176, (2006) (citing, Brooke Group Ltd. v. Brown & Williamson
224 (1993).
Price Discrimination and Related Conduct 267
or “dangerous probability” of recouping its investment in below-cost
prices by means of monopoly pricing after meaningful competition has
been eliminated.7
In contrast, the economist’s role in a secondary line price
discrimination case under the RPA (i.e., where a seller’s price differentials
affect the ability of the seller’s customers to compete with each other)—if
he or she plays any role at all—is effectively limited to aiding in the
determination of whether the defendant’s price differences were justified
by and no greater than actual cost differences,8 whether a private plaintiff
has the requisite antitrust injury to obtain relief pursuant to Section 4(a) of
the Clayton Act, and if so, the nature and amount of the plaintiff’s
recoverable damages. 9 The economist’s role may be even more
circumscribed in cases involving state price discrimination laws to the
7. The various approaches taken by courts to the analysis of price-cost
relationships and the possibility of recoupment in predatory pricing cases
are discussed in ANTITRUST LAW DEVELOPMENTS (SEVENTH), supra note 3,
at 276–86.
8. This is the “cost justification defense,” codified in Section 2(a) as a proviso
to the operative prohibition against price discrimination:
[N]othing herein contained shall prevent differentials which make
only due allowance for differences in the cost of manufacture, sale,
or delivery resulting from the differing methods or quantities in
which such commodities are to such purchasers sold or
delivered. . ..
For a more detailed discussion of the cost justification defense, see infra
notes 104–09 and accompanying text.
9. 15U.S.C. § 15(a), which provides, in relevant part:
[A]ny person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may sue therefor
in any district court of the United States in the district in which the
defendant resides or is found or has an agent, without respect to the
amount in controversy, and shall recover threefold the damages by
him sustained, and the cost of suit, including a reasonable attorney's
fee.
For a more detailed discussion of the role of economic analysis in
establishing antitrust injury and damages in price discrimination cases, see
infra notes 199–215 and accompanying text; see also generally ABA
SECTION OF ANTITRUST LAW, PROVING ANTITRUST DAMAGES: LEGAL AND
ECONOMIC ISSUES 275–89 (2d ed. 2010) [hereinafter PROVING ANTITRUST
DAMAGES].
To continue reading
Request your trial