On the Economics of the “Meeting Competition Defense” Under the Robinson–Patman Act

Aguirre, Iñaki

doi:10.1515/bejeap-2015-0146

Cited by 5 publications

(4 citation statements)

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“…Wholesale price discrimination can also reduce aggregate welfare if it changes a downstream firm's choice of technology (DeGraba 1990), or if upstream firms charge higher (lower) wholesale prices to more (less) efficient downstream firms, leading to a decrease in output (Yoshida 2000). More generally, Aguirre (2016) shows that wholesale price discrimination reduces welfare when a firm selling into multiple markets sets a lower price in a more competitive market. Paradoxically, price discrimination of this sort means that the “meeting competition defence” in the RPA is fundamentally counter‐productive.…”

mentioning

confidence: 99%

The Robinson–Patman Act and Vertical Relationships

Yonezawa¹,

Gómez²,

Richards³

2019

American J Agri Economics

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Bargaining between consumer-product manufacturers and their retail customers is at least nominally constrained by the prohibitions on price discrimination of the Robinson-Patman Act (RPA) of 1936. However, because the RPA is generally regarded as being inconsistent with the anti-trust principle of protecting consumers, it is not often enforced by the Federal Trade Commission or the Anti-trust Division of the Department of Justice. Because of the perceived ineffectiveness of the RPA, it is unclear whether manufacturers follow the letter of the law, or actively bargain with their downstream customers. In this paper, we use data on wholesale and retail prices for yogurt products, and a Nash-in-Nash vertical bargaining model, to test whether the RPA represents a real constraint on bargaining between manufacturers and retailers. We find that this is not the case, and that vertical markets for consumer goods are more accurately characterized as bargaining-markets than markets regulated by the RPA. Further, we demonstrate that strict enforcement of the RPA would improve social welfare, but would not protect weak retailers.

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confidence: 99%

The Robinson–Patman Act and Vertical Relationships

Yonezawa¹,

Gómez²,

Richards³

2019

American J Agri Economics

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“…In our main model, we restrict our attention to the case where the two‐market retailer 2 is always a nontrivial participant in both markets

\mathcal {A}

and

\mathcal {B}

. In practice, however, the antitrust policy intervention in her pricing strategy can induce a multimarket retailer to exit her weak market (Aguirre, 2016). In our framework, under no policy intervention, the two‐market retailer 2 always undercuts local retailer 1 in market

\mathcal {A}

(i.e.,

\text{p}_2^A&lt;\text{p}_1^A

).…”

Section: Extensionsmentioning

confidence: 99%

“…In our main model, we restrict our attention to the case where the two-market retailer 2 is always a nontrivial participant in both markets  and . In practice, however, the antitrust policy intervention in her pricing strategy can induce a multimarket retailer to exit her weak market (Aguirre, 2016)…”

Section: Strategic Downstream Market Exitmentioning

confidence: 99%

On the effects of antitrust policy intervention in pricing strategies in a distribution channel

Yenipazarli

2021

Decision Sciences

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In this article, we examine the economic and welfare ramifications of antitrust policy intervention in primary-and secondary-line price discrimination in a distribution channel where downstream retailers are vertically related through a strategic upstream manufacturer. Particularly, we focus on a distribution channel where a manufacturer sells his product through retailers in two asymmetric markets. The markets are asymmetric along two dimensions: One exhibits a higher demand/profit potential than does the other; and one is a competitive market where two retailers engage in imperfect price competition, whereas the other is a captive market monopolized by one of the retailers. We characterize the effect of antitrust policy intervention in each form of third-degree price discrimination on the pricing and selling mechanisms of channel members, consumers, and the channel profits (and hence on the total welfare) for varying degrees of asymmetry on demand potential between the two markets and the extent of product substitutability. We show that under practical demand and competition conditions, contrary to prior literature, antitrust policy intervention in secondary-line discrimination always benefits the local retailer (the disfavored customer of the manufacturer) and yet is apt to result in a lose-win or lose-lose outcome in addition to a win-win outcome for the channel and society. Second, antitrust policy intervention in primary-line discrimination so as to protect a localized retailer from the selective price cuts of a chain-store retailer (rather than to protect competition) can actually result in a win-win outcome. Third, in the absence of antitrust policy intervention, consumers are always harmed by (discriminatory) pricing practices employed in a channel. Those and other findings contribute to the intense debate over the merits and goals of antitrust policy intervention in third-degree price discrimination in distribution channels by shedding some light on the contractual relationships between manufacturers and retailers and economic forces at play.

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“…6 Neven and Phlips (1985), Howell (1991), Cheung and Wang (1997), Aguirre (2000), Galera and Zaratiegui (2006), Hazledine (2006), Stole (2007), Hazledine (2010), Kutlu (2012), Bakó and Kálecz-Simon (2012), Czerny and Zhang (2014), Kumar and Kutlu (2016) and Aguirre (2016) consider price discrimination under quantity competition in the final good market. monopoly third-degree price discrimination to a multimarket oligopoly.…”

Section: Introductionmentioning

confidence: 99%