Quantity Discounts and Competition: Economic Rationality or Robinson-Patman

Abstract

THIS paper is a discussion of quantity discounts, not because they are legally unique, but because they typify the mounting confusion of courts and the Federal Trade Commission as to the impact of section 2(a) of the Robinson-Patman Act on its avowed purpose of fostering competition.1 The precise questions on which the paper focuses are: Does Robinson-Patman require (or even authorize) condemnation by the courts and FTC of virtually all discounting systems based either on quantity of individual purchases, or volume of total purchases during the preceding year? Secondly, if it does, is this an economically justifiable proscription? Finally, do section 2(a) quantity limit orders have the same economic impact as cease and desist orders? The paper concludes that Congress intended Robinson-Patman to protect individual competitors as well as competition. But injury to competition and injury to competitors are not the same. Since the courts have generally equated the two concepts, they often have condemned discounts without economic justification. It is suggested that the standard adopted by the courts for measuring a quantity discount's impact on competition, injury to individual competitors, is inaccurate and is the key to explaining confusion in the law of this subject which now exists. Because of this confusion, the courts and Commission have failed to see that some quantity discounts may, in fact, benefit the consuming public. Finally, it is contended that this situation is not a necessary concomitant of the Robinson-Patman Act, but rather results from the interpretation which it has been given.