How an Old U.S. Antitrust Law Could Foster a Fairer Retail Sector

Antitrust is having a moment. Last summer, President Joe Biden issued an ambitious executive order with 72 directives and recommendations to his administration to “promote competition in the American economy.” Now, Congress seems poised to enact one or more bipartisan antitrust bills.

As they aim to revive antitrust against powerful corporations, legislators and regulators confront an important question: What types of competition should the law allow to support and sustain a fair economy? Not all competition is desirable: false advertising, industrial sabotage, patent infringement, and paying sub-minimum wages have been deemed unfair and illegal. Lawmakers tend to be preoccupied with “how much” competition there is, not what kind of competition they’re encouraging. But as they look to tame pervasive concentration and monopolization, they should consider an older approach to antitrust that fits one of the leading problems we face today: restricting abuses of buyer power.  

This idea has fallen out of vogue. For several decades now antitrust orthodoxy has interpreted the antitrust laws as “protect[ing] competition, not competitors,” and reduced questions about legality to measurements of prices and output — we know the government needs to act when corporations raise consumer prices and reduce output. However, this viewpoint sits uneasily with the antitrust laws that are actually on the books. Historically, Congress restricted the ability of powerful corporations to unfairly lower the prices they pay to suppliers, farmers, and other producers — it was once a pillar of its antitrust strategy.

If you look at the origins of this policy, you’ll find that the United States was facing a situation much like the one it’s navigating today, in which corporations exercised enormous power over supply chains.

In the 1920s and 1930s, large chains were making major inroads into groceries. Corporations such as the Great Atlantic & Pacific Tea Company (commonly called “the A&P”) were opening stores across the nation and frequently offered lower prices than smaller rivals. In many places, these stores (as well as new mail-order outfits) introduced fresh competition into local monopolies — particularly in the rural South, where white-owned country stores charged high prices to their relatively poor farmer and sharecropper customers, who tended to be Black. They captured market share and appeared poised to dominate retailing in many local markets and nationally. In 1930, the A&P had more than 15,000 stores across the country. (For comparison, Walmart, the nation’s largest food retailer, has 4,742 stores in the United States, while the Albertsons family operates more than 2,200 supermarkets.)

But as the power of companies like A&P and Kroger grew, an unfair dynamic emerged, which put small retailers at a clear disadvantage. Because of their sheer size, these companies were able to compel manufacturers and wholesalers to grant them lower prices than they charged to small rivals, even in cases where the large volumes did not result in lower costs of production or distribution. The concessions chains extracted gave them a cost advantage over independent rivals as great as 35{194d821e0dc8d10be69d2d4a52551aeafc2dee4011c6c9faa8f16ae7103581f6} in some local markets, according to a 1934 Federal Trade Commission (FTC) report. In addition to lower prices, large chains could obtain advertising allowances and brokerage fees that were not offered to their competitors.

If this sounds familiar, it should. Today, powerful buyers — such as Amazon, Target, Walmart, and other chain retailers — commonly use their purchasing clout to extract concessions from suppliers that their smaller rivals do not receive. Evidence shows that buyer power is on the rise across the economy: while horizontal integration has increased, vertical integration has declined, meaning firms are becoming more dependent on larger buyers. In manufacturing, annual “five percent letters,” in which corporations demand lower prices from suppliers each year, are commonplace.

Facing popular outcry, Congress had a dilemma much like the one it faces now: How could it allow consumers to gain the benefits of operational efficiencies and economies of scale while preventing chain stores from using power and exploitation of suppliers alone to win market share? Its solution was a statute targeting their buyer power. In 1936, Congress passed the Robinson-Patman Act, which President Franklin Roosevelt quickly signed into law. It still is law, though it has rarely been enforced by the government since the 1970s. And, it could be an essential tool today in the effort to level the playing field for businesses at risk of being trampled by giants.

The Benefits of Better Competition

According to Congressman Wright Patman, the law’s House sponsor, its aim was to “protect the independent merchant, the public whom he serves, and the manufacturers from whom he buys, from exploitation by his chain competitor.” He asked, “[H]ow can the independent merchant in this country exist when the goods on his shelves cost him 15 percent to 20 percent more than the goods cost his chain competitor on the other side of the street?”

Expanding on existing restrictions on price discrimination, the act aimed to bar large buyers from extracting lower prices through raw market power, while allowing lower prices where genuine efficiencies — such as large orders allowing a supplier to exploit economies of scale — were the source of the discount. In its technical legal language, the act prohibited “discriminat[ion] in price between different purchasers of commodities of like grade and quality” where the effect of that discrimination was to “substantially to lessen competition” or to harm competition with rivals or suppliers. The prohibition, however, was not absolute. Price discrimination was permissible when based on the lower costs of serving the preferred purchaser, or necessary to meet competition from a rival supplier. The Robinson-Patman Act also banned brokerage commissions, and advertising allowances that favored one purchaser, or one set of purchasers, over their rivals in the same market.

The golden age of enforcement of Robinson-Patman was the 1960s. Building on precedent established in the 1940s that held that the price discrimination prohibitions in the act applied to each individual article in a store, the FTC’s enforcement peaked between 1960 and 1964, when it brought more than 500 cases. The result was a vibrant retail sector. Despite dire predictions by critics in the 1930s that Robinson-Patman would slow progress and produce a stagnant distribution system, the law — paired with tight antitrust restrictions on mergers and acquisitions and below-cost pricing — channeled business strategy in socially beneficial directions. Instead of using their buyer power to demand concessions from suppliers, retailers built supermarkets with more floor space and better layouts and aimed to lower prices by increasing the efficiency of their operations. In a legal environment that checked the power of the largest chains, “[r]egional, sectional, and local chains led the postwar supermarket boom,” while their national rivals lagged behind. The Robinson-Patman Act had taken away an important advantage of corporate bigness and helped create a more decentralized and vibrant retail sector.

While New Deal reforms have a decidedly mixed record in terms of addressing racial inequalities, laws like Robinson-Patman helped Black-owned businesses — which started at a smaller size, given white capital’s 300-year head start in wealth accumulation — compete on more equal terms. Throughout the postwar period white-owned banks continued to deny Black entrepreneurs access to credit, while white landlords refused to lease favorable business locations. Nonetheless, Robinson-Patman at least leveled the playing field in some respects, allowing independent Black-owned retailers to compete with chain stores, and Black-owned suppliers to protect their margins from unfair price squeezes initiated by large buyers. It was during the heyday of Robinson-Patman enforcement that J. Bruce Llewellyn built FEDCO Foods, the nation’s largest minority-owned retail business, from the Bronx, and Henry J. Parks, Jr. made his Baltimore sausage manufacturer the first Black-owned business on the New York Stock Exchange. Both independent businesses were forced to sell to larger competitors in the 1990s — FEDCO to Target, and Parks to Dietz & Watson.

In countering buyer power and fostering a fairer economy, the Robinson-Patman Act played an analogous role to New Deal labor and employment laws, which granted workers the legal right to organize and receive minimum wages and overtime. The Fair Labor Standards Act even declared the payment of subminimum wages an “unfair method of competition.” As workers organized entire sectors and established certain labor market standards, they channeled employers’ competitive struggles away from brute squeezing of workers’ wages towards the generation of more efficient production processes. Union protections and vigorous antitrust enforcement both helped foster the dynamic, and, by 21st century standards, more equal postwar economy.

The New Era of Antitrust

The Robinson-Patman Act always had its critics, though. In the 1950s, the liberal economist John Kenneth Galbraith argued that the law impeded the exercise of “countervailing power” by retailers against the oligopolistic manufacturers that dominated the postwar economy.  Starting in the 1970s, antitrust enforcers and courts adopted a much more skeptical attitude toward the Robinson-Patman Act. In an environment of rising inflation, emerging neoliberal ideas centering the public’s interests and identities as consumers rather than as producers gained traction. In the case of antitrust law, scholars affiliated with the right-wing University of Chicago economics and law departments embraced a narrow consumerist worldview that treated low prices as almost always beneficial.

Exercising its prosecutorial discretion, the Department of Justice (DOJ) simply stopped enforcing the law. In a 1977 report, the DOJ described the law as reflecting “questionable economic assumptions prevalent in the 1930s.” Soon after, the DOJ stopped tracking annual Robinson-Patman investigations and cases entirely. The FTC continued to enforce the law for another decade but relegated it to low-priority status in the late 1970s.

Since that time, the law has come under withering attack. In a 1990 antitrust decision, the Supreme Court distilled the dominant consumer welfare ideology, which contradicted the philosophy of Robinson-Patman: “Low prices benefit consumers regardless of how those prices are set.” Writing in 2001, leading antitrust scholar Herbert Hovenkamp argued that the anti-buyer power provision of the law is “irritating to almost anyone who is serious about antitrust.” And in 2007, a bipartisan commission set up by Congress to study the antitrust laws called for repealing the law.

The growth of giant retailers is a function of the non-enforcement and judicial narrowing of Robinson-Patman — these retailers used their market muscle to push wholesale prices downward and to obtain a major advantage over their rivals. Walmart rose to power in part by ignoring the Robinson-Patman Act (a relatively safe business practice since the 1980s), engaging in conduct ranging from demanding discounts, forcing suppliers to guarantee its margins, and even inspecting suppliers’ books to check their margins. The squeeze could be felt throughout the supply chain. In 2003 Carolina Mills, a North Carolina textile company, blamed its collapse on Walmart squeezing the apparel manufacturers it had supplied with thread, yarn, and textile finishing. Amazon, meanwhile, has taken buyer power to still greater heights. For example, its “Gazelle Project” targeted the smallest and weakest book publishers for the toughest price squeeze.

While large retailers might have used their power in some cases to challenge the power of big manufacturers like Proctor & Gamble, they also used it to squeeze small suppliers. Many did so by fostering an ecosystem of small, dependent satellite firms they could dominate through either buyer power, applied to suppliers, or restrictive contract terms, imposed on distributors, dealers, and franchisees.

There is a small but growing body of evidence that buyer power in supply chains also reduces wages and worsens working conditions at upstream suppliers such as manufacturers of clothing and soap. For example, sociologist Nathan Wilmers found that the increase in buyer power since the 1970s is responsible for a full ten percent of wage stagnation in the U.S. economy. The global garment industry supply chain has long been plagued by unsafe workplaces, driven by the demands for low prices from large buyers in the United States and Europe. Meanwhile, price and delivery demands from supermarkets have been linked to repetitive motion workloads of meat processing plant workers in the UK.

The Robinson-Patman Act and its core principle — squeezing suppliers to extract price and other concessions that other purchasers do not receive is an unfair method of competition — check buyer power. Reviving and strengthening the law is critical for taming domination in the economy and channeling business strategy toward efficiency, service, and quality, as it did with chains like the A&P in the postwar era. A robust application of Robinson-Patman would mean that Walmart could not purchase Vlasic Pickles at a lower wholesale price than rivals and Amazon could not acquire New York Times bestsellers at a lower price than Barnes & Noble, unless they could establish that the cost of serving them was lower than the cost of serving competitors.

To be sure, Robinson-Patman is not a complete solution to the buyer power problem — the law does not cover captive suppliers and may not apply to suppliers based outside the United States. And the law has shortcomings. Its text is awkward and features many ambiguities, and the burden of compliance was historically placed on suppliers being squeezed by powerful buyers, instead of the powerful buyers themselves. Nonetheless, the neglect and disparagement of this law had profound effects on our political economy and contributed to the growth and ultimate dominance of firms such as Amazon and Walmart and the withering of small and midsize manufacturing firms in their supply chains. Just as they once reined in the A&P, members of Congress and federal antitrust regulators should look to the Robinson-Patman Act again to build a fair retail sector.