FTC dusts off Robinson-Patman Act in suit against Southern Glazer’s

The news: The Federal Trade Commission (FTC) sued Southern Glazer’s, the largest alcohol distributor in the US, over “discriminatory pricing practices” that favor large retailers like Walmart and Costco over mom-and-pop shops and independent stores.

The allegations: The FTC’s lawsuit states that Southern Glazer’s charges independent retailers “significantly higher prices” compared with large chains, hurting their ability to compete, which in turn “ultimately harms consumers on choice and price.” It also states that independent retailers don’t have easy access to alternative suppliers, given that Southern Glazer’s is responsible for one out of every three bottles of wine and spirits sold in the US.

Why it matters: The suit is FTC chair Lina Khan’s latest—and most likely last—attempt to shape antitrust enforcement, which has taken a much sharper tack over the past few years as regulators clamped down on consolidation.

• The commission’s case is built around the Robinson-Patman Act (RPA), which was passed in 1936 to help level the playing field between small and large businesses.
• The law forbids sellers from charging buyers different prices for the same goods, unless the difference is justified by higher distribution costs.
• It’s the first time in over two decades that the RPA has been enforced—and could be the last for the foreseeable future, given the antipathy for the case that Khan’s presumptive successor, Andrew Ferguson, has shown.
• “The Commission is unlikely to prevail even on its own theory of the act, and it would be an imprudent use of the Commission’s enforcement resources even if it were likely to prevail,” Ferguson wrote in his dissent.

Our take: Should the case be allowed to continue, it could have significant repercussions for the way large retailers like Walmart, Kroger, and Costco operate.

• If the FTC prevails, those retailers would no longer be able to negotiate heavy discounts on account of their scale, which in turn would reduce their price advantage relative to independent operators.
• On the other hand, enforcement of the RPA is challenging, as the FTC will have to prove that the difference in pricing is not justified by conditions like higher shipping costs.
• The act also faces opposition from critics such as the National Retail Federation, which argue that its enforcement would lead to higher prices for consumers. However, that assertion has been disputed by incoming FTC commissioner Mark Meador, who noted that it “lacks empirical support” and that the commission has a duty to bring cases if there is evidence that price discrimination is hurting consumers.

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