The Robinson–Patman Act and Vertical Relationships

Koichi Yonezawa, Miguel I. Gómez, Timothy J. Richards

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish (US)
Pages (from-to)329-352
Number of pages24
JournalAmerican Journal of Agricultural Economics
Volume102
Issue number1
DOIs
StatePublished - Jan 1 2020

Keywords

  • Bargaining power
  • Nash-in-Nash
  • retailing
  • the Robinson–Patman act
  • vertical relationships

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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