Legal considerations in price-making

In the United States, the Sherman Antitrust Law was the first major attempt made to prevent monopolies and safeguard freedom of competition. Although not specifically a marketing measure, it is in marketing practices where most of the enforcement has attracted public notice. On the statute books now for more than seventy years, the basic antitrust law has been supplemented by three specific marketing regulations with which every student of marketing should be familiar. A discussion of these regulations follows.
The Clayton Act, passed in 1914, was intended to prevent price discrimination between buyers. The buyer receiving a more favorable price naturally has an advantage. This advantage may give such a buyer the chance to grow into a monopoly. The Clayton Act declared that it was unlawful to give such discriminatory advantages to any buyer "where the effect of such discrimination may be substantially to lessen competition," or where the effect may "tend to create a monopoly."
In order to help enforce this new anti-monopoly law, the Federal Trade Commission was created (also in 1914). The law required a seller to offer the same price to buyers of the same type. It soon became appar¬ent to sellers that some criterion had to be established differentiating "type of buyer." Quantity purchases tended to become this criterion. Thus, impetus was given to the quantity buyer, aiding the development of the integrated (chain store) and large-scale marketing concerns.
An amendment to the Clayton Act, known as the Robinson-Patman Act, was passed in 1936. This act provides that sellers may not give discriminatory discounts or allowances to buyers who are competitors, if such discrimination may lessen competition or tend toward monopoly. Discounts must be justified on the basis of savings in the cost of manufacture, sale or delivery. The burden of proof to show savings was placed on the seller giving the discounts. Thus, quantity discounts were not forbidden, but the seller was obliged to defend himself and justify such discounts and allowances if challenged. Functional discounts were permitted by the law, since wholesalers and retailers are not competitors.
Enforcement of the Robinson-Patman Act has also proved difficult, and has been subject to many administrative regulations. But the intent of Congress was clear. The Act has resulted in many large sellers modifying their discount and allowances practices. By and large, business firms have made determined efforts to comply.
Different interpretations of activities and concessions, hoAvever, often lead to litigation, and the Federal Trade Commission has been active in recent years attempting to enforce the anti-discrimination features of the Clayton Act, as amended by the Robinson-Patman Act.