Dominick T. Armentano's Arguments for the Repeal of All Antitrust Laws: Part III

Note: Read Part I of this essay series here and read Part II here.

In Chapter 5 of Antitrust: The Case for Repeal, Dominick T. Armentano discusses antitrust policy toward vertical agreements such as price discrimination. Price discrimination is explicitly addressed in Section 2 of the Clayton Act (1914) and the Robinson-Patman Act (1936). Any kinds of restrictions on and prosecutions of price discrimination are the most difficult antitrust policy to defend, as such restrictions are blatantly protectionist of competitor groups, often at the expense of other more effective competitors and of the competitive process itself.

The Robinson-Patman Act, for instance, has often been interpreted to render illegal any price discrimination which harms a firm's competitors; the act is an explicit attempt to protect such competitors from actual competition.

The possible defense under the Robinson-Patman Act of price discrimination as a "good-faith effort to meet the competition" does not suffice. The meaning and definition of such a "good-faith effort" is vague and indeterminate. Furthermore, in any real competitive process, firms seek to beat, not to meet the competition. This rivalrous behavior is precisely what brings about consumer benefits.

The second possible defense under the Robinson-Patman Act of price discrimination as validated by cost differences is difficult for firms to apply, because it is hard in practice to prove that cost differences exist - as the relevant costs in question are subjective evaluations of the future. Firm managers and entrepreneurs often cannot justify their understanding of costs in a court of law, especially if these costs are based on the entrepreneurs' anticipation of future conditions. And yet the entrepreneurs may be correct in their judgments, as only the actual market process can eventually demonstrate.

The firms that have lost price discrimination cases in the past have often been forced to raise their prices as a result. This perverse outcome has clearly been deleterious to consumers and has stifled the competitive process.

The Borden Case (1958)