I have received lots of questions and discussions over my last article on Adding Marketing Costs to Your Wholesale Pricing — especially on the Robinson-Patman Act quoted in the article.
The Robinson-Patman Act basically required each manufacture to wholesale their products for the same price to EVERY retailer they work with. Quantity discounts are allowed as long as the discounts are offered to everyone. An example of a quantity discount is as follows:
- 1-50 widgets for $5/each
- 51-100 widgets for $4.50/each
- 100 or more widgets for $4/each
According to the Free Legal Dictionary:
The Robinson-Patman Act seeks to limit the ability of large, powerful buyers to gain price discounts through the use of their buying power. Although the act remains an important antitrust statute, private parties do not use it nearly as often as they use the Sherman Act, in part due to the Robinson-Patman Act’s convoluted and complicated language. The government, which may bring an action under the Robinson-Patman Act through the Federal Trade Commission (FTC), rarely initiates actions under the statute.
The predatory pricing aspect in particular has been challenged many times over the years by small businesses challenging the pricing tactics of larger companies that have the financial ability to price much lower than smaller businesses without the economies of scale to meet such pricing. (Do note, however, that the companies being challenged are still pricing consistently — they are charging lower prices across the board, not selectively setting wholesale prices lower for one retailer and higher for another.) The aspect of the Act that deals with arbitrary wholesale pricing has not been challenged nearly as much.
I personally ran into a weird situation a year ago where a wholesale company was basing my wholesale cost (as a retailer) for their products based upon what my retail price was going to be. (Ex: If my sales price was going to be $15, she (owner) was going to charge me $7.50 wholesale. If my retail price was going to be $20, she was going to charge me $10.) Weird! I called the FTC directly and actually had ongoing communication with an FTC official who went to great lengths to check on the validity of her very odd approach to wholesale pricing.
The feedback I ultimately received was this: although her pricing approach was extremely unusual (and not recommended as she’s likely to alienate many of her potential customers), the FTC’s position was that as long as she UNIVERSALLY used this approach (i.e. used this same pricing strategy with each and every wholesale client), she would technically be adhering to FTC guidelines. I asked a broad array of questions while dealing with this particular case and my feedback from the FTC was that they do still receive many complaints about wholesale vendors giving “deals” to select companies and not to others. I was told that such practices are still considered to be a violation of existing law.
Should a business be reported to the FTC for arbitrary pricing, the FTC usually contacts the business pointing out the violation and stating what action needs to be taken to avoid further action. The FTC official acknowledged that these violations were usually due to small wholesalers simply not being aware of the law. Should a “victim” of arbitrary pricing choose to legally address the situation, the business in violation could be liable to refund the amount of the pricing discrepancy (for that retailer, as well as any other “victims” affected by the offending wholesale company’s inconsistent pricing) as well as legal fees. It’s simply not a risk I would want to take, even if the likelihood of being reported or taken to court is admittedly small.
As mentioned, I really don’t believe that small wholesale vendors are going to be high on the FTC’s radar unless individually reported. That said, the Act still exists and it has not (as yet) been officially repealed or overturned, either in part or in whole. Until that happens, I simply believe that it is prudent to acknowledge that the law exists and that it still officially governs wholesale practices.