The New York Times had an op-ed piece the other day entitled “The Real Reason Your Groceries Are Getting So Expensive,” in which author Stacy Mitchell, executive director of the Institute for Local Self-Reliance, made the argument that enforcement of the Robinson-Patman Act, “which mandates that suppliers offer the same terms to all retailers,” needs to be reinvigorated.
That’s not the case today, she writes:
“Major grocery suppliers, including Kraft Heinz, General Mills and Clorox, rely on Walmart for more than 20 percent of their sales. So when Walmart demands special deals, suppliers can’t say no. And as suppliers cut special deals for Walmart and other large chains, they make up for the lost revenue by charging smaller retailers even more, something economists refer to as the water bed effect.
“This isn’t competition. It’s big retailers exploiting their financial control over suppliers to hobble smaller competitors. Our failure to put a stop to it has warped our entire food system. It has driven independent grocers out of business and created food deserts. It has spurred consolidation among food processors, which has slashed the share of food dollars going to farmers and created dangerous bottlenecks in the production of meat and other essentials. And in a perverse twist, it has raised food prices for everyone, no matter where you shop.
“A level playing field was long a tenet of U.S. antitrust policy. In the 19th century, Congress barred railroads from favoring some shippers over others. It applied this principle to retailing in 1936 with the Robinson-Patman Act, which mandates that suppliers offer the same terms to all retailers. The act allows large retailers to claim discounts based on actual volume efficiencies but blocks them from extracting deals that aren’t also made available to their competitors. For roughly four decades, the Federal Trade Commission vigorously enforced the act. From 1954 to 1965, the agency issued 81 cease-and-desist orders to stop suppliers of milk, tea, oatmeal, candy and other foods from giving preferential prices to the largest grocery chains.”
However, in the late 1970s, a time of high inflation, “the law fell into disfavor with regulators, who had come to believe that allowing large retailers to flex more muscle over suppliers would lower consumer prices. For the most part, the law hasn’t been enforced since. As a top Reagan administration official explained in 1981, antitrust was no longer ‘concerned with fairness to smaller competitors.’
“This was a serious miscalculation. Walmart, which seized the opening and soon became notorious for strong-arming suppliers and undercutting local businesses, now captures one in four dollars Americans spend on groceries. Its rise spurred a cascade of supermarket mergers, as other chains sought to match its leverage over suppliers. If the latest of these mergers — Kroger’s bid to buy Albertsons — goes through, just five retailers will control about 55 percent of grocery sales. Food processors in turn sought to counterbalance the retailers by merging. Supermarket aisles may seem to brim with variety, but most of the brands you see are made by just a few conglomerates.”
In the absence of rivals, Mitchell writes, “food conglomerates have over time increasingly been able to raise prices and as a result have reported soaring profits over the past two years. Inflation gives them a cover story, but it’s the lack of competition that allows them to get away with it.”
As smaller retailers fade away, she suggests, it “stifles innovation. New food companies rely on independent retailers to introduce products. But as this diversity of retailers gives way to a monocrop of big chains, start-ups have fewer avenues to success. This results in diminished selection for shoppers, who find store shelves stocked with only what the big food conglomerates choose to produce.
“We need to stop big retailers from using their enormous financial leverage over suppliers to tilt the playing field. By resurrecting the Robinson-Patman Act, we could begin to put an end to decades of misguided antitrust policy in which regulators abandoned fair competition in favor of ever-greater corporate scale.”
You can read the entire piece here.
KC’s View:
Essentially, this crystalizes the decision that the Federal Trade Commission (FTC) will have to make when evaluating the Kroger-Albertsons merger. The issue of whether it will lower prices can be debated, though I’m not sure how a reasonable argument can be made that this will be good for competition overall. But should that be the FTC’s concern? Should it worry about “fairness to smaller competitors?”
I do think that it is hard to argue that robust enforcement of the Robinson-Patman Act is bad for competition. Either enforce it, or repeal it.
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