Knowledge And Decisions

One of the theories used to justify the Robinson-Patman Act is that big producers would otherwise temporarily cut prices, driving out small competitors, and later raise prices to monopolistic levels. Concrete examples have been notable by their scarcity (or nonexistence),⁹¹ even though the country existed for 160 years before the Robinson-Patman Act was passed. Even as economic theory, the argument has serious problems, because the only certainty would be the short-run losses sustained to drive out smaller competitors, while the longer-run profits needed to recoup these losses are highly problematical, because of innumerable ways that new competition can arise — including buying up the assets of the bankrupted firms at bargain prices and then profitably underselling the would-be monopolists. Actually, neither the empirical nor the theoretical case is made in specific anti-trust prosecutions under the Robinson-Patman Act. It is the defendant who must rebut the prima facie case, and the sinister theories merely hover in the background as unarticulated presumptions.

From the standpoint of the social consequences of social knowledge, what restrictions on price competition do is to inhibit or forbid information about the cheapest ways of doing things from being effectively communicated in prices. It is cheaper to deliver 100 boxes of cereal to a supermarket than to deliver ten boxes of cereal to each of ten different “mom and pop” stores. This is effectively communicated when the wholesaler shaves the price of goods sold in large quantity. If he is either forbidden to do so, or is put through costly processes to justify it in finely meshed sorting-and-labeling categories, that knowledge does not guide economic decision making. Burdens of proof on the defendants in areas where irrefutable proof is virtually impossible amount either to a de facto prohibition or are economically the same as a large fine (legal costs) for engaging in the activity, without any evidence of its social harmfulness.

As in other areas of law, antitrust decisions have impact far beyond the particular parties involved, and in ways never intended by the law. For example, many grocery wholesalers have their own trucks which deliver to retailers and return empty, while other trucks bring grocery items from factories or processors to those same wholesalers’ warehouses and also return empty. From a social point of view, it would obviously make more sense to have the wholesalers’ trucks stop by the processors’ plants and pick up grocery stock on their way back to the warehouses. The present system is estimated to waste annually 100 million gallons of gasoline — enough to drive 140 thousand automobiles for a year,⁹² not to mention the excess inventory of trucks, the wasted labor of the drivers, or the needless air pollution.

As mere information, this is easy to understand, but it is not socially effective knowledge because the prices that might transmit it are forcibly constrained by the Federal Trade Commission’s interpretations of the Robinson-Patman Act. Ordinarily, food processors would charge lower prices to those buyers who pick up their own shipments than to buyers who require delivery, and this would become an incentive for wholesalers to have their empty trucks stop by on their way back to the warehouse to pick up some more stock. But the FTC has issued advisories that such price differences could be interpreted as violating the Robinson-Patman Act’s prohibition against “price discrimination.” Therefore the uniform prices that are charged reflect the threat of force rather than the relative costs, and the wholesalers respond to those prices as if it were no cheaper to pick up groceries in empty trucks than to have another truck deliver them — because that is financially true, according to the knowledge conveyed to them by the legally constrained prices. It is, of course, distorted knowledge from a social point of view, but both its transmission and its reception are rational within the legal incentives created by the Robinson-Patman Act. The social rationality of the act itself is another matter.

Large costs are also created by the uncertainties surrounding the interpretations of vague antitrust laws — especially the Robinson-Patman Act, which a leading expert on that act refers to as a “miasma of legal uncertainty,”⁹³ and which even a Supreme Court Justice has called a “singularly opaque and elusive statute.”⁹⁴