Legal Brief: Pricing Pitfalls
It's become common to cut special deals for big customers, but that practice can be illegal. A recent case spotlights that thorny issue: the American Booksellers Association (ABA), acting on behalf of small independent booksellers, has filed suit against five publishers, charging them with giving the big chains unjustly better prices and promotional allowances. It's not a David-and-Goliath case: two of the publishers named in the suit are small companies.
The ABA suit invokes the Robinson-Patman Act. It's an antitrust statute that prohibits companies from discriminating between customers by offering price discounts or other special terms that can't be justified by costs or competition. "For better or worse, Robinson-Patman is having a rebirth," says seasoned antitrust lawyer James Calder, a partner at Rosenman & Colin in New York City. We asked him to elaborate.
Calder: First, Robinson-Patman applies only to people who sell tangible products, not services. When the act was passed, in 1936, its intent was to protect mom-and-pop businesses against the purchasing power of chain stores. If you're selling to an A&P, say, you'll jump through hoops to keep that business, but Robinson-Patman says you have to charge the same price to the family business down the street. Basically, it puts the brakes on price competition.
Inc.: Who's affected?
Calder: Anyone who sells goods to dealers, retailers, or distributors should worry about complying.
Inc.: Could it be illegal to offer volume discounts to your best customers?
Calder: In some cases, yes. If you drop your price to some customers but not all, your competitor could have a case against you, or you might be sued by a customer who did not receive the volume discount. The ABA case is debating whether you can offer volume discounts when smaller customers can't realistically take advantage of them; one of the key issues is whether the discriminatory volume discount injured the competition.
Inc.: Let's put Robinson-Patman into perspective.
Calder: These cases are very hard to prove. An antitrust law with much broader application than Robinson-Patman is the Sherman Act, which prohibits price fixing among competitors. Certain Sherman Act violations are treated as crimes and are prosecuted by the Department of Justice.
A one-page checklist on the basics of pricing is available free from the Pricing Advisor, a consultancy in Atlanta. Call 404-509-9933 for a copy.* * *