Preliminary investigation into soft drink vendors reveals FTC’s misplaced focus

This past week, Politico reported that major soft drink juggernauts Coca-Cola and PepsiCo were under preliminary investigation by the Federal Trade Commission (FTC) for participating in “price discrimination” against small retailers. Their supposed crime? Offering better prices to their larger competitors. The federal antitrust agency believes that the companies may be guilty of violating an obscure 1936 law known as the Robinson-Patman Act, which forbids price discrimination by producers.

The law in question hasn’t been leveraged for decades. Whether either company has done anything to merit such an investigation remains an open question. However, it seems far more likely that the FTC has merely chosen two more large companies out of which to make an example in its quest to ramp up antitrust enforcement. Contrary to what the FTC may seem to believe, a company’s impressive size isn’t a crime. Consumers benefit from being able to purchase cheap soft drinks at the business of their choice.

It’s no secret that the FTC under the leadership of Chair Lina Khan has taken a decidedly more aggressive approach to antitrust matters. From releasing bold new Vision and Priorities statements and voicing support for House legislation to filing numerous lawsuits against companies like Meta and Microsoft for supposed anticompetitive behaviors, the agency has been busy laying the groundwork for the establishment of an aggressive new antirust regime.

This new regime appears to naively believe that “big is bad” and that this notion can apply to anyone, not just tech companies. By choosing to investigate Coca-Cola and PepsiCo, the FTC has made it clear that no one is outside of its reach. The fact that the agency plans to achieve this by utilizing a little-used law from the 1930s is even more concerning.

As noted by Politico, the last time the Robinson-Patman Act was leveraged against a company was against spice and seasoning conglomerate McCormick & Company. That was over 20 years ago, with the most recent case before that being in 1988 against several major book publishers. Ironically, that case was dismissed by the FTC just eight years later, on account of the realization that it did “not appear to be a necessary or prudent use of scarce public resources.”

This history brings up one obvious question: what exactly has changed so dramatically since then? Aside from the well-documented politicization of the FTC, both Khan and the agency’s newest commissioner Alvaro Bedoya have made it abundantly clear that they view a lack of enforcement of the Robinson-Patman Act as one of the primary reasons why product prices have increased at many small businesses. They seek to resurrect the law to use as a policy tool to artificially level the playing field for small retailers.

That thought process relies on flawed reasoning. It supposes that such an intervention will improve competition, which it won’t. More than likely, federal intervention will simply provide special treatment to a select group of small businesses at the expense of others who have done little more than use their comparative advantage to sell products to willing buyers.

While the FTC’s investigation is still in the early stages, and it remains to be seen what information, if any, will be uncovered, it seems highly likely that any price differences that may exist between product sales are due to differences in economies of scale. It’s often easier for a large retailer to purchase products at low prices and, in turn, sell those same products to consumers at low prices. That bigger retailer’s scale of operation allows it to save money on other things like unit costs and bulk purchases. In addition, these retailers frequently benefit from the ability to spread their risk across a much greater geographical area and consumer market, insulating them from potential losses.

In contrast, small retailers frequently operate on thinner profit margins and, therefore, must sell their products at higher prices. This predicament is just the economic reality of competing in the free market. Punishing large companies for thriving in that market makes little sense. In fact, it penalizes success.

The other serious flaw in the FTC’s reasoning is that the agency seems to have forgotten the most important stakeholder in the discussion: the consumer. The consumer used to be at the center of the FTC’s mission to protect the public from unfair business practices. Yet, recently, the agency seems to have lost sight of this mission amid heightened concern about harm to competitors.

Consumers have the most to lose if the FTC chooses to intervene in the soft drink market. They benefit from being able to purchase cheap soft drinks from large retailers — one of the primary benefits of being able to shop at large businesses. In addition, large chain stores can be found in far more locations across the country than specialized businesses. In many cases, they may be the only option available to consumers in small towns or other remote locations.

If large suppliers like Coca-Cola and PepsiCo are routinely forced to change their business practices to satisfy the unreasonable demands of the FTC, they may have to sell their products at higher prices to large retailers, which will in turn pass those higher prices on to consumers. For instance, if Coca-Cola must sell drinks to 7-Eleven at a below-market price, then it may also have to raise its sale price to Walmart for the same products. In this gloomy scenario, the only people who would benefit from an FTC investigation are 7-Eleven and any small business that already charges consumers more for the same product. This is no way to protect consumer welfare. In fact, it’s just another form of anti-competitive pricing.

The FTC would do well to study the many unappreciated benefits that large companies offer the economy and American consumers and avoid wasting valuable taxpayer money on resurrecting arbitrary, long-dormant laws.

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