Inflation rates over the past year have consumers struggling for relief, politicians looking for a scapegoat and the Federal Trade Commission (FTC) taking the opportunity to advance antitrust enforcement. Blaming greedy corporations may be popular and provide an opportunity for the reintroduction of a largely stagnant Robinson-Patman Act. However, antitrust enforcement should focus on the consumer, and not protect a select set of small businesses at the expense of real competition.
In a January speech on inflation, President Joe Biden lauded his $35 cap on a month’s worth of insulin for Medicare seniors and stated that “if Big Pharma raises prices faster than inflation, they’re going to face big penalties.” Defaulting to price caps and blaming corporate greed detracts from an honest conversation regarding economic and policy causes of inflation and anti-competitive practices.
The FTC issued a policy statement discussing how fees and rebates can increase prices by creating incentives in favor of higher-cost drugs compared to lower-cost alternatives.
The American Consumer Institute has also written on this issue, highlighting that “at the heart of the problem are Pharmacy Benefit Managers (PBMs) which serve as third-party intermediaries between drug manufacturers and insurers. These companies play a role in driving up the price of prescription drugs by leveraging their monopoly on information to set favorable contracts for themselves at the expense of everyone else.”
To address this problem, the FTC is partially relying on the Robinson-Patman Act, which bans price discrimination and special treatment to select buyers if it doesn’t also reflect underlying market realities. The law’s application to the practices of PBMs is in line with creating fair competition and protecting consumers.
While the Robinson-Patman Act can be used to protect consumers from anti-competitive practices, it can also be leveraged to protect small businesses from competition.
According to Politico, anonymous sources have confirmed that the FTC launched a preliminary investigation into Coca-Cola and PepsiCo. The investigation is focused on a supposed infringement of the Robinson-Patman Act. No specifics have been made public, but according to Politico’s reporting, the focus is on pricing discrimination against small retailers.
However, according to the FTC, price discrimination is not a violation of the Robinson-Patman Act if it’s due to different costs associated with bulk purchases or if the price concession was given to meet a competitor’s price. Under this interpretation, anti-competitive agreements would have to have taken place between the soda suppliers and large stores above and beyond the purchasing power that economies of scale provide.
The knee-jerk reaction to blame corporations is happening elsewhere, too. Robert Reich — a professor at Berkeley who served under President Bill Clinton — blames greed for rising egg prices and cited increased profits from egg producer Cal-Maine as evidence. Reich isn’t the only one calling out Cal-Maine. Farm Action — a farmers’ group — has called for the FTC to address rising egg prices, which the group asserts are due to price gouging across the industry.
There are underlying causes for the increase in price and scarcity of eggs that have nothing to do with anti-competitive practices. Last year, the egg-laying hen population in the U.S. was reduced by over 43 million due to Avian Influenza and depopulation. Additionally, according to the Economic Research Service of the U.S. Department of Agriculture (USDA), the second wave of the outbreak in the fall meant that the number of hens was reduced prior to the holiday season when the industry typically sees a spike in demand.
On the surface, price changes in prescriptions, sodas and eggs appear to suggest uniform and nefarious behavior. However, the three examples are vastly different. The FTC investigation may uncover some illegal practices in soda pricing, and it’s possible the egg suppliers have illicit agreements. Assuming this is the case, though, is unfounded.
Blaming corporations and greed does nothing to address underlying causes and delays solutions that could relieve consumers. While the Robinson-Patman Act may be used to protect consumers from prescription pricing practices, this measure shouldn’t be resurrected to punish economies of scale.