Today the Federal Trade Commission (FTC) filed its first Robinson-Patman Act case in almost a quarter century against Southern Glazer’s Wine and Spirits, LLC (“Southern”), alleging that Southern engaged in price discrimination by selling wine and spirits to small independent retailers at a higher price than it sold the same product to large national and regional chains.

The FTC’s action was supported by the three Democrats on the Commission, while the two Republican members issued rare and scathing dissents.

The FTC stated that “The Federal Trade Commission brings this action (i) to ensure that small, independent retailers served by  southern have access to the same discounts rebates, and pricing as the large chains that they compete directly against, except to the extent justified by actual cost differences, changed conditions, or a good faith effort to meet a competitor’s equally low price, and (ii) to obtain an injunction prohibiting further price discrimination by Southern against these small, independent businesses. When Southern’ s unlawful conduct is remedied, large corporate chains will face increased competition, which will safeguard continued choice for American consumers.” FTC v. Southern, Case No 8:24-cv-02684 C.D. Cal (2024)

Behind the glossy rhetoric, Lina Khan and her FTC minions couldn’t eventually hide their real purpose, “We live in a time of deep inequality, when a majority of Americans think that our economy is “rigged” against them and in favor of the wealthy. Maybe that’s because when powerful companies break the law, prosecutors give them the benefit of every shadow of every doubt—and when those companies’ interests run up against legal norms or the rule of law, those rules are set aside or broken.” Statement of Commissioner Alvaro M. Bedoya In the Matter of Southern Glazer’s Wine and Spirits, LLCFTC File No 211-0155

This is based on a sense of righting the wrongs caused by what they deem as inequality.

The issue of whether Southern broke the law, which is a questionable proposition in this case, is not the foregone conclusion the FTC would have us draw. The FTC’s filed complaint draws on the difference in prices charged by Southern to small retailers v. large retailers as the illegal practice of price discrimination. FTC v. Southern, Case No 8:24-cv-02684 PG 25, C.D. Cal (2024)

It rejected the disparity in price was driven by anything other than price discrimination. “These disparities in pricing are not justified by differences in Southern’ s cost of providing goods to the large chain retailers and the independent retailers-whether in terms of economies of scale or the logistics of delivering the goods to different sized stores.”  Id. at Pg 10

This statement wreaks of irony as the FTC’s complaint indicated that much of the price discrimination was related quantity discounts based on high volume purchasing, which the small retailer could not achieve whereas, the larger or chain retailer could. In other words, Southern was rewarding large retailers based on the economies of scale of purchasing greater amounts of product.

The FTC draws the conclusion that the offering of quantity discounts disproportionately provided to large retailers is wrong and leaves them in a better position than small retailers.

The FTC fails to mention that many of these practices are permissible under state liquor laws which Southern operates. In its redacted facts FTC mentions price differentials in Illinois but fails to mention the supplier’s product or retailers involved.

When I was responsible for drafting the Illinois Of Value/Tied House Rules, we had a section on quantity discounts and sales incentives. The rule required the programs to be offered to all similarly situated retailers in the same geographic area. We viewed similarly situated to mean the retailers that were similar in size and market impact. For example, Walmart could be equivalent to Target but not similarly situated to Bob’s Liquor Store.

The reason being is it made no sense to penalize a wholesaler for offering a quantity discount program to Walmart and not offering it Bob’s, when Bob’s could not meet the thresholds. Further, like in any business, Walmart would get cheaper product based on the economies of scale.

The FTC majority seems to ignore this fact of the state laws that Southern lives under.

I could extrapolate and write a book on this case, but I make my comments brief and my critique to a few precise points.

But this case is beyond Southern and has more to do with Lina Khan implanting her Neo-Brandeis theory on the way out the door. (Thankfully her term expired on September 26, 2024, and it is highly doubtful President Trump will re-appoint her) Under the Neo-Brandeis theory there is the view that centralized power in an economic sense is dangerous and Southern’s size makes it prime for Lina Khan’s appetite. This complaint represents her last chance to establish a Neo-Brandeis legal legacy.

This theory sits opposite the modern view of antitrust which focuses on the impact on consumer prices.

If the FTC wins out in this case you will see the results of the Neo-Brandeis movement play out. If the cost between big and small retailers are leveled, the prices at retail stores will go up as wholesalers will not sacrifice their margins. Quantity discounts and sales incentives will be curtailed leading to higher consumer prices.

Contrary to the FTC’s Statement, which opines that Robinson-Patman is pro-consumer because it seeks to prevent oligopoly prices in a market dominated by small numbers of powerful retailers, the prices will increase thanks to the FTC’s attempts to level the market.

Some maybe surprised by my support for Southern on this issue, as I am not the biggest fan of the wholesaler tier. But this is not just about Southern, this is about an FTC trying to implement a movement that will lead to dangerous results. Economies of scale, the ability to negotiate from a position of strength, which are the nature of a free and competitive market will fall by the wayside in favor of government policies that level the playing field.

As a supporter of free markets, I can’t be silent even when it impacts a part of the industry where I often times have an adversarial relationship with.

In the end I leave you with a quote from my favorite Irish philosopher. “Those who attempt to level, never equalize.” Edmund Burke