How a Depression-era law could be used to make your booze cheaper

Federal regulators are planning to use a rarely enforced Great Depression law to allege that America’s largest alcohol distributor is pricing wine and spirits unfairly, a person familiar with the matter told CNN.

An impending Federal Trade Commission lawsuit against Southern Glazer’s Wine and Spirits would aim to reduce costs for consumers (in this case, of alcohol) and ensure that mom-and-pop stores have a level playing field against big chains, he said. the fountain.

The case, which could be risky, would represent the latest effort by Biden administration regulators to show they are taking steps to cut costs and take on dominant companies. It would also be the last aggressive measure of FTC Chair Lina Khanwho recently led the agency to prohibit most employers from using non-compete clauses and is investigating a Microsoft reaches an agreement with an artificial intelligence startup.

The latest battleground in the antitrust fight could be alcohol. Southern Glazer’s, headquartered in Miami and with operations in 44 U.S. states, is the largest wine and spirits distributor in the United States. The family-owned business distributes everything from Gray Goose vodka and Jim Beam bourbon to Yellow Tail wine.

Abandoned Antitrust Law of 1936

The FTC lawsuit, previously reported by politicalI could come in the next few weeks and I would trust him Robinson-Patman Act of 1936said the source. That Depression-era law prohibits suppliers from offering bigger discounts to big chains than to smaller stores.

In other words, discounts for big chains should also be available for mom-and-pop stores.

At the time, antitrust law was intended to help small grocers survive when A&P and other chains dominated with lower prices.

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However, an FTC lawsuit against Southern Glazer today would be controversial in part because the Robinson-Patman Act has rarely been enforced since the late 1980s. In fact, this would be the first time it has been invoked since 2000., when the The agency reached an agreement with the McCormick spice company.

“It’s been a law since 1936. It’s still a law in effect. We enforce the law,” the source told CNN, adding that because the law has not been enforced, some smaller stores have struggled to survive. “If you can’t compete on price or even come close, you can’t stay in business.”

The idea is that if a major alcohol distributor offers deeper discounts to, say, Walmart or Target, that’s unfair to smaller stores and their shoppers. And if those stores don’t exist, consumers are hurt by lack of access and by the fact that larger chains now face less price competition.

Could enforcement backfire on buyers?

However, critics of the Robinson-Patman Act argue that its implementation would be counterproductive for consumers, causing large chains to raise prices because they lose access to the deep discounts they currently enjoy.

Favoring small businesses over large ones, critics argue, would hurt consumers.

Alden Abbott, former general counsel of the FTC during the Trump administration, warned in a Forbes opinion piece last month that the FTC should consider the “major drawback” of prosecutions under the Robinson-Patman Act (RPA).

“While perhaps wrapped in ‘justice,’ a major lawsuit against RPA could discourage corporate discounting at a time of public concern about excessively high prices,” wrote Abbott, a senior fellow at George Mason University’s Mercatus Center.

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The Antitrust Modernization Commission, a bipartisan commission created by Congress, concluded in 2007 that Congress should “finally repeal” the Robinson-Patman Act because it “appears contrary to fundamental antitrust principles.”

“A successful revival of Robinson-Patman would likely result in higher not lower prices,” said Ed Schwartz, antitrust partner at Reed Smith.

However, that is difficult to prove. Much of the debate is theoretical, since the law has not been enforced in decades.

“There is no empirical evidence that enforcement of the Robinson-Patman Act increases consumer prices,” said Lee Hepner, senior staff attorney at the American Economic Liberties Project, a nonpartisan antitrust group.

While opponents of Robinson-Patman’s implementation say the deep discounts big chains get help consumers, Hepner argued the opposite is true.

“Price discrimination is a tool used by dominant corporations to enhance their market power,” he said. “That market power leads to higher consumer prices.”

Chris Jones, director of government relations and staff attorney for the National Grocers Association, a national trade association of independent grocers, said the FTC’s enforcement of the Robinson-Patman Act is “long overdue.”

“For decades, antitrust authorities have ignored this statute, allowing dominant companies to use their size and market power to crush mainstream businesses and drive up consumer costs,” said Jones, leader of the Main Street Competition Coalition. , an industry group that supports law enforcement. the law of 1936. “Enforcement of the Robinson-Patman Act will help restore true price competition throughout the economy, benefiting consumers with more choices and lower prices for everyday essentials.”

A key antitrust test case

Both the FTC and Southern Glazer declined to comment.

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However, a person familiar with the matter said Southern Glazer’s discounts are available to all retailers where permitted by state law.

The source added that there are no secret discounts and that the only reason a smaller store may not enjoy the same discount as a larger store is because they cannot or do not want to take on the same volume.

The FTC has not filed a lawsuit against Southern Glazer and there is no guarantee the agency will file one. It is still possible that FTC commissioners could vote against such a lawsuit.

But if the lawsuit goes forward, it would represent a test case, and a complex one at that.

A complicating factor is that the alcohol industry is already heavily regulated at the state level. There is a maze of state-level rules that dictate who can sell what alcohol to whom. That could turn that case into a states’ rights issue, with companies arguing that consumers will be harmed.

Schwartz, Reed Smith’s attorney, said a case against Southern Glazer would reflect a shift in FTC enforcement policy under Khan, away from consumer welfare standards, where lower prices are almost always considered better for the public. competence.

The goal here would be to “try to level the playing field for small retailers that are trying to compete,” he said. “You could see it as much of a challenge for mega retailers as it is for suppliers.”

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