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Supreme Court mulls discriminatory sales
High court to decide if special deals constitute price discrimination, ruling to have wide effects.
October 28, 2005: 3:52 PM EDT
By Shaheen Pasha, CNN/Money staff writer

NEW YORK (CNN/Money) - The long common practice of manufacturers giving certain retailers preferential deals on merchandise could come to an end in a case being argued before the Supreme Court.

The Supreme Court meets Monday to determine whether those special discounts constitute price discrimination under the Robinson-Patman Act, which forbids price discrimination on the same product if it lessens competition or creates a monopoly. Depending on the Court's ruling, consumers may have to brace themselves for higher prices on a multitude of products.

In the first of three antitrust cases before the Supreme Court this session -- Volvo Trucks North America v. Reeder-Simco GMC -- the high court will hear testimony from Arkansas-based dealer Reeder-Simco GMC, which sued Volvo Trucks in February 2000, claiming that the company violated the price discrimination act by providing better price concessions to other authorized Volvo dealers.

A ruling favoring Reeder-Simco could open the floodgates for businesses across the country to claim that manufacturers' preferential deals with competitors has undermined their ability to sell certain products at competitive prices, possibly resulting in higher prices for consumers.

In Reeder-Simco's case, the dealership said that other dealers were given larger discounts, causing the company to stop buying certain trucks from Volvo because it couldn't get the same discount and couldn't compete with other dealers who did get the cut-rate deals.

"There were a wide range of discriminations," said Stephen Kinnaird, partner at Sidley Austin Brown & Wood LLP, the law firm represent the dealership. "Over a three-year period, a quarter of a million dollars were lost as a result of the discrimination."

A jury agreed, awarding Reeder-Simco $4.1 million. The 8th Circuit Court of Appeals upheld the verdict, prompting Volvo to appeal to the U.S. Supreme Court.

Kinnaird said jurors found that as the discrimination caused the dealer to not purchase those goods, by extension it lost out on sales, and Volvo was in violation of the Robinson-Patman Act.

Widespread effects

If the Supreme Court agrees, the implications could be widespread, experts said.

The issue isn't limited to truck sales. A number of other industries also participate in a similar bidding practice with dealers, such as farm equipment manufacturers and office furniture makers.

David Price, an attorney at public interest law firm Washington Legal Foundation, said that preferential discounts are also often given to school systems and police departments. If the Supreme Court were to rule that preferential deals are anti-competitive across the board, that would make it difficult for manufacturers to provide discounts on a case-by-case basis and public systems may be forced to pay more.

Michael Halfenger, a partner with Foley & Lardner, said if the high court upheld earlier verdicts, manufacturers would be forced to provide the same price across the board and that could cause manufacturers to charge higher prices to dealers, which would trickle down to consumers.

"If you have to worry about giving the same price everywhere, the tendency for an economically sensitive manufacturer is to raise prices" to make up for any shortfall in a market that may not be doing as well as another, he said. "If a manufacturer can't give his dealer the best possible price, the person that buys the end product won't get as good a price."

But Kinnaird said the current practice only maximizes Volvo's profits at the expense of some of its dealers.

"I don't think this is going to have a broad effect on any industry," he said. "Industries have to comply with the law as it's written, not as they want it to be."

Price discrimination without sale?

The Supreme Court must decide if a company can prove product price discrimination as the cause of its lower profits if it never purchased the product in question.

Halfenger said the Robinson-Patman Act limits a manufacturer's ability to offer different prices, but only if those prices are given to direct competitors.

He said it was unclear that Reeder-Simco actually lost sales or customers because Volvo gave a different dealer a better deal. Unless it can be proven that a competitor was able to attract a company's customers because it received better discounts, it makes it difficult to make the case that the company suffered price discrimination, Halfenger added.

It is common for manufacturers to promote certain products to retailers, and for interested retailers to ask for that product at a price concession, known as a bid. The so-called bid is negotiated by the manufacturer and the retailer -- in this case Volvo and Reeder-Simco.

But manufacturers often offer better price concessions to certain preferred dealers. If the manufacturer wants the business of a specific dealer, for instance, it's more inclined to provide a larger discount on the product.

The U.S. Supreme Court, in essence, will have to determine what constitutes a competitor and its decision could determine who is eligible to claim violations under the Robinson-Patman Act.

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The Supreme Court has a number of antitrust cases on its docket. Find out more here.  Top of page

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