Cost Justification

In defending against a charge of price discrimination, cost justification is a viable defense. Basically, a defendant is charged with violation of the pricing discrimination statute because it gives one purchaser a lower price than the rest. It is illegal to discriminate in pricing among purchasers for an improper purpose. However, if the low-price purchaser insisted on the defendant matching a competitor’s low price on threat of discontinuing the purchasing company’s business with the vendor, then this is a legitimate justification for the discrimination in price among vendors.

In order for the cost justification defense to be applicable, a defendant must show two things. The first is that the lower price was made in good faith. Good faith is a legal term that basically means “above board,” and in this context means that the price was made without discriminatory or anticompetitive intent. The second is that the lower price was made in an effort to meet the equally low price of a competitor. This would involve a showing of the competitor’s lower price at the time, along with evidence surrounding the negotiations with the particular vendor alleged to have been rewarded a discriminatory lower price.