Price Discrimination

The Clayton Act expressly prohibits price discrimination between different purchasers, if such discrimination tends to create a monopoly or lessen competition. For instance, if a microchip manufacturer gives a computer company a better price on microchips than any other computer companies that buy from the manufacturer, and this situation tends to lessen competition or create a monopoly due to the computer company’s new cost advantage, such favoritism in pricing is prohibited by the Act. Any discount, rebate, allowance, or advertising service charge is similarly prohibited if conveyed for the purposes of destroying competition.

It does not matter for purposes of the Clayton Act whether the price discrimination is direct or indirect. Direct price discrimination occurs when a vendor openly awards a lower price to a particular purchaser solely because of the identity of the purchaser. Basically, direct price discrimination is open favoritism among purchasers, and it is outlawed by the antitrust legislation. Indirect price discrimination, on the other hand, can be harder to detect. This is because the vendor will attribute the lower price to some quality of the particular purchaser or the particular vendor-purchaser relationship (e.g. purchasing volume, corporate responsibility), rather than openly showing the low price as a result of discrimination for purposes of restraining competition. Indirect pricing discrimination is also prohibited by the antitrust legislation. Both forms of pricing discrimination require that the discriminating party act knowingly in giving one purchaser a lower price, meaning that the vendor acts with the knowledge that competition in the purchaser’s market will be restrained given the discriminatory price.

Of course, there exist exceptions to the first provision of the Clayton Act with respect to price discrimination. For one, the Federal Trade Commission is expressly authorized by the statute to fix quantities as it deems necessary in its oversight of the markets. Also, an exception exists for cooperatives, which are permitted to return profits to their members.