Price Discrimination: Illegal or Not?
By David Henderson
In his excellent post on price discrimination and how pervasive it seems to be, Arnold states:
The manufacturer would like to charge $400 to JS and $200 to BZ. However, to do so blatantly would be illegal.
One commenter challenged his claim that it’s illegal and another commenter claimed that price discrimination is illegal under the Robinson-Patman Act. But, unless the interpretation of the law has changed dramatically, the Robinson-Patman makes price discrimination illegal only when the goods are being sold to distributors, not when they’re being sold to final users.
Here’s what Wikipedia says:
In general, the Act prohibits sales that discriminate in price on the sale of goods to equally-situated distributors when the effect of such sales is to reduce competition.
Why does this matter? It goes to the issue of why retailers choose the methods they do to price discriminate. The main reason is not that price discrimination is illegal–it’s not. The main reason is that retailers need a low-cost way of having people self-select. The various methods of price discrimination–charging more for an airline ticket when the person doesn’t stay over on a Saturday, for example–work well for that reason.
If you doubt that retailers can legally price discriminate, talk to a new car salesman sometime who has sold, in one day, identical cars to two different people with no trade-in.