The Federal Trade Commission has put under preliminary investigation beverage giants Coca-Cola and PepsiCo over potential price discrimination in the soft drink market as the agency strives to dust off a decades-old, but long-dormant price-discrimination law banning the practice.
According to four people with knowledge of the FTC probe, the agency is scrutinizing both companies’ pricing strategies under the obscure law known as the Robinson-Patman Act, which prohibits suppliers from offering better prices to large retailers at the expense of their smaller competitors.
Aimed at promoting a level playing field between small retailers and large chain stores, this 1936 law was previously regularly enforced but is largely dormant for the last two decades with the settlement with spice company McCormick being the last case FTC had under the law.
The reason for moving away from law enforcement was FTC and Justice Department’s increased focus on the possibility that the act was causing more harm to consumers – namely higher prices – rather than to competitors.
The FTC under Lina Khan has been dusting off long quiescent laws and reaching deep into the antitrust playbook in its efforts to curtail the growth of the world’s biggest firms, from the more traditional Fortune 500 stalwarts like Pepsi and Coke – the largest US soda companies with more than 46% and 26% of the market respectively in 2021 – to the relative newcomers like Apple and Google.
In the latest sign that the Biden administration is expanding its efforts to flex its antitrust muscles and rein in big companies – and not just in the technology world – the FTC has reached out – for at least the last month- to large retailers, seeking data and other information on how they purchase and price soft drinks.
Given the uniformity of the product, targeting soda pricing could be a good test case for the FTC though it could present some messaging challenges for the agency, considering the health problems linked to sugary drinks.
Per the critics of the law, on the other hand, it would actually have the opposite of its intended effect because it would also harm consumers by raising the prices at the largest chains despite boosting the small businesses.
According to Alden Abbott, a former FTC general counsel during the Trump Administration, bringing more Robinson-Patman Act cases would raise prices for the lowest-income consumers.