The Nature of Direct Economic Competition

Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc.

The Robinson-Patman act states that “It shall be unlawful for any person engaged in commerce … to discriminate in price between different purchasers of commodities of like grade and quality, … where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them,” which the Court has read to proscribe “price discrimination only to the extent that it threatens to injure competition. Reeder-Simco takes part in reselling Volvo trucks via a competitive bidding system and brought an action under the law because it believed that, in attempting to reduce the number of resellers Volvo used, it offered better discounts to other resellers. Through this competitive bidding system a customer would select a set of resellers from whom to accept bids; the resellers would then contact their supplier to ascertain their discount rate; the resellers would bid, and the customer would select one, at which point the reseller would make the actual purchase. This case considers whether the Robinson-Patman act applies to such competition.

The Court states that Reeder had to show “(1) the relevant Volvo truck sales were made in interstate commerce [to show the law falls under Congress’ enumerated powers]; (2) the trucks were of ‘like grade and quality’; (3) Volvo ‘discriminate[d] in price between’ Reeder and another purchaser of Volvo trucks; and (4) ‘the effect of such discrimination may be … to injure, destroy, or prevent competition’ to the advantage of a favored purchaser,” and later clarifies that the injury must be “substantial.” Parts 1 and 2 were stipulated. “Absent actual competition with a favored Volvo dealer, however, Reeder cannot establish the competitive injury required under the Act.” Volvo maintained a policy whereby if two resellers came into direct competition on the same contract they would both receive the same concession. For the sake of brevity the evidence can be summed up: Volvo offered better concessions to other resellers in the same geographic area in the hopes of reducing the number of resellers; Volvo followed their policy of offering the same concession when the resellers were in head-to-head competition; and Reeder could show a declining number of sales.

The argument boils down to a question about the concept of direct competition with the majority declaring that there was no actual competition where Reeder was not bidding on the same contract with another reseller, especially insisting that the customer’s selection of bidders limits the scope of competition, and the dissent claiming that competition exists between resellers for customers generally, even where there is no head-to-head competition. The Court leaves the question as to whether or not the law can apply to competitive bidding or special order purchases per se, and simply holds that competition to bid on contracts is not affected by price difference (since the price is not known until the bidding process begins), and “assuming the Act applies to the head-to-head transactions, Reeder did not establish that it was disfavored vis-à-vis other Volvo dealers in the rare instances in which they competed for the same sale – let alone that the alleged discrimination was substantial” (Reeder claims an actual loss of $30,000 gross profits.

The dissent argues that precedent defines competitors as “those who sell ‘in a single interstate retail market’” and that “nothing in the statute or in our precedent suggests that ‘competition’ is evaluated by a transaction-specific inquiry, and such an approach … requires us to ignore the fact that competition among truck dealers is a continuing war waged over time rather than a series of wholly discrete events.” Despite the statement of the majority that the Court does not decided whether the act applies to competitive bidding situations per se, it seems to have decided the question for all intents-and-purposes, namely, that it only applies to head-to-head competition.