The 2020 Mid-Year Economic Update_long

Manufacturer Discounting Upheld

determine by any statistical analysis whether Reeder was disfavored on average as compared to another dealer or set of dealers.”


The Supreme Court granted review on the case to resolve whether a manufacturer offering its dealers different wholesale prices may be held liable for price discrimination under RPA absent a showing that the manufacturer discriminated between dealers courting the same retail customer. Writing for the court, Ginsburg said state law is designed to protect franchises from the kind of conduct Reeder presents, but the RPA does not apply.


The court also found that there was no evidence that the “favored” Volvo dealers had sufficient market power to raise prices above those that would prevail in a competitive marketplace without inducing customers to turn elsewhere, according to a National Association of Wholesaler-Distributors legal advisory. The supplier’s discounting promotes interbrand competition, which is the “primary concern of antitrust law,” including the Robinson-Patman Act, according to the court.


Resources:
Supreme Court’s opinion
MDM: Dealer Pricing Case Up for Review

a general increase in Volvo’s prices. It was then Volvo increased the discount to Southwest Missouri by 1 percent.


Volvo’s policy is to provide the same discount to each of its dealers when they are competing head-to-head for a sale.


On four occasions, Reeder sold Volvo trucks to a retail customer, but claimed to not make as much profit on the deals because another “favored” Volvo dealer received a greater discount from Volvo, in another sale, to a different retail customer. The example: Reeder was quoted a 9 percent discount on a sale of 30 trucks to a Tulsa trucking company. Two months earlier, Volvo granted another Volvo dealer a 12.3 percent discount on the same of 12 similar trucks to a Texas-based grocery company. Reeder claimed that if it had received a 12.3 percent discount, the dealer would have made a greater profit.


The other aspect of Reeder’s claim dealt with losing sales to non-Volvo dealers because the discount Volvo offered was not as great as it would offer to its more “favored” dealers in similar bidding situations.


The jury found there was a reasonable possibility that discriminatory pricing may harm competition between Reeder and other Volvo dealers, and that Reeder was injured by the discriminatory pricing. On appeal, in July 2004, a divided Court of Appeals (2-1) affirmed the jury verdict, pointing to evidence that:



  • Volvo intended to reduce the number of its dealers;
  • Reeder lost the Hiland Dairy contract in head-to-head competition with another Volvo dealer;
  • Reeder would have made more profits if it had received the same discounts other dealers received; and
  • Reeder’s sales had declined over a period of time.

The dissenting opinion from an Appeals Court judge: “There is little doubt that the facts of this case fail to fit neatly into the framework that courts have established in analyzing Robinson-Patman Act secondary-line claims. … Traditional RPA cases involve sellers and purchasers that carry inventory or deal in fungible goods. By contrast, the parties in this case operate in a unique marketplace where special-order products are sold to individual, pre-identified customers only after competitive bidding.


“By its very nature, this process will never produce the kind of competition the RPA was designed to protect because it will never result in the type of two-purchase transaction that itself creates a market for the goods that are sold. .. At most, the facts show that Volvo acted unreasonably in failing to give Reeder sufficient concessions to allow it to compete with other non-Volvo dealers. While such conduct may very well give rise to some sort of liability under state law, I conclude it does not support a judgment for treble damages under the Robinson-Patman Act.”


High Court’s Conclusion
The Supreme Court overturned the Appeals Court decision, agreeing with the dissenting judge.


The high court’s justices ruled that Reeder’s presentations of differential pricing between dealers in head-to-head competition for the same retail customer were not sufficient to constitute an RPA violation. In both head-to-head situations, Volvo provided the same discounts to both dealers.


And because Reeder did not compete with other Volvo dealers directly for the same retail customer in the other instances described, the Supreme Court found that the alleged price discrimination in those cases did not constitute an RPA violation either. In fact, writing for the court, Justice Ruth Bader Ginsburg said Reeder may have received bigger discounts than other dealers in instances the dealer did not mention. “Reeder’s vice president … testified that Reeder did not look for instances in which it received a larger concession than another Volvo dealer, although he acknowledged it was quite possible’ that such instances occurred,” Ginsburg wrote. “Nor did Reeder endeavor to

In a 7-2 decision, the U.S. Supreme Court has overturned an appeals court ruling that could have dramatically changed manufacturers’ discounting policies to independent resellers, particularly in competitive bid situations.


In 2000, heavy-duty truck dealer Reeder-Simco GMC Inc., Fort Smith, AR, sued Volvo Trucks North America Inc. claiming the manufacturer gave other Volvo dealerships deeper discounts, resulting in price discrimination illegal under the Robinson-Patman Act (RPA). The truck dealer alleged its sales and profits declined because other Volvo dealers received favorable discounts, which directed sales away from Reeder. A jury agreed, and awarded the dealer $4.1 million. An appeals court upheld the verdict.


Under that Eighth Circuit Court of Appeals ruling, a manufacturer would have risked violating the RPA unless it offered the same price or price concessions to all its distributors in the U.S. But the Supreme Court ruled last month that the RPA does not prohibit all price differences charged to different purchasers of a product. Rather, it proscribes price discrimination only if it threatens to injure competition.


George Keeley, an attorney who specializes in wholesale distribution practice and who wrote a legal advisory on the case for the National Association of Wholesaler-Distributors, said that because the high court overturned the appeals court ruling, pricing practices will stay as they are. If it wasn’t overturned, it would have affected how we do business,” he said.


A review of the case and the Supreme Court’s opinion follows.


The Case
The Robinson-Patman Act is a federal antitrust law that makes it illegal for a seller 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.”


Reeder-Simco became an authorized Volvo dealer in 1995 on a five-year franchise agreement subject to one-year extensions if the dealer met sales objectives. It sold trucks through an industry-wide competitive bidding process, where the retail customer describes specific product requirements and invites bids from dealers.


The dealer requests a concession off the wholesale price from Volvo, and the manufacturer decides discounts on a case-by-case basis considering factors such as existing relationship, geography and reputation. Reeder was one of many regional Volvo dealers and rarely bid against another Volvo dealer for customers.


Reeder claimed Volvo was giving bigger discounts to other dealers in an effort to push Reeder out of the market as part of its “Volvo Vision” plan. Volvo announced the plan in 1997, calling for cutting the number of its authorized dealers in half and expanding the dealers’ geographic markets.


According to Appeals Court documents, Reeder came to suspect it was targeted for elimination after learning of the plan and receiving increased sales expectations from Volvo. Volvo also started giving Reeder fewer discounts; meanwhile, Reeder mistakenly received faxes showing Volvo was giving larger discounts to other dealers.


The Evidence
Reeder claimed two instances where Volvo offered deeper discounts to other Volvo dealerships Reeder was competing against for the same retail customer. In one instance, Volvo initially offered Reeder a smaller discount, but eventually increased the discount to match the price offered to other Volvo dealer.


In the second instance, Volvo offered Reeder and Southwest Missouri Truck Center the same discount on a bid for the purchase of 12 trucks by Hiland Dairy. Hiland selected Southwest Missouri (from which it had purchased trucks before) but insisted on a price that was bid before

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