A PYMNTS Company

How an Old U.S. Antitrust Law Could Foster a Fairer Retail Sector

 |  February 28, 2022

By: Brian Callaci & Sandeep Vaheesan (Harvard Business Review)

Antitrust is having a moment. Last summer, President Joe Biden issued an ambitious executive order with 72 directives and recommendations to his administration to “promote competition in the American economy.” Now, Congress seems poised to enact one or more bipartisan antitrust bills.

As they aim to revive antitrust against powerful corporations, legislators and regulators confront an important question: What types of competition should the law allow to support and sustain a fair economy? Not all competition is desirable: false advertising, industrial sabotage, patent infringement, and paying sub-minimum wages have been deemed unfair and illegal. Lawmakers tend to be preoccupied with “how much” competition there is, not what kind of competition they’re encouraging. But as they look to tame pervasive concentration and monopolization, they should consider an older approach to antitrust that fits one of the leading problems we face today: restricting abuses of buyer power. 

This idea has fallen out of vogue. For several decades now antitrust orthodoxy has interpreted the antitrust laws as “protect[ing] competition, not competitors,” and reduced questions about legality to measurements of prices and output — we know the government needs to act when corporations raise consumer prices and reduce output. However, this viewpoint sits uneasily with the antitrust laws that are actually on the books. Historically, Congress restricted the ability of powerful corporations to unfairly lower the prices they pay to suppliers, farmers, and other producers — it was once a pillar of its antitrust strategy.

If you look at the origins of this policy, you’ll find that the United States was facing a situation much like the one it’s navigating today, in which corporations exercised enormous power over supply chains.

In the 1920s and 1930s, large chains were making major inroads into groceries. Corporations such as the Great Atlantic & Pacific Tea Company (commonly called “the A&P”) were opening stores across the nation and frequently offered lower prices than smaller rivals. In many places, these stores (as well as new mail-order outfits) introduced fresh competition into local monopolies — particularly in the rural South, where white-owned country stores charged high prices to their relatively poor farmer and sharecropper customers, who tended to be Black. They captured market share and appeared poised to dominate retailing in many local markets and nationally. In 1930, the A&P had more than 15,000 stores across the country. (For comparison, Walmart, the nation’s largest food retailer, has 4,742 stores in the United States, while the Albertsons family operates more than 2,200 supermarkets.)

But as the power of companies like A&P and Kroger grew, an unfair dynamic emerged, which put small retailers at a clear disadvantage. Because of their sheer size, these companies were able to compel manufacturers and wholesalers to grant them lower prices than they charged to small rivals, even in cases where the large volumes did not result in lower costs of production or distribution. The concessions chains extracted gave them a cost advantage over independent rivals as great as 35% in some local markets, according to a 1934 Federal Trade Commission (FTC) report. In addition to lower prices, large chains could obtain advertising allowances and brokerage fees that were not offered to their competitors…