A Matter of Survival

If a businessman fears he is going to lose a customer, he often tries to keep him by cutting prices. But when Standard Oil of Indiana tried this traditional method in Detroit in 1938, it ran afoul of the Federal Trade Commission. Standard had cut gasoline prices to four of its biggest jobber customers, to compete with the prices of other oil companies. Standard thereby enabled one of its customers, who operated his own filling station, to undersell competitors.

This, said the Federal Trade Commission, violated the 1936 Robinson-Patman Act, which Congress passed to protect small businessmen against just such practices. FTC argued that Standard could not legally reduce prices to big customers just to meet competition, could do so only if the lower prices reflected actual savings from the bigger orders.

When Standard protested, it found itself with a strange ally: the Department of Justice agreed. Nevertheless, the Federal Court of Appeals upheld FTC. Ruled Appellate Judge Sherman Minton (who has since become a Supreme Court justice): the deciding fact was not good faith, but the fact that "Standard had given a club to their retailers to bludgeon their competitors."

Last week, in its most important antitrust decision since the basing-point case (TIME, May 10, 1948 et seq.), the U.S. Supreme Court disagreed with Judge Minton, who took no part in their deliberations in the case. In a 5-3 decision, the Supreme Court ruled that if the lower price was offered in "good faith" (i.e., to meet competition), then it was legal under the Robinson-Patman Act. "The heart of our national economic policy long has been faith in the value of competition," wrote Justice Harold Burton for the majority. "Congress did not seek by the Robinson-Patman Act either to abolish competition or so radically to curtail it that a seller would have no substantial right of self-defense against a price raid by a competitor . . . The seller may well find it essential, as a matter of business survival, to meet the price rather than lose the customer." The Supreme Court gave orders for FTC to determine whether the price cut had been made in "good faith." Since it is almost impossible to prove that a person or corporation did not act in "good faith," the decision was a body blow to FTC and the Robinson-Patman Act.

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