Clarissa Kessler operates a store that sells recorded music. Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost. Is this evidence of illegal price discrimination on the part of the discount store chain?
A) Yes, it is clearly a violation of the Robinson-Patman Act.
B) No, because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale price than Clarissa.
C) Yes, the discount store chain is engaging in predatory pricing.
D) No, even if the price discrimination is based on differences in cost, the law states that it is not illegal.

Question

Quizplus · Accepted Answer

The fact that the discount store chain is able to sell recorded music for less than Clarissa's wholesale cost does not necessarily indicate illegal price discrimination under the Robinson-Patman Act. It could be argued that the discount store chain is able to charge lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale cost. As long as the lower prices are based on a legitimate cost difference, such price discrimination is generally legal. Predatory pricing, or the act of pricing below cost in order to drive rivals out of business, is illegal under antitrust laws, but it is not the same thing as price discrimination.

Clarissa Kessler Operates a Store That Sells Recorded Music