Heated Reactions As “Discriminatory Deal” Case Is Dropped

Pepsi is off the hook. To free-market supporters, it’s a relief. For fair-competition advocates, it’s a fiasco.

A newly-constituted Federal Trade Commission last week undid what previous members of the commission had done under the last administration, and dropped an antitrust lawsuit against PepsiCo. The lawsuit alleged that the company violated federal law against price discrimination, by offering favorable pricing to “a large, big box retailer,” which in effect “raised prices for Pepsi products for competing retailers.”

But with a new administration comes new priorities – and pursuing the Pepsi lawsuit wasn’t one of them.

“Filing the suit was purely political,” acting on “little more than a hunch that Pepsi had violated the law,” Republican FTC chair Andrew Ferguson said in a statement, after announcing that the commission had voluntarily abandoned the case.

Bringing the lawsuit was “possibly the most reckless and irresponsible use of antitrust enforcement resources I have witnessed,” Ferguson’s commission colleague Mark Meador concurred. “The public deserves better from its government and will get better from this Commission.”

The “large, big box retailer” to whom Pepsi allegedly offered favorable pricing was widely reported to have been Walmart. Pepsi provides its top customer “with a slew of promotional payments, allowances, and services” that are passed along to shoppers in the form of lower prices, the lawsuit argued, “while failing to make similar benefits available to competitors,” even on proportional terms, that would allow competing retailers to offer lower prices for Pepsi products to their own shoppers.

“When firms like Pepsi give massive retailers a leg up, it tilts the playing field against small firms and ultimately inflates prices for American consumers,” Democratic FTC Chair Lina Khan said when the lawsuit was filed in January, during the waning days of the Biden administration and of her chairmanship. “The FTC’s action will help ensure all grocers and other businesses — no matter the size — can get a fair shake and compete on the merits of their skill, efficiency, and talent.”

Ferguson lambasted the case as “a weak complaint filed by an outgoing administration for nakedly political purposes.” Meader added that “the blame for this debacle lies squarely at the feet of the former Chairwoman and the former Commissioners who abetted her 11th hour attempt to grab one last headline.”

Pepsi disputed the allegations at the time the lawsuit was filed, saying its “practices are in line with industry norms, and we do not favor certain customers by offering discounts or promotional support to some customers and not others.” And it reiterated its position after the lawsuit was dismissed. “PepsiCo has always and will continue to provide all customers with fair, competitive, and non-discriminatory pricing, discounts and promotional value,” the company said in a statement.

The legal dispute may be over, but the public dispute is not, as supporters of the lawsuit are responding to the current FTC’s scathing criticism with criticisms of their own.

“Disturbing behavior from @FTC,” former commission chair Khan wrote on X. “This lawsuit would’ve protected families from paying higher prices at the grocery store and stopped conduct that squeezes small businesses and communities across America. Dismissing it is a gift to giant retailers as they gear up to hike prices.”

The Institute for Local Self-Reliance, which once published a report criticizing Walmart’s “monopolization of local grocery markets,” was a strong supporter of the lawsuit. Co-executive director Stacy Mitchell condemned its dismissal. “The dismissal fits a troubling pattern of weakened antitrust enforcement that has allowed unprecedented corporate concentration across the American economy,” she said in a statement. Antitrust laws exist “precisely to prevent large, dominant corporations from using their market power to squeeze out independent competitors through discriminatory deals,” she continued. “By walking away from this case, the FTC is green-lighting the very practices that are destroying main streets across America.”

Walmart didn’t get as big and successful as it is, by not offering the lowest prices possible. And there’s nothing illegal about big customers getting volume discounts from suppliers that they can pass along to their customers. Critics had argued it does become illegal, when other retailers get no comparable discounts, they have to pay higher prices for the same product, they have to charge their shoppers more, and they end up losing business to Walmart in what becomes a vicious spiral.

Federal Trade Commission v. PepsiCo, Inc. might have been a notable test case to see how well that argument holds up to judicial scrutiny. Instead, the case is over before it really even got started. Walmart shoppers who enjoy paying lower prices for Pepsi products may be pleased. Other shoppers will have to decide whether Pepsi products they buy elsewhere are worth the price.

Image source: Phillip Pessar