Perform brief research on the Robinson-Patman Act of 1936 (USA law) and become a

Question

Perform brief research on the Robinson-Patman Act of 1936 (USA law) and become acquainted with the basics of the law. Apply this law to a situation where your firm has discovered some essential cost information from a competitor in a specific geographic market. From this valuable commercial intelligence, you believe you can accurately estimate the break-even, pricing point of your competitor. Management of your firm also believes it can temporarily lower its prices (in just that specific geographic area) to a point just below your competitor’s break-even price point and effectively eliminate it as a meaningful competitor.

Explanation / Answer

Brief introduction on Robinson-Patman Act of 1936(USA law): This Act applies solely to tangible goods of similar quality which prevents retailers purchasing products in bulk(large) volumes from gaining(profits) too large over small buyers of the same products.

Eg. If 'A' company sells 1000 products @ 10$ per products to a major retailer then 'A' company needs to sell the same products to small retailer/local person to the same price even though he cannot purchase in larger volumes. So, if 'A' company sells at a higher price to the small retailer/local person then the company would be found in violation of the Act.

So applying the Act to the given situation

Here, the firm discovered commerical intelligence* of the other firm which is competitor through which it can find out the estimated break-even price point so that it can gain over its competitor by modifying strategy and fixing price lower than the price of its competitor prevailing till then.

*commerical intelligence: It's the process of defining, gathering, analyzing, distribution accurate and relevant intelligence regarding the products, customers, competitors, business environment and the organization itself

Break-even price point means the amount for which a product is to be sold to cover its manufacturing costs.

To be specific, Break-even price point of a unit of product = its fixed costs+variable costs

Anything more than that price would be margin of profit/gain.

Conclusion: So here, if the firm approves a price which is less than than its competitor it can easily gain more customers or retailers if it's a wholesale one and it can effectively eliminate it as a meaningful competitor.

This thing pertains to lowering the product price with respect to its competitor but it should sell the product to a local person/small retailer to the same price it sells the same product of same quality to a large retailer as violation of this thing is violation of the Act.

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