Politico reported this week that the Federal Trade Commission is asking US retailers questions about Coca-Cola’s and PepsiCo’s pricing strategies. The news outlet, citing unnamed sources, said the agency is probing “potential price discrimination in the soft drink market.” The basis for the questioning is a “largely dormant” 1936 law that “prohibits suppliers from offering better prices to large retailers at the expense of their smaller competitors,” according to Politico, which said the Biden administration is looking to “rein in big companies and flex its antitrust muscles.” Technology companies have been a particular focus.

COMPANY RESPONSES.   “The Coca-Cola Company is committed to fair and lawful competition in the marketplace,” Coke said in a statement to BD. “Any assertion that the Company has done anything unlawful with respect to the sale and distribution of its products is unfounded and we are prepared to defend any specific accusations accordingly.” PepsiCo did not respond to BD’s request for comment and has not issued a statement.

‘FTC NOTHINGBURGER?’ That was the question raised by AB Bernstein Analyst Callum Elliott in a Jan. 10 analyst report. He surmised that the reason the Robinson-Patman Act was abandoned decades ago by the FTC was because proof of infraction carries a high burden. “Specifically, the law requires that an infraction only occurs if the price discrimination is ‘for the purpose of destroying competition, or eliminating a competitor,’” Elliott wrote. “It strikes us that, in this particular case for PEP/KO, there is a distinct absence of intent to destroy competition, and whilst we are not legal experts, it appears to us that this will be a tough legal hurdle for FTC to overcome.”

ANALYST EXPLORES POSSIBLE AVENUES OF FTC INQUIRY.  In a Jan. 11 research report, Bank of America Securities Analyst Bryan Spillane suggested FTC lawyers may be motivated by precedent – 1) price fixing cases against a handful of Coke and Pepsi bottlers in the 1980s, and 2) a case in recent years in which Pepsi bottler Mahaska won a jury trial against PepsiCo in a lawsuit that included arguments built around the Robinson-Patman Act. [The Robinson-Patman-related claims were later dismissed by the court]. “We have no knowledge of how far an investigation could go but wanted to provide some perspective on the topic,” Spillane wrote. Saying nothing of the merits of any probe, Spillane offered several theories as to what aspects of the Coke and Pepsi systems could draw FTC eyes: 1) recent price increases that are above historic averages (see story page 2). “While the retail prices are making headlines (and potentially drawing scrutiny from regulators), the margins for KO and PEP in the US are compressing as the price increases have not caught up to inflation,” Spillane wrote. “This makes it difficult to draw a line from higher prices to some anti-competitive behavior.” 2) With increasingly sophisticated revenue management practices, less sophisticated retailers like dollar stores may not be equipped to handle a wide assortment of packages “and thus not take advantage of the enhanced revenue management capabilities.” 3) The complexity of direct store delivery and franchising means that “the merchandising plans for large retailers are planned at a national level with involvement of KO, PEP and KDP,” while at “smaller retailers there is more discretion for bottlers to make decisions.”