AAI urges FTC to follow up on slotting fee workshop with staff report and industrywide research

Jun 27 2000
Testimony and Interventions

The Hon. Robert PitofskyChairmanFederal Trade CommissionWashington, DC 20850

RE: Slotting Allowance Workshop

Dear Mr. Chairman:

The American Antitrust Institute ("AAI") has been among many parties that have urged the Commission to address the problem of abusive slotting allowances and related practices throughout the grocery industry. We now wish to applaud the Commission and its staff for an outstanding workshop on this subject. The staff deserves a great deal of credit for assembling an impressive array of spokespersons and eliciting valuable evidence and perspectives on the many issues warranting attention in this industry. We are pleased to note that several members of the AAI Advisory Board were participants.

We write today respectfully to suggest next steps in the wake of that workshop. Our suggestions rest on the belief that the workshop record supports the following conclusions: (a) slotting allowances have become widespread in the grocery industry; (b) there are instances, perhaps many instances, in which their effect is exclusionary from the standpoint of smaller suppliers and discriminatory from the standpoint of smaller retailers; (c) there is reason to believe that their cumulative industry-wide effect may be anticompetitive and anti-consumer; (d) there is considerable need for further research into this phenomenon; and, most clearly, (e) there is deep disagreement over the appropriate legal and enforcement agency response to these practices and concomitant widespread interest in some Commission guidance in this area.

Particularly in light of the last two of those points, we believe the most important next step would be a thoughtful and detailed public report reflecting the workshop record and current levels of staff understanding, including staff recommendations. Such a report in itself could become a valuable immediate source of guidance to the industry on how to distinguish between lawful vs. unlawful or at least problematic uses of slotting allowances and related conduct. It could thereby become a force for industry reform, encouraging evolution of slotting allowance practices in directions more consistent with "efficiency" explanations for their use and away from their more abusive variations that entail nothing more than the exercise of raw market power. It could also prove informative to courts in their rulings on pending and future private challenges in this area.

Finally, a report of this sort could also address the possible desirability of new legislation for an industry-wide phenomenon that, while difficult to reach effectively under existing law, is nonetheless a serious threat to the small business community and to the consuming public. Legislative approaches are now being pursued at the state level as well as in Canada and other countries. As you so aptly suggested in your introductory remarks at the workshop, such a report would be consistent with the Commission's historic Brandeis-inspired mission of shining light upon evolving industry problems and proposing solutions for them.

The need for more research was highlighted particularly in the last workshop session. There is little doubt, however, that hard and reliable facts required for this next stage of research are obtainable only through the use of compulsory process directed at the largest suppliers and supermarket chains in this industry. Accordingly, we believe that in conjunction with publication of a staff report on the workshop record the Commission should announce the issuance of orders to file "special reports" to these industry members under Section 6(b) of the FTC Act in aid of a further slotting allowance study. The Commission's undertaking of an industry-wide study in this fashion would underline the appropriate depth of concern about problems reflected in the workshop record and cause industry members to give fresh thought to the propriety of their practices.

Finally, and also in conjunction with publication of its report on the workshop record, the Commission should make as clear as possible its interest in receiving information on abuses from industry members victimized by them and its readiness to mount enforcement investigations when the information that is so provided reflects apparent violations of law. This interest should expressly include apparent violations of the Robinson-Patman Act as well as the broader scope of practices reachable under Section 5 of the FTC Act. The small business community needs this form of reassurance that the agency is receptive and prepared to act in these situations; dominant suppliers and retailers alike need a reminder that a tough cop is on the beat.

Sincerely yours,

Albert A. FoerPresident