THE MORTON AND INTERNATIONAL SALT CASES: DISCOUNTS ON SALES OF TABLE SALT
| Published date | 01 July 2004 |
| DOI | https://doi.org/10.1016/S0193-5895(04)21004-1 |
| Date | 01 July 2004 |
| Pages | 127-275 |
| Author | John L. Peterman |
THE MORTON AND INTERNATIONAL
SALT CASES: DISCOUNTS ON SALES
OF TABLE SALT
John L. Peterman
ABSTRACT
A study of the price discounts granted by Morton Salt Company and other
producers of table salt in the U.S. on their sales of table salt to grocery
wholesalers and retailers. The discounts were found to be illegal under the
Robinson-Patman Act by the Federal Trade Commission and the Supreme
Court. The Commission and the Court believed that the discounts were
unjustified price concessions granted to “large” buyers, consistent with
the concerns of the Robinson-Patman Act. However, the evidence indicates
that the most common discount – the “carload discount” – was received
by virtually all buyers, regardless of the buyer’s size; the other discounts –
“annual volume” discounts – though received primarily by “large” buyers,
were likely cost based. The history of the discounts and likely reasons why
they were granted are explored in detail.
1. INTRODUCTION
In this paper, I discuss the Morton and International salt cases. These cases involve
a challenge by the Federal Trade Commission (FTC) to discounts that Morton (and
the other salt producers) granted on their sales of table salt to grocery wholesalers
Antitrust Law and Economics
Research in Law and Economics, Volume21, 127–275
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(04)21004-1
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128 JOHN L. PETERMAN
andlargegrocery chains. The discounts were found by the FTC to harm competition
in resales of salt between buyers who allegedly received discounts and those who
did not. The Supreme Court in its Morton decision broadly supported the FTC’s
approach to the regulation of price discrimination under the Robinson-Patman Act,
which in turn gave strong support for the FTC in future cases.
Detailed analysis of these cases indicates that certain of the discounts – the “car-
load” discounts on which the Supreme Court focused its findings of competitive
injury – did not exist in practice; and that other discounts – annual volume dis-
counts granted primarily to the large grocery chains – that also were found to injure
competition were most likely cost based. The FTC and the Court found that the
annual discounts were not cost based. Part of the reason for this relates to revisions
to their annual volume discounts that the salt producers jointly adopted just after
passage of the Robinson-Patman Act. These revisions did not reflect changes in the
character of salt distribution, but appear instead as effortsby the producers to avoid
an FTC challenge; and if challenged, to provide a “better” defense. The upshot,
however,was to make the companies’ efforts to cost justify their annual discounts
very hard to understand and to raise suspicions about the industry’s pricing.
The FTC issued its complaint against Morton Salt Co.1in 1939 and against
International Salt Co.2in 1940, charging that the carload and annual volume
discounts they granted on sales of packaged table salt violated Section 2.1 of
the Clayton Act as amended by the Robinson Patman Act. FTC interest in these
discounts arose from complaints of wholesalers who did not purchase sufficient
salt to secure the annual volume discounts granted by the salt companies.3Morton
and International were the two largest producers of dry salt in the United States
and the FTC may have felt that success against them would make it easy to
secure the elimination of similar discounts granted by the other salt companies.
At the time, 13 companies produced table salt besides Morton and International.4
When the Supreme Court in 1948 upheld the FTC’s decision that Morton’s
discounts were illegal, all of the other salt producers abandoned their discounts.
International also abandoned its discounts in 1948, although it was not until 1952
that the FTC issued its decision that International’s discounts were illegal. My
primary aim in this paper is (l) to discover why discounts were granted by the salt
producers and (2) to discuss their treatment by the FTC and the Courts.
1.1. The Robinson-Patman Act
The Robinson-Patman Act reflected a change in attitude to government regulation
of price discrimination. Previously the aim seems to have been to protect the small
competitor from predatory price-cutting by the large competitor. The newaim was
The Morton and International Salt Cases 129
to protect the small buyer from the large buyer who it was believedused his power
to secure advantages not available to the small buyer. This concern is reflected in
the Supreme Court’s opinion in Morton:
The legislative history of the Robinson-Patman Act makes it abundantly clear the Congress
considered it an evil that a large buyercould secure a competitive advantage over a small buyer
solely because of the large buyer’squantity purchasing ability. The Robinson-Patman Act was
passed to deprive a large buyerof such advantages except to the extent that a lower price could
be justified by reason of a seller’sdiminished costs due to quantity manufacture, delivery or sale,
or by reason of the seller’s good faith effortto meet a competitor’s equally low price. Section 2
of the original Clayton Act had included a proviso that nothing contained in it should prevent
“discrimination in price ...on account of differencesin the cost of selling or transportation ...”
That section has been construed as permitting quantity discounts, such as those here, without
regardto the amount of the seller’s actual savings in cost attributable to quantity sales or quantity
deliveries...The Committee considered the ...Robinson-Patman Amendment to [Section] 2
of great importance. Its purpose was to limit the use of quantity price differences to the sphere
of actual cost differences. Otherwise...such differentials would become instruments of favor
and privilege and weapons of competitive oppression.5
The cases against Morton and International fit this concern in this sense: the major
grocery chains secured the annual-volume discounts on table salt and they were
the same buyers proponents of the Act pointed to as examples of large buyers said
to obtain unjustified concessions from suppliers. But whether the FTC believed
that the discounts reflected buying power of the chains or stemmed from other
causes remains an open question. The records and opinions in Morton and Inter-
national contain no analysis, arguments or statements suggesting why discounts
were granted. What is clear is that in the end they were not found to reflect cost
differences.
The evidence in Morton begins in late 1936 – after passage of the Robinson-
Patman Act – and continues into 1942 when testimony was completed. This is also
true for International, except that testimony in this case continued into 1944. In
Morton, the FTC focused primarily on the pricing of its familiar Blue Label table
salt (hereafter BL salt). BL typically sold for a premium over other brands. BL
also was sold under an annual volume discount structure that in certain respects
differed from that which covered Morton’s sales of its other table salt. The latter
discount was the same as that granted by all producers on their sales of table
salt to wholesalers and chains. This other salt was sold in standard weights and
packs, and from all accounts no one of these products secured a premium over
any other.
Basically two types of discounts were challenged in Morton and International.
The first involved various discounts relating to what the trade called “carload”
purchases. The second involved discounts based on the buyer’s annual purchase
volume.
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