This week’s focus is the Trump Federal Trade Commission abruptly ending a lawsuit against Pepsi (and de facto Walmart) for discriminating against smaller stores. After that I’ll have the round-up, which is full of monopoly-related news, including a major change to the Apple app store, a big Supreme Court ruling calling the Federal Reserve the fourth branch of government, and the GOP tax bill passing the house. A note, I’m going on vacation next week, so I won’t have much for next Sunday.

Ok, let’s get started with how the Trump Federal Trade Commission dropped an important case on Thursday on price discrimination in the retail sector, a case putting Walmart’s position as a “power buyer” under the microscope. This one’s a big deal. Here’s former FTC Chair Lina Khan criticizing the decision.

Why does this choice matter? And why did an erstwhile populist FTC leadership make this decision?

Let’s start with the problem writ large. The key reason that main street America died in the 1980s, and that small businesses are struggling today, is a tactic known as “price discrimination,” which is when buyers and sellers charge higher prices to the little guy because they can. Doing that used to be illegal, and there’s a law on the books - the Robinson-Patman Act (RPA) - that was known as the “Magna Carta of small business” precisely because it made this practice unlawful.

The reason is clear. If raw bargaining power becomes the mechanism for determining business success, then the incentive everywhere - from retail to pharmacies to office supplies to veterinarians - is to consolidate. In the 1980s, the government stopped enforcing the RPA. And it is not an understatement to say this administrative deregulation drove the rise of Walmart, Amazon, Office Depot, and private equity, as well as the loss of grocery stores, pharmacists, and medical practices in rural and poor areas. It is also likely why there was such massive inflation during Covid, and why Walmart is able to use tariffs to its advantage.

We’ve had this same fight before, it was in fact a key battle in Congressman Wright Patman’s career in the 1930s, to address the coercion of the then-dominant A&P chain. Plaintiff’s lawyer Mark Poe recently quoted Patman, saying one need not “look further than Walmart and the other Chain Groceries to witness firsthand ‘huge chain stores sapping the civic life of local communities with an absentee overlordship.’”

Over the last few years, Lina Khan and her fellow commissioner Alvaro Bedoya at the FTC, along with private litigants, began reviving the law. The FTC put together one lawsuit against the nation’s biggest liquor distributor, Southern Glazier’s, as well as this case against Pepsi. But it wasn’t Khan and Bedoya acting alone, the coalition to revive RPA is a bunch of right-leaning constituency groups, from rural grocers to farmers to convenience stores.

It’s not a coincidence that it’s these small and medium sized business owners pushing for the end of price discrimination, and that these groups are also the target of private equity acquisitions. Here’s a note that I got from a reader in the business, on the significance of RPA.

“Hey Matt – if they start to enforce the price discrimination laws, it would likely have a big impact on roll-up strategy. Volume discounts are often the only real “synergy” in a roll-up – it they’re unavailable, it should have a big impact. There are likely some current roll-ups that rely on volume discounts for the cash flow they need to service debt. If that changed, some may be in real trouble.

In my roll-ups, it probably cost us more to run the consolidated business than it would have if they had stayed independent. The only incremental margin was discounts, and purchases were about 35% of expenses.”

For two years, the FTC investigated Pepsi’s dealings with Walmart, and in mid-January of this year, they filed a case. There’s another private case against Pepsi filed at roughly the same time showing the dynamic that everyone knows is happening. In this other case, the plaintiffs showed that Frito-Lay, a Pepsi subsidiary, routinely forces up consumer prices at small stores. Big chains, for instance, sold party-size bags of Doritos retail for $2.49, while Frito-Lay charged independent grocers $4.63 wholesale, and recommended they charge a retail price of $6.29.

The FTC case is more complex, and has to do with how Pepsi pays Walmart special promotional allowances that it doesn’t offer to rivals. That’s also barred by the RPA, but it’s not as straightforward as charging different list prices for the same good, even though economically it is the same thing. Pepsi is likely using the argument that Walmart is in a different industry “classification” than other grocers or convenience stores, like it’s a “superstore” or something and therefore it is entitled to different promotions. That’s mostly an attempt to dodge the law, though in truth, we don’t know what the FTC is really alleging.

And the reason is that Trump FTC Chair Andrew Ferguson, aside from dropping the case, has made sure most of the complaint remains secret forever. When the case was filed, the FTC put up a heavily redacted brief with its allegations. That’s common for an initial complaint, because corporations get the benefit of the doubt on what is secret information. However, one of the first things that happens in these cases is the judge unseals a lot of stuff, so the public can take a look at the evidence. Unfortunately, Ferguson tossed the case before the unsealing could happen, so we aren’t even allowed to look at the evidence.

It doesn’t really matter if you read the publicly available FTC complaint, because nearly all of it is heavily redacted. You can read between the lines, though, and figure out that Pepsi raises prices to independent retailers by paying Walmart a bunch of benefits, and does so explicitly and with the intent to harm smaller stores.

The basic argument that Ferguson made in dropping the case was that the facts weren’t there. Notably, before he was chair, he dissented from both this lawsuit, as well as the RPA lawsuit against Southern Glazier’s. He said he does support RPA cases, just not these RPA cases. His statement in dismissing the case was done in personal terms, implying Khan did not adhere to the rule of law, that the complaint had “no evidence” to support its key contentions, and that he was seeking to “clean up the Biden-Harris FTC’s mess,” something later echoed by fellow commissioner Mark Meador on Twitter.

Here’s what Ferguson said on the press release, which is worth reading to understand the bitter tone.

“The Biden-Harris FTC rushed to authorize this case just three days before President Trump’s inauguration in a nakedly political effort to commit this administration to pursuing little more than a hunch that Pepsi had violated the law,” said FTC Chairman Andrew Ferguson. “Taxpayer dollars should not be used for legally dubious partisan stunts. The FTC’s outstanding staff will instead get back to work protecting consumers and ensuring a fair and competitive business environment.”

This kind of personal invective is traditionally unusual for antitrust enforcers, but it is how Ferguson increasingly communicates. And there might be a reason. Two days earlier, the FTC announced it was holding a workshop on transgender procedures, and then yesterday, it made public an investigation of Democratic-aligned media watchdog group Media Matters, which is being sued by Elon Musk. These are high-profile and rather lawless endeavors, basically turning the FTC into an organization focused on social policy, as the Obama era enforcers saw it, rather than one focused on competition. And that’s not something that conservative populists like. Here, for instance, is Trump advisor Steve Bannon criticizing the decision to drop the case.

Earlier this month, Pepsi hired lobbyist Bryan Cunningham of Polaris Consulting. Cunningham, who is being hired as a subcontractor of big law firm Gibson Dunn, is a former Orin Hatch staffer and GOP knife-fighter, and he’s lobbying on “competition matters.” Perhaps he got to someone in the White House, that’s how a lot of policy happens these days. Honestly, it’s impossible to know. Regardless, the social issues and heated rhetoric serve a purpose, it helps to distract if you are giving what is effectively a corporate pardon to Pepsi and Walmart for undermining most of main street America, and doing so while Trump is in a fight with Walmart over tariffs and prices.

There is a more good faith interpretation of the choice to dismiss the suit. It’s possible that it really was a rush job and there really wasn’t any evidence. I am not persuaded of that theory. It wasn’t rushed; the investigation took two years. It’s come out routinely, in private litigation, among conversations I’ve had with grocers, in public testimony, and even in the Kroger-Albertsons merger suit by an Albertson witness, how much market power Walmart has to demand preferential pricing.

It also makes no sense to say that dismissing the complaint is “cleaning up a mess.” Khan is a careful lawyer, and wouldn’t file a complaint without key evidence, or at least, never had done so before. But even had she done so, the FTC had additional time to file an amended complaint to narrow the pleadings or add key facts, which is a very common thing to do in litigation. As Laurel Kilgour put it, they could have done this “even though a private litigant - represented by a law firm with a victorious *jury trial* track record under same statute– is still going forward with a narrower set of similar claims against same defendant's subsidiary.” Unfortunately, by keeping the complaint redacted, Ferguson has denied the public and Walmart’s rivals the ability to see why he dropped it. There’s an irony in asserting there’s no evidence, while denying the ability of the public to see the evidence.

That said, the assertion of a lack of evidence does speak to a real dynamic. The antitrust intelligentsia absolutely detests the Robinson-Patman Act, which Robert Bork once called the “Typhoid Mary of Antitrust.” I’ve been yelled at by former FTC staff at conferences on this point, and have been told that the law itself is bad and shouldn’t be enforced. There hasn’t been real FTC RPA litigation in decades, so no one actually knows how to bring a case. That makes it easy to say there isn’t enough evidence, when the reality is that someone might just lack the guts to pull the trigger on litigation against powerful firms and against the consensus of the establishment. Khan and Bedoya made it clear that they were bringing this law back, and had the fortitude to move forward. Maybe Ferguson and Meador just didn’t. That would explain why Meador authored a piece titled “Not Enforcing the Robinson-Patman Act is Lawless and Likely Harms Consumers,” and then voted to do just that.

There’s nothing new about this kind of decision-making; it would be a return to the corporate tradition of the Bush and Obama era. Those enforcers lacked a commitment to challenging power, and chose to focus on social policy to distract from their routine corporate pardons. They were also extremely angry that anyone might offer a different path, or criticism, my guess is because they were embarrassed to be called on their fundamental lack of courage and commitment to the rule of law.

This moment may be a pivot point for key parts of the right-wing realignment at the FTC, a possible retreat back to the orthodox Bush and Obama era meekness in favor of big business and the defense bar. There are other dynamics here at work; the cuts to food stamps are going to seriously harm local grocers, states are getting waivers to limit what people using food stamps can buy, and Congress failed to disapprove an EPA refrigeration rule that requires expensive upgrades at tiny stores, instead focusing on the CFPB rule for bank overdraft fees. There’s been no action to bring down expensive credit card fees. Things are rough for independent businesses, and the administration seems to be making them much worse.

I hope I’m wrong on the path forward for the FTC. But if I’m correct, I expect the Meta case to fail or be settled on terms favorable to Zuckerberg, and I suspect that there will be increasingly heated rhetoric even as there is a pullback on important policy to protect small business and consumers. Getting rid of the Amazon antitrust case is trickier because there are state attorneys general involved, but that’s possible too.

Now, there are likely a bunch of useful things that will happen on policy and the law, so I’m not going to say all is lost. But for a long time, I’ve cheered for conservative populists who want to return control of America to working people. And I still am doing so, because there is some alignment between what I believe as a populist Democrat and what some of them think. But my view now is that they have a lot of work to do to make their rhetoric into reality, and this moment was a big setback.

And after the paywall, I have the round-up of monopoly news for the week. Lots of stuff happened. Apple took a big loss and had to allow Fortnite back on the app store, the Supreme Court called the Federal Reserve the fourth branch of government, the Senate may be forced to vote on the 10% credit card usury cap, and in the dumbest monopoly story, the Pentagon is having serious problems with its attempt to give a sole source contract to a moving company. ...