Rollback Racket

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In the waning days of Lina Khan’s tenure as head of the Federal Trade Commission, the agency sued PepsiCo—the conglomerate behind brands like Pepsi, Gatorade, Doritos, and Quaker—for violating a New Deal–era law that had not been regularly enforced in decades. PepsiCo stood accused of engaging in certain forms of predatory, anti-competitive price discrimination that are outlawed under the Robinson-Patman Act of 1936.  

We didn’t know much about the FTC’s allegations at the time: The legal complaint was largely redacted, as is typical in the early stages of government lawsuits that include potentially sensitive business information. Then, last May, Khan’s Trump-appointed successor, Andrew Ferguson, dropped the suit, claiming that it was “purely political” with “no evidence to support the most important allegations.”  

Drawing on an extensive trove of internal PepsiCo emails and other documents, the suit presents damning evidence that the company formed a secret pact with Walmart to guarantee that the latter has unbeatable retail prices on Pepsi products—including, at times, by actively raising prices for Walmart’s competitors.

It turns out that wasn’t true. Late last year, the Institute for Local Self-Reliance won a legal fight to get the complaint mostly un-redacted. The new details reveal that Khan had a compelling case that not only explodes many received ideas about how grocery markets work but also has broad implications for the current debate over “affordability.”  

Drawing on an extensive trove of internal PepsiCo emails and other documents, the suit presents damning evidence that the company formed a secret pact with Walmart to guarantee that the latter has unbeatable retail prices on Pepsi products—including, at times, by actively raising prices for Walmart’s competitors. Why would PepsiCo go along with such a scheme? It might be a giant in its own right, but Walmart is America’s biggest retailer, controlling 21 percent of the grocery market. Because of the imbalance of market power, losing Walmart as a customer “would have a material adverse effect” on PepsiCo’s business, as the company told investors in a 2023 filing to the Securities and Exchange Commission.  

To keep Walmart happy, PepsiCo made what the company itself called a “foundational commitment” to provide Walmart with a “price gap,” or “price hedge,” versus other retailers. This commitment was not simply a guideline for the sales department. Rather, it was “an aligned commercial strategy” across all of PepsiCo, in the words of a senior executive, a formal priority that the company obsesses over. As one internal email put it, “Stay[ing] focused on our price gap … is how we win with Walmart—we stay focused on our deliverables and commitments.”  

The suit presents evidence that to deliver on this commitment, PepsiCo closely monitored the retail prices Walmart competitors charged customers for PepsiCo products, and then shared that data with Walmart. There is also evidence that when PepsiCo saw a retailer selling at below Walmart’s prices, it responded using some combination of three levers. The first was to increase “promotional payments and allowances” to Walmart to nudge Walmart’s prices down (such as funding a special sale). The second lever was the inverse: reducing promotional payments to competitors to defend the price gap by nudging the rest of the market up. The third lever was to directly raise wholesale prices on other retailers. PepsiCo, it should be noted, officially disputes the FTC’s allegations (without elaboration).  

One striking example of how this works involves the supermarket chain Food Lion, which operates more than 1,100 stores in 10 states in the southeastern U.S. In 2022, internal documents show PepsiCo suspected that Food Lion had “heavily index[ed]” its retail prices against those of Walmart and Kroger. In response, PepsiCo came up with a plan, detailed in the FTC’s suit, to “commit to raising rate [on Food Lion] faster than market.” Specific proposals from the plan included raising the price charged to Food Lion for “core” soft drink brands and reducing the duration of a PepsiCo-funded holiday promotion at the Food Lion stores. 

The FTC alleges that PepsiCo implemented some version of this plan—with success, it seems, although remaining redactions prevent us from seeing how much. “As of February 2023,” the suit reads, “Pepsi estimated that Food Lion’s CSD retail pricing was [redacted] than the previous year, and it was projected to ‘finish closer to [redacted].’” 

At least one PepsiCo executive was not satisfied with this rate of progress and commanded the Food Lion sales team to “CLOSE the gap.” The message continued: “We absolutely have to demonstrate progress [to Walmart] in the immediate term.”  

These revelations challenge received ideas that have long dominated the thinking of economic policy makers in both parties. Start with a standard explanation offered by many mainstream economists that is also seemingly ratified by common sense: Walmart can offer consumers lower prices because, as the largest retailer in the world, it can negotiate huge volume discounts and enjoys other economies of scale that it passes on to consumers. According to this explanation, the difference between Walmart’s prices and those of the local corner store, or even a supermarket like Food Lion, is natural, inevitable, and beneficial to the economy as a whole.  

But the FTC suit blows up this explanation. The suit shows not economies of scale at work, but something like the opposite: painstaking, manual micromanagement of prices by PepsiCo, separate from any efficiencies associated with volume production or distribution, to artificially tilt the scales in favor of a powerful buyer. In other words, even if other retailers are equally efficient and have equivalent economies of scale (one anecdote in the suit involves Target), they and their customers must pay higher prices for PepsiCo products solely because of Walmart’s market power.  

The suit shows not economies of scale at work, but something like the opposite: painstaking, manual micromanagement of prices by PepsiCo, separate from any efficiencies associated with volume production or distribution, to artificially tilt the scales in favor of a powerful buyer.

Advocates and grocery industry experts interviewed by the Monthly suspect that Walmart, and possibly other powerful retailers, have similar pricing arrangements with suppliers beyond PepsiCo.  

“Everything we know about Walmart and the way it does business would suggest that this is widespread behavior,” said Ron Knox, a senior researcher at the Institute for Local Self-Reliance, the nonprofit that got the PepsiCo case unsealed. Knox pointed out that Walmart is notorious for using its market power to bully suppliers. In 2017, it reportedly demanded that its prices should be 15 percent lower than competitors’ 80 percent of the time. In light of the PepsiCo revelations, Knox said, it seems plausible that companies raised rest-of-market prices as part of a strategy to comply with such demands, rather than only giving Walmart discounts.  

“It strains belief to imagine that Walmart has only done this with Pepsi,” Stacy Mitchell, ILSR’s co–executive director, wrote in an email. “The strong likelihood is that this is a pattern with other big grocery brands. And it’s a key reason grocery prices have soared.”  

Chris Jones, the chief government relations officer at the National Grocers Association, a trade group representing independent retailers, also believes that PepsiCo-style arrangements are pervasive. “The complaint really sounded a lot like the challenges that our members have faced in the marketplace for years,” he said, adding that retailers he’d spoken with since the details emerged “were not surprised” by the allegations.  

“Suppliers themselves will talk to our members about the way they’re being treated and how they are kind of in a vise grip, having to cater to their biggest customer,” Jones continued. “We’ve always known [Walmart’s price gap] is not an issue of volume discounts and efficiencies.”  

At the same time, Katherine Van Dyck, a former FTC attorney who helped ILSR get the case unsealed, said the PepsiCo-Walmart arrangement, with its extensive data monitoring and precise pricing interventions, is “a lot easier to execute in the technological world we have today.” In this sense, the arrangement can be seen as part of a broader trend toward tech-enabled price discrimination schemes. In December, Groundwork Collaborative, More Perfect Union, and Consumer Reports published the results of an experiment showing that the food delivery service Instacart charged groups of shoppers different prices for the same basket of groceries from the same store, even as they sat in the same room. This follows Instacart’s 2022 acquisition of an artificial intelligence startup called Eversight, which Instacart executives boasted can detect “consumer price sensitivity” on specific products and “optimize” grocery prices accordingly. Airlines including Delta and British Airways allegedly use similar capabilities in their ticket pricing. In 2023, Uber was accused of charging users more for trips if their phone battery was low.  

Some government officials have begun to fight back. Instacart said it was abandoning personalized pricing experiments amid widespread news coverage and a reported FTC probe. Last year, bills were introduced in five states to ban so-called surveillance pricing, where companies use their dossiers of personal data to set individualized consumer prices. Senator Ruben Gallego and Representative Greg Casar have introduced separate legislation to ban it at the federal level.  

Now, the PepsiCo revelations have brought another, far older piece of anti–price discrimination legislation to the forefront of affordability politics: the Robinson-Patman Act.  

It’s long been an article of faith among the antitrust establishment that enforcing the Robinson-Patman Act raises consumer prices. The legal scholars Phillip Areeda and Herbert Hovenkamp state in their antitrust textbook that because Robinson-Patman “was designed to protect small businesses from larger, more efficient businesses” during the 1930s rise of chain stores, “a necessary result is higher consumer prices.” This argument rests on a false premise: that Robinson-Patman compels uniform pricing and outlaws discounting. In reality, the law explicitly allows price differentials so long as they are based on “differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities” of a transaction—that is, bulk discounts. What the bill does prohibit is price differentials based on a retailer’s market power, such as allegedly occurred with PepsiCo and Walmart.  

Another argument is that Robinson-Patman raises prices because it prohibits pro-competitive forms of price discrimination. Brian Albrecht, chief economist at the International Center for Law & Economics and a prominent critic of Robinson-Patman, points to a 1977 report from the Department of Justice, in which business executives and economists testified that suppliers might use price discrimination to compete against one another by offering discounts to secure better distribution through a desirable retailer, or offering geographically targeted discounts to break into a new market. Price discrimination “is part of the competitive process,” Albrecht told the Monthly. “If you want to blunt that by saying you basically have to offer everyone the exact same structure, you’re blunting competition, which ultimately would hurt consumers.”  

There is no empirical research showing that enforcement of the Robinson-Patman Act has actually had this effect or otherwise raised prices. Food prices became dramatically more affordable during the decades in which the act was actually enforced, as did the price of consumer electronics and many other items. Nonetheless, these theoretical arguments have held such sway that the federal government all but abandoned the law during the 1970s, as market-minded reformers reoriented antitrust enforcement to focus exclusively on “consumer welfare.” The Lina Khan FTC’s suit against PepsiCo and another recent action, against the United States’s largest liquor distributor, Southern Glazer’s, represented the first government Robinson-Patman enforcement in decades.  

But now, the PepsiCo suit has offered a powerful, high-profile illustration of the fact that price discrimination does not necessarily mean discounted prices for stores like Walmart, and can just as easily be effected through increased prices for the rest of the market. Indeed, in at least one instance, PepsiCo appears to have enacted price hikes across the entire retailer market sans Walmart in one fell swoop. An internal document from 2019 references “[redacted] cost increase in the rest of market. The cost increase, which is already in effect in rest of market, has not been passed on to Walmart.”  

A study of the liquor industry shows that when large retailers use their market power to secure preferential wholesale pricing, they can offer steep discounts that independents can’t match—driving those competitors out of the market, reducing competition, and ultimately allowing the surviving firms to raise prices above their previous levels.

This anecdotal evidence comes on the heels of a groundbreaking but little-noticed study by the Duke University law professor Aslihan Asil, in December 2024, which presents systematic empirical evidence of wholesale price discrimination harming consumers. The study makes use of the fact that alcohol sales are regulated at the state level. A handful of states—Connecticut, Kansas, Louisiana, and Oklahoma—prohibit liquor wholesalers from engaging in price discrimination, approximating the Robinson-Patman Act. Feeding an extensive database on store-level prices into a regression that controls for various state economic characteristics, Asil found that on average, a 1.75-liter bottle of liquor costs consumers $3.59 less in these states.  

Why might this be? The author predicts that when large chain retailers use their market power to extract preferential wholesale prices, they can offer consumer prices that independent retailers can’t match, driving those competitors out of the market, reducing competition, and ultimately allowing the surviving firms to raise their prices. Of course, this is the same prediction made in “Amazon’s Antitrust Paradox,” Lina Khan’s 2017 takedown of consumer welfare ideology that made her famous while she was still in law school. And Asil’s empirical results support it. Again controlling for state characteristics, she found that states that ban price discrimination have more total stores and more independent stores than states that allow price discrimination, and that the market share of independent retailers is 6 percent higher in states that ban price discrimination. Overall, Asil estimated that price discrimination costs consumers $529 million per year on 1.75-liter liquor bottles alone. That’s money that would be saved by enforcing Robinson-Patman.  

To be sure, the Robinson-Patman Act has flaws. The law’s text is convoluted and contains many ambiguities; courts have offered conflicting interpretations of key provisions. Moreover, compliance with the law can be cumbersome. An RCA Corporation executive quoted in the 1977 DOJ report claimed that even when he had a cost-justified reason to offer special terms to a particular retailer, he had to hire expensive consultants to produce a study proving it, just in case RCA got sued. Finally, the law can have the perverse effect of punishing victims, in cases where suppliers have been coerced by powerful retailers to grant favorable pricing. Retailers can also be sued under a provision of the law if they “knowingly … induce or receive” price discrimination. But that’s harder to prove; in the PepsiCo case, Walmart was spared. 

Ideally, Congress would reform Robinson-Patman to clarify its scope and better insulate powerless suppliers from lawsuits. Nevertheless, there is now a strong empirical case that enforcing the law against wholesale price discrimination would lower grocery prices. The FTC’s PepsiCo suit shows that price discrimination is playing out as rest-of-market price hikes, not just discounts to powerful retailers. Asil’s liquor market study presents evidence that regardless of what form it takes, price discrimination reduces competition, which raises prices over the long term. This insight is validated by a November 2025 study from the Federal Reserve Bank of Atlanta, which showed that food inflation has been more pronounced in consolidated retail markets. 

Policy makers eager to tackle the cost-of-living crisis should update their priors and rally behind Robinson-Patman enforcement. (In food deserts and monopolized grocery markets, they might also consider a public option along the lines of military commissaries; see Claire Kelloway’s “How to Bring Down Grocery Prices.”) As they do so, they should bear in mind that contrary to the likely neoliberal protestations that Robinson-Patman will bring death and destruction to American capitalism, the federal government enforced the law routinely in the mid-20th century. As the Monthly has pointed out, this enforcement regime coincided with an era of innovation and flourishing in the grocery industry. 

For now, the Andrew Ferguson FTC has made clear that it is willing to leave the practical and political benefits of Robinson-Patman enforcement on the table. As David Dayen of The American Prospect noted, Ferguson dropped the PepsiCo case about a month after the defendant hired a high-powered antitrust lobbyist. But the Trump administration’s corruption presents an opportunity for state attorneys general, who are able to bring Robinson-Patman cases on their own. Following the PepsiCo revelations, New Jersey Senator Cory Booker and California Representative Maxine Waters introduced legislation that would allow state AGs to seek monetary damages from Robinson-Patman violators (currently, they can only seek injunctive relief to stop the illegal conduct), seemingly to encourage more state cases.  

The so-called Fair Competition for Small Business Act, said Waters in a release, is “a vital tool to promote marketplace competition, fairness, and affordability.”