The ‘Fairness’ Law That Could Raise Grocery Prices for New Yorkers

Progressives across the country are busy selling an “affordability” agenda, but so far, many of their ideas for enacting that agenda are destined to raise rather than lower the cost of living. The latest example comes from New York state, where legislators have introduced legislation that effectively cracks down on price differences between large and small grocery stores. If the law passes, consumers will likely face higher food prices and less money in their wallets.

The grocery discount drama in New York started recently when Mondelez International—which is the producer of snacks such as Oreos, Ritz crackers, Philadelphia cream cheese, Wheat Thins, and more—declared that it was ceasing deliveries to around a thousand independent grocery retailers in New York City. Concerns immediately abounded that a $5.99 package of Oreos could suddenly cost $6.99 in the Big Apple.

Mondelez noted that it was moving to a new distribution model that no longer would include directly delivering to many smaller grocery stores, even as it continued deliveries to larger chain stores. The National Supermarket Association—a trade association representing many of the affected NYC grocers—responded by asserting that Mondelez was violating a federal antitrust law known as the Robinson-Patman Act.

Passed in 1936, Robinson-Patman forbids sellers of goods from charging different prices to one purchaser versus another purchaser if doing so harms competition. Because NYC indie grocers will now presumably have to pay higher third-party delivery costs, rather than getting delivery from Mondelez itself, the association claims the packaged food producer has run afoul of this ancient antitrust law.

The problem with this argument is that few antitrust scholars—let alone the federal government itself—take the Robinson-Patman Act seriously anymore. Enforcement of the act has essentially been abandoned for over a quarter of a century now, although President Joe Biden’s Federal Trade Commission sought to resuscitate it from the policy graveyard in a few recent cases. In 2007, the bipartisan Antitrust Modernization Commission Report urged Congress to repeal the act outright; this echoed calls for the law’s repeal in three prior reports published in 1955, 1969, and 1977.

The problems with Robinson-Patman are numerous, but one of the main issues is the reality that there are many legitimate business reasons that food producers may incur lower costs in delivering and selling to large chain retailers versus smaller retailers. In turn, the producers can then pass these lower costs down to the stores—and eventually to shoppers, who enjoy cheaper prices at the Walmarts and Costcos of the world.

As economist and law professor John M. Yun of George Mason University has explained: “Large chains provide greater and more stable volumes, predictable ordering cycles, reliable payments, minimal credit risk, and lower transportation costs due to bulk deliveries.”

In other words, there are legitimate economies of scale that come from bulk orders by large national stores. As Yun notes, these benefits “are real but hard to quantify,” and it gets incredibly messy trying to sort out what percent of a large chain store’s lower purchase price from a food supplier is due to economies of scale or the mere assertion of monopolistic buying power.

Despite this reality, New York lawmakers—urged on by Gov. Kathy Hochul and New York City Mayor Zohran Mamdani—have decided to circumvent federal non-enforcement of the Robinson-Patman Act by trying to pass their own state version of the law. Titled the Consumer Grocery Price Fairness Act, it is being touted as a way to save New Yorkers from being charged more for Oreos and cream cheese at those smaller independent stores.

But it’s far from clear that forcing food producers to charge the same price to both larger and smaller retailers will actually lead to lower prices. The theory that food suppliers who charge lower prices to large grocers have to make it up by charging higher prices to small grocers—termed the “waterbed effect”—has little in the way of actual economic evidence to back it up.

Instead, the most likely effect of this state law would be higher prices at large chain stores that would offset, or even supersede, any cheaper prices seen at smaller stores. It also is worth nothing that many NYC bodegas receive their deliveries through independent distributors already, meaning they wouldn’t even be impacted by any crackdown on Mondelez.

But New York lawmakers appear undeterred, and the idea of a state-level Robinson-Patman resuscitation is not merely confined to the Empire State. Minnesota lawmakers also introduced their own version of the Consumer Grocery Pricing Fairness Act last year.

In the end, Robinson-Patman is effectively dead at the federal level for a reason. A state-level revamp is the last thing New Yorkers need. If lawmakers persist, it will likely mean higher grocery prices passed under the banner of “affordability.”