THE LEGAL STATUS OF TRADE AND FUNCTIONAL PRICE DISCOUNTS

An increasing number of firms have integrated beyond traditional retai ler-wholesaler boundaries and now sell the same product through two or more structurally different channel systems. As a result, the histori cally synonymous definitions for trade and functional price discounts are becoming obsolete. If regulatory agencies continue to use these ob solete definitions, enforcement of the Robinson-Patman Act becomes con fused and distributive innovation is inhibited A price discount's defi nition determines who is (and is not) entitled to the discount, so the definition is a key starting point for analyzing a discount's competi tive effect, which is the primary lest under the Robinson-Patman Act. Regulatory agencies should be conscious of the pro-competitive effects of price discounts and follow an enforcement policy that encourages b oth competition and innovation. The authors clarify trade and function al price discount terminology, discuss the role those discounts play i n developing more efficient channel systems, review the existing defen ses to price discrimination charges, and conclude with a recommendatio n for an explicitly recognized availability defense for these types of channel-based price discounts.