Federal Trade Commission v. Morton Salt Co.

1948-05-03

Headline: FTC wins: Court upholds that Morton Salt’s quantity discounts violated law and orders stop to discriminatory pricing, affecting chain stores and small wholesalers who gained unfair buying advantages.

Holding: The Court reversed the appeals court and upheld the FTC’s finding that Morton Salt’s quantity discounts and special allowances unlawfully discriminated in price against competing buyers and ordered the Commission’s cease-and-desist order enforced except for certain provisos.

Real World Impact:

Makes it easier for FTC to challenge quantity discounts that favor large buyers.
Requires sellers to prove discounts reflect actual cost savings to avoid liability.
Protects small wholesalers and independent retailers from undercutting by big chains.

Topics: price discrimination, quantity discounts, antitrust enforcement, small business protection

Summary

Background

The Federal Trade Commission brought a case against Morton Salt Company, a manufacturer that sold table salt to wholesalers and large chain retailers. Morton used a quantity discount system: less-than-carload purchases cost $1.60 per case, carload $1.50, purchases of 5,000 cases in a year $1.40, and purchases of 50,000 cases $1.35. Only five chain companies ever reached the lowest price. The FTC found these discounts and special allowances let big buyers sell salt cheaper than smaller rivals, and issued a cease-and-desist order. A federal appeals court set aside the Commission’s findings and order, and the Supreme Court agreed to review the case.

Reasoning

The key question was whether Morton’s quantity discounts unlawfully discriminated against competing buyers under the Robinson-Patman amendment to the Clayton Act, which bars price differences that harm competition. The Court held that the FTC need only show that the seller charged different prices for the same goods to competing purchasers and that those differences could reasonably injure competition. Morton carried the burden of proving that any discount reflected actual cost savings. The Court found the Commission’s evidence of price differentials and the reasonable possibility of competitive injury adequate, and it reversed the appeals court, largely enforcing the Commission’s cease-and-desist order though it sent back certain small-difference provisos for reconsideration.

Real world impact

The decision strengthens the FTC’s power to challenge quantity discounts that favor large buyers over smaller competitors. Sellers who give different prices must justify them by showing real cost savings. Small wholesalers and independent retailers are the most directly protected. The Commission may revise narrow exceptions and proceed to enforce its order.

Dissents or concurrances

Justice Jackson, partially dissenting, argued the Court should require a showing that discounted prices probably — not merely possibly — harm competition, and he would have left intact carload-lot discounts in this record.