FTC Official Testifies before House Committee on Slotting Allowances

An official with the Federal Trade Commission's Bureau of Competition today testified before a House Committee about competition issues in agriculture and food marketing. Willard K. Tom, the Deputy Director of the Bureau, presented Commission testimony that focused on the way that slotting agreements are assessed under the antitrust laws.

"The term 'slotting allowance' typically refers to a lump-sum, up-front payment that a food manufacturer must pay to a supermarket for access to its shelves," Tom said. "The term has been used to cover an extremely broad range of conduct, some of it clearly unlawful, some clearly lawful, and a great deal of it in the gray area in between."

Tom explained that an extreme example of unlawful activity is commercial bribery - the under-the-table payment to a purchasing agent of a retailer that goes straight into the agent's pocket. An example of legal activity would be payments from a manufacturer to a retailer that really constitute only an ordinary non-predatory price discount as long as it is structured to be passed through to consumers, he said.

The testimony presented before the House Judiciary Committee on Slotting Allowances and the Antitrust Laws outlined how the Commission evaluates slotting allowances that fall in the gray area. "When we evaluate this kind of conduct, the antitrust statutes require us to determine whether particular actions have harmed the overall level of competition in a market.

If a market can be kept competitive, then consumers will receive the benefits of low prices and wide product selection, and businesses will receive the benefits of having many suppliers and many outlets," it states.

Tom listed a number of questions that would affect whether slotting allowances are harmful or innocuous, procompetitive or anticompetitive. The questions focused on what the retailer offers in exchange for the payment. "If a dominant manufacturer, in exchange for slotting allowances, secures promises from a large number of retailers not to carry the products of its competitors, competition might be seriously harmed," he said. "On the other hand, payments of reasonable amounts to compensate the retailer for the costs and risks of stocking a new, unproven product, without exclusivity requirements, are unlikely to harm competition."

The testimony also pointed out that the market circumstances in which the agreements take place vary widely, and with equally important consequences. "[A]s long as there are many comparable manufacturers and many equivalent outlets for their products, and as long as only relatively few outlets are needed to reach nearly all of the end user customers, competition should be vigorous, notwithstanding the exclusive contracts. ... Conversely, when the market is highly concentrated in the hands of one or a few firms, or when one can compete only if one has access to most of the outlets in the market, anticompetitive effects become more likely."

Tom told the Committee that the Commission is committed to pursuing anticompetitive practices vigorously. He summed up by outlining five specific points: "First, the Commission, under its statutes, looks to determine whether particular conduct has harmed the overall level of competition; this means that harm to an individual competitor is not necessarily an antitrust violation. Second, in practical effect some slotting allowances can be discounts off of list price, and beneficial to competition, particularly when they are passed on to consumers. Third, the FTC nonetheless considers complaints about particular slotting allowances very carefully, precisely because their market effects can be so different. Fourth, the FTC does not receive many complaints in this area - perhaps one every three months on average.

"Fifth, however, the FTC remains committed to pursuing evidence of antitrust violations when it finds them, and welcomes hearing from anyone who may be aware of such evidence."

The Commission vote to authorize the testimony was 4-0.

Copies of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 881008)
(slotting)