Answer to Question 1
For price discrimination to be considered illegal, it must meet two conditions. First, the transaction must occur in interstate commerce. Second, while competition does not actually have to be lessened, the potential for a substantial lessening of competition must exist. The act also provides that any buyer who knowingly receives the benefit of discrimination is just as guilty as the supplier granting the discrimination.
Discriminatory pricing practices in the sale of advertising space or the leasing of real estate are not prohibited by the act. Considering Like grade and quality, if the seller can demonstrate that an actual physical difference in grade and quality exists, then a differential in price can be justified.
Buyers and sellers use a variety of defenses that enable some types of price discrimination to occur:
Cost Justification Defense: Such a defense would attempt to show that a differential in price could be accounted for on the basis of differences in cost to the seller in the manufacture, sale, or delivery arising from differences in the method or quantities involved. The burden of such a defense is with the seller.
Changing Market Conditions Defense: This defense would attempt to justify the price differential based on the danger of imminent deterioration of perishable goods or on the obsolescence of seasonal goods.
Meeting Competition in Good Faith Defense: The seller can attempt to show that its lower price to a purchaser was made in good faith in order to meet an equally low price of a competitor, provided that this matched price did actually exist and was lawful itself.
Therefore, it is legally possible that one retailer might have a lower cost than a smaller retailer. However, the retailer that knowingly receives a discriminatory price from a seller should be relatively certain that the seller is granting a defensible discrimination based on any of the defense mechanisms. If a buyer knowingly misrepresents to the seller a price that another seller is willing to offer and the seller meets that factious offer, then the buyer and not the seller is liable.
Answer to Question 2
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