Reference no: EM131473331

Question: R.J. Reynolds sells cigarettes, including such wellknown brands as Camel, Winston, Salem, and Doral. Cigarettes Cheaper! is a discounter and operates a chain of retail outlets. Cigarettes Cheaper! argued that Reynolds had violated the Robinson-Patman Act by charging different prices to different retail dealers, and in particular by refusing to sell cigarettes to Cigarettes Cheaper! at its greatest level of discounts. Because cigarette manufacturers are unable to advertise through many normal promotional channels, such as television, radio, billboards, and many magazines, they rely heavily upon point-of-sale promotional efforts, such as signs, placards, product positioning, and shelf space commitments, and other devices. Typically, manufacturers will offer discounts to retailers who promote their products; the greater the promotion efforts, the greater the discounts in the wholesale price. Reynolds admitted that it sold to other retailers for less than it sold to Cigarettes Cheaper! It justified this action however, by arguing that Cigarettes Cheaper! could have received these same discounts had it engaged in the same promotional efforts as did the other retailers, and that the discounts it offered were necessary to meet competition from its major competitor, Philip Morris. Cigarettes Cheaper! had entered in a marketing agreement with Philip Morris and did not engage in the level of marketing support needed to receive Reynolds' greatest level of discounts. Is Reynolds permitted to vary the discounts its offers to competing retailers based upon considerations such as the promotional efforts made by the retailers?