Legal Definitions - secondary-line injury

A secondary-line injury occurs in antitrust law when a seller's pricing practices unfairly harm competition among its own customers. This concept is primarily addressed under the Robinson-Patman Act, which prohibits certain forms of price discrimination.

Specifically, a secondary-line injury arises when a seller offers significantly better prices, discounts, or terms for substantially the same product to one customer or a select group of customers, while denying those favorable conditions to other customers. This preferential treatment gives the favored buyers an unfair competitive advantage over the unfavored buyers. The "injury" is felt at the "secondary line" of distribution, meaning among the seller's customers who compete with each other to sell the product to the next level of consumers.

Here are some examples illustrating a secondary-line injury:

• Example 1: Retailers of Electronics

  Imagine "GlobalTech," a major electronics manufacturer, sells its popular new smartwatches to various retailers. GlobalTech offers a substantial volume discount to "MegaMart," a large national retail chain, allowing MegaMart to purchase the smartwatches at a significantly lower per-unit cost. However, "LocalGadgets," a smaller independent electronics store that also buys from GlobalTech, is not eligible for this same discount, even for comparable order sizes.

  How it illustrates the term: MegaMart, with its lower wholesale cost, can now sell the smartwatches to consumers at a more competitive price or enjoy a higher profit margin than LocalGadgets. This makes it extremely difficult for LocalGadgets to compete effectively on price, potentially leading to lost sales and reduced market share. This is a secondary-line injury because GlobalTech's discriminatory pricing harms competition directly *between its retail customers* (MegaMart and LocalGadgets).

• Example 2: Food Service Distributors

  "PremiumProduce Inc." supplies fresh organic vegetables to various restaurants. PremiumProduce offers a special rebate program to "Gourmet Bistro," a high-end restaurant chain, which effectively reduces the cost of their organic heirloom tomatoes by 15%. "The Neighborhood Cafe," a smaller, independent restaurant that also buys from PremiumProduce, is not offered this same rebate program.

  How it illustrates the term: Gourmet Bistro, benefiting from the lower cost of premium ingredients, can either offer its menu items at more attractive prices or achieve greater profitability on dishes featuring the tomatoes. The Neighborhood Cafe, paying a higher price for the same quality tomatoes, struggles to match Gourmet Bistro's pricing or maintain its own profit margins, making it harder to compete for customers seeking high-quality ingredients. This demonstrates a secondary-line injury because PremiumProduce's pricing practices create an unfair competitive environment *among its restaurant customers*.

• Example 3: Industrial Component Suppliers

  "PrecisionParts Co." manufactures specialized industrial bearings used in heavy machinery. PrecisionParts Co. provides "MegaMachinery Corp.," a large equipment manufacturer, with an exclusive early-payment discount of 10% on all orders, a discount not extended to "CustomFab Solutions," a smaller company that also purchases PrecisionParts Co.'s bearings for its custom-built machinery.

  How it illustrates the term: With a lower cost for a critical component, MegaMachinery Corp. can produce its heavy machinery at a reduced overall cost, allowing it to bid more competitively on large contracts or increase its profit margins. CustomFab Solutions, paying the full price for the same bearings, finds it challenging to compete with MegaMachinery Corp.'s pricing on projects that require these components, potentially losing out on valuable business. This is a secondary-line injury because PrecisionParts Co.'s discriminatory pricing directly impacts the competitive standing *between its industrial manufacturing customers*.