An increasing number of firms have integrated beyond traditional retailer-wholesaler boundaries and now sell the same product through two or more structurally different channel systems. As a result, the historically synonymous definitions for trade and functional price discounts are becoming obsolete. If regulatory agencies continue to use these obsolete definitions, enforcement of the Robinson-Patman Act becomes confused and distributive innovation is inhibited. A price discount's definition determines who is (and is not) entitled to the discount, so the definition is a key starting point for analyzing a discount's competitive effect, which is the primary test under the Robinson-Patman Act. Regulatory agencies should be conscious of the pro-competitive effects of price discounts and follow an enforcement policy that encourages both competition and innovation. The authors clarify trade and functional price discount terminology, discuss the role those discounts play in developing more efficient channel systems, review the existing defenses to price discrimination charges, and conclude with a recommendation for an explicitly recognized availability defense for these types of channel-based price discounts.
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