Price discrimination is the practice of charging one customer more than another for the same goods and services. For decades, Americans have recognized the need to ban price discrimination that threatens equal opportunity, or that concentrates dangerous amounts of wealth and power. Americans have been especially vigilant about outlawing price discrimination by monopolies and other corporations that dominate all or most of a particular line of business, such as railroads and giant retailers.

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There are three types of price discrimination. First-degree price discrimination entails charging different prices to different customers based on past purchases or other data that helps a retailer discern how much a customer is willing to pay. Second-degree price discrimination entails offering deals to customers contingent on certain behaviors, such as a buy-one-get-one-free deal or special pricing for bulk items. Third-degree price discrimination entails offering different pricing to members of different groups, such as seniors or students. Of these three types, first-degree price discrimination is the most politically dangerous, due mainly to its arbitrary nature, and has been most carefully regulated against.

Early legal protections against price discrimination came in the form of the Interstate Commerce Act of 1887 and the Sherman Antitrust Act of 1890. The aim of these laws was to ensure transparent, uniform pricing in the delivery of railroad, telegraphy, electrical power, and other services. The laws were designed to protect Americans both as buyers of goods and services, and as producers of goods and services.

Yet over the last 40 years, many of these laws and regulations were systematically undermined. This has led to increasingly abusive pricing practices in industries including health care, cable television, insurance, and even seed genetics.

In animal agriculture, monopolists discriminate mainly among the people who provide them with the animal products they handle and sell. In the chicken industry, for instance, giant corporations like JBS and Tyson’s routinely pay farmers varying amounts of money for the same work, in a practice that is know as the “tournament system.”

Under the tournament system, farmers who sign contracts to sell their chickens to large packers are, in theory, paid according to how well they compete with one another. Depending on how large and healthy their birds are at the end of a growth cycle, farmers will be paid different amounts per pound. Defenders of the system say it rewards farmers for good stewardship and efficient work.

In reality, however, this system is opaque to farmers and, in most instances, entirely unaudited and unregulated. This means that actual payments are determined by factors entirely outside the control of the farmer, many of which depend on the whims of the company or even the company foreman. For instance, if the company delivers sickly chicks or inferior feed to a farmer, it is likely the farmer will end up with a lower pay per pound. Compounding the problem, most companies refuse to allow the farmer to witness the weighing of the grown chickens. The companies also routinely prohibit farmers from sharing the terms of their contracts with one another.

In recent years, many farmers have reported being punished by packers for speaking out against the tournament system. Such punishments can range from providing lower quality inputs, to lowering the reported weight of their grown chickens. In some instances, companies appear to have cut farmers entirely off from the market for periods of time.

Discrimination also happens at the retail level. Many large retailers will charge producers “slotting fees” for prime shelf space. One consequence is that smaller producers find it hard to compete with larger producers for shelf space. Another consequence is that larger producers often end up, over time, paying retailers – especially dominant retailers like Walmart – more and more for carrying their products. While some companies deny paying slotting fees, the practice is well documented in the retail industry. Retailers can also require exclusive contracts for certain products, as has been uncovered at Whole Foods.

Dominant retailers also leverage a combination of data analytics and customer identification and tracking tools to offer real-time individual pricing and promotions, both online and in-store. Sellers have long offered different prices to different groups of people, whether through senior and student discounts or lower airline fares to people who have Saturday layovers. But until recently, retailers rarely had the means to offer different prices to different individuals based on personal characteristics, that is, engage in true first-degree price discrimination. Individualized prices could make goods more affordable for some, but they also allow sellers to extract the maximum amount that each individual is willing to pay and raise concerns about discrimination.

In the seed industry, giant corporations like Bayer (formerly Monsanto) have long engaged in regional price discrimination, charging farmers in different parts of the country different amounts of money for the same seeds. In their 2010 paper “An Analysis of the Pricing of Traits in the U.S. Corn Seed Market,” the authors found that the prices charged by the seed giants reflects “spatial differences in farmers’ willingness-to-pay and demand elasticities.” In other words, the companies charge whatever they can, which makes it easier for them to capture profits that in the past would have remained in the hands of the independent farmer. The growing use of Big Data is fast increasing the ability of dominant seed companies like Bayer to track farmers’ planting and harvesting schedules in ways that enable them to price discriminate even more effectively in the future. Bayer even introduced a new “outcome-based” seed and chemical pricing program in 2019 that adjusts the cost of its seeds or agrichemicals based on how well its products perform. Farmers worry that Big Ag will use their farm performance data to estimate their profits and price products at exactly what they are able to pay.

Parts of this essay are excerpted from “Exposing Anticompetitive Price Discrimination” by Barry Lynn, Phillip Longman, and Sascha Meinrath.