The Federal Trade Commission yesterday challenged for the first time the widespread use of volume discounts in newspaper and other media advertising rates.
In a complaint filed against The Los Angeles Times, the FTC charged that its advertising rate structure, which gives discounts to large advertisers, is discriminatory and anticompetitive. The agency alleged that the volume discounts are not cost-justified and give big advertisers an unfair price advantage over smaller competitors.
The LA Times called the FTC case "unwarranted" and said it would "vigorously defend" it before the commission and in the courts if necessary.
According to an FTC official, as of Feb. 1, 1977, the LA Times - which is the nation's leading newspaper in advertising volume - charged $2.65 an ad line to advertisers who contracted for 5,000 lines of ads in the weekday papers. The price was $2.19 a line for purchasers who wanted to contract for 200,000 lines.
Such a system results in larger-volume advertisers sytematically paying lower rates than their competitors whose advertising volume is smaller, the complaint alleged. The rate structure, with teh resulting discriminatory prices, adversely affects competition between those paying the higher rates and those paying the lower rates, and is thus unfair and a violation of the FTC Act, the FTC charged.
In addition, the rate structure violates the Robinson-Patman Act which bars price discrimination among purchasers of the same commodity, unless it can be shown that a different price to one is cost-justified, the FTC alleged.
An FTC official admitted the complaint would be a test case since the rate structure being challenged is widespread in the newspaper industry. The LA Times was picked because it has the largest weekday circulation (more than 1 million copies) among non-tabloid newspapers, leads all other papers in the nation in advertising volume, and is published by the largest publicly held publishing company in the U.S., The TIme Mirror Co.
Christopher M. Little, counsel for The Washington Post, said yesterday the Post historically has offered volume discounts, as have so many other newspapers. "We think our discounts are legal and appropriate," he said.
The FTC vote to issue the complaint was 4-1; complaints are issued when the agency has "reason to believe" the law has been violated, and mark the beginning of a formal proceeding in which the allegations are ruled upon after a public hearing.
If the agency concludes the law has been broken, it said it would order relief it believe to be appropriate.