Why The US Federal Trade Commission Is Suing Pepsi

America's third favorite soft drink, Pepsi, faces hot water this week as the U.S. Federal Trade Commission (FTC) announced a lawsuit against the brand on Friday, January 17. In the complaint, the FTC alleged that the long-standing PepsiCo Inc. has engaged in price discrimination (an illegal practice in the U.S.) by offering one big-name retailer advantages on product pricing while other, smaller retailers (and the American consumer) are paying the price –- literally. Although the FTC's complaint doesn't specifically name the large retailer, a source close to the case confirmed that Walmart is the recipient.

"When firms like Pepsi give massive retailers a leg up, it tilts the playing field against small firms and ultimately inflates prices for American consumers," FTC Chair Lina M. Khan said in an official statement. "The FTC's action will help ensure all grocers and other businesses — no matter the size — can get a fair shake and compete on the merits of their skill, efficiency, and talent."

A representative from PepsiCo Inc. went on the record to deny the accusations, "disputing" the allegation and the "partisan matter" in which the case was filed. Walmart has declined to comment on the lawsuit thus far.

The FTC's lawsuit against PepsiCo Inc., filed in New York, alleges that the soft drink brand is offering unfair price advantages to the big-name retailer but not extending the same courtesy to smaller, independent chains or convenience stores. According to the FTC, this punishes American citizens because it causes them to pay extra money for Pepsi products at any grocery chain that isn't Walmart. Pepsi products not only include Pepsi soft drinks but also Mountain Dew, the many flavors of Gatorade, Bubly products, and Lipton.

The lawsuit's complaint claims that PepsiCo Inc. violated the Robinson-Patman Act, a law passed in 1936 which prevents "large franchises and chains from engaging in price discrimination against small businesses." FTC alleges that PepsiCo Inc. has been breaking this law for many years, causing product inflation and unfair competition for smaller retailers. Even though the Robinson-Patman Act has historically rarely been pursued, this lawsuit marks the second time in less than one month that the FTC has pursued a violation.