I have a bunch of thoughts on this, but no firm conclusion as yet:
1. I'm not sure how much this will actually affect the final price of the goods. It may just push the competition back to the manufacturer level. On the other hand, one could argue that since there are relatively few companies in a given category of good, they'll be able to collude more effectively than the relatively fragmented retail industry.
2. Allowing agreements in restraint of trade is generally a bad idea--but unlike, say, deals between Standard Oil and the railroad trust, these don't actually impact third parties. I'm not sure there's a principled reason to forbid entities from writing a minimum price for the product they make into a private contract.
3. This may actually broaden the distribution of some products. Bose won't sell their products with any discounting, though they've been weakening that slightly lately with a few coupons here and there. So if they can't set a minimum price--indeed, a price--they won't deal with a distributor, but pull back into their own stores. That makes it harder for consumers to find their products.
Of course, I know many of my audiophile friends would argue that this is a feature, rather than a bug.
4. The groups behind this are itching to prove that this has raised prices by commissioning a study. Expect that study to be very, very, VERY carefully timed to capture the broad inflation earlier in 2008, while neatly slicing out the price collapse in goods like LCD televisions that followed the financial crisis.
5. Distributors used to love agreements like this, which let them compete on customer service rather than price. What's changed? I presume we're seeing a fracture between high-end/bricks and mortar retailers, who are happy to end price competition, and internet vendors. I'd also wager that Mom-and-Pop stores like the minimum price agreements, while Best Buy et. al. want to use their massive purchasing power to crush smaller competitors. Still, I'm a little surprised.
The decision made them once again legal, right?
Wow, thank god the WSJ article explains the Supreme Court decision in the first sentence, readable without paying.
Megan's first sentence seems to say that people are trying to get around a Supreme Court decision that made minimum price agreements illegal. Then her second sentence says that this is being supported by retailers hoping to compete on price.
But why wouldn't they be able to compete on price if minimum price agreements are illegal? My head asplode!
Oh wait, it's just more unclear English from our resident writer. Thankfully she links (when she bothers to link, that is) to interesting sources.
Also thanksfully she has quick, with-it commenters like John Thacker to quickly correct her more egretious mistakes.
There is a very extensive literature on this question. The law and economics version of Palgrave might be a useful place for those interested to start.
Your wager might be a losing one. It was a mom and pop vendor of purses in Flower Mound, TX that was on the losing end of the recent Supreme Court decision. The purse manufacturer did not want them discounting purses and cut them off. The Supremes voted 5-4 on the side of the manufacturer.
blighter,
The word you were looking for is "egregious". If you are going to use big words, you should at least spell them correctly, particularly when used in the a sentence about errors.
If min. price agreements are to be illegal, I'd rather have Congress determine that then the S.Ct.
". Allowing agreements in restraint of trade is generally a bad idea--but unlike, say, deals between Standard Oil and the railroad trust, these don't actually impact third parties. "
Please explain how "these" agreements do not impact third parties.
KM started to beat me to it, but it's clear these agreements do impact third parties - consumers. They may have to pay more for the product if such agreements are in place.
By the way, the Supreme Court decision is not at all as plain as you or the article suggest. Minimum price agreements may still be anti-competitive in fact, but they are not treated as anti-competitive on their face, as they were previously.
If min. price agreements are to be illegal, I'd rather have Congress determine that then the S.Ct.
SCOTUS is just interpreting statutes here. Congress can weigh in anytime they feel like it.
Aren't minimum price agreements all about avoiding a commons problem? In that all the retailers (and manufacturer) benefit from a high level of customer information and service, but for any given retailer, it's cheaper to free-ride?
Given that commons problems are used to justify taxes and regulations, I don't see the problem with a much more minor imposition on me of allowing the people who make the good I want to dictate their asking price. If they try to abuse it beyond solving the commons problem, presumably they'll be outcompeted by someone who doesn't abuse it.
weirdo - Thanks for the spellcheck! Megan's on-the-spot commenters come through even for mistakes in comments!
I apologize for not more fully proof-reading my comment pointing out that Megan's post does not make sense as written.
Of course, when I post on my own blog I try to avoid punctuation and spelling errors -- esp. on those pesky "big words". (Is egregious really that big a word?) And I make a point to read through the posts at least a couple of times before posting to catch any errors like mistaking "illegal" for "legal" in a way that invalidates the logic of my sentence.
But then my blog is just a tiny one read by friends; I guess when you make your living blogging for a mass audience you no longer have to write clearly.
Seems counterintuitive to me but what do I know, I don't even spellcheck my comments!
Having come from a medium sized, profitable internet vendor that ships 3-5000 consumer orders per day I can tell you we loved the concept of minimum advertised pricing.
It's the leeches that want to come in and discount their way into the market that adversely affect the industry with their price competing.
I think the best example of the instant enforcement of minimum price requirements is that of DVD / Blu-Ray sales. Within a week after the Supremes made their ruling, DVDs were repriced at all major retailers to $19.99 for new releases. They have stayed that way since. Previously they had sold for between $14.99 and $16.99 for new releases.
The studios did this for two reasons: 1) greed and 2) to make Blu-Ray look more price-competitive.
Here's what I think they've learned. Caveat: this is my own observation and based upon nothing else.
The studios have learned that entertainment products have a relatively high elasticity of demand. People will wait to purchase that DVD, particularly in tougher economic times, until it does come down in price. They will line up at Wal-Mart for Black Friday DVDs at $2.00, $6.00 and $8.00, but forget the price being demanded by the studios. They just won't pay that. So studios have probably taken a hit on $19.99 DVD sales and Blu-Ray probably hasn't picked up very much.
The market works in strange and mysterious ways.
Those leaches! Parisitically offering cheaper prices...
oh wait
I thought anti-trust law made minimum price agreements a big fat no no, but it makes sense to me. These brands have reps to maintain, and god knows that if Wal Mart ever got its hands on Caphalon products they wouldn't be able to such ridiculous prices over at William Sonoma.
A minimum advertised price is different than a minimum selling price.
As a manufacturer I can control how you use my trademarks, images, etc. So I tell you, if you want to use my marks, you can't associate my marks with a price less than X.
Sell it for whatever you want.
Of course, what that means is the only way you could sell it for less, is to deal on a 1-on-1 basis with customers and pitch them a price. Without ever displaying (advertising) the price.
>KM started to beat me to it, but it's clear
>these agreements do impact third parties -
>consumers. They may have to pay more for the
>product if such agreements are in place.
The classic antitrust counter-argument is that, for some goods, the consumer benefits from the existence of highly knowledgeable salespeople and inventory. If individual consumers are allowed to shop at the boutique stores and then buy at the discount stores, consumers (as a whole) will be harmed because the boutique stores will go out of business.
High end electronic goods and sporting equipment are probably cases where this is true. DVD's are probably not.
The Leegin Creative Leather Products case establishes that minimum resale price maintenance agreements are no longer per se illegal but are subject to a rule of reason analysis under the Sherman Act. I think this is actually pretty sound economics. Resale price maintenance agreements don't give manufacturers monopoly pricing power.
Of course, reading that article it's not surprising the writer completely botched the concept of minimum advertised pricing and is giving the impression of manufacturers saying "you can not sell this product for less than X".
Sure you can. You just can't tell anyone about it...Not a huge difference, but still somewhat.
Sometimes online shops will get around this with the "too low to list price" and require you do add the item to the cart to see the price. Generally this also pisses off the manufacturer, and it's frowned upon.
But there is nothing to stop your local camera dealer from agreeing to your haggling over the price of the camera on the shelf. Now most likely they won't agree to sell based on principle, but sometimes it works.
I believe that minimum advertised price agreements were excepted from the per se illegality of minimum resale price maintenance agreements for many years before the recent Leegin decision. As I understand it, those agreements are based on cooperative advertising deals, whereby a manufacturer reimburses a retailer for the cost of advertisements that feature the products of the manufacturer (so long as the retailer adheres to the minimum price in the advertisements).
Oh my stars and garters, a correction! I honestly thought I'd never see the day...
Thanks Megan! You made my day!
if you want to use my marks, you can't associate my marks with a price less than X.
I have doubts about that standing up in court. Truthfully advertising the brands you have for sale is probably nominative fair use of the marks.
Does anyone know of any products where such a price floor has been put in?
I only know of one - one of the hobby game manufacturers won't allow discounts of more than 10% off MSRP, IIRC. Their theory is that online sales (discounts of 30-40% are common) are killing local game stores and the stores, which often have space to meet and play the games, are necessary to keep the hobby going. I assume Leegin also has instituted such price floors.
Price maintenance plans have been in effect all over the place.
Three points: 1. Manufacturers could always (under the Colgate case from 1919) enact a one-sided policy that they cut off any discounter. They just couldn't, per the Sherman Act, enter into an agreement with a retailer to "fix" prices.
2. The Supreme Court is an appropriate place to address this, since it is interpreting a statute. This isn't judicial activism.
3. Sisyphus is correct technically, that the decision didn't bless all price maintenance plans. But what it did do was remove the near-certainty that an MSRP-enforcing manufacturer would lose an antitrust case. Now, there is a potential, fact- and expert-intensive (i.e. expensive) defense. Which means that our manufacturer is a much less attractive target to litigious retailers left out or injured by the MSRP plan.
Does anyone know of any products where such a price floor has been put in?
Running shoes. A classic case of where shop at boutique/buy at discounter would be bad for everyone.
To add to Psittakos' very correct summary, there are also still state laws on the books that likely do make MRPM per se illegal in those states. How that affects internet retailers, no one knows...
What is causing problems for eBay sellers isn't just the minimum pricing rules, but also the fact that manufacturers have been aggressively going after eBay sellers who aren't authorized dealers based on "copyright violations". If you are an authorized dealer, you've signed a contract that you won't sell below MAP, so I don't see that as a big deal. But manufacturers have been going after resellers, generally claiming that any pictures, descriptions, or logos, or the use of their brand name, on an eBay listing, are violations of copyright.
Anthony:
You probably mean trademark, not copyright. There are two aspects to this issue: 1) Truthful use of a manufacturer's name is nominative fair use; they have no right to object (which doesn't mean they won't, of course). 2) eBay is home to a truly astonishing number of counterfeit products. Try finding a genuine Tiffany bracelet amount the thousands of listings. They have every right object to the false use of their name.
The thing about the collapsing LCD prices: they were also because of collusion. Or rather, they fell because the illegal collusion among manufacturers was exposed.