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SCOTUS Case May End Sale Prices
An anonymous reader writes "If you own a mom & pop store and can't get rid of some of your inventory, you can always clear out some shelf space by holding a sale. If the Supreme Court sides with business interests in a case they heard today, however, such sales may no longer be possible. Since 1911 it has been illegal for manufacturers to force retailers into setting a price floor for products — individual retailers get to decide how much they sell products for. But today the Supreme Court heard oral arguments in a case seeking to overturn this longstanding rule. Should the Court do so, it would drive up consumer prices across the board. This case is particularly salient in the era of Internet shopping: consumers are now easily able to shop around to multiple retailers to find the best price. The Court could wipe out this advantage." From the article: "Should the Court abandon the... rule against minimum resale price maintenance... it would send a signal that the Roberts Court will continue to narrow the application of the antitrust laws and that the Court may disregard settled precedent and Congressional will in other areas of the law as well."
Right now, many dealers show "prices too low to list" or "call" to get around distribution rules. You're gonna see creativity like never before if this happens.
I'm confused: I was under the impression that Apple pretty much dictates the sale price for the iPod and other consumer gear to the dealers? It sounds like such contracts would be massively illegal currently?
IANAL, but businesses are already allowed to set minimum prices, there is just a presumption that it violates anti-trust laws. However, this presumption can be rebutted. All this case would do is remove the presumption that it violates the anti-trust laws.
So my friend owns and operates his own lighting and audio equipment online retailer. I remember a discussion we had where he was telling me about the minimum price he's allowed to sell his products for, or the manufacturer and others in league with that manufacturer won't sell him anything more. Something like he buys a given product from them for ~$40 but he's not allowed to sell it for less than $80. The manufacturers require all businesses looking at selling their audio and lighting equipment to agree to do the same. This is why you can't find anything cheaper than $80 for a given product, even though the seller could go much lower.
I don't know if this is illegal or not, but is this not what the article is discussing?
That's where the "membership stores" like Costco really got going: they could, through a legal fiction, sell at below the set price. When the law changed, they lost (at least some of) their advantages, and quite a few (anyone remember FedCo?) went Tango Uniform. Costco (or, as it was here, Price Club) was one of the survivors.
Well, if the Court votes price fixing back in then I guess a lot of Wally Worlds will turn into Sam's Clubs.
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Lacking <sarcasm> tags,
Under MAP, the price is allowed to be anything, as long as it is not advertised (MAP stands for Minimum Advertised Price). MAP appears to be legal, if the penalty is "you can no longer carry our products." If the penalty is "we won't pay you co-op advertising dollars" (see second link), it might be illegal.
0 1_qtj.html
Jan 2004 commentary on legal uncertainty of MAP:
http://www.fredlaw.com/articles/marketing/mark_04
May 2000 FTC "analysis to aid public comment" on MAP policies of "the five largest distributors of prerecorded music," Sony, Universal, BMG, WEA, and EMI:
http://www.ftc.gov/os/2000/05/mapanalysis.htm
In many states it is already illegal to sell gasoline below cost.
This will give branded stores (Old Navy) a huge advantage over stores that carry other manufacturers merchandise (Sears). The branded stores will have no problem at all clearing out old inventory, and Sears will get stuck with a bunch of unwanted stuff (not that they already are).
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TFA is not a news article, it is a guest editorial by a friend ("amicus") of the defendants. So, it is very slanted as to why minimum resale price agreements should continue to be in violation of antitrust laws. Knowing there is always two sides to a story, I sought out that other side and found this from the Ayn Rand Institute:
Legalize "Price-Fixing"
Please note that by posting this, I am not saying I support the Ayn Rand Institute's side; I mearly think it is important to hear both sides of the debate. In this case, I think the Institute does a poor job of convincing the public that their position in in our best interest.
Well, I've never bought an iPod or a Bose product. I've bought a laptop from Apple, but I think I will stop doing that now. Now I know why prices for Bose and Apple products don't drop like they do for everything else.
In my opinion, instead of making Apple's practices even more legal, it should shift to trying to figure out a way to make them illegal while doing as little as possible to reduce any other freedom Apple has.
I didn't realize that competition among retailers was one of the big reasons you see price drops on consumer electronics stuff. But now that it's been pointed out it makes perfect sense. The product competes with itself to drive its own price down.
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Really though, this is about what you do with what you own and we should not undo a century of sensible policy. Once you buy something you own it and can do what you want, right down to giving it away. Why give up that right? So McSoft can make more money? No one but monopoly providers will benefit from this.
Large online clearinghouses benefit from this.
Local bookstores for example are starting to massively suffer from online competition. Customers walk in, browse, leave and order the book from amazon.com for 10-20% less. How do you combat this? Retail cannot lower their prices to the same level online companies can -- they have prime real-estate leases vs a warehouse in some grungy commercial district. They deal in hundreds of books per week in stead of per hour, etc, etc.
The proposed legislation prevents amazon.com from lowering the price of the books to less than the retailers can survive.
I don't know if that is a good idea, but I do think *something* needs to be done to protect retail. Retail is not an obsolete business model - online sales would suffer too if we couldn't kick the tires at retail. The issue here isn't that retail is 'obsolete', its that retail has to figure out how to make money from customrs who just come in to browse and try things on.
Would you pay 'cover' to get into a retail store? Would you pay a sales person even if you didn't buy something. ie... the bookstore or shoestore could lower their prices and compete with amazon if you paid $20 dollars at the door just to get into the store. There'd be no incentive to buy online as the price in the store would be the same. You could still avoid going into the store, and just buy online directly, and save money, but you lose out on the chance to browse etc.
Essentially, retail and online provide the same final product. retail costs more because of the extra service of bringing the inventory close to you, and having staff available to work with you with it. Retail needs to figure out how to get paid for that component because whats going on right now is that people use the retail outlet to decide what to buy, and then buy it online.
Or put another way online retailers are basically letting retail to all work, and bear all the costs, of making the sale, while swiping the actual transaction because their prices are cheaper. Right now retail bundles the cost of making the sale into the product, and are losing out to online competition who don't have that cost.
Retail needs to unbundle that cost, so they can offer the same product for the same price as online, while somehow charging directly for the service of letting you play with it, try it on, decide what to buy, etc.
Its sort of a bizarre model, but I can't see a better solution. regulated minimum pricing doesn't strike me as a solution.
As online shopping grows other markets will be hit by this, like sports equipment (runners (Nike/Addidas/Reebok), weights, skis, etc), electronics, designer clothing, etc. In fact pretty much anything where you can look at the product (at retail) to gauge its fit/quality/comfort/whatever and then order online and expect to receive an identical product.
So McSoft can make more money? No one but monopoly providers will benefit from this.
You couldn't be more wrong. The little guys would benefit from this. Right now, the stupid masses (Slashdotters included) tend to shop only based on price. Price and price alone. If you can get your widget for $0.01 cheaper online from Omni Mega Corp, you will. You wouldn't care if they were cheaper because they used children for labor. If this thing went through (it won't), people wouldn't be able to pay so much attention to price, and would shop based on convenience, service, and quality. I think it would make the country a much, much, much better place, but it'll never happen.
Why would Microsoft care? All of their stuff is already priced the same everywhere, anyway. Can you prove you're not a rabid anti-MS troll?
I don't respond to AC's.
Most specialty retailers don't have a problem with the price maintenance contracts. They give the small guy an even chance against the interent powerhouses. In areas of destination oriented specialty gear, like golf clubs and fly rods, price maintenance programs allow the small shop to stock merchandise and have a shot at making money on it, that wouldn't happen if you were able to get discounted Ping golf clubs over the internet. Price maintenance programs work well for the manufacturers and the widespread retailers, they only hurt consumers and big box/internet retailers.
I'm of a bit of a libertarian mind here. If someone makes a good, and wants to sell it with a price maintenance restriction, I think that they should be able to do that, especially if, as is the case under current US law, the sole retaliation allowed to the manufacturer is simply ceasing to sell the retailer more of the good. I don't think anyone who hasn't paid for the goods has a dog in the hunt.
I was taught to respect my elders. The trouble is, it's getting harder and harder to find some.
And the free-market answer to that is that no manufacturer will be able to sell the price-fixed product because no retailers will do business with them.
As a player in the market I play not just for profit, but for market share. My aim is to put all competitors out of business, and since I'm in a market with very high barriers to entry I can keep them out of business. Now that I have achieved a monopoly (and monopoly rents), the retailers have no choice but to do business with me and I will certainly dictate the exact conditions under which my products can be sold. If I'm unable to achive a monopoly, I will instead collude with the other surviving players to our mutual advantage, and again to the disadvantage of retailers and consumers.
This scenario is historically why Anti-trust law was necessary in the first place.
Are you seriously suggesting that retailers are refusing to stock Microsoft products because these products come with strings attached? Reality check: Should their sales agreements specify minium resale prices, the mum & dad computer shops will be in no position to refuse MS. And they won't.
This is but one of the reasons that the intervention of the state is necessary to a healthily functioning capitalist economy.
Better to be despised for too anxious apprehensions, than ruined by too confident a security. --Edmund Burke
"Local bookstores for example are starting to massively suffer from online competition. Customers walk in, browse, leave and order the book from amazon.com for 10-20% less. How do you combat this?"
Offer better services ranging from knowledgeable clerks to coffee bars to author signings to small concerts certain nights of the week.
Or maybe the local bookstore's days are at an end. It hardly seems worthy of laws or court actions. Times change. We all adapt or end.
You were mistaken. Which is odd, since memory shouldn't be a problem for you
After a retailer/distributor buys an item, the manufacturer already has whatever money he wanted in his bank account. At that point, what difference does the retailers price for consumers have on the manufacturer's bank account? If consumers don't want this item anymore, manufacturer would be crazy to continue making it, so it shouldn't even impact new sales. I don't get it. How does pissing off the retailers and the consumers benefit the manufacturer's bank account?
Step two will be to announce "tiered" pricing floors, where retailers with monthly volumes of 0 to 10 units are required to have a floor of 1.0*x, with 11 to 999,999 units have a floor of 0.99*x, and Wal*Mart has a floor of 0.75*x. Oh, they'll find a way around public outrage, like offering absolutely identical Silver, Gold and Platinum Editions of the same product, but only when they're purchased in quantity profiles matching, well, whatever the hell they want them to match.
SCOTUSblog has a writeup on today's arguments. Interesting is Justice Kennedy's question that if it's illegal for a whole bunch of retailers to band together and fix the price on a product, why is it okay for the manufacturer to do the same?
I just finished reading Theodore Rex, a history of Theodore Roosevelt's presidency. I am absolutely blown away by the parallels between America now and America a century ago, and the differences between how Roosevelt and Bush are executing their duties. In this case it's to do with whether corporations consolidating their power and reducing the free market to a tight little oligarchy controlled by a single politician's prayer breakfast is a good thing or a bad thing.
This is not my sandwich.
"Why does Apple get to dictate the price of the iPod?"
Apple has a MAP program. You can sell iPods for less; you just can't advertise them for less if you expect to get any support (cash or otherwise) from Apple.
Fry's gets around this. They'll run newspaper ads in which they state that the price of the iPod is $X and that you'll get a $Y rebate, but they stop short of the usual step of pointing out that your final price is $X - $Y.
By the way, Universal Music tried doing a similar MAP program with Tower Records a few years back, and Best Buy and Wal-Mart put a stop to that real fast. We all got settlement checks from Universal, and Tower eventually went out of business. Great news for anybody who doesn't like record companies, subscribes to "what's good for Wal-Mart is good for the country," and doesn't particularly mind the slow death of the indie music retailer at the hands of outfits like Best Buy and Wal-Mart which can afford to use CDs as loss leaders.
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All in, all I believe that the types of purchases for which a brick & mortar store does not add value ought to, and have been, migrating to online purchases. While the ones where B&M stores can add value are staying at the B&M retail stores.
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> Price and price alone. If you can get your widget for $0.01 cheaper online from Omni Mega Corp, you will.
No, I won't. I go back to the same retailer even if it is a little bit more expensive. Now if Omni Mega Corp offers it significantly cheaper, that's different. Most people do not buy stuff based on price alone, for if they did noone would buy brandname products - the no-name shop product is quite often contains exactly the same stuff as the brandname, just in cheaper and less flashy packaging (think about washing powder, sugar, everyday stuff). There is a brand loyalty, which is worth a lot. There are also all sorts of other features of products that are important. If the price would be the only factor, you could never sell eggs from free-range chichen at ~AU $4-$5 a dozen when you can get the cage egg for maybe $3.50 from the exact same shelf.
As per child labour, you have no idea if any object you buy had child labour in it or not. You can claim that you guarantee that your shoes are made with no child labour. Fine, I believe you. How about your supplier of the shoelace? Does he guaratee that too? Does he guarantee that the cotton plantation where the cotton was picked from which somewhere they made the string that yet somewhere else has been turned into a shoelace is all ethical wages, proper working conditions, fair wages and all that? No. "Child labour free" is not an ethical statement but an advertising / marketing pitch that makes the product's value higher to a certain segment of the customer base.
Convenience, service and quality are all things that you can express in financial terms.
Covenience is a simple decision: I can buy X in the supermarket for $1 but it takes me 10 minutes to drive there, park, buy the thing, come home. Alternatively, I can walk to the corner store in 2 minutes but I have to pay $1.20. Is it worth it to go to the supermarket? I.e. is $0.20 worth 8 minutes of my time, plus the petrol and tear&wear of my car? Obviously $0.20 is not. On the other hand, $20 is, that's why shopping for the week is done in the supermarket and not in the corner store.
Service is an other thing that you can measure in terms of $-s. Is it worth to me $X to be smiled at and being helped instead of getting a grumpy look and one-sillable answers if I ask something? There is always a value of X for which the answer is yes. You can also put financial value on the personal contact, the fact that the shopkeeper knows you (if you are a regular) and sometimes gives you things cheaper, finds you hard-to-get items and so on.
Quality is yet an other purely financial thing: you take into account the cost of repair, replacement and time wasted with a low quality but cheap product. If I can buy a shoe which last 3 years of constant usage for $150 but can buy the 'made in china' brand one for $30 that last maybe 8 months, then it's $150 versus $30 * 36/8 = $135. If I go with the Chinese, then I have a new (and maybe different looking) shoe in every 8 months and not an old one plus I save $15. On the other hand, with the expensive shoe I'm done with shoe shopping for 3 years, with the chinese I'll have to come quite a few times. These should also be factored in.
So no, people do not go for the cheapest all the time. The ones who only look at the pricetag and nothing else are either poor (when you're scraping the barrel, you can't afford convenience) or they put very little value on these factors, which tells you a lot about their personality (e.g. they don't value courtesy so probably they wouldn't provide any). However, I don't think that most of the people are like that. I don't know about the USA, but I don't think that "price and price alone" would be true for say most of Europe.
...Wal*Mart is literally the largest retailer that has ever existed in the known universe, and no longer being able to sell to them is not good for business.
Not always.
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Tell that to Dell and other PC makers who have to cave in to Microsoft. (I'm not MS bashing here, it is the first example that came to mind.) If you have a true or effective monopoly you can dictate price, especially if the manufacturer chooses to abuse the monopoly. Even more so if the government/courts choose to ignore and/or abet the abuse. In the case of MS, the republican direction to the justice department was to basically ignore the fact that MS was found guilty of abusing their effective monopoly.
It sounds like if the SCOTUS finds in favour of the manufacturers, they will inadvertently abet monopoly abuse. So cases similar to MS's monopoly abuse might be harder to prosecute since the monopolist will be able to legally dictate conditions to the downstream consumers... retailers and their customers. All they have to do is come up with some excuse as to why they keep raising prices, and no-one can stop them. Or they might insist on lower prices that huge volume retailers can subsist on because of the volume, but modest businesses will die because they need to have a higher markup due to lower volume sales... when it should be the choice of the retail business only.
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I would actually have used Apple as a better example here. MS software on sale = not common, but not rare.
I was talking prosepectively, if SCOTUS change the law. An better example of MS's exploitation of its market power would be the refusal to supply to any retailer that sells new boxes which are not bundled with MSWindows. Apple's power in this regard has more to do with branding (why buy another mp3 player when you can get an IPod for 4x the price?) than market power and network effects.
Better to be despised for too anxious apprehensions, than ruined by too confident a security. --Edmund Burke
Would you truly say that you are unhappy with the state of the desktop OS market? I really don't know enough to comment decisively, being a Linux user my views are probably slighly skewed, I feel like I have all the choice in the world. But, I think that most consumers aren't all that unhappy either. The price of Windows has not gone up over the years, and the OS itself has gotten better. Additionally, I would argue that MS's "monopoly" has been gradually slipping year by year. IE is no longer the only legitimate browser (most sites support FF these days, and the numbers are growing), Office now has some serious competitors (Google Apps, and openoffice to a lesser extent). And, although again, my view may be skewed, I think that Linux is only becoming more and more of a threat.
In a free market, monopolies do die on there own. Sadly, there have been very few monopolies in recent history that weren't a result of the government.
As for IP, I didn't actually decry it, I just said that it is one of the only ways for infinitely high barriers to entry to exist. I do think that it could be possible for most IP to be protected through trade secrets and contractual aggreements. However, I agree that in today's society, limited patents and copyrights play an important role, and I am not going to argue against them.
Almost, but nope. The only way the distributors can force the retailers into anything is through agreements - ones the retailers enter into through their own volition. The conversation (and contract) goes something like this:
Big distributor: You soooo want my product. But if I'm going to enter into a deal with you to sell it, you're only allowed to sell if for $99.
Retailer: I wanna sell it for $95. It'll do better in my store that way.
Big distributor: And yet, here I am, requiring $99.
At this point, the retailer gets to chose whether the deal's worthwhile - if the product's a valuable enough product to accept the price requirement.
People will quite accurately point out that for small retailers, this is a pretty one-sided negotiation - and that it's virtually never going to be practical to say "no" - even if saying "yes" all the time is bad for business in the long run. People might also point out that a big retailer (say, Wal-Mart) has a considerable advantage over a distributor that just wants its product sold.
A real libertarian should be for all of this, though - it's all voluntary agreements, by informed parties.
As SOX is well known for hitting small businesses (who's controls are much simpler...) harder than the huge monolithic companies that we have around.
IAAA (I am an [IT] auditor) and i think that the intention of S404 et al is great, the implementation is not so good. getting companies to understand they have to be more responsible for governing themselves IS a good thing.
If you want completely insane, see some of the requirements the PCI DDS v1.1 brings - for example, every system must have every patch applied within 1 month of release - even if the patch is not relevant, for example you are not using feature X that it fixes. Great fun implementing that at a client.....
I have a counterproposal.
All corporations shall be disbanded and remade as co-ops.
Each co-op shall be divided into a number of shares of equal size which shall be equal to the number of employees. Any employee hired to such a corporation shall have the opportunity to spend any percentage of their wage on their share. They are entitled to profit sharing (if any) based on a percentage of their share. Upon leaving they may trade their share to another employee for any consideration with which they are comfortable, with the exception that no employee may own more than one share.
All co-ops shall be democratic entities with each employee being entitled to vote their share or any owned fraction thereof. Shares (and fractional shares) are tallied to determine the outcome.
We have a constitution that [ostensibly] guarantees us certain protections and standards, and then we give these protections and standards up and effectively become a serf when we go to work. Why should this be the case?
With apologies to Kim Stanley Robinson, and those from whom he derived his ideas.
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Having actual lived (and suffered) under this rule as a smaller manufacturer operating on a national level for decades. It has a real and, in some cases, severe financial impact on my life.
This rule caused us lots of harm and prevented the growth of our small, self-funded entreprenuerial business. As a manufacturer, having local resellers is a less expensive alternative to hiring our own sales force. The distribution channel is essentially a way to outsource sales, which if you are a small start-up is often a key enabler to getting your business off the ground. Resellers are crucial to us because they call on customers, demonstrate our products, answer questions, do local support and even run local ads. That's why they are worth the ~30% margin I build in to our business model to pay them. Dealers also assume credit cost/risk and aggregate a bunch of onesy/twosy orders into volume purchases that our small company can handle. To me that 30% is a necessary cost of making and selling my product just as much as parts and assembly. If the dealer didn't make that investment on my behalf, then I would have to raise that much more money and pay to do that work myself. That's the beauty of a distribution channel. I don't have to fund that pre-sales and distribution expense upfront out of my pocket. My reseller partners essentially go into business with me, do the work and get paid for their work by adding that cost downstream of me. It's a wonderful enabling option for me as an entreprenuer - except it doesn't work because of this law. It makes it so that I can't ensure that my reseller will actually be repaid for their investment and work to build our mutual business.
The problem is that as soon as my product starts to get any momentum, an internet or mail-order 'box house' buys a little inventory from a distributor and marks the product up only 15%. Prospects still learn about the product from the local sales calls, ads or shows our 'real' dealers invest their money to do, and prospects still phone the 'real' dealers for pre-sales questions and demos but then many of the prospects buy from the box house because it's cheaper. But it's only cheaper because those box houses 'cheat' by not doing the market development and support work that we need them to do (and built into the margin to pay for). In that case I'd rather lower my product's selling price and split the difference directly with the consumer. The problem is that then I don't have anyone doing local demos, sales, support etc. Some products need those things to succeed and those products (like mine) are harmed by this law.
When I design, cost-estimate and raise capital to build a product, I always have a projected ASP (Average Selling Price). This is what we think a typical consumer will typically pay for the product. We use this to figure out if the product will be a good competitive alternative in the market and if enough customers will actually buy the product. We balance the bill of materials, advertising, cost of sales and customer acquisition costs. In our ASP there is an average expected reseller margin which is there to pay the resellers to do the work we need them to do to make the product successful. Those box houses are essentially 'leeching' the value of the pre-sales work and investment I asked my 'real' reseller partners to make. It sucks that I make this product by my own hand and the "sweat of my brow" so to speak, but then this law limits how I bring my product to the marketplace, how I implement my distribution partnerships, and how I grow my business.
In my view the law is a government intrusion into my right to enter into certain kinds of mutually agreed contracts with my distribution partners. It also quite literally limits what products I can consider creating and offering to consumers. I have to stay away from products that I feel need a lot of face-to-face explanation, demonstration and support to succeed. There's no way I can justify raising the capital from my investors to fund local sales offices and this law make