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."

Comments

Isn't this the definition of the Free Market?

[tentimestwenty]

As a retailer, I would simply stop stocking any product that forced me to sell at price higher than the market could bear. This would backfire on manufacturers and have a terrible effect on availability and ultimately amount of goods sold, i.e. recession time... In some cases Internet retailers sell at or below cost as loss leaders, or the volumes are so much higher than a small store could sustain but I don't see how you could apply this equally to all products sold.

Re:Isn't this the definition of the Free Market?

[SRA8]

Umm...unless all the major manufacturers executed this change together.

Re:Isn't this the definition of the Free Market?

[shark72]

"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.

There are other ways.

[ScentCone]

You'd see a vastly improved rebate industry ramp up, and more importantly, you'd see retailers "bundling" things that they would then instantly take back for a substantial credit/refund. Anyone who's worked retail (especially IT supporting retail!) knows how creative someone can get while competing with someone else two doors down in the strip mall. Where this would get ugly is the little stuff... like, toothbrushes.

Another solution? Retailers who thrive on competitve pricing all become like Costco, and sell things "wholesale" to their member customers. It's sort of like those bars where you have to become a "member of the club" (for $0.01) in order to have a drink poured.

This effort will flop, or there will be a legislative cure anyway. Wal-Mart alone would lobby that one right into the stratosphere.

Re:There are other ways.

[kent_eh]

You'd see a vastly improved rebate industry ramp up,

I'm sorry, but it's never appropriate to use "rebate" and "improved" together in the same sentence.

Re:There are other ways.

[Martin Blank]

Walmart doesn't sell below cost, they buy in such huge bulk that they can profitably sell for mere pennies over cost.

But WalMart still sets their own prices. They may sell for eight cents over or twelve cents under their costs, but that is WalMart's call. The worry here is that WalMart would be forced to sell, say, a shirt at $14.98 even if they want to sell it for $6.92, or a mower for $149.99 even if they wanted to price it at $105.96.\

Substitute the name of your favorite local mom-n-pop for 'WalMart.'

Re:There are other ways.

[General Wesc]

Supplier: No one can sell our product for fewer than X dollars.
Wal-Mart: We want to sell it for X-1 dollars. If we can't, we won't bother stocking it at all.
Supplier: Oops, we meant to say that no one can sell our product for fewer than X dollars, unless they're Wal-Mart, who can sell it for X-1 dollars.

Maybe this will be made illegal, but until then, this is how it will work. Walmart is the one with the power in this situation.

Re:There are other ways.

[bprime]

Substitute the name of your favorite local mom-n-pop for 'WalMart.'

In Corporate America, you substitute WalMart for your local 'mom-n-pop'.

Re:There are other ways.

[adrianmonk]

Wal-Mart alone would lobby that one right into the stratosphere.

Wal*Mart won't give a flying fuck whether, on paper, its suppliers gain the legal right to walk away if Wal*Mart won't agree to minimum price rules. Wal*Mart has its suppliers firmly by the balls, and if they want to continue selling to Wal*Mart, they do whatever Wal*Mart says. And they do want to keep selling to Wal*Mart, because 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.

Re:There are other ways.

[Kadin2048]

So? Who the fuck cares? This is *Wal-Mart* you're talking about, ya know. They can't always call the shots. Let 'em suffer.

I think you're forgetting that Wal-Mart basically owns dozens of Representatives and bunches of Senators; if something threatens their business model they will find a way to legislate around it. Experience has shown that legislation bought by corporate interests tends to be incredibly bad and destructive in the long run; therefore, anything which causes Walmart to call in all of its favors at once and get a lot of stuff rushed into the U.S. Code should be avoided. (Because if you don't think Wal-Mart could in about ten minutes get the "Flying Happy Face" turned into the national bird, and Sam Walton's face printed on all U.S. Currency, you're smoking crack. Walmart has a gun to the head of the government, in the form of the ~1.2M people it could suddenly dump onto unemployment.)

If you think the telecommunications industry, the music companies, or big IT (Microsoft, etc.) have an overabundance of power in government, Walmart is orders of magnitude more powerful than them. It's just that Walmart really doesn't have to do anything very often, because it's busy making money hand over fist the way things are.

As other people have pointed out, Walmart's opening move would probably be easy: they'd just force manufacturers to produce slightly different versions of products for their stores, with lower minimum MSRPs. Rather than forcing everyone to sell at the same price, Walmart would just use the law to its advantage and use the law to prevent anyone from ever competing with them on price, even if they wanted to sell certain products at a loss to get people in their stores.

Since manufacturers already package things specifically for Walmart anyway (with different SKUs, etc.) it's a pretty trivial change in many cases. You just package it a little differently, maybe throw in some different add-ons or different configuration options, or create a new "product line" to market it under (particularly good with clothing), and make the minimum MSRP whatever Walmart demands. Since nobody else can buy the 'Walmart version' (Walmart would insist on exclusivity, of course -- and don't think that's ever going to be legislated against; nobody in government would ever really take on Walmart in a fight) there's no way to compete on price.

Questionable

[seanadams.com]

it would drive up consumer prices across the board.

Is the submitter suggesting that the periodic sales by mom & pop storesare responsible for keeping retail prices in check "across the board?"

Anti - price fixing laws are actually becoming quite a real problem or manufacturers and retailers, because they have to juggle the retail channel (which really needs 30%) with the online channel, which can be profitable on only about 6% margin. Preventing online from undercutting retail means giving them less margin, which is fair, but even then they can undercut until their margin is absolutely microscopic and still make money, whereas the retailer can not.

If you're happy with a world where brick and mortar retailers just can't exist, then by all means keep the current system and they will die, and not because of free market forces, but because manufacturers can't control their street prices.

For an example of what will happen with this...

[badboy_tw2002]

Check out the scuba equipment market. Most stores that stock scuba gear are mom & pop's - the big box stores don't bother with this niche stuff. The mom & pop's sign price floor agreements with the manufacturers in order to sell the gear and get the warranty. Now they're getting slammed by oversea's "grey" marketeers that are shipping stuff over the Internet for half the costs. They aren't under warranty, but the retailers themselves have provided an aftermarket warranty to get around it, as they're making enough cash that its worth it just to replace the item. You just can't have these kinds of agreements anymore with the transparency and information exchange the internet allows. New business model time boys! Oh, wait, I'm sorry, I mean -- call the lawyers!

Re:For an example of what will happen with this...

[electrosoccertux]

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?

Re:This impacts botique items the most

[Grishnakh]

As it is, it's very difficult to find MS-Windows below MSRP. Under these rules, it would be impossible.

You've never heard of BitTorrent, have you?

No minimum price? Fine. No product for you.

[tepples]

Capitalism never calls for the producer to dictate the cost that the 3rd party buys the product at... There is NOTHING in there that states that the shop owner cannot sell the goods at a loss (instead of a total loss by not selling at all). A retailer has the right to refuse price floor contracts. Likewise, under a pure free market, a producer has the right to refuse to sell its product to retailers that refuse price floor contracts.

Re:No minimum price? Fine. No product for you.

[maxume]

In high minded theory land, doesn't a more efficient producer step in in that case?

Re:No minimum price? Fine. No product for you.

[whoever57]

A retailer has the right to refuse price floor contracts. Likewise, under a pure free market, a producer has the right to refuse to sell its product to retailers that refuse price floor contracts.

We are increasing moving away from a free market, the DMCA and other laws have created new government sanctioned monopolies -- for example, you can't buy anything except an iPod and expect it to work with iTunes. Increasingly, products are intangible and as such are protected from competition by copyright law, or they are tangible products that are protected by patent law. Free markets really only work when there are viable alternatives.

Re:No minimum price? Fine. No product for you.

[cooldev]

for example, you can't buy anything except an iPod and expect it to work with iTunes. . . Free markets really only work when there are viable alternatives.

Huh? I must have been hallucinating when I walked into Best Buy over the weekend and saw non-iPod MP3 players. I must have also had the same fever when browsing the web learning about services such as Zune and Yahoo! Music, which let you not only purchase non-iTunes music for use with those hypothetical non-iPod players, but also subscribe to services which let you download unlimited music for a monthly fee. Alternative business models - imagine that!

Now, if the government regulated that all music players must be iPods and forced everybody else out of the industry then we would have cause for concern. Until then, use iPod if you like it or you think it makes you look cool, and use whatever else if you like that. But don't complain that you don't have choices, because you do.

Oh, and while you're at it, please favor either subscription services or services where when you buy a song you get the *rights* to play that song in perpetuitity regardless of how technology progresses. Buying the same music over and over is lame. (I have yet to see a business promoting the latter, but if there's more demand...)

Re:No minimum price? Fine. No product for you.

[whoever57]

Huh? I must have been hallucinating when I walked into Best Buy over the weekend and saw non-iPod MP3 players. I must have also had the same fever when browsing the web learning about services such as Zune and Yahoo! Music

Ah, but each service carries some subset of all the music available -- in other words, what has happened is that the monopoly copyright provides is effectively transfered down the chain to music players.

To explain: if iTunes is the only service that provides the song, then the only way to buy it is through iTunes and thus, the only way to put it on a player is if the player is an iPod. Sure, today, you could buy a CD instead and rip it (except that copy protection and the DMCA can make that illegal), but there is no guarantee that unprotected CDs will be available in the future.

Re:No minimum price? Fine. No product for you.

[whoever57]

I am sorry to say, but I think you are completely incorrect. You are confusing free trade with free information. Many of us who regularly visit Slashdot have become anti-copyright because media companies have formed a monopoly, and can dictate their terms to individuals who enter the market, such as, sign over your copyright to us, or we won't distribute your work.

That whooshing noise was my point flying over your head.....

My point was not anti-copyright. My point was that copyright is inherently a monopoly and thus there cannot be free trade, furthermore, interoperability requirements and DMCA mean that this government sanctioned monopoly can be extended to hardware. Imagine that you want to put a song onto a mobile player and that song is only available through iTunes (it is not even available in a CD form from which it can be legally ripped). You no longer have a free choice on your purchase of player. If one player cannot be substituted for another, is there a free market?

Re:No minimum price? Fine. No product for you.

[cooldev]

Ah, but each service carries some subset of all the music available -- in other words, what has happened is that the monopoly copyright provides is effectively transfered down the chain to music players.

Intuitively, I find that fixing this is the least offensive of the "everything copyable should be freeeee!" movement, but at the same time the difficultly is that the alternative actually restricts the ability for other companies to try alternative business models.

For example, let's say I want to buy a song from Garth Brooks. Curiously, none of the music services I've tried (as far as I can remember) offer his songs for download. Maybe iTunes does; I haven't tried that one. But that's perfectly fine in my view -- he (or his distributor, or whatever) decided he didn't want to distribute his songs under that model. Who am I to force him to?

One of the great things about the music business is that there's a lot of talent out there. This means there's a lot of opportunity to create and try new business models, even if not everybody signs on. Exclusivity can be used to push business models, both to an individual consumer's advantage and disadvantage. But that's OK.

Isn't Apple doing this?

[stefanb]

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?

Re:Isn't Apple doing this?

[mp3phish]

No, apple sells their product at such a high cost compared to MSRP that no retailer can afford to discount them. Try 8% margin on ipods that cost 150$. That barely covers the credit card swipe and the time it takes someone to stock it on the shelf and scan it at the register. Much less pay invoices, track shipments, pay the light bill, and hire supervisors/managers to oversee all that.

Move it to the internet sales, and its the same story. internet retailers survive off 5-10%. 8% isn't really that high a margin. Even if someone wanted to discount it to sell for cost and make up the money on upsells, WOO HOO, they sell it for 12$ off. Not much there in the way of discounting now is there?

Sure, the larger retailers can sometimes cut a slightly better margin deal with apple if they agree to purchase pallets at a time, and they do. But that is their competative advantage, and there is no reason for them to sell below MSRP (or a dollar below) when all their competitors are barely breaking even. It is much better for the Best Buy's of the world to bundle a free product like iTunes card or accessory discount with the full priced iPod.

"Call" online?

[tepples]

Right now, many dealers show "prices too low to list" There is a difference between contractual bans on advertising goods at prices below a price floor (your scenario) and contractual bans on actually selling goods at prices below a price floor (the scenario of The Article).

or "call" Except the "call" price is incompatible with online retailers that use the shopping cart user interface model. To me, "call our sales department for pricing" appears to mean "If you have to ask, you can't afford it. If you can afford it, we'll make you listen to our sales pitch, which we hope will cushion the sticker shock."

Re:Good news for the black market

[publius1234]

Price controls/manipulation are never a long term positive economically speaking. These kinds of things always lead to inefficiencies, which have a net negative economic impact.

They do, however, make excellent fodder for populist politicians and the pathologically uninformed. Bread and circuses, anyone?

Blame the Victim

[The Monster]

these are exactly the types of questions that capitalism can't solve by itself

Hogwash. If a manufacturer places rules on retailers that they don't like, they're likely to find those retailers stocking competitors' products instead. All it takes is one player who sees the value of not actively alienating his distribution channels. With a free capital market, such a player can be assembled with little difficulty. But of course, we don't have a free capital market. Everything is regulated by SEC, and every time a large company goes out of business, someone decides There Ought To Be A Law to be sure it doesn't happen again. So they pile on more regulations that act as a barrier to new entrants, stifling competition.

The apologists for the Nanny State routinely trot out antitrust as an example of where the free market doesn't work, but in reality it's the industries with the most regulation by government that are the most monopolized. Take telecommunications. For most of the history of telephones, it was illegal to compete for customers. That monopoly was enforced by local governments. But I guess as long as you control the government schools that teach the history of 'Robber Barons', people will believe the propaganda.

Re:Blame the Victim

[Duhavid]

All it would take is one gas station selling gas at a lower price...

And I think I have the counter example to your telephone system
story. The computer industry. Used to be pretty open.
Lots of players. Now, there are many fewer, and larger
corporations involved. Almost like it was natural for them
to do this.

The telephone system example is not a very good one, in my
opinion. According to wikipedia, AT&T had competitors in
the very early days and ( I presume ) no regulations aside
those any company might have. Then they bought out competitors
until they became regarded as a monopoly. Then came the
regulations and government interference.

On the SEC, I take it you disagree with the assessment that
rules and regulations bring additional investor confidence,
increasing investment and growth for everyone? What happened
in the depression? People put their money in their mattresses.
Why? Lack of confidence in financial systems.

And on the government schools, it almost sounds like a conspiracy.
They control the schools so they can control the curriculum with
the intent of making good little socialists out of everyone?
They are doing a remarkably bad job of it, considering how many
conservatives there are.

Re:Blame the Victim

[ClassMyAss]

Everything is regulated by SEC, and every time a large company goes out of business, someone decides There Ought To Be A Law to be sure it doesn't happen again. So they pile on more regulations that act as a barrier to new entrants, stifling competition.

Umm...first of all, the last "There Ought To Be A Law" moments that I remember involved a bunch of weasely executives falsifying all sorts of numbers so that they could cheat their investors and employees out of millions and millions of dollars. You can't seriously mean that the crap that Enron pulled should be legal, can you? You think it's perfectly cool to mislead the public into thinking that your company is doing great, then sell of all your stake in it just in time for the truth to come out? Because a stock market without the SEC would see this type of stuff all the time. Trading would become a game that you'd need to be a fool to play unless you were one of the slimy bastards on the inside. Certainly you can imagine what this would do to the market, if everyone but the insiders was afraid to play...our economy would literally implode as everyone ran for the exits.

The apologists for the Nanny State routinely trot out antitrust as an example of where the free market doesn't work, but in reality it's the industries with the most regulation by government that are the most monopolized. Take telecommunications. For most of the history of telephones, it was illegal to compete for customers. That monopoly was enforced by local governments. But I guess as long as you control the government schools that teach the history of 'Robber Barons', people will believe the propaganda.

I think you have your history backwards - perhaps whichever non-government school that left out the part about the "Robber Barons" when teaching you history also forgot to mention that bit about how the telephone industry only became so highly regulated because it was already actively abusing its monopoly status. To my knowledge all the stuff about not competing for customers was merely a restriction on Ma Bell to keep them at less than 85% market dominance, as per the anti-trust settlements at the time. Even the most hardcore of free-market types realize that leaving monopolies alone is downright stupid - no theory of economics can reasonably make the claim that a monopoly is good for anyone but the monopolist.

In fact, the subject of this article is most dangerous in the context of monopolies and near-monopolies. I remember when I was little getting a few bucks in the mail from Nintendo because it had come out that they were pulling this kind of price fixing crap with all the retailers, and they got caught. So don't pretend that this is just paranoia - if this becomes legal, companies will use it to screw over customers, especially in situations where the item in question is not a commodity but rather a highly branded item in an industry with very little substantial competition like a Nintendo (back when there was no real competition, that is - now the field is too crowded to mess around too much with the customer) or an iPod (since the Zune sucks, Apple can do just about whatever it wants).

Re:adam smith is rolling in his grave

[profplump]

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. While I'm sure you could come up with a few counter-examples, in many markets manufacturers are at the mercy of retailers, and exactly the *opposite* problem occurs -- retailers dictate price to manufacturers. This is one of the thing people whine about when the bash Wal-Mart.

I'm OK with it

[LunaticTippy]

If online retailers can provide the same thing for 24% less then we should have very few brick and mortar retailers.

Grocery stores would still exist, as would convenience stores. Clothing shops might do OK since people like to try things on. There are always impulse/emergency items, in many categories. I can see the need for a handful of electronic/computer retailers in a large city.

Can you give me a good reason we should prop up an obsolete business model besides nostalgia or personal preference?

The way I've shopped in the last 10 years is: Online comparison/research. Online purchase unless shipping is more expensive than local, I want an easy return, I need to touch/smell/hear/taste the item first, or I'm in a big hurry.

I always assumed that eventually everyone would adopt this model of shopping and we'd see a massive collapse of brick-and-mortar retailers. Retailers that are smart will be able to adapt. Lots of opportunities, like partnering with an online retailer, offering amenities that aren't possible online, etc.

Re:I'm OK with it

[etymxris]

I'm in favor of free market but also in favor of anti-price fixing laws. The motivation is the same as for anti-trust laws. The market does not stay healthy and competitive on its own. Inefficiencies build up when monopolies form or manufacturers start dictating market prices. There's a difference between a free market and a laissez faire market, for the same reason that personal freedoms (liberties) cannot be secured in an anarchy.

Since 1911, my ass

[overshoot]

I'm not that old. Manufacturer-set minimum prices were more the rule than the exception until the 1980s (as I roughly recall.)

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.

Won't Get Fooled Again

There's nothing in the streets
Looks any different to me
And the slogans are replaced, by-the-bye
...
Meet the new boss
Same as the old boss

Doesn't this already exist as MAP?

[djaxl]

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.

Jan 2004 commentary on legal uncertainty of MAP:
http://www.fredlaw.com/articles/marketing/mark_040 1_qtj.html

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

Re:adam smith is rolling in his grave

[644bd346996]

In many states it is already illegal to sell gasoline below cost.

Sort of.

[Chmcginn]

Under current law:

a.)Manufacturer telling retailer "You must sign a contract to sell at this price, and if you sell below that afterwards, we sue you" is illegal.

b.)Manufacturer telling retailer, "You can't advertise at cheaper than this price, or we won't sell to you anymore" is legal. According to the ACSBlog people, the net effect of the case in point would be to make both legal.

For The Other Side Of The Argument...

[hoeferbe]

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.

Re:Isn't Apple doing this? & Bose?

[silverhalide]

Apple and Bose maintain tight control over their distribution. As such, they control directly the price the retailer pays for the goods. Other companies use third party distributors which introduce more padding into the pricing, and as such more flexibility. If you violate Apple's pricing policies, well, no more iPods for you to sell, and you can't get them anywhere else for less than the retail price. With other companies, you could simply call up another distributor and continue selling the goods for whatever price you wanted (even if it's below retail).

The practice of selling things too cheap will lessen as more and more companies take control of their distribution, cut out distributors, and enforce their pricing policies.

Libertarians

[guinsu]

I hope the slashdot libertarian crowd is coming out of the woodwork in support of this one. I mean individuals should be able to enter into any sort of contract they want right? And its not the free hands fault when every vendor forces this upon the merchants, thereby driving up costs to all consumers.

Re:adam smith is rolling in his grave

[alisson]

Well both small and large retailers do it; and most manufacturers don't care, or have a reason to. Small retailers do it to get rid of stock that isn't selling well; large ones do it to get rid of... the small retailers.

Although most manufacturers do set a minimum advertiseable price. But again, many major retailers refuse to follow such rules, and most small ones aren't really subject to scrutiny.

Re:Until you consider Patents and other G. Monopol

[Zeinfeld]

Once upon a time there was this guy called Adam Smith who observed that whenever people engaged in the same trade meet they almost invariably engage in a conspiracy against the general public.

That same Adam Smith is the same Adam Smith who is the origin of pretty much everything that has historically been considered a free market.

In Smith's day state monopolies were a common means of raising revenue. Smith demonstrated that such restraints on trade have hidden costs that are much greater than were imagined at the time. The cost of the tax is much greater than the amount paid raised in revenue.

In libertopia they do things differently of course, the only evil that can ever exist in libertopia is the result of people consipiring together through the government. The fact that a large corporation has a similar coercive power to government is inconvenient ideologically and is thus ignored.

Nothing is going to happen here. At worst the SCOTUS redefine the interpretation of the anti-trust acts. But that might well be the best outcome long term for consumers since if Congress revisits price maintenance agreements making them explicitly illegal they wil probably act on advertised price maintenance as well.

I don't see an argument being made that prohibiting retail price maintenace is unconstitutional. Even though many members of SCOTUS are notorious partisan hacks I don't see that as being very likely.

Re:Until you consider Patents and other G. Monopol

[vux984]

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.

Re:Until you consider Patents and other G. Monopol

[DogDude]

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?

Re:adam smith is rolling in his grave

[Capsaicin]

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.

Re:adam smith is rolling in his grave

[Anonymous Coward]

retailers dictate price to manufacturers. This is one of the thing people whine about when the bash Wal-Mart.

Except that there's only one Wal-Mart, and what will happen is that Wal-Mart will dictate that they get a price floor that is 75% less than everyone else's, and they mop up their competition.

Personally, I think that contractual price floors are repugnant, not because of antitrust concerns, but because it's a contract that affects me directly without permitting me to have any negotiation rights or to even agree to it.

Re:Until you consider Patents and other G. Monopol

[tkrotchko]

"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.

Re:Until you consider Patents and other G. Monopol

[sydb]

I don't think it's quite as biased against bricks and mortar as you suggest.

If I browse in a bookstore and find something interesting I am very likely to buy it right there and then, because I'm excited by it. I'm not thinking about how I could order it online for less because I want to read it now. I don't want to wait a few days while Amazon packs it and sends it to me, and maybe it's not in stock at Amazon and I'll have to wait a week or more.

If I am going out on the town tonight and I need new shoes I don't have the luxury of waiting while some online store delivers them to me.

Maybe there are people who plan all their purchases days or weeks in advance, but for a large number of people most small to medium purchases are done on impulse or at short notice.

For goods like cars or high-end stereo equipment which require research, trial and considerable investment, I can see more of a problem. If I can't test-drive a car, there's no way I'm going to buy it. I think I would be willing to pay 0.5 - 1% of purchase price to test-drive a car for a couple of hours, or listen to an amplifier and speaker combination to decide that I'm happy with it.

Also, Borders has found a way to make money from browsers, by having Starbucks in their stores, and caffeine-addled shoppers are more likely to spend.

The manufacturers have a big interest in making sure retail outlets survive - because people are more likely to buy something they can touch and test. Maybe manufacturers can subsidise retail stores to make them more competitive.

Finally, the advantage of purchasing online isn't just about price. I have access to a much wider choice of products from the comfort of my keyboard, I can do research on specifications and customer experiences, and I can make my purchase more quickly (and more economically) than if I have to drive to various stores to inspect there offerings. Maybe retailers can do some work here to level the playing field - like providing internet access so I can check if this wireless card works in the latest Ubuntu, or whatever. That last item is one of the biggies for me, I've walked out of stores where I might have a purchase because it's not possible to get all the information about a product from the shop floor, and shop assistants are rarely knowledgeable about their products or my needs.

Re:Until you consider Patents and other G. Monopol

[Maniakes]

He also said that attempts to prevent this were doomes, and he went on to say that in the absence of active government support these conspiracies are doomed due to chiselling and competition from those outside of the cartel.

People of the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the
public, or in some contrivance to raise prices. It is impossible,
indeed, to prevent such meetings, by any law which either could be
executed, or would be consistent with liberty and justice. But though
the law cannot hinder people of the same trade from sometimes
assembling together, it ought to do nothing to facilitate such
assemblies, much less to render them necessary.

A regulation which obliges all those of the same trade in a particular
town to enter their names and places of abode in a public register,
facilitates such assemblies. It connects individuals who might never
otherwise be known to one another, and gives every man of the trade a
direction where to find every other man of it.

A regulation which enables those of the same trade to tax themselves,
in order to provide for their poor, their sick, their widows and
orphans, by giving them a common interest to manage, renders such
assemblies necessary.

An incorporation not only renders them necessary, but makes the act of
the majority binding upon the whole. In a free trade, an effectual
combination cannot be established but by the unanimous consent of
every single trader, and it cannot last longer than every single
trader continues of the same mind. The majority of a corporation can
enact a bye-law, with proper penalties, which will limit the
competition more effectually and more durably than any voluntary
combination whatever.

It's pretty clear from context that when Smith says "corporation" here, he means what'd we'd call a guild or an industry association. An organization which everyone in the industry was compelled to join and which had the power to regulate the business activities of everyone engaging in the trade. More like the AMA than, say, Microsoft or Google. Smith was not arguing for government antitrust regulation, but rather for governments to avoid mandating or encouraging industry self-regulation.

Re:Until you consider Patents and other G. Monopol

[timeOday]

He went on to say that in the absence of active government support these conspiracies are doomed due to chiselling and competition from those outside of the cartel... More like the AMA than, say, Microsoft or Google. Smith was not arguing for government antitrust regulation, but rather for governments to avoid mandating or encouraging industry self-regulation.

Fair enough, since you mentioned the doctor's union which so effectively restricts supply to raise prices for medical services, what shall we do? Perhaps you're right that the AMA would have no power if not for government regulation, but I'm not in favor of totally deregulating medicine. Like if some hack surgeon kills me, I should go somewhere else next time?

Except that consumers disagree.

[Kadin2048]

if the local bookstores days are at an end, so are the local butcher, the local grocer, the local record shop, the local clothing boutique, the local computer shop, local hardware store, etc, etc, etc. pretty soon, all we'll have is walmart, target, barnes and noble, borders, best buy, macy's, jc penny, circuit city, compusa, and home depot.

What's your point?

People vote with their wallets every day, and they've pretty clearly indicated that they don't value these type of establishments, in most cases, enough to pay their premiums. The "value added" in other words, of the local butcher, just isn't enough to most people, to cover the increase in cost versus prepackaged meat from the megamart.

I'm sorry that you don't like the way it's worked out -- and if it helps, I agree with you, and I refuse to shop at Walmart (or Target, or Home Depot) when there's an alternative -- but I think it's fundamentally wrong to try and keep obsolete businesses alive at a direct cost to consumers who have clearly voted with their feet and their wallets and said they're not interested. That's at best regressive, and at worst tyrannical.

Re:adam smith is rolling in his grave

[dytin]

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.

The problem with your scenario is that it relys on a market that has a "high barrier to entry", or a market whose barrier to entry is so high that no other players can enter, no matter what. The reality is though, in a true free market this is never the case. No matter how high the barrier to entry, there is always room for another player.

There are two things that can help overcome high barriers to entry. Large companied with lots of capital, and innovation of new technologies. Large companies help because, for example, if every widget company decided to start selling their widgets for double the price that they should, then some other rich company with lots of capital to invest in making widgets is going to come in and start selling widgets for less.

The most important equalizer to high barriers to entry though is innovation. No matter what, new technologies will always be invented, and no monopoly can ever rest on its laurels forever. The market may be unbalanced for a short while, but it will even itself out, quicker and fairer than slow moving anti-trust laws can.

The only way that there can be a market with an infinitely high barrier to entry is when the government is involved, through patents, copyrights, subsidies, and other protectionist laws.

Re:adam smith is rolling in his grave

[Capsaicin]

The problem with your scenario is that it relys on a market that has a "high barrier to entry", or a market whose barrier to entry is so high that no other players can enter, no matter what. The reality is though, in a true free market this is never the case.

You don't need to achieve a pure monopoly to dictate to retailers or charge near monopoly rents. Look at the example I cited, ie. the PC OS market Sure you can point to MacOS, and Linux, but these don't seriously dent Microsoft's power, especially in regard to small business computer retailers (maybe someone as big as Dell can get away with shiping PCs without that OS installed ...). Note the barrier to entry here isn't capital expenditure, as it is in chip manufacturing for instance, but primarily network effects.

The most important equalizer to high barriers to entry though is innovation. ... The only way that there can be a market with an infinitely high barrier to entry is when the government is involved, through patents, copyrights, subsidies, and other protectionist laws.

While I'm against the overweening IP regime we are currently subjected to, we should not loose sight of the necessity of IP regulation. IP addresses another market failure, namely the 'free rider effect,' (again demonstrating the necessity of some limited state intervention for a functioning capitalist economy). For innovation to be an effective equaliser to barriers to entry, it requires that very IP protection you decry! Otherwise the innovator will simply have their innovation taken from them by the established players in the market. The innovator bears the research costs, while big guys use their market power to cut that innovator out from the profits of their own innovation. Not a good look.

The market may be unbalanced for a short while, but it will even itself out, quicker and fairer than slow moving anti-trust laws can.

That is a very romantic notion ... unfortunately history demonstrates the exact opposite.

*Imagining*?

[weston]

Stop imagining conspiracies of collusion between cutthroat competitors.

http://www.usatoday.com/life/music/news/2002-09-30 -cd-settlement_x.htm
http://www.engadget.com/2007/03/21/sony-others-nam ed-in-video-tape-price-fixing-scheme/
http://news.com.com/Samsung+to+pay+300+million+for +price+fixing/2100-1004_3-5894862.html
http://illinoisissuesblog.blogspot.com/2007/03/pri ce-fixing.html
http://www.sfgate.com/cgi-bin/article.cgi?file=/ch ronicle/archive/2002/05/10/MN24643.DTL
http://www.reviewjournal.com/lvrj_home/2002/May-08 -Wed-2002/business/18699104.html
http://www.powells.com/biblio?PID=28734&cgi=produc t&isbn=0767903277

What's more, you don't have to spend long in today's business culture before it becomes *obvious* that there's enough of a critical mass of actors who believe in getting ahead by amassing control over channels and perception (rather than producing/adding value) that the emergence of price-fixing behavior is practically inevitable.

Re:Until you consider Patents and other G. Monopol

[drinkypoo]

The corporation is responsible for the economic growth of the last three hundred years and if not for that then you and I would probably still be subsistence vegetable farming serfs working for some fuedal overlord or dictator. Do you really want to live in a society where the family members of the dictator are the only ones who get access to profitable businesses and where the rule of the strong is the rule of the day?

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.

Re:Until you consider Patents and other G. Monopol

[CodeBuster]

No, the primary reason is a legacy of colonialism and exploitation from the age of European empires.

It is true that colonialism was, on the whole, more harmful than beneficial to those formal colonies which are now independent nations. However, it is also true to say that not everything about colonialism was necessarily a bad thing. The railroads, port facilities, and other colonial improvements made by the British throughout their former empire, notably in India, were reverted to the ownership of the newly independent nations and that windfall of improved infrastructure did partly compensate for the less desirable effects of colonialism in that the new nations began with something of a head start with regard to roads, ports, government buildings, railroads and the like.

However, even when the negative effects are accounted for, and most nations are now 50 years out from their colonial pasts, it does not fully explain why these now independent nations have failed to seize the day and produce for their citizens 50 years of economic growth and progress that was, in theory at least, possible once the colonialism ended.

In fact, modern third-world governments do a fine job of protecting property rights - of multinational corporations. It's actual citizens who lose out.

I would compare this with the dictator offering a good friend or family member, or indeed a foreigner with money to spend, special privileges that fall outside of the laws of that country or not covered by those laws because of the power of the dictator. This is not the same thing as an impartial and independent judiciary enforcing the private property rights of multinational corporations within the framework of the rule of laws. It should not therefore be used as an argument against the efficacy of protecting property rights in per se since it it in fact nothing more than the will of the dictator dressed up in words like "protecting the legitimate property rights", "freedom", and "democracy".

Then property becomes a tool for hoarding the resources of the planet, for concentrating control of capital into the hands of a state-backed owning and ruling class, then we need to realize that ideas that can usefully be applied to guitars, cannot necessarily be usefully applied to large tracts of land, natural resources, or ideas - and certainly not to shares in control of, and profit from, the actions of immortal fictitious citizens created by government fiat.

I suppose that this simply comes down to a basic disagreement on the means to best achieve the same goals. We both of us agree that we would like to own some land with a dwelling and perhaps a car and other personal possessions and amenities of our choosing, but we disagree on the best means to achieve those goals. If you believe that everyone should have an equal share of a smaller total pie then by all means vote for government control of markets and capital and we will all be equal in our misery. On the other hand if you believe in yourself and the rights of yourself in others to invest your capital in business and to work to increase that capital without the government swooping in and confiscating the fruits of your labor at whim then you should not be against the sort of concentration of capital that tends to occur in the later rather than the former system. If private property works for your guitar then why should it not work equally well for say generation of electricity or steel or other more "vital" industries, what Lenin called, the "Commanding Heights" of the economy? The answer is that it does and should not therefore be restricted. In fact, the only industry where the government should maintain complete monopsony control is in the defense industry. The history of the twentieth century proved these assertions conclusively with the collapse of communism and the abandonment by China of any pretense of Marxist economic policies.

Mistaking property

I could lose my house because of this law...

[Markmarkmark]

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