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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."
Umm...unless all the major manufacturers executed this change together.
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.
Don't disappoint your bird dog. Go to the range.
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!
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?
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?
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.
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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.
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.
Man, you really need that seminar!
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.
Your ignorance is infinitely greater than you realize.
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.
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.
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.
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.
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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.
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
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.
"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
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.
Yours Sincerely, Michael.
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.
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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.
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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.
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.
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.
Better to be despised for too anxious apprehensions, than ruined by too confident a security. --Edmund Burke
Stop imagining conspiracies of collusion between cutthroat competitors.
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http://www.usatoday.com/life/music/news/2002-09-3
http://www.engadget.com/2007/03/21/sony-others-na
http://news.com.com/Samsung+to+pay+300+million+fo
http://illinoisissuesblog.blogspot.com/2007/03/pr
http://www.sfgate.com/cgi-bin/article.cgi?file=/c
http://www.reviewjournal.com/lvrj_home/2002/May-0
http://www.powells.com/biblio?PID=28734&cgi=produ
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.
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