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Battle Over Minimum Pricing Heating Up
The Wall Street Journal is covering developments in the gathering battle between manufacturers and retailers / discounters, especially online ones, over minimum prices. Earlier this year the Supreme Court upheld the right of manufacturers to enforce price floors for their products. Since then, manufacturers have increasingly been employing service companies like NetEnforcers to snitch on discounters who offer goods below "minimum advertised prices" (or MAPs), and to send DMCA takedown notices to the likes of eBay and Craigslist for below-minimum offers. Separately, the Journal reports that a coalition of discounters and retailers is using eBay as a stalking-horse in a campaign to get consumers, and then politicians, fired up enough to pass legislation outlawing MAPs.
Free market here we go!
One is business as usual and the other results in a class action lawsuit.
But what's the difference really? Besides wholesalers vs retailers setting the minimum price?
He developed software to track the company's authorized dealers and prices. From there, he devised companion software to identify online sales that were discounted. This put the stereo discounting to an end, Mr. Loomis says. In 2003, he launched NetEnforcers using similar software.
Mr. Loomis may be in violation of any NDAs and non-compete agreements he may have signed with his employer for whom he designed this very lucrative software for.
Just saying.
From TFA: eBay and discount retailer Costco Wholesale Corp., opponents decided to lobby for a bill now pending in Congress that would make minimum-pricing agreements a violation of antitrust law.
Shouldn't existing law prevent MAPs already? This sounds an awful lot like collusion and price-fixing to me. But since the Supreme Court has already said that manufacturers can enforce price floors, it sounds like new legislation is definitely needed.
How can minimal pricing be legal or logical?
If I sell you an apple from my apple tree then what right should I have to say that you sell that apple at? Or what rights do I have to then your apple at all?
Obviously the original manufacturer has certain rights like copyright, trademark, but I fail to see how these right extend to something like price further down the supply chain.
This whole system just seems abusive and will make it harder for competition to ensue which last I checked was meant to be what a capitalist society was all about.
How exactly could a market be described as "free" if a single market actor is able to force other market actors to not sell the goods at a price they see fit?
Slashdot, fix your code or at least hire someone who is competent at it to do it for you.
So price floors are good, but price ceilings are bad? As we all know, "only commies allow price ceilings", so this sounds a lot like socialism for the rich and capitalism for the poor.
What's an MAP all about? In the world I thought I lived in, retailers buy their merchandise from wholesalers. Those retailers are then free to handle said merchandise as they see fit, including not selling them at all.
The only argument I see for MAPs is when retailers do not buy merchandise, but act as a middle-men with the wholesaler receiving a percentage cut of the retailers' revenue. And in that case, I agree with the USSC, but then the issue boils down to ordinary contract law. So I don't think this is the case.
So, wholesalers: if you're not happy about how retailers handle your wares: sell it yourself. Otherwise, stop complaining about a market that you chose not to compete in.
"To continue reading, subscribe now" -- why is Slashdot linking to crap like this? Is the WSJ paying Slashdot to help sell subscriptions?
Enforcing MAPs is often more about maintaining supply chain and sales stability than explicitly trying to be profiteering.
Recently in the model-aircraft world, we had one large online, offshore (Asia) store acquire a large lump of stock from a supplier via proxy (because the supplier explicitly didn't want this online retailer selling their stock), the store promptly dumped the stock into the market at a price within 10~15% of the supplier cost price which was about 30% below MAP (on a $400~$600 item).
This had a couple of immediate effects;
1) Everyone bought stock from the one online store
2) Other major US/Europe stores couldn't match due to legal issues with going below the MAP
3) Said US/European stores stopped purchasing from the factory
4) Existing customers became enraged at the "huge profiteering" (many electronics goods are retailed at roughly 400% of their factory cost or higher)
Ultimately, the factory goes into a situation where they're between a hard place and a rock.
Certainly quite an effective way to crush some competitors in your market space.
We don't like to think that people are carving out huge profits on the items we buy, however the reality is that a lot of what we pay for items -is- profit that pays the wages of people like us who need to buy things to keep on living.
It's probably bogus but I can't even figure out what the theory is on which manufacturers sue unauthorized distributors. I mean my understanding of trademark law is that it's uncontroversial that using a product's name to correctly identify the item you are selling isn't a violation of the trademark. Moreover, merely listing the item name isn't enough to create a copyright violation.
I mean I see how this might work against retail operations or online stores. After all they usually need to put up a description of the product, pictures of the box and other information to make it attractive to the customer. No doubt the allegation is that the text on the box or the blurb describing the item are copyrighted. But how does this reach ebay sellers?
If you liked this thought maybe you would find my blog nice too:
First of all, if the manufacturer sold the product any retailer or online retailer or individual, in a free market, wouldn't it be their right (the second party's right) to try to sell it for what they could or wanted to? Secondly, I wonder if they are going to try anything with the secondary (used) market? Think about it. Congress and the manufacturers saying "We're going to establish minimum and maximum pricing for the second hand market (people that sell used things after they no longer want them). This will potentially affect everything from garage sales to eBay/Craig's List. Just how do they plan to enforce this?
If you don't allow a manufacturer to strike a voluntary agreement with the dealers they choose to use, then they'll eventually just move to a "company store" model. The whole point of a dealer agreement is to support the manufacturer's choices about who they will have supporting, and representing their products to their end users. You are NOT obligated to support MAP prices... as long as you're also not interested in being able to tell your customers that you're an authorized dealer that supports warranties, etc. You can purchase a nice shiny Nikon D700 DSLR from a US dealer, or you can get a cheaper one that's gray-market... and you'll never get Nikon USA to service it, period. They manufacturer doesn't want to have to take up the slack for the work that legit dealers are supposed to be doing. Legit dealers usually make most of their money off of accessories anyway (HDMI cables, for example), and like having a big name-brand item as an anchor/draw in order to do that accessory business. Companies like Sony don't want to have to wear a bunch of customer service complaints about a retail outlet that "can't afford" to take a lot of time taking care of a customer's problem because they gave away all of the margin on the sale.
Don't disappoint your bird dog. Go to the range.
They can set their prices, and then you can choose to resell it at a loss, once you've paid for it. Or has First Sale gone out the window as well?
I want to delete my account but Slashdot doesn't allow it.
There is no minimum rpice for second sale. The MAP they are trying to enforce is for distributor and first sale. Please note that I disagree with the MAP, I jsut wanted to point out that as a second sale they would have no right to enforce a MAP. YMMV by country, but usually second sale right is that you can put whatever price you wish. Even 1 cent if you want. Not so for retailer and distributor.
C. Sagan : A demon haunted world:
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visit randi.org
Retailers are only consignment dealers, they don't buy anything up front. The manuftcr stocks their stuff on the floor, and the BestBuy remits as each item goes past the register. It's a form of floor planning like car dealers. If the item disappears from stock without going past the register (stock shrinkage aka employee theft) Apple eats it.
Since the mfr assumes the risk, then the mfr sets the terms and prices. This is how WalMart "Keeps Prices Low."
If the stores actually bought this stuff from the mfr as it came into the store, then it would be their property to dispose of as they see fit. But we don't.
This minimum pricing scheme just concerns one manufacturer's product. You're free to buy from a competitor.
Unless the product has no close substitutes, and the state enforces this lack of close substitutes.
I find humorous. No one has mentioned Macintosh computers. Apple has a very interesting way to get around this problem. They have a MAP but they don't really need one.
Reason is, they sell them to you (the retailer) at VERY near their online store's price. When you, as an Apple Authorized Reseller sell a mac, you send proof of your purchase to them, and at the end of the month you get a check from them. Depending on a wide variety of factors, basically "how much you've behaved like Apple WANTS you to behave as their representative", that determines the amount of cash they give you back per machine. They call it "metrics". We call it "kickbacks".
AARs don't make ANY money on selling a mac. Many of them even LOSE money. But those BDU checks are what make their profit.
This has several interesting effects. First off, when a customer calls us asking about prices for all the systems, we can just direct them to the online Apple store, because all our prices will be the same as theirs, and will be the same as all our competition's. Second, Apple still holds us to MAP, so we can't sell at a loss to make more with the BDU checks. Third, we don't have to worry about direct competition in our market because no one else can sell below MAP, because everyone that's getting the computers from Apple directly has to sell at that price so they're not available anywhere below MAP to be bought "wholesale" and then retailed elsewhere.
The only two problems this causes us is #1 we have no way to compete with the deals Apple offers, such as discounts on ipod with computer purchase, or especially the student discount. #2 some of the places like Mac Warehouse get around this by throwing in free stuff like printer or memory upgrade and that's hard for us to compete with.
This whole thing wouldn't normally work because if Apple makes a price drop when a new model comes out, everyone would be stuck with merchandise they paid more for than they can sell for, so Apple also cuts us checks for any unsold inventory to make up the difference when they drop a price. (they call it "price protection")
The BDU checks and the price protection both are at Apple's discretion, so it gives them a lot of leverage to tell us what we can and cannot do. So even though we're independently owned/operated, we have to basically do whatever they say, or they'll cancel our AAR status and we lose the BDU checks and price protection and that puts us out of business. Really annoying when Apple does something like prohibit us from selling iPhones, and then turns around and lets places like Best Buy and Wal Mart sell them. Sort of a swift kick in the balls and we have no real recourse but to bend over and take it. For example, if Apple catches us selling an iPhone we'd get delisted instantly. If we were caught so much as displaying a pre-release of any Apple software, such as Snow Leopard or the new Aperture, same thing. So in this respect, the manufacturers can have a lot of control over their retailers - it goes far beyond just MAP.
I don't know for sure, but it seems like their preventing us from selling iPhones is something that should be illegal? Apple is notorious for taking steps to eliminate competition within their market, specifically from their partners. "competes with an Apple product" is the #1 reason for iPhone apps to be rejected by Apple from being sold on the Apple Store.
I work for the Department of Redundancy Department.
You're correct legally, but NetEnforcers et al seem to be demanding that eBay take down all sales of new products below the minimum price, assuming that these must be prohibited first-sales.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Property taxes tend to be regressive when look at on income terms, because someone making $1m doesn't on average own a 10x as expensive house as someone making $100k.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
The case that went to the Supreme Court actually didn't involve a suit against unauthorized distributors at all: the manufacturer simply cut off the retailer from further shipments after they started offering discounts, and the retailer sued the manufacturer over that, alleging an antitrust violation.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
The Supreme Court overturned the former ban on retail price ceilings a decade before they overturned the one on retail price floors. See State Oil v. Khan (1997), which held that a gasoline distributor could put a cap on the retail price the gasoline stations could resell it for.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
The Software Developers at NetEnforcers rule!
OK, so I grow one special breed of apple from the apple tree that is delicious, but bruises easily.
I contract with and certify authorized fruit distributors who certify me that in advance of doing business with me, they must staff up and provide gentle handling and quickly respond to consumer complaints. In return for their investing in this staffing up, I set a minimum retail price they will charge and maximum wholesale price so the distributors of all sizes will have some assurance of gross profit.
My distributors make the investment, build my reputation among buyers, and my buyers and distributors are happy and make me wealthy.
I also offer volume discounts. (I didn't say that all distributors would have the SAME profit margin, just an agreed-to MINIMUM profit margin.)
A rogue distributor starts buying in larger lots than he can handle to get the larger discounts. He takes the units he can't sell and sells them to an unauthorized "gray market" distributor. The gray market distributor can sell them because they cut corners on staffing customer service and support.
Consumers have no idea why, but word-of-mouth is that service and support at the (gray/unauthorized) retail level is degrading. Small problems are repeated over and over as they are not addressed. Eventually, the market-wide brand perception is damaged and my business is eventually on the brink of being ruined.
I cut off shipments to the rogue distributor. He takes me to court. The court agrees that I am operating legally and I am in the right to cutoff any distributor who violates our contractual terms.
Some people on web discussion boards present me as a monster intent on excessive and unfair profiteering.
Business should be a series of voluntary transactions between all parties. If a product is priced too high or service is too low, then the product deserves to suffer. Monopoly laws apply only to products deemed by the authorities as essential to the economy and where alternatives do not exist.
That is why monopoly laws apply to the vendor of the world's largest operating system (i.e. the US vs. Microsoft and the E.U. vs. Microsoft) and not to minority OS players (i.e. US court ruled Apple could put out of business the Apple clone maker).
Just another day among the chattering lunatics. (Yes, I appear to be one too.)
Live Long and Prosper - Thanks Leonard. You are missed.
Halo 3 not on your system of choice? Tons of other FPSes available.
Not when Konami is using patents to sue its competitors out of existence. See Konami v. Roxor and Konami v. Viacom.
The real reason that this was put into law was because with every manufacturer making their pieces of plastic and software offshore in China and similar places, all form the same few factories in some cases. Take computer cases. Most are made in a handful of factories and re-badged as required.
"Protecting their image" is actually better translated as keeping the public in the dark as to what their products really cost. If the supplier in China or Malaysia or wherever decides to undercut Apple, well, they are unable to do anything about it as there IS no place cheaper to have it made.
I used to avoid gray market items and offshore no-name electronics. But that was back when they were really just cheap clones. Now, I can get that IPod Mini sans the name from the same factory in China for $40.
Don't pass a bunch or oppressive laws to try to fix it.
Manufacturers should be able to chose who they are going to sell their product to wholesale. If they want to fix their prices by refusing to sell to people who advertise below they price they've outlined, that's their business and the government should stay out of it.
The only alternative is writing laws to determine who I can sell goods to, and under what circumstances. That's a huge blow to freedom, and yet another step to building a large oppressive government.
Do a google search. Lawyers are working right now on a class action law suit regarding DMCA abuse and net-enforcers
"and to send DMCA takedown notices to the likes of eBay and Craigslist for below-minimum offers"
How (I'm afraid to ask) can DMCA be used to enforce MAP violations?
KeS
You just hit the essence of a good idea to enforce of Minimum Advertised Price (MAP), that is to sell to dealers at a price very close to MAP while making the dealers' Cost Of Goods Sold (COGS) unpredictable, especially before a period of time completed. The problems are in implementation.
I know many companies willing to pay a very generous amount if you can come out with an MAP enforcement implementation in some products. :-)
If you delay pleasure infinitely, the pleasure will be infinite. (YM)
If manufacturers used RPM (resale price maintenance) to make a profit by increasing price, why on earth wouldn't they just charge a higher price to the resellers. If I were a manufacturer, why would I charge $150 and then require retailers to sell at $200 when I could just charge them $200 if I thought there was profit to be made there?
RPM gives retailers freedom to compete on things other than price, like service; while facilitating the ability for manufacturers to compete with price (apple v hp...). Please read the opinion of the court: http://www.supremecourtus.gov/opinions/06pdf/06-480.pdf
WalMart
If manufacturers want to negotiate price floors for their products, let them negotiate with WalMart. Good luck in these depressed economic times. Odds are that any manufacturers who don't get shelf space at discounters won't be in business much longer.
Have gnu, will travel.
The eBay/craigslist crackdown thing caught my eye. I can't say I know alot about MAPS and selling stuff but assuming you aren't a dealer who sells multiples of an inventory, bulk items, etc you should be able to sell for whatever price you want on eBay right? If I, as an individual, choose to sell a brand new Apple Macbook Air that I no longer want on ebay for half of what it costs in an Apple Store or online, I should be legally able to do this right?
Aw Frell this
The fact that this is on slashdot shows #1 obviously the internet including slashdot is totally commerce driven #2 DIY retail is now the way the economy works. You need to know how retail works & how to run a business.
Say good bye to Black Friday!
I don't have time to read this thread, so am sorry if I am missing important points. However, I am intimately familiar with the business dynamics between retailers and their suppliers, and the retailers clearly have the whip hand. This is less about what consumers are ultimately going to pay, and more about the balance of power in the industry. These are all "big boys" who can look out for their own interests, but there is nothing clear-cut about the benefits of assisting retailers to rape suppliers. You should be aware that the balance has been shifting to the retailers for many years. Walmart has delivered many benefits to society, but do you really want to give them further power over P&G, Unilever, Kraft, Nestle et al? I don't know, but at least you should know something of what is at stake.
In case you haven't been reading the news, free market economics was just given a shit-kicking by its cheerleaders. I'm curious what will be nationalized next....
Honestly, I never really understood why anyone WANTS to run a business that relies on sales of new Apple products as income/profit?
Apple made it abundantly clear when they entered the retail business with their OWN stores that anyone else selling the same products would be considered "expendable" at best.
It seems to me like if I was going to try to run my own Apple computer store, I would concentrate on consignment sales of USED products, 3rd. party peripherals and software, and only offer sales of new Apple products for the sake of being more "complete" in my available offerings.
(Well, that or keep the option open to resell new Apple products for the sake of business consulting purposes. Sell the systems at or below cost to the client, but make the money on the SERVICE that goes along with the deal -- installing/configuring the systems, supporting and troubleshooting them after the sale, etc.)
I just hear a lot of belly-aching from AAR's out there about how strict and controlling Apple is with them. And each time, I think "Well, duh! They invested millions to sell their products themselves, and in their OWN preferred fashion. Think outside the box a little bit more!"
I am always amazed by the blatant doublespeak used by corporations in these issues. They rave about free market and the way government intervention destroys progress. Then like the car companies recently they come cap in hand asking for taxpayer money when the are outcompeted in their free market. Or use the courts to destroy their competition who is able, in a free market, to supply products at lower prices. You can't have it both ways, I vote we either go free market and let the whole system collapse under the weight of it's own inneficiency every once in a while, or we plan it out carefully at a government level and execute the system in such a way that it is sustainable.
Letting business leaders jump from one to the other at the whim of their personal trust funds is stupid.
Except the consumer gets screwed by this - essentially it's a way to make price comparison more difficult
Ah yes, but an alternate syndrome is where a big chain store busts into town, sells at cut-throat margins and drives the local stores out, then jack prices back up after all the competition has failed or fled.
That's not good for the consumer either, but it's been known to happen fairly often.
What the hell ? If i have a company and i make my own price what does DMCA have to do with this ?? I don't get it.
On the other hand my wife had an Internet gift business reselling popular collectibles, and we went out of business because an Internet competitor that was down the street from the manufacturer had a back-door deal and undercut us terribly. Their retail was lower than our wholesale, and we were approved vendors meeting the quantity requirements.
Between the economy and these kinds of problems, I don't know how anyone makes a living in retail sales these days, except the well funded big box/internet stores reselling high volume low margin imported junk, and of course paying the salespeople almost nothing.
"Ultimately, the manufacturer always sets a de facto minimum price: its wholesale price. "
Here is a term for you to look up "LOSS LEADER"
I resell coke products
Wanna know what my purchase cost of 2L's pre-priced with the 99c stickers on them is?
1.19 each- delivered....
every day http://en.wikipedia.org/wiki/Special:Random
No they won't - they sleep under a bridge and won't get the loan needed to furnish and open another shop.
And they won't be a new guy either - any newcomer will see the guy under the bridge and think: No I don't want to end like him.
Here's a term for you to look up: de facto. Promotions and loss leaders are the exact reasone that wholesale prices are de facto minimums and not explicit minimums. Come on now. In trying to be smart, you sail right past the point.
Loss leaders are exactly that: losses. You can't permanently sell a product at a loss unless you're making it up somewhere else. Furthermore, products with MAP guidelines are not loss leaders. They tend to be some combination of high-end, specialty, or boutique products.
Team NetEnforcers!!! FUCK YEAH!!!
It seems like the more comments I read, the more people who don't understand MAP. MAP does not enforce a selling price - in fact, you can't do that - it's called price fixing and it's illegal. MAP simply states that you may not advertise something below a certain amount.
So, if MAP on a product is $100, you can sell them at $75 all day long, you just can't say so on your site. This is why a lot of retailers make you add something to your cart before you can see the price. They are dealing with a supplier who enforces MAP, and they're getting around it.
Also, MAP is an agreement between the supplier and the retailer. There is no law or way that a supplier can tell Joe Blow on eBay that he can't sell his crap for whatever he decides. Unless you made an agreement with the supplier, MAP does not apply to you. It's not a law - it's a policy (the legal ruling didn't make it a law either, it just stated that the policy was legal).
MAP can actually be a good thing. It allows smaller startups to compete with the big boys by not letting the big guys get price advantages. The big guys will get higher margins on their stuff, but the startups can still make a reasonable profit.
So long as it is not excessive, I think MAP is fine even for enforcing the idea of brand quality. A lot of brand rely on price as part of their overall experience. You pay a premium for a premium product - and as soon as you product starts showing up in discount bins you lose that. I think MAP is a reasonable way to keep your image up.
Unfortunately, a lot of suppliers misunderstand MAP. I've had suppliers contact me really pissed because they found out I was selling quantity products under MAP to a customer. Nowhere had I advertised that I was selling below MAP, I had just come to an agreement with one particular customer who needed to buy a lot of the product. The supplier has nothing to do with it and has no legal right to tell me what I can SELL something for, only what I can ADVERTISE something for.
Suppliers will still cut you off, though, and a lot of times you need to fall in line with their illegal policies because they're the only guys who will supply you with whizbangamatrons and you don't want to piss them off by telling them they're doing something illegal.
or else!
The manufacturer is the source of the problem and the source of the solution ... If you really do want to keep the small scale business in operation, then stop selling mass quanitities to mass marketers at a discount that is unavailable to the small scale retailer.
End of problem.
End of story.
Good judgement comes from experience, and experience comes from bad judgement.
- W. Wriston, former Citibank CEO
So many people bashing the concept of MAP seems weird to me, since I'm familiar with the subject (part of my job). MAP agreements generally don't stop any owner/consumer of a product from doing anything. It's purely applied to retailers, not consumers that want to sell their used stuff.
Ummm, also, if you never signed a retailer contract with Sony (or whoever else), you're not bound by MAP & can sell your old PS3 for $1 if you want - any lawyer that threatens you (an individual, not a business) about it is full of s**t. (Disclaimer, IMNAL).
In fact, MAP is good for the underdog, the Mom n Pop shops. Think about it - that's why W-Mort & Coozco want to kill it, because it slows them down in their quest to crush their competition & take over the world. It's intended to create a level playing field, but does allow price to fluctuate under certain conditions (easy to do).
To those comments that say - "if I have my own store I should be able to sell at any price I want! How dare any manufacturer tell me what to do!" -- Well, if you really had a store, you'd be begging all manufacturers to implement MAP, just to help you out.
The big-box stores buy in huge volume so they get lower prices. But, small shops can't do this, thus their cost of goods is higher & they must sell for a higher price to stay alive. The intent is to help the small guys by keeping the price at a level they can survive on & stopping the big guys from undercutting, or worse yet, from intentionally selling at a loss just to kill your little shop (& some big stores like it too, because they don't like price wars either).
Applying MAP to eBay seems absurd, UNLESS it's for a big eBay merchant that sells new products.
The "A" in MAP is the key. Standard MAP agreements allow anyone to sell for any price, as long as they say something like "price too low to print" in ads.
Also, any item that's not new (as in perfect), e.g. demo, scratch'n'dent, b-stock, returns, unboxed, open-box, or any type of used - can be any price (you must state it's condition)...So, as long as it's not NIB, (& especially if you never signed a contract that contained MAP provisions) eBay stuff should be exempt.
- Well, that's all based on my actual experience & what our legal dept has explained in the past. If anyone can point out specifics (especially example contracts) that differ from what I've stated, please reply to this comment since I'd really like to know more - especially if there are other things going on, like with MAP somehow being incorporated into DMCA (which would be odd).