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.

Comments

Re:Minimal Pricing = Legal Monopoly?

[theaveng]

Precisely, and here's a quote from that article:

NetEnforcers alerts its clients including Sony Corp..... they can allege that the discounter's use of the product's name or image constitutes trademark or copyright infringement, in an effort to force the seller to stop listing the discount....

So if I have a brand-new, never-used Sony PS3 and for whatever reason I decide to duimp it for cash, I might list it for $200 on amazon oe Ebay. BUT then along come the "netenforcers" claiming I violated the MAP, or I violated copyright, or some such bs, and yank my listing straight off Amazon/Ebay.

They shouldn't be able to block my sale of my product! I can set any damn price I feel like setting, even as low as a penny, because *I* own it.

Makes for an awkward situation

[inflex]

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.

Re:Makes for an awkward situation

[inflex]

The difference to notice though is that there's a higher cost involved in maintaining a support infrastructure for the product, as apposed to dumping the product and running with the (slimmer) profits.

Essentially the "ultra low cost seller" takes a higher effective profit because they pay no contribution towards maintaining the support network (advertising, support, repairs etc).

You can remove the MAP's, yes, what you'll see then is a lot of retailers refusing to take on the products at the risk of margins going too low to warrant carrying the stock and the after-sale responsibilities.

The problem is in the form of the rogue trader who sells today and is gone 14 days later and yes, customers will and do go and find one of the other resellers to scream and yell when it doesn't work, whom -will- then get shafted if they don't support the item in terms of bad-mouthing (by the customer) or financially (by taking on the problem above and beyond their responsibility - simply to keep the good name). If stores don't like the MAP enforcement then they shouldn't buy the stock to sell. If no one buys the stock then your market has sorted itself out.

MAPs are a minor assurance, from the factory, that when you hand over your money to buy their stock you're not going to end up with something worthless in your hands two weeks later because of some fly by night jerk who submarines the market to make a quick buck and leaves the existing sellers to clean up the mess (as if there aren't already enough market forces pushing against you).

Re:Minimal Pricing = Legal Monopoly?

[theaveng]

NetEnforcers says that this year through Oct. 13, it helped shut down 1.2 million seller pages on eBay

Frak. That's a lot of takedowns and I bet most of them were completely harmless and legal. I had one of my auctions yanked last year, not by these people but by some lawfirm in California because they BELIEVED my copy of Star Trek TNG season 1 was an illegal copy. I called this lawfuck...er, firm and tried to reason with the man in charge but he refused to listen. He just kept repeating that if I list TNG-1 a second time, he'll prosecute and yelled loud enough for my secretary to overhear the threats.

I ignored him and relisted it anyway... fortunately the threat turned out to be the babbling of a power-tripping, windbag lawyer... it sold and my customer was happy. I hate corporations, I hate lawyers, and I hate politicians that serve corporate masters.

Re:Minimal Pricing = Legal Monopoly?

[matt4077]

If you, when buying the apple, agree not to sell it for less than $x, and agree to only sell it under the same requirement for subsequent owners, you entered a valid contract. I can see the argument that Minimum Prices are a bad idea and should be abolished, but it's dishonest to deny the possibility of such contracts, and the freedom to enter into contracts also deserves some consideration.

not for second sale

[aepervius]

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.

but you DIDN'T buy that apple

[Anonymous Coward]

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.

Re:MAP vs Price Fixing

[ratboy666]

I sell "dual core intel computer with 2gb" for $1000 (or even more). Now, the customer *could* go to tigerdirect.ca and buy the "same" system for a few hundred dollars. I make my client VERY aware of that option. Really, I don't want any buyers remorse or anxiety over purchasing a system from me.

But... on-site setup, customized media software, lifetime labor, quality parts, little to no noise, and a nice pvr case.

Let's see tigerdirect.ca compete with that.

If *all* you are doing is selling the speakers -- I don't have much sympathy. Take your $50 dollar profit, if that's all you can get. Buy more speakers, and go "internet" as well.

MAP *does* gouge the consumer; if only to keep your business model afloat.

Personally, I think that MAP is designed to protect "reputation". Without the need for anyone to apply any extra elbow grease.

Re:MAP vs Price Fixing

[Registered Coward v2]

Exactly. Protecting the Dealers from other dealers is the reason for MAP Pricing.

Except the consumer gets screwed by this - essentially it's a way to make price comparison more difficult. As a result, some places don't advertise price but require a call or email to get a quote.

I worked in pro audio for 5 years. MAP is very prevailent in that market. I live in North Dakota. Its not like I sell 1000 dollar speakers every day like Musician's Friend does. So if I'm a dealer and the 1000 dollar speaker costs me 800 dollars. plus 70 dollar shipping. I'm making 130 dollars per speaker.

If there is no MAP. then The online retailer is able to then sell the speaker for say 850 dollars and and then sell more, getting better pricing so that the speaker may only costs them 700 dollars. well now they're able to sell it for less than what the smaller local dealer can and still make a profit. and make up the extra amount in gross sales. Isn't this reminding you of Wal-Mart?

If it means consumers pay less then it is a good deal - the manufacturers don't want to piss off they big buyers by not offering steep discounts but don't want to offer the same pricing to the little guy. They could offer the same price to the little guy but they don't want to take the revenue hit so they use MAP to "protect" them while hurting the consumer.

These companys want to keep their local dealers open. They want to have a place for you to take your unit back to for support. if they don't have MAP there is no reason for that local dealer to even been selling the product if they can't even be competitive with the pricing.

If they really want then don't give the big sellers a sizable discount - stay a specialty product selling through dealers only. Some companies, such as Stihl and Snapper, do this. Of course, their prices are not that much more than for a similar product at Home Depot; they simply chose not to get into the price death spiral and instead sell on quality. As the CEO of Snapper said - "My tombstone will say 'He turned down WalMart.' - whether or not that was smart remains to be seen"

Make sense?

It depends on the business model - I don't think one that gives better pricing to Big Box / large online stores and tries to keep a dealer network in place via MAP is a viable long term strategy. The big guys will find ways to sell for less (MAP only controls advertised, not selling price); squeezing the dealers.