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."

Re:adam smith is rolling in his grave

[Anonymous Coward]

But capitalism dictates the freedom to choose who you do business with. The manufacturer will choose not to do business with anyone who does not follow the guidelines set by the manufacturer.

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.

Until you consider Patents and other G. Monopolies

[twitter]

I would simply stop stocking any product that forced me to sell at price higher than the market could bear.

This is one of those areas where government regulation protects you. Another area of regulation will make sure you are screwed even worse if this regulation is removed.

Let's imagine they have their way. You can stop selling stuff that's over priced, but you would still be stuck with it. Right now, you can reduce the price to recover part of the money you wasted on something you thought would sell better. This happens all the time. Not being able to recover that money would make more business go bankrupt and then everyone is stuck with the losses.

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.

Finally, the insane state of US patent law means that you may not have a competing product to buy and sell. What can you do then?

Re:There are other ways.

[nine-times]

Why would Walmart worry? Apparently, Walmart can strong-arm their suppliers to do whatever they want.

This already happens to us indirectly

[Mr. Stinky]

As a retailer of the some of the biggest brands in the snowboard industry, I can say that this already happens to us. We sign agreements to keep our prices at suggested retail through the peak of the season. If you sell "off-price" you jeopardize your account in the next season. Our accounts and credit lines are reviewed yearly. These indirect means of "persuasion" are actually good because it keeps a level playing field for all authorized dealers. Like with most consumer electronics, if you do not buy your product from an authorized dealer, your product warranty is void. -=DG

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:Isn't Apple doing this?

[Anonymous Coward]

Not quite.

Apple and other manufacturers and distributors use various carrots and sticks to enforce the MSRP, such as providing rebates and advertising subsidies for retailers who comply.

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.

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.

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.'

More for canada

[FuzzyDaddy]

Looks like I'll be buying computer equipment from Canada as well as my drugs.

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.

The market will move

[Cyphertube]

If this happens, then it will be a simple matter of resellers and such moving their product internationally, and then selling it from either Canada or Mexico, both members of NAFTA.

Yeah, it'll really hurt mom and pops, but many companies are now auctioning off their excess on eBay, and this would just encourage a new infrastructure, which will inevitably move more capital out of the U.S.

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:Blame the Victim

[Geof]

With a free capital market, such a player can be assembled with little difficulty.

You're telling me the SEC is the main barrier to setting up a new business in an existing market? Incumbency, first mover advantage, economies of scale, brand, negotiating power... these are all relatively minor obstacles? It's classic to set one conception of the free market on one side and the government (which is hardly a blameless regardless of your perspective) on the other as if there's a simple binary choice between them. It fits neatly into an ideology, but in reality the market doesn't work so smoothly. Take this article about prices for prescription generics [freakonomics.com]:

Walgreens charges $117 for a bottle of the same pills for which Costco charges $12.

Why on earth, I asked . . ., would anyone in his right mind fill his generic prescription at Walgreen's instead of Costco?

His answer: if a retiree is used to filling his prescriptions at Walgreens, that's where he fills his prescriptions -- and he assumes that the price of a generic drug (or, perhaps, any drug) is pretty much the same at any pharmacy. Talk about information asymmetry; talk about price discrimination.

Sure, in a theoretical perfect free market there wouldn't be information asymmentry. But there is - and there always will be (because companies know and use this fact, because gathering information is expensive, because individuals and smaller organizations suffer from greater coordination and collective action problems than big organizations, because they have fewer resources, because information is both a precondition for the market and a product sold in that market). So assuming you can "assemble" your "player" with little difficulty, how do you intend to compete with Walgreens? Because apparently they can still compete with a price 10 times yours for an identical product.

As for the telecoms, when governments allowed competition they also (at least where I live) forced the owner of the wires to allow for competition on those wires. Otherwise we wouldn't have competition there either. I say the market is more free because they regulated, not less.

Re:Until you consider Patents and other G. Monopol

[TheGavster]

I call myself a libertarian, and I think that retailers should most definately be able to set their own price. They bought goods from a manufacturer, and have the LIBERTY to do as the please with them. There's no need to make a stab at libertarianism when the real enemy is a common one (the erosion of property rights).

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.

Re:Blame the Victim

[dytin]

You can't seriously mean that the crap that Enron pulled should be legal, can you?

It already was illegal, there's no need for a new law to make it even more illegal.

companies will use it to screw over customers ... 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)

And there, you touched on the point that shows so clearly how free markets work so well. Nintendo may have had a near monopoly 20 years ago, but guess what? New players came into the marketplace, and now Nintendo has to play nice with the consumer, or else we'll take our business elsewhere.

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

[maynard]

Oh. Of course not. Such things have never [wikipedia.org] happened in the past.

The Pinkertons [wikipedia.org] specialized in such corporate sponsored actions.

*Imagining*?

[weston]

Stop imagining conspiracies of collusion between cutthroat competitors.

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

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.