Battle Over Minimum Pricing Heating Up 272
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.
Re:MAP vs Price Fixing (Score:4, Informative)
Re:Is this free market? (Score:3, Informative)
It might be worth pointing out that hardly anyone experiences a free market in the purest sense of the term. Even so, MAP does not impede a free market. In the majority of market segments there are multiple tiers and multiple marketers within each of those tiers. If Brand X requires a MAP contract and Brand Y does not the market is still free because there are multiple choices available at the wholesale and retail level.
If Sony (for example) wants to enforce a MAP with those retailers/wholesalers they have signed contracts with, I have no problem with it as long as there are other brands available in the marketplace.
Re:Shouldn't need a new law, but... (Score:3, Informative)
Price fixing implies different manufacturers colluding, which is not the case for MAP. MAP is about protecting the seller channel for a specific brand. Some product that is sold well above the cost to make and is sold through specific channels - like Bose or Apple. The folks competing with those sellers can sell something else for much less, just not the branded product.
Re:MAP vs Price Fixing (Score:5, Informative)
Exactly. Protecting the Dealers from other dealers is the reason for MAP Pricing.
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?
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.
Make sense?
Re:Price limits (Score:4, Informative)
False. Here is my source:
http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml#1011537 [cbo.gov]
Do you have a source for your claim?
I suppose we could quibble over households vs individuals, but note on that page, there is no instance where moving up into a higher income group results in a cut in overall taxes.
And maybe the wealthy should be paying even higher taxes, I don't know, but the idea that they are paying lower taxes is simply false.
All these Apple analogies (Score:5, Informative)
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.
Re:Price limits (Score:4, Informative)
You are only looking at income tax rates. Rich people derive a big portion of their income from capital gains, which is taxed at a much lower rate. The best known example is Warren Buffet, who is taxed a lower rate than his personal secretary (he uses this to support higher taxes on himself).
they don't seem to be distinguishing (Score:5, Informative)
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.
Re:Price limits (Score:2, Informative)
There aren't that many people that do that, compared to the numbers of people who simply have high earned income working for somebody else. Somehow or another, as a group, the top 1% are paying an effective rate of 30%, so I don't find it particularly likely that the majority of the top 1% are paying less than that (it's mathematically possible, but not likely). I'm not real worried about why they pay those taxes (which is basically what we are discussing).
People like Warren Buffett are certainly getting a sweetheart deal out of that, but he has demonstrated that he is extremely good at deploying capital, so it isn't exactly bad for the country to let him invest his money (and the amount of taxes he pays in real dollars is certainly significant compared to the majority of folks). I guess there could be some work to correct for the difference between the uber-rich and the merely-incredibly-rich, but as a group, they are paying high effective rates. The top 20%, and certainly the top 40%, are not deriving the majority of their income from investments.
One special issue with a guy like Buffett is that he has probably never paid any taxes on more than $55 billion of his nominal wealth. That seems pretty unfair, but on the other hand, he has never accessed any of that wealth either (and Berkshire has certainly paid taxes over the years).
Re:Minimal Pricing = Legal Monopoly? (Score:3, Informative)
If I sell you an apple from my apple tree then what right should I have to say that you sell that apple at?
None. But MAP isn't about that. You can sell your EXISTING inventory at whatever price you want, since you've purchased it and it's in your storeroom. If you don't comply with MAP guidelines though, the manufacturer will refuse to resupply you in the future, as is their right in a "capitalist society". Thus, you as the retailer will never be given more apples to sell from that apple tree.
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.
Actually, the problem with minimum advertised prices is that they are pro-competition.
Consider the following. Big Box retailer BB can leverage its massive volumes to carve a tighter margin on the products, and then because of the number of units BB moves, can get preferential pricing on the wholesale purchases. Your local shop L can't match that and stay in business; he can't get the volume discounts, either. The only way to prevent the number of retail outlets from collapsing is to ensure that smaller vendors like L can compete on price. This in turn means that other factors come into play: maybe BB is more convenient and carries more products, while L has a better return policy and gives shoppers personal attention.
BB can still discount its wares for promotions and sell its inventory at whatever price it wants, and because it's such a major source, it probably won't be cut off by the manufacturer. Now you can argue that economic efficiency mandates that L go out of business because his overhead can't be trimmed to BB's levels, but that's the problem with an unbridled capitalist system: it destroys competition based on non-price factors (customer service, eco-friendliness, supplier diversity, etc.).
Ultimately, the manufacturer always sets a de facto minimum price: its wholesale price. Usually with a MAP program, though, there's something else involved. Apple, for instance, subsidizes displays and advertising and offers a rebate system. You're not required to become an authorized reseller or participate in the program, but if you do, you get some benefits out of it. You could always just pay the flat wholesale price and then charge whatever you wanted for the end product--but at some point you still have to make a profit. Other companies (particularly audio gear) offer extra inventory for participation in their programs--e.g. you pay for 100 units and agree to sell at or above MAP, and they deliver 105 units.
The reason the courts don't fight MAP is because they're usually (a) voluntary programs, (b) part of the manufacturer's right to sell his or her products to whomever he wishes under whatever terms he wishes, and (c) it can't be stopped, as manufacturers can simply increase their wholesale prices to very near the MSRP, making it essentially impossible to profit without selling above the manufacturer's suggested price.
Re:Minimal Pricing = Legal Monopoly? (Score:3, Informative)
Judas Priest. Doesn't anyone read the article? QUOTE: "When NetEnforcers finds goods for sale below minimum advertised price (MAP)..... if the seller isn't an authorized dealer -- NetEnforcers says other tactics are used to try to force a lowball price off the Internet. In these cases, they can allege that the discounter's use of the product's name or image constitutes trademark or copyright infringement"
In other words, they make up a bunch of lies just so they can enforce MAP upon people who are not bound by any such contract.