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:Minimal Pricing = Legal Monopoly? (Score:5, Interesting)
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.
I don't get it (Score:1, Interesting)
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.
Makes for an awkward situation (Score:5, Interesting)
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:Price limits (Score:2, Interesting)
When you look at America's tax structure, it's clear that we mostly have regressive taxes, i.e. the poor pay a larger percent of their income to taxes than do the rich, overall.
It's socialism for the rich, paid for by the no-safety-net capitalism for the poor.
Re:Minimal Pricing = Legal Monopoly? (Score:4, Interesting)
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? (Score:4, Interesting)
Re:Makes for an awkward situation (Score:4, Interesting)
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).
not for second sale (Score:5, Interesting)
Re:Minimal Pricing = Legal Monopoly? (Score:3, Interesting)
But they might block the sale of the guy who signed a contract (MAP).
One of the reasons is that manufacturers want several outlets selling their product, allowing one, probably a very large one, to sell it below a certain price could cause other suppliers to stop distribution or even go under.
The end result would be that the large supplier, say Walmart, would become the only retailer and thus dictate his pricing to the manufacturer.
Here in Europe there is a fear only internet shops can survive, thus having a very negative effect on the regular shops and the livelihood of our city centers.
This requires some careful balancing of various interests.
but you DIDN'T buy that apple (Score:4, Interesting)
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.
Government-granted monopoly (Score:3, Interesting)
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.
Re:MAP vs Price Fixing (Score:5, Interesting)
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 (Score:5, Interesting)
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.
Re:MAP vs Price Fixing (Score:3, Interesting)
"They want to have a place for you to take your unit back to for support."
This is an old argument; I remember back in the early days of computers, this came up over and over. The argument was something like this:
"If you buy from the mail-order guy, then you don't get the kind of great support you get from your local dealer"
Okay. So you'd go in and ask about a particular piece of software, that you'd need support with. The local merchant's answer?
"How can you expect us to be an expert in each of these packages! They're quite difficult, and I'd have to devote a lot of staff to it!"
So. I still don't get it.
Let's take your store. I've bought high-end audio. It's usually sold with no return. If you complain about it, they'll fix it, but since you probably don't have repairmen on premises, you send it back to the manufacturer.
Let me ask you this. When I buy any TV or audio equipment from your store, can I return it for any reason within 90 days? That $2500 high-end receiver, can I try it for a week and bring it back? Because that's Costco's policy.
It's been my experience that small merchants have the worst return policies because they'll tell you they can't afford to take returns. Or if they take it, it's a big hassle. They argue, they'll point to a policy on the wall which says if you open the box it cannot be refunded. They'll only take returns if it's broken.
Rarely do small merchants offer great return policies. At best, they'll offer you good advice before you buy.
Recently, I went looking for a high-end keyboard, every place on the internet and locally sells it for $2,500. I figured the local store (very large) would tell me all about it. The manager said "These keyboards, it's hard to keep them all straight. It's hard to really go through it. XXXXXXX company rep will be in here Wednesday, maybe he can show it to you". Would they discount it? "Sorry sir, we only sell a few of these a year and the markup isn't great". So I did a little digging and I found 2 large stores that indeed sell below MAP ($2000, free shipping). And they were more helpful, they offered all kinds of great advice. Now they didn't offer returns, but it turns out nobody does on high-end stuff like this.
So tell me again what value the local guy is bringing me? If he went out of business tomorrow, how would that harm the consumer?
Re:Government-granted monopoly (Score:2, Interesting)
Like what, cable internet? Sure but local monopolies are subject to other laws.
I bet you were talking about copyrighted works but there are TONS of close substitutes available. Halo 3 not on your system of choice? Tons of other FPSes available. I know you love narrowing down your requirements that you could practically add "made by X and titled Y" to the list but most people do that only when advertising is in play and that's the point of advertising, to make the customer choose one brand over another. Every seller of copyrighted works is still competing against lots of other sellers of copyrighted works and they can compete on price if they choose to do so (doesn't happen very often for big budget releases but happens anyway). Additionally from what I see copyrighted works don't have MAPs (except for books here which are legally required to be sold exactly at the same price, I guess book stores were considered an important service to the public so they must not kill each other with competition, same for pharmacies), stores just tend to stay at the MSRP because the suppliers charge so much that lower prices leave no profit margin.
Re:Makes for an awkward situation (Score:3, Interesting)
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). ...but they do NOTHING to protect the retailer that the product they buy from the factory is not going to be suddenly replaced in two weeks by a new model that the factory is providing only to "preferred" retailers, perhaps with some kickbacks to allow those retailer also to profit while on paper selling it for a loss, and also underselling all those left selling the previous model, like you, who happen to be a competitor to one of the "preferred" retailers...
I actually think the MAP laws are a subtle dig at Wal-Mart...
Re:MAP vs Price Fixing (Score:3, Interesting)
It is still collusion in my book.
Wallyworld and CostMe are agreeing to sell a product for a minimum price, their just going though a middleman to make the arrangement (the product manufacturer).
Re:Shouldn't need a new law, but... (Score:1, Interesting)
This has nothing to do with "Price fixing" or collusion -- which only refer to the case of multiple competing suppliers working together to fix prices. Exactly what OPEC members do or try to do, in other words. This issue here is about one manufacturer trying to control prices of its own goods at the retail level, despite using distributors and middle men. Manufacturer may be fixing the price but the term "illegal price fixing" has a different meaning.
Perhaps this too should be illegal, not sure, but as long as there are competitors happy to take advantage of, say, Sony wanting to maintain a high price, I'm not sure there's a problem. Don't buy a Sony, buy something cheaper. That'll teach em, problem solved. And if every supplier in the industry did same thing, their sales would tank (because the too-low pricing reflects the economic reality of demand); and again that'd teach em.
Re: Funny you would mention that (Score:3, Interesting)
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.
Re:MAP vs Price Fixing (Score:3, Interesting)
It's the long term behavior that counts - if retailers make a habit of dropping prices to end competition then jack them up other sellers will stay in the market because they know that the. price will rise.
That is simply not true. It is hard now to believe that even you seriously think that is true.
LARGE COMPANIES HAVE MORE MONEY. I normally dont like to yell, but that basic fact is one that you are completely overlooking. Small companies generally have very low cash reserves. They can only operate in the red for relatively short periods of time compared to large companies. The reason that large companies can continue to lower prices to push out small business is because they can outlast them. Smaller retailers already know the prices will eventually go up, but they simply cannot wait the big guys out.
Not only do big companies have larger cash reserves, they have more stores. If the larger corporation has 50 other stores, they can use the profit of those stores to cover the losses in the store that is currently in a price war. A small business cannot do that. It is so simple that it really shouldnt have to be explained.