The Supreme Court ruled today in Leegin v. PSKS that manufacturers can collude with retailers to set the minimum prices of products, arguing that such a decision was good for competition. Succumbing to the court’s recent bender of conservatism is a 96 year-old precedent from Dr. Miles v Park that held minimum price accords as intrinsically – or in legalese, “per se” – illegal. Writing for the majority, swing-Justice Anthony Kennedy showed kiddies the dangers of taking crazy pills:
Minimum price agreements can benefit consumers, Kennedy wrote, by enabling retailers to invest in greater customer service without fear of being undercut by discount rivals. The agreements also could make it easier for new products to compete, he added, because a retailer could recoup the costs of marketing a new good by charging a higher price.
Pardon us for scoffing at the notion that Best Buy might “invest in greater customer service” now that they can work with manufacturers to screw consumers out of an additional $20 for a DVD player. Or as Justice Stevens put it slightly more eloquently in his dissent, “The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail.”
Under the old system, manufacturers could send pricing signals to retailers by way of a Manufacturer Suggested Retail Price (MSRP,) though retailers were free to compete by selling products below MSRP. Under the new system, championed by Justices who promised to respect stare decisis at their confirmation hearings, manufacturers can now use resale price maintenance (RPM) agreements to ban retailers from offering discounts.
Leegin is the 15th ruling this term that harms consumers by shielding businesses and corporations from lawsuits.
Justices End 96-Year-Old Ban on Price Floors [NYT]
Minimum-Price Accords May Be Allowed, Top Court Says [Bloomberg]
Leegin Creative Leather Products v. PSKS (PDF) [Supreme Court]
(Photo: takomabibelot)
More From Consumerist
-
Supreme Court Upholds Corporations’ Right To Unlimited Campaign Spending
-
Supreme Court Agrees: Cigarette Warning Labels Don’t Violate Big Tobacco’s Free Speech
-
Court Tells 82-Year-Old She Wasted 8 Years Fighting For Right To Bury Husband On Her Property
-
Court Says California Cities & Counties Can Ban Pot Shops
-
Michigan Medical Marijuana Users Gain Ability To Defend Themselves In Court
I think it will result in another hit to the small retailer. The small retailer has to have higher mark-up due to the lack of volume. While WalMart is happy with a gross profit margin of 25% the small retailer needs 35%. Which price point is the manufacturer going to settle on? These issues were addressed in the thirties with the Clayton and Robinson-Patman legistation.
Maybe I’m a little bit confused – I don’t undersand how this can apply to every single product everywhere.
So Sony likes this price minimum thing and talks with the retailer and decides their minimum price is X.
Some other manufacturer that produces a similar good can still sell the good for less than the Sony product, right? It’s not setting a minimum price on ALL ITEMS OF ONE KIND, just on brand name items. So while your Sony DVD player might go up, the knockoff manufacturer will still be willing and able to sell for less than the Sony DVD Player. And Sony will likely want to keep their prices reasonable in order to maintain a market for as long as that less expensive DVD player with the same features is still available.
Granted I can see prices going up. But I don’t think it’s a complete license for companies to start going wild like a few of you have been implying.
Thanks everyone for chiming in to my horribly-spelling-error-ridden question.
Now I’m less stupid!
Hasn’t Apple been doing this all along with their iPods. in order to sell apple products, retailers have to agree to not go below the MSRP.
The old joke (or dogma for many) is:
When prices are high — that’s gouging & price manipulation.
When prices are low — that’s cut-throat competition & predatory dumping.
When prices are the same — that’s collusion & price fixing.
Hooray!!! I’m ready for more rebates. Thank you government. As for the customer service examples, I don’t need product descriptions at the retailer. That’s what internet forums and reviews are for.
Look on the bright side, there’ll be a lot less traffic on Black Friday from here on in.
@krunk4ever: or risk losing advertising subsidies from Apple. this is a backdoor way of doing the same thing.
@Steel_Pelican: Again, manufacturers still must compete with each other. This is the mechanism that will drive costs down.
And the MSRP is not always the same as the minimum required price. Retailers constantly sell below MSRP and proudly display this so as to make the product look like a good deal. But there is also a secret minimum price much lower than the MSRP. I doubt I’ve ever bought a musical instrument for MSRP. You’re right: that would be absurd.
Alhypo:
Yeah, except all they know at Sears is which camera carries the best profit margin. The odds of getting good customer service anywhere are negligible, so do your own homework (I hear there’s this thing called the “Inter…” something or other) and then go for price.
So are price ceilings legal?
@Hawk07: there are things called market development funds (MDF) which are a carrot that, say, Sony or Apple offers for co-op advertising with retailers. So long as they don’t go below a certain price, retailers get subsidized ads for the mfr’s products, basically.
It’s an agreement. Best Buy is free to forego the MDF $$. But they’d be foolish to.
This is much different than mfr’s setting prices amongst themselves, which in reasonable minds would constitute price-fixing. Which is now (whee! God bless Republicans!) the Courties just made legal.
I own a brick and mortar mid to high end A/V store. For me, this is a good thing, and in the end, it is probably very god for my customers too..
I need to make money to stay in business. Profit margins on items like plasma TVs are very low right now. I can not stay in business if some guy with a website, and barely any overhead like my retail store has, is willing to do volume and make just a few percent profit on each item he sells.
If I go out of business my customers will no longer have the great tech support and instant service, and the house calls that I provide.
I try to sell brand names that are exclusive because when I give someone a price on something, you can bet your ass they are going to take the three seconds it takes to google it.
For me, the MAP pricing (minimum advertised price) is good because I don’t have to worry about Best Buy selling it for cheaper than my threshold.
Sure, I like to get a good deal on something when I purchase something, but as a business owner, I see this as necessary for survival.
@bluegus32: I wasn’t suggesting that the Court’s decision was something that needed a solution. I merely wanted to point out that what a manufacturer can and cannot do remains an open issue. One the courts can handle. This flexibility seems to be lost on a few people here.
Is it more anticompetitive to allow price fixing or to outlaw it? I’m really not sure.
The Roberts court makes me want to blow something up. It’s inconsistent with precedent and with itself. They don’t have to conform to my values, but it would be nice if the majority weren’t so nakedly catering to the interests of the elite.
Get ready for the rebates!
This seems to be the Walmart way of thinking. They are pretty well dictators of what the company will pay and when the product will be shipped, etc. I think we have to take a stand and support the local mom and pop stores that try to make an honest living. I used to shop Walmart and the big chain stores all the time, now I try to find the small guy to take my business too. They are the true businessmen.
Big deal:
Overruling Dr. Miles will have little impact – businesses can get around it now
Donald M. Barnes and David T. Fischer, attorneys at Porter Wright Morris & Arthur, LLP in Washington, D.C., “Dr. Miles: Will the Supreme Court Find a Cure?”, The Antitrust Source, February 2007, p. [www.abanet.org]
Regardless of how the Court ultimately rules, the decision will likely have little practical effect. In the almost 100 years since Dr. Miles was decided, astute businesses have developed practices to avoid the Dr. Miles per se rule, yet achieve a de facto minimum resale price. For example, as in Colgate, the manufacturer can pre-announce to dealers a suggested resale price and let them know that it would stop selling to those who fail to sell at that price. Manufacturers can also use nonprice vertical restraints and can set a maximum resale price to avoid the per se rules. Another common technique to avoid per se treatment under Dr. Miles is the use of minimum advertised pricing (MAP). The most common form of MAP occurs where a manufacturer provides marketing subsidies to a retailer, but only if the retailer advertises the product at or above the price set by the manufacturer. MAP, however, has its own limitations. For example, MAP programs cannot contain overly strict penalties or simply be “cover” for a price-fixing agreement.42 Nevertheless, MAP programs are increasingly popular. The dearth of minimum resale price cases in the last 25 years and the minimal efforts to overturn Dr. Miles legislatively suggest that manufacturers have been able to use alternatives to minimum resale price agreements and have not felt the need to challenge Dr. Miles directly.43 As a result of the numerous “antidotes” that manufacturers already have, a reversal of Dr. Miles will have limited impact on the marketplace (although it would allow sellers to more efficiently establish a minimum resale price).
Bluwapadoo -
Wow, that’s an awsome post. Thanks!
First, everyone bitches about places like Walmart undercutting the little guy by demanding low prices and selling everything on the cheap. Now, everyone bitches because manufacturers can set prices for the products they make not allowing big retailers to undercut the mom and pop shops. So what is it? Do we want “always the low price” or do we want to have small business owners make a decent living?
I don’t see this screwing the consumer at all. It is the consumer who has the ultimate power of the purse strings. If you don’t like the price people are charging for a certain product, then don’t buy it. But whatever you do, please quit bitching about it.
My theory is this will create a new method of competition. Instead of competing for customers, retailers will compete with manufacturers and not in the best interst of customers.
By this I mean this precedent gives the manufacters the ability to dictate the price of items rather then suggest them. Based on this that means there is nothing stopping say Wal-Mart from going to a manufacture and coming up with an agreement to buy X quantity of items to sell at the manufacturers required price of $19.99 but only if same manufacter would require say Target to sell the same item at $24.99.
From a pure business standpoint (the only one that matters really) its win-win. The retailer gets a good deal, the manufacturer gets a good deal and the retailers competition (and the consumer) gets screwed.
What I want to know is how will this affect Clearance items? That’s just about the only thing my wife and I buy as far as luxury items go. Hell, I even buy my meat on clearance when possible… I guess this means the stores will get less of our money as we will just stop buying crap we probably didn’t need in the first place…
This is long — but this is a complex issue. I am interested in economic issues and shave studied them. Anyway — here is what I think about what I think about this issue:
I have a few initial thoughts as to the economic motives and situational factors that this influences.
First, I think about how income inequity has risen sharply under Bush. That meaning that the rich are getting richer and the poor getting poorer at a much higher rate than previously. So this means that some people have more money to spend while a lot of others have less. And when you have less you aren’t worried about getting a new DVD player or other retail based items. You are worried about paying the rent and utilities, and not having to go to the food bank. So in this sense, the decision makes sense becasue as long as this gap increases, you might as well get more out of those who can afford to buy these products. After all, they have the money to do so. In neo-classical economic theory this might relate to a concept known as the point of marginal returns. In other words, at some point making another “widget” at the factory will decrease profits. Capitalists want to maximize this without going over that point, because then they take a loss for each additional “widget” made.
This law plays into this way of thinking about economics mass. It totally raises the returns on each widget and substantially expands the territory between maximum profit for each item and entering into the point of marginal returns. In short, it gives the owners of capital a lot of wiggle room. Of course I reject the whole model. But these are the concepts that mainstream economists use.
Second, to me it does seem to increase competition. But the real question is who does it increase competition for. Obviously, it increases the competition for retailers to bend over for manufacturers. A term that capitalist critics often use here is the “race to the bottom.” In other words, what other expenses can retailers decrease (this almost always means raising rates of exploitation and usery – but does rarely come into effect with innovation) And the retailers that can do this most are the big ones. It gives the owners of capital substantively more leverage in negotiating and bargaining at the expense of the retailer and the consumer. Even using neo-classical economic reasoning, it’s seems totally false to say that this will increase customer service.
Or does it? Given that the rate of income inequality is increasing right now at a faster rate than since the pre-depression era market, it seems that owners of capital are simply changing the rules to fit a new paradigm of the “consumer market.” Which really means that they will have to get more out of fewer “consumers” if they are to maintain profit margins. In terms of customer service, it probably is trie that those who can afford these items might get better service. But remember, if you can’t afford something you are not considered a consumer. So, if you understand the jargon and what it means, this is probably true. But it only tells a slice of the story.
Third, even thought this initially will only affect manufactured products like DVDs etc, – it seems that it would soon spill over into all sectors, thus further increasing income inequality. After all, even those producing/selling flour or oranges will need to increase their profit margins to keep in the game and maintain their class status. So the mid-term outlook looks bad too.
In terms of the long run – whoa. I don’t know if it will – but it seems like it paves the way for a two-class system in some regards – if you want to graph it out and run with it. But isn’t this what Bush’s whole “ownership society” is really about anyway? That seems to be the vision they are going after.
I look at old National Geographics I have from 1929, 1930, 1931 and 1932. You would never know that the depression was happening. Vacations and luxury items are what is being advertised. The articles are about domestic elites and foreign “savages.” But most people in the US were suffering hardcore.
Looks like that is the direction the “Supremes” are forging.
Perhaps a “two class” system is what it will take for the vast majority to confront oppresive systems. That is the hope I have here. But these are clever fucks – and they will try and divide people as much as possible. And – even within this blog – there is so much “false consciousness” happening (google that if you don’t know what it is) that I wonder.
It links to the immigration debate too. And I can see why Bush promoted “amnesty” for – what did they say – 12 million illigal immigrants? I don’t like Bush’s policies, but I also see why his party apposed him. Imagine 12 million more US citizens on the side of poeple just trying to get by! Without the racist ideology we have been taught, this sector could be a powerful componant. With racism and nationalism, they will divide people interested in the same thing. And the media plays this well.
And another thing – KEEP YOU IDEOLOGY STRIAGHT! If you believe in the “free market” then quit making these centralized decisions. I mean, what I am saying is that there never has been a free market, and the people in power who promote this idea are some of the biggest hypocrits around.
Nathan Levans
nathanlevans@yahoo.com
I have a few initial thoughts as to the economic motives and situational factors that this influences.
First, I think about how income inequity has risen sharply under Bush. That meaning that the rich are getting richer and the poor getting poorer at a much higher rate than previously. So this means that some people have more money to spend while a lot of others have less. And when you have less you aren’t worried about getting a new DVD player or other retail based items. You are worried about paying the rent and utilities, and not having to go to the food bank. So in this sense, the decision makes sense becasue as long as this gap increases, you might as well get more out of those who can afford to buy these products. After all, they have the money to do so. In neo-classical economic theory this might relate to a concept known as the point of marginal returns. In other words, at some point making another “widget” at the factory will decrease profits. Capitalists want to maximize this without going over that point, because then they take a loss for each additional “widget” made.
This law plays into this way of thinking about economics mass. It totally raises the returns on each widget and substantially expands the territory between maximum profit for each item and entering into the point of marginal returns. In short, it gives the owners of capital a lot of wiggle room. Of course I reject the whole model. But these are the concepts that mainstream economists use.
Second, to me it does seem to increase competition. But the real question is who does it increase competition for. Obviously, it increases the competition for retailers to bend over for manufacturers. A term that capitalist critics often use here is the “race to the bottom.” In other words, what other expenses can retailers decrease (this almost always means raising rates of exploitation and usery – but does rarely come into effect with innovation) And the retailers that can do this most are the big ones. It gives the owners of capital substantively more leverage in negotiating and bargaining at the expense of the retailer and the consumer. Even using neo-classical economic reasoning, it’s seems totally false to say that this will increase customer service.
Or does it? Given that the rate of income inequality is increasing right now at a faster rate than since the pre-depression era market, it seems that owners of capital are simply changing the rules to fit a new paradigm of the “consumer market.” Which really means that they will have to get more out of fewer “consumers” if they are to maintain profit margins. In terms of customer service, it probably is trie that those who can afford these items might get better service. But remember, if you can’t afford something you are not considered a consumer. So, if you understand the jargon and what it means, this is probably true. But it only tells a slice of the story.
Third, even thought this initially will only affect manufactured products like DVDs etc, – it seems that it would soon spill over into all sectors, thus further increasing income inequality. After all, even those producing/selling flour or oranges will need to increase their profit margins to keep in the game and maintain their class status. So the mid-term outlook looks bad too.
In terms of the long run – whoa. I don’t know if it will – but it seems like it paves the way for a two-class system in some regards – if you want to graph it out and run with it. But isn’t this what Bush’s whole “ownership society” is really about anyway? That seems to be the vision they are going after.
I look at old National Geographics I have from 1929, 1930, 1931 and 1932. You would never know that the depression was happening. Vacations and luxury items are what is being advertised. The articles are about domestic elites and foreign “savages.” But most people in the US were suffering hardcore.
Looks like that is the direction the “Supremes” are forging.
Perhaps a “two class” system is what it will take for the vast majority to confront oppresive systems. That is the hope I have here. But these are clever fucks – and they will try and divide people as much as possible. And – even within this blog – there is so much “false consciousness” happening (google that if you don’t know what it is) that I wonder.
It links to the immigration debate too. And I can see why Bush promoted “amnesty” for – what did they say – 12 million illigal immigrants? I don’t like Bush’s policies, but I also see why his party apposed him. Imagine 12 million more US citizens on the side of poeple just trying to get by! Without the racist ideology we have been taught, this sector could be a powerful componant. With racism and nationalism, they will divide people interested in the same thing. And the media plays this well.
And another thing – KEEP YOU IDEOLOGY STRIAGHT! If you believe in the “free market” then quit making these centralized decisions. I mean, what I am saying is that there never has been a free market, and the people in power who promote this idea are some of the biggest hypocrits around.
what more can one say????the robed dorks have struck again….
Maybe this will evolve to something like prescription drugs. Every weekend there will be shopping excursion buses to Canadian electronics stores.
It isn’t like the Supreme Court overturned anything. So, this has been going on for a while, and will continue to do so.
Smaller companies will now be able to compete with the likes of Best Buy and Walmart, because they will not be able to sell something at a loss or less than a smaller competitor.
A manufacturer will not raise the prices – the big box companies will still get a better rate based on volume purchased.
What I do see happening is that Best Buy will be able to “discount” the products by increased store based rebates or free incentives like free dvds with purchase of a player.
And now people will see what will happen when neo-conservatives were voted into the legislative and executive branches – nominations and appointments of neo-conservatives into the SCOTUS which so far have passed medical legislation that doesn’t include health/death clauses and junk like this where consumer protection is removed.
@bluegus32
Great analysis. Thanks for actually reading the decision. I agree that a per se rule (which was a court-mandated common law doctrine dating back to Miles) is inappropriate in cases where competition may not be harmed. I think the court was on solid ground here. It’s a shame that people are reading things into this decision that aren’t there- I think if the names of the justices in the majority and dissenting opinions were reveresed, we would have the same commenters praising the decision.
I am not 100% sure I love the court’s economic analysis but I definitely agree that the per se rule was wrong.
@trai_dep:
“This is much different than mfr’s setting prices amongst themselves, which in reasonable minds would constitute price-fixing. Which is now (whee! God bless Republicans!) the Courties just made legal.”
No, they didn’t do anything of the sort. This case has NOTHING to do with all the DVD player manufacturers getting together and saying “we’re not going to sell our DVD players for less than $100.” The decision stated that an arrangement where the manufacturer of a given product (say Hermes neckties) tells retailers of that product “you can’t sell these ties for less than $100,” isn’t automatically illegal. It has nothing whatsoever to do with collusion among manufacturers.
You know what amazes me? My comment is the 81st so far. Of the other 80, it appears that 50 or more have to do with people saying “stupid courts” or “stupid Republicans” or some such nonsense. One friggin’ misinformed headline erroneously informs these people that price fixing is now legal and the majority of people believe it.
They say the mind is a terrible thing to waste. I guess you can’t waste it if you don’t have one to begin with. It never ceases to amaze me how people will believe whatever is put in front of them.
Here’s a clue everyone — the Consumerist is a very well informed and generally reliable blog. However, it is not infallible. I highly suggest that when ANYONE tells you something that doesn’t sound right, that maybe you go check for yourself rather than blindly believing the misinformation.
I’ve skimmed through the 55 pages of the Supreme Court docket. And I don’t think the headline nor the article is misinformed. And I think it’s perfectly reasonable for people to be skeptical of the ruling and the court, given recent current events and whatnot.
I think you’re right about the Supreme Court not being able to “overturn” their rulings, except in the intervention of Congress. But then again, they did in essence overturn their previous rulings of Dr. Miles vs. Park with this latest case, even if that isn’t the precise term that we want. Who’s to say that they won’t do it again in the near future? Unless the manufacturers take great care to avoid stepping in the wrong person’s toes (which I hope, but I’m inclined to believe that it’s not going to happen in the long term), I think the justices or their successors will have to eat their own words again. Gee, maybe we did do something right, with our ideal capitalism world lead the way to “enhanced customer service” and affordable prices… for the beneficiaries?
A mind is a terrible thing to waste, indeed. I’m happy to say I agree with you wholeheartedly. While I can’t waste mine since I don’t have already have one, I can tell you that you’re doing great with wasting your own by repeatedly trying to push your opinion and trying to villify all who thinks otherwise.
AZNTG: I only try to villify those who blindly follow and take as gospel truth those things for which they have no rational basis. I’m glad that you read the entire opinion and I’m glad that you disagree with me. Despite your antagonism, it is clear that you DO have a mind and that it is not being wasted.
But note that you are one of maybe two or three people (out of 82 comments) who read the court’s ruling and then disagreed with my opinion. Everyone else against this ruling simply disagreed based upon an article with a one paragraph citation from a 55 page ruling.
We live in a world where the majority of people form an opinion first before ever educating themselves on what their opinion is actually based upon. Each of those persons’ votes in elections count just as much as yours and mine. I don’t think it’s too much for me to ask that people educate themselves before having a say on important political matters.
I’m not trying to villify those who think other than me. I’m only trying to villify those who don’t think.
The rationale given for this ruling doesn’t make much sense but I see nothing wrong with end result. Manufacturers and retailers should be free to enter into business contracts regarding price. This is not the same as a cartel of competing manufacturers colluding to fix prices. There is nothing to stop competing manufacturers from producing similar products and entering into different (or no) agreements with retailers. Competition will be alive and well. If retailers don’t like the deal, they should not carry that manufacturers product.
What FCK’N idiots we have as Supreme Court Justices. These scumbags don’t live in reality and are in the pockets of the big manufacturers playing with their balls.
There is NO WAY this will drive better competition or customer service.