If you feel like had to pay too much for baby supplies this past decade, look to Babies R Us. Time reports that last week, “the U.S. District Court in Philadelphia granted class-action status to a complaint that Babies ‘R’ Us coerced manufacturers of high-end strollers, car seats, high chairs, strap carriers and breast pumps into preventing Internet retailers from discounting their products.”
The basic charge is that from 2001 to 2006, Babies R Us forced manufacturers to disallow online retailers from discounting their products, so that the brick and mortar chain could price competitively without having to take a loss.
If they resisted, Babies “R” Us threatened to cut off the manufacturers, according to the suit, and refuse to sell their products in Babies “R” Us stores. Since Babies “R” Us sold 30% to 50% of these companies’ products, Medela, which is based in Switzerland, and other brands like BabyBjörn, the Swedish strapmaker, and Maclaren, the strollermaker based in the U.K., had no real choice but to go along.
According to the judge, one manufacturer named in the suit said, “It’s hard to say no when they [Babies R Us] have over 50% of our business!”
Although nobody is disputing that Babies R Us took a hard line with manufacturers and either withheld or threatened to cancel orders if they offered Internet retailers discounts, that’s not necessarily illegal anymore.
In 2007 the Supreme Court overturned a nearly century-old ruling that used to make these types of pricing deals inherently illegal. Now such practices must be evaluated under “the rule of reason.” For the plaintiffs to win, anticompetitive effects of the minimum-pricing agreement between the manufacturer and retailer must outweigh the pro-competitive effects.
Time notes that although it can be hard to prove this, there’s some evidence that sales for the manufacturers actually decreased during this time period. The case will likely go to trial in 2010.