The Checkout

Is Bargain Shopping In Trouble?

There are few things Americans love more than a good bargain. The desire to get more for less has brought us so much: Black Friday, big box stores, a staggering trade deficit and the likes of Crazy Eddie.

But it may soon get harder to find a good deal if the Supreme Court rules for manufacturers in a case called Leegin Creative Leather Products Inc. v. PSKS Inc., d/b/a Kay's Kloset, consumer advocates say.

(I know. The mere mention of the Supremes has set off the Broccoli Alert, but bear with me, bargain hunters. This concerns you!)

A quick summary of the case: Leegin Creative Leather Products makes the Brighton line of women's leather belts and sells them mainly through specialty retailers who agree to follow Leegin's suggested retail prices. All was well until 2002, when Leegin learned Kay's Kloset in Lewisville, Texas, was discounting their belts. Leegin cut off their supply and Kay's Kloset took Leegin to court.

Arguing that setting minimum prices violated the Sherman Anti-Trust Act, Kay's Kloset won more than $1 million in damages. The U.S. Court of Appeals for the Fifth Circuit in New Orleans upheld the judgment.

Leegin appealed to the High Court. It wants the Supremes to overturn what's known as the "Dr. Miles precedent" -- a good name for a novel or a rock band, if you're so inclined -- which is a 1911 case that established that "resale price maintenance," letting manufacturers set minimum prices, was illegal under the Sherman Act.

Leegin contends that minimum prices aren't necessarily anticompetitive and, if allowed to set them, manufacturers would still be able to compete in non-price areas such as customer service.

Mark Cooper of the Consumer Federation of America, which filed a brief in the case on Monday, sees a more dire future if Leegin wins: Goodbye to Loehmann's, National Wholesale Liquidators, etc.

Resale price maintenance "prevents consumers from 'shopping around' for the best prices because it prevents retailers from putting on sale any and all types of products ... from groceries to gasoline," Cooper said. "By setting minimum prices, manufacturers can build in excess margins for themselves and for their favored retailers--prices that consumers have no choice but to pay."

The National Association of Manufacturers counters that they have to compete in a global marketplace and that an absolute ban on resale price maintenance stifles service and promotional programs that actually benefit consumers.

What do you think would happen if manufacturers were able to set minimum prices? Is it death to shopping as we know it? Or could it lead to friendlier clerks? And why don't court cases always have cool names such as "Dr. Miles?"

By Annys Shin |  February 28, 2007; 9:30 AM ET Legal Battles/Settlements
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Comments

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Customer service and price no longer have any real connection. One of the rudest merchants I can think of is Tiffany (in Boston) at Christmastime.

Posted by: John | February 28, 2007 9:47 AM

Or could it lead to friendlier clerks?
We can dream. Seriously, this measure would be bad for everyone concerned. Un-American and anti-business too. Businesses thrive on advertising low prices and drawing consumers in for other products and window shopping. We might as well limbo at a minimum height too.

Posted by: kungfukoh | February 28, 2007 9:49 AM

I am with the manufacturers, for a bunch of reasons. First, the rush to the bottom price-wise has generated a negative societal consequences, most notably the end of middle class manufacturing jobs, but also the end of quality and durability as values that consumers look for. And this disposable society is something we can't sustain any more, given the effect our consumption is having on the planet. Retailers who want to stand for quality should be free to make that choice; elsewise there will be no options available for people who want to buy long-lasting products made by well-compensated workers.

Posted by: Anonymous | February 28, 2007 9:54 AM

National Wholesale Liquidators is not a good example since liquidators buy goods from businesses that are closing or discontinuing selling aline, or just in general want to quickly get rid of certain items. Liquidators don't care if the manufacturers don't sell them more goods, because their prices would be too high.

Posted by: mark g | February 28, 2007 9:59 AM

To the previous commenter sans name:

As for the social consequences, why is this bad? More people can afford more different things than in the history of humanity. If you want long-lasting products made by well-compensated workers, they're absolutely available. But these products are very expensive, part of the difficulty of compensating the workers "well."

As for physical garbage, this is becoming less of a problem as we're getting exceptionally good at destroying our garbage. Landfill vacancy rates are at an all time high (without an associated increase in overall landfill space), garbage disposal prices are at all time lows, and technology (like using tractors and watering trucks in conjunction with GPS satellites) has enabled us to degrade garbage with alarming speed. Is garbage still a problem? Sure. But we've made some awesome progress. Check out the New York Times, August 12, 2005, "Rumors of a Shortage of Dump Space Were Greatly Exaggerated."

Posted by: Garbage | February 28, 2007 10:06 AM

There are already manufacturers who set there price then hold it. One is boses.They are on sale only when Boses saids,And are 1 price wherever you go.

Or go to any GM dealership may the miskate of letting run a credit check, and GMAC will not let any other dealer give you a better deal,in one case I know of allow you to buy from anyone else.

Posted by: larry kelley | February 28, 2007 10:08 AM

In 1911, there was no cheap national shipping, most people were limited to a local area and probably mail order was the only competitor to the local stores, of which there were not many unless you lived right in a city. Now we have airlines, trucking companies to bring us goods, many local stores, more mobility to travel to other areas and the Internet. So the competitive environment has channged and I think the Dr. Miles precedent has outlived its usefulness.

Posted by: Stick | February 28, 2007 10:15 AM

Hey, companies need to survive. They need money to operate like we need money to eat, for shelter and for bills.

However manufactures minimum price setting (MPS) is a destructive practice for a number of reasons. Here are a few:

It forces the store owner to set a price that may be higher than the owner wants in order to move product.

It ties the hands of completing stores because the lowest price they can sell something at is a fix one.

Say goodbye to the "sale" if the SC overturns the lower courts.

Posted by: John | February 28, 2007 10:22 AM

Overturning the ruling would do nothing positive for consumers. I agree that the connection between customer service and price is dwindling, if not gone entirely. The folks who work on the store floors don't care one lick whether the shop next door is selling the same product for less, so what makes anyone think that the people providing customer service will care more when the financial incentive for the customer to buy elsewhere is eroded?

The argument that price minimums would increase quality is also misguided. The connection between price and quality has also been fading. One can no longer expect, if they ever could expect, that the more one pays for something, the better the product. The key is value: the quality of a product in light of its price. Price minimums only serve to distort the value of a product by lowering the value of lower priced goods; you end up paying more for the same quality. Value is a function of price and quality; quality is not a function of price. Price minimums will not bring back high-wage manufacturing jobs to the US, let alone anywhere else. Quality and specialization bring those jobs, neither of which is dependent on having a set minimum retail price.

If retailers want to charge more for their goods and prevent price wars, they are free to do so by increasing quality. A resort to price minimums signifies that either they can't or won't increase quality and an inability to compete. They are just another subsidy.

Posted by: Ben | February 28, 2007 10:23 AM

I hate it when Big Belt tries to flex their muscle.

Posted by: Kim | February 28, 2007 10:28 AM

From the manufacturer perspective... Imagine you have your heart set on a new microwave. A cool GE one is advertised in a Best Buy flyer for $399, so you go into Best Buy, learn all about it's cool features, measure it to see if it will fit in your kitchen....then you go home to buy it from bobsdiscountappliance.com for $299. Best Buy does the work, bob gets the sale. Pretty soon, with sales lagging, best buy stops advertising for GE microwaves. No one buys them (from Best Buy or bob). GE suffers. You don't get a cool GE microwave. You suffer.

Now, imagine GE can impose a minimum price. If sets one too high, folks will probably buy alternative microwaves. But now if Best Buy and bob both have to sell at the same price (which must be competitive or GE won't sell any), now bob is forced to actually do something - not just free ride off of Best Buy. Maybe bob advertises, or offers free shipping and a bonus microwave dish. Maybe best buy sees that and adds free installation. GE sells more microwaves. You get a GE microwave. If the min price is too high - you buy another kind.

If all the microwave manufacturers set the same high minimum price - this is illegal, and overturning Dr. Miles would not allow this.

Posted by: 101 | February 28, 2007 10:31 AM

This is a bunch of hog wash by discounters.....many of the manufacturers who want these minimum prices set are for REAL up-scale products that are quality-made by craftsmen in areas of the world other than China, Taiwan, Thailand and India. They don't want their prices lowered because they don't want to have to cut the wages of the expert artisans that make their products or have to lay them off and downscale to a mass production-questionable quality factory in any of the places I just mentioned. Besides, many of these manufacturers who set minimum prices have specific sales at specific times of the year that they allow retailers to use. When I worked for a luggage chain in the early 90s during college, I sold Hartmann luggage. Hartmann allowed two or three sales at two or three times of the year and the luggage store heavily promoted them. I am sorry but, just because you WANT a REAL Prada bag at discount, doesn't mean you should be allowed to get one. Allowing discounters to consistently discount ALL upscale quality goods destroys the image of the product, the mystique behind it and the livelihood of skilled workers for the sake of allowing some suburban yahoo to have a pair of Donald J. Pliner shoes, La Signoria-Firenze home textiles or Leegin Leather products at an undeserved discount. Just because you WANT a brand new Mercedes Benz on a Burger King budget, doesn't mean you should have one! Stick within your means people!

Posted by: jesabol | February 28, 2007 10:42 AM

Garbage and Ben.....hype is hype and both of you appear to be full of it.

Posted by: Anonymous | February 28, 2007 10:49 AM

I fell like I'm missing something. So Leegan's is selling their wares through various stores. Let's say a belt with an msrp of $20 nets Leegan's $8. If Kay's sells it for $15, where does the discount come from? Kay's pocket ($12 v. $7)? Leegan's? Is Leegan's only getting a set percentage of every belt sold?

Let the marketplace work it's magic - it's called capitalism. And jesabol, I think you're talking at cross purposes. If someone is selling a Prada purse marked down to $150 & I can afford it, why *shouldn't* I buy it if I want it? A thousand dollar Prada purse is out of my means, but if someone else is willing to take a bath on the markup, why shouldn't I be able to take advantage of it? It seems to me that Prada ought to sell their purses to the retailer for more than $150 if they want to keep the brand image up.

Kay - Big Belt - nice!

Posted by: Liz | February 28, 2007 10:53 AM

I agree with 101. We're not talking about setting a price minimum for ALL belts, or microwaves, etc. We're talking about a company saying it's products can't be sold for less than a specified cost.

If you don't want to spend X dollars on company Y's widget, you can go buy company A's widget for less.

"But that's not fair. I should be able to get company Y's superior widget for discount company A's widget price." Just like BMWs cost more than Yugos, you pay more for quality. Is it wrong for BMW dealers to be told they can't sell a particular model for less than a specified amount? Not at all.

Posted by: Non debtor | February 28, 2007 11:00 AM

Kay.....unless said purse is old design/product and Prada allows for old product to be sold at that price, sure by all means.......BUT, if you are speaking of something current that prdad has restricted to a minimum price (if Prada indeed does this), then NO, you should not be allowed to purchase said purse because the retailers has violated an agreement or rule of selling their product.....but then again, people like you have been doing illegal things for years in the name of being allowed to obtain things that are out their financial means....it's called knock-offs, or as designers call it "rip-offs".....

Posted by: jesabol | February 28, 2007 11:01 AM

Thank-you Non debtor for that logic wake up.....alas, we are in America where you should be able to get anything you want at any price you want, regardless of who it damages, cheats, or treads upon.....this logic falls on deaf, cheap, made-in-China ears......

Posted by: jesabol | February 28, 2007 11:04 AM

It is a different world than 1911 - this precedent only makes sense when the manufacrurer is the only provider of the good - and in this case there are plenty of other belts out there.

It may make it harder for consumers to find a bargain on a Prada bag, but if Prada loses enough business to that they will change their policies. As a consumer you are not entitled to a bargain.

Posted by: aa | February 28, 2007 11:08 AM

Liz, you are correct that the discount comes out of the store's pocket. However, I think it is more about "image".

I know nothing about the ins and outs of Leegin but I'm assuming they want their products sold at stores with good service. So, to insure this, they tell the store, "we'll sell you the belt for $8 and you sell it for no less than $20. That HUGE $12 "profit" is so you can hire nice, friendly, great salespeople so customers equate Leegin products with service, etc."

So in comes Kay's Kloset. They don't care about Leegin's image so they cut the price to $15, make a decent profit ($7), but hire rude, grumpy salespeople. Now, Leegin's image is tarnished.

NOTE: I have no clue what Leegin belts cost or profit margins. I'm just using the numbers in Liz's previous post.

Posted by: Non debtor | February 28, 2007 11:09 AM

Non-d, correct in that it's about "image" in the sense that image is about maximizing sales. Once Nordstrom's realizes that everyone is going to Kays to buy Leegin, Nordstrom presumable stops buying Leegins...which means everyone who buys Leegins has a cheap but poor experience at Kay's, fewer people buy Leegins, Leegins sales decrease.

Posted by: 101 | February 28, 2007 11:14 AM

Just as I don't have the right to *expect* a discount, I have the right to look around for the best deal. Of course we don't have the right to demand a certain price - that would be communism. If Leegan's doesn't want their belts sold in a place that does business like Kay's, then they shouldn't deal with them at all. I think that's the bottom line. I can't imagine Prada willingly dealing with a store like TJ Maxx or Marshall's anyway, b/c of the image thing. But if a Leegan's or a Prada is willing to sell their belts through them, well, then tough tooties if they sell it at a discount.

I see both point of views, but if something high-end is available on the cheap, well, I'm not going to lose sleep about Prada losing some of its prestige by someone like me carrying their purse.

Posted by: Liz | February 28, 2007 11:24 AM

my first intuition is that price floors needlessly distort markets and are therefore bad.
my next intuition is that as long as manufacturers still couldn't collude with each other, things might not change all that much. I suspect that even if companies could choose an enforceable minimum price for their products, most would choose not to do so. For one thing, vendors would definitely favor manufacturers who didn't set price floors, because vendors would face less risk in stocking their products. They don't want to be stuck with the possibility of having 500 microwaves that just. won't. sell. for $100 a piece, but which they're legally bound to not sell for any less than that. As long as vendors favor manufacturers who don't set price floors, manufacturers will be disinclined to set them.
The only manufacturers who could get away with it would be those with really strong brands--something like iPod (or, to cite another commenter, maybe Bose). Vendors would want to stock those products despite the restrictions, but I don't think vendors would have put ultra-low prices on those brands to begin with: they don't need to get people to buy them.

Posted by: sasha | February 28, 2007 11:29 AM

Liz,
Ok, so alternatively, Leegins cuts Kays, sells only to Nordstroms, Nordstrom knows this, sells Leegins at crazy high prices, fewer people buy Leegins, Leegins sales decrease (but Nordstrom's is still able to maximize thier profit).

Or, Leegins cuts out everyone, opens a Leegins store. Retailers lose, Leegins probably loses too.

Posted by: 101 | February 28, 2007 11:30 AM

This is also not just a manufacturer power play (though the NMA filed the brief). In some cases it would be the retailers demanding a minimum price be set so that bobsdiscount.com couldn't undersell them and free ride their advertising overhead.

Posted by: 101 | February 28, 2007 11:34 AM

Let's look at this another way. If the manufacturers could set a minimum price so stores made more money, why on earth do you think it would even possibly translate to better service? The stores would posket the money as profit or leverage it to open more stores or some such thing. I doubt any of them would use it to pay their clerks more! If they really want to charge a minimum, they should open their own exclusive retail outlets (like Tiffany does) and not sell wholesale to other retailers.

Posted by: logician | February 28, 2007 11:35 AM

Logician, in most cases there is more than one retailer. If they are forced not to compete on price, they must compete on something. Unless by your logic they all just sort of say "hey, I will do nothing to gain an advantage over my competition, and am fine with being the same". If a retailer can maximize his sales, he will, and the likely outcome is a competition on service.

Posted by: 101 | February 28, 2007 11:39 AM

101, they will certainly still try to compete with other retailers, of course. In my experience, though, they would try to compete most times by discounting other items that didn't have a set minimum price to bring people into the store and then they will buy the item in question along with the deal they came to get. Of course, if you assume all items have a set minimum price, then of course other things, like service, may come into play in the competition. Price, however, is generally the most powerful factor.

Posted by: logician | February 28, 2007 11:44 AM

Garbage: That is an alarmingly naive viewpoint. The amount of available landfill space is irrelevant, because you can always dig more landfills to increase the total and keep pace - what matters is how much total space you've already taken up with garbage, how much you're adding to that, and what the impacts that garbage is having on the resources that sustain you such as clean air and water.

More people can afford things than ever before in history? So what!? At what price? And who said a measure of success for civilization is how much unnecessary random crap a person can buy? Part of the reason things are more affordable than ever before in history is because everything is made of "disposable" plastic. I say "disposable" because this stuff takes thousands of years to break down so it doesn't go away. Yet every day we use hundreds of thousands of plastic bags, soda bottles, and food containers that will be around for eons so that we can get a few minutes of usefulness out of them before they are discarded. The majority of that stuff doesn't get recycled and it has to end up somewhere; unfortunately it is turning up in places like this: http://marine-litter.gpa.unep.org/documents/World's_largest_landfill.pdf

Posted by: Anonymous | February 28, 2007 11:44 AM

Sorry, I don't get how allowing price fixing means stores can't compete on service or manufacturers can't make products here. They can fix prices just as easily on junk made in China.

I, for one, have to say that nothing infuriates me more than trying to buy a product and discovering the manufacturer does covert price fixing, as many currently do, such as Britax, Pennsylvania House, and others from my experience. Actually, I consider it almost immoral the price fixing done by baby product companies, who are among the worst for this, that hurt low income parents and/or means they have to buy lower quality products for their kids.

It makes me not want their products, and I've seen it hurt merchants whose hands are then tied and can't compete with others have other advantages besides price.

If you want to engage in price fixing, then don't sell your products here. We love competition, someone else will fill the void your product leaves.

Posted by: Tim | February 28, 2007 11:44 AM

101 - maybe that *is* what would happen. However, those are kind of extreme examples, and any marketer or store manager worth his/her salt would change strategies/prices/something. Maybe Nordstrom would raise the prices ridiculously, so they make even more per belt/bag/whatever. Fewer people would probably buy it, so Nordstrom's net profit probably goes down. Moral of the story: Nordstrom would be stupid to keep the prices artificially high. Most of thier business depends on moving lots of goods, not per unit pricing. It's basic economics. Prices go up, demand goes down, eventually price comes down to try to spur business.

Posted by: Liz | February 28, 2007 11:48 AM

The maker of a product can't set the market price of produce because that makes the price artificial. You have to pay $3.00 for a hammer because there a dozen makers of hammers who all, each and every one, are not permitted to impose a price $10.00 at retail. Contracts that impose a price at retail are unenforceable. Anyone who wants to sell a $3.00 hammer for $10.00 probably will go out of business. *UNLESS* all the hammers cost $10.00 at retail. The real reason for the law is that no company is permitted to dictate to the market, so that consumers can decide which hammers to buy. So that we don't have to pay $100.00 for a $.03 hammer.

Posted by: Guy | February 28, 2007 11:53 AM

Liz, Nordstrom as a monopoly retailer in that case sets a profit maximizing price - this hurts the consumer.

Basically I'm just trying to poke holes in the case of minimum pricing being anti-competitive per se (which means in all cases). It's not. In fact, it can be pro-competitive (as in eliminating the free rider retailer problem). The law today is a per se law. NMA is asking that it be a per reason law (which means in cases where it is clearly being used as a collusive tool that can be prosecuted) but that it should not be dismissed out of hand.

Posted by: 101 | February 28, 2007 11:57 AM

This blog post misses the main point of the case, which is not whether resale price maintenance should be legal. Rather, whether it is legal or not should depend on an analysis by a court of the competitive aspects of a company's price maintenance plan. All we want is the ability to offer a pro-competitive reason in court to justify resale price conditions established by the manufacturer.

No manufacturer wants to price its products out of the market. As long as there is competition, consumers have the choice to buy a cheaper product from someone else. There will be plenty of discount stores for most products. A company will lose sales and market share by charging a price above what the market will bear. But for some products, consumers are willing to pay more for quality, service, features, cachet or other intangible benefits, and a company will still able to compete with cheaper or less attractive merchandise even if it charges a higher price. That is the essence of competition, and the antitrust laws and the legal system should not stifle it.

Also, companies are allowed to sell to anyone they want to - that's established by a case with another cool name - Colgate.

Posted by: National Association of Manufacturers | February 28, 2007 11:58 AM

Tim- what a silly post. I hate price fixing, I hate when stores set a price and refuse to negotiate below it - how is that differnet then manufacturers? As long as it is not the governemtn setting a price (see insurance, utilities and on) then let the manufacturer determine how it wants to sell its goods. If the manufacturer could make more profit by allowing its good to be sold for less money it will do so - but it not the law should make that decisions. That is the true form of competition that our country loves.

Posted by: aa | February 28, 2007 11:58 AM

"Garbage and Ben.....hype is hype and both of you appear to be full of it."

I apologize for citing actual sources. I forgot that making up facts is very much in vogue these days.

Posted by: Garbage | February 28, 2007 12:08 PM

Why is it assumed that just because a store sells merchandise at a discount the service is automatically considered poor and merchandise sold at a higher price the service is better? Although price is a huge factor in my purchasing power, so is good customer service. I find that higher prices or quality doesn't equate to better customer service.

Posted by: a miles, but not dr. | February 28, 2007 12:19 PM

To non debtor: Unless I buy a product in the manufacturers' store my "image" of the selling company has nothing to do with the product. If I buy a Coach wallet from a grumpy salesperson in a discount store, I'm still happy to get the wallet because of its quality. I may never go back to that store because of the salesperson, but I won't think less of Coach.

Posted by: Anonymous | February 28, 2007 12:28 PM

The only logical way a price floor can work without greatly reducing the inventory fo something is if the price floor equals a manufacturer buy-back price. The stuff on mega discount is usually stuff that the retailer can't sell at MSRP and have to move because they can't dedicate floor space to a product that is not moving. If the retailer must keep the product and not sell below the minimum allowed price an item that is not selling is a major problem. Retailers would not want to risk being stuck with a dud and would order fewer products to start with and plan on ordering more if the demand warranted, making shortages more common and relying more on just-in-time shipping of smaller shipments raising prices.

If the manufacturer, however, said that if the product isn't selling and you have to drop it below x price we'd rather buy it back, move it to a different market or burn it ourselves, I don't see what is wrong with that.

Posted by: bluemeanies | February 28, 2007 12:36 PM

"But that's not fair. I should be able to get company Y's superior widget for discount company A's widget price." Just like BMWs cost more than Yugos, you pay more for quality. Is it wrong for BMW dealers to be told they can't sell a particular model for less than a specified amount? Not at all.
--------

No, this is a logical fallacy. If you read the article it stated that the company set its minimum price cost without regard for quality or other factors- it was ARBITRARY and one retailer said, to heck with that, we can survive on the lesser margin. The producer did not produce a better quality belt with higher production costs, it just pretended its belts were worth it. It's spelled out in the article that it's a violation of Adam Smith's laws.

Posted by: Bethesdan | February 28, 2007 1:04 PM

This would not help customer service. If they know we cannot go buy the item cheaper elsewhere, why should they care if they treat us well or not? We are stuck with the price no matter how anyone treats us in the store. So, everyone will treat us worse than now because we won't have an alternative.

Also, this is bad for global competitiveness. The manufacturers will set a price that gets them the maximum profit, not is competitive. So, if cheaper goods come in from overseas, people will buy those since the manufacturers will have set a higher price. Price flexibility allows for real competition.

Posted by: ep | February 28, 2007 1:06 PM

If Leegin's didn't want their belts discounted, why would they sell to a discount store? (I'm assuming Kay's Kloset is a discount store.) The point of discount stores is to sell things for less money that you can find elsewhere for more money. If Leegin's was going to set a minimum price, what would be the point of selling to a discount store? If TJ Maxx sold an Express shirt for $40 that was also $40 at Express, where's the discount? Kay's Kloset isn't going to sell Leegin's belts at the same price as everyone else - they're going to cut the price. Yes, they may have violated their agreement with Leegin's, but it seems Leegin's brought this on themselves by selling to a store they knew would discount their product.

Personally, I sometimes buy things at a discount, sometimes not. I like to bargain-shop, but sometimes you get bargains in other ways - like having a better return policy. I rarely buy any large electronics online because most of the time you have to pay for shipping (which can be a lot with large items) and it's a lot harder to send them back. So even if I found my $120 microwave, which I bought in a store, online for $90, it was still worth it to have the opportunity to easily take it back if I needed to.

Posted by: R | February 28, 2007 1:09 PM

To National Association of Manufacturers.

"Rather, whether it is legal or not should depend on an analysis by a court of the competitive aspects of a company's price maintenance plan. All we want is the ability to offer a pro-competitive reason in court to justify resale price conditions established by the manufacturer."

I'm totally on board with you right now. A very reasonable request. But then you take a completely weird detour and start randomly writing about pricing in a way that confuses the wholesale and retail markets.

"No manufacturer wants to price its products out of the market. As long as there is competition, consumers have the choice to buy a cheaper product from someone else. There will be plenty of discount stores for most products. A company will lose sales and market share by charging a price above what the market will bear. But for some products, consumers are willing to pay more for quality, service, features, cachet or other intangible benefits, and a company will still able to compete with cheaper or less attractive merchandise even if it charges a higher price. That is the essence of competition, and the antitrust laws and the legal system should not stifle it."

In the wholesale market, there's no problem. Your good is competing against other products and if you charge too much, nobody will buy your product. What you ARE doing, however, is stifling competition in the retail market. Why should I have to pay an inefficient retailer a high markup when some other, much better retailer, can sell it to me for less and pass along the savings?

If you're so concerned about setting prices, then why don't you establish your own stores or sell it on the Internet?

Posted by: Econ | February 28, 2007 1:18 PM

I have a personal solution: Since Leegin Creative Leather Products Inc. has seen fit to go to the Supreme Court to try and fix prices, I will exercise my Freedom of Choice and not purchase any of their products, no matter what the price.

Thanks for the info. I will check the labels of all leather manufactured goods and leave the store empty-handed before I purchase anything from Leegin Creative Leather Products Inc.

Posted by: SoMD | February 28, 2007 1:18 PM

All of us have been dealing with this price fixing called Unilateral Pricing for well over a decade.
If you can't see the damage it's causing, you're short sighted. Retail markup has skyrocketed from a mere doubling to 300% or more, based on suggested retail prices dictated to consumers by manufacturers.
A tee shirt for $75? Does that reflect the cost of making it?
Manufacturing companies are merging into mega companies who control a market. Where there used to be dozens of appliance manufacturers, there are now only several who manufacturer all the brands. If a retailer sells one of their brands for less than the agreed upon retail, they lose all the brands effectively putting a retailer out of business.
These manufacturers are flexing their power. Remember they are in business to make money, not be the consumers best friend.
Ever try to get an Ipod or Xbox at a discount. Forget it. Every store has the lowest price on appliances cause no one can sell it for less without going out of business.
The market should control prices not the manufacturer.


Posted by: Suzanne O'Connor | February 28, 2007 1:19 PM

So when K-Mart, BJs or Costcos tells a company they won't stock their product if the prices are set, do you think the company will tell these stores to go to hell?

Posted by: discounters | February 28, 2007 1:37 PM

To "Discounters";

Already happening. Example: Apple refuses to let anybody sell the iPod at a discount, including Best Buy.

Posted by: SoMD | February 28, 2007 1:50 PM

There are still dozens of appliance manufacturers (check out Assoc. of Home Appliance Manuf. for members) - though not sure what industry consolidation proves other than competition at work.

75 bucks for a t-shirt apparently reflects the price someone is willing to pay for it. It's not like there aren't 400 other kinds of t-shirts you can't buy for less.

If price minimums were not dismissed per se, the market would still "control prices", because cases of either manufacturer or retailer collusion would not be allowed, and consumers would still seek the best value (given that there are suitable substitutes for any product).

There seems to be a lot of confusion in these posts about the actual contruct of these arrangements and the realities of competition. For almost every kind of product there are multiple manufacturers and multiple channels of distribution.

Posted by: 101 | February 28, 2007 1:51 PM

econ- you misunderstand, putting a price floor in the retail obligation is part of the wholesale cost - if other manufacturers of similar products don't do that the retailers will choose not to stock your product.

Bethesdan- no logical fallacy you just don't seem to understand the mechanics of markets. There is no gaurantee that a product's price will reflect its cost to produce. In this case the cache associated with the product makes it more valuable to the consumer and he will pay more than anotehr belt of similar production cost without the brand name. You think kellog's frosted flakes and the grocery store's version cost different amounts to produce?

Posted by: aa | February 28, 2007 1:56 PM

Maybe I do not understand all of the economics involved in this story, but how does this hurt the manufacturer? The seller is still paying the same price to manufacturer, they are just reducing their own margin by offering at less than suggested, correct? The only problem I see is that other sellers may be forced to reduce their prices in order to compete and then may try to demand a cheaper price from the manufacturer in order to maintain their margin. That sounds like the market setting the prices to me. Am I missing something here?

Posted by: Rahj | February 28, 2007 2:00 PM

Wow. Setting a minimum price for retail sale (NOT the wholesale price the store pays to buy it from the manufacturer, which ensures manufacturers get their profits) is so anti-free market that I'm shocked it's even being considered as a good idea.

Ok folks, I make the one and only Widget. Kays buys it from me and I charge Kays $1 per widget, which covers my fixed and variable costs and adds a little profit margin there as well. Now I require stores to sell my Widget at $5 minimum to consumers, which is a 400% markup, even though NONE of these profits go to me anyways. Kays decides that 300% markup is enough and sells for $4. Sales for Kays increases, orders for my Widgets increase, and we consumers are happy to find a bargain that satisfies price sensitive folks out there. By requiring Kays to sell at a minimum price, I am fixing the market. I am interfering in the free movement of goods and services, which makes NO sense given that the only thing that could possibly benefit me in this whole thing is some prestigious air attatched to my Widget because of its seeming exclusivity.

There are many reasons why the minimum price idea at the RETAIL level is just wrong. It sends the wrong price signals to people, it adds to inflation needlessly, and it meddles in the market, a la the government. And we all see the disatrous consequences that produces!

Sign me an economist and a consumer by heart. No special interests here, just plain old common sense.

Posted by: CyanSquirrel | February 28, 2007 2:01 PM

101, your persoective is not from the manufacturer. It's the retail perspective. In this case though, it is the manufacturer who wants to set price minimums, not the retailer who could benefit from them. See the difference? The manufacturer has no business setting the selling price that retailers charge because aside from prestige, there's no clear cut benefit for them that would outweigh the harm caused to consumers and retailers.

Posted by: CyanSquirrel | February 28, 2007 2:07 PM

Cyan, your example demonstrates the very lack of understanding I described in my last post. There is not only ONE widget manufacturer, nor is there one distribution outlet. Widget2 company will wipe you out by allowing Kays to sell at $4.99

And Rahj, read my post about the microwaves as to how this can potentially hurt a manufacturer.

Posted by: 101 | February 28, 2007 2:09 PM

The benefit for them is increased sales. If I let bobsdiscount.com free ride Best Buy's advertising, Best Buy won't buy my product any more, discountbob has nothing to free ride off of, and now he won't buy my product either. = hurt manufacturer.

Posted by: 101 | February 28, 2007 2:12 PM

CyanSquirrel said "Ok folks, I make the one and only Widget"

There's the crux of the matter. These are BELTS. Leegins doesn't have a monopoly on belts. If they require a retail price minimum, they are not "interfering in the free movement of goods and services" regarding belts. I don't want to pay $78 for a leather belt from them, I'll go buy a leather belt from somebody else for $20 (assuming I can find out - I haven't bought a belt in years).

When you have a monopoly, that's something different. When you have a commodity, let them fix their prices - as long as they are colluding with other belt makers to require higher prices for ALL belts.

Posted by: Non debtor | February 28, 2007 2:15 PM

"as long as they are colluding with other belt makers to require higher prices for ALL belts."

OOPS!! Make that "as long as they are NOT colluding".

Posted by: Non debtor | February 28, 2007 2:17 PM

101, I don't see how this has anything to do with freeriding advertising as Kay's was not doing that. Although, I can understand how that might be a problem in those cases. What I still do not understand is how the manufacturer is hurt in this particular case.

Posted by: rahj | February 28, 2007 2:22 PM

101, I understand perfectly well that this manufacturer is not the only one out there. The market for belts is quite elastic, and Kays could go anywhere else to get belts to sell at a discount. I feel however, that you are missing the bigger point: The manufacturer is trying to set a precedent in court, one that potentially every other manufacturer of belts or widgets or whatnot can use to justify setting their own retail price floors. Then what? The consumer is ultimately harmed. Like I said, there is no benefit to the manafacturers out of this that outweighs the harm caused to the market in general by artificial prices.

I just don't see what the manfuacturer sees as a positive outcome for this when, as others have stated, the company clearly does not have brand image to justify its price level opposite its quality. Nor is it in an exclusive industry and it does not offer a unique product. So, like others have said, this is arbitrary, not based in sound economic priciples, and we should be wary of the precedent they are trying to set through our court system.

Posted by: CyanSquirrel | February 28, 2007 2:32 PM

"I make the one and only widget" ...I didn't mean that it was a monopoly. I meant I make the infamous widget economists so love to use to demonstrate economic principles without being beholden to any brand or manufacturer. Please don't misread me. Sorry for not being clearer on that point, 101
.

Posted by: CyanSquirrel | February 28, 2007 2:34 PM

So what if every belt manufacturer sets retail price minimum? How is the consumer harmed? Let's say there are only 2 belt companies. One sets it's retail minimum at 100. The other one is not stupid. It wins 100% share if it sets it's minumum at 99.99. And so on.

Posted by: 102 | February 28, 2007 2:41 PM

Exactly, and since you're not a monopoly you'd be foolish to set your minimum retail price too high, since Widget2 will simply undersell you.

Posted by: 101 | February 28, 2007 2:45 PM

I love you 101.

Posted by: 102 | February 28, 2007 2:46 PM

102, um....ok.

Posted by: 101 | February 28, 2007 2:48 PM

CyanSquirrel: I agree.

As consumers we have the ultimate power - our money. If we don't spend our money for somebody's product, for whatever reason, the supply of the product will exceed the demand and the price will drop.

Or the manufacture will go out of business.

Either way is OK for the consumer because we can purchase our products at fair market value, not an artificially inflated price. Somebody will be making widgets until we no longer need widgets.

FYI: Did a quick search of the web on "Leegin Creative Leather Products Inc" and I had a hard time finding anything that was NOT related to a court case. Actually, it seems this case is not the only one they have been involved in. They tend to sue people at the drop of a hat. Seems they think that any belt that even faintly resembles anything in their product line is a "intellectual property" lawsuit.

I will definitely check labels while I shop and avoid sending any of my money their way. I can still shop in the same stores, because the stores always have more than one brand available (Shhhh ... Keep it quiet)(until they get sued at least).

Posted by: SoMD | February 28, 2007 2:50 PM

102, kind of a fallacy there since price is only one of many factors that go into a person's price elasticity on any given product. Selling for 99.99 would not guarantee the market if there's considerable distances to drive, shipping fees, bad salespeople, terrible return policies....

The consumer, in my opinion, is harmed by this because principles of elasticity of demand are violated. People respond to price signals. When products are set to be at or above an artificial floor, consumers don't have accurate guages to use to make accurate purchasing decisions. Most likely they have to pay more than they would have to pay for the same product if free setting of prices at the retail level were allowed. The manufacturer doesn't take the hit on profits at the retail level. Only the retailer does, and who is to restrict them from doing that if they so choose? The free market works such that all the individual transactions add up to trends more or less that educated consumers can use to guage the inherent value of a product.

Posted by: CyanSquirrel | February 28, 2007 2:50 PM

The solution to the free ride problem is to have the manufacturer pay for advertising. This is done everyday.

The latest Beauty Belts are now available at Full Price Stores in the High End Mall.

Full Price Stores also puts out a flyer in the Sunday paper. Beauty Belt products take up two percent of the flyer. Beauty Belt Inc. pays say 1.75% of the cost of the flyer.

Posted by: Brian Griffin | February 28, 2007 2:53 PM

Can anyone say price fixing?!

If Manufaturers get to set/fix the price of a product to be re-sold via a distributor, it is price fixing. Plain and simple.

The lower courts are correct. Too bad the SC will overturn the ruling so that the manufacturers can show a profit the next quarter.

Posted by: jodonige | February 28, 2007 2:59 PM

"102, kind of a fallacy there since price is only one of many factors that go into a person's price elasticity on any given product."

Um...actually, the definition of price elasticity is just relationship between change in quantity demanded and change in price. Nothing else. Just price.

And, if I were at Kay's and saw a Leegins belt for 100, and a Neegins belt for 99.99...guess which one I would chose. That was the point of that example.

Posted by: 102 | February 28, 2007 3:01 PM

Its a prestige thing - some goods are worth more because they cost more. If a Porche could be had for $15k it wouldn't be a proche. If part of the brand image a manufacturer wants to present includes exclusivity then it would be very important to have a high price tag.

Posted by: rahj | February 28, 2007 3:03 PM

Price fixing is when competitors agree to sell the same product for the same price. That's not the same thing.

And all this ruling does is overturn the per se part of the law, and keeps intact bans on collusion.

Posted by: Anonymous | February 28, 2007 3:04 PM

SoMD, it was actually Kays who took Leegins to court in this case.

Posted by: Anonymous | February 28, 2007 3:05 PM

cyan-
Prestige is a legitimate part fo the value of the product though. Why should we not allow manufacturers to include that in their product requriements? Why is setting a price floor any different then requiring certain merchandising in order to stock a product?

Jodonige- a retail store settign a price is also technically price fixing - but so long as someone else can set up a store nearby it will never fly in the marketplace. So long as other belt manufacturers can enter and exit the market easily the price for belts will never be fixed by a munfacturers insistence.

Bottom line here is you have to demonstrate why the government should restrict a companies ability to set contract terms - and that is all this another term in the sales contract between the manufacturer and the retailer.

Posted by: aa | February 28, 2007 3:09 PM

And deregulation of the airlines, phones & other services were good for consumers, too. NOT! If manufactures can set their own prices service will go out the door. The only thing that seperates Macy's from Marshall's is service and it doesn't seperate them by much.

Posted by: Claire | February 28, 2007 4:16 PM

Claire, I believe you inadvertantly made the opposite point you were trying to make by using a really poor example.

Before deregulation, airlines did have a sort of price floor. They were forced to compete on service, and indeed, the service was better. Once airlines began to compete on price, well...you know what happened.

But your example is poor in that the airline is the manufacturer and retailer at once. In these cases, we are writing about manufacturers only selling to retailers who agree not to sell their product below a certain price.

Posted by: Anonymous | February 28, 2007 4:21 PM

Have to say this has been one of the more intelligent discussions this blog has produced - most in recent history anyway.

More topics like this Annys and fewer about product class action suits.

Thanx.

Posted by: observer | February 28, 2007 4:33 PM

Yes, even I refuse to spam such a smart discussion.

Posted by: che | February 28, 2007 4:34 PM

LOL at "che".

102, notice I said consumer's price elasticity. You are correct about the definition of price elasticity, and I guess I should pick a different word, but can't think of one at this moment, drats. Fudging definitions here, I mean the point where a consumer decides to buy or not buy a product at a specific price.

Anonymous, Kays initiated the case against Leegins for stopping their supply to them based on a price requirement Kays disagreed with, won it, and now Leegins is appealing with the argument that they should be able to set minimums at the retail level.

AA, setting a price floor impacts consumers' pocketbooks. It's another way to take your hard earned dollars. Setting co-merchandising requirements impacts the consumer in terms of choice at a particular place, but it does not take dollars from their pocket. Hope I'm clear on the distinction and why it's sinister at the core to set prices such that you eliminate the consumer's ability to use correct information to determine what, where and when they purchase something. Call me pro-consumer, I guess. Businesses have everyone else in their pocket, so to speak, while consumers only have Democrats *snorts* And yes, I'm an equal opportunity political party basher :-)

Posted by: CyanSquirrel | February 28, 2007 4:52 PM

Hi John! *snickers*

Posted by: CyanSquirrel | February 28, 2007 4:56 PM

A factual question: Does Leegins also have company-owned stores? If so, the floor price would seem to be protecting the profitability of the company-owned store. I live in the DFW area, (the discount store is in a suburb), and in the major Dallas mall, Northpark, there is a store called "Brighton Belts." So maybe this suit is about preserving the profitablity of the company-owned stores?
The Northpark store links to a website of "Brighton Collectibles" which is a division of Leegin, so I think a lot of the foregoing discussion is a bit off the mark, because Leegin is not just a manufacturer here but also a competitor in the retail market, so the discounting does affect their bottom line. (My hunch is that the company-owned stores may represent the majority of their retail sales).

Posted by: Lindy48 | February 28, 2007 5:30 PM

Cyan- it only takes consumer dollars if they still value the good more than (or equal to) the price the manufacturer is setting. If not they have plenty of other belts to choose from and the manufacturer loses a sale. If enough people are not willing ot pay msrp that the manufacturer is making less of a profit it will rethink its policy and the market works - if makes more of profit the market still works and the investors reap their rewards.

I think you are clear on the distinction you are making - it is just the wrong answer from an economic, free market and in fact social position. First it implies that merchandising does not affect consumer decisions; which is certianly false or retailers wouldn't invest so much in getting it right and manufacturers wouldn't bother to care. Second, it implies that consumers are somehow entitled to know the wholesale cost of an item before deciding on the a retail purchase; they have no right to that information nor is it neccesarily a positive one to ahve fo rthe market. See as it currently stands the customer lacks information about the true cost and the retailer lacks inforamtiona bout the customers ultimate value of the good; as soon as you break the information symmetry you break the ability of the market to come to a fair price (this does mean that you may ahve more itneresting arguments against customer segmentation).

Until you can demonstrate that the consumer is unable to keep his pants up at a reasonable price you are on the wrong side here - the consumer has all the information he needs to make an informed decision and that is the pricing preference of the manufacturer. If the consumer doesn't like that price buy another belt.

Posted by: aa | February 28, 2007 5:32 PM

"Already happening. Example: Apple refuses to let anybody sell the iPod at a discount, including Best Buy."

I'm no Apple fanboy even though I use their products, but this isn't true. Apple, like many manufacturers, sets minimum advertised prices (MAP), and enforces them by advertising copayments--they pay retailers to advertise Apple products. There are many places one can buy an iPod (or any Apple product) for less than MAP--I've never bought from an unauthorized retailer (which would cancel warranty coverage), but I haven't paid MAP on an Apple product since 1991.

Some merchants refuse the advertising copayments and sell at below-MAP prices. Others take the advertising copayments and sell at below-MAP prices but don't advertise them; the lower price is revealed when you check out. Others give instant or mail-in rebates or use coupons.

This week for example, CompUSA.com is offering sale prices on iPods but not advertising what they are. Best Buy is offering gift cards with purchase.

This is not the same as manufacturers trying to contractually set retail prices-- this used to be called fair trade until it was abolished by most states by the 1970s (different from the modern usage of "fair trade"). The arguments being made that this should be legal and is ultimately beneficial to the consumers are nonsense.

Posted by: BC | February 28, 2007 5:51 PM

To everyone trying to rationalize that this isn't price fixing because it isn't the competitors agreeing to set prices, it's a sole manufacturer -- you're wrong. Even though it's the manufacturer who "sets" that price, the competitors (the retailers) are colluding with the manufacturer to sell the product at that price. Plain and simple, the entire group of retailers who sell the product to consumers have all agreed that they won't sell below a given price. How is that not price fixing? The fact that they haven't agreed with each other as to the price, but rather have each agreed individually with the manufacturer doesn't negate the fact that all the competitors have agreed to sell at a certain price.

Furthermore, the problem here isn't about the "right" of a manufacturer to manage the "cache" of its product, it's about the fact that the manufacturer is manipulating market forces. Sure, manufacturers (and NAM) will argue that market forces will keep the manufacturer from setting the minimum price unreasonably high, since too high a price will cause consumer demand to fall. But what they're not saying is that this mechanism allows the manufacturer to artificially inflate the retail price price of the product, above the actual price that the market would set.

As someone (I think it as CyanSq.) noted above, this is the antithesis of allowing free market forces to operate. Price rises and falls based on supply and demand ("cache" being part of the demand equation). Allowing manufacturers to set a price floor artificially interferes with the manner in which supply and demand operate to set the price that the market will bear for an item, in effect throwing the system out of balance.

Some folks in this forum have argued "so what, if it's a BMW, I'm willing to pay the inflated price". Well, that really isn't the issue here. The issue is whether or not you believe that the free market (with adequate consumer protections) works, as it has for the past century, or whether you're willing to cede some part of the control of the free market to big business. And for everyone who answered b), may the ghost of Teddy Roosevelt hunt you down and beat you with a big stick.

Posted by: Voice of Reason | February 28, 2007 6:11 PM

voice of reason- that was anything but reason. The competitors are NOT the reatilers but other belt manufacturers - why do people miss that?

The market itneraction is between the retailer and the manufactuer (the consumer is completely irrelevant). Part of the manufacturer's price to the reatiler is a price floor - if the retailer doesn't like it he will stock other belts.

Posted by: aa | February 28, 2007 6:30 PM

Hey AA, I'll bite. Here's an attempt to answer your challenge:

Consumers indeed could and most likely would go to cheaper alternatives for securing their pants at their waist. That's a given and not worth debating. I do very much see your point, and your other points are equally correct. I'll even go so far as to say prices most likely would stay reasonable, even if every belt manufacturer set a price floor.

However, I think what I'm not making clear is that it's the precedent this would set LEGALLY that bothers me. Do we want the courts meddling in the economy more than they already on behalf of big business? Call me classical in my economics slant in some odd way (I can be Keynesian on some issues, but don't really like either appraoch. There are no easy answers in economics because humans are not easy to peg). It just feels wrong at the gut level for a precedent such as this to be acceptable.

So one belt manufacturer sets a price floor, consumers make their decisions, and life (and the market) goes on. But what of when other companies see this as an easy way to expand their margins and institute their own price floors? All belt manufacturers agree that controlling the minimum selling price is in their interest, and where does that leave the consumer? I think it is here that the consumers (and all those droopy pants boys) lose out. However, I will concede that because our economy thrives on creative destruction (building a better mousetrap), consumers most likely won't be caught with the short end of the stick because someone else will realize velcro works just as good. Haha!

Great debate here :-)

Posted by: CyanSquirrel | February 28, 2007 6:36 PM

Cyan - the problem I see here is the courts meddle by prohibiting the arrangement - not allowing it.

Yous ay :"However, I think what I'm not making clear is that it's the precedent this would set LEGALLY that bothers me. Do we want the courts meddling in the economy more than they already on behalf of big business?"

My concern would be the precedent beign set here is that the court is arbiter of what is best for the market without any need to demonstrate collusion or monopoly power. In the long run a precedent of increased court involvement on behalf of either consumer or producer will lead to problems. As soon as all belt manufacturers make the same decision you jump into a differnet set of legal precedents than the one addressed in this case and I am comfortable enough in the current state of our markets and legal system to doubt that a true collusion regime could stand up for long.

Posted by: aa | February 28, 2007 6:40 PM

AA says "Part of the manufacturer's price to the reatiler is a price floor - if the retailer doesn't like it he will stock other belts."

That's a great observation, and I agree. BUT I want to point out that this price floor is set using market forces in the wholesale market and the company's ability to achieve scale. Manufacturers meddling with prices at the retail level corrupts those market forces, much like minimum wage requirements corrupt the market for labor. :-/

Posted by: CyanSquirrel | February 28, 2007 6:41 PM

"In the long run a precedent of increased court involvement on behalf of either consumer or producer will lead to problems."

We agree! I think we are on the same page now. I do appreciate you challenging me to reason and justify my assertions. I've got a headache now, lol. I think this discussion has vetted me in that my time spent earning a BS in economics was not wasted. Smiles!

Posted by: CyanSquirrel | February 28, 2007 6:45 PM

"BUT I want to point out that this price floor is set using market forces in the wholesale market and the company's ability to achieve scale."

True enough but each market (wholesale, retail, supply chain, labor) is operating independently and part of the assumptions of captialism include that the aggregate equilibrium these markets work by operating independently will beat what can be achieved by centrally directing even the component pieces of the market. We would no more want the governemnt intervening in the sale of aluminum to manufacturers than we would the sale of golf clubs to consumers and the wholesaler/retailer relationship should be no different.

I'm confident the market for belts between whoelsalers and retailer will either force this company to eliminate the price floors or validate that the prestige value of the brand is worth enough to consumers to warrant a minimum price.

Posted by: Cyan | February 28, 2007 9:15 PM

No, AA, you're completely wrong here. There *IS* price fixing -- otherwise, this case wouldn't be before the Court. Simply stated, the issue here isn't whether or not price fixing has occurred (it has), but whether this type of vertical price fixing should be judged on a per se or rule of reason basis. (For a good primer on the subject, might I suggest PER SE ILLEGALITY AND TRUNCATED RULE OF REASON: THE SEARCH FOR A FORESHORTENED ANTITRUST ANALYSIS (Nov 97), by William E. Cohen, Deputy Director, Policy Planning, Federal Trade Commission [foregive the lack of blue-booking in the citation]).

Yes, there are tiers to the transaction -- (1) manufacturer to retailer; and (2) retailer to consumer. However, just because there isn't collusion at level 1 between various manufacturers of the product doesn't mean that the end result isn't "price fixing" at the second, i.e. retail, level. Price fixing is defined, quite simply, as an agreement between business competitors to sell the same product or service at the same price. In this case, competitors (the retailers) have agreed (albeit via independent agreements with their supplier) to sell the same product (a particular brand of belts) at the same price. Again -- how ISN'T that price fixing? The mere fact that this isn't a widespread case of all belt manufacturers agreeing to sell all belts at the same price doesn't negate the fact that the result of this arrangement is that a group of competitors, belt retailers, in effect have agreements in place to sell the same line of products to the general public at the same price.

Posted by: Voice of Reason | February 28, 2007 11:13 PM

(sorry -- hit "Submit" rather than "Preview")

[continued]
... same line of products to the general public at the same price.

This is called "vertical price fixing", as opposed to "horizontal price fixing". Just because horizontal price fixing (between direct competitors) isn't present, doesn't mean that vertical price fixing (between suppliers and retailers) isn't present. In this case, it is, and, as noted above, the question is whether the per se standard applicable to horizontal price fixing is also legally appropriate for vertical arrangements.

Posted by: Voice of Reason | February 28, 2007 11:26 PM

I think, had the example been gas prices, people would have understood the case better. You might have 30 different gas stations to choose from in town, but all of them are going to have closely aligned pricing. If one of them raises their prices by 10 cents, you can bet that the other 29 stations will be breaking their legs to hoist a roughly equal increase (regardless of the cost of gasoline to themselves)...

I think everyone would agree that that happens to be illegal- and it tends to be agressively prosecuted.

This situation with belts is exactly the same. With one manufacturer forcing a false floor on prices in, other manufacturers are given a chance to raise their prices as well (they don't need to actually collude- they just have to walk into a store and read the price tag!). No difference whatsoever from the gas example (and, therefore, just as illegal).

And the BMW/Yugo example is invalid. A large portion of the price differential between luxury and entry-level cars can be ascribed to the price (and quality) of the parts therein. So the motors for the electronic windows, for example, in a BMW might be rated to last 15 years, but only 10 years in an entry-level car. The proper way to make this a valid comparison would be to compare the profit margin on different types of vehicles...

Posted by: Castor | March 1, 2007 7:49 AM

Castor- you can compare the profit margin on luxury vs. standard sedans, its much higher for luxury cars (this quote from a 2005 Business Week article sums it up: "With profit margins almost double those for nonluxury vehicles, Lexus sales go a long way toward explaining how Toyota earned $4 billion from North America alone last year."

But of course your little straw man example is still wrong economically. So long as other gas station can open up and take customers by offering a lower price your example won't play out. Maintianing a price cartel is extremely difficult and cheating is rampant (ask OPEC). With belts it would be near impossible and the notion that they can passively fix prices without inviting a competitor to undercut them show a ludicrous misunderstanding of both economic theory and actual business practice.

Posted by: AA | March 1, 2007 9:49 AM

If the manufacturer sells to all vendors at the same price, what difference does it make how much the vendor sells it for? But manufacturers don't sell to all their vendors at the same price. Walmart is famous for extracting prices that they want because of the sheer volume. If manufacturers agree to sell to all their vendors, small or large, at the same rate, then they can ask their vendors to sell at the same price. But I doubt that will happen.

Posted by: Anonymous | March 1, 2007 11:46 AM

Wait a minute now. The whole idea of the Sherman Antitrust Act is to foster and support competition. How can it possibly *not* be anti-competitive for a manufacturer to say "you must sell only at *our* dictated price?" That makes suggested retail into dictated retail. It is no longer a suggestion.
Do you really want to totally give up price competition in the marketplace? In the case mentioned in this article, as I understand it, all this little Texas company did was have a sale. They weren't even discounting on a regular basis... just for a special event. And that was enough that they had their account closed by the manufacturer for violating their vertical price maintenance policy.
Think of the things that you love to buy now that you wait for a sale to purchase, and remember that if the Supreme Court overturns this ruling that you may not ever be able to do that again! I don't care if it is purses or cars or dog food! Do you really want to shop in an atmosphere where the manufacturer can ban special sales of their merchandise?

Posted by: Eric | March 2, 2007 1:07 PM

Read the respondant's brief. Kay's was simply responding to competitors prices. When Leegin (Leegin also secretly owns retail stores that competed directly with Kay's ) finds out that the store's are competing on price, Leegin threatens Kay's with termination if prices are not raised. Kay's refused to agree to raise prices and violate the law. Leegin terminates--Kay's files lawsuit. Kay's wins lawsuit. Read the respondant's brief so you will understand the whole story. By terminating Kay's, Leegin protected their own retail stores from price competition. If the supreme court reverses this, price competition on socks to cell phones to a gallon of gas will be gone and prices are going up. the american petroleum institute (represents big oil) filed a brief supporting Leegin's position that price fixing is okay. Read the briefs--go to the american bar association website ...get the whole story !!!!! The consumer goods pricing act of 1975 passed by Congress by an overwhelming majority states in part "this act will make it illegal for manufacturers to fix the resell prices of products by retailers".

Posted by: comsumer comment | March 2, 2007 8:48 PM

Manufacturers requiring retailers to sell their products at a certain price interferes with the retailer's ability to manage it's own business.

Posted by: Stuart | March 22, 2007 4:31 PM

I don't think bargain shopping is in trouble at all. But I'd just like to recap the high-points of the article.

Dr. Miles set a precedent for the Supremes back in 1911. Then Leegins Leather belts came out of Kay's Kloset at a discount. Leegins cut off Kay and Kay sued and was awarded a cool million.

And all this over some creative leather.

Personally I prefer my bargains the old fashioned way: shopping online at places like jangle.net.

http://www.jangle.net/

Posted by: Margo | April 2, 2007 11:48 PM

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