These Minimum Advertised Prices — floors under which retailers cannot drop a product price — always struck me as anti-competitive, and well, just wrong.

The Supreme Court has been all over the map with them.

Why not simply let retailers and manufacturers compete in the marketplace?

“A group of major discounters, including eBay Inc. and Costco Wholesale Corp., is expected Thursday to call for new laws blocking manufacturers from setting minimum prices on everything from flat-screen TVs to power drills. That move could ratchet up a battle between retailers and a little-known but powerful industry that’s taken off in just the past year.

Tiny firms like NetEnforcers Inc. — with only 56 staffers jammed into a dim, spare cubicle farm here in Arizona — wield economic power far beyond their size. These companies scour hundreds of thousands of Web sites daily, looking for retailers offering bargains below the “minimum advertised price,” or MAP, set by manufacturers on an array of consumer goods.

When NetEnforcers finds goods like cameras, handbags or ovens for sale at too-low prices, as it claims to do 5,000 to 10,000 times a day, it alerts its clients, including Sony Corp., Black & Decker Corp., Cisco Systems Inc., JVC Kenwood Holdings Inc. and Samsung Inc.

For discounters, the consequences of not respecting MAP are usually speedy and decisive. If the seller is an authorized dealer of the product in question (which means it is bound to honor a MAP agreement), it gets a notice from the manufacturer or NetEnforcers and typically brings its price into line within hours, the company says.”

Let’s see what happens as Deflation starts slowly working its magic on manufacturers minimum pricing . . .

>

Source:
Discounters, Monitors Face Battle on Minimum Pricing
JOSEPH PEREIRA
WSJ, DECEMBER 4, 2008

http://online.wsj.com/article/SB122835660256478297.html?mod=yhoofront

Category: Consumer Spending, Legal, Retail

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Minimum Pricing Battle”

  1. Bob the unemployed says:

    According to Sony, having stores offer discounts on products only stresses out the buyers. So Sony is doing everyone a favor by insisting that the stores only offer the high MAP of goods.

    “…Eliminating price competition among retailers for high-end cameras and TVs is a great benefit for consumers — or so Sony executives argued Thursday.

    At a chat with reporters in New York, Stan Glasgow, the president of Sony Electronics in the United States, and Jay Vandenbree, the company’s president for consumer sales, discussed its new rule that bans retailers from discounting Sony’s Alpha digital camera line, its more expensive televisions and some other high-end products.

    Mr. Vandenbree said that by having the price for these products be the same at all retailers, Sony had eliminated stress for buyers. …”

  2. OkieLawyer says:

    Well, Barry, there is the issue of “dumping.” Sometimes large businesses will deliberately sell their products at a loss in an attempt to drive (esp. smaller) competitors out of business. After which they can then raise the price to recoup their losses. Anti-dumping laws are designed to prevent these very practices.

    Are you sure that isn’t what is at issue here?

  3. Mannwich says:

    Doesn’t the issue ultimately solve itself if the products aren’t sold and remain on the shelves?

  4. “Anti-dumping laws are designed to prevent these very practices.

    Are you sure that isn’t what is at issue here?”

    Two very, and radically, different issues..

    OkieL: see: http://abajournal.com/news/brighton_ruling_spurs_more_minimum_prices_and_some_lawsuits/
    and, related:
    http://www.icerocket.com/search?tab=web&fr=h&q=Brighton+minimum+price

  5. Lee_in_DC says:

    If MAP gets struck down, manufacturers will simply raise their wholesale prices to force retailers to pay a minimum price. This of course favors hyper-retailers like eBay and CostCo due to their scale of efficiencies. Manufacturers already compete against one another and brand perception and equity reflected in prices does play a role in consumer choices.

    As long as there’s no manufacturer collusion in pricing, I see nothing wrong with MAP since it lets retailers of all sizes to co-exist.

  6. OT:

    though, as I was saying before, be on the look-out for:
    http://www.hardtimestokens.com/

    they’re fixin’ to return…

    see: http://www.chicagotribune.com/business/chi-talk_moneydec03,0,2902061.story

  7. AGG says:

    Maudlin is starting to get it:
    “In principle, a CDO or subprime asset-backed security should be a good thing. And in the beginning they were. But then standards got loose, greed kicked in, and Wall Street began to game the system. End of game”.
    What does this have to do with minimum pricing? A lot.
    Greed is out. Fear is in. Greed stomps competitive practices for the profit of a select few. Fear makes even the courts hesitate to defend the anti-competitive practices of corporations. In other words, the law doesn’t mean shit if you can’t afford lawyers and bribed politicians.
    Many here wonder why so many people who go for decades “getting away with stuff” suddenly stop being so lucky. Luck has nothing to do with it. Our system runs on money. You can do anything you want as long as you can paper over your pecadillos with dollars. When times get hard and politicians scream about greed and corruption, it’s because the politicians aren’t getting paid their “fees”. The first screams are threats to see if the money machine will respond. After nothing happens because the “bribe funds account” is depleted, then the prison terms come like we’re going to fix everything now. Ha! Just like in the 80s, the worst of the lot will get away to work more mischhief.
    Yes, it’s the end of one game; but a new game is already in the works.

  8. Lee_in_DC says:

    “If MAP gets struck down, manufacturers will simply raise their wholesale prices to force retailers to pay a minimum price.”

    Scratch that, I meant retailers would have to compete on razor-thin margins. A theoretically good thing for consumers, yes…but I wouldn’t want to have to do all my shopping at hyper-retailers like CostCo, Walmart, or eBay. Besides, we’re talking high-end home entertainment systems and other ridiculously-expensive but unnecessary gadgets whose market is wealthy consumers looking to impress their friends, neighbors, and family. That wealth gets transferred from them to retailers is a good thing.

  9. mark mchugh says:

    I’d like to give you what I think is a good defense of MAPs. Some of the best musical equipment manufacturers used to use them (I guess they still do). Anyway, I always thought it was good for both the small retailer and the buyer to know that these mega-retailers (like Guitar Center) couldn’t undercut the price, and that small retailer didn’t have to cut his own throat to make a sale. This encourages buyers to buy from the retailer you trust more, and that helps to ensure his survival.

    The last time I was in a Best Buy, I had to tackle a blue-shirted flunky to get some help. If I was a manufacturer, I would want my end customers to buy from a retailer that didn’t treat its customers like they were an inconvenience. You associate the product with the purchasing process (pleasant or miserable). I’d want that process to be as pleasant as possible and I think knowing you won’t find a better price really does simplify the end-users’ decision.

    I think that there’s something to be said for taking price out of the equation.

  10. Winston Munn says:

    Have price controls ever worked?

  11. Gabriel says:

    1. Oligopoly practices are back in action. I think it was already covered by Sherman Act and later on by Clayton Act – or perhaps they addressed monopolies only – don’t remember.

    2. Anti-dumping issues are raised by the smaller disadvantaged entities, not the giants. In this case giants are trying to deflect the market pressure on prices (deflation).

    3. We cannot mix service with the product. If I want better service, I go to a better store with the same product selling for a little premium in price.

    Now, why does the manufacturer care how much minimum profit margin their resellers must maintain? What if Santa Claus keeps buying their products, distributing them for free? Will they go after him too? (Yes, Virginia, there is a Santa Claus.) They should control their own prices at which they sell to the resellers and the resellers are smart enough to chart their own course. Let the free markets rule! Protectionism can not, has not, and will not work.

  12. mark mchugh says:

    Just one more thought about this MAP thing. We’ve all seen Wal-Mart, Home Depot, etc. crush smaller competition into oblivion with nothing more than lower prices, right?

    I get this sick feeling that someday we’re going to be having a discussion about how Wal-Mart is too big to fail.

  13. hangtime79 says:

    All of these responses from manufacturers are a smokescreen. The true reason why manufacturers like MAPs is VOLUME. If everyone has to sell at the same price then everyone will want to put the product inventory on the off chance someone will purchase it. Both the big retailer and the small mom and pop both buy from the manufacturer driving its volume. Its not about customers or pricing, its about stuffing the channel.

    Three things:

    1. The manufacturer can choose to sell or not to sell to the retailer that’s there choice, but what they retailer does afterwards is none of the manufacturer’s business. This is like the manufacturer dictating what a consumer can and cannot do with the item after its purchased. Fundamentally, I believe my rights begin and yours end at the point of transaction.

    2. If the manufacturer wants a better experience for its customers, it can build them and people will come. Apple, Sony, Nokia all have stores where you can buy their gadgets. Of course, these manufacturers will be bound by the retail economics. I had a shoe retailer ask me once why Nike would not want to open a 1000 stores in China and I told him look at the income statement. Nike’s margins are 45%, yours are 10 – 15% – investors don’t pay outrageous multiples for 10 – 15% margin.

    3. Business plans. Not everyone has the same. Some are built on small selection, low margin, large volume product and some are built on niche products, large margins, and small volumes. The market will ultimately find which one it likes and MAPs just distort this.

  14. mark mchugh says:

    Hasn’t Apple done an admirable job of controlling, it’s image, pricing (and profits) by controlling its’ resellers?

  15. marka says:

    Interesting I never knew this was the case in the USA as in Australia this is illegeal

    Resale price maintenance involves a supplier setting or seeking to set a minimum price below which its retailers cannot sell, advertise, display, or offer goods for sale. It is prohibited by section 48 of the Trade Practices Act 1974.

    and even small players get caught out check out the legal notice at http://www.oobi.com.au

    the funny thing is that i love shopping in the States becauses its almost always less expensive!

  16. R. Timm says:

    Barry, I think for the products you mentioned deflation is nothing new. I have observed that deflation for technology products actually slows during recession.

    Would this prohibit manufacturer’s from setting a maximum price for their products as they currently do? Remember the Wii being purchased for $250 then sold on ebay for $500 last Christmas? Are we to let retailers like Best Buy jack up the price to $500, ruining the marketing plans for Nintendo who rely on adoption of their game console by a certain market segment in order to sell games and peripherals?

  17. Che Stadium says:

    “Have price controls ever worked?”

    The oil companies have been lowering their prices incessantly since “unconscionably excessive” gas prices were banned by congress.

  18. Dervin says:

    mark mchugh Says: Hasn’t Apple done an admirable job of controlling, it’s image, pricing (and profits) by controlling its’ resellers?

    I wonder if there are more independent Apple Shops out there than independent Generic PC retail shops? (It’s freakish to see how Tekserve in NYC has grown from a few guys on the second floor in a nondiscript building on 23rd street with a 10 cent old time coke machine (working!) to the glorious yet superficial place that it is today.

    Protecting the Mom and Pop stores makes sense for any high end manufacturer. Apple was getting screwed by CompUSA and other major computer stores.

    It just makes sense for the high end manufactures to avoid having their products turn into commodities. I mean it makes sense in the short run (HP, Compaq, Gateway, Micron, and Dell) but in the long run, when Price is the only thing that matters, somebody is going to beat you at your game.

  19. Hantra says:

    @ marka

    The United States Supreme Court struck that down last year. The practice is not only legal, but it’s supported by 5 of 9 Supreme Court justices. As is forcibly seizing your private property for commercial use. God help us.