Here is one story.
The case for pure illegality of resale price maintenance (RPM) has never been very strong. Since we don't understand price stickiness well, it is no surprise we also don't understand RPM very well either. At least on the surface that is an argument for a case-by-case approach if not something even looser.
My casual guess is that > 50% of RPM represents a desire to collude and raise prices. Nonetheless allowing RPM, even when it is collusive, just doesn't matter very much. RPM enforcement has been weak for various periods of time, most of all under the Reagan Administration, without retail disaster striking.
Market-oriented economists exaggerate the "ancillary services" hypothesis developed by Lester Telser, namely that RPM keeps services flowing ("informative stereo salesman" is the paradigmatic example). Supposedly, without RPM everyone would get sales help at the expensive store but buy at the discount store; in the equilibrium all stores would be discount stores and poor consumers would wander through the world without sales help. In reality RPM has often been used for lots of the small or even trivial items you see for sale in drugstores.
I attach greater credence to the Ben Klein hypothesis that RPM represents a kind of "efficiency wage" to discipline retailers and force them — through threat of product cut-off — to present the item in a desirable fashion. (In Telser's hypothesis the services flow automatically after RPM is instituted, through a desire to capture customers and extra profits, but why should the extra services supplied then be the ones subject to the free-rider problem, rather than some other side benefits?)
Even when cartelization is the motive, I don't worry that Colgate will monopolize the market for toothpaste. Most or all retail products face lots of competition from the products of other manufacturers. I also don't think that so many business decisions should become primarily legal decisions; our government has enough real crimes to look after. So in my view RPM should be close to per se legal (certainly not per se illegal), with some possible exceptions for resource-based monopolies, not that I can think of any relevant exceptions in the retail context. Arguably government should not enforce RPM agreements, though product pulling is in any case the major means of implementation.
Here is Greg Mankiw on resale price maintenance. Here is an Econoblog on resale price maintenance. Here is Wikipedia. Here is some Supreme Court discussion.
Probably the most compelling one for readers who know very little about antitrust is that the "per se" rule is actually easily evaded through unilateral action (firing a distributor for discounting is ok, as long as you've never warned it not to discount and never take it back), as well as through vertical integration (such as specialty counters at department stores). In short, manufacturers already have ways to ensure their products are not discounted too much that customers will never buy until they're on sale, or will not get "showroom" type service if it's necessary--but the workarounds were clumsy and inefficient, until today.
The only reason for the dissenters to go the way they did is stare decisis, fueled by their fears of overturning Roe/Casey. But I do agree that Breyer makes a compelling case that Scalia has contradicted himself with respect to deciding when old precedent should be overruled. But this is a problem for every member of the court. The truth, of course, is that stare decisis is smoke and mirrors, as Justice Jackson pointed out:
Enough real crimes. Why not spare us the "legal analysis" and just get to the ideological punchline?
Would be nice if the Court would do that more often, too. Maybe it will. Save us all the time involved in trying to figure out incomprehensible decisions. I suppose it is important that the general public believe that there is some law at work here. Otherwise, why would law-yers have any particular advantage when it comes to this kind of thing?
I agree that RPM should not be a crime, of course. But that is a seperate question than what type of review RPM gets in a civil case.
"discipline retailers and force them — through threat of product cut-off — to present the item in a desirable fashion"
is that it is not within the market expertise of wholesalers to determine how best to present the product at retail.
I believe that the proper rationale for anti-trust --- and it encompasses "consumer benefit" plus a lot more -- is the "communications theory" of anti-trust to which Douglas alluded in Footnote 59 of Socony-Vacuum.
To try and build the Internet into the argument, if manufacturers aren't allowed to use RPM with respect to Internet-based distributors, they're going to have a hard time placing their products in any retail showrooms at all - which seriously harms the manufacturer's competitive visibility and brand recognition.
Not that I've looked into it a lot, but I've yet to see an antitrust case that wasn't for the benefit of a "trust's" competitors, as opposed to consumers.
What's ironic is that video game systems, especially right at their launch, are sold at sometimes-phenomenal losses for the manufacturers (and virtually no margin for the retailers). The PS3, for example, is estimated to cost somewhere around $800-$900 to make, but is sold for $600.
Even though video game shortages often result in those systems having a market value (what it'll sell for on ebay, for example) as much as three or four times higher than its retail value (and also higher than its actual cost). So the result is the manufacturer losing $200-$300 per system, the retailer making basically nothing, when the systems could be sold, albeit briefly, at a price that would realize a profit for both manufacturer and retailer.
Part of the reason given is that the manufacturers want to get as much market penetration as possible, because their profit comes from a) 1st party accessories and b) licensing fees- more system owners = more games made and sold. But in the initial stages of production, when production simply cannot keep up with demand at the lower price, a higher price would have no effect on market penetration.
The other reason usually given is that the company's reputation would suffer if it somehow took advantage of the market by charging higher prices. I've never bought that excuse; manufacturers get tons of negative press due to launch shortages and poor management of launch anyway.
Ever since Apple started selling the Second Generation iPod Nano, the retail price has been $149/$199/$249 for the 2G/4G/8G version. No more, no less. Fry's, an electronics discounter, has not discounted this product at all, although they did occasionally use the obvious dodge of selling it together with an accessory like an FM transmitter for a penny more.
Why was this RPM legal before today's decision? It seems that all the facts lie maximally in the direction of it being illegal, in that Apple has very substantial market power in this segment.
-dk
Apple has market power in the iPod segment, less so in the mp3 player segment, even less in the recorded music segment, and less still in the entertainment segment.
As is always the case, it's an excercise in line-drawing. Some people might argue that apples (the fruit) are a subsitute for Apple's iPods. Some might argue that a Sanyo mp3 player isn't because you can't use i-Tunes with it (I don't know if that's actually true).
A tangential point...
Sales tax law often distinguishes between property and service. Isn't everything a service? Isn't a smelter really paying a mining company for the service of getting the ore out of the ground? And then Eaton pays the steel company for the service of turning ore into steel... and then GM pays Eaton for the service of turning steel into a supercharger... and then the dealer pays GM for the service of attaching a supercharger to the other components... and I pay the dealer for the services of storing, prepping, etc. the car.
Where am I going wrong?
I understand the arguments in favor of RPM. It's just that I have a sneaking suspicion that RPM is a little bit like communism. It works perfectly in theory but not, perhaps, so well in practice. When I look at the U.S. economy, I see an incredibly dynamic engine for consumer choice and efficient pricing -- and all of this has developed under the now-defunct Dr. Miles rule.
When I look at other economies that do allow RPM, I see less choice and more inefficiency. I also detect strong whiffs of price-fixing. Perhaps one of the best rationales in favor of Dr. Miles is that it makes price fixing that much more difficult.
Anyway, I look forward to the reign of our new Dr. Miles-less overlords. Nonetheless, I find the idea that Dr. Miles has wreacked anti-competitive havoc on the U.S. economy for the last 100 years to be faintly ludicrous.
Apple does not have an RPM policy w/r/t the iPod's, but they do have a minimum advertised price (MAP) policy. Such policies are generally legal; basically, under such policies, a manufacturer will reimburse a retailer for advertising costs so long as the retailer doesn't advertise the product for below a certain price. This is why you will always find iPod's for $250 no matter where you look; but if you shop online, you may find a different price once you put the item into your basket. (Shop around for an iPod next X-Mas; you'll see what I mean.) Additionally, under the old Dr. Miles rule, it wasn't illegal for a manufacturer (distributor) to terminate a distributor (retailer) for discounting, even in response to complaints from competitors. (This is b/c such decisions are considered 'unilateral' and not 'agreements' under Monsanto.) So, chances are if you sold iPods, and you discounted, someone would snitch and you'd be terminated. Considering the enormous popularity of the devices, that's pretty harsh - even if you're not cleaning up on the iPod, it definitely gets people in your store.
Actually, RPM can help small players. It allows manufacturers to prevent large chains, like best buy, from selling items at or below cost to use as loss-leaders. (Thus helping the small, independent retailer.) That was the rationale behind the old 'fair trade' laws.
Don't be surprised if, after the music labels establish rpms, illegal downloads increase, and the labels start suing teenagers again. Keep an eye on the internet connections people. I will make double-sure my wifi is locked down.
Antitrust law is supposed to help consumers, not prop up smaller sellers (whose interests are often antithetical to those of consumers). Smaller sellers are only valuable from an antitrust perspective to the extent that they create a fringe of defectors from a cartel.
Also, the notion that most antitrust suits (at least under section 1 of the Sherman Act) are pushed by competitors is somewhat laughable. Competitors actually benefit from the monopolistic pricing of their bigger rivals--it's referred to as the "umbrella effect." Section 2 of the Sherman Act and other antitrust statutes are a different ballgame.
On the surface some would argue that this is great for the consumer because they can get the product for less online. In our particular product category however, many of our customers are over 50 years old and don't yet feel comfortable purchasing products online. Also, we receive a lot of calls from customers who purchased the product online and are suspicious to its authenticity.
While our sales haven't yet been affected too much, we have seen a definite erosion in the perception of our brand as a premium product. Another negative side effect is that we have had difficulty growing our distribution channels because the price is so eroded that there is very little incentive for distributors to market our product. This undoubtedly affects future sales.
So for those who argue that it is in the best interest of the consumer to have the lowest possible price, even at the expense of the manufacturer, you need to consider the longevity of the product line. In the long run deeply discounted prices could negatively affect the consumers ability to find and purchase the product.
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