Business & Technology Nexus

Dave Stephens on technology and business trends

Thinking Through Producer Pricing Floors

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The media, new and old, have reacted quickly and negatively to a recent U.S. Supreme Court ruling striking down a century-old antitrust ruling banning producer pricing floors.

Some of the outcry is captured in the following articles and blog notes:

Slashdot: Ban on Price Floors Abandoned, Internet Prices May Rise
Baltimore Sun: Consumers will be paying the price for price agreements
Montpelier Argus: Consumers may be the losers after court ruling

The opinion, authored by Justice Kennedy, is available at the following link:

http://www.supremecourtus.gov/opinions/06pdf/06-480.pdf

The question the Supreme Court chose to review was whether intrabrand competition  (e.g. finding 100 different prices for the same model Sony Camcorder) always produces pro-competitive effects in marketplaces. Said another way, should it continue to be automatically illegal for a manufacturer to set uniform pricing across its distributors.

Many manufacturers skirt the law today by artificially changing model numbers to pretend items are unique when they are not. For example, mattresses. Go try and find the same model number at different physical retailers of any size – I dare you! :)

I suspect it is true that the decision, one where producer pricing floors were declared “not automatically illegal”, will reduce the number of brand-name goods offered at steep discounts via smaller internet merchants.

But it is also possible that there are pro-competitive effects here too. So I don’t think a knee-jerk reaction is warranted to the ruling. To begin with, pricing floors can still be held to violate the Sherman Antitrust Law when common sense reason is applied. Second, some economists point to an increase in interbrand competition (Sony vs. Canon) when intrabrand competition decreases.

Time will tell as this new ruling will likely have a dramatic and rapid effect on manufacturer business practices and in our most competitive markets.

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Written by Dave Stephens

07/20/07 10:26 AM at 10:26 am

Posted in Opinion

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