A common question in managerial economics is why some products do not get discounted when perhaps they should.
In a lot of cases minimum prices are stipulated for retailers by manufacturers.
This would seem to create an antitrust issue, and historically it has. For about 100 years the legal system has viewed plain vanilla versions to be anti-competitive.
The manufacturers response to this has been to add a quid prod quo to the agreement - something like you can't lower the price because you benefit from advertising that we pay for. These are on shaky legal ground.
But last year the Supreme Court ruled that stipulating a minimum price was OK if the product potentially required personal support at the retailers (e.g., demos or technical expertise) that the manufacturer would like to encourage.
That's the backstory. Now here's some cute stuff for classroom use:
- Big box discounters and online retailers don't like it
"Opponents of the ruling, including eBay Inc. and Costco Wholesale Corp., are hoping the decision will be reversed by legislation expected to be debated in Congress next year. The bill's sponsor, Sen. Herb Kohl (D., Wis.), argues that minimum-pricing agreements violate the Sherman Act, the law that prohibits price fixing and bid rigging.
"However you want to dress up these policies with fancy legal language, these policies are obviously in the interest of business and not the consumer," says Jacob Weiss, founder of StopPriceFixing.org, a Web site that aims to end minimum pricing policies by educating consumers about them."
- But, traditional main streeters like them:
"Many traditional retailers favor minimum-pricing agreements because they help put a stop to what the stores view as unfair competition from online sellers, which can charge less because they have lower overhead costs."
- Students are often confused when they see products whose price is always the same everywhere:
"Mr. McMahon agrees consumers 'will think it odd when they go on the Internet and find all the products at exactly the same price.'"
- The manufacturers apparently know they are doing something that can be spun negatively without much effort.
"Manufacturers often don't like retailers to discuss their pricing agreements publicly. A 2008 MAP agreement from electronic learning-aids manufacturer LeapFrog Enterprises Inc. states, "This policy is considered confidential and should be respected as such relative to conversations with LeapFrog competitors.""
- Of course, you can't discriminate on the basis of a whole set of personal features, but you sure can over policies that might not be enforceable in court:
"Some manufacturers threaten to cut off supplies to retailers that charge below minimum prices outlined in agreements. One example is Alex Inc., in Northvale, N.J., which makes play houses and arts-and-crafts supplies, among other products."