Tuesday, December 16, 2008

minimum prices

You've heard of the minimum wage and price gouging, right? Less frequent, but more interesting, are laws to restrict final product and service prices on the low end.

A little-told-but-important story: maximum wage laws at the end of WWII led to the linkage of health insurance with one's work. (Firms could not increase wages, so they increased fringe benefits more.) Since then, the tax-free nature of that form of compensation has exacerbated the resulting problems.

Laws against low prices are not all that surprising-- since producers would like to have a low-cost way to avoid stringent competition against each other. And for all of the talk about cartels, they are exceedingly rare-- except when government is the catalyst and enforcer for such efforts, as we see here-- with Joseph Pereira's article in the WSJ on eBay and Costco...

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, Black & Decker, Cisco, JVC Kenwood, and Samsung.

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....

Manufacturers have been racing to enforce minimum-pricing policies since last year, when the Supreme Court ruled them to be legal, and not a violation of antitrust law. EBay and a group of other retailers and antitrust advocates are meeting Thursday in Washington to craft a strategy to overturn that ruling.

Manufacturers say minimum-pricing requirements are good because they protect a brand's image from being tarnished by discounting, while helping retailers make enough profit to pay for customer service. Consumer advocates argue that minimum-pricing deals hurt shoppers by keeping prices high and diminishing consumer choice....


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