More on MSRP

The Leegin Creative Leather Goods vs. PSKS, Inc. case is still being decided at the Supreme Court, but there have been more commentaries upon it recently. To review, the point in question is whether the manufacturer of a product can force the retailer to sell it at a fixed minimum price (that is, potentially there could be no discounts at any time, for any reason).

Consumer advocates correctly point out that the ban on such a practice has led to the proliferation of online and real discount stores, saving trillions to consumers since the original ruling in 1911 (Dr. Miles) determined that price-fixing by manufacturers was a per se violation of antitrust law. Seems sensible...

Well, perhaps not. Legal "scholars" are hung up on this point. Most of them hate to see "blanket rulings" like this one stand, as they argue that case-by-case examination is needed to ascertain whether price-fixing actually hurts consumers. To which we might all say, "WHAT?!?"

Aside from providing the best evidence yet that lawyers and economists don't know jack shit about their crafts--they don't really know how the law or the economy are supposed to work--they've dragged poor history into this mess, going so far as to argue that since 1911 there have been half-repeals of Dr. Miles and some pokings and proddings at the state and federal levels to change the rules when the economy seemed to warrant it. And my response is, "so?" History is irrelevant to the law (and the abstraction we call "the economy"--funny how, when you get to it, economists will in the same breath argue that "history" proves Dr. Miles hasn't worked, but also that hypothetical models are the best way to understand practical behavior. Asinine.).

You can read an exchange that more or less sums up the frustrating aspects of this "debate" here. I take umbrage to this passage, though, from some dildo named Lawrence White:

"In other words, under the current rules "Sam, the Catalog Store" may tell customers to get their demonstrations down the block at "Joe's Full Service Store" and then come back to Sam's to buy the product. He can sell it for 10% less because he doesn't provide any of the costly demonstrations. But, of course, then Joe can't stay in business, the service isn't provided, and the manufacturer's sales suffer. So, if setting minimum prices isn't used to build cartels, where's the harm? It's the manufacturer's judgment that this is the best way to sell the product. Shouldn't the manufacturer's judgment be controlling? Isn't that what a market economy generally relies on to benefit consumers?"

No. Idiot! I know where he's going with this--Singer sewing machines. He thinks that, because Singer was founded on higher prices for "quality" machines--the difference in pricing being made up by demonstrators who came to the purchaser's house and taught her how to use the machine--that that is the model for modern commerce. Funny how people like to tack "free riding" onto any discussion of practices that benefit consumers...

"Service" is not what the majority of consumers are looking for. And, ironically, since we are talking about a case that is essentially about whether PSKS, dba Kay's Kloset, can discount a fucking handbag, case-by-case (a.k.a. "rule of reason") examination does not gibe with the better service argument. What sort of demonstration of how to use a handbag does this "scholar" envision? Do women need to be instructed on how to put things in the bag ("no, Mrs. Teakettle--that set of encyclopedias won't fit into the bag. Try something smaller...yes, a packet of tissues will do! Try using your hands. That's it!..."

White's argument really is a very bizarre one: manufacturers ought to be in charge of the retail market. All I can think to say to that is, "if they wanted to be so in charge, why are they not retailers themselves?" To which, I might answer myself, "ah, yes. Because manufacturers who are also retailers tend to dominate the market, thereby becoming...what's the word? Oh, 'trusts."' Vertical integration beyond a certain point--that being of a manufacturer into retail, has long been the sine qua non of trusts. But White treats it as though it is the natural order of things, for reasons I can't imagine. I'm serious: what the fuck is he talking about? Minimum pricing means only that wholesalers can jack prices up--they know for certain what retailers will make. The words "free market" have been thrown around a lot in reference to this case, but I can't think of less appropriate terms to describe this proposal.

I will reiterate 2 points here that, it seems to me, are the only ones worth consideration.

1. If the per se ruling is overturned, then all consumer goods become fair game for price-fixing. "Rule of reason" cases are long and involved. And every single thing you can buy at retail will have to be contested--you don't think manufacturers will let the keys to the kingdom gather rust, do you?

2. Manufacturers should not control retailers. This, it seems to me, is plain. Manufacturers make things, and then they set a wholesale price. Once the commodity has been purchased, it belongs, by definition, to the purchaser. And at that point, the purchaser ought to be able to do whatever the fuck he wants to do with it. In this case, a retailer has already paid for the product. The manufacturer has received the money. Now the manufacturer, in my view, no longer has any connection whatsoever to the product. This seems to me a very simple fact. What is the problem that has prevented most SCOTUS observers from also seeing this fact?

Inserting the manufacturer into the equation is like any uninvolved third party interposing itself into a transaction. Say Jim prints T-shirts with original designs on them. He sells his shirts to a local shop, which in turn retails them. The shop pays Jim for the shirts at the point of exchange, then prices them accordingly. Is it any of Jim's business what the shop charges?

Appendix: the only way I could see the argument for continued interference from the manufacturer after purchase is in the case of intellectual property. We already do this with movies and music, in terms of limiting the resale venues and methods. However, even the recording industry doesn't set the retail price of products in stores. Online, on iTunes, it negotiated a minimum price of $0.99 or whatever.

If Leegin Leather Products could show some artistic/creative claim for protection of the brand, then maybe I'd be sympathetic. But instead, we're talking about taking the retail market we all know and use and detroying it so that manufacturers can turn the greatest possible profit by restricting consumer choice and replacing savings with "service."

However, I also think that from an economics point of view, overturning Dr. Miles would erase decades of innovation in retail. Not that Amazon.com would collapse overnight (but it certainly could, if all its wholesalers simultaneously sued to prevent discounting), but such a ruling would make all categories of goods fair game for re-evaluation.

This includes food. Many people shop at certain grocery stores for certain items. For instance, a less-profitable store might sell a gallon of milk for $2.00 when it's sold for $3.85 everywhere else. This "loss leader" draws people into the store, and while there they buy other things at regular or higher prices, and the store makes money. If you are a savvy consumer--like my mom--you only buy the milk and then go somewhere else for all your other groceries. In short, you save money. But, in most cases, the grocery store makes money due to a sophisticated grasp of economics and pricing flexibility; and importantly, the milk producer already got paid in full.

Contrast that with what Leegin represents: all milk, everywhere, is $3.85. There is no reason, except geographical convenience, to shop at a given store. Hell, all milk might be $17.99, just because that's what milk producers think it should be. And, until enough people sue, that's what it can be.

There are so many things wrong with this whole case that it baffles me.