Price Fixing Makes A Comeback?

Steig D. Olson:

The Wall Street Journal's lead article this Monday is on the ways in which many manufacturers have embraced vertical price fixing -- resale price maintenance, or setting minimum prices that retailers must follow -- following the Supreme Court's 2007 decision in Leegin, which held that such vertical price-fixing arrangements are not per se illegal.

The Supreme Court's 5-4 decision in Leegin, which overturned its 1911 decision in Dr. Miles, was based on economic theory supposedly showing that allowing manufacturers and retailers to enter into minimum pricing agreements is not always bad for consumers and could even often be beneficial. For example, the minimum price agreements could give retailers incentives to provide better customer service by discouraging free riding.

It will be interesting to see if that theory is undermined by the experience of consumers in the years to come. As the WSJ shows, in the short term, the Leegin decision appears to be leading to higher prices for consumers -- sometimes much higher. BabyAge - a baby products discounter for example - is willing to sell a certain brand of cribs for $778, but its manufacturer is requiring that the crib be sold at $928. That's a $150 difference. And, in the slightly longer term, it may lead to the disappearance of certain types of discounters.

Sometimes it appears that resale price agreements target online discounters specifically.

The rise of internet discounting has led to push-back in many forms, and many of the counter-measures can ultimately harm consumers. Close scrutiny of these measures is warranted. This will be the subject of a future post - in the contact lenses market.

This is from a new antitrust blog, Restraint of Trade. (HT Josh Wright)

See my previous post: What Are The Goals of Antitrust Law?