Product Pricing - Who Should Control it?

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Who should have the right to set product pricing, the manufacturer or the retailer? Well we're soon going to know who the justices of the U.S. Supreme Court think should control pricing.

This case, Leegin Creative Leather Products v. Kay's Kloset, Leegin, a smaller company in an effort to keep up with the big boys attempted requiring it’s retailers to adhere to a minimum price. Kay’s Kloset, on the other hand decided it wasn’t going to comply, selling the products at a 20% discount. Leegin then determined it would no longer allow Kay’s Kloset to sell it’s leather at all and yanked it’s products. And off to court we go.

The issue here is “whether a brand can dictate a minimum price to retailers in a legally binding way” currently prohibited by antitrust laws, which dictates that “all price-fixing agreements are automatically illegal.” In the first round, Kay’s Kloset won to the tune of $3.6 million in damages; next stop, U.S. Supreme Court, where there already appears to be division amongst the ranks of the justices.

Justice Antonin Scalia (conservative) says "We have shown our willingness to update the antitrust law when sound economic doctrine suggests it is necessary," while Justice David Souter (liberal) “questioned whether the court should wade into such waters.”

The significance of this case is that if the Supreme Court decides to overturn the previous ruling, not only will they be upsetting centuries of settled law, but by allowing manufacturers to set prices, such a decision would substantially reduce the autonomy of retailers to move products in their own stores.

In my opinion, to allow manufacturers to “price-fix” not only gives entirely too much control to manufacturers but hurts retailers and consumers alike. Even the higher end retailers such as Bloomingdales, Lord and Taylor, Sax Fifth Avenue, etc., tend to take advantage of end of season sales to unload merchandise, if the manufacture sets a minimum price, what happens when the retailer can’t mover enough of the product? Price competition would essentially become a thing of the past, which is bad news for both retailers a well as consumer.

As my Criminal Law professor would say, what would allowing manufactures the ability to legally “price-fix” do to the floodgates? Think about this from the utilitarian view and from the understanding that while this particular case involves leather products, consumers purchase everything from the most basic necessities (food, clothing, home-care products) to appliances, machine equipment, etc. If it is permissible for clothing manufacturers, it must then follow that manufacturers of other products must be afforded the same power.

The court is on recess until the end of the month, but it will be interesting to see how this shakes out. Read the complete article here

Cheers ~