The Supreme Court ruled in a 5-4 decision to make it easier for manufacturers to require retailers to honor the Minimum Advertised Price (MAP) assigned by the manufacturer. The dissenting justices said the ruling would likely drive up retail prices. What will be the opinion of consumers?
The high court’s decision strikes down an existing antitrust statute that made the MAP deals illegal. Going forward, the courts will review each individual case to determine whether it violates antitrust laws. Regarding the old antitrust statute, Justice Anthony Kennedy wrote, “It is a flawed antitrust doctrine that serves the interests of lawyers.”
The Consumer Electronics Association issued the following statement: “CEA applauds today’s Supreme Court decision reversing the per se rule against resale price maintenance. The Supreme Court holding that the “rule of reason” should apply to legality of manufacturer’s pricing decisions simply means that all facts will be examined before a determination of illegality – replacing a black and white rule of illegality in every case Reputable manufacturers and retailers value sales service highly, It makes perfect sense to consider these factors when evaluating a manufacturer’s requirement that threshold prices be maintained.”
With this ruling, the judges will determine, on a case-by-case basis, new lines to measure the antitrust norms. Each case will document and set limits for future reference.
Level playing field?
One possible outcome of the ruling is that it creates an opportunity to level the playing field between major retailers like Best Buy, Circuit City and Wal-Mart with locally owned independent dealers. If a manufacturer requires that all locations adhere to the minimum advertised price imposed by the manufacturer, then it is possible for a product to have exactly the same price regardless of the sales channel.
For end consumers, if there is a sudden consistency in retail prices from each location, different considerations would become more important in the decision-making process. If there is no competitive price advantage between online options and physical neighborhood retailers, then consumers may be influenced by convenience, installation options, service, or speed of delivery. Service and solutions could start to take precedence over price and performance.
Although the measure could create competitive consistency for the Minimum Advertised Price for consumers, it does not imply that the same will apply to the purchasing power of large retail chains. Even if the retail price is the same to the consumer, companies like Costco, Wal-Mart, and Best Buy will still have significantly stronger purchasing power compared to smaller chains or resellers. Although the price for large retailers would not increase, the margin and profit could benefit from consistent retail prices. A higher margin would allow large buyers to become more competitive in other areas of the business.
A common method of maneuvering between the desire to maintain a high price and high value associated with a particular model versus the desire to increase market share with an explosion of low-cost products has been to take advantage of derivative models and exploit the SKUs. By changing a few features, disabling a component, changing the product’s color or label, manufacturers have been able to offer low-cost cousins to high-value flagship products in the past. The new high court ruling would make this practice even more attractive for manufacturers and retailers to control the price per product. This kind of control may be a healthy necessity, as falling prices have reduced the perception of some technologies in consumer electronics to commodity status.
Business finds a way
The Supreme Court has removed a huge stone from the center of the fast-moving flow of the Consumer Electronics business. Over time, there will be a series of smaller stones placed in the creek as various advocates challenge and test the limits of reasonableness in court. Despite the expense of litigation and the inevitable stones that will be placed in its path, business and commerce will adjust the flow just as fast-flowing water continues to find its way downstream.
The ruling itself is an acknowledgment of a significant change in the technology market in commerce. The number of competing brands and manufacturers in consumer electronics is much larger and more diverse today than in the past. It is much easier to establish new brands with direct access to dealer channels for original equipment manufacturers. How will emerging brands respond to the ability to designate the minimum advertised price versus wanting a larger slice of the market share pie? Price and demand cannot be dictated locally in a global market.
The advent of personal media that can be downloaded from the Internet and stored on personal devices has virtually wiped out an entire music retail market in the blink of an eye. Record stores are now few and far between, mostly relegated to small sections within consumer electronics retail stores or bookstores. Online music venues offer easy options for individual artists, albums, or tracks. It was not a Supreme Court ruling that imposed such a dramatic change on the industry, but rather the rapid course of business determined by consumer demand.
Have you tried to use a public pay phone lately? Could you find one now if you need it? Cell phones are not free to manufacture, but can be free from an operator if you sign up for the service. If cell phone manufacturers impose a Minimum Advertising Price on the product, will the operator or the consumer pay the price? Ultimately, the person or entity paying the price can determine which product is in stock and which product is sold.
Will a court ruling determine the future of satellite radio, or will it ultimately be defined by consumer demand? Did satellite dishes replace cable networks or simply create an alternative in an existing market once dominated by radio waves and rabbit-ear antennas? There was no need for the courts to mandate competing alternatives between VHS and BETA, or to interfere in the format war between Blu-Ray and HD DVD. The business finds a way.
We salute the Supreme Court for a ruling that recognizes a fundamental rule of business. Courts will not determine conservation or price, consumers will.
words of wisdom
“If you can’t fill the lake with the cup you have, what makes you think you can fill the ocean with the same cup?”
– Samson Eshetu
“For decades, we all competed in what I would call an ‘invent and assert’ industry. We created new technologies and then we asserted, engineered and marketed what we thought the technology could be used for. We’ve reached a point in our evolution where we can’t be an industry driven by gimmicks and guesswork. We can’t grow this industry on that basis. Instead, we have to be driven by the needs of our customers.”
– Samuel J. Palmisano, Chairman and CEO of IBM
“The only thing new in the world is the story you don’t know.”
-Harry S. Truman