Goodbye, internet commerce

[Matthew Gallant]

It was nice to get good deals on things. (http://www.nytimes.com/2007/06/29/business/28cnd-bizcourt.html?ex=1340769600&en=0b4c106d96a846ae&ei=5088&partner=rssnyt&emc=rss)

[Midnight Son]

Nice to see that Big Bidness is getting a return on their investment. (Dubya, Supreme Court, etc.....) I'm just gonna quit buying stuff.

[LesJarvis]

I, for one, do not welcome our new 5-4 supreme court overlords :( All the end of term decisions have been really disheartening to me, and my faith in the court has been shaken pretty severely.

[noun]

What the FUCK? How are cartels a good thing?

[Midnight Son]

I, for one, do not welcome our new 5-4 supreme court overlords :( All the end of term decisions have been really disheartening to me, and my faith in the court has been shaken pretty severely.

Well, they don't give a shit what you (or I) think.

[Hawkeye Fierce]

Holy shit. They basically just said "collusion is a-ok."

What a nightmare.

[Charles]

Good to know that soon everything will maintain Mac-like prices.

[Matthew Gallant]

What a nightmare.
Or the Libertarian dream! Because when Samsung, Sharp, LG, Sony, Toshiba, and Panasonic get together and agree to keep HDTV prices at a sweet profit margin, that just makes way for you and I to give our business to the new line of Goldstar HDTVs (now with 500:1 contrast ratio!)

[JPR]

Goldstar is LG, is it not? Jibe accepted, I guess, but I'm just saying.

[Nick Walter]

Holy shit. They basically just said "collusion is a-ok."


No they didn't. Read the article.

They said it isn't automatically wrong anymore and that for this type of agreement to be an antitrust violation a court has to examine it and make a judgement as to whether it's good or bad. Prior to this ruling all such agreements were assumed bad and the judge didn't have to examine them in detail.

I'm a little fuzzy on how such agreements can possibly help consumers, but I can think of a lot of ways they can hurt consumers, so I take a dim view of this ruling as well.

[Slainte Mhath]

Wow, this is going to blow in the electronics business. Doscounting was the only real leverage consumers had. I'd imagine it will be felt on a smaller but much more insidious scale at places like the grocery store and big chain clothing stores as well.

[Matthew Gallant]

They said it isn't automatically wrong anymore and that for this type of agreement to be an antitrust violation a court has to examine it and make a judgement as to whether it's good or bad.
It's really the same as saying A-OK, when you're talking about consumers going up against the combined legal teams of the colluding corporations to prove harm.

[Hawkeye Fierce]

I did read the article, thanks. I don't think my extrapolation is at all unreasonable, for precisely the reason Matthew just said.

[Nick Walter]

It's really the same as saying A-OK, when you're talking about consumers going up against the combined legal teams of the colluding corporations to prove harm.

Good thing we aren't talking about that then.

These kind of agreements end up in court not because Joe Consumer thinks his iPod costs $10 too much and sues. Oh no. They end up in front of a judge because one party to such an agreement wants out, or because a manufacturer is trying to browbeat a distributor into this kind of agreement, or maybe even because a state AG wants to win some publicity by championing consumer rights.

[Nick Walter]

I did read the article, thanks. I don't think my extrapolation is at all unreasonable, for precisely the reason Matthew just said.

Then I apologize, I took your comment for a kneejerk reactionary post when that wasn't the case. But I still firmly believe you are wrong. Collusion and price fixing might have gotten a little easier to get away with but nobody is condoning them.

[Hawkeye Fierce]

You still have the problem of proving harm, which is a dicey proposition in this sort of situation. I foresee this sort of claim being very difficult to prove, and rather burdensome on the lower courts.

I realize that they're not explicitly condoning collusion and such, but I think the effect is functionally the same.

I really have trouble seeing how this could in any way be a good thing for consumers or small retailers.

[Matthew Gallant]

Collusion and price fixing might have gotten a little easier to get away with but nobody is condoning them.It's my opinion that we will find out that the decision will, de facto, go beyond condoning and encourage it.

[SlyFrog]

You still have the problem of proving harm, which is a dicey proposition in this sort of situation. I foresee this sort of claim being very difficult to prove, and rather burdensome on the lower courts.

I realize that they're not explicitly condoning collusion and such, but I think the effect is functionally the same.

I really have trouble seeing how this could in any way be a good thing for consumers or small retailers.

It's okay. These types of claims are often brought by the Department of Justice. So you will just pay extra tax dollars to have some government functionary have to work hard to prove someone took extra money out of your pocket by colluding on price.

[Lizard_King]

It's my opinion that any action that could remotely harm a business should be taken. Constantly. Business is America's enemy. The courts should be conspiring to destroy them.

[Hawkeye Fierce]

Well, you should be over the moon about this one, since small businesses will probably suffer the most.

Seriously, LK. Pretty weak troll.

[MikeJ]

It's my opinion that any action that could remotely harm a business should be taken. Constantly. Business is America's enemy. The courts should be conspiring to destroy them.

Somehow American business managed to get by for 96 years with the existing rules in this area.

[Quaro]

This only lifts the ban on the manufacturers and the producers setting price agreements, right? It's still illegal for all the SIMM producers to meet up and fix the price of new memory for the next couple years or whatever?

[Nick Walter]

This only lifts the ban on the manufacturers and the producers setting price agreements, right? It's still illegal for all the SIMM producers to meet up and fix the price of new memory for the next couple years or whatever?

Correct.

[Matthew Gallant]

It's my opinion that any action that could remotely harm a business should be taken. Constantly. Business is America's enemy. The courts should be conspiring to destroy them.
An expression of biting sarcasm usually employs teeth. For future reference.

[Elton]

I read the article and I'm still not sure what kind of price floors they're specifying. They're saying that the producer of a good can sell the good to a retailer at one price, but mandate that the retailer sells it with a certain (higher) price floor, right?

I'm not sure what the producer's incentive to do this is, unless they're 1) trying to maintain an up-market image for their product by ensuring it's always expensive or 2) participating in a cartel. I don't care about the first case, and the great thing about cartels is that they present a sweet niche for new entrants to exploit (and participants in the cartel always have an incentive to screw their brethren by lowering prices first). In markets where new entrants aren't really feasible, we'll need the anti-trust department to crack some heads. I'm not convinced the sky is falling, though.

[bloo]

Bye bye, Antitrust law. It was nice knowing you..

I, for one, welcome our new Megacorpgov overlords.

[SlyFrog]

I read the article and I'm still not sure what kind of price floors they're specifying. They're saying that the producer of a good can sell the good to a retailer at one price, but mandate that the retailer sells it with a certain (higher) price floor, right?

I'm not sure what the producer's incentive to do this is, unless they're 1) trying to maintain an up-market image for their product by ensuring it's always expensive or 2) participating in a cartel. I don't care about the first case, and the great thing about cartels is that they present a sweet niche for new entrants to exploit (and participants in the cartel always have an incentive to screw their brethren by lowering prices first). In markets where new entrants aren't really feasible, we'll need the anti-trust department to crack some heads. I'm not convinced the sky is falling, though.

The context in which it most often occurs is a manufacturer who employs numerous distributors. In order to keep the distributors happy, and to attempt to keep some brand and image control over the product (e.g. not selling Gucci purses for $14), the manufacturer often wants to be sure that the distributor five miles down the road from another distributor is not selling the product for some lowball price to try to wipe out the first distributor. Manufacturers do not necessarily see their distributors as capitalistic competitors, but as part of a marketing and sales network that is to function in concert. Setting price floors helps promote that.

This is known as vertical price restraint, which has never been necessarily per se illegal (but for certain exceptions), but instead decided under the rule of reason (which has its own special meaning, but in general terms means whether there is a business motive that outweighs the anticompetitive effect).

Horizontal price restraints (e.g. price fixing among manufacturers of the same product or who sell into the same marketshare) is, on the other hand, per se illegal. You do not get to argue that it is reasonable, you just lose. That has not changed from what I see (I only scanned it quickly).

Note I'm not saying I agree or disagree with the decision, just trying to lay out the fundamental framework of the law as I understand it.

[JeffL]

I'm really clueless on what this really changes.

Apple has always set pricing lower limits on, say, iPods, right? Which I assume means that Sony or anyone else could do the same if they wanted. How does all this fit in perspective of this ruling?

[Elton]

Thanks for the elaboration, SlyFrog. The more I think about this one, the less concerned I am about it. Setting a price floor looks like any other pricing decision which risks the loss of sales if it's set too high (and in this case, the loss of distributors if the pricing terms are too inflexible).

There are a couple of other big-ticket decisions on the front page of nytimes.com today. Not executing insane people (http://www.nytimes.com/2007/06/28/washington/28cnd-execution.html?hp) sounds like an unambiguously good thing, but I'm biased as I'm a death-penalty opponent in general. The Use of Race in School Placement Curbed (http://www.nytimes.com/2007/06/28/us/28cnd-scotus.html?hp) decision I'm less certain about. Definitely a big turnaround from the days of court-ordered busing. I can see an argument that class/social background-based school placement would be better than a race-based program. On the other hand, I'm tempted to say it's best to let the states themselves decide what's the best way to handle inequality in schools. The Seattle program in particular looked pretty innocuous:


The other plaintiffs were Seattle parents who opposed the district’s “tiebreaker” system, which applies only to the city’s 10 high schools and is aimed at keeping the nonwhite proportion of their student bodies within 15 percentage points of the district’s overall makeup, which is 60 percent nonwhite.

[Jason McCullough]

Yeah, this doesn't look like a very big deal. Good explanation, Sly.

[bigdruid]

So, didn't Sony get tagged for this kind of "vertical price fixing" a few years back, where they had to pay $5 to a slew of people who had purchased music CDs?

Is this also legal now? It didn't sound like Sly's "We don't want Gucci purses selling for $14" example - it really seemed more like "Sony wants to keep the margins high on their music".

[Lizard_King]

Well, you should be over the moon about this one, since small businesses will probably suffer the most.
How do you figure? You all keep repeating that, I just don't think that's really the issue.


Seriously, LK. Pretty weak troll.
Well, trolling requires effective source material, not boring apocalyptics. I did the best I could with the Voice Of The People offered up thus far.


Somehow American business managed to get by for 96 years with the existing rules in this area.
That is a profound argument for legal conservativism. I wish you'd been around when women wanted to vote.


An expression of biting sarcasm usually employs teeth. For future reference.

An opinion on a legal matter is usually accompanied by a rationale, perhaps even a compare/contrast with a precedent. Not just bitching and dark insinuations. For future reference.

[Ben Sones]

Well, you should be over the moon about this one, since small businesses will probably suffer the most.

How do you figure? I would say that small businesses stand to gain the most from this, because discounting is the primary tool that large businesses use to crush small businesses. Large businesses (your Wal-Marts, etc.) can afford to discount the heck out of their products because they make up for the tiny margins with volume. But if a manufacturer or distributor can specify a lower limit on retail pricing for their product, that effectively levels the playing field for that product.

I don't see anything particularly anti-competitive about that, to be honest. In fact, in the current retail climate, I think that it would probably increase competition. Most of the abuses that people are envisioning are things that are already illegal under (still) existing anti-trust laws, and not problems stemming from the nullification of this particular rule.

[Hawkeye Fierce]

How do you figure? You all keep repeating that, I just don't think that's really the issue.

What do you think is the issue? I see lots of potential downside to this, not a whole lot of potential benefit for most businesses, and an increase in the amount of judicial oversight that will be needed. I think it'll be good for bigger companies that have both the leverage to negotiate these sorts of agreements and the resources to pursue their cause in the courts. I really don't see it being good for anyone else. If you think otherwise, feel free to explain.

The full decision is here. (http://graphics8.nytimes.com/packages/pdf/business/28scotus_LeeginvPSKS.pdf) I point you to pages 3-5 of the dissent for an overview of how this can end up being bad for business. The whole dissent makes for interesting reading, and I tend to agree with its major points. Pay particular attention to the section (Page 9-10) where Breyer discusses the administrative burden this decision could create.


Well, trolling requires effective source material, not boring apocalyptics. I did the best I could with the Voice Of The People offered up thus far.

Why should anyone bother to engage with you when you don't bring even the slightest modicum of respect to a conversation?

I should point out that my concern over this decision goes beyond the content of this particular case. I think it's a bad decision, but as others have pointed out, not the worst thing ever. But it's a decision that isn't based on anything other than a new interpretation, there's no new law, it's just the court overturning established precedent in favor of its new political slant. That appears to be the prevailing trend in the court's decisions, and that is disturbing to me.

[MikeJ]

That is a profound argument for legal conservativism. I wish you'd been around when women wanted to vote.

It's hard to tell exactly what your argument is when you trade only in sarcasm.

I don't think the existing legal interpretation needed to change. Selling an item to someone and controlling their reselling price looks like a scheme to remove competition among retailers. It seems as though this change will just lead to more confusion and higher legal bills.

[MikeJ]

I would say that small businesses stand to gain the most from this, because discounting is the primary tool that large businesses use to crush small businesses. Large businesses (your Wal-Marts, etc.) can afford to discount the heck out of their products because they make up for the tiny margins with volume. But if a manufacturer or distributor can specify a lower limit on retail pricing for their product, that effectively levels the playing field for that product.

So you think a manufacturer is going to force Wal-Mart to sign such a price-floor agreement? I think a more likely scenario is that a big, high-margin retailer is going to lean on a manufacturer to guarantee their high margins. Like a bricks-and-mortar chain getting agreements from manufacturers that no online store could sell for less.

[Elton]

Thanks for the link, Hawkeye. It's an interesting issue, because by setting a price floor the producer seeks to manipulate the network of distibutors (edit: instead of just getting some more profit directly by raising the wholesale price). The distributors will naturally resist this though, won't they? If they don't have the flexibility to, say, steeply discount handbags at the end of a fashion cycle, they could be stuck with a bunch of merchandise which they can't price cheaply enough to sell.

I'm pretty curious which industries will try to take advantage of this ruling. I can see fashion brands (or any brand chasing an aura of exclusivity) trying to manipulate distibutors with price floors, but commodities like food and electronics and media (i.e. important stuff)? Price competition is pretty well advanced in those markets.

Edit edit: Also, I'm curious if retailers would find clever ways to semi-circumvent the price floor, e.g. "Buy item X at the price floor, and receive complementary item Y at a steep discount".

[Ben Sones]

So you think a manufacturer is going to force Wal-Mart to sign such a price-floor agreement? I think a more likely scenario is that a big, high-margin retailer is going to lean on a manufacturer to guarantee their high margins. Like a bricks-and-mortar chain getting agreements from manufacturers that no online store could sell for less.

While I agree that manufacturers are unlikely to pressure Wal-Mart into doing anything that Wal-Mart doesn't want to do, I don't really see how the scenario you describe above (which is, I agree, likely) adversely affects small business (which is what my comment was addressing).

[ElGuapo]

What this prevents is Best Buy #2023 selling Sony DVD players for $30 less than the other chains as a loss leader if in fact Sony and Best Buy have an agreement to enforce price limits. It does not stop any retailer from selling Sony DVD players at any price they choose. Sony is not going to limit distributors of end products by enforcing draconian price limits. It is not in their best interests, profit wise. They are not going to stop selling to Tiger Direct because Tiger Direct sells DVD players for less than Best Buy. This is a very limited kind of price limit, as explained rather well by SlyFrog.

The case specifically involved a retail clothing chain, one one whose outlets was selling some brand name clothing at a huge discount. The brand name clothing manufacturer noticed and complained to corporate, who balked and said "hey, we can't tell them to sell at a certain price point, even though we want to, that's covered by antitrust law". Now with this ruling corporate could have a stipulation in the contract with Brand Name Clothing Company that said "Your retail outlets will not sell below X price, as set in Attachment 1 of this contract". If they wanted to.

But you know who could abuse the shit out of this ruling? Microsoft. Hoo fucking boy.

[Hawkeye Fierce]

While I agree that manufacturers are unlikely to pressure Wal-Mart into doing anything that Wal-Mart doesn't want to do, I don't really see how the scenario you describe above (which is, I agree, likely) adversely affects small business (which is what my comment was addressing).

Basically just because I think the only companies that will be able to take advantage of this change in the rule is the larger ones with leverage in negotiation and the legal resources to defend against claims. I would think that would equate to a competitive advantage over those who can't use the new rule to their benefit. I am extrapolating a bit, I admit.

[MikeJ]

I don't really see how the scenario you describe above (which is, I agree, likely) adversely affects small business (which is what my comment was addressing).

Ah, I was just replying to the Wal-Mart thing. I don't really see how a small, high-margin retailer is going to be hurt here. Maybe there's something to the competitive advantage for large entities with large legal teams, but they already have an advantage and the effect would be pretty indirect.

Overall, I just don't see any benefit worth overturning such a long-standing precedent. I also like clear rules, and this makes it more complicated.

[Hawkeye Fierce]

Ah, I was just replying to the Wal-Mart thing. I don't really see how a small, high-margin retailer is going to be hurt here. Maybe there's something to the competitive advantage for large entities with large legal teams, but they already have an advantage and the effect would be pretty indirect.

Maybe. The small business issue is being blown out of proportion because I used it to respond LK's useless snarking. As you point out, there's other reasons this is bad.

[Lizard_King]

What do you think is the issue?
I think Breyer's dissent is thoughtful and interesting, premised primarily around avoiding potentially messy legal disputes with a single, imperfect rule and around the common sense idea that it hasn't been broken for the last century, and the reasons suggested now are insufficiently compelling.

I don't believe any of those arguments are accurately reflected in "goodbye, internet commerce", "Big Bidness' return on investment", talk of cartels, or any of the associated nonsense this thread initially promoted. I don't believe any of that talk is any more illustrative of the matter at hand than my obvious troll that bunched so many panties at once. I felt it unnecessary to mention that I did not mean that as an insight on the matter at hand, but rather a straightforward commentary on the forum equivalent of an effigy-stocked WTO rally.


Why should anyone bother to engage with you when you don't bring even the slightest modicum of respect to a conversation?
I don't know. You probably should block my posts, because I would hate to cause you this much discomfort simply by being a bit of a crude jerk. It's going to happen a lot.


I should point out that my concern over this decision goes beyond the content of this particular case. I think it's a bad decision, but as others have pointed out, not the worst thing ever. But it's a decision that isn't based on anything other than a new interpretation, there's no new law, it's just the court overturning established precedent in favor of its new political slant. That appears to be the prevailing trend in the court's decisions, and that is disturbing to me.
Right, which opens a whole other can of worms, sure to be rife with more vaguely supportive "evidence" from court decisions. You can believe Roberts is a judge who interprets certain ways, and is unusually capable of bringing along Kennedy in decisions with the usual "conservative" clique, or you can believe he is the Dread Pirate Roberts pillaging our legal system at Cheney's behest. You cannot do the latter and expect me to pretend your, ahem, extrapolations are not fundamentally unsupported.

The best part of all this is that I don't necessarily disagree with Justice Breyer. I am usually in favor of leaving precedents alone unless compelling evidence is offered to the contrary, and the evidence here is sufficiently contradictory to make changing it questionable. That said, I think the majority decision is based on a careful weighing of the legality of the actions of the company in question. Not only do I think the matter is not closed, but I believe the majority is interested enough in investigating it further that they ruled to assess each case on its merits, rather than coming up with a de facto overruling or anything of the sort (which might warrant the sort of melodrama in this thread). That suggests to me a careful, lesser of all evils assessment of a complicated situation, rather than a blanket endorsement of monopoly.


You are free to act as if the Leegin Leather co's of the world are the Standard Oils of the 21st century, and that the majority decision is just another facet of the international (fill in the blank) conspiracy. But, once again, do not expect to be taken seriously and respectfully if that is the case.

And, for the record, Nick Walter and perhaps a few others are excluded from that subcategory. There is nothing wrong with what you are saying other than me disagreeing with it. But the rest of you know who you are.