Supreme Court sets minimum price guidelines

In a change from their 1991 decision that minimum pricing standards violate US federal anti-trust laws, the US Supreme Court has mandated that minimum pricing standards can now be implemented. The change could hurt online retailers.

by Kristina Knight

The Court ruled that manufacturers can set minimum price standards that retailers must use. Without the ability to discount some items many e-tailers will see sales drop and the Internet will likely see many online stores close up shop.

The 5-4 decision, according to the dissenting justices, will likely be most difficult for e-tailers. According to Justice Anthony Kennedy minimum price agreement may actually benefit consumers because retailers will have to win on customer service not lower pricing. He also wrote that minimum pricing standards might make it simpler for new products to make it in today's tougher markets.

Not all of the justices agree with Kennedy's statements, however. Justice Stephen Breyer wrote, "The only safe predictions to make about today's decision are that it will likely raise the price of goods at retail."

Since the Internet became popular, online retailers have thrived by being able to offer products at much lower prices than their brick-and-mortar counterparts. The ruling will likely change that because e-tailers won't be able to set their own prices. Instead they will have to follow manufacturer's guidelines, hurting their bottom line.

Tags: e-commerce, e-tailers, online retail, online revenue

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It could happen... but if you read the opinion closer, the Court's analysis of the procompetitive aspects of vertical price restraints was focused on small retailers selling high end merchandise, where the manufacturer has a large interest in selling in a high service environment. Although rule of reason is now the standard, that doesn't mean manufacturers can just use vertical restraints whenever they wish. While I feel like this case pushed the Court in one direction, I would not be surprised if they take up another case where, say, a large manufacturer with a large market share, making a relatively cheap product, has set a vertical restraint and under a rule of reason, they would say the vertical restraint under all the circumstances is too much, it violates antitrust law. They've relaxed the standard, they need to draw the line. What we know from this case is that high-end manufacturers that want small retailers can set prices-- which will keep big box competitors from artificially lowering prices to drive out competition, and while we might have higher prices, in the end consumers will benefit by having a more diverse retailer population. When Walmart is the only store in town, consumers are more likely to be gouged. This time, I think, the Court got it right.

Posted by: Ryan on July 5, 2007 17:43