The Homa Files

Excerpted from WSJ, “State Law Targets ‘Minimum Pricing'” By Joseph Pereira, Apr 28, 2009

* * * * *

In a move that could lead to lower prices for consumers across the country, Maryland has passed a law that prohibits manufacturers from requiring retailers to charge minimum prices for their goods.

The law, which takes effect Oct. 1, takes aim at agreements that many manufacturers have been forcing on retailers, requiring them to charge minimum prices on certain products. The practice has surged since a controversial 2007 U.S. Supreme Court ruling that no longer makes such agreements automatically illegal under federal antitrust law.

Under the new state law, retailers doing business in Maryland — as well as state officials — can sue manufacturers that impose minimum-pricing agreements. The law also covers transactions in which consumers in Maryland buy goods on the Internet, even when the retailer is based out of state. That could potentially affect manufacturers throughout the country.

Minimum-pricing agreements keep retail profit margins higher, which in turn keeps retailers from pressuring manufacturers to lower the wholesale prices they pay for those goods. Suppliers also think that eliminating pricing competition can help retailers spend more money promoting their products to consumers. But certain retailers — particularly online ones — that attract customers because of low prices say the agreements stifle competition and gouge consumers.

Maryland’s legislation is one of a series of recent initiatives aimed at circumventing the Supreme Court decision … “Today there are an estimated 5,000 companies that have implemented minimum-pricing policies, much of it happening in the wake of the Supreme Court decision.”

One company with a minimum-pricing policy is Kolcraft Enterprises Inc., a supplier of bassinets and strollers sold by Wal-Mart Stores Inc … Kolcraft requires retailers to charge a minimum price of $159.99 for its Contours Classique 3-in-1 Bassinet. Wal-Mart’s price is $169.88. The price dictated by Kolcraft for its Options Tandem Stroller is $219.99; Wal-Mart charges $219.98.

The agreement states that the policy is intended, among other things, “to protect all Kolcraft and Kolcraft-licensed brands from diminution.”

Without such legislation, retailers had little hope of prevailing against a manufacturer who requires minimum pricing. “One must show that a manufacturer basically has greater than a 30% market share … and few manufacturers wield such market power in the U.S.

Edit by SAC

* * * * *

Full Article:
http://online.wsj.com/article/SB124087840110661643.html

* * * * *

Want more from the Homa Files?
Click link => The Homa Files Blog

This entry was posted on May 18, 2009 at 7:15 am and is filed under Mktg - Pricing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.