Price Fixing Again: Pending Legislative "Fix" Poison to Consumers

Steve Chapman postulates that allowing manufacturers to set retail prices is an "invisible hand" referring to the invisible hand of economics-competition. Chapman incorrectly reverses the definition, when the true invisible hand is that of price competition. Manufacturers don't only set retail prices to encourage service factors in retailers, they like to set prices so that they can generate more sales through increased distribution, knowing that price competition, that great driver of consumer support, won't allow the marketplace to work it's magic.

When you can buy the same model stereo system, or handbag, or suit, or just about anything from different retailers just a few miles from each other; when the service factor isn't because most salespeople in stores are "stock clerks", not professional salespeople, and for a host of other reasons, manufacturers choose to sell the very same equipment or accessories to competing retailers in the same market area, or even nationally for Internet and Mail Order shopping, the cache of "only available at Macy's" goes out the discount window.

Nordstrom's business model works for them because of the image and quality of their offerings and their value-added "service" component, which differentiates Nordstrom's from most others. Not so Wal-Mart, which offers major brands of many items at a discount. Why would you buy from Nordstrom's what you can buy from Wal-Mart for 40% less?

Because you are willing to pay for the service and cache offered.

Now suppose Wal-Mart were forced by law to sell at manufacturer-determined very high retail prices -we're talking 200% markups over cost here, folks, for a great many items. Would anybody still shop at Wal-Mart?

I didn't think so. Therein lies the fallacy of Resale Price Maintenance; if no special service is involved in the sale, when anyone can stock and resell a product, why should the consumer be asked to pay more?

They shouldn't. A competitive marketplace should set pricing.

Chapman may not be old enough to remember the pre-1976 days of Fair Trade in which Consumer Electronics and a host of other manufacturers set retail prices, thwarting competition on price in the process.

The so-called "service factor" wasn't, primarily because retailers devoted less and less space and training and service, including things like warranty service, warranty exchanges of defective products, and much more. Discount retailers rightly perceived that "value pricing" meant different things to different people. When Pioneer Electronics, the big enforcer of Fair Trade pricing in Consumer Electronics wanted to expand it's distribution to retailers other than the boutique types they had previously employed, and limited numbers of retailers in a particular marketplace, their actions and those of other manufacturers forced the issue. Thereafter, Fair Trade Laws including Resale Price Maintenance, were repealed when our elected representatives realized that it was consumers who were hurt by artificial price setting, and they should have a choice.

Manufacturers dug their own grave when their greed for additional sales and profits dictated that they wanted to expand the numbers and types of retailers carrying their products, naturally leading to price competition and discounting.

I know, I was one of the first retailers to break Fair Trade pricing for Pioneer Electronics in 1976, both nationally in Mail Order Catalogs, and locally in our retail chain.

Disclosure: I was president of a discount-business-model electronics retailer, mail order and wholesale distributor from 1974 to 1980, the period during and after repeal of Fair Trade Laws.

Manufacturers are even less entitled to "having their cake (the product sale) and eating it too (price fixing)" today than they were 30 years ago. Retailing has evolved greatly, the Best Buys and Wal-Marts and Targets would not succeed in their business models without discounting as part of the "value pricing" offer to consumers, to whom they offer discount pricing as part of their business model. It should be noted that even these venerable discounters enjoy very high profit markups on their own "private label" brands manufactured under contract.

Finally, let me note that manufacturers can always agree with specialty retailers to offer improved service levels to consumers, along with other value added "service" components, and limit their distribution to those retailers who agree and fit the mold of a high-value-added reseller.
But, their greed always gets in the way, and other retailers with different business models rightly perceive that discounting is a valid market business model.

You can't do both. Economic reality is what should control the marketplace, not a manufacturer's greed.
It would be the greatest of disservice to consumers and a free marketplace to allow Resale Price Maintenance laws to again restrict consumer choice in the marketplace.

Manufacturer greed can't be allowed to trump consumer choice and a free marketplace.