August 21 – August 28, 2008 Edition

Supreme Court Ruling

May Help Publishers Block

Retailers’ Cut-Rate Prices

/08/18/08-Some book publishers may soon join other manufacturers in prohibiting retailers from offering deep discounts on their products. A Supreme Court 5-to-4 ruling last year decreed that manufactures have the right to set minimum prices on their own products, a move that overturns the long-standing law against price fixing. According to the Wall Street Journal (August 18, 2008), the new ruling enables manufactures to set minimum prices on their products and force retailers to refrain from discounting.

Antitrust laws, on the books since 1911, prohibited manufactures from punishing retailers for selling at cut-rate prices. The June 2007 Supreme Court ruling upends that law and could potentially change the face of U.S. discount retailing, the WSJ article said.

Manufacturers are threatening to cut off supplies to retailers who won’t honor minimum-pricing pacts. One retailer said about 25% of his suppliers are already dictating minimum prices, and nearly a dozen have cut off shipments, according to the WSJ. Many retailers fear the new law sill put them out of business, and state attorneys general warn that minimum pricing, also called “resale price maintenance,” will feed inflation. Supreme Court Justice Stephen Breyer, in his dissent in the case, estimated that legalizing price-setting could add $300 billion to annual consumer costs.

In May, attorneys general from 35 states — including New York, California, Massachusetts and Pennsylvania — wrote to Congress urging passage of a law to make policies like these illegal. “As the chief antitrust enforcers in our respective States, we know all too well the harm that can be caused” by pricing pacts, the letter says.

The high court’s June 2007 decision, written by Justice Anthony Kennedy, stated that minimum-pricing pacts between manufacturers and retailers could benefit customers under certain circumstances. The pacts, for example, could foster competition by giving retailers enough profit to promote a brand or offer better service, according to Justice Kennedy. “Individual price-setting agreements should be examined on a case-by-case basis,” the ruling said, “to be sure they’re not anticompetitive.”

Authorlink questions how the ruling will affect authors. On the one hand, they might benefit from publishers upholding the prices of their books; on the other, they might sell fewer books through fewer sales channels willing to refrain from deep discounts.