From the New York Times:

"The Supreme Court on Thursday abandoned a 96-year-old ban on manufacturers and retailers setting price floors for products.

"In a 5-4 decision, the court said that agreements on minimum prices are legal if they promote competition.

"The ruling means that accusations of minimum pricing pacts will be evaluated case by case.

"The Supreme Court declared in 1911 that minimum pricing agreements violate federal antitrust law.

"Supporters said that allowing minimum price floors would hurt upstart discounters and Internet resellers seeking to offer new, cheaper ways to distribute products."

Here's an article on it:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9zLL8gyZm5s&refer=home

and the text of the opinion:

http://www.supremecourtus.gov/opinions/06pdf/06-480.pdf

Howard

This is a very interesting development for the piano industry. It will likely have significant impact.

It may also impact the current FTC investigation into MAP policies.

I'll really have to think about this one.

One thing seem obvious...Yamaha was ahead of the curve on this one.

Er wasnt Steinway there first? Anyway, yes, Stevo, very interesting, In the trades it seemed like everyone, esp, the MI guys were/are holding their breath. Remember what Hopkins said. "My prices are high, thats why I stay in business!"

I fear this means that the actual selling prices of most goods will rise by 30-40%. If the discounters will no longer be allowed to sell at 30-40% below MSRP for a wide range of products, that is going to translate into immediate and widespread price inflation.

Once this strong inflation shows up in statistics, interest rates will go up as well.

If manufacturers play this too strongly, they could end up destroying a large part of the consumer market in the USA. Products will be significantly more expensive to consumers, and high interest rates will create a credit crunch.

Are there other countries where these "price floors" have been legal for some time?

Why fear it? Steinway has a very succesfull business model because of it. We need a credit crunch.

This is one of the most significant developments in antitrust law in a long time. Still, let's not overstate it or misconstrue it.

What it means is that a manufacturer can, by contract, require its official retailer dealers to sell products at or above a set minimum price, *if* the pro-competitive (or pro-consumer, not always clear) benefits outweigh the anti-competitive effects. It's a fairly complex analysis, and while it will likely mean an increase in the already widespread practice of resale price maintenance, there are still markets and there are alternative products and people don't have to sign these contracts...and it could backfire against the manufacturers who try to force them on retailers. Markets are not generally that maleable. But time will tell.

In general, it's not a very good decision, imo.

So, if out-the-door prices go up 30% will that be the final nail in the coffin of the acoustic piano industry?

I hear sales have been already shrinking the last two years.

Digital piano manufacturers also could enforce minimum prices on products.

The only ray of hope is that consumers, accustomed to a 30% discount, will just refuse to buy at an artificially inflated MSRP. Manufacturers may be forced to bring their MSRP down to the "real" market price level, or allow dealers to discount, when unsold inventory starts piling up.

Or manufacturers may just make fewer pianos to bring supply down to the demand at the high price. Everyone would lose in that scenario - revenues and profits down, employees of the manufacturer lose their jobs, and consumers have fewer/more expensive pianos to choose from.

Steinway's business model has made it prohibitively expensive to buy a new Steinway. That's good for Steinway and existing Steinway owners, bad for everyone else who wants one.

Uh, you still can't price something so high that nobody buys it. Most manufacturers are not overtly suicidal (though greedy and dumb can have a similar effect).

How this will play out is anything but clear--but "everything going up 30%" just strikes me as a panic attack.

By the way, what would be "pro-competitive" or "pro-consumer" about requiring a retailer to sell a product at an artificially high price? This only seems ANTI-competitive and ANTI-consumer, by providing a new avenue to raise prices above normal competitive, market-clearing levels.

I've always wondered why manufacturers even care. They sell to retailers at a wholesale price and already got their money. If a retailer is willing to accept lower margins to make a sale, why should a manufacturer want to stop them from doing so?

Colin,

If you would like a copy of the Supreme Court's decision, PM me with an email address and I will send it to you. The Court (as is typical in antitrust decisions) goes into some detail on that question. There have long been arguments that RPM is good for maintaining a quality distribution network, which in turn is good for consumers overall etc. There is some logic to the arguments, but many people (me, among them) would argue that there are other ways to achieve the desired (pro-consumer) results, and that RPM is a dangerous and unnecessary way to get there.

A manufacturer has a vested interest in their retailers doing well. They do not want retailers who go out of business from not being able to sell their product with enough margin. Then they have to go and find someone else to sell their product. They also don't want their successful retailers getting undercut and being unhappy, and then maybe looking for another product line to represent where they can do better. Manufacturers also don't want to have to buy back product from retailers they set up who are going out of business from poor business practices. Some also don't want their reputations damaged by being associated with desperate marketing measures taken by retailers who cannot maintain working margins in what they sell. They also don't want their good retailers to be adversely affected by " guilt by association" from retailers who carry the same product but must go to desperate lengths in order to sell it.

In the case of pianos, and other high maintanance products, some manufacturers have pride, and want their products to be represented in a certain way.
And they know that the dealer must build into the price the overhead associated with prep and service if their product is to be presented well. They may also feel that being represented by dealers that display their product at a high level may, in the long run, help them to be thought of as a quality company, which will enable them to be more competitive.

That's a pretty good summary of the manufacturer perspective on it, given the best possible spin (that is, assuming it is not purely a mercenary issue of increasing prices).

The question then becomes...what is the consumer perspective? After all, the antitrust laws were enacted to protect consumers, not manufacturers.

And there, I think you have to admit, consumers are less and less interested in "presentation," more and more able to educate themselves independently about products, and increasingly determined to price shop after having done so. The question then become, to some extent -- who really cares about all these "manufacturer concerns," other than the manufacturers?

I wouldn't be surprised if there was a Congressional reaction to this latest ruling. Congress, of course, could overrule the Supreme Court on this.

It's a fascinating subject (well, for those of us whose lives are so dull that law can actually be fascinating ).

Keith, you may very well be right re manufacturers motives, but it's difficult to understand how price fixing agreements can be considered either pro consumer or pro competition.

My take on the decision - and I've read only a little of it - is that this is a triumph for businesses and potential catastrophe for consumers.

My prediction is that this will have far less impact than one might suspect. It will legitimize Steinway's retail price maintenance policies, and Steinway has the name and reputation to get away with that. Most other manufacturers will attempt (as they always have) to find that equilibrium between price and sales volume that maximizes profits.

Deerwood, hope you're right.

I was just answering Colin Dunn's question as to why a manufacturer cares.

This whole thing will not inhibit competition accept among specific brands that adopt some kind of minimum pricing policy. As soon as brand Y adopts a minimum pricing policy, brand X will step in and use that restriction imposed on their competitor to their advantage and lower their prices. Individuals will be dissapointed if they feel brand Y is superior to brand X, but others will feel just fine getting brand X at a lower price. Some may argue that Brand Y's minimum price may raise Brand X's undercutting price, but then Brand Z can step in and undercut Brand X. If brand Y is good enough, they succeed, if not, they die or have to lower their minimum price, or do away with it altogethor.

Keith -- to be clear, I wasn't in any way criticizing your response, which I think was very useful and accurate. I was just saying, ok, now let's talk about the consumer perspective on the question. There's at least three levels of perspectives/interests here: the manufacturer, the retailer, and the consumer. Ignoring any one would be a mistake.

Well, if the product is so good the manufacturer can get away with it, good for them....but in a down economy they had better be right.

I find the decision rather disturbing myself, but in the end it will probably have very little impact. How successful has Yamaha been with their minimum selling prices? Evidently not terribly so. A manufacturer pursuing such a policy too rigorously would almost certainly harm its sales and its bottom line.

This court is so blatantly regressive it's a joke; they're not even subtle about their efforts to set the clock back to the good old robber baron days (just ram it through with a majority and verbiage that can be charitably described as the merest of pufferies).

The new justices are so ideological and mediocre, it just breaks my heart to think they're warming the same benches once occupied by legends such as Holmes and Brandeis.

There have already been a series of decisions in recent months favoring exclusively big business interests, the trend is obvious. These same characters will still be sitting here 20, 30 years from now (think on that and what that will mean for your kids as consumers).

Surely, if we take the piano industry as an example, if US manufacturers try to use this to raise prices they will be playing straight into the hands of the very price competitive Chinese. people will pay extra for home (or European) brands up to a point. The availability of good quality Chinese goods will test that point.

True enough AJB, but internal competition within a brand and among dealers is going to be diminished if not eliminated altogether; and with this new internal price fixing power in their hands, the ease for external price fixing and other collusions between manufacturers increases significantly. Frankly, this court is giving the business community a green light to undertake any and all monopolistic practice they may desire. Any enforcement by the attorney generals will be appealed ultimately to this farce of a court where the monopolist is assured a favorable judgement. This decision is so destructive to free enterprise competition and consumer protection, it totally boggles my mind how they dare to do this, overturning hundreds of prior supreme court decisions stretching back almost a hundred years (guess they forgot to study stare decisis when they were at law school!). The barbarians truly are at the gates (correction, inside the gates; I am truly stunned by their audacity and their stupidity; eliminate competition and 10 20 years down the road the US will be a backwater banana republic, asia and europe will walk all over us and that's a fact).

I agree with you, Sid -- not only about the effects of this ruling on the piano industry, but also on the new "Justices" generally. This Supreme Court will do tremendous damage, there is no question. The only question is whether there will be sufficient groundswell to get some of the carnage reversed by Congress.

Back to the topic -- it's largely about market power. The manufacturers with market power will be able to weild it to get these kinds of agreements, and will be able to enforce them now. (I think the reason Yamaha was not particularly successful at enforcing RPM restrictions was probably because they were reluctant to risk a court battle on the issue -- that will no longer be the case.) In other words, you want a Yamaha dealership? You better comply.

Buuuuttttt....market power changes over time. Companies that are at the top of the food chain sometimes slip down. Maybe Yamaha will do that, in the face of the increasing competition from abroad.

Then, of course, we face the almost unimaginable consequences of a world dominated by an all-powerful economic force known as China.

As I said, we live in interesting times...

Congress reversing the carnage being done by this Supreme Court? I'm not holding my breath, because they're bought and paid for by the same big-business interests the Supreme Court favors.

If Bush gets to appoint another judge, the USA will almost certainly go down the tubes.

ObPiano: What are the issues with importing a grand piano from the USA into Canada? No ivory keys, but what about duties, taxes, etc.? If the US stays on this path, I plan to leave before the rush...

You are looking at this all wrong. Price fixing doesn't change anything. All it does is affect the number of buyers. There are alternative products, not all of which will have a higher price (regardless of manufacturer prices). The first stupid manufacturer to overprice will lose customers.

This should be easily apparent in high volume low margin products like electronics. There are always alternatives.

Manufacturers can only set a minimum floor at which people will buy. If anything, I think it only injures those selling at unimaginable prices like those going out of business or otherwise selling it a loss.

You think this will affect piano prices? You think Yamaha can now say they will price pianos 30% more? If that ever happened, watch sales drop like a rock. Maybe the Supreme court realized that this doesn't change much such since in the end, consumers control the price by their demand. Price is not some club controlled by a manufacturer. They can only offer a price. They have to adjust the price until people buy. Economics 101.

Remember the alternatives include "used", rebuilds, not just new, or another product. Anybody here buy a piano without comparing against other brands?

Why do you think Chinese brands sell? Because of the price difference.

If the only place to buy a piano was the showroom of an authorized dealer of one of the mainline brands, then the effect of this ruling would be the 30% price increase ya'll are talking about and the loss of negotiating power on the part of consumers. But I think the market has evolved beyond a point where that would happen. The Steinway dealer here (Houston) isn't particularly price sensitive, but he knows I have access to reputable internet sources, at least three good-sized independents that sell well refurbished gray market pianos, the Famous Scott Covington's Piano Store, etc. He's not going to go crazy with his prices while I have those options out there. (OK, Steinway's a bad example...the Yamaha dealer isn't going to go crazy with his prices.) Consumers who want a nice instrument have too many choices at this point to be held hostage by a small group of dealers trying to enforce minimum prices.

Like most of the Supreme's decisions, particularly in the arena of antitrust, this one isn't going to amount to much. The market will ameliorate the impact, not enhance it. Just mho. TGG

I think you guys are right to some extent that the case isn't likely to have a huge impact, due to the inexorable forces of the market.

The one area where it will have more impact is in markets where one or two companies have greater market power. Market power is an antitrust concept, and it makes all the difference.

Arguably, however, companies with market power may still be constrained, under the Rule of Reason, if their RPM has anti-competitive effects overall.