Legalized Price Fixing

It's amazing how American business, which sings the praises of competition, so often tries to escape market competition when it comes to its own products.

The latest example is the boom in "minimum pricing" agreements between manufacturers and retailers. Under minimum pricing, retail outlets must agree to sell goods for no less than a price specified by their manufacturer. If they don't, the producer can cut off the supply of the product. Goods can go on sale - but only to a point.

It's a form of price fixing, and it was made legal last year by a court ruling that hits consumers in the pocketbook at a time when they need price breaks more than ever.

For retailers and manufacturers, on the other hand, the results can be miraculous. Store managers no longer have to worry whether a competitor might cut prices and lure customers away. Less discounting makes it easier for manufacturers to keep their own wholesale prices up as well.

And makers of luxury goods get to maintain their nose-in-the-air cachet, which can disappear fast when high fashions land on a 50-percent-off rack.

Minimum-pricing agreements were illegal until a year ago, when the U.S. Supreme Court ruled that the practice doesn't automatically violate the Sherman Anti-Trust Act. That reversed a Supreme Court decision that had stood since 1911.

It's still illegal for manufacturers or retailers to scheme together to fix prices. But manufacturers are effectively free to demand that retailers keep prices up.

America has experimented with minimum pricing in the past. From the 1930s to 1975, a federal law allowed states the option of permitting the practice within their borders.

Then the Department of Justice found that prices were 19 to 27 percent higher in states with minimum pricing.

No wonder Congress repealed the law that granted states permission to allow it.

Since the Supreme Court's 5-4 ruling in June 2007, however, minimum pricing has been making a comeback. For example, The Wall Street Journal reported last week that the practice is taking hold in the baby furnishings, pet food and rental car industries.

In its 2007 decision, a majority of the high court accepted the argument that artificially high prices can be pro-consumer. Manufacturers said minimum prices allow retailers to invest more in customer service and that the potential for higher revenue encourages new competitors to enter the market. The argument further held that minimum prices could encourage retailers to spend money on advertising without worrying that discounters will get all the sales.

There's probably some truth to all of that. But it doesn't outweigh the established fact that, in practice, consumers will be short-changed.

"The only safe predictions to make about today's decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence as lower courts seek to develop workable principles," wrote Justice Stephen Breyer in a dissent.

The real pressure for minimum prices might be coming from retailers, not manufacturers. "The stores are telling manufacturers, 'Keep those prices up among my rivals, or we won't buy from you," says Tim Greaney, a St. Louis University law professor and former Justice Department anti-trust lawyer.

The next move is up to Congress. It should ban minimum pricing. Inflation already is picking the pockets of American families. The government shouldn't compound the pain by allowing price fixing.

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