06/28/07: Supreme Court rules in favor of price-fixing

The Supreme Court has just ruled, in a 5-4 decision, to allow tacit price-fixing schemes not seen in the US since the days of legal trusts, oligopolies, and cartels. Officially this means that companies in a field can set a "price floor" for their product, i.e. a secret price below which they promise not to go.

This should be obvious reason for concern in an economy so dominated by a few dozen large firms. We are about to see a new era of rising prices via agreement between corporations - although it is probable that these agreements have been commonplace in the last hundred years they have been technically illegal if challenged in court.

Anti-trust laws and bans on price floors were an attempt to bust the monopolies and oligopolies of the "robber baron" age of American capitalism. Firms in an already advantageous position in the market can now out-price upstart competitors without having to fear additional competition from established rivals, and can do so legally. Indeed, the case heard by the courts was about a production firm cutting off supplies to retailers who did not abide by a price-floor agreement, i.e. they had lowered prices in order to stay competitive in their home markets.

What will become compelling in the future is that this price-fixing, coupled with decades of stagnating wages in the American workforce, will put an incredible squeeze on the American working class. It must be granted that the Supreme Court is and has always been the defender of American capitalism, but this is a stark example of the continued power of the American business elite and the sheer non-existence of a working class resistance. Eras in which there was a vibrant labor movement saw, if not hesitation on the part of the courts, mass mobilization against their decisions.

What makes a socialist such as myself laugh bitterly is that the ruling class in the US is perfectly willing to admit to socialistic methods of planning and control if it helps business continue accumulating wealth and capital. Price floors in a participatory economy, if necessary, would and should be debated by the public at large, and should be coupled with an increase in wages/income by the majority of the workforce. Indeed, even if we are simply talking about a market-economy, increasing the wages of the majority of poorer Americans would probably benefit the economy on the whole more than these price-fixing agreements, but not the pocketbooks of the wealthiest.

June 28, 2007
Justices End 96-Year-Old Ban on Price Floors By THE ASSOCIATED PRESS

Filed at 1:23 p.m. ET

WASHINGTON (AP) -- Manufacturers will have greater leeway to set minimum prices at the retail level without violating antitrust laws under a Thursday Supreme Court ruling that could hurt consumers and small merchants.

By allowing minimum price agreements, the court's 5-4 decision could lead to higher prices, dissenting justices said, as it becomes more difficult for smaller stores and Internet retailers to offer lower-priced goods.

The court said agreements on minimum prices are legal if they promote competition, meaning accusations of antitrust violations will be evaluated case by case.

In a 1911 decision, the Supreme Court had declared that minimum pricing agreements always violate federal antitrust law. But Justice Anthony Kennedy wrote in the majority opinion that the principle that past decisions should be left alone ''does not compel our continued adherence'' in this instance.

Minimum price agreements can benefit consumers, Kennedy wrote, by enabling retailers to invest in greater customer service without fear of being undercut by discount rivals. The agreements also could make it easier for new products to compete, he added, because a retailer could recoup the costs of marketing a new good by charging a higher price.

Dissenting from that view, Justice Stephen Breyer wrote: ''The only safe predictions to make about today's decision are that it will likely raise the price of goods at retail.''

The Consumer Federation of America said in court filings that the ban on minimum price agreements allowed ''innovative retailers to continually enter the market, offering new and lower priced alternatives to consumers.''

But Roy Englert, an antitrust attorney at Robbins Russell, said the court's decision does have boundaries that will protect entrepreneurs. The ruling only allows minimum price agreements between manufacturers of a single brand of a product and retailers, Englert said, while other brands of the same product can still compete on price.

Moreover, if only one brand is available, retailers and consumers can still sue manufacturers for anticompetitive conduct, Englert said. The courts will now evaluate such suits on the merits, rather than automatically finding them illegal.

Englert helped prepare a brief in support of Leegin.

Some antitrust experts say consumers shopping on the Internet will be hurt by abandoning the 96-year-old rule.

Richard Brunell, director of legal advocacy for the American Antitrust Institute, said price floors pose little risk to large chains such as Wal-Mart Stores Inc. because ''it is no longer the new kid on the block'' and has sufficient clout to get whatever products it wants without any price restrictions.

Today, incumbent retailers like Wal-Mart actually might find price floors to be an effective tool against Internet discounting, Brunell said.

In recent decades, the Supreme Court has chipped away at what many economists traditionally regarded as vital consumer protections against anticompetitive conduct. For example, exclusive dealer territories and setting price ceilings are no longer automatically unlawful.

The current case involves Leegin Creative Leather Products Inc., based in City of Industry, Calif. The company entered agreements with retailers setting minimum prices for the Brighton brand of women's fashion accessories.

Leegin said that by maintaining price consistency among niche retailers it sells to, businesses can offer improved customer service. This enables smaller stores to compete against rival brands sold by discounters, Leegin argues.

Several retailers in Dallas selling Leegin's products lowered prices below the minimum. family operated Kay's Kloset said it followed suit to stay competitive. Phil and Kay Smith say that when they refused to raise prices back up, Leegin cut off their supply.

Kay's Kloset sued and the Smiths won a $3.6 million judgment following a trial that laid out details of the price floor arrangement between Leegin and many of its retailers. The 5th U.S. Circuit Court of Appeals upheld the lower court's finding.

Joining Kennedy in the majority were Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito. With Breyer in dissent were Justices John Paul Stevens, David Souter and Ruth Bader Ginsburg.

The case is Leegin v. PSKS, 06-480.

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