A two-year-old court decision allowing manufacturers to set the minimum prices that retailers can charge for their products is driving up prices U.S. buyers pay for a range of products and hurting Internet sellers, three witnesses told a U.S. Senate subcommittee Tuesday.
Congress should pass a law effectively overturning a 2007 decision by the U.S. Supreme Court saying that so-called vertical price-fixing isn't necessarily a violation of U.S. antitrust law, representatives of eBay, Burlington Coat Factory and the U.S. Federal Trade Commission said.
That Supreme Court decision, in Leegin Creative Leather Products v. PSKS, hurts small and medium-size Internet sellers trying to compete with established retailers, said Tod Cohen, eBay's vice president and deputy general counsel for government relations. The court's decision went against 96 years of antitrust law, he said.
Retail pricing agreements "guarantee that consumers will pay higher prices" on a wide variety of products, added Pamela Jones Harbour, a member of the FTC. "Consumers usually do not realize they pay substantial retail-price management [RPM] premiums."
Old-line manufacturers and retailers are threatened by the Internet, where innovative small companies are using technology to drive down prices, Cohen said. But with the Leegin decision, many manufacturers are hunting down online retailers selling below set prices and cutting off their supplies, Cohen said.
"There is evidence that small and midsized Internet retailers are the primary target of aggressive RPM policies," Cohen said. "Many eBay sellers have been targeted by manufacturers and large retail partners with various tactics to take down their listings and discredit their sales."
Cohen called on Congress to pass the Discount Pricing Consumer Protection Act, introduced in January by Senator Herb Kohl, a Wisconsin Democrat and former president of the Kohl's retail chain. The bill would outlaw vertical price-fixing in U.S. antitrust law.
But vertical price-fixing may have some benefits, and courts should not view such agreements as automatic antitrust violations without considering these benefits, said James Wilson, a partner in the Vorys, Sater, Seymour and Pease law firm and chairman of the American Bar Association's antitrust law section.
Manufacturer RPM policies can allow main-street retailers to compete with big-box discount chains by setting the price both types of stores can charge, Wilson said. A longtime rule against vertical price-fixing "has had the effect of enhancing the market power of very large-scale retailers that carry a wide variety of products," he said. "It has harmed smaller retailers who try to compete with those large retailers not on price ... but on the basis of quality and service."
The legislation may not have a huge impact, Wilson added, because manufacturers could still choose which retailers they do business with. Manufacturers can set prices by avoiding discount retailers, he said.
But Kohl and other senators said they've seen evidence of vertical price-fixing on products such as electronics and toys, even as many U.S. families have less money to spend. "For a lot of my constituents, every penny counts," said Senator Amy Klobuchar, a Minnesota Democrat. "Prices to the American consumers have indeed been elevated."