Protect Consumer Value and Retail Competition

In 2007, the US Supreme Court’s 5-4 Leegin decision overturned a century old ban on manufacturers setting a minimum price below which retailers cannot sell that manufacturer’s product. eBay Inc. believes that overturning this long-settled antitrust rule threatens pro-consumer retail competition and innovation leads to higher prices for consumer products. Congress should take action to restore the prohibition on retail price fixing and other forms of selective distribution that undermine open competition between retailers.

Background

  • The long-established legal prohibition against retail price fixing permitted discount retailers to sell goods at the most competitive price. Many credit this rule with creating the environment that allowed innovative retailers such as Target, Best Buy, Walmart to challenge the retail status quo in the mid-20th century and emerge into the retail giants they are today.
  • Innovative retailers, including Internet-enabled businesses, threaten the established network of manufactures and their largest retail partners. Those established large partners have a decided interest in prohibiting retail innovators from having access to products that they can sell at low prices.
  • The antitrust rule against price fixing successfully prevented manufacturers and established retailers from locking out innovative retail competitors.
  • There is abundant evidence that retail price fixing raises consumer prices. For the 40 years leading up to the 1975 enactment of the federal Consumer Goods Pricing Act, federal law permitted states to enact so-called “fair trade” laws legalizing vertical price fixing.
  • Department of Justice studies conducted in the late 1960s indicated that prices were between 18-27% higher in the states that allowed vertical price fixing, costing consumers billions in the form of higher prices.
  • In his dissenting opinion in the Leegin case, Justice Breyer estimated that consumer harm would be significantly greater today. If only 10% of manufacturers engaged in retail price fixing, the volume of commerce affected today would be $300 billion dollars, translating into retail bills that would average $750 to $1,000 dollars higher for the average family of four every year.

Recommended Action

Congress should promote open retail competition, especially by small, innovative businesses, and restore the long-established antitrust rule forbidding retail price fixing to enhance competition in the retail market and protect the pocketbooks of consumers.