Deflation? Try Some Legal Price Fixing

The Journal has an interesting story on retailers hiring “police” to ferret out discounters selling their products below the “minimum advertised price”, which is illegal after a Supreme Court ruling last year.

Basically, retailers don’t want others selling their products for lower prices because it hurts the brand’s image or makes it harder for it to keep its own prices up. But isn’t that what a market is for? If retailers can’t even abide by the marketplace then who can?

Klipsch Audio Technologies Inc., an Indianapolis audio-equipment maker, says in the past it prevented discounting by unauthorized dealers by suing them and terminating contracts with authorized dealer that provided the discounters without Klipsch’s consent. Over the past three years, Klipsch broke off its relationship with nearly 20 authorized dealers following lawsuits like these.

But Mike Klipsch, the company’s president, says he now uses NetEnforcers because it is a less expensive way to go.

Mr. Klipsch says so far this year NetEnforcers succeeded in eliminating 1,420 instances of sellers’ listing below MAP online.

“It’s one thing to establish a MAP policy,” Mr. Klipsch says, “but when you go after the bad guys with a company like NetEnforcers you’re showing your retail partners a zero-tolerance policy for any price violations.”

“Bad guys” huh? You sell your product to people then they how are they “bad guys” for selling it at whatever price they want to—even if it’s at a loss? The lower profits hit them, not you—you’ve already got your money!

One thing I’m not quite clear on is whether this affects sellers of used goods. I, for one, am unfortunate enough to own a (temperamental) Klipsch speaker system. If I were to sell it on eBay, does this mean the minimum-price cops could yank my listing?

Tod Cohen, eBay’s vice-president of global government relations, says “manufacturers and agencies like NetEnforcers are increasingly getting more aggressive policing the prices of our sellers.” They routinely use trademark-violation claims when asking eBay to take down sellers’ pages, “but it’s a bit unfairly enforced,” he says. “They take down the Web sites only of the unauthorized resellers that are selling at discounts,” but don’t bother other unauthorized sellers if they’re selling at MAP. This suggests manufacturers are mainly interested in keeping prices up, not preventing trademark violations. Mr. Cohen says.

It’s unclear from this. Still, this is an eye-opening story about a world I’m sure most of us didn’t know existed. Good job by the Journal.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.