Some products never go on sale. The video musical game Guitar Hero World Tour Band Kit, by Activision Blizzard, is priced at $189—the same price it was initially released for sale in October 2008. Electronic Arts Inc.’s Rock Band 2 Special Edition also remains priced at $189 across gaming retailers, Best Buy,CircuitCity, and Toys ’R Us.
The reasons for the lack of discounts are the minimum advertising agreements that manufacturers use to ensure retailers to abide by their pricing minimums. A retailer that does not comply either does not receive advertising subsidies from the manufacturer or loses all opportunity to do business with it—both serious implications for retailers.
Yet minimum price agreements also may be a violation of the Sherman Act, a debate that continues to rage and that thus far has been addressed on a case-by-case basis. Minimum pricing is anticompetitive and keeps prices high for consumers. However, though many retailers complain about the restrictions of these policies, other retailers appreciate the fairness that it creates in the industry. For example, if an online retailer charges lower prices, because of its lower overhead costs, traditional retailers have trouble competing, which in the end will mean higher prices for consumers.
Minimum pricing seems popular in certain product categories, like toys. Retail markups, or the difference between the wholesale prices the retailer pays and the retail price the customer pays, have fallen to approximately 42 percent on average, but toy retail markups are just 30–40 percent.
Toy companies are especially strict when it comes to new products. They plan to maintain their brand images and the popularity of their products by keeping their prices consistent. The Playstation 2 therefore has a minimum advertised price of $129, though the PS2 Singstar Bundle and the PS2 LEGO Batman Bundle are not subjected to a minimum price standard.
- What are the advantages for manufacturers in setting minimum pricing standards?
- What are the advantages of minimum pricing standards for retailers? Disadvantages?
Joseph Pereira, “Why Some Toys Don’t Get Discounted,” The Wall Street Journal, December 24, 2008.