In 2007, the U.S. Supreme Court reversed a long-standing law and said some minimum price agreements are legal under federal antitrust law. The state of Maryland in response passed a law that makes it illegal for manufacturers to require retailers to charge a minimum price for their merchandise.
Manufacturers usually can enforce minimum pricing agreements without too much backlash from retailers, because retailers and manufacturers both make higher profit margins. However, prices are higher than they otherwise would be, so consumers are being punished.
Maryland is trying to protect its citizens by allowing in-state retailers to sue manufacturers that impose minimum price agreements, including Internet retailers that sell products to in-state consumers. By including Internet retailers, the law affects other states as well.
Because of the Supreme Court ruling, approximately 5,000 manufacturers that previously had not imposed minimum pricing agreements began writing them, which means that prices are increasing. Retailers can only sue the manufacturer if its market share is 30 percent or more, which is rare. If the manufacturer’s impact cannot be shown to be anticompetitive, under the Supreme Court ruling, nothing can be done.
InTexas, a handbag retailer, Kay’s Kloset, sued a manufacturer, Leegin Creative Leather Products, because it had refused to sell to the retailer when it found out that Kay’s Kloset sold the handbags at a discount, in conflict with its minimum pricing agreement. Under the Supreme Court ruling though, Leegin’s market power was not enough to give the retailer clout in this case, and it was dismissed.
- What is the Supreme Court ruling on minimum pricing agreements?
- Why is Maryland making minimum pricing agreements illegal?
Joseph Pereira, “State Law Targets ‘Minimum Pricing’,” The Wall Street Journal, April 28, 2009.