If we have learned anything from the failures of socialism and the achievements of capitalism, it's that if you want to protect consumers, relying on the wisdom and benevolence of government is not the way to do it. America has the most dynamic environment for retailing because we let rival companies fight it out hammer and tong in the marketplace, using their own judgment about how to satisfy the customer.
But sometimes even we Americans forget that crucial lesson. This week, some Supreme Court justices indicated they think the iron fist of federal law is superior to the invisible hand of the market.
The issue in this case is whether a manufacturer can dictate to retail stores what they can charge for its goods. You might think that if you take the risk of making a product, you should be able to contract with sellers on terms you think will enhance its chances of success. If stores don't want to go along with your preferences, they can carry someone else's products, and you can look for other retail outlets.
But under our strange antitrust laws, that's not always how it works. For a manufacturer to make an agreement with retailers to sell only at a specified minimum price is illegal -- even when it promotes competition and offers benefits to consumers.
The practice, called resale price maintenance, is at the heart of a dispute between Leegin Creative Leather Products, which makes high-end purses and shoes for women, and Kay's Kloset, a suburban Dallas boutique that cut prices on these items below those it had agreed to. When Leegin ended its shipments, the store owners sued, claiming antitrust violations. A jury awarded them $3.6 million, in keeping with established federal law that treats resale price maintenance agreements as invariably malignant.
This view stands up under scrutiny like butter under a hot sun. The assumption is that if you let manufacturers control retail prices, they'll hose consumers for their own profit. But if they wanted to hose consumers, they could just raise the wholesale price they charge to retailers. That way, they would get the full proceeds of the rip-off, instead of sharing them with stores. So it's reasonable to assume there is some motive besides price-gouging at work.
A friend-of-the-court brief filed by 24 economists, including several who have occupied the top antitrust jobs under Democratic and Republican presidents, portrayed the ban on resale price agreements as a relic of economic superstition. Such contracts, they argued, often enhance competition, and there is no evidence they usually harm consumers.
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