Friday, June 29, 2007

Supreme Court Permits Price-Fixing, Solving Non-Existent Problem

Jared Bernstein at Tapped offers some solid commentary on a deplorable Supreme Court decision that has been mostly overshadowed in the media by an entire string of deplorable Supreme Court decisions. The one Bernstein writes about is the one that overturns 96 years of court rulings in order to permit manufacturers to fix prices on products. The effect will be to prevent the retailer discounting that has so greatly benefited consumers in recent decades.

This graf captures the heart of Bernstein's analysis:
What you need to overturn such a well-established precedent, especially one involving basic market principles, is deep and compelling evidence that the ban is truly leading to market failures. The court heard arguments on both sides, and yes, there were some cases where the inability to set a minimum price hurt producers. But not enough to convince an objective observer that innovation or entrepreneurship has been diminished. Jeez, look around. Does it seem like we lack for product choices?
I would add one point that Bernstein doesn't make: namely, that at least part of the cited rationale for the ruling seems disingenuous in the extreme. Here's a quotation from the New York Times story about the ruling:
"In sum, it is a flawed antitrust doctrine that serves the interests of lawyers--by creating legal distinctions that operate as traps for the unaware--more than the interests of consumers--by requiring manufacturers to choose second-best options to achieve sound business objectives," the court said in an opinion by Justice Anthony M. Kennedy and signed by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr.
The claim, then, is that this ruling is designed to benefit consumers by eliminating confusing "legal distinctions" that do nothing but provide work for meddling attorneys. But isn't this exactly backward? Under the old precedent, retail price-setting by manufacturers was flatly forbidden. Under the new rule, it is permitted--sometimes. Again according to the Times:
[T]he court instructed judges considering such [price-fixing] agreements for possible antitrust violations to apply a case-by-case approach, known as a "rule of reason," to assess their impact on competition.
If anything, this new rule should be a windfall for lawyers, since it opens up the door to a whole new class of lawsuits to define exactly which sets of circumstances justify price-fixing. This basically forces companies to consult specialized attorneys whenever they set up pricing agreements.

I understand the appeal to conservatives of pretending that you are trying to simplify and streamline business so as to get lawyers out of everyone's hair, but in this case it appears to me that exactly the opposite is true.

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