Federal government again thwarts free marketplace ideals

Discount Store News, Nov 17, 1997 by Ken Rankin

Federal law governing the right of retailers to set their own prices has never been cut-and-dried. But until earlier this month at least this much was clear: suppliers have no right to destroy competition and injure consumers by forcing retailers to sell products at or above any minimum price level.

And by the same token, suppliers are similarly prohibited from setting a ceiling on the prices that retailers may charge consumers.

That changed a few weeks ago when the U.S. Supreme Court once again demonstrated its lack of understanding of how a free marketplace is supposed to work.

At issue in the case before the high court was whether the State Oil Company may legally establish maximum prices for what convenience store operators may charge for its gasoline.

For the past 29 years, it has been a "per se" (automatic) violation of the federal antitrust laws for vendors to enforce either minimum or maximum prices that retailers may charge for their goods.

After a federal appeals court upheld that standard in the State Oil case, the attorneys general from at least 33 states supported that ruling. But when the case reached the U.S. Supreme Court, the Clinton administration interceded to defend the oil company's practice of fixing maximum prices.

And earlier this month, to the horror of the state attorneys general, Justice Sandra Day O'Connor released a unanimous ruling declaring that resale price ceilings imposed by suppliers are no longer per se violations of federal antitrust law.

In effect, the Supreme Court and the Clinton administration have decided that it is better to trust manufacturers to set resale prices than to trust in the free market forces of retailing to establish price levels independently.

What Justice O'Connor and the administration failed to recognize is that by declaring that price fixing is no longer automatically unlawful, they have eliminated the bright line down the center of the road that discouraged the chiselers of the marketplace from engaging in flagrantly anticompetitive pricing practices.

What's to stop State Oil or some other supplier with clout in the market from using the Supreme Court decision to ratchet down retail prices (and profits) as part of a scheme to gain an unfair advantage over competing producers of gasoline (or perfume or wrist watches)?

We can expect to see more and more manufacturers edge across the center of the road and then defend their efforts to control retail price levels as "reasonable."

And make no mistake; if the courts can justify attempts by suppliers to dictate maximum resale prices, it may not be long before they will be able talk themselves into defending flagrant practices that prevent retailers from discounting prices below a certain level.