In a decision that will have profound pricing impact, the Supreme Court overturned a century-old ban on restrictive pricing clauses between manufacturers and distributors or retailers. In an ideologically divided 5-4 decision, the high court ruled that the practice of producers dictating prices to business further down the channel was not longer a definitive violation of the Sherman Antitrust Act. Instead, the majority said that the impact on the consumer and competition in each individual case would determine the legality of pricing agreements.
The ruling provides much more pricing power to manufacturers, which has eroded greatly with the rise of the internet. Makers of premium goods, who want to sell through high-touch retailers, can now prevent online discounters from undercutting prices and driving down the profits of both retailers and manufacturers.
To avoid the restrictions that the Supreme Court just overturned, manufacturers resorted to “Minimum Advertised Price” (MAP) clauses, which would legally restrict prices retailers could advertise. This is why you see “price too low to show”instead of actual prices in some ads and on websites like Amazon.com (see this cell phone for an example, along with Amazon’s explanation). In addition, producers may offer rebates or other discounts in return for agreeing to certain pricing terms.
In theory, the new ruling will make such arrangements more transparent and easier to manage, although as dissenting justice Beyer noted “[the ruling] will create considerable legal turbulence as lower courts seek to develop workable principles.”
Stay posted. If this ruling will impact your pricing policies, hopefully you have been preparing for this ruling. If not, you need to assess the impact and opportunity urgently.