Sunday, April 01, 2007

Can "MSRP" be mandatory?

There was an interesting case argued at the US Supreme Court last week -- Leegin Creative Leather Products v. PSKS Inc. -- which raises the question of whether manufacturer-dictated pricing constitutes a per se antitrust violation.

Leegin is a small manufacturer of quality leather goods, which had sought to create a niche by selling only through boutiques:

Leegin's marketing strategy for finding a niche in the highly competitive world of small leather goods was to sell its Brighton line through small boutiques that could offer personalized service.

Retailers were required to accept its no-discounting policy. Leegin did not dispute that this amounted to price fixing, but argued that consumers benefited from the extra care that the retailers' guaranteed margin enabled them to give to promoting and servicing the products.

Leegin cut off Kay's Kloset for cutting prices -- Kay's parent company sued and won in the lower courts. The issue before the Supremes is whether having mandatory pricing is always illegal ("the per se rule") or whether it may be legal if it makes sense under certain circumstances ("the rule of reason").
If the court does use this case ... to overturn the per se rule, resale price maintenance would not automatically be legal. Rather, any challenge to an agreement between a manufacturer and retailer to forbid discounting would be subject to the "rule of reason," a familiar concept in antitrust law under which courts evaluate the anti-competitive effects of a marketing restriction case by case.
The results of this case could have significant ramifications for marketers, and it will be interesting to see the outcome.

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