March 23, 2007
Irvine, CA--On March 26 the U.S. Supreme Court will hear oral arguments in the case of Leegin Creative Leather Products, Inc. v. PSKS, Inc., where the justices will decide whether antitrust law forbids a manufacturer from setting a minimum retail price for its products. In the past, judges have ruled that this is "price-fixing," and therefore must be prohibited. Critics of this precedent, including the Bush administration, claim that it is "outdated" and "cannot withstand modern economic analysis."
"An overturning of this particular anti-price-fixing precedent would be a welcome development," said Alex Epstein, a junior fellow at the Ayn Rand Institute. "But the Court should go further and repudiate any prohibition against so-called price-fixing.
"Prohibitions against 'price-fixing' are defended by alleging that if multiple companies agree to sell some product at the same price, they will be able to gouge consumers by making that price exorbitant.
"But this is nonsense. So long as the government stays out of the market, no group of companies can force a customer to pay more for a product than it is worth--nor can a group of companies that arbitrarily jack up their prices prevent worthy competitors from winning over their customers.
"There is no danger to anyone from the practice of 'price fixing.' There is however, continuing danger--as there has been great damage done throughout economic history--from antitrust's prohibition of the practice. The reason is that 'price fixing,' like many other key terms in the antitrust lexicon, is undefined and indefinable; it can mean anything government bureaucrats and prosecutors want it to mean.
"For example, in the case under review by the Supreme Court, it is currently considered illegal 'price-fixing' for a handbag manufacturer to contract with retailers to set a minimum sale price on handbags. But, at the moment, it is perfectly legal for a manufacturer with its own retail outlets, such as The Gap, to set a minimum sale price on its retail products. Why is one illegal and one not? Ultimately, because government judges and bureaucrats have said so. And the fact that they may change their minds tomorrow forces all American businesses to function under a perpetual guillotine of uncertainty.
"Every company sets or 'fixes' its price based on its desire for profit, customer demand, and the prices charged by its competitors. This is entirely proper. Every company should be free to set its own prices and policies, which includes the freedom to contract with any other company in whatever way it chooses, so long as there is no coercion involved.
"The government's proper function is to stop coercion--not to be a whim-driven dictator of business policy."
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Alex Epstein was a writer and a fellow on staff
at ARI between 2004 and 2011.