The Supremes and Price Floors

The Supreme Court should reverse past rulings and allow manufacturers to require minimum retail prices.  It’s both consumer friendly and the only conclusion consistent with human rights.

Background:  the Supremes heard arguments that seek to overturn a 96-year old ruling, dubbed the "Dr. Miles" case, which forbids manufacturers from requiring retailers to adhere to a minimum sales price.

The practical argument for overturning Dr. Miles was voiced, with solid economic underpinning, by Justice Scalia.  He first pointed out that the consumers could have more choices.  Some consumers want discount prices on everything (that would be me), but others want to pay high prices for exclusivity.  They will pay $200 for a pair of sunglasses and be happy–so long as they know that I didn’t buy the same sunglasses at WalMart for $9.99.  Right now, the manufacturer cannot enforce the exclusivity of high price, so status-conscious consumers cannot buy what they want.  Now I don’t really relate to the search for status, but it’s not for me to tell a fellow consumer that his wants are illogical.

Scalia also pointed out a free-rider problem that overturning Dr. Miles would solve.  Example:  I walk into the high-service store to learn more about large screen TVs.  After a salesperson spends 30 minutes teaching me about the alternatives, I walk across the street to the no-frills discount store for my purchase.  The high-service store goes out of business, and consumers have fewer options.

Overturning Dr. Miles would reduce competition in the sale of specific products, but it would increase competition across products.  That is, I may not see much competition in the sale of a Brighton brand purse.  But I would see plenty of competition among different brands of purses.  I might choose to pay a high price at a high service store, or I might choose another brand in which there is very heavy price competition leading to discount prices.  The choice would be mine.

Finally, the fundamental human right is the right to live my own life as I see fit, so long as I don’t inflict harm on another person.  Allowing a willing manufacturer and a willing retailer to enter into an agreement that specifies a selling price is the only decision consistent with human rights.

Note: Greg Mankiw agrees with me.