Are Antitrust Laws Designed to Protect the Consumer?

Last week in it’s ruling on LEEGIN CREATIVE LEATHER PRODUCTS, INC. v. PSKS, INC., the US Supreme Court took the position that anti-trust laws are not designed to protect the consumer, but instead, manufacturers.  Here’s an excerpt:

A single manufacturer?s use of vertical price restraints tends to eliminate intrabrand price competition; this in turn encourages retailers to invest in services or promotional efforts that aid the manufacturer?s position as against rival manufacturers.

It goes on to explain how locking prices into tiers supposedly benefits the consumer:

Resale price maintenance may also give consumers more options to choose among low-price, low-service brands; high-price, high-service brands; and brands falling in between.

What’s wrong with high-service brands without the high-service overhead at the low service price?  The court explains that as well:

Absent vertical price restraints, retail services that enhance interbrand competition might be under provided because discounting retailers can free ride on retailers who furnish services and then capture some of the demand those services generate.

I agree that customer service in discount stores is minimal, but considering that service in general is so abysmal, I’m happy to bypass it and I don’t think I’m alone.

When I shop, I go for a combination of the best product for the least money with the least time spent obtaining it.  I’m resigned to the fact that any additional services will require phone/email contact direct to the manufacturer.  For me, the best thing retailers can do is stay out of my way and let me give them my money for the product I want as effortlessly as possible.

For example, I judge my ideal retail service experience on a visit to Roush Hardware in Westerville, OH (sometime in the autumn of 1997).  They operated with a sort of proactive zone model.  As a customer enters the store the greeter asks you if you’re looking for anything specifically.  In my case, it was a bolt for my license plate.  The greeter pointed the appropriate aisle out to me and paged an associate who met me in the aisle.

The guy knew exactly what kind of fastener I needed and grabbed a few, along with a screwdriver.  He walked me out to my truck and installed the bolts to make sure they’d fit, and when they did I went back inside and paid.

I’m sure I could buy discount bolts somewhere, but the court is clearly wrong that I would bypass the service I received for bolts that were  few cents cheaper.

The ruling dealt with shoes, and since I’m married, I’ve had plenty of opportunities to observe shoe shopping.  My wife tends to go shop for shoes that she needs to be comfortable at stores that offer better service.  When she wants shoes for style, she shops at stores where she can be left to dig through thousands of deeply discounted shoes from a variety of brands with nobody to bother her – sometimes even online.

The court would have you believe that it would somehow benefit my wife to artificially inflate the prices at discount shoe warehouses and drive her to more intimate mall retailers.  Our household budget says otherwise. 

Presently she can afford brand name style and quality at closeout prices, and that’s the best of both worlds.  The court’s position illustrates clearly that the law here is designed to protect business at the expense of consumer choice.  That’s something to consider next time someone becomes defensive about big-government anti-trust laws framed as a consumer protection.

2 Responses to “Are Antitrust Laws Designed to Protect the Consumer?”

  1. Mark says:

    I know this post is old, but I thought I’d offer my opinion anyway. I know very little about the laws and precedents cited in the Supreme Court decision, but I dabble in economics and have come to this conclusion:

    While I agree that the level of service a person wants when shopping for a product varies, and that the market should react to this demand, I am strongly skeptical of a court deciding who must/mustn’t sell to whom, at what price, or under what conditions.

    The amount of capital allocated to designing and producing a product is based solely on an estimate of how profitable it will be. If (hypothetically) Microsoft guarantees WalMart that any money spent marketing the Xbox in WalMart commercials will not be in vain, the Xbox might be more profitable than it would otherwise be. (Naturally, this plan could backfire and the Xbox could lose ground to another console that is cheaper due to fiercer competition from online stores.)

    Any cost/benefit analysis would take this into account and companies would make decisions about releasing new products based on this. If our courts set precedents that restrict buyer-seller contracts, then less resources will be allocated to creating products that might benefit from such contracts.

    Restrictions on contracts/prices/trade can bring prices down, but they can also reduce the quality/quantity of products available by masking market demand. I understand that industries with monopolostic competition leave consumers with less choice than industries with lower costs of entry, and I can sympathize with trying to do something about it. I am, however, significantly more afraid of government regulations on freedom of contract. Let’s not cut off our face to cure our acne.

    It is inredibly difficult to maintain an unfair monopoly. Even if the costs of entering an industry are great, investment capital can be raised to go up against a company that is running inefficiently, or has high profits (contrast “profit” vs. “income”). The prices of products naturally move toward the opportunity cost of the resources required to produce them. This, of course, does not apply to statutory monopolies (e.g. USPS, the old Bell System, Federal Reserve, public utilities, etc., etc.)

    “Over time I have gradually come to the conclusion that antitrust laws do far more harm than good and that we would be better off if we didn’t have them at all. ” -Milton Friedman

Leave a Reply