Distribution, Competition, and Antitrust / IP Law

Are Minimum Advertised Price Programs Good or Bad? (Continued)

Sorry for the delay in posting.

Returning to the article linked below, I’ll briefly address some more criticisms of Minimum Advertised Price (MAP) programs.

6. MAP pricing hurts customers, because it makes it harder for an end user to compare prices among a variety of dealers.  There may be a cost to consumers from MAP programs, but it has to be weighed against the manufacturer’s avoided costs.  MAP programs can, at least in theory, address the problem of free-riding.  For example, an Internet-only dealer might be able to offer slightly lower pricing because it has no brick-and-mortar costs.  But it might also be able to do so because it is not making an investment in the brand or product and is relying upon the investment of other dealers, who might not make such investments if they fear low advertised prices.  In that case, the manufacturer’s business may be hurt.

7. MAP pricing makes purchasing more time-consuming for end users.  The idea here is that MAP programs prohibit prominently displayed website pricing, but allow “shopping cart” pricing.  To see the true price, a consumer has to jump through a few hoops.  This is generally true, but how much effort does it really take to click the mouse a few times?

8. MAP pricing may hurt a manufacturer’s sales.  Here, Mr. Pierce mentions implementation costs and enforcement costs, but these are likely to be small.  He also  argues that MAP programs can tip competitors off and allow them to undercut pricing.  But if MAP programs truly were not in the economic interests of manufacturers, why would manufacturers ever want to use them?  Additionally, whether MAP programs really make pricing more transparent to competitors is not entirely clear.  In any event, lower pricing is generally good for consumers.

9. Browsing in a store is no different than advertising online.  In a brick-and-mortar store, consumers can just browse various competing items and see their prices.  Why shouldn’t they be allowed to do that online?  The answer is that a properly structured MAP program does not interfere with actual online “shopping cart” pricing.  It may impose certain restrictions on site-wide price advertising.  It is not clear whether or not this restraint is more significant than a restraint prohibiting brick-and-mortar stores from advertising prices below $X on street signs or in a newspaper but allowing independent store pricing inside the store.

10. MAP pricing can be circumvented.  Dealers can use instant rebates, coupons, and other incentives to offer special deals that may avoid the precise terms of a MAP program.  This is also true — and is a factor to be weighed by a manufacturer when considering whether it is worthwhile to institute a MAP program.  However, it is not an indictment of MAP programs per se.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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