Fixing Prices With a Wink and a Nod

`RESALE price maintenance'' and ``vertical price fixing'' sound like things only a lawyer could care about. But these two arcane legal terms describe the most important pocket book issue to come before Congress this year. Consumers who benefit from the $125 billion discount industry offering substantial savings on everything from clothing to appliances should take note. Since 1911, antitrust laws have protected price competition by making ``resale price maintenance'' or ``vertical price fixing'' an automatic violation. The law has allowed small businesses to compete head-to-head with larger stores by offering first quality merchandise at lower prices. The bottom line for consumers: substantial savings on brand name goods.

Yet recent Supreme Court decisions, Monsanto v. Spray-Rite and Sharp v. Business Electronics, have watered down the price fixing laws, making it easy for retailers and manufacturers to cut off discounters.

As a result of these decisions, lower courts are dismissing cases where there is clear evidence of dealers coercing manufacturers to terminate rival discounters. In the most recent case, Kids `R' Us, a children's clothing discounter, alleged that Macy's pressured two manufacturers of swimwear to stop supplying the discounter. The New York district court ruled that though there was evidence of coercion on the part of Macy's and that Macy's was acting to protect its higher prices, there was not an automatic antitrust violation because there was no prior agreement on a price. In other words, because Macy's didn't go so far as to say ``Cut off `Kids' so we can charge $49.95 for a particular swimsuit,'' there was no violation.

In addition, more and more discounters are going out of business. In just one month, two North Carolina furniture discounters closed after manufacturers cut off their supplies in response to complaints from full price retailers. If Congress fails to act quickly it will mean the end of vigorous retail competition. For consumers it will mean fewer choices and higher prices.

Legislation is pending in Congress that would restore some protection afforded to discounters and help turn back the judicial attack on price competition. The legislation passed the House last week and is expected to reach the Senate in May.

The administration has expressed opposition to the measure. However, if President Bush is at all concerned with the welfare of low and middle income consumers, he should sign the legislation. The modest measure has drawn criticism from big business which alleges the bill will interfere with their ability to require certain levels of service or floor space from retailers. In truth, the legislation in no way interferes with a manufacturer's unilateral right to discontinue selling to a retailer for any reason. It simply makes certain that manufacturers and big retailers can't conspire to fix prices with a ``wink and a nod.''