|Price Floors Are No Longer a Bad Thing|
|Key Words||Imports, Exports, and Trade Surplus|
|News Story||Recently, the Supreme Court ruled that price floors were not automatically illegal, thus rescinding a 1911 Court ruling law restricting their use. Why did they do this?
The Bush Administration and the economists at the University of Chicago argued before the Supreme Court that there was nothing inherently anti-competitive about such price restrictions and therefore the old law was inefficient. They argued that it could become easier for a new producer to guarantee that retailers could undertake the risky act of marketing a new product and getting a return for their investment, since all retailers were selling the good for the same price. The ruling allows much greater latitude in the creation of minimum prices for retailers, and no-discount requirements of manufacturers, as long as the individual cases were not stifling competition.
The argument opposing this was that it was unclear exactly when a pricing restriction was anti-competitive and when it was pro-competitive. Just as the above example was possible, it was also possible for a new retailer to be harmed because it is now no longer able to provide discounts to create additional business for itself.
Since the Supreme Court has ordered the “rule of reason” to be used, instances of price-fixing will be handled on an individual basis. If nothing else, it has given lawyers and economists a great deal of work to do over the next few years as it tries to figure out which pricing relationships are pro-competitive and which are anti-competitive.
|Source||: Labaton, Stephen. “Justices End 96-Year-Old Ban on Price Floors.” The New York Times, June 29, 2007.|
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