Mike, could you please explain UPP?

[RonStewart]

CNET has an article on Unilateral Pricing Policy: http://reviews.cnet.com/8301-33199_7-57612700-221/what-is-upp-or-why-do-tvs-cost-the-same-at-every-store/

 

As I read it, UPP is implicit price fixing, which isn't illegal, where explicit price fixing would be.

 

How is it legal?

[Gregori]

Looks like a variant of MAP (Minimum Advertised Price.)

 

So here's the thing with 'price fixing' being illegal: If a bunch of companies got together and colluded that they would ALL charge the same for their (essentially interchangeable) widget or service - that would be price fixing. However - if each manufacturer sets the price that all retailers must advertise their widget for, that's NOT price fixing. (Assuming you could get a comparable widget from some other maker/vendor.)

 

Take Oakley sunglasses, for example. They require that all retailers advertise their products at MSRP - and do not allow ANY advertised discounting whatsoever. If you advertise at a discount, Oakley will no longer allow you to sell their product.

It's not price fixing, because you can buy many other brands of sunglasses, all of which perform the same function. The retailers can give you a discount on the Oakleys - even sell you a pair at a loss if they choose to. But they can't put price stickers on the product for anything other than MSRP.

 

You may run into this online - Say you're shopping on Amazon, when you find that pogo stick you've been lusting after, there's a little blurb that says you have to put the item in your cart for them to show you the price. That's due to compliance with that product manufacturer's MAP. They are not advertising the non-compliant price, but they CAN show it to you when you 'ask' for it. (By putting it in your cart, for example.)

[Bud]

Greg,

 

I think what you described in not what Ron was asking about.

 

In his example, if the seller put it in your cart at a discounted price, the mfg threatens to not supply them any more product.

[RonStewart]

The article says, "Save your gas, as chances are they're all going to have the same price." That implies that there will be no discounts, advertised or otherwise.

[DiggerJim]

Take Oakley sunglasses, for example. They require that all retailers advertise their products at MSRP - and do not allow ANY advertised discounting whatsoever. If you advertise at a discount, Oakley will no longer allow you to sell their product.

Slight hijack here but I found it interesting that Luxotica owns Oakley (and Ray Ban and just about everyone else in fact) after Lenscrafters (also owned by Luxotica) nearly drove them into bankruptcy by refusing to carry them until they had no choice but to sell the company. Fascinating story about the whole Luxotica/Lenscrafter/etc. business on 60 Minutes

[Gregori]

It's a little harder to bargain with a vendor for a better price, if you haven't got a Sunday paper insert with a lower price for them to beat/match. Which will prevent many people from trying.

 

The reality is - you won't get a discount on a product with MAP from Best Buy, or Wally world, but a lot of smaller retailers are hungry enough for your business that all you need to do is ask. And I'd rather support a mom & pop store than a big box ultra mart, especially if it's going to be the same price wherever I go.

 

 

[John Ranalletta]

Once, when working with a c-store client, I learned that each of their store managers were required to collect gas price data from surrounding competitors, phone that information back to headquarters; and, wait for a return call with immediate price instructions.

 

Hearing this, I asked why a private party couldn't set up a web-based utility wherein all store managers could enter his/her own pricing and it would be available to all competitors, eliminating the inefficiencies inherent in collecting data from others.

 

I was told such a system would be consider price fixing by the feds, but having every store manager in their 200+ stores drive around collecting the same information upon which to base their pricing was not.

 

Kinda' like prohibiting coaches from exchanging game tapes requiring competitors to actually attend games in person.

[Mike]

I just looked at it briefly, but if I understand correctly the manufacturer is requiring its products to be sold at a given price. A vertical agreement on pricing of a product (e.g., between a manufacturer and a seller) is generally okay. The Sherman Act prohibits horizontal agreements on price. For instance, if the manufacturers agreed on the price for a 42" TV or if the store owners, free of a pricing requirement by the manufacturer, agreed on a price, then it would be illegal . . . a per se violation of the Sherman Act.

 

Now, we may disagree on this, but the Supreme Court has found that a vertical price agreement (like that in the article) is not a per se anticompetitive, since it may promote interbrand competition. It could still be pursued as a violation of the Sherman Act, but the economic analysis of its impact would be conducted under what's known as the "rule of reason," essentially weighing the positive and negative economic effects of the practice (hence the consideration of interbrand competition).

 

Bottom line: agreements between parties at the same level of distribution on pricing or conditions of sale (e.g., warranties) are per se illegal. Vertical agreements are generally okay under U.S. law. This might be different in Canada or other nations.

[RonStewart]

Makes some sense, I guess.

 

Thank you Mike.