Claiming a victory for American consumers, antitrust prosecutors extracted a pledge from Minolta Corp. in federal court in 1986. To placate the attorneys, the company declared it would quit bullying retail dealers into selling its cameras at fixed, inflated prices.
”Consumers can expect in the future to see savings resulting from increased competition among retailers,” New York Atty. Gen. Robert Abrams, one of the prosecutors, announced at the time.
Five years later, the U.S. subsidiary of Minolta Camera Co. of Japan is upholding terms of the consent decree, which settled a multistate lawsuit. The firm also is still dictating prices, only now legally-and with plenty of company.
The savings to consumers remain, at least in part, only a prophecy.
Minolta is using a mechanism known as cooperative advertising. Co-op ads, which are joint efforts by manufacturers and retailers, typically feature widely recognized brand-name products and direct the public to retailers that carry the goods.
Under its dealership contract, Minolta will help stores pay for these ads only if published prices are at least as high as the company`s ”suggested minimum advertised price.” If the prices fall below this minimum, Minolta is obligated to contribute nothing.
At first glance, the policy might seem inconsequential. Dealers remain free to advertise any price they want as long as they foot the entire bill. And Minolta`s dealer contract confirms that retailers can sell the products at whatever price they choose.
”All we can do is suggest,” points out James Demerlier, marketing vice president for Minolta, based in Ramsey in suburban New York City.
But attorneys and retailers say the ad policy can be as effective as the heavy-handed methods Minolta agreed to abandon in the 1986 consent decree, such as refusing deliveries to off-price outlets.
Regardless of the options in Minolta`s ad policy, many discounters say they cannot afford to advertise on their own. So, by threatening to withhold aid, Minolta`s policy coerces retailers into advertising brand-name products at prices the manufacturer imposes. And advertised prices typically determine floor prices.
”As a practical matter, I think it`s price-fixing,” says former Federal Trade Commission board member Robert Pitofsky, now a law professor at Georgetown University in Washington, ”and it ought to be treated as price-fixing.”
But it is not. Unlike a producer-vendor pact that specifies retail prices-an illegal conspiracy known as vertical price-fixing or resale price maintenance-an agreement on advertised prices falls within the law, in the judgment of federal antitrust authorities.
As a result, more and more businesses are adopting such ad restrictions. Among the current practitioners: Thomson Consumer Electronics Inc.`s RCA television unit; Nike Inc.; toymaker Fisher-Price; Wilson Sporting Goods Co.; VF Corp.`s Lee Jeans subsidiary; Champion Products Inc., which makes sweatshirts; and tableware-producer Oneida Ltd.
”It`s very widespread, particularly in the consumer-electronics area,”
says Jay Freedman, a Washington attorney who represents a national buying cooperative of consumer-electronics retailers.
In fact, Toshiba America Inc. recently told retailers that the company would no longer reimburse them for the cost of placing ads if published prices of Toshiba`s consumer-electronics products fell as little as $3 under the manufacturer`s listed minimums.
Nintendo America Inc. might be next, discounters worry. Though the video- game giant also has signed a decree to settle price-fixing charges, the International Mass Retail Association has petitioned the FTC to revise the order to expressly prohibit Nintendo from adopting a Minolta-like ad policy.
The decree, signed in April, gives the agency ”a good opportunity further to `fence in` Nintendo from price-fixing through more subtle means, such as cooperative advertising programs,” association President Robert Verdisco wrote the FTC in June.
Telephone calls to Nintendo`s U.S. headquarters in Redmond, Wash., were not returned.
Whether in ads or on price tags, minimum prices are imposed to benefit manufacturers and full-price retailers. By blocking price-cutters, the mandates ensure bigger markups at the wholesale and retail levels. They also can add to a product`s cachet, offsetting the depressing effect that higher prices tend to have on sales.
”If consumers constantly see the Nike brand at 50 percent off, the long- term perception of what Nike stands for-quality and value-isn`t the same,”
says Liz Christensen, co-op ad manager for the Beaverton, Ore.-based company. But according to discount retailers, as well as many antitrust attorneys and economists, co-op advertising policies such as Minolta`s mean only one thing to consumers: greater costs.
”We see this as a tool to enforce resale price-maintenance schemes,”
says George Sampson, antitrust chief in the New York attorney general`s office, ”and a very effective tool.”
Lloyd Constantine, Sampson`s predecessor in that position, goes further;
he contends that in today`s marketplace, in which meet-or-beat price guarantees often apply only to published prices, restrictive advertising contracts can effectively substitute for vertical price-fixing schemes.
”If a big Chicago discount store puts a price in an ad, $215 for a Sony TV, that immediately is going to cause other dealers around the city to change their actual floor price,” says Constantine, now a partner with McDermott, Will & Emery in New York.
He adds, ”It doesn`t matter whether you`ve got a low price unless you can get the word out that you`ve got a low price.”
Through the Carter administration into the 1980s, government antitrust authorities equated co-op ad polices that specified prices with a conspiracy to fix retail prices. As such, the policies automatically violated the Sherman Act, the century-old foundation of antitrust law.
But the FTC has since reinterpreted the law. Now, the agency holds that ad restrictions are illegal only if the manufacturer is so dominant that its actions reduce price competition in the entire market.
”There has to be a showing that the anti-competitive effects outweigh any efficiencies that the manufacturer wants to raise,” explains Kevin Arquit, director of the FTC`s bureau of competition.
Discount retailers and antitrust attorneys say that is an exceedingly difficult task because of the way the policies are worded: Manufacturers generally don`t prohibit retailers from advertising and pricing as they please; rather, they say only that retailers may have to do so at their own expense.
Many small discounters call the distinction meaningless. They say they lack the resources to go it alone.
”Most retailers need that money, the manufacturer`s portion, to offset their advertising costs,” says Larry Hochberg, president of Sportmart Inc., a 24-outlet chain of sporting-goods stores based in Chicago.
Even if the dealers can afford to advertise on their own, restrictive co- op advertising policies make it harder to discount. That`s because the loss of co-op ad allowances-which can be cash, credit or discounts on the retailer`s purchase of merchandise-acts to inflate wholesale costs, squeezing profit margins.
”Co-op advertising is a critical element in the pricing structure of a good,” says Barry Lefkowitz, a business representative for several off-price retailers, including Burlington Coat Factory Warehouse Inc. ”So if you do not have that allowance, that cost is going to be added to the product.”
Violating some manufacturers` policies can be even costlier. For instance, RCA advises its dealers that in addition to forgoing any
reimbursement for a non-qualifying ad, ”you will not accrue any advertising/ merchandising support funds on purchases for the 30 days following the date of the ad.”
Wilson Sporting Goods of River Grove, Ill., will suspend deliveries to dealers that advertise its top-of-the-line tennis rackets and shoes below Wilson`s list prices-even if the stores paid for the ad entirely out of their own pocket.
Says Kristen Rand, an attorney with Consumers Union: ”If a retailer can`t advertise the discount, that takes away some of the advantage of discounting. And it also injures consumers because a lot of consumers shop around by reading ads.”
Antitrust attorneys and retailers say they see nothing to slow the proliferation of anti-discounting ad policies. Congress is expected to pass a bill that would bar manufacturers from cutting off shipments to a discounter in response to complaints about its pricing. But the proposal says nothing about advertising cutoffs.
The decrees signed by Minolta and the other companies accused of vertical price-fixing in the last decade also were silent on this matter. Dealers say that one of the firms, Panasonic Co., no longer has price restrictions and that Nintendo`s intentions are unclear. But they report that Mitsubishi Electronics America Inc., like Minolta, is imposing minimum advertised prices. ”There are a lot of ways of getting at the very same thing,” says Richard Schulze, chairman of Best Buy Co., a fast-growing consumer-electronics discounter based in Minneapolis. ”They`re trying to put price controls on the situation.”
