Minimum Pricing Mandates are “Pro-Competitive”

Last year, the Supreme Court ruled that manufacturers could dictate "minimum advertised prices" (MAP) for retailers who sell their products.

The Consumer Electronics Association (and CE Pro) hailed the decision as a triumph for manucturers and resellers who wished to maintain the price integrity of their products.

More than one year after the ruling, the Wall Street Journal evaluates the landscape in a cover story, "Price-Fixing Makes Comeback After Supreme Court Ruling."

My favorite modern-day free-market economist, Donald Boudreaux, Chairman of the Department of Economics at George Mason University, had this to say about the article:

It's pro-competitive, not anticompetitive, for a retailer to contractually agree with a manufacturer not to charge prices below some minimum for that manufacturer's products ("Price-Fixing Makes Comeback After Supreme Court Ruling," August 18). Because information in markets is imperfect, consumers often and rationally read prices as signals of product quality. Manufacturers who are prevented from setting retail prices that signal their products' high quality will have less incentive to offer high-quality goods - and, hence, less incentive to compete on the basis of quality. Why incur the extra cost of producing higher-quality goods if consumers are inadequately informed about such quality and, therefore, too reluctant to pay prices commensurate with this higher quality?

Retailing is a furiously competitive industry. Competition among retailers - not only for consumer patronage but also for the best deals from manufacturers - ensures that retailers will not generally bind themselves contractually to charging excessively high prices for the products they sell.

Hats off to Prof. Boudreaux.