LDS vs. Online

[scubatoys]

Obviously, since I'm one of the largest internet dealers, you know my opinion on this. I will fill you in on the other side of the coin for what it's worth. First, vertical price controls are not illegal. A manufacturer can set a price that they want their product sold for. My brother just bought some new headphones for his plane... $995 everywhere on every web site. You will see this is not unique to the scuba industry. It is only when one manufacturer gets together with others and says, "Hey, let's all raise our price of snorkels by 5 bucks..." That's when it becomes illegal.

As far as the reason some manufacturers do it... simple. Everyone has to have their business model. There are a lot of dive shops who dropped brand A or brand B since there were people selling it too cheap on the net, so it was not possible to turn a profit with that manufacturer. The basic LDS still is a majority of the sales in the US, and some manufacturers want to position themselves as the company that looks out for the local shop. That is their choice. If you don't like their business decision... Just don't buy Aqualung or Suunto products... easy enough.

Their other thought is since a majority of the training comes through the LDS, if they are not supported with price controls, then they will go out of business, then there will be fewer divers, then who would the manufacturer sell to?

True, the world will work itself out... I'm sure one day, all lines will be sold on the net, and most of the training will be on the net, with just a stop in a pool, or resort - Padi is already pushing this.

Shops as we know them, will die out... with just one or two large shops in major markets. The rest of the training will be picked up by independent instructors, clubs, etc.

Just like the consumer can make a choice; Should I buy gray market? Should I buy from an authorized on-line dealer? Should I buy local? The members of this board do not all have the same opinion... so why should we insist that all manufacturers have the same rules?

We now have Cochran Computers. They allow you to show your stuff... but can't click and buy. But if someone calls, you can sell it. Other manufacturers like Oceanic didn't allow, now they do. Some manufacturers will "bend the rules" with prior permission if there is not an authorized dealer in the area. All these companies have their right to make their rules. You guys vote with your wallets.

 

[serambin]

I thought price fixing was a felony in the US???

Agreements to adhere to a price book.
Agreements to engage in cooperative price advertising.
Agreements to standardize credit terms offered to purchasers.
Agreements to use uniform trade-in allowances.
Agreements to limit discounts.
Agreements to discontinue free service or to fix any other element of prices.
Agreements to adhere to previously announced prices and terms of sale.
Agreements establishing uniform costs and markups.
Agreements imposing mandatory surcharges.
Agreements to reduce output or sales.
Agreements to share markets, territories, or customers.

http://en.wikipedia.org/wiki/Price_fixing

'Agreements.' This would imply that a manufacturer 'agreed' with another manufacturer to restrict pricing. Without the agreement, the individual manufacturer can set a base sales price on products and if it chooses, restrict a market to a single supplier. If you think about it, this is similar to a wholesale company, like an electrical supplier, refusing to sell products to an end user like a home owner.

Stan

 

[redacted]

If you don't like their business decision... Just don't buy Aqualung or Suunto products... easy enough.

There are other choices if you like their product but not their business decision. One that Larry mentioned is grey market. Another is to find an authorized dealer that will work with the customer to put together a package that does not evidence a violation of the dealer agreement but provides a price competetive value. I'm not sure if the authorized internet dealers can do this as readily as a good LDS.

 

[narcT]

'Agreements.' This would imply that a manufacturer 'agreed' with another manufacturer to restrict pricing. Without the agreement, the individual manufacturer can set a base sales price on products and if it chooses, restrict a market to a single supplier. If you think about it, this is similar to a wholesale company, like an electrical supplier, refusing to sell products to an end user like a home owner.

Stan

I thought the LDS had to sign an "agreement" with the manufacturer not to sell below a certain price. Isn't this price fixing?

What would happen if Exxon told all gas stations they had to sell gas at $5.00 a gallon and all the other gas suppliers said, "hey, great idea, lets do the same (buts it's legal because none of them agreed with each other, they just did it)"? We all pay $5.00 a gallon???

As for electric supplies, what happens if electical suppliers tell Home Depot "You have to charge narcT $100 each for light bulbs to protect our business plan". I pay $100 a piece for light bulbs??? I hope GE doesn't read this thread

 

[PhilEllis]

First, vertical price controls are not illegal. A manufacturer can set a price that they want their product sold for.

Larry makes a good point, but as is usually the case, the devil is in the details. Vertical price control policies are not illegal. Vertical prices AGREEMENTS are in fact PER SE illegal if the price is fixed through an agreement of the supplier and retailer. The following section is quoted from Department of Justice documents......

Vertical agreements between buyers and sellers
Certain kinds of agreements between parties in a buyer-seller relationship, such as a retailer who buys from a manufacturer, also are illegal. Price-related agreements are presumed to be PER SE violations, but antitrust authorities view most non-price agreements with less suspicion because many have valid business justifications.

Resale price maintenance agreements. Vertical price-fixing -- an agreement between a supplier and a dealer that fixes the minimum resale price of a product -- is a clear-cut antitrust violation. It also is illegal for a manufacturer and retailer to agree on a minimum resale price.

The antitrust laws, however, give a manufacturer latitude to adopt a policy regarding a desired level of resale prices and to deal only with retailers who independently agree to that policy. A manufacturer also is permitted to stop dealing with a retailer who breaches the manufacturer’s resale price maintenance policy. That is, the manufacturer can adopt the policy on a "take it or leave it" basis.

A scuba manufacturer CANNOT write a dealer agreement that specifies Minimum Retail Prices and present it for the dealer to sign. IMMEDIATELY upon agreement, through signature or a "wink of the eye", BOTH parties have committed a PER SE violation of anti-trust laws. Both parties could be charged under several federal statutes and would be found PER SE guilty of the charge. That is why written dealer agreements with minimum retail prices specified, which were common five or six years ago, are not seen in the scuba industry today. As I stated previously, many no longer even send dealer agreements for signature.

What a manufacturer CAN do is set a unilateral policy that requires the dealer to conform to ALL policies. Failure to conform to ANY policy (including minimum price) can result in loss of the dealership. However, this is a sticky wicket for the manufacturer. First, they must enforce the policy completely against all dealers. They cannot give warnings, cant "discuss it with you" if you violate, they can't "give you one more chance". If they were to call you and make you promise not to violate the policy again, the phone call itself would be an agreement in violation of the law. So they are forced to set a solid rule....violate the policy and lose your dealership. What then do they do if their LARGEST RETAILER violates the policy? Kick him out without discussion? This would clearly violate their interests. They would be terminating their largest dealer! Of course, if they discuss the violation with their LARGEST RETAILER in an attempt to prevent future violations, while maintaining on-going relations with the dealer, they not only violate the law, but essentially invalidate their "unilateral" policy making it impossible to enforce against other dealers. Any future dealer who is terminated for "violation of the policy" could have a possible field day in court. Of course, the manufacturers COUNT ON the fact that no future dealer will take them to court. But what happens if one does? Can the sales reps, sales manager, in-house order takers, field technical representatives, and all of the officers of the corporation say, honestly and without exception, that they have NEVER discussed minimum retail prices with ANY dealer? I certainly would not want to the be manufacturer placed in this positon.

So what do they ACTUALLY do? They set a policy, then they negotiate EACH time there is a violation. They seek promises not to commit future violations, they bluster, they scream,....they do whatever it takes, SHORT OF THROWING THE DEALER OUT...to prevent future violations. They don't want to throw their dealers out. Heck, in this scuba market, they need the dealers. Further, any time they throw a dealer out, this MAY be the case that finally gets tested in court, in the scuba industry. They do not want that. So they end up mostly bluffing, offering threats to disable a dealer, but usually stopping just short of actually doing it. They are forced into this position because of necessity. They simply don't what to threaten their own interests by STRICTLY enforcing their unilateral policies (maybe against a dealer that is quite important to them).

There is a bottom line solution to all of this. Avoid the possibility of violating the law by eliminating these silly price control policies. They wholesale the merchandise to us, let me, Larry, and every other dive shop do what suits us best in our market, for our business model. There is even a name for this type of approach.....it's called free enterprise. Those of us that love this type of approach call ourselves "free traders".

Anyway, just my opinion. Thanks.

Phil Ellis
Dive Sports Online
www.divesports.com
(800) 601-DIVE

 

[serambin]

Vertical markets and the DOJ

Vertical agreements between buyers and sellers
Certain kinds of agreements between parties in a buyer-seller relationship, such as a retailer who buys from a manufacturer, also are illegal. Price-related agreements are presumed to be PER SE violations, but antitrust authorities view most non-price agreements with less suspicion because many have valid business justifications.

Resale price maintenance agreements. Vertical price-fixing -- an agreement between a supplier and a dealer that fixes the minimum resale price of a product -- is a clear-cut antitrust violation. It also is illegal for a manufacturer and retailer to agree on a minimum resale price.

The antitrust laws, however, give a manufacturer latitude to adopt a policy regarding a desired level of resale prices and to deal only with retailers who independently agree to that policy. A manufacturer also is permitted to stop dealing with a retailer who breaches the manufacturer’s resale price maintenance policy. That is, the manufacturer can adopt the policy on a "take it or leave it" basis.

Here is where I get confused. Paragraphs 2 and 3 appear to be in direct conflict with each other. The DOJ does not enforce restraint in vertical pricing issues. The semantics may be the reason, but a manufacturer can, one way or the other, legally restrain dealers from selling products in violation with their (the manufacturers) pricing policies.

Stan

 

[PhilEllis]

Here is where I get confused. Paragraphs 2 and 3 appear to be in direct conflict with each other.

Hey Stan....remember it hinges on the presence of an AGREEMENT. That is the defining word. If it is a unilateral policy, there is no agreement by the dealer. For the Sherman Act to be applied it takes two people (supplier and retailer) to reach an AGREEMENT about price. Unilateral (meaning one persons policy) cannot be an agreement in the terms of the Sherman Act.

(but remember again, agreement can mean many things...it isn't simply a signed document or contract)

Again, my opinion. Thanks.

Phil Ellis
Dive Sports Online
www.divesports.com
(800) 601-DIVE

 

[narcT]

Hey Stan....remember it hinges on the presence of an AGREEMENT. That is the defining word. If it is a unilateral policy, there is no agreement by the dealer. For the Sherman Act to be applied it takes two people (supplier and retailer) to reach an AGREEMENT about price. Unilateral (meaning one persons policy) cannot be an agreement in the terms of the Sherman Act.

(but remember again, agreement can mean many things...it isn't simply a signed document or contract)

Again, my opinion. Thanks.

Phil Ellis
Dive Sports Online
www.divesports.com
(800) 601-DIVE

If the manufacturers "policy" is enforceable with regards to a retailer, it has both the "effect" and "intent" to circumvent the letter of the law with regard to price fixing within a specific industry.

Company policy can be applied to employees, but how do you apply a company policy to someone who does not work for you? Also, how can a unilateral policy be enforced with regards to an external entity who has not agreed to be bound by it? The agreement to be bound by the policy is an "agreement"!!!

Symantics are fun, but they do not hide the "intent" of manufacturers to circumvent the law (and effectively control prices so they can not be varied in accordance with market demand).

"The cause of and the cure for all of lifes problems...BEER!"

 

[Scuba]

Here is where I get confused. Paragraphs 2 and 3 appear to be in direct conflict with each other. The DOJ does not enforce restraint in vertical pricing issues. The semantics may be the reason, but a manufacturer can, one way or the other, legally restrain dealers from selling products in violation with their (the manufacturers) pricing policies.

Don't expect lawyers or law makers to put themselves out of business, they prefer to enhance their business.

Paragraph two states:
The manufacturer and retail dealer can not contractually or otherwise agree to set a minimum price for a product. Say, agree to sell product for no less than $299 retail.

Paragraph three state:
The manufacturer can "suggest" to the dealer at what price the product should be sold for at retail, and can refuse to sell to dealer if he does not conform. Say, suggest product be sold for $299 retail.

In the first there is an explicit agreement between the parties, in the second there is an implicit suggestion and acceptance by the parties. It seems to me this is also constitutes a form, yet different type of agreement. This is a lawyers dream come true.

You can fix prices with number three, not number two. (edited to correct numbers) In practical terms, this law does not appear to eliminate all forms of price fixing. Rather, it offers guidance on how to do it. If this seems confusing, just imagine considering all the other confusing applicable laws.

 

[serambin]

Don't expect lawyers or law makers to put themselves out of business, they prefer to enhance their business.

Paragraph two states:
The manufacturer and retail dealer can not contractually or otherwise agree to set a minimum price for a product. Say, agree to sell product for no less than $299 retail.

Paragraph three state:
The manufacturer can "suggest" to the dealer at what price the product should be sold for at retail, and can refuse to sell to dealer if he does not conform. Say, suggest product be sold for $299 retail.

In the first there is an explicit agreement between the parties, in the second there is an implicit suggestion and acceptance by the parties. It seems to me this is also constitutes a form, yet different type of agreement. This is a lawyers dream come true.

You can fix prices with number two, not number one. In practical terms, this law does not appear to eliminate all forms of price fixing. Rather, it offers guidance on how to do it. If this seems confusing, just imagine considering all the other confusing applicable laws.

Yes, that last paragraph clears it up . . .Yep.