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How price regulation can benefit the big retailers
By: Timothy P. Carney
Examiner Columnist
03/09/10 7:15 PM EST
Big business lobbying for and profiting from big government -- to the detriment of small business -- is my beat, and The American Spectator today tells the tale of another incidence of Regulatory Robbery.
On the table is a bill to prohibit manufacturers from placing certain conditions on the retailers who want to sell their goods. In a practice called "Resale Price Maintanence," manufacturers sometimes tells stores, in effect: if you want to sell our goods, you can't sell them below the minimum price we dictate.
Competitive Enterprise Institute researcher Jonathan Moore explains why big retailers are lobbying to outlaw this practice by manufacturers:
Consider a consumer shopping for a brand new plasma TV or DVD player. A consumer could ask a salesperson at a small high-end electronics store to show him exactly how it works. He would then receive a tutorial explaining all of the device's features. The retailer provides these services in order to increase the number of consumers spending money in their store.
This service costs money and time for the store. They must pay an employee who has to devote his time to educating customers rather than other tasks needed to keep the store running efficiently. Further, educating the employee on new product features costs the store time and money.
Now what happens if the customer walks out of the store, with the knowledge he has just received for free, turns on his laptop and purchases the item from an online discount store? The customer and the discount store are free riders, both benefitting from the high end store's service without have to pay for it, while the high end store loses out on the money and time they could have saved by not providing the service.
RPM, however, can thwart this free rider problem. If the manufacturer sets a minimum price for a good, competition between retailers continues, it simply takes a different form; that of a race to the top of the quality of service the retailers provide.
If the practice becomes illegal, the result will be that huge discount retailers such as Wal-Mart, eBay, and Amazon will benefit greatly from the free rider problem discussed above. Outlawing alternative pricing measures intended to ensure that people do not take advantage of the free services offered by specialty stores will ensure that discount retailers will be able to grab a larger market share than perhaps would be possible in a free market.
The battle over RPM is just another anecdote which calls into question the conventional wisdom that big business always opposes new regulations, preferring the anarchic free market.
More from Timothy P. Carney
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- How GOP can trump Dems on special interests
- Calling bull on Biden's pretend war against 'corporate interests'
- Are big hotels using the tax code to hurt Priceline, Expedia
- Another way in which government creates housing bubbles
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