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Antitrust is a complex, ambiguous, and controversial area of law, and it covers a lot more than mere monopolies. It should be a serious concern to all businesses, not just because severe financial penalties may be incurred for violations, but also because things like price fixing, price discrimination and predatory pricing can result in criminal prosecution. In business, many people either aren’t sufficiently aware of antitrust laws — in which case they may commit all sorts of illegal acts in their attempts to control or influence the market prices of their products, without realizing they are violating the law — or they are acutely aware of antitrust dangers to the point of paranoia, afraid to even discuss prices unless done in whispered tones in a parking lot. Fortunately, there exists a happy medium between these two extremes. There are some legally acceptable techniques by which a manufacturer or distributor can influence retail prices of their products, but such strategies must be carefully designed, implemented and monitored. Some refer to these techniques as loopholes in antitrust protection, but in reality they are legitimate methods by which one can artfully navigate around antitrust prohibitions. WHY TRY TO INFLUENCE PRICES? “Influencing prices” may sound like code for a “price fixing conspiracy” where a bunch of greedy tycoons get together and secretly agree to inflate prices so that consumers pay exorbitant fees, and the pockets of the fat cats are further stuffed. Historically, this may have been true — and it’s why antitrust laws were first enacted. For most businesses, however, trying to influence prices at which their products are sold at retail isn’t always so sinister — it’s often a matter of basic business survival. Manufacturers and distributors, for example, may seek to influence prices in the market by trying to get their various retailers’ prices to be maintained at or above a certain level. They don’t want their retailers to compete against each other by slashing prices back and forth, because the ultimate effect is that each retailer’s profit margin is eroded. And when retailers aren’t satisfied with their profit margins on a given product, they won’t push for that product — they will push to sell the products where they can make the most profit. To illustrate, no store owner wants to sell a product at $1,000 if the profit margin is only $10 or 1 percent; he’d rather sell a $300 product where his profit margin is $60 or 20 percent. Manufacturers and distributors fear sinking retail-level profit margins on their products, because stores will often remove such low margin products from their shelves altogether. Plummeting prices at the retail level are often the result of competition, such as when dealers find themselves in the middle of a price war to attract customers. The result is that the retail price of a product gets whittled down as the competitors try to out-price each other. (Low prices are of course a wonderful thing for consumers, but the benefit is often short-lived, since such continually discounted products often get displaced from stores altogether.) Some manufacturers and distributors also want to maintain retail product prices at or above certain levels in order to maintain a brand’s high-end image, under the theory that higher-priced products create the impression of value in a consumer’s mind. The Tiffany’s brand wouldn’t be so valuable, for example, if they sold deeply discounted products under the luxury brand name. If a manufacturer of luxury-goods produces a product, it certainly doesn’t want the price to be deeply discounted, because discount prices suggest that the product isn’t desirable. MANUFACTURER’S SUGGESTED RETAIL PRICING For manufacturers, the most common means of seeking to influence prices is the use of an MSRP. An MSRP is a manufacturer’s suggested retail price. An MSRP is often affixed to a product, but sometimes it’s stated on list of prices which a manufacturer gives to its distributors and retailers. In calculating an MSRP, a manufacturer will try to maximize the profit for itself — while keeping its distributors and retailers happy — while at the same time providing an attractive price to consumers. To illustrate, imagine a company, TV Inc., that manufactures flat screen TV sets. TV Inc.’s per-unit cost is $500. TV Inc. sells the flat screen televisions to its distributor at $600 per set, ensuring itself a 20 percent profit margin. TV Inc.’s distributor then sells the flat screen TVs to various retailers at $720 per unit, ensuring a 20 percent profit for itself (perhaps 10 percent covers its costs, and only 10 percent is actual profit.) The retailers then sell the flat screen TVs to consumers at the MSRP of $1,000, which would give the retailer a $280 profit, or 28 percent profit margin (again, perhaps only half of that will be true profit.) Retailers, however, will often sell products below the MSRP, to give consumers the impression that they’re getting a bargain. In addition, they may run rebates, special promotions and discounts, or guarantee to meet any competitor’s price (known as a “meet comp”.) Sometimes, manufacturers will offer a manufacturer’s rebate — where the manufacturer will mail rebate checks to consumer-purchasers after receipt of a rebate coupon from a consumer-purchaser. It is essential to note that a MSRP is only a suggested price. It has no binding effect whatsoever. Distributors and dealers are free to price and advertise the products at whatever price they want. An MSRP, however, does serve as a valuable benchmark from which the distributors and dealers will set their prices. An MSRP, in and of itself, is perfectly legal. An antitrust violation requires an agreement between two or more parties to fix prices (per Section 1 of the Sherman Act,) and the MSRP is only suggested. The problem for businesses, however, is that an “agreement” is construed very broadly. If a manufacturer so much as demands that a retailer use the MSRP and the retailer implements it, this action alone could be enough to constitute an illegal price-fixing agreement. UNILATERAL MINIMUM RETAIL PRICING A UMRP is where a manufacturer or distributor issues a policy to its retailers, and therein states the minimum prices that it wants its products sold at retail. It can be an excellent tool. For example, imagine that a stereo manufacturer, ABC Stereo Inc., states in a written policy to its retailers that it wants its Model A stereo sold to consumers at no less than $500, its Model B stereo sold at no less than $700, and its Model C stereo sold at no less than $1,200. A UMRP (like a MSRP) has no binding effect whatsoever. It is merely a unilateral “policy” or “suggestion” by the manufacturer. If a retailer violates the UMRP policy, the manufacturer can’t claim breach of contract; its only recourse is to stop selling that product (or all of its products) to the retailer. If the manufacturer doesn’t enforce its own policy by cutting off retailers who violate the UMRP, then the policy of course ceases to have effect in the retail market, and angry retailers will likely complain to the manufacturer, ignore the policy themselves, or stop selling that product. As a general rule of law — and absent there being a contract to the contrary — it is perfectly legal for a manufacturer or distributor to refuse to sell some or all of its products to a given outlet. This threat of being cut off from certain products is, in part, the only motivation for a retailer to abide by such a UMRP policy, particularly if the brand is desirable among consumers. The other reason a retailer would want to abide by a manufacturer’s UMRP policy is that by maintaining higher prices — along with every other retailer of those products — the profit margins will be higher. So long as all the retailers abide by the policy, everyone’s happy because the retailers know they won’t get into a price war over that product. This is why one can go out into the marketplace and find the same product priced the same at every retailer, like a new DVD which is priced at $24.99 in every store. Some argue that this is an illegal price-fixing conspiracy. It’s not, however, because there’s no actual agreement — the key element to a finding of illegal price fixing. A UMRP is perfectly legal because it’s a unilateral policy where the manufacturer or distributor specifically states words in its UMRP policy to the effect that it’s only a suggested price policy. It is dangerously easy, however, for a manufacturer or distributor to cross the line from a legal UMRP to one that violates antitrust laws; a legally acceptable unilateral policy can quickly become an illegal agreement. Courts have held, for example, that if a manufacturer or distributor threatens to terminate a retailer for failing to adhere to a UMRP, and the retailer then reluctantly adheres to the policy to prevent being cut-off, that this constitutes an illegal agreement through coercion. Thus, in enforcing a UMRP, companies must be extremely careful to avoid any type of agreement (always remembering that the law’s concept of an agreement for antitrust purposes is far more liberally construed than one’s normal concept.) If a retailer violates the policy, a manufacturer or distributor should not communicate in any way whatsoever with that retailer about its failure to comply with the UMRP. Instead, the company should merely send a notice to the retailer stating that the company has decided to terminate or suspend that retailer (a suspension could be “until further notice” or until a review period has expired, such as 60 or 90 days.) To protect against having a permissible UMRP turn into an illegal breach of antitrust laws, a business may also want to do several things:

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