Leegin vs. PSKS Has Major E-commerce Implications

Ian Lurie Jun 28 2007

sc eases banInternet discounters, beware.

The Supreme Court’s ruling in Leegin Creative Leather Products vs. PSKS may just end the reign of web retailers who slash prices to undercut brick-and-mortar stores.

In Leegin, the court said that lower courts may use a “rule of reason” in anti-trust cases: If a manufacturer pressures a deep-discounting retailer to raise their price to a minimum level, that may be OK.

The case in question pitted a brick-and-mortar retailer against a leather goods maker. But the real winners here may be full-service retailers and manufacturers who, until now, had to let internet retailers charge far, far less than their brick-and-mortar counterparts.

The free rider problem – where consumers go to full service retailers to tap their expertise, and then buy the product online for far less – has taxed luxury goods and fashion industries ever since wonks coined the term ‘e-commerce’. Leegin means that manufacturers can push internet retailers to charge prices more in line with their offline competitors.

We’ll see how this all shakes out – a 5-4 decision is hardly rock-solid. But Leegin is a major shift in anti-trust law.

tags : conversation marketing

4 Comments

  1. “The free rider problem – where consumers go to full service retailers to tap their expertise, and then buy the product online for far less”
    I’ll argue that many B&M retailers have done themselves in by slashing staff levels, cutting customer service, and generally treating walk in customers like a nuisance.
    When was the last time that you walked into a store and felt special, or encountered a sales person who knew what they were selling and seemed to be interested in anything but a commission?
    I buy books from Amazon because they have better selection, and it’s just too darned fast and easy. I buy electronics on line because the big box stores are almost always out of stock on what I want, and because I am weary of people flogging extended warranties.
    In a town of perhaps a half million people I can think of perhaps four businesses that remember my name, go the extra mile to make me happy, and that I return to over and over.
    If the B&M retailers want to survive they need to forget price, and concentrate on offering what the online retailers can’t – smart, knowledgeable and friendly face to face service.

  2. ian

    ian

    Very true. But Amazon isn’t actually distinctly cheaper than brick and mortar. They provide amazing service.
    It’s those four businesses that deserve a fair shake, I think. Believe me, I’m all for good service, and the competitive pressure that the internet produces (I’m an internet marketer, after all).
    But we were definitely due a pendulum swing back towards the middle.

  3. Ken

    Ken

    What about Walmart? It seems that everyone thinks the online discounters are doing a diservice to b&m stores. The truth is that wm often sells products lower (instore & online) than what many retailers can even purchase the product for direct. I know this from experience in my own industry.
    How I feel about discounters is this: if you can find a way to lower your overhead, and offer the same product at a lower price, then that’s great. Being a discounter is not easy though – you still need to offer good service, or you’ll only survive. And even when you are busy, your margins are not huge becuase of the deep discounts…so it’s not like discounters are profitting billions each year like walmart & the oil companies. What will happen is the discounter is small by nature…if they grow to be so big that it really impacts that industry, then they will have to pony up money for real infrastructure, more employees, etc. raising overhead – which of course usually leads to them raising prices….Wm is the only store I can think of that made it very big by being a deep discounter. Let me be clear, I don’t like wm, in fact, I really, really don’t like them. What I’m saying is it is well publicised that walmart treats their employees bad, treats their vendors bad – pretty much treats everyone bad…Just bc you have a b&m, doesnt mean you are adding service to customers – when was the last time you asked someone for help in a walmart?
    As for me, I support small business, and if a business has a niche, and they are getting products in a legal way from the manufacture, if they want to sell if for less profit, go for it.
    my 2 cents…

  4. Grant

    Grant

    This decision by the Supreme Courth just goes to show how shallow and off-base mainstream legal thought is nowadays. None of this “per se” or “rule of reason” nonsense has anything to do with the essential issue because they both concede that the purpose of government – as expressed through antitrust law (of any kind) – is to protect competition instead of private property.
    What needs to be recognized by all parties involved (especially the pragmatic, appeasing, defenders of Leegin) is that no retailer, let alone any consumer, has any right to any manufacturer’s product except by the terms dictated to him by it’s owners (ie: the manufacturers). No one’s rights are being violated when they are denied, through contractually-mandated higher prices, a product. If retailers don’t like being required to have minimum pricing, they don’t have to sell that manufacturer’s products just the same as consumers don’t have to buy certain products if they don’t like the price they would be required to pay.

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