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The Art of the Deal – Not Anymore

The Art of the Deal – Not Anymore

Think back to June 28th, 2007 - nothing particularly newsworthy comes to mind. Granted, the war, the tumultuous housing market, and the impending elections have been commanding a majority of the media's attention, so it is not unexpected that little else surfaces from memory. Yet, the result of such a narrow reporting focus has been that quite revolutionary events have occurred without ever being subject to the scrutinizing eye of the media. Particularly, on June 28th, a 96 year-old Supreme Court ruling was overturned without much fan-fare. One might assume that a changed perspective on a rule that had been in effect for 96 years would garner at least some attention, especially when consumers and commerce are involved. In fact, on that fateful day in late June, the Supreme Court decided that a previous judgment concerning price-fixing was outdated for the current global economy. The standard division among the Supreme Court Justices of 5-4 overturned the nearly 100 year-old decision. Under the old ruling, manufacturers could not legally stipulate a minimum price at which their product had to be sold. However, as of June 28th of this year, such a practice is no longer immediately illegal. Embedded in the court's new ruling is the decision to evaluate such situations on a "case-by-case basis", which basically translates into a litigious nightmare. At this point though, it is still too early to predict the extent to which manufacturers will take the new ruling.

The division between the Justices circled around the debate of competition. The five Justices in favor of overturning the 96 year-old rule, which included Anthony M. Kennedy, Chief Justice John G. Roberts Jr., Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr., contended that even without the antitrust law in place, competition would still exist between manufactures and especially between retailers. It was envisioned that since retailers would no longer have the trump card of offering the lowest price, they would then be forced to offer better services to the consumer. On the other hand, the dissenting side, which included Stephen G. Breyer, John Paul Stevens, David H. Souter and Ruth Bader Ginsburg, argued that consumers would merely and inevitably bear the burden of higher prices. They also contended that competition would steeply decline among retailers, as new and innovative companies would no longer be able to attract consumers by offering lower prices, which was a prior advantage of reducing overhead.

This logically identifies the one particular retail segment that is slated to be hit the hardest – Internet based stores. For example, many Internet companies are able to offer goods at a reduced price based on the basic economic principle of monitoring and reducing expenses and/or overhead. Without the burden of a mortgage/lease for a physical store and without salaried sales associates, Internet companies suppress expenses while the consumer reaps the rewards of lower prices. Now however, under the new Supreme Court ruling, these Internet based stores will be forced to offer the same product at the same price as the store down the street, which has the added value for consumers of in-store displays and on-site sales assistance. One could argue though that the online store still wins with regards to convenience by allowing the consumer to shop at home in his or her pajamas. Nevertheless, the online shopping environment is going to change one way or another – prices will be forced higher by the manufacturer, and services may be expanded in an effort to attract consumers.

This predicament certainly presents an interesting challenge for online retailers. Not that the Internet has been around for 96 years, but over time, many businesses have been able to succeed on price point alone. As this may no longer be an option, consumers may see their online shopping experiences enhanced with features such as better warranties, extensive personal interaction, more lenient return policies or free shipping and handling. On the flip side of the coin, the worst-case scenario includes a reduced number of online shopping choices or a reduced variety of products. The latter may occur as retailers determine that they cannot afford to carry particular items at the higher mandated prices.

So, June 28th passed by as any other day - the war pressed on, the housing market remained unstable and the candidates clamored for media attention. If the evening news was any indication, nothing remarkable occurred that day. Consumers continued to open their checkbooks and support the web of commerce, thus allowing Wall Street another day of wins. However, perhaps more interest will be paid to this Supreme Court decision as consumers begin to see changes in the retail flooring environment both online and offline – nothing makes a statement like a dent in a pocketbook. Be on the lookout for higher prices, which better be coupled with an increased level of service.

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