Something Borrowed--MAP Pricing

This is a piece I wrote for an attorney friend of mine who contacted me for more information about the issues below.  This is an area I have a lot of experience in, and I was able to help him on this topic.  I am posting it here as it may be relevant to my own readers.  

MAP Pricing and Anti-competitive practices

The holiday season is nearly upon us, and retailers are battling to capture market share.  Although price is not always the most important factor in a shopper’s buying decision, new programs and phone apps that allow customers to easily price compare make it so much more important for any retailer to be competitive on price.  This has become and even more contentious issue as Internet retailers continue to grab market share from more traditional “brick and mortar” stores.

In recent years, “MAP pricing” has gained a lot of attention in the business community, and has both staunch advocates and outspoken detractors.  MAP stands for “Minimum Advertised Price.”  In practice, this means that if a manufacturer establishes a minimum price, anyone selling their product cannot advertise that item for less.

Often when people hear this, their thoughts turn to price-fixing and they begin considering anti-trust violations.   However, MAP pricing was legitimized in 2007 when the United States Supreme Court ruled in Leegin that no longer were such practices per se violations, but instead had to be reviewed under the rule of reason standard.  In other words, any particular MAP pricing might be reasonable, or it might be a violation, depending upon the particular circumstances.

 

Why would anyone support MAP pricing?  After all, the general outlook in market economics is that competition is good, and that price supports are generally bad.  The idea here is that not all competition is necessarily good for the manufacturer.  Two examples:

First, you have an Internet retailer with little overhead, no store front to maintain, and no or very little inventory.  They are competing with a brick-and-mortar store that sells shoes.  As a consumer, you may want to try on several different types of shoe to see what looks best, and of course try different sizes to see which fits your foot the most comfortably.  You cannot do this easily over the Internet, but of course you can walk into a store and try on shoes for hours.  The store cannot stay in business if it sells the shoes for less than $99, for example, but the Internet site has the same shoes advertised for $89.  You find the shoe you like best, walk out of the store, and then go buy it on-line.  Obviously it won’t take long for the retail location to go out of business.

 

Second example, you have a retailer that is dedicated to being a “full-line merchant” of your products, let’s say bicycles.  They stock all sizes, all models, they can do repairs, and they have spare parts.  You can bring your bike in to be fixed and maybe be out the door in an hour or two.  The store down the street, or another Internet retailer, only carries a few of the best-selling models, and they advertise them for 15% less.  They know they can do well on a few hot items, and they don’t care about supporting the rest of the line.  Soon enough, the full-line store will likely have lost a significant part of their business, and will be left selling the odd-ball “specialty” items—if they can stay in business at all.

Neither scenario helps the manufacturer or the consumer.  First, the manufacturer suffers when people cannot come see, touch, and try on their shoes—or when their selection of merchandise is limited to a few popular bikes.  Many manufacturers have a diverse product line, and they may want to have their items in both shops and sold on line.  If they have and enforce a MAP policy, both the Internet retailer and the brick and mortar store can sell the products on a level playing field

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But what about the consumer?  Do they not suffer by paying higher prices?  Three things: first, this is only a Minimum Advertised Price.   Retailers of all stripes can ultimately sell the products for less so long as they do not advertise them below MAP.  Second, this presumes that price is all that matters to customers, and that they do not also benefit from better selection & service at the stores they shop in.  Finally, consumers benefit from the choice of being able to shop on-line, go to stores, etc.  If all that exists is a race to the bottom on price, the only retailers left will be the ones with a few popular products, big discounts, and little service.

 

Thus, whether or not you have a legitimate claim of price-fixing or an anti-trust violation will depend a lot on just what the circumstances are surrounding the particular price structure, and industry, that will be scrutinized.  The Federal Trade Commission routinely investigates these issues.  I can review your unique circumstances and advise you whether or not you have a MAP issue.

Who's Yelping Now?

One of the reasons that I became an attorney is that I felt it was (is!) an honorable profession that helps make the world a better place. One of my law professors described my legal education as both a sword & a shield. The shield is so you can defend yourself, or your clients, from wrongs that may be committed against you or them. The sword is so you can go an actively smite wrong doers that may have harmed you (or them), or attempted to do so. I like that idea. While I am a live and let live person by nature, I cannot stomach people who try and take advantage of others. Someone needs to be willing to stand up to the wrong doer.

So, it always saddens me when I hear of lawyers behaving badly. As attorneys, we have ethical obligations to be honest, fair, etc. Because we are officers of the court, and due to the nature of our training, we must adhere to a higher standard. There's little that is very tricky--most of the ethical rules are pretty common sense. Nevertheless, every month there are new reports released of lawyers doing something fundamentally wrong.

The latest I saw (in The Daily Transcript this week) is a law firm that is being sued by Yelp for allegedly using its own employees posing as clients to write positive reviews on Yelp about their own firm. OK, back one step: you've heard of Yelp, right? It is a website that will give you the scoop on good restaurants, doctors, solar panel providers--you name it, Yelp may have a category for it. Moreover, Yelp reviewers (Yelpers?) are normal people who tell you about their experiences, and you get to take their opinion for whatever it is worth. Frankly, some of the reviews are pretty bizarre, but hey--give their opinion whatever weight you think it merits!

Now, if your a law firm, you might think that you'd know better than to write bogus reviews about your own firm, right? Right?

Something Old

Some of you--my faithful readers!--may remember that almost exactly a year ago I was up to my ears helping defend a man accused of murder. I can't believe it has been a year--it went so quickly!

Oh, the case had all of the drama of a movie, or something you'd see on TV. You may remember from my earlier posts that although we did not get the defendant acquitted, the jury was hung 10-2 in favor of acquittal. I think a very telling thing about that trial was that post-trial, the judge presiding over the case dropped the bail from $750,000 to $30,000, and waived any travel restrictions against the defendant. He was literally free to travel to any state or country he chose.

Now, the defendant has gotten on with his life. Without getting into too many personal details, let's just say that he and his wife are reunited again after his long incarceration, and they are happier then ever. I feel GREAT having played a role in helping end his two-year incarceration over a crime the evidence shows he did not commit.

Nevertheless, the District Attorney has neither refused to drop the charges, nor has she or her office pursued a retrial. This was a cold-case to begin with (1992!), and the DA has a reputation for trying to clean up old cases. However, it is unconscionable to me that in light of the DNA evidence, in light of all the testimony, that the DA should even consider retrying this particular defendant.

Maybe it is time to let this case become history--or else the DA needs a new theory on who actually committed the murder.

Something New

Six months--how they go by in a flash! Well, I may have taken a break from blogging, but the world is still moving. Happily, today's news indicates we're moving a step forward into the 21st century. The EPA just released NEW proposed rules for carbon limits for NEW power plants. This is good news. These rules would make it extremely difficult to get a new coal-fired plant approved, due to the amount of CO2 released from the burning of coal. Natural gas facilities, and of course renewables (wind, solar, etc) would have a much easier time passing the standards. The new rule caps CO2 emissions at 1100 lbs of CO2 emitted for each megawatt hour of electricity produced.

Why pick on coal? Simply put: coal is responsible for more CO2 emissions than other sources. In 2012, coal fired plants accounted for 18% of the energy consumed nationwide, but were responsible for 31% of energy related carbon emissions.

Anyone who watches television has seen ads for "clean coal technology." (Also known as Carbon Capture and Sequestration, or CCS). Unfortunately, CCS is an idea that hasn't really left the drawing board--yet. The problem with capturing and storing CO2 on a large scale is that it is currently unfeasible for two major reasons. First, from a logistical standpoint we lack the infrastructure to capture, transport, and store, significant amounts of CO2. Further, the energy required to do so negates most of the energy generated in the first place. It makes little economic sense.

Could that change in the future? Certainly. A few new coal-fired plants are being built in the U.S. and Canada that may be able to capitalize on technological advances. Interestingly the coal industry that promotes clean coal technology is fighting the new EPA rules--because even the coal industry cannot say if these new plants will actually be successful.

The EPA is doing what it can to limit the amount of CO2 entering the atmosphere, and it is going after one of the biggest sources of CO2 with these new regulations. The next step will be tightening the regulations on existing power plants, especially the handful of oldest, dirtiest plants that are responsible for such a disproportionate amount of the CO2 emitted in the US.

Something Blue

Hi Everyone--

Different people have different priorities. Thank God! Wouldn't the world be a boring place if we all wanted or liked exactly the same things? I don't think anyone wants a world with all the same clothes, music, food, etc. Well, I realize that fatherhood (or motherhood) isn't for everyone--and I respect that! I think the world would be better off with fewer parents, but that also if the people who chose to become parents were totally committed to raising good people.

Recently my wife gave birth to our first child--a boy. I can't say if he'll grow up to be smart, kind, healthy, athletic, artistic? I do know that he will grow up better if I take the time to be there for him, and for my wife, too. I am committed to being the best Dad I can be for this little man. So, I am taking a break from the blog for awhile. I don't think my vast readership will mind too much if I am not providing pearls of wisdom on trial strategy or environmental issues? Please understand: I've got diapers to change.

See you in six months or so?

Roll Mercury?

Living in Alabama for several years, I discovered just how much college football means to the population. With Alabama and Auburn sharing an incredible run of overall success and National Championships, there is no doubt that college football is king right now in "The Heart of Dixie." Even as I write this #2 Alabama is preparing to face #1 Notre Dame in the Orange Bowl for the right to be #1 again.

However, there's another #2 ranking that Alabama should not be so proud of: Shelby, AL, is home to the #2 largest source of mercury pollution in the United States, the Gaston Steam Plant. This power plant dumped 1244 lbs of mercury into Alabama's water and air in 2011, second only to the Martin Lake Steam Electric Station & Lignite Mine in Rusk County, TX, at 1501 lbs of mercury emitted.

Mercury is a heavy metal that can be toxic in high doses, and typically causes damage to the brain, kidneys, or lungs. Frequently you may hear that mercury is prevalent in fish, which is true. However, mercury is also present in grasses, insects, and livestock. It bioaccumulates, meaning that is becomes concentrated at ever-higher amounts as you move up the food chain. Fishing is off-limits in many rivers and lakes in the U.S., including Alabama, due to mercury contamination.

Humans are the source of approximately 50% of mercury releases worldwide, primarily from the burning of coal. The 10 "dirtiest" coal-fired plants in the United States account for approximately 18% of all U.S. based mercury emissions. Note: the other 4 of the top 5 dirtiest mercury-emitting plants in the U.S. are all located in Texas, and operated by Luminant Generation.

The technology exists to eliminate mercury emissions from coal fired plants by over 90%, yet often nothing is done because of the incremental increase in the cost of energy to consumers. I wonder though--what is the cost of illness and lost productivity? What is the off-set gain in the creation of jobs to retrofit the plants with cleaner technologies? Don't these costs and benefits also factor into the overall picture when deciding whether or not to clean up a "dirty" plant? If not, shouldn't they? Essentially the energy companies are externalizing their operating costs on the public at large, maximizing their own profitability.

It is common knowledge that Alabama consistently ranks near the bottom of all U.S. states whether considering education, health, poverty, income, or many other indicators of overall well-being. (As the saying in Alabama goes, "Thank God for Mississippi!)" It's great to have a college football team challenging for the National Title, and it gives many people something to cheer for. However, whether or not the Crimson Tide ends its season #1 or #2, I'm more concerned about the long-term consequences of that other #2: emitting mercury that we all may end up breathing or ingesting.