Justice Department, Congress spar over future of no-frills pricing
The stores are often located in old warehouses on the edge of town. They specialize in cameras, or carpets, or clothing. Their ads are blunt (WAREHOUSE SALE! PRICES SLASHED! MIDNIGHT MADNESS!) and they sell products for less, less, less than traditional retail outlets.
Over the last decade, these discount stores have been among the fastest-growing sectors of American business. But now, in a little-noticed move, the Justice Department is pushing a change in law that could end the price advantage of many discounters.
William F. Baxter, assistant attorney general for antitrust, says he believes that manufacturers should sometimes be able to dictate a minimum retail price for their product. Currently, such price-fixing is automatically an antitrust violation.
Congress doesn't agree with Mr. Baxter, and has voted to prohibit the Justice Department from trying to relax retail-price laws.
Discount stores, which thrive on low overhead and high turnover, have existed since at least the early years of this century. They began to flourish after 1975, when Congress completely outlawed the ability of manufacturers to dictate the price customers could be charged for products.
Not everyone, however, thinks it's a great thing that American consumers can save by shopping at stores that offer few frills. Many economists and regulators complain about the ''free-rider'' phenomenon, in which customers shop an expensive outlet for advice, then buy from a discounter.
For example, an expensive downtown tennis store here has a back room with a ball machine where customers can try out rackets. During a recent afternoon a congressional aide spent an hour there with a salesman, hitting balls, before deciding on a racket called ''The Bronze Ace.''
Then she thanked the salesman, walked out the door, and saved $20 by actually buying her ''Ace'' at a discount store in the suburbs.
Such actions hurt specialized retailers and disrupt manufacturers' marketing plans, say proponents of the mandatory retail price.
Assistant Attorney General Baxter, a former Stanford professor with a scholastic approach to law enforcement, feels this way. He takes the view that set retail prices could actually stimulate competition between companies, since they would increase manufacturers' control over product distribution.
So Baxter wants the Supreme Court to relax the prohibition against retail price maintenance. Specifically, he says judges should study the economic effect of such arrangements, to see if they are pro-competitive, instead of automatically ruling them illegal.
A case dealing with the subject, Monsanto vs. Sprayrite, will be argued before the court on Dec. 5. Baxter had planned to take the stand then, and present his position.
Justice Department officials argue that they're pushing for a relatively technical change in the law.
''We're not talking about as radical a departure as some people believe,'' says Mark Sheehan, a Justice Department spokesman.
But critics (who include many members of Congress) say the move would make a big difference to the average consumer, by curbing competition at the retail level and raising the price of many popular products.
''Justice really is taking quite an unrealistic position,'' says Lawrence Sullivan, a law professor at the University of California at Berkeley who has studied the subject for a business coalition opposed to the move.
The Justice Department, Mr. Sullivan says, believes discount-house price-slashing can keep the marketplace from operating at full economic efficiency. But the purpose of the antitrust laws, he argues, is not just to promote efficiency, but to encourage competition at all levels, from manufacturer to retail outlet, and to ensure that the consumer is treated fairly.
If Baxter's views prevail, companies with many competitors and products that are relatively sophisticated - cameras, personal computers, stereos - would probably be allowed to set retail prices, says Sullivan and congressional aides who study the subject.
Some manufacturers would set high prices. Some would stay low, to catch the discount crowd. The practical effect to consumers would be a much smaller variety at your local discount store, these critics say.
But Congress, in any case, is trying to keep all this from happening. The bill authorizing Justice funds for 1984 contained a provision that said no money could be spent to change retail price law. Justice officials say they aren't sure if this provision will prevent Baxter from arguing his beliefs before the Supreme Court in December.
''Lots of members (of Congress) feel discounting is very important,'' says one congressional staff member. If there is any relaxation in price law, predicts this aide, Congress would simply vote to undo the change.