Some Comfort in a Setback
The old adage, Watch what we do, not what we say , has particular application at the U.S. Supreme Court this week.
While insisting that it is devoted to free markets and competition, a six-member majority has handed down an important antitrust decision that may put some discount stores out of business and all but eliminates competition in the sales of a popular brand of electronic calculators in Houston. Justice Antonin Scalia, a supposed devotee of the notion that courts must look to the “original intent” of laws, has produced a majority opinion that ignores the intent of the 1890 Sherman Act and gives the back of the hand to a 77-year-old high court precedent.
In the case before the court, one Houston retailer, angry that its only local competitor was consistently selling Sharp calculators for less, delivered an ultimatum to Sharp Electronics Corp.: Either halt supplies to the other dealer or we’ll stop selling your calculators. Sharp agreed to suspend its business with the price-cutter, a dealer that specialized in high-volume sales and consumer discounts. Now the Supreme Court has upheld that arrangement, although eliminating the competition sounds to us like the very kind of “restraint of trade” outlawed by the Sherman Act.
Retail price-maintenance agreements and other forms of what the courts call “vertical price fixing” have been illegal since 1911, when the court ruled that, on their face, they violate the Sherman Act. The current majority skirted that decision by saying that, in the Sharp case, the manufacturer and the complaining retailer had not actually fixed the prices that were to be charged. The new rule enunciated by the justices allows a discounter dropped by a manufacturer to recover damages only if he can prove that there was some agreement on price levels between the manufacturer and the remaining dealers--not the kind of blunder that a company with decent lawyers is likely to make. In essence, the court pretends that what Sharp did has nothing to do with prices--although, of course, if the discounter had raised its prices, Sharp would never have cut off its business dealings.
The majority arrived at its strange conclusions by adopting the economic analysis promoted by the University of Chicago’s antitrust experts and the legal views of the Reagan Administration. Both the Chicago economists and the Administration, arguing that “interbrand competition” guarantees that companies won’t take advantage of their market power, contend that the antitrust laws were meant to protect competition between brands, not between sellers of the same brand; however, we don’t see that distinction anywhere in the law. The Justice Department has even argued that the 1911 decision itself should be overturned, freeing businesses to fix prices with their distributors, though Congress has passed resolutions and appropriations riders rejecting that stance.
For discounters now worried about their survival and consumers fearful that the court’s decision will boost prices, there is one comfort: Whatever the court has done can be undone by Congress. The nation’s lawmakers ought to take a hard look at where antitrust law is going.
