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But I Thought Economists Were Against Price Floors…

June 28th, 2007 · No Comments
Econ 101 · Policy

Today the U.S. Supreme Court blocked a 96-year-old ban on price floors. To be specific, these price floors are not imposed by the government, but rather by manufacturers and distributors. These organizations are now not automatically excluded from being able to set minimum prices to retailers.

I am puzzled by this on several levels. First, weren’t manufacturers just getting around this anyway by requiring retailers to abide by a “minimum advertised price”? (Anyone that has shopped on a web site that said “Price too low to display” or “We’ll show you the price when you put the item in the cart” knows what I’m talking about.) Second, don’t price price floors generally lead to allocative and technical inefficiency and deadweight loss? I thought for a bit that I was just being a silly economist when I read this part of the article:

“The Bush administration, along with economists of the Chicago school, had argued that the blanket prohibition against resale price maintenance agreements was archaic and counterproductive because, they said, some resale price agreements actually promote competition.

For example, they said, such agreements can make it easier for a new producer by assuring retailers that they will be able to recoup their investments in helping to market the product. And they said some distributors could be unfairly harmed by others — like Internet-based retailers — that could offer discounts because they would not be incurring the expenses of providing product demonstrations and other specialized consumer services.”

Um…okay. (Clearly I don’t sound convinced, but I’m also not one that gets a lot of value from product demonstrations and sales pitches.) I’m trying to get my head around this argument…I’ll keep you posted…

Tags: Econ 101 · Policy

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