Spotted by Lola at the ASI, a fairly long article on a relatively minor but nonetheless interesting topic.
My view is, manufacturers can (or should be able to) dictate the retail price contractually - by simply not selling to shops which sell their products for less than the set price, and it's not up to the government to ban this.
It's all down to market power anyway. If you make a generic product (white sugar, toilet paper), shops can simply switch to a lower-cost alternative; if you have a reasonably well differentiated/distinct product (a Porsche, or a specific book or music CD), you can probably enforce this.
Must stop scanning headlines
2 hours ago
23 comments:
Well, yes. But the 'ban' on RPM was enacted and enforced by the State. In other words this was just another State intervention based on too little knowledge - the classic Hayekian failure consequent upon the pretence of knowledge. And Mr DBCR is very much in favour of interventions in the free market...
In the same way I have no issue at all with Ticket Touts...
Except that professional 'ticket touts' are usually industry insiders, creaming off 'rent' by being manipulated to the front of the queue by other industry insiders to purchase a limited edition fixed price item.
I always understood that RPM was to stop one particular retailer cornering a market in a location and reducing product turnover or dictating the wholesale price to the disadvantage of the manufacturer.
SL - of course. But that's because of the first level rent seeking for those that get freebies..
"If you make a generic product (white sugar, toilet paper), shops can simply switch to a lower-cost alternative; if you have a reasonably well differentiated/distinct product (a Porsche, or a specific book or music CD), you can probably enforce this."
The only benefit of RPM I could see that the article gave was that it gave retailers an incentive in investing in the product (educating sales staff, etc.) There's not many generic products that need much explanation.
The problem with the idea manufacturers not selling to the discounters is that they are perfectly capable of doing this at the moment and don't. Presumably there is an advantage to publishers of RPM, in that bookshops will promote their products, but that doesn't stop them selling their books for less to Amazon. I wouldn't be at all surprised if it turned out it was pressure from the publishing lobby that ended the RPM in the first place. With the present system publishers can have their cake and eat it too: the bookshops will continue to promote the publishers' products whilst the publishers are selling them down the river behind their backs.
@L Yes but the Government intervention in the RPM system that had been freely entered into by the commercial parties was supposed to produce a "freer" market.The theory ,most of which came from somebody called Jayemy/ Jarmey?, was that manufacturers and retailers were rigging the system with RPM to suit themselves and putting up prices.(This is very vexed subject: I once was on good terms with one of the land taxers at the FT but he dropped me like a stone when he heard I had pro-RPM sympathies.RPM is much more suspect than LVT despite the favourable Supreme Court judgment in the USA)
It is a good idea to look up the LSE paper on the Abolition of RPM by Helen Mercer which manages to anticipate the same favourable-to-RPM conclusions made by the American Supreme Court in the Leegin Creative Leather case many years later in 2007.
There is strong suspicion that Heath only wanted us to join the Common Market because Europe banned RPM and he thought Rpm made British industry uncompetitive.A fat lot of difference banning it has made.
I am the last person to worship at the shrine of British SME riddled
industry but even I cant see how a private sector firm can operate
without the power to set its own prices. It cannot be efficient to legislate that supermarkets can set the prices of manufacturers' goods.
@DBCR "Yes but the Government intervention in the RPM system that had been freely entered into by the commercial parties was supposed to produce a "freer" market That was not the reason at all. The assumption was that RPM was price fixing (and liable to cartelisation) that worked against the consumer interest. The intervention was flawed as it denies a freedom (a freedom which is fundamental and part of the 'free market') - for a manufacturer to charge what it likes for the product it makes and to insist that its agents do likewise and then also choose not to supply those parties that would charge less than you wish. That's you liberty to do that. The market will then judge whether you are overpriced or not and you will enjoy/suffer the consequences. I think that's where we agree.
As I say, it is the intervention in the 'free market' that is the issue. Such interventions most often than not fail. In one way or another. I think that is Ben's point.
I s'pose this intervention is a version of Adam Smith's point about businessmen coming together with government to work out how to defraud the public.
(Of course there are lots of cartels that the government wants - land, banking, land-banking (:-)), policing, arms, etc etc)
DBCR, having thought about this for a bit, I cannot see how RPM is to the manufacturer's advantage, except for the monopsony argument that you give. Nor can I see how RPM puts up the prices of goods unless all the manufacturers of that particular good form a cartel, which is a completely separate problem.
AFAICS the monopsony argument is also a separate problem to RPM and one to which RPM is only a partial solution. In any case, even if RPM was allowed, what is to prevent the supermarkets periodically "renegotiating" the sale price of the goods they are selling? They can afford to employ much more expensive lawyers than their average supplier.
As always it must be pointed out that DBCR has obviously not read the Supreme Court judgement. They opined on a 5-4 basis that resale price maintenance agreements should be decided on by a rule of reason rather than being illegal per se. I have to say that I find the dissenting judgement in the Leegin case more persuasive. RPM is just a way of rigging markets. Given that the ways of reaching the retail market are so much wider these days than when you either had a shop or sent out catalogues or put adverts in the papers, RPM is an anachronism.
@L
I don't know why you are disagreeing with me. "This is not the reason at all "you say, before making the same argument as myself.
A glance at Hansard for the second reading of the Resale Price Bill 10 March 64 has Heath starting off by saying that abolition is pro-competitive, first and last."The object of this policy is to promote more competition throughout the economy .If we are to obtain a sustained and steady rate of growth undoubtedly we must make the most efficient use of all resources. This in my view and in view of the Government can best be obtained by increasing competition."
So, it would. appear that even radical Tories can make a hash of increasing competition.
DBCR, Hansard just tells us the "casus belli", the reason Heath wanted to give for abolishing RPM. I would be astonished if that was the real reason.
DBCR - What Bayard says. Anyway, all I am saying it's just another flawed intervention by comparatively ignorant and stupid politicians and bureaucrats. That's what Ben's blog article really shows.
FWIW I was speaking with a mate of mine that works for Holden (GM Australia). He knows that Rolls Royce never ever discounts any new car sale. Which rather reinforces Marks point.
@L&B
The argument that there is a connexion between Heath's abolishing RPM and his support for the Common Market is not just my idea.The prescient, and often brilliant, scholar, Helen Mercer writes." In addition ,while it has been argued here that policy on RPM evolved relatively free of external influences ,the fact that RPM probably infringed Article (l) of the Treaty of Rome was to strengthen the hand of the Europeans in the Party: it was no coincidence that the measure was pushed by Edward Heath who had led the negotiations Britain's entry into the EEC in 1963." The understated "no coincidence" is all too significant in its scholarly way
DBCR, thank you for confirming what I only suspected - that Heath abolished RPM, not because it was anti-competitive as he claimed, but because he wanted to enter the EEC, which being an ubercartel, didn't want anything that smacked of small fry getting in on the act.
DBCR. Nice work.
@B You end up wondering whether Heath wanted to destroy RPM and was using EEC entry as a means to that end or his main aim was to join EEC and the demise of RPM was just collateral damage in his book.
Clearly small businesses were not a priority which led to a really major Conservative rebellion.
But small businesses were totally out of fashion on the right as Charles Clore was knocking down small firms that issued shares, like ninepins.He was enabled by changes to the Companies Act in 1948 which forced companies to publish a value for all their assets.This showed that Sears the Northampton shoe firm had underestimated the real estate value of their 900(!) High Street shoe shops.It was then just a matter of Clore writing to the shareholders direct, by-passing the board: Sears, once a big Northampton employer, now exists only as the name of the capital of the Clore financial empire. A memorandum circulated in the Bank of England up to Governor level claiming that Clore "appears to have improved the retail shoe trade of the country." As to the robbed blind shoe firms "Directors generally have only themselves to blame if they have been dispossessed by more enterprising rivals" .
I believe that conservative elements encouraged operators to strip out the property values of the many small firms ( the asset strippers Slater -Walker had Sir Peter Walker a Tory Cabinet minister in their midst) and the chance to consolidate a German Mittelstand of small firms was not taken.At the time when I used to research all this, I thought that the greater influence of Catholic Social Theory in Germany accounted for the difference but that was 40 years ago! The trail's gone a bit cold memory- wise.
DBCR, I should have known Heath was just pandering to the moneymen. After all, that's what the Tories do.
@DBCR. Sears then was just another victim of the Great Land Price Inflation (or just 'Inflation'). The fact that their land holdings had come to be worth more than the company tells you all you need to know. So Clore was simply exploiting that failure. And that was before 1979, so that one not Thatcher's 'fault'.
As MW (and me) have said - it's the UK disease - home-ownerism. We tax production and subsidise rents. Sears was just another victim of that.
(Oh and think Heath was a total conniving deceitful corporatist wanker - nearly, but not quite as deceitful as Wilson).
@L
Don't tell me about Homeownerism; this was a term I invented and which Mark took up and developed fully and conclusively. Note original DBCR spelling ; Mark's spelling Home-Owner-Ism leads to Home-Owner-Ist which looks like Home Owners First to me. But I am being a bit petty.( I am willing to share credit for coinage of this word but not to renounce it)
The case of Sears originally a traditional, very large, shoemaker undermined by land prices and changes to company law about publishing asset values, is a way marker on the downward path to the inflation of house prices which we now see affects demand in the Henry George manner.I live very close to the Sears mansion which is now a pub surrounded by miles of overpriced bungalows which were built in the house's grounds.
The more recent case of British Timken an engineering firm with enormous grounds in the north of the town that used to host the Timken Games ,a nationally ranked athletics meet, is also instructive, not least because of Brexit because the whole production of this engineering outfit was moved to cheap labour Poland and the wide open spaces of the grounds covered in...(wait for it).. over-priced housing.
I nominate Northampton as the town most fucked up by lack of LVT.
As the Conservative Party has always been the landed party,I am only stating the obvious that they have merely spread their land inflation tendencies to the lower orders to get votes.
Heath was trying to focus on increased industrial production, but without LVT he was doomed. He saw RPM as the sinister influence that was holding back competition but it was the same old, same old.
@l
My lengthy reply to the above, made yesterday, seems to have disappeared .Not for the first time!
DBCR So we agree then. Land price inflation destroys industries where the balance sheet asset value including land holdings is worth more than the trading company. I have railed about this for years. The same fate happened to Ransomes and Rapier (https://en.wikipedia.org/wiki/Ransomes_%26_Rapier) who was destroyed by Robert Maxwell who assets stripped both the land holdings and the pension fund. And was one of the cases that got me thinking about 'rents' and 'land values' without knowing anything about Georgism.
But it weren't just the eevil torrees what got in on the home-owner-ist act were it? What about Blair Brown Balls and Co.?
But, ex Maxwell, I am not saying that such asset stripping is wrong per se - assets must be made to sweat. And putting the full financial picture on the balance sheet is not wrong.
What's wrong is land price inflation ism as an economic policy.
DBCR. I s'pose for private manufacturing companies the way round this is to put the land in Trust. I wonder if that's why JCB has thrived?
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