March 27, 2007

Irvine, CA–Yesterday the U.S. Supreme Court heard oral arguments in the case of Leegin Creative Leather Products, Inc., v. PSKS, Inc. At issue is the question whether antitrust law prohibits manufacturers from setting the retail price of their products.

According to Dr. Yaron Brook, executive director of the Ayn Rand Institute, “Whether or not antitrust law permits this practice is unanswerable–because antitrust law is filled with undefined terms that can mean whatever the government wants them to mean. But we can say this much for certain: manufacturers have a moral right–and should have the legal right–to set the retail price of their products. As the legitimate owners of their property, manufacturers–as any other sellers–have a right to set the terms of sale of their own products. If a retailer does not agree with the terms of sale set by a manufacturer, if he judges the terms to be unreasonable or unprofitable, he is free to reject the manufacturer’s terms and seek other suppliers with different pricing policies.

“There are many legitimate reasons why a manufacturer might opt for a pricing policy that sets the retail prices for its products.

“A manufacturer may believe that its products would be more attractive to retailers if it guaranteed to them that their profit margins on its products wouldn’t be cut by competition among different stores. Or a manufacturer may think a high-end product line will become devalued if sold at a discount. Whatever the reason behind a manufacturer’s pricing policy, it is the manufacturer’s prerogative–and his prerogative alone–to set it according to his judgment and his interests. The government has no right to forbid a manufacturer to come up with his own pricing policy or to force him to adopt a policy he doesn’t agree with.

“To properly answer the question of what price to charge requires that a producer make difficult, consequential judgments. If a manufacturer sets his prices too high, he loses customers and risks a sharp decline in sales. If he sets his prices too low, he cuts his profits and may even take a loss. Setting prices at the right level is a difficult task for any manufacturer, a task he must be free to tackle without government interference.

“The objection that consumers are harmed by certain pricing policies is groundless. Consumers are under no coercion to buy anyone’s products. They aren’t harmed by a manufacturer’s decision to set his prices as he sees fit. If they judge a product to be too expensive, they can go their own way, unharmed, and free to shop elsewhere. Just as a manufacturer has no right to force consumers to pay the price he wants, consumers (or government officials) have no right to force a manufacturer to sell at the price they want.

“The fact that a manufacturer may be punished by antitrust law for setting the retail price of its products indicates the irrational and unjust nature of antitrust law.

“We can only hope for the day when the Supreme Court will no longer condemn innocent companies for violating antitrust law, but instead will condemn antitrust law for violating the rights of the innocent.”

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