Much like the dusty days of our country’s historic wild west, the era of the free market’s principle of supply and demand on many consumer products is gone. Harley-Davidson was one of many American corporations that urged the U.S. Supreme Court to reverse established law and grant ceilings on retail prices. This is a matter of business and dollars for the readers and advertisers of this publication. In an unbiased fashion, I will try to report about the law that was involved and the underlying economic principles.
More than six years ago, an Illinois gas station owner realized that the only way he was likely to turn a profit on his operation was to exceed the “suggested retail” price of the gas which was sold to him by a big regional oil company. While his contract did not prohibit him from selling gas at this higher price, it did direct that all additional revenue be returned to the supplier. The gas station owner folded his operation, unable to pay his bills on the remaining profit. A legal case was born.
Gas station owners are not alone in their frustration about the “suggested retail prices” leveraged by suppliers and the demands of the market; many retailers who are exclusive distributors or who stock high demand goods have also seized the momentum of the free market in order to keep their businesses healthy. Remember last year, when the McDonald’s corporate offices wanted franchises to sell sandwiches for 55 cents, and the franchisees claimed they would lose money on the deal? Many franchise owners took their chances and refused to engage in the 55 cent gimmick.
Franchisees and retailers argue that price ceilings are a way for manufacturers to increase their own profits and that a retailer’s inability to increase the price (above the manufacture’s suggested retail price) will result in business failures. Fewer retailers will mean fewer competitors and thus higher prices.
While the origin of the case that went to the Supreme Court last year involved an Illinois gas station owner suing his supplier, it was soon opposed by a number of large manufacturers and franchise companies, including Pillsbury, Miller Brewing, Eastman Kodak, Burger King, General Motors and Harley-Davidson. As one of the manufacturers involved in the coalition that filed a brief in support of the pricing practice, Jeff Bleustein, President and Chief Operating Officer of Harley-Davidson Motor Company clarified the company’s position:
“Harley-Davidson is taking part in this coalition because we have heard the pleas of our riders concerning dealers charging more than manufacturer’s suggested retail prices. We feel the long-term success of our dealers and the Motor Company is based on the relationships we build with those riders, and that’s why we support fair pricing policies.”
The Coalition’s brief also urged the U.S. Supreme Court to allow maximum retail price limits to be judged on a case-by-case basis, with consideration given to supporting data and competition.
An article last fall in Business Week quoted a Harley-Davidson Motor Company spokesman as saying that “some dealers have sold bikes at a $500 to $1,000 premium over the manufacturer’s suggested retail price,” and that he argues these dealers “hurt the reputation of the company, especially with first-time buyers.”
On November 4, 1997, the U.S. Supreme Court ruled that while antitrust laws protect interbrand competition, the Court did not believe that vertically imposed maximum prices would harm consumers or competition to the extent necessary to rule that maximum price fixing could interfere with dealer freedom, restrict dealers’ ability to offer consumers essential or desired services, channel distribution through large or specially-advantaged dealers, or disguise minimum price fixing schemes. The Court’s decision overturned a Supreme Court ruling from the late 1960s which recognized that dealers are closer to the market than suppliers are and thus were better judges of fair pricing. This new Supreme Court decision seems like a victory for manufacturers.
There’s no question that it costs more to do business today than ever before. Inventory, taxes and a host of start-up costs make owning a small business like a motorcycle dealership an iffy proposition. However, as consumers we should want a market for new Harley-Davidson’s which will supply bikes at a fair price, a market in which everyone will make a profit and stay in business, a market which allows consumers to be able to afford to buy their products.
Richard Schroeder is an attorney with Michaelson, Schroeder & Mandel. Licensed in Minnesota and Wisconsin, Mr. Schroeder handles cases involving motorcycle and auto accidents, personal injury, insurance disputes, and product liability.
This column is intended to provide general information and is not to be construed as legal advice or legal opinion on any certain facts or circumstances. Minnesota Motorcycle Monthly encourages readers to consult legal counsel on any specific legal questions or matters.