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How prices are Communicated to Consumers: The Fight over Prices on the Internet

Where’s the price? When it comes to prices, online retailers have a higher burden than their more traditional counterparts as companies, thanks to a 2004 Supreme Court ruling have gained considerable leeway in dictating how prices are communicated to consumers.

From Today’s NYT:

Wary of the Internet’s tendency to relentlessly drive down prices, major brands and manufacturers — and now, book publishers — are striking back, deploying a variety of tactics and tools to control how their products are presented and priced online.

In many cases that freedom stems from a 2007 Supreme Court ruling in the case of Leegin Creative Leather Products v. PSKS. The ruling gave manufacturers considerably more leeway to dictate retail prices, once considered a violation of antitrust law, and it set a high legal hurdle for retailers to prove that this is bad for consumers.

Ever since that decision, retailers say manufacturers have become increasingly aggressive with one tool in particular: forbidding retailers from advertising their products for anything less than a certain price.

For offline retailers like Wal-Mart Stores and Best Buy, that means not dropping below those prices in the circulars and ads in newspapers. But online retailers have a greater burden. Manufacturers consider the product pages on sites like eBay and Amazon.com to be ads, and they complain whenever e-commerce sites set prices below the minimum price.

This leads the sites to replace prices with notes that say things like “To see our price, add this item to your cart.” One day last week, prices were missing on Amazon.com for an array of products like the Milwaukee Sub-Compact Driver drill kit, a Movado men’s Esperanza watch and an Onkyo 7.2-channel home theater receiver.

Having consumers add something to their cart before knowing the price is also an increasingly popular behavioral economics tactic.

Most online retailers complain that the missing prices confuse consumers and give an advantage to big chains like Wal-Mart, which do not bear the same burden in their stores. They also say the practice of enforcing minimum advertised prices has gradually spread from the consumer electronics business to companies in other industries like sporting goods and jewelry, which are also trying to stem the downward pressure of prices online.

Amazon declined to comment on the issue, but the company’s feelings on the matter are public. “Retailers like Amazon have the legal right to set their own prices independently, but some manufacturers place restrictions on how those prices may be communicated,” reads an explanation on Amazon product pages that lack prices. “We realize that this is an inconvenience and are regularly working to educate manufacturers on how their policies impact our customers.”

Read the rest @ the NYT