Price Fixing - Right or Wrong?

[Big Kev]

Price fixing is not illegal, nor is it anti-capitalistic. Apple uses price fixing for all its products and last I checked they do quite well.

You're confused about what the term price fixing actually means. It involves colluding with a competitor (or competitors) to fix the price of their respective competing offerings, so that there's little-to-no difference between them. It kills competition on price, and ensures that no one vendor has a pricing advantage. And as such is most definitely illegal (Richard Pratt anyone?).

Kev

[Miccara]

I agree it should be free market, but...

...you must be willing to pay the price of "Free Market". Some of which is the massive transference of manufacturing and assembly jobs to other countries, call centers in India, China, etc. There is only two options in business, raise your price to cover costs and show and profit, or lower manufacturing costs. Prices are driven so low in a free market on some products that the only way to continue profitably, is to either raise your price and hope competitors do the same or, lower productions costs to give you more margin to work with. This is partially why kits aren't made in Canada or the US. Price fixing could help a great deal across many markets. Most likely (according to stats), most people here work in manufacturing or manufacturing support. The profitability of those companies, pays your wages.

Now I haven't read the post in the other forum but, to qualify as price fixing, you have to get (in our example), all the hobby manufacturing companies to sell 1/48 Spitfires at the same price. Trumpeter, Tamiya, Hasagawa, Revel, etc. They would all sell their 1/48 Spitfire's for $60! That is price fixing. If you manufacture a product and want it sold for one specific price by the outlets or approved distributor, then you can do that, legally. Just for clarity; if I see that Tamiya sells a kit for $60, then I might get into the manufacturing of one myself and sell it for $60. AM may see that Tamiya and Larry are selling their kits for $60, so they decided to sell for $60 too. For this to be price fixing, you must prove there is collusion. There can be significant barriers to collusion. In any given industry, these may include:

* The number of firms: As the number of firms in an industry increases, it is more difficult to successfully organize, collude and communicate.

* Cost and demand differences between firms: If costs vary significantly between firms, it may be impossible to establish a price at which to fix output.

* Cheating: There is considerable incentive to cheat on collusion agreements; although lowering prices might trigger price wars, in the short term the defecting firm may gain considerably. This phenomenon is frequently referred to as "chiseling".

* Potential entry: New firms may enter the industry, establishing a new baseline price and eliminating collusion (though anti-dumping laws and tariffs can prevent foreign companies entering the market).

* Economic recession: An increase in average total cost or a decrease in revenue provides incentive to compete with rival firms in order to secure a larger market share and increased demand.

Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage. It is an agreement among firms to divide the market, set prices, or limit production. It can involve "wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties". In legal terms, all acts effected by collusion are considered void.

Price fixing itself wont solve the problem, but don't be so quick to condemn people trying to control the price of their product.

Let the flaming intensify!!!!!

Edited February 13, 2011 by Miccara

[Miccara]

Ding. The whole thing seems very self-serving. It started out with a "Wingnut kits are popular, but I can't sell any because they only sell direct", and has just gone kind of silly. And hasn't dealt with the obvious, fundamental question: SHOULD local shops *BE* saved? If they can't survive in the marketplace, should they be propped up (at the expense of the consumer's wallet), or go away (at the expense of the consumer's convenience). Since those are basically the options being laid out. Ultimately, what setting and enforcing retail pricing means - the same way Apple does with their MP3 players - is that you will never see a kit discounted or on sale; that kits sell for MSRP, period, and you *will not* find it cheaper... and ultimately, that means you're going to pay more for your model kits. Some times a LOT more: MRC's suggested retail on the new Italeri C-27 is $80. Lucky Model will deliver it to your door for $50.

Frankly, after reading through the various posts, I find myself wondering why more manufacturers don't simply sell direct, not why they don't set retail pricing. If you're a small company who caters almost exclusively to the enthusiast market, why give a slice of the pie to distributors, wholesalers and retailers?

Most of the reason why manufactures don't go direct is because they don't generally work that way. Manufacturers work for business people who need manufacturing. You design something, tool & die makers create dies and molds, you take those to a manufacturer, and he quotes how much it'll cost you. You market, you distribute, etc. etc.

[-Neu-]

You're confused about what the term price fixing actually means. It involves colluding with a competitor (or competitors) to fix the price of their respective competing offerings, so that there's little-to-no difference between them. It kills competition on price, and ensures that no one vendor has a pricing advantage. And as such is most definitely illegal (Richard Pratt anyone?).

Kev

True, I should have said fixed-cost pricing, or fixed cost-based pricing. I was using the terms stated here.

[Bugfan]

If you really want this hobby to die, go ahead and "price fix". I for one will not buy a 1/32 "XXX" tomcat, for MSRP. I simply cannot afford $230.00 it, but the one for 155 dollars is more realistic, IMHO. What happens to the small mom and pop companies that buy kit collections, for pennies on the dollar, and then show up at trade shows to appease both you and I. How many times have you gone to a model show, seen a kit that you really want, and then shop around for a better deal? GUILTY as charged. That is the reason that alot of people show up at shows, the vendors, and why??? Most of the time they can find what they are looking for, cheaper than the LHS. Could be a never ending topic!!!!!!

MY 2 cents worth,

Jack aka BUGFAN

[Hawkeye's Hobbies]

Grey Market retailers on eBay and such will have sales that skyrocket where as legitimate retailers that deal with the distributer/manufacturer directly will lose allot of sales ...

Gregg

Typically the Grey Market is selling products that are copies or knock offs of original manufacturers products. There are also some mfrs in China that produce products under contract that are also selling these same items out the back door. As a "hobby retailer" my email inbox gets bombarded with offers to purchase these (mostly R/C related items) at prices far below normal wholesale from the distributor or mfr direct who paid this contractor to produce the items under contract for them exclusively. For those into these items, its hard especially if you don't have the money to pay market price, when you can get as many as four for the price you'd normally paid for one...delivered to your door!

It takes an effort by consumers to not patronize these bandits. Consumers get a slap of reality when they seek service after the sale...they find that the bargain price didn't include support from the local dealer/distributor or the mfr whose product was stolen.

The Grey Market will continue to thrive as long as their are people patronizing them...been this way since the beginning of commerce.

[crazydon]

If you really want this hobby to die, go ahead and "price fix". I for one will not buy a 1/32 "XXX" tomcat, for MSRP. I simply cannot afford $230.00 it, but the one for 155 dollars is more realistic, IMHO. What happens to the small mom and pop companies that buy kit collections, for pennies on the dollar, and then show up at trade shows to appease both you and I. How many times have you gone to a model show, seen a kit that you really want, and then shop around for a better deal? GUILTY as charged. That is the reason that alot of people show up at shows, the vendors, and why??? Most of the time they can find what they are looking for, cheaper than the LHS. Could be a never ending topic!!!!!!

MY 2 cents worth,

Jack aka BUGFAN

What he said. While I have bought new releases on-line if the subject interests me no way did I pay MSRP for the items and won't.

I believe Ken is struggling to sell his products...example...the Hurricane 1/32nd scale. I'm a dyed in the wool Hurricane fan and have wanted a good 1/32nd scale Mk I for years...and have yet to buy the PCM kit. Reason....I know if I wait someone will do a better product at a reasonable price....look at the 1/32nd Spitfire Mk IX series....Tamiya released theirs and suddenly you see PCM kits for sale cheap all over the place.

[tornado64]

absoluteley wrong !!

i'll never forget a friends business ethics that had his own shop

he said " let him up the street sell them for 2 @ £5 proffit and i'll sell mine for 15 @ £2 proffit and lets see who does the most business !! "

his shop was always full , he had a large house and lived well whilst greedy arse up the road never seemed to have two coins to rub together

modern business methods are stupid fueled by greed

if he can live well of a smaller proffit margin but selling more maybe it may not be such a bad thing

it is unfortunate but model shops alone are struggling in the modern climate

realisticaly there just isn't the passing trade and volumes of sales to keep them going

the internet is a way of reducing overheads and making it viable to give a good deal

no difrent to my friends method ( competition ) plain and simple if your not providing the deal everyone else is you go under

looking at it realisticaly we need to support young into the hobby i was at my local kit sellers the other day

and whilst yes there were cheaper kits most are over £10.00 anything good was upwards of £20.00

if i was a kid nowadays i could find a hell of a lot to do with that money

because i would then need glue , paints , tools etc etc

our local discount store sold off 21st century stukas etc for £ 2.00 each and sets of ten brushes for a quid

i presently refuse to buy new kits ( however tempting a release sounds ) if i am buying i scour ebay , car boot sales , and discount shops

to pay a realistic price !!

[Miccara]

Manufacturers sometimes try to gain market share by producing better quality, thinking this is what buyers want. Of course, quality usually costs more, so in most cases this tactic fails. This means they stuck producing an item with higher manufacturing costs but the same shelf price as the cheaper guys. Cheaper guys continue selling and making more profit than the good quality guys, good quality guys either lower production costs or go out of business.

I know it's not the popular stance, but I'm very sympathetic to small business guys trying to ensure a certain level of profit in order to continue in business and grow. It's not always "gouging", sometimes it just survival.

Edited February 13, 2011 by Miccara

[mingwin]

In essence though, it occurs already with Trumpeter, selling in the USA only through Stevens International

no.

you can have trumpeter product nearly everywhere on earth... we're in 2011!

no one forced you to buy trough stevens, nor at your LHS...

i can have Trumpeter's products for the 1/2 of regular LHS on most HK based webstores.

more topic related, if he wanted to control prices, he'd be better only sell his stuff at his own webstore (like collect aire)

...also, it sounds strange to me, when someone preaches me to pay more to save hi's competitor's ***???

otherly, it didn't bother me that much that you guys at sprue brothers didn't keep that specific line of products in you catalogue...

Edited February 13, 2011 by mingwin

[James Colley]

With 'price fixing' of kits in one market, this would would fail, as with the Internet & ebay, we can purchase from all over the world, where-ever is cheapest.

What the question should be, is why can a kit be purchased from HK or China for 1/3 to 1/2 the cost inc postage of the same item from the Hobby shop.

I'm in the UK, and discounting here is virtually non-existant, it's often cheaper to purchase from Spruebros or one of the HK sellers than it is to buy from the LHS down the road.

I would prefer to do my buying in the UK, but the prices here, which are almost the same everywhere, just like the 'price fixing' prevent me from doing this.

[zerosystem]

Ah, okay. So if some sort of price fixing were to be instituted, could it realistically be enforced? What is to stop retailers, online or brick-and-mortar, from opting out? How could it be enforced, unless established vertically back to manufacturers? That is, if manufacturers Academy-to-Zvezda don't agree to get involved and establish contracts similiar to Toro's, then it must be at a middle-man choke-point, such as importer/wholesalers in North America?

I'm just wondering how so many hobby retailers could hope to even set up such a scheme, without the danger of the opt-outs continuing to undercut the program anyway.

that sure is a nice hobby shop you got there....it would be a shame if something were to...uh, happen to it

[Fishwelding]

that sure is a nice hobby shop you got there....it would be a shame if something were to...uh, happen to it

Yea, that's been one tradition of enforcing price fixing, but it seems to me it would be less trouble to just get into a different, more lucrative business than engaging in organized crime to save the business of selling plastic models.

I mean, if it gets to that point, so long as you've committed to engage in law-breaking, violence, and property destruction, you might as well get into the drug trade, or illegal arms dealing, or...something other than selling plastic toy jet kits. :)

Edited February 13, 2011 by Fishwelding

[Daryl J.]

Ken's dilemma: Price is slightly above what a market will bear over 30 years.

Gordon's dilemma: Price is slightly below what a business can tolerate over 30 years.

Neither business will be here in one career's time span.

However, one must eat. Both arguments are saying that is wrong.

Edit:

Gordon's total failure in understanding: Price fixing. Very clearly: the setting of MSRP is not price fixing. Price fixing would be where Tamiya, Revell, Trumpeter, Two Mikes, Steel Beach, etc. all get together secretly and collude to set a price far beyond survivable profitability. Setting of MSRP is a formula that allows for reasearch, development, production, retirement, new carpet, toilet paper, a sick day, and ice cream, etc. from beginning of product through final consumption of the product. Any error there involves catastrophic results for one or more aspects of the formula and eventual failure of the entire system...i.e. no more product.

Honestly, however, I think if this were 35 years ago, Gordon would soon be the wealthiest person in the hobby world given his business theories and it would really sass. The trouble is, there is hardly a market anymore compared to then. We are in a market where there are 11-12 products for a market that will bear 8-9. Wiggle room within the profit margins for all parties is precariously tight now. Key word: precariously.

To each their own, and best to each.

Cheers,

Daryl J.

Edited February 13, 2011 by Daryl J.

[Icehound]

If you really want this hobby to die, go ahead and "price fix". I for one will not buy a 1/32 "XXX" tomcat, for MSRP. I simply cannot afford $230.00 it, but the one for 155 dollars is more realistic, IMHO. What happens to the small mom and pop companies that buy kit collections, for pennies on the dollar, and then show up at trade shows to appease both you and I. How many times have you gone to a model show, seen a kit that you really want, and then shop around for a better deal? GUILTY as charged. That is the reason that alot of people show up at shows, the vendors, and why??? Most of the time they can find what they are looking for, cheaper than the LHS. Could be a never ending topic!!!!!!

MY 2 cents worth,

Jack aka BUGFAN

I am with you Jack if I can find a kit for less than MSRP on line or in a Model shop I will get it. Retailers or companies that want to charge MSRP good luck with that because I wont be buying it.

My 2 Cents Canuck worth

Mark

[GreyGhost]

Typically the Grey Market is selling products that are copies or knock offs of original manufacturers products. There are also some mfrs in China that produce products under contract that are also selling these same items out the back door. As a "hobby retailer" my email inbox gets bombarded with offers to purchase these (mostly R/C related items) at prices far below normal wholesale from the distributor or mfr direct who paid this contractor to produce the items under contract for them exclusively. For those into these items, its hard especially if you don't have the money to pay market price, when you can get as many as four for the price you'd normally paid for one...delivered to your door!

It takes an effort by consumers to not patronize these bandits. Consumers get a slap of reality when they seek service after the sale...they find that the bargain price didn't include support from the local dealer/distributor or the mfr whose product was stolen.

The Grey Market will continue to thrive as long as their are people patronizing them...been this way since the beginning of commerce.

Gerald, you're talking about 'Black Market' goods, knock-offs and such ...

'Grey Market' is legitimate goods sold through back channels, etc ...

>>> Grey Market <<<

Gregg

[bigjugs]

This is called vertical price fixing. A manufacturer makes an agreement with the distributor and retailer that the product will be sold at a set price. If it is not, then the retailer don't get no more.

LHS have been trying to put pressure on some model manufacturers not to sell product to discounters, or fix the price. LHS cannot compete on price, margins are too slim, so they want to make it not-competitive by forcing everyone to sell a kit at the same price. Mr. Lawrence wants to protect his bottom line, because places like Sprue probably put pressure on him to give better discount on multi-unit purchase (If I take a dozen, how about 40+10 discount?)

Interesting that the only US on-line retailer selling PCM kits is Great Models and at the MSRP. No accounting for Loic.

I don't give a flying pancake if manufacturers sell directly, this is not a get rich quick business. Not even get rich, forget about quick. They deserve a decent profit for their investment. But if you are going to use the market place, then the market should rule.

Notice also that Mr. Lawrence is not concerned about the direct sellers of aftermarket stuff?

In the normal market, vertical price fixing is usually done with fancy good like perfume, expensive hand bags and luggage, High price maintains exclusivity.

Plastic kits? I would like to quote Cartman, but....

[Rex]

I get all of this from each guys viewpoint,,,,,each wants to make a profit for their company

but, one question comes to mind

how long do I have to "sit on" a stack of kits if they don't move?

once all the "committed" modelers have the XYZ Packard F-123 kits they want,,,,and I still have 10 of them left for an investment of $50 each,,,,,just exactly when can I discount them from $125 down to $75 to get my storage space back for other kits by either XYZ or LMN?

after a few months of having those 10 sit there and not help pay any bills for me,,,,,,,,they'd be "price chopped" to make room,,,,,,and if that means that XYZ won't sell me any of their new F-124's, that would just have to be the way it goes

the kits in question are NOT available at my LHS, and won't be,,,,,,he doesn't risk HIS money on "great, but only in limited supply" kits,,,,he just can't do that in this market area,,,,,,,and if he knows he can't sell them someday at just above his cost to get them out of there,,,,,no way anyone with half a brain "invests" in long term storage of kits that have to wait for MSRP to move out

there has to be some possible flexibility in this market

Rex

edit: and don't forget that one day, after the list of each company or shop that gets "hit" with the ole blacklisting deal,,,,,,there's going to be someone with product and no way left to sell it

This is called vertical price fixing. A manufacturer makes an agreement with the distributor and retailer that the product will be sold at a set price. If it is not, then the retailer don't get no more.

LHS have been trying to put pressure on some model manufacturers not to sell product to discounters, or fix the price. LHS cannot compete on price, margins are too slim, so they want to make it not-competitive by forcing everyone to sell a kit at the same price. Mr. Lawrence wants to protect his bottom line, because places like Sprue probably put pressure on him to give better discount on multi-unit purchase (If I take a dozen, how about 40+10 discount?)

Interesting that the only US on-line retailer selling PCM kits is Great Models and at the MSRP. No accounting for Loic.

I don't give a flying pancake if manufacturers sell directly, this is not a get rich quick business. Not even get rich, forget about quick. They deserve a decent profit for their investment. But if you are going to use the market place, then the market should rule.

Notice also that Mr. Lawrence is not concerned about the direct sellers of aftermarket stuff?

In the normal market, vertical price fixing is usually done with fancy good like perfume, expensive hand bags and luggage, High price maintains exclusivity.

Plastic kits? I would like to quote Cartman, but....

Edited February 13, 2011 by Rex

[gkwan]

Darryl - Ken's idea is not related to the setting of the MSRP. His theory is calling for everyone that sells a particular item to be only allowed to sell it for the same price. In Ken's case, Ken wants to dictate what anyone who sells Ken's lines (either that he manufacturers or imports into the US) to only sell that price Ken decides a retailer can sell it for.

Here's the example of what he is calling for from a prior post:

"For example, if Ken's theory is applied, the 1:32 Trumpeter F-14D kit that has an MSRP of $230 which you can now buy for far less (such as for $155.20 right now at Great Models), can only be sold to you for $230.00 no matter where you buy it at. The end result of this idea is that all consumers will end up paying more (even significantly such as this example). I know how much the cost is of this kit to a dealer and I know GM is making profit selling it at this price."

[Bun E. Carlos]

Hi All.....................nice discussion............................Gordo, do what you wanna do.............let him do what he wants......everybody happy.

[pastafarian]

I'm sure you could get around it, but technically it is illegal. Even if you could pull it off (getting all retailers to comply and skirting the law) you'd at the very least generate alot of animosity from customers.

A similar thing happened here in Lubbock recently. We were a dry country with a few area exceptions (no beer, wine, or hard alcohol sold inside city limits {restaurants were allowed}. The most prominent of these exceptions was the Strip, an area just outside of the city limits when a row of stores that sold alcohol. Since the stores at the strip were pretty much the only game in town, they raised prices and set them very close to each other (they actually got in a little trouble for price fixing once, but it never went anywhere). When the county voted to FINALLY go wet in 2009, within 3 months almost every store out at the Strip was closed.

So it might be a short term solution, but once similar kits (or booze haha) become available somewhere else, the masses will abandon the price fixers.

John

[Miccara]

"It is important to understand that by law retailers are free to sell at whatever price they wish. Manufacturers cannot dictate the price at which a retailer sells the manufacturer’s products. The retailer can sell above or below the MSRP as they choose. In fact, if a retailer chooses to sell the manufacturer’s products at a loss they are legally entitled to do so. This complete pricing freedom has in some instances been used in an attempt to damage the brand value of various manufacturers. In response, to protect the value of their brand name, more and more manufacturers are implementing Minimum Advertised Price (MAP) policies. While retailers can still sell at whatever price they choose, they cannot advertise the product for sale at a price lower than what is specified in the manufacturers MAP policy."

Edited February 14, 2011 by Miccara

[swedeinsiam]

Let the history show that most Americans is panicking when you come close to something “smelling†Communist / Socialist thinking. Well this is exactly what this is (price fixing) and you should all react against it . Let the free market rule.

In my opinion they can close all small LHS that can’t adapt to the changing market.

I got out of modeling in the 80’s because the LHS in Sweden never had any models I wanted and the paint etc I needed was always out of stock. This was in the “dark ages†before Internet, Now I just love it when you can search the world to find what you want (most often at a better price). Now living in Thailand I consider the Hong Kong and Japanese online shops as my LHS (not much plastic modeling here, mostly RC).

[LanceB]

So, what is a maker to do when they have an overstock (and it happens) and want to dump the kits? They will sell them cheap but force retailers to sell them at MSRP? Or will they allow retailers to cut prices? And if they allow them to cut prices, how will they (the makers) keep track of which items were offered cheap as opposed to which items are not supposed to be marked down?

Basically what is being proposed is that kit makers take over the marketing and distribution side of things - and for most makers, they are not set up to do that. They have a product, they make that product, they dump it off in bulk to distributors to sort out. Does anyone really think Tamiya or Revell or Trumpeter have the time and wherewithal to dictate to distributors "we're going to sell you this kit at 5 dollars, you must sell it to shops for no less than 6 dollars, and they must sell it for no less than 8 dollars"? Then the maker churns out a lemon, or another maker turns out a kit of the exact same subject but of better quality and price (1/32 Spitfire Mk. IX and 1/32 Ta152H, anyone?) and the distributors have cartons and cartons of a kit that won't move? If they cannot cut prices to clear their shelves they sure are not going to rush out to buy more of that maker's next release. Then that maker will learn real fast and at great pain why dictating prices was a bad idea.

Perhaps all the makers could follow Volks' lead and open up their own shops in every major city in their home country, and sell their own products direct through their own shops at prices they dictate. So you have to go to the Revell shop to buy a kit, the Testors shop to buy paint, the Tamiya shop to buy primer, etc. Sure, like that would work. Everyone just hates one-stop shopping and all... the failure of Walmart proved that.

[Jennings]

Let the history show that most Americans is panicking when you come close to something “smelling†Communist / Socialist thinking. Well this is exactly what this is (price fixing) and you should all react against it . Let the free market rule.

In my opinion they can close all small LHS that can’t adapt to the changing market.

I got out of modeling in the 80’s because the LHS in Sweden never had any models I wanted and the paint etc I needed was always out of stock. This was in the “dark ages†before Internet, Now I just love it when you can search the world to find what you want (most often at a better price). Now living in Thailand I consider the Hong Kong and Japanese online shops as my LHS (not much plastic modeling here, mostly RC).

Exactly, on both counts.