Why Are Appliance Prices All the Same?

[Varmint]

As a public service to the members of eGullet, I offer today a brief overview of one of the ways appliance manufacturers are able to keep prices of their products artificially inflated and how the US antitrust laws can’t touch them. I bring this up simply because I’ve been stymied over the lack of competition in prices of professional appliances.

Let’s start with a simple antitrust principle known as resale price maintenance, or “RPM”. RPM is quite simple: it’s an agreement between a manufacturer and a seller (such as a retailer or distributor) regarding the cost that the product can be sold. Here’s an example. The manufacturer makes a cooktop that has a suggested retail price of $2,500. As we all know, suggested retail prices are pure fiction – no one ever pays that. Let’s also assume that the seller’s cost to purchase the cooktop from the manufacturer is $1,700. But, the manufacturer comes in and agrees with the seller that the seller won’t sell the cooktop for anything less than $2,000. If a manufacturer does this, it’s a blatant or “per se” violation of the antitrust laws and fines are levied and if the conduct is sufficiently egregious, the parties will be fitted for orange jumpsuits (that won’t happen, but it sounds good).

Well, why is it that the best price that you can get on professional appliances is the same wherever you look? It’s because of a slight quirk in the antitrust laws. Although a manufacturer can’t enter into RPM agreements, it can make RPM a condition of its supplying the product to the sellers. That is, the manufacturer can say that the only way I, big ol’ manufacturer, will allow you to sell my fancy product is if you, low life seller, agree to sell the cooktop for no less than $2,000. If the seller does not comply with this requirement, the manufacturer can cut him off.

This is why there are only a few distributors of the high end products in each market. It’s also why, when you look on the internet, there is some competition on price, but it’s not direct. The competition is in the price of shipping. Sometimes, the seller will throw in a bonus deal, or, perhaps, a rebate. But the price of the product itself will be the same!

Sorry to distract you with this bit of antitrust law, but this process left me wondering how the heck can the prices be the same everywhere you look. Now I know!

[fifi]

Since I am a very logical person, this makes no sense to me. But, then, I am not a lawyer.

I really don't see the difference. Who srote those stupid laws, anyway? No don't tell me. You know, watching the making of sausages and such.

If you offered the dealer some sort of deal... like, "if you drop the price of that cook top then I might be persuaded to order those countertops from you if you meet this price on the countertops" would you be breaking the law or the dealer's agreement?

[mnebergall]

This sounds like fodder for a Federal Trade Commission investigation. I think a strong case could be made that conditioning a supply of goods for resale on a promise to not sell for less than a certain price constitutes constructive retail price maintenance. If the FTC stung just one company on this theory those types of supply agreements would go away overnight. But rather than wait for the FTC to get around to an investigation, perhaps a class action suit against one of these companies would suffice. Is this legal mumbo jumbo legal on egullet?

Edited January 27, 2004 by mnebergall (log)

[fresco]

You'd probably have more success, assuming that the retailer was not also in cahoots with the countertop manufacturers, in offering to buy the range providing they gave you a steep, steep discount on the countertop.

[Varmint]

There's substantial case law (on which most antitrust law is based) that states that the conditional arrangement is permitted. The courts have essentially said that if the manufacturer were to sell it themselves, then they could sell it at any price they wanted. If they're to line up semi-exclusive distributorship arrangements, then the manufacturer may keept similar controls, with the only remedy for breach is to terminate the distributorship. However, if the product is available essentially anywhere by anyone, then the manufacturer can't place such limitations.

A fair amount of my practice focuses on antitrust law, but I don't usually deal with RPM. I just did a bit of research to figure out why the dealers can get away with what they do.

[mnebergall]

I'm just a simple country tax lawyer.

[Varmint]

Is this legal mumbo jumbo legal on egullet?

Sure, because we're talking about food -- at least, cooktops and rangetops and other cooking appliances!

The other benefit this discussion could provide is to list great "side deals" on price-controlled deals. I can get free shipping on appliances, but I'm thinking that I might be able to get something else free, too!!!

[Toliver]

In a smaller way, you can see a similarity with the latest game consoles. The three major manufacturers (Sony, Nintendo, and Microsoft) set similar price controls on retailers (Toys R Us, etc). When the consoles first debuted, they couldn't be sold under a certain price which had been set by the manufacturers.

Makes you wonder about the concept of "Free Markets".

You're on the right track. I say work the system. Even though the price is the same everywhere, you still decide who gets your money. Make sure any store you shop at sweetens any deal you may make with them.

[Schielke]

I ran into this kind of setup when shopping for engagement ring settings. The designers have authorized dealers who will not sell for less than the price determined by the designer.

[Schielke]

In a smaller way, you can see a similarity with the latest game consoles. The three major manufacturers (Sony, Nintendo, and Microsoft) set similar price controls on retailers (Toys R Us, etc). When the consoles first debuted, they couldn't be sold under a certain price which had been set by the manufacturers.

Makes you wonder about the concept of "Free Markets".

You're on the right track. I say work the system. Even though the price is the same everywhere, you still decide who gets your money. Make sure any store you shop at sweetens any deal you may make with them.

This example, however, is a bit different since Game consoles always sell for a loss even at the suggested retail price.

[wnissen]

What steams me is the fact that all appliances are the same, except not. When we bought a fridge, we ended up with a Kenmore model that was identical in every way to a Frigidaire model, except for the absence of a water filter. There's no way to find out who the actual manufacturer is! It used to be the Consumer Reports listings were simple, but now they are forced to list a half-dozen models, all microscopically different, selling as different brands. Sheesh!

Walt

[fifi]

For instance, I found out that GE Monogram ranges are made by DCS although they may have differences in the details. BTW... I found that out here.

[Nick]

Our office is closed for the second day in a row (although I'm here, trying to catch up on some work).

Yes indeed. Good work too.

[squids]

For instance, I found out that GE Monogram ranges are made by DCS although they may have differences in the details. BTW... I found that out here.

←

Bumping this up, as I've been searching for info on the GE Monogram line, and came across Fif's post from Jan '04 in my search for info on a new wall oven as part of our kitchen renovation,

I haven't heard this anywhere, and unfortunately the link where you had seen this is not on your post. Do you recall where you saw that? Also, was it just the range, or the wall ovens as well? We're knee deep into our kitchen renovation, and need to decide on a wall oven. We are considering the same oven Varmint chose, but he isn't at the stage yet where he's started using it!

Any recs would be appreciated, also, what is the difference between true european convection, and reverse air convection? Any one have any experience with the trivection? The most important feature is the baking aspect, as we will have an all gas range.

RE: the title of this topic, we were told by the store manager of a dealer in our area that Viking was raising prices as of April 15, and he would sell us a Viking Range at a very good price to lock it in before the increase. They would then bring it into their warehouse and hold onto it until December at the very latest. This is the main branch of this local chain that is attached to the warehouse...now when we stopped into a different branch yesterday, that manager hadn't yet heard about a Viking price increase? My husband said it is a very good price for the range, but I'm hesitant whether to purchase it now or not. Some background info...we have picked cabinets and are choosing appliances and getting quotes to see how much of the renovation we will be able to accomplish. The Viking range is a definite, as my husband, the cook, had one in our last house and absolutely loved it! (unfortunately we had to sell it with the house)

[fifi]

Sorry, I don't have a clue about the wall ovens. There wasn't just one discussion on the ranges so I didn't supply a link. I am going with Monogram because of service issues in our area but I don't have a wall oven so didn't research it.

[Jason Perlow]

In a smaller way, you can see a similarity with the latest game consoles.  The three major manufacturers (Sony, Nintendo, and Microsoft) set similar price controls on retailers (Toys R Us, etc).  When the consoles first debuted, they couldn't be sold under a certain price which had been set by the manufacturers.

Makes you wonder about the concept of "Free Markets".

←

This has been the accepted practice in the retail electroics industry for at least 30 years, particularly with cameras from Japanese companies like Canon and Nikon. In order to stay an authorized dealer you had to sell the product within a certain accepted price range or they pull your dealer status. The more unscrupulous dealers would end up going grey market for their products and sell them as if they were US retail product.

[andiesenji]

This is one of the reasons I bought most of the higher end appliances when I expanded and remodeled my kitchen at major market home shows (Los Angeles, Anaheim, Long Beach).

I made a point of being at the show early on the first day and carefully mapped out the various booths I wanted to visit and looked at the items I wanted.

I would then speak to the lead rep at the booth, occasionally taking one to lunch, and would ask about purchasing the display model (at a significant discount) and picking it up at the end of the show in "as-is" condition.

They use a new piece at every show because invariably there will be some scratching or other minor damage to pieces during the show or while being dismantled as they are usually in a hurry.

I did this well in advance of my renovation and stored all the items until time for use. I knew what I wanted and wanted the kitchen designed around them.

I saved 30 to 50% on appliances, more on the countertops and other materials.

I also managed to get a large Jacuzzi tub for 25% of retail because it had a minor ding which is completely covered by the tub surround.

I had to pay for a truck and two men to transport the stuff but that cost was far less than the amount I saved.