UA Legal Scholar: Leave Luxury Item Prices Alone
Barak Y. Orbach's work will be published in the upcoming 50th issue of Arizona Law Review.
A UA law professor suggests there is no need to regulate the way manufacturers set prices for expensive, premium-brand goods.
Some people boast about spending tremendous amounts of money on high-priced shoes, watches, sunglasses, purses and cars, even though similar products are offered at lower prices.
The attraction people have to expensive products isn't a mystery.
A good deal of research exists to explain what social drivers promote attraction to high costs and a new article published in this month's Proceedings of the National Academy of Sciences offers scientific backing. In the study, California researchers found that people favor the taste of wine when it is accompanied by a more expensive price tag.
But courts and antitrust scholars have paid little attention to such findings and the common argument from manufacturers that “discounts harm brand image and demand for certain branded goods,” said Barak Y. Orbach, an associate professor at The University of Arizona James E. Rogers College of Law.
Orbach is an antitrust law expert who has studied “resale price maintenance,” the practice where manufacturers attempt to inflate the cost of their products by controlling the price retailers can put on their goods.
High prices may serve as the type of "product feature that consumers find desirable," said Orbach, whose research will be published in the upcoming 50th anniversary issue of Arizona Law Review.
“Our basic intuition is that paying less is always better,” he wrote in his article. “But once we think about it systematically we find out that sometimes some of us actually like high prices of certain goods because of the exclusivity that these high prices confer.”
Although the controversy about how to regulate resale price maintenance is more than 100 years old – one of the oldest and most controversial subjects in antitrust history – it has recently become more relevant and quite complex.
This past summer, the U.S. Supreme Court reversed a 96-year-old law that had made the practice illegal. Now, such situations will be examined on a case-by-case basis.
A re-examination of basic antitrust premises is in order, Orbach said.
Figuring out how to handle the practice in antitrust courts has proven difficult because, as Orbach argues, the courts and some scholars have misunderstood why high prices are so alluring.
Orbach said prohibiting resale price maintenance is appropriate for undifferentiated goods, the type of products that carry no distinguishing feature or brand. But when it comes to differentiated goods, products that are branded or considered luxury items, it would be counterproductive to try to control such goods.
“You can think about regulating these things, but the price will just increase or fees will rise,” he said. "Companies will find a way to get around it to make sure their products are socially expensive.”
At the center of his argument is the issue of status and the desire, on the part of some consumers, to have premium-brand and luxury items – a claim the new wine research supports.
This begs the question: Because antitrust laws assume consumers are better served by lower prices but quality and taste are not always the only factors that determine how well products are received, should resale price maintenance be outlawed?
Some researchers say resale price maintenance should be outlawed because it benefits manufacturers more than it does consumers and may block competition.
An easy assumption is that manufacturers would always want to keep their prices low in order to improve sales. But that isn’t always the case, said Lance Erickson, an assistant professor of marketing in the UA’s Eller College of Management.
“There are some manufacturers that, if they could, would control what retailers did because they prefer to have a high price,” said Erickson, an expert on consumer price perceptions and marketing.
“Manufacturers try and find consumers that have about the same attitude about what they’re trying to find in a quality product,” Erickson said. “From the consumer’s point of view, there are certain product categories where choice says something to outsiders. So, consumers will use products and brands to present themselves to the world.”
Orbach said that in the same way Ben & Jerry’s is known for its unique ice cream flavors and Prada is revered for its tailoring and style, high prices may also serve “as a product feature,” one that consumers find desirable and one that can serve as a marketing tool.
“When you’re buying status goods that many people cannot afford, you’re not just buying the shoes or the car, you’re also buying the status,” Orbach said.
“Many products are functionally very similar, if not better, and are so for less. So, if you’re willing to pay more for it, it’s because it’s a status good,” he added. “The social race to signal status may be unwise, but antitrust law is not supposed to protect consumers from their own unwise decisions.”
et cetera
- Extra Info |
To read more about
Barak Y. Orbach’s research,
visit his Web site at
http://www.orbachweb.net/rpm.
On a related note, the Dennis and Chris Miller Speakers Series in Retailing and Consumer Sciences is co-sponsoring a seminar titled “Evolutionary Theory and Consumption.”
The Feb. 18 event will be held at 1 p.m. in the Student Union Memorial Center’s Catalina Room. It is free and open to the public, but register by sending an e-mail to Annette Garcia at amgarcia@email.arizona.edu.
Gad Saad, an evolutionary consumer psychologist and associate professor of marketing at Canada’s Concordia University, will be giving the presentation, addressing the link between evolutionary theory and consumption.
The UA’s Terry J. Lundgren Center for Retailing, Retailing and Consumer Sciences graduate program and the Norton School of Family and Consumer Sciences are event sponsors. For more information, call 520-621-1075.