Guitar Shop Rant (Online/Offline issue)

[MDV]

Mark's point about it being rude not to buy from a local shop when you've used its facilities is fine, except for two things- it assumes your local shop(s) stocks what you want (mine frequently don't), and it also assumes the local shop isn't charging extortionate prices. Frequently my choice is between buying something in a local shop which i consider to be mediocre, or buying something online which I can't try, but which I suspect I would like much, much more. :( I would also say it's not rude not to buy if the normal street price on something is £500, while in a local shop it's twice that. Better service is worth a slight upcharge, if you ask me- not a gigantic one.

and yeah, i hate tescos etc. too. They make something half as good and charge 95% of the same price, then say they're great value.

If the shop dont have what I want, I dont buy it.

I rarely go to a shop that has what I want at an extortionate price, and if I do I always try to get them to reduce it. "So and so does it for" and "its on the net for" are good, the former being better because they cant say "well thats the net price, no rent, wages, blah blah". I rarely try and haggle lower than the lowest advertised price - if I wasnt prepared to pay that for it I wouldnt be trying it out.

[dave_mc]

^ same here. :)

Allowing a manufacturer to set the retail price of their products is NOT anti-competitive.

Allowing a group of manufacturers to fix the retail price of a type of product IS anti-competitive (and is the correct definition of a cartel).

you're wrong (or at least, no more right than I am).

http://dictionary.reference.com/browse/cartel

car⋅tel
  /kɑrˈtɛl/ Show Spelled Pronunciation [kahr-tel] Show IPA
Use cartel in a Sentence
–noun
1.    an international syndicate, combine, or trust formed esp. to regulate prices and output in some field of business.

car·tel   (kär-těl')   
n. 

   1. A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members.

It's not just production, it's pricing too. If a manufacturer forces dealers to sell at a specific price, that could be considered cartel behaviour too.

http://en.wikipedia.org/wiki/Cartel#European_Union


"European Union

The EU's competition law explicitly forbids cartels and related practices in its article 81 of the Treaty of Rome. The article reads:

    1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

        (a) directly or indirectly fix purchase or selling prices or any other trading conditions;"

and so on.

EDIT: don't get me wrong; I'm aware that cartels tends to apply more to independent producers in the one industry. However, if you ask me, shops should also be considered to be independent, so if they're being forced to adopt the same prices, that's also a cartel, if you ask me. Independent shops are getting together (or are forced to) to set the prices, kind of thing. Producers of course should get to set the wholesale price of the goods, but shouldn't be allowed to influence the retail price (other than the retail price will of course be influenced by the wholesale price). Having a quick flick through wikipedia, perhaps "price-fixing" is a better term for what I mean, but it's more or less the same thing in effect, and is illegal. It's certainly anti-competitive.

EDIT #2: sorry for the length, but I've got it:

http://en.wikipedia.org/wiki/Resale_price_maintenance

[jpfamps]

With respect I would disagree with you on this. And I am fully aware of the definition of a cartel!

A single manufacturer deciding that they would only supply retailers who did not discount the recommended retail price is not collusion between the retailer and the manufacture: it is a unilateral decision made by the manufacturer.

Furthermore this in not anti-competitive behaviour. If the product is not priced competitively then another manufacturer's product will get the sale. That's how competition works in a free market (in so far as there is anything approaching a free market). Certainly competition in the MI is pretty fierce. How many distortion pedals are there on the market?

However, if all manufacturers decided that the trade price for an item, then this would be anti-competitive cartel behaviour.

If you follow your argument to its logical conclusion, then why should the manufacturer determine the trade price? Furthermore, should all manufacturer be forced to sell to all retailers rather than use a restricted number of dealers, as this might too be deemed anti-competitive? And surely predatory pricing should be legal.

Of course if the manufacturer might not mind retailers selling at a discount (or at a premium see below).

What the EU price fixing legislation is really designed to target is manufacturers setting different prices in different countries within the EU and then preventing "grey" importing of goods from cheaper countries. This practice was rife in the car and pharmaceutical industry (which which I've had significant contact with). For example, Audi were trying to prevent people in the UK from importing cars from Holland at a significant discount.

Using the SM58 example (see above), it would be illegal for Shure to stop a shop in the UK buying SM58s from Thomann and retailing them, even though Thomann are selling them at below the UK trade price.

What I think you are objecting to is the idea that you are prevented from getting a better deal on an item due to some dodgy restrictive practice by retailers colluding with manufacturers.

I had an very interesting argument with someone about this who was saying how great the free market is, but objected that retailers were charging well over the recommended retail price for some X-BOX type item (don't know much about these) when there was a shortage coming up to Christmas, so I suppose it works both ways.....

[dave_mc]

I accept what you're saying- I'm not saying you're wrong per se, just that you could make an argument that the practices which I am talking about could be considered anti-competitive too. to go through the specific points, to point out more what I mean:

"A single manufacturer deciding that they would only supply retailers who did not discount the recommended retail price is not collusion between the retailer and the manufacture: it is a unilateral decision made by the manufacturer."

that is a good point. However, you could probably argue that it's semantics- in effect, it's preventing/minimising competition between independent retailers for that one product/range of products.

"Furthermore this in not anti-competitive behaviour. If the product is not priced competitively then another manufacturer's product will get the sale. That's how competition works in a free market (in so far as there is anything approaching a free market). Certainly competition in the MI is pretty fierce. How many distortion pedals are there on the market?"

Of course. But again, if you ask me, it's fostering anti-competitive practices among supposedly independent retailers. Whether directly or indirectly, the end result is the same. Plus if every manufacturer indulges in that kind of price maintenance, competition (between retailers) is still severely restricted. Even if it's not collusion among independent manufacturers.

I guess, my problem is that you're considering the retailers as different to the manufacturers. I don't.

"(i)If you follow your argument to its logical conclusion, then why should the manufacturer determine the trade price? (ii)Furthermore, should all manufacturer be forced to sell to all retailers rather than use a restricted number of dealers, as this might too be deemed anti-competitive? (iii) And surely predatory pricing should be legal."

(i) As i said, and as you've suggested, even if you make price maintenance illegal, the manufacturer can influence the RRP greatly by where it sets the trade price. I'm not sure how to fix that, but I guess at least it makes them be a little less open about it? Not sure. Just tacitly accepting it doesn't seem right, though (at least if you agree with me).

(ii) in a perfect world, probably, and assuming the manufacturer doesn't have a good reason not to want to deal with a specific shop (if the shop is rubbish at customer service, for example). But not wanting more than one dealer per region is, again, anti-competitive, if you ask me.

(iii) again, I disagree. I guess I make a distinction between "fair" competition (i.e. you're just better or cheaper at something) and "unfair" (cartels and similar stuff, undercutting an opponent on his/her one product to drive him/her out of business, while you can prop up your own with the profits on another line of products, etc.).

"What I think you are objecting to is the idea that you are prevented from getting a better deal on an item due to some dodgy restrictive practice by retailers colluding with manufacturers."

Of course, exactly.

"I had an very interesting argument with someone about this who was saying how great the free market is, but objected that retailers were charging well over the recommended retail price for some X-BOX type item (don't know much about these) when there was a shortage coming up to Christmas, so I suppose it works both ways....."

Yeah, it does go both ways. I've never said how great the free market is, though. I'm no libertarian (in terms of economics, anyway).

Anyway, I'm not trying to cause a fight or anything, I just enjoy debate. I reckon (correct me if I'm wrong) my entire argument boils down to this:

If a manufacturer is able to set (not suggest) a minimum price, how is that not anti-competitive when a major part of the competition between retailers is that based on price?

Just as another thing on a slight tangent- how do you feel about one manufacturer refusing to sell to a retailer if the retailer stocks a competitor's products?

[Plexi Ken]

A single manufacturer deciding that they would only supply retailers who did not discount the recommended retail price is not collusion between the retailer and the manufacture: it is a unilateral decision made by the manufacturer.

What you describe is called Resale Price Maintenance and is illegal in the UK, unless you can prove (in court) that what you are doing is in the public interest. Between member states of the EU it's totally illegal, which is why VAG got a large fine.
http://en.wikipedia.org/wiki/Resale_price_maintenance

[jpfamps]

A single manufacturer deciding that they would only supply retailers who did not discount the recommended retail price is not collusion between the retailer and the manufacture: it is a unilateral decision made by the manufacturer.

What you describe is called Resale Price Maintenance and is illegal in the UK, unless you can prove (in court) that what you are doing is in the public interest. Between member states of the EU it's totally illegal, which is why VAG got a large fine.
http://en.wikipedia.org/wiki/Resale_price_maintenance

That's quite correct, this is indeed illegal, although I know in practice it does go on.

The problem, as always, is actually proving that there has been any collusion on pricing, although there have been some very high profile cases.

VAG got a substantial fine for stopping dealers selling cars across borders.

The problem with a lot of the issues raised in this thread is that, as usual, small businesses end up getting shafted by larger businesses because they are increasingly unable to compete on price, which ultimately is the major concern of the vast majority of consumers.

I find it ironic that we also have to have legislation against predatory pricing as well.......

[dave_mc]

^ i don't. Most things work best when there's a happy medium, and extremes at either end often work much worse in practice.

Regarding the whole price maintenance thing, I found another couple of reasons why it's indeed anti-competitive. Credit goes to wikipedia, I hadn't thought of these, but I agree wholeheartedly with them.

http://en.wikipedia.org/wiki/Suggested_retail_price#Minimum_advertised_price

"Because the rule of reason applies, minimum RPM agreements may still be unlawful. In fact, in Leegin, the Court identified at least two ways in which a purely vertical minimum RPM agreement might be illegal. First, “[a] dominant retailer ... might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer's demands for vertical price restraints if the manufacturer believes it needs access to the retailer's distribution network." Second, “[a] manufacturer with market power ... might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants.”

In both of these examples, an economically powerful firm uses minimum the RPM agreement to exclude or raise entry barriers for its competition."

I also find it funny how you admitted (that's what i looks like to me, anyway- if I'm wrong and you didn't mean to admit that, I apologise) to plexi ken that price maintenance was illegal and anti-competitive, and not me, despite his posting of the exact same link i did. ;)

[Plexi Ken]

The problem with a lot of the issues raised in this thread is that, as usual, small businesses end up getting shafted by larger businesses because they are increasingly unable to compete on price, which ultimately is the major concern of the vast majority of consumers.

That's something we can all agree on  :)

[dave_mc]

yeah, of course. :) I don't agree that all small businesses are great, but certainly it's in no-one's interest (bar the big businesses) to have fewer businesses/competitors.

[jpfamps]

^ i don't. Most things work best when there's a happy medium, and extremes at either end often work much worse in practice.

Regarding the whole price maintenance thing, I found another couple of reasons why it's indeed anti-competitive. Credit goes to wikipedia, I hadn't thought of these, but I agree wholeheartedly with them.

http://en.wikipedia.org/wiki/Suggested_retail_price#Minimum_advertised_price

"Because the rule of reason applies, minimum RPM agreements may still be unlawful. In fact, in Leegin, the Court identified at least two ways in which a purely vertical minimum RPM agreement might be illegal. First, “[a] dominant retailer ... might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer's demands for vertical price restraints if the manufacturer believes it needs access to the retailer's distribution network." Second, “[a] manufacturer with market power ... might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants.”

In both of these examples, an economically powerful firm uses minimum the RPM agreement to exclude or raise entry barriers for its competition."

I also find it funny how you admitted (that's what i looks like to me, anyway- if I'm wrong and you didn't mean to admit that, I apologise) to plexi ken that price maintenance was illegal and anti-competitive, and not me, despite his posting of the exact same link i did. ;)

Sorry for any confusion, I think we got a crossed wire here.

I am fully aware of the illegality of "price maintenance". What I was trying to argue that it isn't always anti-competitive, although there are clearly many cases where it is: VAG being an excellent example.

I will still argue that a manufacturer setting the retail price isn't anti-competitive, with the caveat that this is done on a unilateral basis: ie not in collusion with other manufacturers and/ or retailers. Of course it is very difficult to prove that the latter situation hasn't occurred. 

All the above examples, which I would consider anti-competitive, relate to other practices, e.g. a large retailer taking advantage of a manufacturer because of their extensive distribution network. A good example of this is the food industry: if you are a major food producer you have to deal with the supermarkets as they the only show in town, thus they can (and do) dictate prices, payment terms etc.

I didn't bother looking at the links........

By the way, this actually doesn't  affect me directly as we don't really retail.

Regarding small businesses: no they aren't all great (I've first hand experience of this!). We try to do as much business with UK companies as possible, and sadly several of them have been poor. We obviously don't deal with them again. Bad businesses should and do fail.

However, it would be good if there was a level playing field so everyone had a fair chance to do business and make a living.

Having a situation where a small number of retail outlets control the market is not good for anyone (other than the senior executives of those companies!), as you outline above, as they can really shaft the manufacturers AND customers. The demise of Sound Control left a load of manufacturers "in-the-hole". Yamaha got burnt for $20 million, and most other manufacturers who dealt with SC got shafted.

The fact the no one has established a UK-wide guitar supermarket chain would suggest that a) there isn't that much money in selling guitars, and b) punters don't want to buy guitars in a homogeneous environment.

[dave_mc]

(a) Sorry for any confusion, I think we got a crossed wire here.

(b) I am fully aware of the illegality of "price maintenance". What I was trying to argue that it isn't always anti-competitive, although there are clearly many cases where it is: VAG being an excellent example.

I will still argue that a manufacturer setting the retail price isn't anti-competitive, with the caveat that this is done on a unilateral basis: ie not in collusion with other manufacturers and/ or retailers. (c) Of course it is very difficult to prove that the latter situation hasn't occurred. 

All the above examples, which I would consider anti-competitive, relate to other practices, e.g. a large retailer taking advantage of a manufacturer because of their extensive distribution network. A good example of this is the food industry: if you are a major food producer you have to deal with the supermarkets as they the only show in town, thus they can (and do) dictate prices, payment terms etc.

I didn't bother looking at the links........

By the way, this actually doesn't  affect me directly as we don't really retail.

(d) Regarding small businesses: no they aren't all great (I've first hand experience of this!). We try to do as much business with UK companies as possible, and sadly several of them have been poor. We obviously don't deal with them again. Bad businesses should and do fail.

However, it would be good if there was a level playing field so everyone had a fair chance to do business and make a living.

(e) Having a situation where a small number of retail outlets control the market is not good for anyone (other than the senior executives of those companies!), as you outline above, as they can really shaft the manufacturers AND customers. The demise of Sound Control left a load of manufacturers "in-the-hole". Yamaha got burnt for $20 million, and most other manufacturers who dealt with SC got shafted.

The fact the no one has established a UK-wide guitar supermarket chain would suggest that a) there isn't that much money in selling guitars, and b) punters don't want to buy guitars in a homogeneous environment.

(a) no worries, that always happens online :lol:

(b) ah, ok. that makes sense. I still say I don't like price maintenance; however, I'd agree that, if done the way you're suggesting, it's not as anti-competitive as a true cartel among producers (your definition probably was correct, i think i got my wires a bit crossed too). I'd still say it's a bit anti-competitive- preventing competition between retailers. Although the trade/wholesale price will influence the shop's selling price greatly, it's not 100% guaranteed that all shops will arrive at the same price (as some shops may be more efficient, and be able to charge lower prices), as happens with price maintenance. But you're right in that it's not necessarily preventing competition among producers (unless done in that collusive way already mentioned).

(c) yeah, definitely. :lol: Regarding your next point- I suspect it's getting into semantics again. While I'd cautiously agree that they're using price maintenance in a way other than the "usual" way, they're still using price maintenance to get up to gip, kind of thing. And as i said, it is preventing shops from competing on price, which they should be allowed to do, if you ask me (as long as it doesn't go as far as predatory pricing or loss-leaders).

(d) yeah, definitely.

(e) just out of interest, are you saying there's no UK supermarket guitar shop because now SC has gone bust, or did you not consider SC a supermarket guitar shop? Funnily enough, I actually liked going to sound control the odd time I was on the mainland- because it was a chain, I didn't feel so bad going in to try stuff. :lol: Maybe I'm strange, though- and I'd definitely agree that having all the shops like sound control (i.e. having tons of mediocre beginner to mid-range gear) would get boring very, very quickly.

[jpfamps]

I did consider Sound Control a supermarket-type shop i.e. it was a country-wide chain selling musical instruments in large stores with large "purchasing power", which in fact turned out to be a large credit line from manufacturers.

Interestingly there have been several attempts to start a country-wide chain in the past (anyone remember Carsboro Sound Centres?), but so far no-one has been successful.

[dave_mc]

hadn't heard of that carlsboro one... We're a bit isolated over this side of the irish sea, unfortunately.

now that i think of it, there are a couple of other ones like dawsons, PMT, etc., but I don't think you could call them "country-wide". There actually is a dawsons in northern ireland for some reason which doesn't seem to make any sense (but i'm not complaining, just it's way out of my way :( ).

[nfe]

I did consider Sound Control a supermarket-type shop i.e. it was a country-wide chain selling musical instruments in large stores with large "purchasing power", which in fact turned out to be a large credit line from manufacturers.

That's not strictly true, they didn't have an inordinately high credit limit with distributors, not for the size of company (the biggest instrument retail chain in Europe by a LONG way), just ones that were much higher than everyone else. What killed them was not being able to resist buying Academy of Sound and having to borrow so much and become part owned by the bank to do so, a bank which then wanted out and knocked £1,000,000 off their overdraft on the spot.

I don't think it's possible to have a big chain that really stocks a lot of good gear though, it's simply too expensive to have that much high end stuff to sit and walls. Cheapies pay the bills.

Plus, guitar shops with loads of good stock are usually the places where everyone who works there likes Steve Vai and play neo-classical nonsense and inoffensive yank radio-friendly rock on their stereo. I'm glad I work in one wherre we all hate that and listen to Suicide and Nick Cave and Electric Wizard. :lol:

[dave_mc]

some people like that music, just like you like your favourite styles of music. I assume you realise that the people who like the music you hate think that the music you like is nonsense too? By and large, anyway.