Thursday, September 04, 2003

Antitrust News: Attacking producers and consumers

The Associated Press reports on the latest target of antitrust enthusiasts:
A lawsuit against bookstore chains filed five years ago by a former independent book store owner in North Carolina is expected to reach a courtroom this fall.

Wallace Kuralt, the brother of the late CBS newsman Charles Kuralt, filed a federal lawsuit in 1998 seeking $38 million in damages from Barnes & Noble and Borders Books. The former owner of a Chapel Hill independent bookstore said the Intimate Bookshop, which at one point had grown into a nine-store regional chain, was a victim of industry competition as big-box bookstores sprouted in area shopping centers.

Kuralt accused the chains of bullying publishers into providing deep discounts not available to smaller stores. He alleges the companies are violating the Robinson-Patman Act, enacted in 1936 to keep large businesses from using their buying power to get volume discounts.

The chains will answer the antitrust charges in the Southern District of New York on Nov. 10 before Judge William Pauley.

Borders and Barnes & Noble state in documents filed with the U.S. Securities and Exchange Commission that they plan to "vigorously defend the action."

"I believe that if we had all the benefits that they [sic] the big chains had, we could have done incredible things," Kuralt said Tuesday.

Kuralt said the chains illegally pressured publishers to give breaks not available to the smaller bookstores, including what he alleges were illegal promotional fees, rebates of shipping charges and inflated discounts.

Two years ago, the American Booksellers Association settled a similar lawsuit filed on behalf of 26 independent bookstores in California for $4.7 million. The settlement with Borders and Barnes & Noble represented about a quarter of the ABA's legal fees.

The ABA also won a consent order in 1998 that kept publishers from favoring certain retailers.
You wonder why the large retailers settled with the ABA. They should have realized that settling, for any amount, would only encourage more litigation in the future. No doubt the retailers' lawyers assured them that settling was the safest option. Indeed it was--for the lawyers. They get paid no matter what simply for advising their defendant clients.

On the merits of the Kuralt claim, it should strike even antitrust advocates as odd that the argument here is against a business practice that benefits consumers--namely volume discounts to large purchasers. A market composed largely of small, independent retailers generally doesn't bode well for lower consumer prices. If it did, Wal-Mart wouldn't be the world's largest retailer. Volume discounts more often than not encourage the precise type of competition antitrust wonks claim is good. Yet here Kuralt is suing, in essence, because consumers benefitted at his expense, and he wants the courts to punish the consumers for preferring his competitors' business model.

It reminds me of a Dilbert cartoon where Dogbert states the two basic rules of business: First, the customer is always right; second, they must be punished for their arrogance!

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