Monday, July 21, 2003

Antitrust News: "Prestige" Price-Fixing

In a victory for middle- and upper-class women, numerous defendants settled a lawsuit alleging price-fixing in the brand-name cosmetics industry:
Estee Lauder, maker of Clinique and Bobbi Brown cosmetics, said it and 13 other companies including Chanel and retailers including Federated and Neiman Marcus agreed to settle a price-fixing lawsuit.
In the settlement, the defendants agreed to provide $175 million in free products to some cosmetics users and as much as $24 million for the plaintiffs' legal costs, Estee Lauder said.

Estee Lauder's portion was $13.5 million, or 6 cents a share, the company said in a regulatory filing.

A source close to one defendant said the free give-away to consumers will take place at retail stores.
Plaintiffs' lawyers filed suit based on their claim that department stores did not vigorously compete in the price of what "prestige" cosmetics. The lawyers inferred price-fixing based on the fact almost all stores charged the same for designer cosmetics. A more rational reading of the market, however, is that brand-name cosmetics are a luxury item with constant demand, making price stability more common than for basic commodities. There are no major legal barriers to entry in the cosmetics market, and plenty of "generics" available to willing consumers. In this case, however, you have privileged customers seeking special treatment via the courts. They want the benefits of "prestige" cosmetics without having to pay the market price.

And note the $24 million in "legal costs" included in this settlement. As usual, the trial bar is the only true beneficiary of antitrust and "competition" laws.

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