The Finch Formerly Known As Gold

25 November 2006

Always high prices

From Oklahoma Statutes, title 15, section 598.3:

It is hereby declared that any advertising, offer to sell, or sale of any merchandise, either by retailers or wholesalers, at less than cost as defined in this act with the intent and purpose of inducing the purchase of other merchandise or of unfairly diverting trade from a competitor or otherwise injuring a competitor, impair and prevent fair competition, injure public welfare, are unfair competition and contrary to public policy and the policy of this act, where the result of such advertising, offer or sale is to tend to deceive any purchaser or prospective purchaser, or to substantially lessen competition, or to unreasonably restrain trade, or to tend to create a monopoly in any line of commerce.

And how is "cost" defined in this act? See the previous section:

When used in this act, the term "cost to the retailer" shall mean the invoice cost of the merchandise to the retailer or the replacement cost of the merchandise to the retailer, whichever is the lower; less all trade discounts except customary discounts for cash; to which shall be added (1) freight charges not otherwise included in the invoice cost or the replacement cost of the merchandise as herein set forth, and (2) cartage to the retail outlet if done or paid for the retailer, which cartage cost, in the absence of proof of a lesser cost, shall be deemed to be three-fourths of one percent (3/4 of 1%) of the cost to the retailer as herein defined after adding thereto freight charges but before adding thereto cartage, and taxes, (3) all State and Federal taxes not heretofore added to the cost as such, and (4) a markup to cover a proportionate part of the cost of doing business, which markup, in the absence of proof of a lesser cost, shall be six percent (6%) of the cost of the retailer as herein set forth after adding thereto freight charges and cartage but before adding thereto a markup.

Which explains how it is that a woman from an Oklahoma town, having seen a national Wal-Mart ad for an RCA 52-inch TV for $474, was told that she'd have to pay $699 for it — or, alternatively, take a drive up to Missouri, which has no such law.

It's such a comfort to know that the state cares enough to protect you from the horror of excessively-low prices.

Posted at 9:51 AM to Soonerland


OK, so, if we reduce the awful legalese sentence structure, the first excerpt says:

any ... offer to sell, or sale of any merchandise, either by retailers or wholesalers, at less than cost … with the intent and purpose of inducing the purchase of other merchandise ... [is] unfair competition ... where the result of such advertising ... is to tend to deceive any purchaser or prospective purchaser, or to substantially lessen competition, or to unreasonably restrain trade, or to tend to create a monopoly ....

(Chaz: for pete's sake, put some styling on the "blockquote" element and not just on "div" - we can't use "div" in comments ....)

So how, exactly, does this law prevent Wal-Mart from selling the TV as a loss-leader? They're allowed to advertise and sell it below cost, even to induce purchase of other merchandise, as long as the result of the advertising is not "to deceive any purchaser," or "to unreasonably restrain trade," or "to tend to create a monopoly."

If Wal-Mart is saying that something I redacted applies, then they're saying their TV loss-leader has "the intent and purpose" of "unfairly diverting trade from a competitor or otherwise injuring a competitor," or to "impair and prevent fair competition," or to "injure public welfare."

If that's not the case, then the edited version makes clear they can sell the TV as long as the intent of the TV ad and sale is not to "deceive any purchaser or prospective purchaser, or to substantially lessen competition, or to unreasonably restrain trade, or to tend to create a monopoly in any line of commerce."

So .... where's the problem? Loss-leaders are fine; deception and monopoly and restraint of trade are not. Which one of these bad acts is Wal-Mart confessing to by not allowing its Oklahoma stores to sell this TV at $474 instead of $699?

Or is it none of them, and Wal-Mart is just using the opportunity to try to get customers to pressure the legislature to repeal this section of the statutes so they can engage in such behavior unfettered?

It would be irresponsible not to speculate.

Posted by: Matt at 11:52 AM on 25 November 2006

One thing that might be worrying Bentonville is Star Fuel Marts v. Sam's East, heard in 2004, in which Star won an injunction against Sam's selling of gasoline at pricing below this act's specification. Sam's appealed, and lost the appeal 2-1. Rationale:

The Oklahoma Supreme Court has recognized that the [Oklahoma Unfair Sales Act] was enacted to insure the viability of individual small merchants who cannot afford to sell below cost. Glenn Smith, 704 P.2d at 478. Regardless of whether the lower gasoline prices ultimately benefit consumers, the legislature made a clear decision to protect merchants like Star against larger competitors like Sam's. The strict adherence to this policy is evidenced in Glenn Smith, which contained no discussion of any marketwide effect of the defendant's pricing practices other than the trial court's comments that "[plaintiff] is financially damaged by his competitor selling gas eight cents cheaper, within a few blocks under similar sales circumstances." Id. at 476. Imposing a requirement that a plaintiff establish that a below-cost seller will actually be able to recoup its loss by exercising monopoly power and charging higher than competitive prices for a sustained period, see Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 219 (1993), would defeat the purposes of the OUSA. Small competitors are not required to go out of business (with their market share going to the below-cost seller) before the OUSA can be enforced.

(Full text here.)

In view of this, I suggest that Wal-Mart has chosen to walk the tightrope for now, perhaps reasoning that a test case from Black Friday would fare no better.

Posted by: CGHill at 12:19 PM on 25 November 2006

An astute store manager would have just opened the boxes, made a tiny scratch on the back of the case, then sold them as damaged "scratch and dents" for the lower price.

Alternatively, they could have just been sent to stores out of state, then restocked using lower priced units swapped from the out of state stores.

There's many ways around this for an organization with multi-state stocking.

Posted by: Purple Avenger at 5:24 PM on 25 November 2006
Imposing a requirement that a plaintiff establish that a below-cost seller will actually be able to recoup its loss by exercising monopoly power and charging higher than competitive prices for a sustained period, see Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 219 (1993), would defeat the purposes of the OUSA.

Maybe so, but since the OUSA still says that the loss-leader must have the intent of these goals, I don't get the concern from the Wal. Selling gas at 8 cents per gallon cheaper until your competition goes away is a different thing than selling one TV model out of billions of items in the store as a loss-leader for 12 hours.

(You know, we could turn this into an argument about "judicial activism" without even trying and let Wal-Mart completely off the hook. pay attention, lobbyists!)

Posted by: Matt at 8:35 PM on 25 November 2006

Maybe it's that old "fear of trial lawyers" stuff that compels the GOP constantly to call for tort reform whether torts need reforming or not.

I don't see how a handful of loss leaders constitutes an attempt to crush the competition, either, but absent a test case, I assume that the Family of Sam is biding its time.

(I did add "div" to the tags permitted by the Sanitize routine, but it didn't have the desired effect.)

Posted by: CGHill at 8:43 PM on 25 November 2006

Intent is actually the easiest element to prove in this scenario. Loss leaders are, by nature, intended to bring customers in the door and presumably keep them out of the other stores. You know... get them first so they spend their money before they go elsewhere. I haven't done the research, but I would be surprised to find much case law squabbling over intent with a loss leader.

I read the article after coming home from a loss-leader shopping spree. In fact, I taught my children about loss leaders while explaining why we were going from store to store and getting one thing in each place (I'm not easily distracted by the other things in the store, so the store basically gets a loss from me, I suppose). Such deals will probably not be policed, though, because they were low-dollar amounts compared to the $200-plus television savings. Anyway, with Wal Mart's deep pockets, it is a sitting duck for law suits.

Posted by: Jan at 9:41 PM on 25 November 2006

Wal-mart is facing state action here in Wisconsin on their $4 generic drug program; the governor has made it clear that he cares enough to protect us from the horror of excessively-low prices.

Posted by: triticale at 8:47 PM on 26 November 2006