5 ms·

IANAL and have always wondered why this practice is allowed in the U.S.

by Touche 13y ago

pinaceae 13y ago
you mean a hardware vendor like Apple not allowing mobile carriers to set any price for its own handsets? why exactly is this bad?
- vidarh 13y ago
  Because it drastically limits competition that would otherwise put a downwards pressure on the price of these devices.
  - thedrbrian 13y ago
    Surely android phones put downward pressure on these devices?
    - cbhl 13y ago
      The idea is that putting a lower price floor on iOS devices differentiates them as a premium product, so that lay people aren't inclined to think that an Android Phone with a lower price is "as good as" an iPhone.
- keerthiko 13y ago
  I believe the understanding is that Apple is charging the carrier directly for each handset they obtain from Apple. However for market reasons, carriers normally futz with prices at their own will. Apple is preventing this, because it's in their interest to control the market price for iProducts. Not just that, but Apple is also making demands on the price window for the plans as well thus forcefully molding the kind of demographic that could be owning an iPhone.
  - pinaceae 13y ago
    and again, why is this bad? marketing 101, price shapes the perceived value of a product. lots of examples here on HN were elasticity, etc have been discussed. locking down re-sellers should be perfectly fine.
    - hahainternet 13y ago
      It's bad because it's anti consumer. People in the US seem to have forgotten the fact that the whole capitalist system ostensibly exists to make things better for the consumer. I cannot understand people who champion anticompetitive actions like Apple's ebook conspiracy with stupid logic like "They can afford an extra dollar for an ebook if it makes the market fair".
      - spiralpolitik 13y ago
        Really ? I though that capitalism was an economic system in which trade, industry and the means of production are controlled by private owners with the goal of making profits in a market economy. Clearly I need to phone up the Oxford dictionary as they say nothing about the consumer or market fairness so they must have gotten it wrong all these years...
      - icebraining 13y ago
        That's highly subjective. I'd claim that by being allowed to lower prices, the carriers will probably sell more iPads, putting more people in the hands of an abusive company like Apple.
        dragonwriter 13y ago
        That's probably the short-term effect, however, a potential longer-term effect is hurting the iPad brand image as an elite product and status symbol, depressing demand for the particular brand. Another potential effect is less outlets selling the iPad, because if there is the potential for others to undercut the price on the same product, it becomes less valuable item in the lineup. Another potential effect is less sales through Apple's own retail channels if some other outlets are selling below Apple's price but Apple tries to maintain it, which could mean more sales but still less money going to Apple.
octo_t 13y ago
companies are allowed to give terms stating how their products are sold. presumably the same laws that allow Apple to say that in-store displays must meet certain standards (i.e. no broken/smashed devices etc)
- michaelt 13y ago
  But presumably there are some restrictions as to what those terms can be. If Apple said resellers can only sell iphones to white people that would probably not be legal.
  - smackfu 13y ago
    Illegal for a completely different reasons though. Discrimination vs. fair trade.
  - travisp 13y ago
    Because if Apple said that, it would be requiring its resellers to do something they are not legally permitted to do . A contract to break a law is illegal and unenforceable. Refusing to sell phones to people because they aren't white would break the law. Selling a phone for $150, $200, or $250 is not breaking a law. So while the law may not permit Apple to require specific prices in its contracts, it's for an entirely different reason than why Apple can't tell the reseller to illegally commit racial discrimination.
    - genericuser 13y ago
      And much like that Apple telling retailers they must sell at a specific price prevents those retailers from potentially competing with each other (not that they were likely to vary the price much due to the low margins left to them). The effect of Apple fixing prices like this is not different than if the retailers were colluding. Yes, the practice benefits the retailers and Apple, but its effect on consumers is commonly believed to be negative hence it is prohibited in some markets.
bradleyland 13y ago
The article doesn't go in to great detail, but based on the information given, I would say that this specific practice is already prohibited in the U.S.. The relevant excerpt: "Apple Asia ... required carriers to obtain its permission before setting contract prices on iPhones..." This sounds like Apple Asia explicitly approved contract prices, but it depends on how you interpret "setting contract prices". If that literally means setting the price that the customer will pay, then this is not (to my knowledge) the exact mechanism used in the U.S., because the manufacturers cannot approve or deny the actual selling price. Instead, manufacturers rely on a loophole. Rather than saying, "You can't sell an iPhone for less than $199 with contract," Apple says, "You can't advertise an iPhone for less than $1xx with contract." The actual number isn't $199, as we regularly see advertisements for iPhones at discounts from retail, but not much lower. We haven't seen the agreements, so we don't know the actual terms. It may be that Apple has the ability to approve/deny all advertised prices individually. Keep in mind that a retailer is free to sell an iPhone at whatever price point they'd like. The problem is that they have no incentive to do so. Sale prices are a means to get customers in to the store. Imagine a ridiculous hypothetical situation where Walmart advertised the iPhone 5S at $99; that would draw in a lot of customers. However, their reseller terms prevent them from doing so, therefore there is far less incentive to do so. If they can't advertise the crazy sale price, then they can't draw in the number of customers required to meet their ROI requirements for an iPhone loss-leader. The inability to advertise props up the iPhone selling price. Apple doesn't do this just with iPhones, and this is not the only mechanism Apple uses to prop up their prices. We don't know the specific margins retailers make on Apple products, but everyone I know who has worked in the retail industry tells me that the margin on Apple products is much lower than every other PC manufacturer. I can't speak for mobile devices, as I don't know anyone in that industry. It's also worth noting that Apple isn't the only company who employs these practices. There are a number of "high-value" brands that support their pricing this way. Tempurpedic and Rolex come to mind immediately, but I'm certain there are many more.
- Touche 13y ago
  This is exactly the type of response I was hoping to get, thank you.

IANAL and have always wondered why this practice is allowed in the U.S.

by Touche 13y ago

IANAL and have always wondered why this practice is allowed in the U.S.

you mean a hardware vendor like Apple not allowing mobile carriers to set any price for its own handsets? why exactly is this bad?

vidarh 13y ago
Because it drastically limits competition that would otherwise put a downwards pressure on the price of these devices.
- thedrbrian 13y ago
  Surely android phones put downward pressure on these devices?
  - cbhl 13y ago
    The idea is that putting a lower price floor on iOS devices differentiates them as a premium product, so that lay people aren't inclined to think that an Android Phone with a lower price is "as good as" an iPhone.
keerthiko 13y ago
I believe the understanding is that Apple is charging the carrier directly for each handset they obtain from Apple. However for market reasons, carriers normally futz with prices at their own will. Apple is preventing this, because it's in their interest to control the market price for iProducts. Not just that, but Apple is also making demands on the price window for the plans as well thus forcefully molding the kind of demographic that could be owning an iPhone.
- pinaceae 13y ago
  and again, why is this bad? marketing 101, price shapes the perceived value of a product. lots of examples here on HN were elasticity, etc have been discussed. locking down re-sellers should be perfectly fine.
  - hahainternet 13y ago
    It's bad because it's anti consumer. People in the US seem to have forgotten the fact that the whole capitalist system ostensibly exists to make things better for the consumer. I cannot understand people who champion anticompetitive actions like Apple's ebook conspiracy with stupid logic like "They can afford an extra dollar for an ebook if it makes the market fair".
    - spiralpolitik 13y ago
      Really ? I though that capitalism was an economic system in which trade, industry and the means of production are controlled by private owners with the goal of making profits in a market economy. Clearly I need to phone up the Oxford dictionary as they say nothing about the consumer or market fairness so they must have gotten it wrong all these years...
    - icebraining 13y ago
      That's highly subjective. I'd claim that by being allowed to lower prices, the carriers will probably sell more iPads, putting more people in the hands of an abusive company like Apple.
      - dragonwriter 13y ago
        That's probably the short-term effect, however, a potential longer-term effect is hurting the iPad brand image as an elite product and status symbol, depressing demand for the particular brand. Another potential effect is less outlets selling the iPad, because if there is the potential for others to undercut the price on the same product, it becomes less valuable item in the lineup. Another potential effect is less sales through Apple's own retail channels if some other outlets are selling below Apple's price but Apple tries to maintain it, which could mean more sales but still less money going to Apple.

octo_t 13y ago

companies are allowed to give terms stating how their products are sold. presumably the same laws that allow Apple to say that in-store displays must meet certain standards (i.e. no broken/smashed devices etc)

michaelt 13y ago
But presumably there are some restrictions as to what those terms can be. If Apple said resellers can only sell iphones to white people that would probably not be legal.
- smackfu 13y ago
  Illegal for a completely different reasons though. Discrimination vs. fair trade.
- travisp 13y ago
  Because if Apple said that, it would be requiring its resellers to do something they are not legally permitted to do . A contract to break a law is illegal and unenforceable. Refusing to sell phones to people because they aren't white would break the law. Selling a phone for $150, $200, or $250 is not breaking a law. So while the law may not permit Apple to require specific prices in its contracts, it's for an entirely different reason than why Apple can't tell the reseller to illegally commit racial discrimination.
  - genericuser 13y ago
    And much like that Apple telling retailers they must sell at a specific price prevents those retailers from potentially competing with each other (not that they were likely to vary the price much due to the low margins left to them). The effect of Apple fixing prices like this is not different than if the retailers were colluding. Yes, the practice benefits the retailers and Apple, but its effect on consumers is commonly believed to be negative hence it is prohibited in some markets.

bradleyland 13y ago

The article doesn't go in to great detail, but based on the information given, I would say that this specific practice is already prohibited in the U.S.. The relevant excerpt: "Apple Asia ... required carriers to obtain its permission before setting contract prices on iPhones..." This sounds like Apple Asia explicitly approved contract prices, but it depends on how you interpret "setting contract prices". If that literally means setting the price that the customer will pay, then this is not (to my knowledge) the exact mechanism used in the U.S., because the manufacturers cannot approve or deny the actual selling price. Instead, manufacturers rely on a loophole. Rather than saying, "You can't sell an iPhone for less than $199 with contract," Apple says, "You can't advertise an iPhone for less than $1xx with contract." The actual number isn't $199, as we regularly see advertisements for iPhones at discounts from retail, but not much lower. We haven't seen the agreements, so we don't know the actual terms. It may be that Apple has the ability to approve/deny all advertised prices individually. Keep in mind that a retailer is free to sell an iPhone at whatever price point they'd like. The problem is that they have no incentive to do so. Sale prices are a means to get customers in to the store. Imagine a ridiculous hypothetical situation where Walmart advertised the iPhone 5S at $99; that would draw in a lot of customers. However, their reseller terms prevent them from doing so, therefore there is far less incentive to do so. If they can't advertise the crazy sale price, then they can't draw in the number of customers required to meet their ROI requirements for an iPhone loss-leader. The inability to advertise props up the iPhone selling price. Apple doesn't do this just with iPhones, and this is not the only mechanism Apple uses to prop up their prices. We don't know the specific margins retailers make on Apple products, but everyone I know who has worked in the retail industry tells me that the margin on Apple products is much lower than every other PC manufacturer. I can't speak for mobile devices, as I don't know anyone in that industry. It's also worth noting that Apple isn't the only company who employs these practices. There are a number of "high-value" brands that support their pricing this way. Tempurpedic and Rolex come to mind immediately, but I'm certain there are many more.

Touche 13y ago
This is exactly the type of response I was hoping to get, thank you.