How a 70-year-old law explains Costco | Bleader

Thursday, June 7, 2007

How a 70-year-old law explains Costco

Posted By on 06.07.07 at 04:59 PM

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"Wander the aisles of Costco or Sam's Club and you enter a bizarre alternate universe of products for sale. Cereal comes in twin packs. Coke is available in cases containing 32 cans, not 24. And printer cartridges are sold in three-packs, not as singles or in pairs as at other stores.

"These packaging oddities are a direct result of a 1936 antitrust law that was designed to keep a level playing field in American commerce but critics say has lost its usefulness. They contend the law actually costs consumers millions of dollars annually while forcing manufacturers to concoct wild, unnecessary packaging schemes."

Neat article. The law states that all products (say, a box of cereal) must be sold to retailers at the same price. So your typical handful of Cheerios costs, say, $0.24/oz to the retailer (I have no idea how much Cheerios actually cost by weight). How does a retailer reduce the price of a box of Cheerios under the law? By making it a different product--jumbo size, for example. Then it's sufficiently different under the eyes of the law that it can be sold for a different price. QED, Costco.

People who don't like the law say it snuffs out competition. People who like the law say getting rid of it will kill small businesses that can't demand bulk discounts; the article specifically cites Treasure Island as an example, though I can't imagine it would be good for neighborhood corner stores, something I didn't realize the importance of until I moved to the big city and gave up driving.

Anyway, read the whole thing, as they say. It's particularly relevant in the context of the Sun-Times's report on rising food costs.

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