In February 2004 Bicycle Retailer and Industry News published an article titled "Net Retailers Oppose New Dealer Policies". The author, Michael Gamstetter, discussed price fixing and restraint of trade allegations by Branford Bike and Bulltec Cycles. In the opening paragraph Mr Gamstetter stated:

"Who would have guessed that the industry's discount mail-order companies would complain about unfair pricing practices?
But this summer a few small players in the world of mail-order bike parts began doing just that.
Tim Brockett of Branford Bike and Xavier Cintron of Bulltec Sports are telling consumers that new polices from some of the industry's largest suppliers prevent them from selling those companies' products.
Both men posted frank diatribes on their web sites last year, alleging that companies such as Assos, BikeMine, Cateye, King Cycle Group, Shimano and others are practicing illegal price fixing and restraint of trade.".

At Branford Bike we have long opposed price fixing. Many years ago we were the only importer of Carnac shoes. A Nevada based wholesale distributor, Sinclair Imports, took over the brand and we then purchased Carnac shoes from them. After a few years Sinclair told us that we had to sell Carnac shoes at a price they would determine was fair. We opposed that policy on moral and economic grounds. We notified riders via our paper catalog and stopped selling Carnac shoes.

Michael Gamstetter continued his article with: "Since May, Brockett has posted editorials on Branfordbike.com outlining his communications with Shimano employees. Two years ago, Brockett did a similar thing when Sinclair forbid him from selling Carnac shoes below its minimum retail price.".

Mr Gamstetter incorrectly stated that the Carnac price fixing incident was only two years ago. Actually it happened in 1997.

Michael continued by saying" Cintron's Bulltecsports.com web site includes an open letter to customers. In it he writes about being hassled by attorneys representing BikeMine, which is using trademark law to force him to follow minimum pricing on Vittoria tires. BikeMine owns the Vittoria trademark in the United States and can restrict its use in advertising.
"As you may already be aware of, there have been more and more distributors/manufacturers forcing prices on consumers, which is highly illegal and violates all of our Anti-Trust laws and is simply anti-competitive," Cintron wrote on his web site.
Brockett and Cintron, through their candid remarks, hoped to elicit sympathy and support of the buying public. Both men encourage consumers to contact the companies and complain about the policies.
Brockett was particularly upset with Shimano's new authorized dealer program, which the component maker instituted one year ago.
He said the company's policy of requiring all mail-order companies to submit applications to become authorized dealers is akin to price fixing.
"The purpose of Shimano's actions is to fix the retail selling price of all new products sold via mail order on the Internet in the U.S. marketplace. Often considered illegal and always unethical, this is a policy practiced by a large segment of the bicycle industry;' Brockett wrote in an e-mail he sent to Bicycle Retailer & Industry News.
Brockett declined to be interviewed by telephone, deferring to comments he made in e-mails.
On the Branford Bike web site, Brockett wrote that his company was unable to secure authorization to sell Shimano products on the Internet. He even paraphrased discussions he had with George Eubanks, Shimano's sales manager.
Brockett listed the component maker's toll-free telephone numbers and invited consumers call or fax Shimano with complaints. The site also points out that the company only sells Campagnolo components now.".

At Branford Bike we believe that markets work best when individuals are free to choose the price they wish to pay for any item. Manufacturer's usually try to rationalize price fixing by stating that small brick and mortar retailers are being hurt by large mail order discounters. Thus, the reasoning goes, if mail order charges the same price as small retailers then everybody can make a good profit and everybody wins. Another reason for fixing prices is the argument that mail order operations cannot serve a customer as well as a brick and mortar retail business. Michael continued with his article by stating:

"Last summer, Shimano American launched a program requiring its distributors, frame builders, original-equipment manufacturers and mail-order retailers to sign a contract agreeing to provide certain services, to ensure their staffs are knowledgeable about Shimano parts and to terms regarding how the products are sold to consumers.
Shimano officials said they hoped the program would improve the company's business while boosting consumer safety and satisfaction.
"The reason we are doing this isn't to hurt mail order. We made changes to our distribution because we think it's best for our business," said Penina Bush, vice president of Shimano American's bicycle division.
"The catalyst of the program was that retailers weren't pushing or stocking our products. And from the consumer point of view, we received complaints about missing parts, directions and manuals, as well as lack of service;' Bush said.
Many mail-order companies built their businesses by buying excess original-equipment parts from bike suppliers for pennies on the dollar. They then repackage those products and sell them to consumers for a fraction of the suggested retail price. Prices for these gray market items often are on par with wholesale prices.
"Consumers called us to complain because they thought they were buying after-market product, but what they received was OE product in a polybag. Shimano products sold to consumers must be sold in the proper packaging with the manuals;' Bush said.
King Cycle Group recently launched its own policy for similar reasons. "Customers were calling us, whether it was about a warranty situation or with technical questions, and we found people weren't receiving manuals: That is an important part of our product. It's important that consumers know how to maintain it," said Jacki Sterner, King's marketing manager.
"In addition, we want our products displayed well and we want them sold the way we ask and that is with the manual. That definitely was the impetus behind the new policy;' she added.
Component suppliers argue that they suffer most when retailers sell poorly packaged products with missing parts and without manuals. The lack of service reflects poorly on the supplier and its products, tarnishing the company's reputation and devaluing the product in the mind of consumers, they say.".

For the record, Branford Bike purchased Shimano and Chris King components from the exact same wholesale distributors that small brick and mortar shops do. We always received Shimano and Chris King components in the original factory boxes with the product manuals. We paid the same price as everyone else and resold the components at what we determined was a fair price. We used our web site to provide detailed product information and stocked a wide selection of spare parts for the manufacturer's components. Riders often told us that our service and selection was better than their local shop. Both Shimano and Chris King have requested that their wholesale distributors do not sell their (Shimano and Chris King) components to us.

The Bicycle Retailer and Industry News article continues with a discussion about how some manufacturers provide blacklists to their wholesale distributors. These are lists compiled by individual manufacturers that contain names of shops that are forbidden to purchase that manufacturer's products. Often times the manufacturers will try to legitimize the black list by calling it a "House Account" list. They are implying that the listed dealers are purchasing their products directly from the manufacturer and therefore are not authorized to purchase them from the manufacturer's wholesale distributor. At Branford Bike we have refused to purchase directly from many manufacturer's simply because they could then legally require us to resell their products at a price fixed by them. None the less, those same manufacturers often deem us as a house account and then forbid their wholesale distributors from selling their products to us.

Michael Gamstetter covered this point by saying:
" Although Brockett and Cintron accept that suppliers can legally choose to sell to whomever they want, they object to companies preventing them from buying their products from wholesale distributors.
King, Ritchey, Shimano, Thomson and others supply each of their distributors with a list of retailers that are not authorized to buy their products.
Preston Martin, co-founder and vice president of BTI in Santa Fe, New Mexico, said this is becoming common.
"Only about 20 percent of suppliers have what they call house accounts or restricted accounts, but more companies are sending us lists of retailers who can't buy their products. Most customers aren't restricted from buying anything, but there are a few. Usually you see the same 20 names and quite often they are mail orders;' Martin said.".
"Brockett argues that this practice is unethical.
"What do you think about Cateye telling QBP, Hawley and others not to sell to Branford Bike because we are a house account when we have never purchased anything from them? Surely Cateye has the right to sell to anyone they choose to. Does not QBP and Hawley have that same right? Does Cateye have the right to blacklist dealers?" he asked.
BTI's Martin said the policies don't bother him. "It's a way of doing business. I don't consider it lost business because the damage done by sellers not working within the system makes it impossible to be competitive. Plus, they erode the image of the product;' he said.
Ritchey keeps a list of in-house accounts of retailers they forbid distributors like BTI, Hawley Company, Quality Bicycle Products and others from selling to.
"Our distributors are fine with the policy. We tell them what our national accounts are and we keep the list active and up to date all the time. They are happy to oblige with our distributor agreements;' said Steve Parke, Ritchey's general manager.".

Many manufacturers within the bicycle industry subscribe to the myth that the retail price is the only measure of a product's value. For example, lycra shorts priced at $250.00 must be better than similar shorts that sell for under $150.00. The manufacturers forget that riders can think for themselves and often base their buying decisions on past product experience, comparison with other products, retailer stock, personal recommendations and finally, the asking price. The idea that discounting a product can destroy that product is equally ridiculous. While it is conceivable that some people may actually buy shorts priced at $250.00 solely because of the price, the reverse is rarely true. If $250.00 shorts suddenly drop to a price of $150.00, sales will usually increase, not decrease. Still, many manufacturers in the bicycle industry stubbornly cling to economic models that have long since been dumped in the ash bin of history. Unfortunately many manufacturers now concentrate on s skirting the law as revealed by Michael Gamstetter when he wrote:

"While Branford's Brockett says the practice is unethical and Bulltek's Cintron implies it's illegal, representatives of some parts makers said they are working within U.S. law.
"The question is: Is it legal for a manufacturer to try to ensure that distributors properly promote and service the product and that the product reaches consumers with the proper packaging and manuals by sometimes telling the distributor whom they can or can't sell to? That's legal;' said Shimano's George Eubanks.
"To tell a distributor they can only ship product in California, for example, is very legal and happens all the time" he said.
Technically, it also is legal for suppliers to set minimum selling prices for distributors. Minimum pricing policies aren't illegal as long as they don't extend beyond one direct buying layer-supplier to distributor or distributor to retailer.
And none of the suppliers who spoke with Bicycle Retailer enforces a minimum price. Shimano dealers, for example, can sell Shimano parts at any price. But mail-order businesses must be authorized to buy the parts. Bush said Shimano's list of authorized Internet retailers could change.
"There are so many Internet mail order companies. We started working with the ones we had relationships with. We are getting applications for others who want to be authorized and we are going through them as quickly as possible," she said.".

Over the past decade price fixing in the bicycle industry has gained new adherents every year. At Branford Bike we believe that the net effect of manufacturers fixing the retail prices of their components will benefit a few big businesses, slowly shut down small shops while charging riders higher prices for products that have less value.
Price fixing removes competitive pressure from the marketplace. As a result manufacturers are free to raise their prices at will and for any reason. We have seen manufacturer's suggested retail prices for component and clothing prices jump 30, 40 and even 50% in the course of one year. When manufacturers get greedy they often get lazy and inefficient as well. Product shortages, bad workmanship and poor customer service soon follow. Not coincidentally, brick and mortar bicycle shops have closed their doors at a much higher rate than new shops were opening over the past ten years. While often shuttering smaller shops, price fixing enables large businesses to get even bigger. The practice of price fixing allows large mail order companies to charge full retail prices while virtually guaranteeing them that small competitors like Branford Bike will not be allowed to undersell them. In the past decade a single mail order company gobbled up Bike Nashbar and Supergo while simultaneously opening retail stores around the country. In our estimation, this one company now controls almost 75% of the mail order market.

To read more about pricing, go online to www. bicycleretailer.com/ bicycleretailer/business_resources and click on "Retailers Can Benefit From Price Policies". Or read "Why Doesn't Anyone Talk About Pricing?" and "What Are the Risks of Price Fixing?" In the March 1 and 15, 2003 issues of Bicycle Retailer.