You are here

Resale Pricing in the Contact Lens Industry

Issue Analysis

Title

Resale Pricing in the Contact Lens Industry

A Case Study of Regulation Undermining Pro-Consumer Resale Pricing Strategies

View Full Document as PDF

More than 30 million Americans wear contact lenses. In recent years, contact lens technology has improved, offering greater convenience and comfort to consumers. As contacts have grown more popular, the companies that manufacture them have experienced increased sales, and the contact lens market is expected to continue its expansion. At the same time, the rise of discount and Internet-based retailers has pressured traditional sellers of contact lenses—especially eye care professionals, many of whom both prescribe and sell contacts to their patients. These professionals typically invest a considerable sum in the equipment used to prescribe contact lenses, and they recoup this cost by selling contacts to the patients whom they also bill their services.

Several leading contact lens manufacturers have announced that they will not distribute to retailers that sell their contacts below a specified price. This practice has drawn the ire of some policy makers who view efforts by manufacturers to influence the price at which their products are sold as anti-competitive. Such skepticism, however, is rooted in outdated economic assumptions about how the interplay between manufacturers and retailers affects consumers. When manufacturers are free to influence how retailers sell their products, they can focus on competing against one another to offer consumers the best product and buying experience.

The American contact lens industry is a case in point. Contact lens manufacturers established uniform pricing policies to address a key reason why consumers buy contacts from big-box stores: to avoid buying contact lenses from eye care professionals in hopes of finding a better deal. Consumers cannot be faulted for seeking the best price on their contacts, but manufacturers believe that competition from discounters undermines the eye care professionals who play a key role in the contact lens buying process—which, by law, requires the expertise of a trained professional with costly medical equipment. Eye care professionals could raise their upfront examination prices to make up for lost sales to discount retailers, but this might undermine the value of the entire fitting and purchasing experience. Instead, manufacturers impose pricing uniformity across retailers for a given type of  contact lens as a way to improve consumers’ experience without raising prices overall.

This essay reviews the history of resale price maintenance under federal antitrust laws, and the way recent economic thinking has altered the approach taken by courts in reviewing the legality of vertical price restraints, or price-related agreements between entities at “different levels of the same production-distribution-consumption process,” to quote a classic antitrust text. It takes a close look at the contact lens industry, which has  experienced significant innovation in recent years, addresses criticisms of unilateral pricing, and highlights the role of retailers in the contact lens marketplace, focusing on eye care professionals who not only sell contacts but also examine consumers’ eyes and write contact lens prescriptions.