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    Hard to get, or anti-competitive?

    Synopsis

    Hermes faces legal action in California for allegedly imposing conditions on customers to buy accessories before purchasing the Birkin bag. The lawsuit questions the anti-competitive nature of this practice and the impact on market dynamics for luxury goods.

    Hard to Get, or Anti-Competitive?
    Hermes is facing a class-action suit in California for 'forcing' customers to buy more of its accessories and trot up a 'sufficient purchase history' if they hope to purchase the French luxury design house's iconic Birkin bag. The plaintiffs are arguing this is anti-competitive behaviour that coerces consumer behaviour to become eligible for a 'sale'. Well, in the region of the market that the Birkin operates, competition works more on buyers than on the seller. The 'product' - in this case, bags that can cost well over $100,000 that follow the Veblen effect by which demand increases as price increases - ceases to have a utility, with normal rules for depreciation, and, instead, becomes a reserve of value. In such a situation, the producer of this specific piece of art can be justified in seeking an auction. After all, like beauty, value lies in the eye of the beholder.

    What remedies do the courts have in such a situation? Do they order Hermes to sell Birkins to the first customer who walks into its store asking for one? Do they order Hermes to make more of those handcrafted leather bags to satisfy a growing clientele? Or do they ask Hermes to raise the price of Birkins to choke off demand? None of these would satisfy conditions regarded as keeping markets competitive, even if these are markets for goods whose demand rises with their price. Anti-competition law is designed to tackle un-kinked demand where price warriors engage in undercutting each other. Class action, on its part, is a legal stratagem to multiply deterrence through numbers. Does that work when the business model is based on thinning out buyers, the good's very scarcity making it the 'it' bag for the very wealthy?

    In fact, lawsuits make the unobtainable even more desirable in the perverse dynamics of the market for Veblen goods. So, do purveyors of uber luxury operate beyond the law as well as markets? The courts in California will take a stab at settling the issue. But history shows laws work best when they allow market forces a free run, stepping in only to control excesses.

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