Why Stores Can't Sell You Cheaper Contact Lenses

Costco and online sellers like 1-800 CONTACTS would love to sell you cheaper contact lenses. But in recent years, the country's biggest contact manufacturers have instituted minimum prices for their products that make it impossible for retailers to offer them at lower price points.

In testimony before Congress last summer, the Consumers Union declared such policies "uncompetitive" and tantamount to price fixing: "Consumers are denied more affordable alternatives. They pay more than they need to, and sellers who would like to make those affordable alternatives available are denied the opportunity to do so."

The manufacturers are taking advantage of a 2007 U.S. Supreme Court decision that established that it was legal for price floors to be set in certain situations. The one stipulation is that the manufacturers must not be "actively coordinating prices among themselves or with retailers," as Marketplace put it. It's impossible to prove that Johnson & Johnson, Alcon, Bausch & Lomb, and other big sellers are conspiring to set prices, yet all have instituted unilateral pricing, which means that retailers aren't allowed to sell their products below a certain price. The net result is that stores and online sellers can't discount the vast majority of name-brand contact lenses on the market, so there's no point in consumers shopping around.

Earlier this year, the Utah legislature passed a bill that would prohibit the setting of price floors on contact lenses. It's worth noting that online discounter 1800CONTACTS.com backed the bill and just so happens to be headquartered in Utah.

The big contact lens companies followed by suing Utah in federal court, and the latest news is that an appeals court declared the law unconstitutional, blocking it from being enforced. Essentially, the court has said that the contact lens manufacturers are within their legal rights to mandate a price floor.

Novartis, owner of the Alcon brand, has argued that price minimums are necessary to combat "showrooming," the nickname for the practice in which consumers scope out prices from one seller—often, the optometrist's office where they receive prescriptions—before shopping around and getting the product at a cheaper price elsewhere, typically online. “Eye-care professionals incur the cost of studying and appraising the new technology, but online and big-box retailers do not,” the company wrote in defense of price floors.

Costco, which says the price minimums have forced it to charge prices that are 20% higher than they would have for some contacts, warned that if eye care professionals don't have to compete on price, they will “leverage their control over prescriptions and brand selection to also control and monopolize contact lens sales.” The result wouldn't be bad just for Costco; it would negatively affect consumers too.

For the time being at least, the discount retailers—and by extension, consumers seeking contacts at lower prices—are on the losing side of the battle.