This Story Posted:
December 21st
3:49 AM/CST


Monday, December 21st

Top Story
Class Action Law Suit To Hit Best Buy Over iMac?
[3:49 AM] Late Friday, December 18th, we received word from an Apple dealer who is promising a class-action lawsuit against Best Buy for predatory pricing policies.

"To whom it may concern,

Don't be suprised [sic] when news of a class-action lawsuit against Best Buy surfaces, charging them with illegal "preditory" [sic] pricing policies in relation to their "$999" iMac deal.

At $230 below all dealers costs, this represents a glaring violation of this statute.

Watch for press releases soon."

We asked for additional information and were told:

"We're a dealer and we're in talks with a couple of other dealers and our respective legal counsel. I'll get back to you with specifics as soon as we work out the details.

This is just a heads-up that the action that BestBuy has taken won't go unchallenged. It already has caused serious monetary damages to every other retailers [sic] around the nation, at a time when it will cause the most damage.

What they have done isn't just 'competition.' I goes much further than that to the point of being actionable."

Another Mac Observer reader named Mike Burns had this to say:

"The fact is, the dealer cost on the iMac is $1184.90 Even if you allow for some soft money being given to Best Buy for shelf space or co-op advertising, at $999 they were selling the iMacs $100 or more below cost. This not only poisons the market for every dealer, it means that Best Buy probably had 10,000 or so iMacs they thought they would never move, and they panicked."

Adressing another aspect of this, a trade regulation attorney who also wished to remain anonymous wrote us to say:

"We should be also be concerned if Apple is attempting to control retail prices. As a general matter, consumers inevitably suffer when a manufacturer seeks to enforce mandatory "minimum" retail prices. It would be interesting to discover how Apple has been able, until now, to maintain such uniform pricing for the iMac at $1299. And why was Best Buy the first to break ranks? It is also important to remember that Apple is both a manufacturer and a retailer. Any efforts by Apple to control the prices charged by Best Buy could be viewed by regulators (the FTC in particular) as an attempt at "horizontal" price fixing. If true, it would be akin to hardware stores agreeing that they won't charge less than $19.99 for screw driver. The result is the same: the public gets screwed."

A chain reaction could be well on the way. Jim Seifert, a Mac Observer reader wrote us to say that a store in the Seattle area was advertising iMacs at a reduced rate. According to Mr. Seifert:

"Micro Computer Systems an Apple authorized dealer in Lynnwood, WA is advertising Imacs (Rev B) in the Sunday 20th Seattletimes for $999 with the purchase of either an Epson 740 at $259 or an Imation SuperDrive at $159." is reporting another Mac retailer, MacCenter, has also jumped on the bandwagon. According to

"Florida-based MacCenter is offering iMacs for $999 as well with the purchase of a qualifying peripheral such as a printer or scanner or extra memory, and it is offering the system for $1,099 as a standalone deal."

To top it all off, MacWeek is reporting that both Best Buy and Apple have denied that Apple had anything to do with Best Buy's price hike back to US$1099 contrary to our reports on Friday. This may in fact be possible as our unamed source from Best Buy was a front line PR person from Best Buy's corporate headquarters who was doing his seeming best to find anwers to our questions.

The Mac Observer will keep you updated as these events unfold.

The Mac Observer Spin: This is such a hard line to follow. On the one hand, it is healthy for the Mac market to have competition in order to foster better pricing and service. On the other hand, having a bunch of profitless dealers in the channel will only hurt all of us over the long term. The trade regulation attorney's statements bring up the very important aspect of how far can Apple go to protect pricing?

Apple's policies do not (and can not) directly control how retailers price their merchandise. What they do is set up incentives that offer retailers cash and other marketing benefits if they tow the Apple pricing line. This is common for manufacturers who want to keep pricing as high as the market will bear and protect their own retailers from cut throat pricing between their retailers. When a retailer breaks the pricing system, they simply lose eligibility for Apple's incentives. Mac Club broke ranks earlier this year in just such a move. They started selling systems as much as US$100 less than anyone else and earned Apple's ire at the same time.

In our earlier story on this issue, we said that Best Buy's pricing was bad for other retailers while it offered a great (short term) opportunity to consumers. If a lawsuit does in fact ensue, it will be a very interesting test of Apple's pricing system and will get a ton of negative press. For this reason, expect a lot of behind the scenes negotiations that will end up smoothing this whole scene over. Our prediction is that Best Buy will raise the price of the iMac to be in line with the rest of the channel and no suit will actually go through. As of 3:30 AM on Monday, December 21st, the price had been removed from Best Buy's web site entirely. MacWeek is reporting that Best Buy intends to keep the US$1099 price throughout the holidays. Buy while you can.

Something to consider when reading this story is service. The service that we Mac users have gotten from Best Buy in the past is not the type of service that most of us want. Smaller retailers and even most CompUSAs usually offer a superior experience than what is typically found at Best Buy. The superstores such as Best Buy have a pricing structure that relies on hiring lower paid (and usually younger) workers that are often less knowledgeable about Apple products. There are always exceptions to this rule of course and both Best Buy and CompUSA have locations with excellent Mac support, but the rule of thumb is that you get what you pay for.

One last thought to tickle your fancy: Best Buy may be actually looking to get out of the Mac business after just re-entering it. While this is unlikely, neither Apple nor Best Buy have been pleased with the results of Best Buy's iMac sales. Several readers have wrtten in to suggest that Best Buy just wanted to dump what was looking like unsold inventory before the holiday season was over,. The next few weeks should prove to be very interesting. Let us all hope that these interesting times will not prove to be a taste of the ancient Chineese curse.

Best Buy - Apple