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CONSUMER AFFAIRS / S. J. DIAMOND

Nintendo Wins at Settlement Game

July 26, 1991|S. J. DIAMOND

"ATTENTION NINTENDO CONSOLE OWNERS" say the ads running these past two weeks in newspapers and magazines. It seems Nintendo of America was sued by the attorneys general of all 50 states and the District of Columbia for allegedly fixing the price at which retailers could sell its game machines, or "consoles." To make amends for any overcharges, Nintendo is now offering "significant relief" to all who bought between June, 1988, and December, 1990.

To government, significant relief is $5, though it's not much to people who paid $99.95 for a console set, and hundreds more for games ($20 to $60 each). They must spend more yet to get it: The relief isn't money, but a coupon for $5 off the purchase of more Nintendo games.

What we have here is more gain for Nintendo, more insult to consumers and a real fuzzy-headed approach to righting wrongs. This system begs for change.

Gain is the norm for Nintendo. Since 1986, the Japanese electronics company has sold us 30 million of the consoles. Last year, Nintendo sales totaled $3.4 billion, capturing more than 80% of the U.S. home video-game market. Nintendo equipment was in one in four homes.

Consumers noticed, however, that the console sets were $99.95 all over town, probably not coincidentally. Indeed, said New York Atty. Gen. Robert Abrams, investigation revealed that Nintendo set those prices, and "retailers who resisted Nintendo's pressure were threatened with a slowdown of shipments or a reduction in the number of consoles delivered for sale."

Nintendo denied any wrongdoing--the traditional response--but to avoid further proceedings made the usual promise never again to do what it said it hadn't done. And agreed to send $5 coupons to everyone who filed warranty cards in the given time period (10% to 12% of purchasers), subscribed to Nintendo Power magazine (1.5 million) or called the company for advice, as well as everyone who now writes or calls in his console serial number.

This doesn't seem such a boon to consumers. "From a public policy perspective," commented California Assemblywoman Jackie Speier, "I think we should never settle a case in which the benefit to the injured consumers requires them to purchase additional products from the offending party."

Monterey, Calif., attorney Gerald Barron thinks it unfair and deceptive, and he has filed both separate class-action lawsuits and a formal objection to the settlement. Consumers aren't given adequate information or opportunity to "opt out" of the settlement, and they're not told, said Barron, that "the law allows treble damages of the money the company unfairly took."

How the New York and Maryland prosecutors, who arranged the settlement, arrived at the particular arrangements is unclear. Their calculation of the $5 rebate as fair in relation to Nintendo's profit is considered confidential.

Their choosing discount coupons is simply incomprehensible. The New York office says that previous price-fixing actions against Minolta and Panasonic, which offered cash refunds, drew very poor consumer response, reportedly less than 10%. Unable to rouse interest with money, the prosecutors are therefore trying something even less appealing.

There's some interesting benefit to Nintendo, aside from its profits on the discounted goods. The coupons are good only on the 8-bit computer games that fit Nintendo's traditional 8-bit console. The settlement will thus help clear this inventory before Nintendo's autumn introduction of a 16-bit system that makes the 8-bit stuff obsolete.

Even the attorneys general benefit. New York and Maryland get $1.75 million for their investigation and administration, and another $3 million (cash, not coupons) will be spread among the other 48 states, just for "opting into" the settlement.

The benefit of consumer refunds isn't always so clear, given the likely inadequacy of the amounts and the difficulty of dispersal. Consider California's 1978 price-fixing case against Levi Strauss for allegedly pressuring retailers to maintain high prices on its jeans. Settlement was stalled for six years while everyone haggled about the mechanics of claims and refunds, people filed claims on up to 400 pairs of jeans, the projected average refund went from $2 to 39 cents, and a public advocacy group urged establishing a consumer protection fund instead.

Some believe that that idea offers less hassle and maybe more consumer benefit.

They mention, by way of example, that when Allied Chemical was found polluting a Virginia river, its $8-million fine established a state environmental fund. Similarly, when Exxon overcharged customers $1 billion on crude oil, it had to pay it back through energy conservation programs. Such punishments might do more good than financial "relief" for individual consumers, particularly when the relief is so trivial.

The real consumer benefit is in correction, and one might ask whether the rebates and attendant publicity bring about pricing changes. Those console sets are still $99.95 all over town. "That's the Nintendo price, for all stores," a toy store salesman explained this week. "We're not allowed to sell it for anything else--no more, no less."

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