The emergence of e-commerce's "clicks and mortar" organizations, where producers sell directly to consumers, is threatening the livelihood of "bricks and mortar" retailers, distributors, brokers and other middlemen, states a new report from the Progressive Policy Institute (PPI). The report by the non-profit institute concludes that brick-and-mortar middleman industries are causing consumers to pay more than $15 billion annually for goods and services by blocking development of cost-saving web businesses.

In the report, entitled "The Revenge of the Disintermediated: How the Middleman is Fighting E-Commerce and Hurting Consumers," Robert Atkinson, director of the Technology and New Economy Project at the PPI, has called for policymakers at all levels of government to not give in to the demands and pleadings of e-commerce resisters and to ensure that unfair and discriminatory rules, regulations, and laws do not limit consumers choices as to where and how to buy goods and services.

"This groundbreaking study describes how old-economy businesses are using old-time political influence to block more efficient and cheaper ways of getting products to consumers," said Gary Doernhoefer, Chicago-based Orbitz General Counsel. "While entrenched middleman businesses claim to be acting in the public interest, their real motive is protecting their profits at consumers' expense. Orbitz strongly agrees with the PPI that policymakers should resist protectionist pleadings designed to protect the status quo against new competition."

As the report notes, just as the Horse and Mule Association of America fought against the emergence of the automobile in the 1920s, today middlemen are using a wide array of tactics to stop producers (or web retailers) from selling directly to consumers.

Claiming that they are acting for the public good, the reports says that "bricks and mortar" professional and trade organizations such as the National Association of Travel Agents, the National Association of Realtors, National Automotive Dealers Association, the Wine Wholesalers Association, and National Association of Recording Merchandisers, have lobbied successfully, and in some cases even gone to court, to prevent direct online transactions between producers and consumers.

Ebay, with its auction-like format, is one of the many organizations that has reportedly drawn the anger of "bricks and mortar" organizations. The North Carolina Auctioneer Licensing Board argues that people who sell on Ebay or other similar online sites are de facto auctioneers and is therefore "seeking to require them to be licensed by the state or face misdemeanor charges and a $2,000 fine."

Not only do online sales in many cases simplify transactions and purchases, but they lead to lower costs for consumers. Atkinson calculates that if producers were allowed to sell online directly to the consumer, without the use of intermediaries, then the savings to the consumer would be tremendous, accruing to over $15 billion this year.

He points out that "of the $17 it now costs to purchase a music CD, more than $9.50 is accounted for by distribution, shipping, and store markup, with additional share by the manufacture of the CD itself; online, the songs could be downloaded as MP3 files (or another digital format) for almost nothing."

"The emergence of direct selling online promises to empower consumers through increased access to lower cost services," Atkinson stated. "Likewise, the transformations of e-business will bring significant increases in productivity and per capita incomes. Government must act in the public interest and not give in to the demands and pleadings of e-commerce resisters." Doing so protects "businesses at the expense of consumers, many of them low-income individuals."

The report makes several specific recommendations:

1. The Bush administration should create the position of e-commerce ombudsman to serve as an advocate for e-commerce competitors.

2. The Federal Trade Commission and the Department of Justice should increase efforts to prevent retailers and other businesses from colluding to retaliate against companies that attempt to sell directly to consumers.

3. The Federal Trade Commission and Department of Justice should take a more tolerant position if producers act collectively to sell goods or services online, as long as they are not colluding on price or blocking new competitors from the market.

4. Congress should develop national licensing requirements for industries and companies that now need to be licensed state by state.

The Progressive Policy Institute's Technology and New Economy Project's mission is to educate federal, state, and local policy makers about what drives the New Economy, and to foster policies that promote technological advances, economic innovation, investment, and entrepreneurship.