Resale Price Maintenance (RPM) refers to the practice where a manufacturer or wholesaler stipulates the price at which a retailer must sell its products. This can include minimum or maximum prices, although minimum resale price maintenance is more common and often more scrutinized. RPM agreements can be explicit, such as contractual obligations, or implicit, through non-binding suggestions or recommendations.
Types of RPM
Minimum Resale Price Maintenance
Minimum RPM involves a scenario where the manufacturer sets a floor price below which the retailer cannot sell the product. This is often used to maintain a consistent perceived value of the product across different sales channels and to prevent price wars among retailers.
Maximum Resale Price Maintenance
In Maximum RPM, the manufacturer sets a ceiling price, ensuring that products are not sold above a certain threshold. This is less common and typically used to prevent price gouging, particularly in scenarios of limited supply or high demand.
Legal Considerations
The legality of RPM varies significantly across jurisdictions:
United States
In the U.S., RPM was largely prohibited under antitrust law until the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), which ruled that RPM agreements are to be judged under the “rule of reason” rather than being per se illegal. This means that courts now assess the competitive effects of RPM on a case-by-case basis.
European Union
In the EU, RPM agreements are generally considered a violation of Article 101 of the Treaty on the Functioning of the European Union (TFEU), which addresses anti-competitive agreements. However, specific instances can be exempted if they bring about improvements in production or distribution that benefit consumers.
Other Jurisdictions
Countries like Canada, Japan, and Australia have their specific provisions and regulations concerning RPM, often influenced by their broader competition policy frameworks.
Economic Implications
Pros
- Brand Image: RPM can help maintain a premium brand image by standardizing prices.
- Competitor Stability: It reduces price-based competition, which might benefit smaller retailers.
- Service Levels: Higher margins might allow retailers to offer better services or invest in consumer experience.
Cons
- Consumer Prices: Can lead to higher prices for consumers.
- Market Entry Barriers: Higher resale prices can act as barriers to entry for new competitors.
- Reduced Competition: Decreases price competition among retailers, potentially leading to non-competitive markets.
Historical Context
The concept of RPM isn’t new and has been used since the late 19th and early 20th centuries. Initially, it was seen as a method to protect small retailers from being undercut by larger competitors who could afford to sell products at a discount. Over time, regulatory bodies began to see its potential for anti-competitive harm, leading to stricter regulations.
Applicability
RPM is applicable in various markets, from luxury goods and electronics to pharmaceuticals and grocery items. Different industries use RPM strategies uniquely based on their market dynamics and consumer behaviour.
Comparisons with Related Terms
- Price Fixing: Usually involves multiple companies colluding to set prices, whereas RPM involves a vertical agreement between supplier and retailer.
- Vertical Agreements: RPM is a specific type of vertical agreement, which generally includes any agreement between firms at different levels of the supply chain.
- MAP (Minimum Advertised Price): Similar to RPM but specifically concerns the advertisement of prices, not the actual sale price.
FAQs
Is Resale Price Maintenance legal?
How does RPM affect consumers?
Can RPM benefit small retailers?
Summary
Resale Price Maintenance (RPM) involves agreements between manufacturers and retailers to control the prices at which goods are sold. While it can help maintain brand value and stabilize market conditions for smaller retailers, it can also lead to higher consumer prices and reduced competition. The legal landscape around RPM is complex and varies by jurisdiction, with significant implications for businesses and consumers alike.
By understanding RPM’s intricacies, stakeholders can better navigate its legal and economic ramifications to create competitive and fair market environments.
References:
- U.S. Supreme Court. Leegin Creative Leather Products, Inc. v. PSKS, Inc., 2007.
- Treaty on the Functioning of the European Union (TFEU), Article 101.
- Various antitrust laws and competition policies from multiple jurisdictions.
