Resale Price Maintenance (RPM) is an economic policy whereby a manufacturer stipulates the minimum and/or maximum price at which retailers can sell its products. Historically, RPM has been a point of significant legal and economic contention due to its potential to influence competitive dynamics within various markets.
Types of Resale Price Maintenance
Minimum Resale Price Maintenance
This involves setting a price floor below which retailers are not allowed to sell the product.
Maximum Resale Price Maintenance
Conversely, maximum resale price maintenance sets a price ceiling, ensuring that retailers cannot charge above a certain price.
Fixed Resale Price Maintenance
In some scenarios, manufacturers may enforce both a minimum and maximum price, effectively fixing the resale price.
Historical Context
Resale Price Maintenance has been a contentious issue across various economic frameworks and jurisdictions. Initially practiced to protect brand image and ensure consistent pricing, RPM has been the subject of legal scrutiny due to its impact on market competition.
Legal Developments
- United States: The Sherman Antitrust Act of 1890 initially deemed all forms of RPM as illegal. However, subsequent rulings, such as the Leegin Creative Leather Products, Inc. v. PSKS, Inc. case in 2007, re-evaluated the per se illegality standard, considering RPM under a “rule of reason” approach.
- European Union: RPM generally violates Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements restrictive of competition.
Economic Implications
Market Competition
RPM can facilitate uniform pricing, which may reduce price wars among retailers and stabilize market conditions. However, it impedes competitive pricing, potentially leading to higher consumer prices.
Consumer Impact
While manufacturers argue that RPM ensures quality and consistent service, critics argue that it removes the price benefits usually derived from competitive markets.
Practical Examples
Luxury Goods
Luxury brands often employ RPM to maintain brand exclusivity and prevent market dilution through discounted pricing.
Technology Products
In the tech sector, RPM is used to prevent undercutting among retailers, thereby protecting smaller retailers from large, discounters.
Comparisons
- Price Fixing: Unlike price fixing, which is an agreement among competitors to set prices, RPM is imposed by manufacturers on retailers.
- Monopoly: RPM doesn’t create monopolies but can lead to monopolistic tendencies by reducing competition among retailers.
Related Terms
- Exclusive Dealing: An arrangement where a retailer or wholesaler is exclusively tied to a manufacturer and its products.
- Price Discrimination: Charging different prices to different consumers for the same product without cost justification.
FAQs
Why do manufacturers impose RPM?
Is RPM legal?
What are the benefits of RPM for consumers?
References
- Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
- Treaty on the Functioning of the European Union (TFEU), Article 101.
- “Resale Price Maintenance: A Re-Evaluation,” Harvard Law Review.
Summary
Resale Price Maintenance (RPM) remains a complex and multifaceted topic within economics and law. Understanding RPM involves examining its various forms, historical context, legal ramifications, and economic impacts. While RPM can standardize pricing and potentially enhance product value, its implications for market competition and consumer welfare continue to be a subject of debate among economists, policymakers, and legal experts.
