Resale Price Maintenance (RPM) refers to the practice where manufacturers set minimum prices at which their products must be resold by retailers and distributors. This practice aims to standardize prices across different sales channels, ensuring consistent pricing and perceived value.
Historical Context
RPM has a controversial history due to its implications on market competition:
- Early 20th Century: RPM became prominent as manufacturers sought to protect their brand image and avoid price wars that could dilute perceived value.
- United Kingdom Legislation: RPM was restricted by the Retail Prices Act of 1964 and the Restrictive Practices Act of 1966. Exceptions existed, like the Net Book Agreement, until it ended in 1995.
- Modern-Day Regulations: Manufacturers can suggest a Recommended Retail Price (RRP), but enforcement of these prices is often illegal to prevent anticompetitive practices.
Types/Categories of Resale Price Maintenance
- Vertical Price Fixing: Agreement between different levels of the same supply chain, like manufacturers and retailers.
- Horizontal Price Fixing: Agreement between competitors to fix prices, more associated with antitrust violations than RPM.
Key Events
- Retail Prices Act of 1964: Prohibited RPM in the UK, aiming to foster competition.
- Net Book Agreement: A notable exception allowing RPM in the book industry until its collapse in 1995.
- Leegin Case (2007): U.S. Supreme Court ruling relaxed the rules on RPM, allowing them under certain conditions.
Detailed Explanations
Economic Impacts
- Consumer Pricing: RPM can keep prices higher than they might be in a competitive market, limiting consumer choices.
- Brand Value: Ensures consistent product value and protects brand equity by avoiding price undercutting.
- Retailer Margins: Guarantees a certain profit margin for retailers, enabling better service and store quality.
Importance and Applicability
- Brand Protection: Ensures that the product’s perceived value remains high by avoiding aggressive discounting.
- Market Stability: Helps stabilize prices across different retail channels.
- Quality of Service: Allows retailers to offer superior services without the pressure of competing solely on price.
Considerations
- Legal Boundaries: RPM practices must navigate antitrust laws designed to preserve market competition.
- Market Dynamics: Overuse can lead to market entry barriers and reduced competition.
- Consumer Perceptions: Need to balance perceived fairness in pricing with company strategies.
Related Terms
- Price Fixing: Agreement between competitors to set prices, illegal in many jurisdictions.
- Minimum Advertised Price (MAP): Policy setting minimum price at which a product can be advertised, without enforcing the selling price.
Comparisons
| RPM | Price Fixing |
|---|---|
| Vertical agreement | Often a horizontal agreement |
| Can be legal under certain conditions | Typically illegal |
| Aims at retail consistency | Aims at profit maximization by collusion |
Inspirational Stories
- Leegin Creative Leather Products: Their landmark case in the U.S. Supreme Court changed the legal landscape for RPM, giving more leeway for RPM under certain conditions.
Famous Quotes
“Pricing power is the lever to growth. Controlled by you, it can push you forward or hold you back.” — Unknown
Proverbs and Clichés
- “You get what you pay for.” — RPM practices often emphasize maintaining high product value.
Expressions
- “Fair Trade”—Often used historically to describe RPM agreements.
Jargon and Slang
- [“Street Price”](https://financedictionarypro.com/definitions/s/street-price/ ““Street Price””): The average selling price found in the market, often deviating from MSRP or RRP.
FAQs
-
What is Resale Price Maintenance (RPM)?
- RPM is a practice where manufacturers fix minimum prices at which their products may be resold by distributors.
-
Is RPM legal?
- RPM legality varies by jurisdiction, and while recommended pricing is legal, enforcing fixed prices often isn’t.
-
Why do companies use RPM?
- To protect brand value, ensure consistent retail pricing, and maintain retailer margins.
References
- Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
- Retail Prices Act of 1964.
- Restrictive Practices Act of 1966.
- Net Book Agreement Historical Overview.
Summary
Resale Price Maintenance remains a debated practice balancing the protection of brand equity and market stability against potential consumer disadvantages and legal risks. While regulations vary, understanding RPM’s roles and implications is crucial for businesses and regulators.
Mermaid Chart
graph LR
A[Manufacturer] --> B[Retailer]
B -->|RRP Enforced| C[Consumer]
C --> D[Brand Perceived Value]
A --> E[Quality Assurance]
E --> D
A -->|RRP Suggested| B
By understanding and considering the implications of RPM, businesses can better navigate their pricing strategies and regulatory environments.
