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Hub AI
Resale price maintenance AI simulator
(@Resale price maintenance_simulator)
Hub AI
Resale price maintenance AI simulator
(@Resale price maintenance_simulator)
Resale price maintenance
Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), at or above a price floor (minimum resale price maintenance) or at or below a price ceiling (maximum resale price maintenance). If a reseller refuses to maintain prices, either openly or covertly (see grey market), the manufacturer may stop doing business with it. Resale price maintenance is illegal in many jurisdictions.
Resale price maintenance prevents resellers from competing too fiercely on price, especially with regard to fungible goods. Otherwise, resellers worry it could drive down profits for themselves as well as for the manufacturer. Some[who?] argue that the manufacturer may do this because it wishes to keep resellers profitable, thus keeping the manufacturer profitable. Others[who?] contend that minimum resale price maintenance, for instance, overcomes a failure in the market for distributional services by ensuring that distributors who invest in promoting the manufacturer's product are able to recoup the additional costs of such promotion in the price that they charge consumers.
Some manufacturers also defend resale price maintenance by saying it ensures fair returns, both for manufacturer and reseller and that governments do not have the right to interfere with freedom to make contracts without a very good reason.
In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, an English contract law case, tyre manufacturer Dunlop had signed an agreement with a dealer to get paid £5 per tyre in liquidated damages if the product was sold below the list price (other than to motor traders). The House of Lords held that Dunlop could not enforce the agreement. However, this had nothing to do with the legality of resale price maintenance clauses, which was not in any question at the time. The decision was based on the doctrine of privity of contract, as retailer Selfridge had bought Dunlop's goods from an intermediary and had no contractual relationship with Dunlop. In the case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, the House of Lords upheld the enforceability of the requirement in the resale price maintenance clause, to pay £5 damages per item sold below list price, on the basis that it was not a penalty clause (which would be unenforceable) but a valid and enforceable liquidated damages clause.
In 1955, the Monopolies and Mergers Commission's report Collective Discrimination: A Report on Exclusive Dealing, Aggregated Rebates and Other Discriminatory Trade Practices recommended that resale price maintenance, when collectively enforced by manufacturers, should be made illegal, but individual manufacturers should be allowed to continue the practice. The report was the basis for the Restrictive Trade Practices Act 1956, specifically prohibiting collective enforcement of resale price maintenance in the UK. Restrictive agreements had to be registered at the Restrictive Practices Court and were considered on individual merit.
The Resale Prices Act 1964 considered all resale price agreements to be against public interest unless proven otherwise. In 2010, the Office of Fair Trading (OFT) opened a formal investigation into allegations by an Online Travel Agent (OTA), Skoosh, of resale price maintenance in the hotel industry. The investigation focussed on agreements between OTAs and hotels which may have resulted in fixed or minimum resale prices. In September 2015, the OFT's successor, the Competition and Markets Authority (CMA), closed its investigation into suspected breaches of competition law in the hotel online booking sector.
In relation to competition, Article 101 and Article 102 of the Treaty on Functioning of the EU (TFEU) are paramount over all member states' national laws relating to competition. Both the Court of Justice of the European Union and the European Commission have held that resale price maintenance is generally prohibited.
In Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), the United States Supreme Court affirmed a lower court's holding that a massive minimum resale price maintenance scheme was unreasonable and thus offended Section 1 of the Sherman Antitrust Act. The decision rested on the assertion that minimum resale price maintenance is indistinguishable in economic effect from naked horizontal price fixing by a cartel. Subsequent decisions characterized Dr Miles as holding that minimum resale price maintenance is unlawful per se (automatically).
Resale price maintenance
Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), at or above a price floor (minimum resale price maintenance) or at or below a price ceiling (maximum resale price maintenance). If a reseller refuses to maintain prices, either openly or covertly (see grey market), the manufacturer may stop doing business with it. Resale price maintenance is illegal in many jurisdictions.
Resale price maintenance prevents resellers from competing too fiercely on price, especially with regard to fungible goods. Otherwise, resellers worry it could drive down profits for themselves as well as for the manufacturer. Some[who?] argue that the manufacturer may do this because it wishes to keep resellers profitable, thus keeping the manufacturer profitable. Others[who?] contend that minimum resale price maintenance, for instance, overcomes a failure in the market for distributional services by ensuring that distributors who invest in promoting the manufacturer's product are able to recoup the additional costs of such promotion in the price that they charge consumers.
Some manufacturers also defend resale price maintenance by saying it ensures fair returns, both for manufacturer and reseller and that governments do not have the right to interfere with freedom to make contracts without a very good reason.
In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, an English contract law case, tyre manufacturer Dunlop had signed an agreement with a dealer to get paid £5 per tyre in liquidated damages if the product was sold below the list price (other than to motor traders). The House of Lords held that Dunlop could not enforce the agreement. However, this had nothing to do with the legality of resale price maintenance clauses, which was not in any question at the time. The decision was based on the doctrine of privity of contract, as retailer Selfridge had bought Dunlop's goods from an intermediary and had no contractual relationship with Dunlop. In the case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, the House of Lords upheld the enforceability of the requirement in the resale price maintenance clause, to pay £5 damages per item sold below list price, on the basis that it was not a penalty clause (which would be unenforceable) but a valid and enforceable liquidated damages clause.
In 1955, the Monopolies and Mergers Commission's report Collective Discrimination: A Report on Exclusive Dealing, Aggregated Rebates and Other Discriminatory Trade Practices recommended that resale price maintenance, when collectively enforced by manufacturers, should be made illegal, but individual manufacturers should be allowed to continue the practice. The report was the basis for the Restrictive Trade Practices Act 1956, specifically prohibiting collective enforcement of resale price maintenance in the UK. Restrictive agreements had to be registered at the Restrictive Practices Court and were considered on individual merit.
The Resale Prices Act 1964 considered all resale price agreements to be against public interest unless proven otherwise. In 2010, the Office of Fair Trading (OFT) opened a formal investigation into allegations by an Online Travel Agent (OTA), Skoosh, of resale price maintenance in the hotel industry. The investigation focussed on agreements between OTAs and hotels which may have resulted in fixed or minimum resale prices. In September 2015, the OFT's successor, the Competition and Markets Authority (CMA), closed its investigation into suspected breaches of competition law in the hotel online booking sector.
In relation to competition, Article 101 and Article 102 of the Treaty on Functioning of the EU (TFEU) are paramount over all member states' national laws relating to competition. Both the Court of Justice of the European Union and the European Commission have held that resale price maintenance is generally prohibited.
In Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), the United States Supreme Court affirmed a lower court's holding that a massive minimum resale price maintenance scheme was unreasonable and thus offended Section 1 of the Sherman Antitrust Act. The decision rested on the assertion that minimum resale price maintenance is indistinguishable in economic effect from naked horizontal price fixing by a cartel. Subsequent decisions characterized Dr Miles as holding that minimum resale price maintenance is unlawful per se (automatically).