Resale price maintenance in economics is when manufacturers and/or suppliers set the price at which their products may be resold. This is also known as “vertical price fixing”. This type of pricing strategy is employed to achieve uniform prices for a given product.
It is typically used in industries that have fewer competing suppliers, where the supplier doesn’t want to risk competitive pricing that may reduce their profit margins. Resale price maintenance is distinct from other marketing practices, such as manufacturer rebates, promotional discounts, and coupons, because it is the manufacturer or supplier that sets the resale price, not the seller.
One of the main benefits of resale price maintenance is that manufacturers and suppliers are able to control the image and overall value of their product by ensuring that prices remain consistent. It also helps to prevent sellers from offering discounts that may be damaging to the product’s value.
On the other hand, it can be argued that resale price maintenance limits the ability of sellers to compete in the marketplace, leading to higher prices for consumers. In many countries, including the US, resale price maintenance is illegal as it has been deemed to be an anti-competitive practice.
In recent years, many tech companies have been found guilty of using it to reduce competition in the marketplace.
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What is the difference between price fixing and resale price maintenance?
Price fixing is an agreement between two or more companies to fix prices at a certain level. It is a type of anti-competitive conduct that is illegal under competition law in many jurisdictions. Price fixing is a form of collusion which can lead to higher prices and reduced competition.
Resale price maintenance (also known as Fair Trade) is a different concept; it is an agreement between a manufacturer and a distributor on the minimum prices the distributor can charge for the manufacturer’s products.
The purpose of resale price maintenance is to protect a manufacturer’s brand and market position by ensuring its products are sold at an appropriate price level. Resale Price Maintenance does not involve an agreement between competitors to fix prices, and can be legal in many jurisdictions when properly approached.
What are the two types of price-fixing?
Price-fixing is an illegal business practice in which two or more entities agree to eliminate price competition by setting a pricing agreement over a particular product or service. There are two distinct types of price-fixing: horizontal and vertical.
Horizontal price-fixing occurs when two or more competitors, usually businesses in the same industry, agree to set the same price for the same product or service in the same market. This type of agreement eliminates the competitive element between the businesses, stifles innovation, and harms consumers by forcing them to pay the same price regardless of which business they choose.
Vertical price-fixing occurs when competitor businesses agree to fix their pricing within the supply chain. Typically, it is most common amongst manufacturers and distributors, but can involve suppliers, retailers, and wholesalers.
This type of agreement may be against the law if it includes certain restrictions, such as limiting competitors’ ability to access certain suppliers or how products are packaged. Vertical price-fixing can also refer to agreements between businesses in unrelated industries but which share a common downside market, such as suppliers and retailers, where both sides of a retail transaction meet to set prices and other business terms.
What is a price-fixing?
Price-fixing is an agreement between two or more entities to illegally manipulate the price of goods and services. It is a form of anti-competitive behavior used to maintain a monopoly over a market and make higher profits.
This type of agreement typically affects the whole industry or market, resulting in consumers being charged an unfairly inflated price for goods. Price-fixing agreements are illegal in almost all countries and jurisdictions around the world and anyone found guilty of engaging in this behavior can face hefty fines or imprisonment.
What are the three levels of price management?
The three levels of price management are tactical pricing, strategic pricing and pricing analysis. Tactical pricing concerns the individual decisions that are made every day in order to maximize profits on each sale.
These decisions usually involve discounts, special offers, seasonal or promotional prices, and an overall willingness to negotiate. Strategic pricing involves looking at pricing strategies in a broader context, such as the market environment, consumer expectations, product positioning, and competitive strategies.
Finally, pricing analysis involves monitoring prices, profit margins, and sales volume over time to determine whether prices are in line with business objectives. In addition, pricing professionals may use a range of analytical techniques such as conjoint analysis and price elasticity to determine the most appropriate price for a product or service.
Is minimum resale price legal?
The legality of minimum resale price (MRP) depends on how it is implemented. Generally, the imposition of an MRP is a violation of antitrust laws, including Section 1 of the Sherman Antitrust Act. However, if the MRP is proposed in a way to promote competition and is reasonable, it could be legally justified.
For example, if competition between sellers is being hindered due to price discrepancies, setting an MRP could be a reasonable way to promote competition.
At the same time, if the pricing scheme is anticompetitive, like an agreement between competitors to fix prices, it is an illegal restraint of trade and will violate antitrust laws. Whether a program’s MRP is lawful or not depends upon the purpose and its intended effects.
The U. S. Federal Trade Commission and Department of Justice review MRP implementation schemes to determine if they will unfairly affect competition or restrain trade. It is important to note that many states have their own antitrust laws as well.
Before attempting to implement an MRP, it is highly recommended to seek advice from a legal professional, who can help provide guidance on whether the program will comply with the law.
Is exclusive dealing illegal?
Exclusive dealing is not necessarily illegal, but it can become illegal if certain criteria are met. Exclusive dealing is a business practice in which a company enters into an agreement that excludes other companies from participating in business transactions.
Generally, it occurs when a buyer of goods or services (such as a retailer) agrees to purchase only from a supplier or those in a certain group, or when the supplier agrees not to supply to certain customers or those not in the group.
Both the Sherman Act and the Clayton Act of the United States make exclusive dealing illegal if it substantially lessens competition or creates a monopoly. Depending on the country and jurisdiction, exclusive dealing may also be illegal if it is not in the public interest or causes unjustified harms to consumers.
For example, exclusive dealing has been found to be illegal in some jurisdictions if it results in an increase in prices, reduced availability of goods and services, and harm to smaller competitors.
In conclusion, exclusive dealing is not automatically illegal, but it can be deemed illegal if it violates competition laws or harms the public interest.
Why there is no concept of MRP in USA?
The concept of Maximum Retail Price (MRP) is not widely used in the United States. This is largely due to the fact that in the U. S. , there is extremely competitive pricing, and manufacturers usually prefer to leave their prices up to the discretion of retailers and competitive market forces.
This means that the costs of goods and services can, and usually do, vary across different stores and locations.
Additionally, the U. S. does not have an overarching government body to regulate or enforce the setting and enforcement of a universal MRP, unlike countries like India where the Ministry of Consumer Affairs and Public Distribution sets and enforces MRP.
Moreover, due to the high prevalence of retail outlets that are dependent on discounting and sales such as Walmart and Target, it would be difficult for them to adhere to and display an MRP.
Therefore, for the above reasons, there is no widely accepted concept of MRP in the U. S. Market forces and customer demand are the main drivers of setting prices in the U. S. , and manufacturers are usually left to make decisions as to what to charge for their goods.
Why does the US not have MRP?
The United States does not employ a version of MRP (Material Requirements Planning) because it not seen as the most cost-effective or efficient solution for the unique needs of American businesses. MRP was developed in an environment where most manufacturing organizations produced a limited number of parts in large volumes, and did not employ multiple sources of input raw materials or parts.
The US manufacturing industry differs greatly from that, as organizations often produce multiple parts in relatively small volumes, and may at times require inputs from multiple sources. Due to this reality, organizations in the US often employ some form of ERP (Enterprise Resource Planning) to effectively manage their supply chain.
ERP offers greater flexibility and scalability in managing both internal and external sourcing, as well as ensuring efficient and accurate planning of inventory and outputs. ERP’s applicability in the US, coupled with the speed at which the organic environment and markets evolve, lead to organizations in the US being less likely to implement MRP and more likely to implement ERP.