A manufacturer or reseller considering a resale pricing agreement should consult with an antitrust lawyer to determine whether the agreement is likely to be subject to antitrust review. For example, courts (and antitrust authorities) may review these agreements more than usual if (1) multiple manufacturers take over the pricing; (2) where the retailers were at the origin of the vertical pricing; and (3) whether one or more of the parties to the agreement have market power. Reasonable price, territory and customer restrictions for merchants are legal. The requirements imposed by manufacturers can benefit consumers by increasing competition between different brands (inter-brand competition), even if competition between distributors of the same brand is reduced (intra-brand competition). For example, an agreement between a manufacturer and a distributor to set maximum prices (or “caps”) prevents merchants from charging a non-competitive price. Or an agreement to set minimum prices (or “reserve prices”) or limit territories may encourage merchants to offer a level of service that the manufacturer wishes to provide to consumers when purchasing the product. These advantages must be weighed against any restrictions of competition imposed by the restrictions. Resale price maintenance (RPM) or, occasionally, price maintenance in the retail trade is the practice in which a manufacturer and its distributors agree that distributors sell the manufacturer`s product at certain prices (fixed resale price), at a floor price or above a floor price (fixed minimum price) or at a price capped or below (fixing the maximum resale price). If a reseller refuses to maintain prices openly or secretly (see grey market), the manufacturer may stop doing business with him. [1] An exclusivity agreement between a manufacturer and a distributor may be legal or illegal. It is legal if the purpose of the contract is to promote competition between traders. For example, it is legal for Ford Motor Company to sell its cars only to Ford dealers, for General Motors to sell only to GM dealers, and so on.
However, exclusivity contracts can also restrict competition. If a large retailer were to obtain the exclusive rights as the exclusive distributor of televisions, computers and audio equipment from a number of companies, this exclusivity agreement would have anti-competitive effects on other retailers. Q: I am a health care provider and would like to join a new insurance group to provide services to a major employer in my city. My agreement with another insurance group requires me to give them the lowest price for my services. If I add myself to the new group, do I have to lower my prices for the other insurance group? In 1968, the Supreme Court extended the per se rule against minimum fixed prices to the maximum fixing of resale prices, in Albrecht v. Herald Co., 390 U.S. 145 (1968). The Court held that such contracts always restricted the freedom of traders to determine the price as they wished.
The Court also held that the practice “may” channel distribution through a few large efficient distributors, prevent traders from offering essential services and that the “maximum price” could instead become a minimum price. Constraining sales occur when a customer only needs to buy a product if they also buy a second product. Binding sales are controversial because they force consumers to buy a product they may not really want or need. In addition, the additional products required are not necessarily advantageous for the customer. Suppose that to buy a popular DVD, the store also requires you to buy a specific portable TV model. These products are only loosely related to each other, so there is no reason to make the purchase of one dependent on the other. Even if a customer was interested in a portable TV, linking to a particular model prevents the customer from having the opportunity to choose one from the many types available on the market. The maintenance of resale prices prevents resellers from competing too fiercely on prices, especially for fungible products. Otherwise, dealers fear that it will reduce the profits for themselves and for the manufacturer.
Some [Who?] argue that the manufacturer can do this because it wants to keep the resellers profitable, thus keeping the manufacturer profitable. Others [who?] argue that, for example, setting the minimum price for resale overcomes a failure in the market for distribution services by ensuring that distributors who invest in the promotion of the manufacturer`s product are able to cover the additional costs of such promotion in the price they charge consumers. Under U.S. antitrust laws, the monopoly itself is not illegal. For example, if a company has a monopoly due to a newly patented invention, the law explicitly allows a company to make higher profits than normal profits for a period of time as a reward for innovation. .