Definition
The term resale price maintenance refers to manufacturers engaged in a practice that establishes a minimum and / or a maximum price at which a distributor can sell their product. At one time, resale price maintenance was deemed a violation of the Sherman Antitrust Act.
Explanation
Also known as RPM, retail price maintenance involves an agreement between a manufacturer and its distributors to sell the manufacturer's product at, above, or below certain threshold prices. Generally, there are two forms of retail price maintenance:
Minimum RPM: an agreement between the manufacturer and distributor to sell a product at, or above, a floor price.
Maximum RPM: an agreement between the manufacturer and distributor to sell a product at, or below, a ceiling price.
The legality of minimum advertised prices has been debated for decades, and was frequently cited as a violation of the Sherman Antitrust Act as well as fair trade laws. Advocates of the approach believe resale price maintenance allows both distributors and manufacturers to earn a fair profit and allows retailers to provide an appropriate level of service to consumers. Opponents believe the practice constitutes collusion between the manufacturer and retailer and limits downstream competition.
In 2007, the U.S. Supreme Court ruled vertical price limitations such as Minimum Advertised Pricing are not unlawful but must be judged under the "rule of reason." Courts are now required to balance the potential benefits of resale price maintenance against the anti-competitive harm it may cause consumers as well as the industry.
