Resale price maintenance and informative advertisement

This research combines the market power and market competition perspectives on advertising, under the framework of a generalized theoretical model in minimum resale price maintenance (RPM), in order to investigate the effects of advertising on RPM using the real options approach. The effects of advertising on retail price will impact the value of RPM, further, influence the incentive of manufacturers to impose RPM. Through brand penetration and promotional pricing effects, advertising is likely to influence RPM under the condition of retail price competition. When the brand penetration effect is dominant, advertising will discourage manufacturers from imposing RPM. Advertising will encourage manufacturers to impose RPM when the promotional pricing effect is dominant. RPM not only substitutes advertising, but also complements advertising.

Resale Price Maintenance after Leegin: The Curious Case of Contact Lenses

This paper analyzes the optimal strategies of a manufacturer and a retailer with a new product’s minimum resale price maintenance. The manufacturer sells a new product to the consumers through the retailer , and institutes a minimum resale price. At first , this paper establishes the models. Then , it analyzes and compares the optimal strategies of the manufacturer and the retailer with and without the minimum resale price. Especially , the impact of the minimum resale price maintenance on the manufacturer is discussed.

When the U.S. Supreme Court overturned its century-old precedent that treated resale price maintenance (RPM) as a per se violation of the antitrust laws, it signaled approval for the vertical restraint’s widespread use. But the increased use of RPM occurred under a pre-existing rule that permitted RPM as long as no formal agreement over price was reached. This paper documents not only the increased use of RPM post Leegin but also the importance of avoiding the appearance of agreements to control resale prices. The paper then discusses how plaintiffs, previously enamored of claims of RPM, are now recasting vertical RPM arrangements as ancillary to horizontal agreements among distributors that are made effective though enforcement by producers.

This paper begins with an analysis of Leegin followed by an examination of the free rider theory, which concludes that the free rider explanation for vertical restraints has been greatly overused; the expansive variants of the theory, in particular, are flawed on their own terms. It argues for a more positive or neutral perspective of free riding as positive externalities. So viewed, free riding should not be considered a problem that must be countered (with RPM) whenever it exists. Under this view, free riding is probably infrequently harmful and therefore minimum RPM seldom provides the competitive benefits proponents of RPM claim for it. The paper briefly discusses the potential anticompetitive effects of minimum RPM. It then considers the policy implications of Leegin and argues for a quick-look rule of reason standard for minimum resale price maintenance in the wake of Leegin.

About Our Authors

When retailers must commit to shipment quantities prior to resolution of demand uncertainty, manufacturer stipulation of a minimum retail price is likely to be profitable for the manufacturer and not damaging to the retailers. The reason is simple: if demand turns out to be low, the unfettered market‐clearing price can lie below the price that maximizes total sales revenue. A minimum retail price that is binding in the low‐demand state can thus increase total revenue even though it saddles retailers with unsold merchandise. The ubiquity of full reimbursement for returns in Japan, even though it is in theory merely a second‐best way of achieving minimum retail price stipulations, reveals important aspects of manufacturer maintenance of retail prices having to do with enforcement problems, the allocation of risk‐bearing, and economic incentives. These aspects of resale price maintenance (RPM) are relevant to the normative evaluation of the special exemptions for RPM that Japan's Fair Trade Commission has long maintained but is now phasing out.

We explain why a manufacturer may impose a minimum resale price in a successive monopoly setting. Our argument relies on the retailer having noncontractible choice variables such as the price of a substitute good and/or the retailer's service effort. Our explanation for minimum resale prices is empirically distinguishable from alternative justifications that rely, for instance, on retailer competition and service free riding among retailers. Whether a min RPM benefits or harms consumers depends on its effects: if it softens competition with the substitute product, it tends to harm consumers, and if it secures service provision, it tends to benefit consumers.

Resale price maintenance represents a special type of vertical restraint in a vertical agreement, in which an upstream undertaking defines, controls or restricts the price at which a downstream undertaking can resell its product. According to the Commission Regulation (EU) 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices the exemption shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object the restriction of the buyer's ability to determine its sale price, without prejudice to the possibility of the supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties. Minimum or fixed resale price maintenance represents a hardcore restriction and as such removes the benefit of the block exemption provided for in Art. 2 of the Regulation 2022/720. The paper deals with the legal regulation of restrictive vertical agreements in which a fixed or minimum resale price is determined in the competition law of the European Union, as well as the methods for such resale price maintenance. The problem will be considered through the analysis of relevant sources of law, practice of the European Commission and the Court of Justice of the European Union and doctrinal views.

Comparing vertical restraints

Resale price maintenance (RPM) has been applied to a number of products that do not seem to require tangible presale dealer services. This article explains why RPM might exist in these instances. We show that RPM will be adopted when a manufacturer wishes to purchase quality or style certification from reputable dealers. We demonstrate that manufacturers will desire to adopt RPM even when they are permitted to shape the set of stores handling their products through refusals to deal. Although we do not claim that this is the only explanation of RPM, we nevertheless believe that our explanation has wide applicability.

This paper examines the development of Conservative party policy during the 1950s and early 1960s towards resale price maintenance (rpm), the procedure by which companies stipulated the minimum price at which their products could be sold, which ended with the abolition of the practice. It attempts to place this policy evolution within the context of the party leadership’s gradual adoption, from 1959, of industrial modernization and economic growth as the technocratic solutions to Britain’s perceived relative decline. Modernization generally and rpm in particular caused a remarkable split in the Tory party, both in Parliament and in the country. Price maintenance was considered, by those Conservatives who favoured modernization, to be a significant impediment to the development of an efficient and competitive distributive industry. Unfortunately, the most tenacious defenders of the practice were small retailers, a group assumed by most politicians to be a solid Tory-voting constituency. Tory MPs were very sensitive to any measure that might disproportionately damage the interests of shopkeepers. In 1964, the government’s attempt to rescind rpm led, unsurprisingly, to the largest revolt on a major issue by Tory back-benchers since 1940 and to considerable antagonism towards the administration on the part of its grassroots support. The dispute between modernizers and traditionalists in the party was fierce and its outcome in part determined the strategy pursued at the 1964 general election and the future direction of Conservative policy.

Predatory pricing is a pricing strategy in which a company lowers the price of its products to a level that may be detrimental to the company itself, with the aim of driving competitors out of the market. Fixed pricing reflects a company's commitment to keep the price of its products at a fixed level or within a certain range for a specified period of time. As competition and demand change, fixed pricing provides stability and consistency in product prices. This study aims (1) to find out the practice of predatory pricing in KPPU Decision Number 03/KPPU-L/2020, and to analyze the concept of approach used by the Business Competition Supervisory Commission Panel in its consideration of deciding fixed pricing cases in KPPU Decision Number 03/KPPU-I/2003. The method used in this research is qualitative. The data sources used in this research are as follows: a) Primary Legal Texts: Legal texts that are authoritative in nature. Judges' decisions, legislative requirements, and official court documents or minutes are some examples of fundamental materials. Based on the data collection and analysis process, this study can be concluded as follows: the importance of understanding competition practices and the use of appropriate approaches in case analysis is emphasized. Predatory pricing practices can damage competition if not recognized and prevented. Similarly, understanding the notion of approaches such as "per se illegal" and "rule of reason" in case analysis can influence the way the Competition Supervisory Commission makes decisions. This is important to maintain fair and healthy competition in the market.

We provide a novel theory of harm for resale price maintenance (RPM). In a model with two manufacturers and two retailers, we show that RPM facilitates manufacturer collusion when retailers have alternatives to selling a manufacturer's product. Because of the alternatives, manufacturers can only ensure that retailers sell their products by leaving sufficient retail margins. This restricts the wholesale price level even when the manufacturers collude. RPM allows colluding manufacturers to establish higher prices.

The Court provided Leegin factors to judge whether resale price maintenance (RPM) is pro- or anticompetitive. A welcome factor recognizes that incumbent dealers have adopted RPM when threatened by more efficient, price-cutting retailers. I show why manufacturers need promotional allowance programs to obtain desired retailer services whether prices for their brands are deeply cut or maintained. An erroneous factor asserts that interbrand competition leads to lower prices, presumably by disciplining margins at both stages. Extensive historical evidence establishes that vigorous interbrand competition produces towering retail margins, often elevating retail prices. It is intrabrand competition on leading brands that depresses retail margins while elevating those of manufacturers. After analyzing Nine West and Leegin, the article proposes a structured rule of reason procedure that importantly applies to RPM and distribution restraints alike. It commences with a market power screen and then identifies tests by which manufacturers with market power might successfully meet their burden.