Resale price maintenance is illegal, and the ACCC has
never allowed anyone to do it. Until now. It's giving the green
light to power tool brand Festool.
The prohibition on resale price maintenance means that
manufacturers or distributors can't mandate a minimum price
that downstream wholesalers or retailers can charge. All they can
do is 'recommend' a price. That's why you see
recommended retail prices everywhere.
The idea is that manufacturers can't prevent retailers from
discounting their products and competing on price. Manufacturers
want to do this because they perceive an erosion of the brand's
value if the goods are sold at too low a price. But consumers lose
out if the retailers can't compete with one another to offer
the best deal.
The prohibition on resale price maintenance is pretty much the
longest standing rule in Australian competition law. So it is a big
deal that the ACCC proposes to grant the first ever authorisation
The ACCC is set to authorise Festool to impose minimum retail
prices for its products. As with any ACCC authorisation, Festool
had to prove that there were substantial public benefits flowing
from the proposed resale price maintenance. In this case, some
retailers provide pre and post sales services and some don't.
The ones who don't can discount their Festool products and
'free ride' off the retailers who do offer the additional
services. The retailers who do provide the service get a lesser
return. The benefits to consumers of minimum prices are that the
service-providing retailers can compete with the non-service
retailers, preserve their margin, and afford to keep offering the
extra service. Additionally, the power tool market is big and has
lots of competitors. That means consumers can vote with their feet
if they don't like the price for Festool tools.
If you're a manufacturer and you have good reasons for
wanting to set minimum resale prices, it's definitely worth a
look at whether authorisation is an option for you. The Festool
example is a good precedent. And better still, the current
government review of competition policy recommends making it easier
to seek immunity for resale price maintenance. Happy days.
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Two recent cases - by competition authorities in China and in South Africa -.are interventions against excessive pricing.
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